# Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A04-10932 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** May 18, 2004 - **Citation:** 69 FR 28196 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 403, 412, 413, 418, 460, 480, 482, 483, 485, and 489 [CMS-1428-P] RIN 0938-AM80 Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS. ACTION: Proposed rule. SUMMARY: We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems; and to implement a number of changes made by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173), enacted on December 8, 2003. In addition, in the Addendum to this proposed rule, we describe the proposed changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2004. We also are setting forth proposed rate-of-increase limits as well as proposed policy changes for hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. Among the policy changes that we are proposing to make are: Changes to the classification of cases to the diagnosis-related groups (DRGs); changes to the long-term care (LTC)-DRGs and relative weights; changes in the wage data, labor-related share of the wage index, and the geographic area designations used to compute the wage index; changes in the qualifying threshold criteria for and the proposed approval of new technologies and medical services for add-on payments; changes to the policies governing postacute care transfers; changes to payments to hospitals for the direct and indirect costs of graduate medical education; changes to the payment adjustment for disproportionate share rural hospitals; changes in requirements and payments to critical access hospitals (CAHs); changes to the disclosure of information requirements for Quality Improvement Organization (QIOs); and changes in the hospital conditions of participation for discharge planning and fire safety requirements for certain health care facilities. DATES: Comments will be considered if received at the appropriate address, as provided below, no later than 5 p.m. on July 12, 2004. ADDRESSES: Submitting Comments: We welcome comments from the public on all issues set forth in this proposed rule to assist in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1428-P and the specific “issue identifier” that precedes the section on which you choose to comment. Submit electronic comments to: http://www.accessdata.fda.gov/scripts/oc/dockets/commentdocket.cfm?AGENCY=CMS or www.regulations.gov. Mail written comments (an original and three copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1428-P, P.O. Box 8010, Baltimore, MD 21244-1850. If you prefer, you may deliver, by hand or courier, your written comments (an original and three copies) to one of the following addresses: Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or Room C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD 21244-1850. (Because access to the interior of the Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for commenters who wish to retain proof of filing by stamping in and keeping an extra copy of the comments being filed.) Comments mailed to those addresses specified as appropriate for courier delivery may be delayed and could be considered late. Because of staffing and resource limitations, we cannot accept comments by facsimile (FAX) transmission. Inspection of Public Comments: All comments received before the close of the comment period will be available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. After the close of the comment period, CMS will post all electronic comments received before the close of the period on its public Web sites. Written comments received timely will be available for public inspection as they are received, generally beginning approximately 4 weeks after publication of a document, in room C5-12-08 of the Centers for Medicare & Medicaid Services, 7500 Security Blvd., Baltimore, MD, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. Please call (410) 786-7197 to schedule an appointment to view public comments. For comments that relate to information collection requirements, mail a copy of comments to the following addresses: Centers for Medicare & Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Security and Standards Group, Office of Regulations Development and Issuances, Room C4-24-02, 7500 Security Boulevard, Baltimore, Maryland 21244-1850. Attn: Dawn Willinghan, CMS-1428-P; and Office of Information and Regulatory Affairs, Office of Management and Budget, Room 3001, New Executive Office Building, Washington, DC 20503, Attn: Brenda Aguilar, CMS Desk Officer. FOR FURTHER INFORMATION CONTACT: Jim Hart, (410) 786-9520, Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and Technology, Standardized Amounts, Hospital Geographic Reclassifications, Postacute Care Transfers, and Disproportionate Share Hospital Issues. Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Critical Access Hospitals, and Long-Term Care (LTC)—DRGs Issues. Mary Collins, (410) 786-3189, CAH Bed Limits and Distinct Part Unit Issues. John Eppinger, (410) 786-4518, CAH Periodic Interim Payment Issues. Maria Hammel, (410) 786-1775, Quality Improvement Organization Issues. Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Project Issues. Jeannie Miller, (410) 786-3164, Bloodborne Pathogens Standards, Hospital Conditions of Participation for Discharge Planning, and Fire Safety Requirements Issues. Dr. Mark Krushat, (410) 786-6809, and Dr. Anita Bhatia, (410) 786-7236 Quality Data for Annual Payment Update Issues. SUPPLEMENTARY INFORMATION: Availability of Copies and Electronic Access Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $10.00. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register . This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is http://www.access.gpo.gov/nara&_docs/ , by using local WAIS client software, or by telnet to swais.access.gpo.gov , then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required). Acronyms ACGME—Accreditation Council on Graduate Medical Education AHIMA—American Health Information Management Association AHA—American Hospital Association AOA—American Osteopathic Association ASC—Ambulatory Surgical Center BBA—Balanced Budget Act of 1997, Public Law 105-33 BIPA—Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106-554 BLS—Bureau of Labor Statistics CAH—Critical access hospital CART—CMS Abstraction & Reporting Tool CBSAs—Core-Based Statistical Areas CC—Complication or comorbidity CMS—Centers for Medicare & Medicaid Services CMSA—Consolidated Metropolitan Statistical Area COBRA—Consolidated Omnibus Reconciliation Act of 1985, Public Law 99-272 CoP—Condition of Participation CPI—Consumer Price Index CRNA—Certified registered nurse anesthetist DRG—Diagnosis-related group DSH—Disproportionate share hospital ESRD—End-stage renal disease FDA—Food and Drug Administration FQHC—Federally qualified health center FSES—Fire Safety Evaluation System FTE—Full-time equivalent FY—Federal fiscal year GME—Graduate medical education HCRIS—Hospital Cost Report Information System HIPC—Health Information Policy Council HIPAA—Health Insurance Portability and Accountability Act of 1996, Public Law 104-191 HHA—Home health agency HPSA—Health Professions Shortage Area ICD-9-CM—International Classification of Diseases, Ninth Revision, Clinical Modification ICD-10-PCS—International Classification of Diseases, Tenth Edition, Procedure Coding System ICF/MRs—Intermediate care facilities for the mentally retarded IME—Indirect medical education IPPS—Acute care hospital inpatient prospective payment system IPF—Inpatient psychiatric facility IRF—Inpatient rehabilitation facility JCAHO—Joint Commission on the Accreditation of Healthcare Organizations LAMA—Left Against Medical Advice LTC-DRG—Long-term care diagnosis-related group LTCH—Long-term care hospital LSC—Life Safety Code MCE—Medicare Code Editor MCO—Managed care organization 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 MMA—Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173 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 NFPA—National Fire Protection Association NPR—Notice of Program Reimbursement NQF—National Quality Forum NVHRI—National Voluntary Hospital Reporting Initiative OES—Occupational Employment Statistics OIG—Office of the Inspector General OMB—Executive Office of Management and Budget O.R.—Operating room OSCAR—Online Survey Certification and Reporting (System) OSHA—Occupational Safety and Health Act PACE—Programs of All-Inclusive Care for the Elderly PIP—Periodic interim payment PMS—Performance Measurement System PMSAs—Primary Metropolitan Statistical Areas PPS—Prospective payment system PRA—Per resident amount ProPAC—Prospective Payment Assessment Commission PRRB—Provider Reimbursement Review Board PS&R—Provider Statistical and Reimbursement System QIO—Utilization and Quality Control Quality Improvement Organization RHC—Rural health clinic RHQDAPU—Reporting Hospital Quality Data for Annual Payment Update RRC—Rural referral center SCH—Sole community hospital SNF—Skilled nursing facility SOCs—Standard occupational classifications SOM—State Operations Manual SSA—Social Security Administration SSI—Supplemental Security Income TEFRA—Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248 UHDDS—Uniform Hospital Discharge Data Set Table of Contents I. Background A. Summary 1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) 2. Hospitals and Hospital Units Excluded from the IPPS a. IRFs b. LTCH c. IPFs 3. Critical Access Hospitals (CAHs) 4. Payments for Graduate Medical Education (GME) B. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 C. Major Contents of this Proposed Rule 1. Proposed Changes to the DRG Reclassifications and Recalibrations of Relative Weights 2. Proposed Changes to the Hospital Wage Index 3. Other Decisions and Proposed Changes to the PPS for Inpatient Operating and GME Costs 4. Proposed Changes to the PPS for Capital-Related Costs 5. Proposed Changes for Hospitals and Hospital Units Excluded from the IPPS 6. Proposed Changes to QIO Disclosure of Information Requirements 7. Proposed Changes Relating to Medicare Provider Agreements: Bloodborne Pathogens Standards, Hospital Conditions of Participation for Discharge Planning, and Fire Safety Requirements for Certain Health Care Facilities 8. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits 9. Impact Analysis 10. Recommendation of Update Factor for Hospital Inpatient Operating Costs 11. Discussion of Medicare Payment Advisory Commission Recommendations II. Proposed Changes to DRG Classifications and Relative Weights A. Background B. DRG Reclassification 1. General 2. MDC 1 (Diseases and Disorders of the Nervous System): Intracranial Hemorrhage and Stroke with Infarction 3. MDC 5 (Diseases and Disorders of the Circulatory System) a. Heart Assist System Transplant b. Cardiac Resynchronization Therapy and Heart Failure c. Combination Cardiac Pacemaker Devices and Lead Codes 4. MDC 6 (Diseases and Disorders of the Digestive System): Artificial Anal Sphincter 5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) a. 360 Spinal Fusion b. Multiple Level Spinal Fusion 6. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period) 7. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders): Drug-Induced Dementia 8. MDC 22 (Burns): Burn Patients on Mechanical Ventilation 9. Pre-MDC: Tracheostomy 10. Medicare Code Editor (MCE) Changes 11. Surgical Hierarchies 12. Refinement of Complications and Comorbidities (CC) List 13. 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 or Procedure Codes to MDCs 14. Pancreatic Islet Cell Transplantation in Clinical Trials 15. Changes to the ICD-9-CM Coding System 16. Other Issues a. Craniotomy Procedures (1) Unruptured Cerebral Aneurysms (2) GLIADEL® Chemotherapy Wafers (3) DRG 3 (Craniotomy Age 0-17) b. Coronary Stent Procedures c. Severe Sepsis d. Implantable Cardiac Defibrillators C. Recalibration of DRG Weights D. Proposed LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2005 1. Background 2. Proposed Changes in the LTC-DRG Classifications a. Background b. Patient Classifications into DRGs 3. Development of the Proposed FY 2005 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 Proposed FY 2005 LTC-DRG Relative Weights E. Proposed Add-On Payments for New Services and Technologies 1. Background 2. Other Provisions of Section 503 of Public Law 108-173 3. FY 2005 Status of Technology Approved for FY 2004 Add-On Payments a. Drotrecogin Alfa (Activated)—Xigris® b. InFUSE TM (Bone Morphogenetic Proteins (BMPs) for Spinal Fusions) 4. Reevaluation of FY 2004 Applications That Were Not Approved 5. FY 2005 Applicants for New Technology Add-On Payments a. InFUSE TM Bone Graft (Bone Morphogenetic Proteins (BMPs) for Tibia Fractures) b. Norian Skeletal Repair System(SRS)® Bone Void Filler c. InSync® Defibrillator System (Cardiac Resynchronization Therapy with Defibrillation (CRT-D)) d. GliaSite® Radiation Therapy System (RTS) e. Natrecor®—Human B-Type Natriuretic Peptide (hBNP) f. Kinetra® Implantable Neurostimulator for Deep Brain Stimulation g. Intramedullary Skeletal Kinetic Distractor (ISKD) h. Acticon TM Neosphincter i. TandemHeart TM Percutaneous Left Ventricular Assist System j. Aquadex TM System 100 Fluid Removal System (System 100) III. Proposed Changes to the Hospital Wage Index A. Background B. Revised OMB Definitions for Geographical Statistical Areas 1. Current Labor Market Areas Based on MSAs 2. Core-Based Statistical Areas 3. Revised Labor Market Areas a. New England MSAs b. Metropolitan Divisions c. Micropolitan Areas d. Transition Period C. Proposed Occupational Mix Adjustment to Proposed FY 2005 Index 1. Development of Data for the Occupational Mix Adjustment 2. Proposed Calculation of the Occupational Mix Adjustment Factor and the Proposed Occupational Mix Adjusted Wage Index D. Worksheet S-3 Wage Data for the Proposed FY 2005 Wage Index Update E. Verification of Worksheet S-3 Wage Data F. Computation of the Unadjusted Wage Index G. Computation of the Proposed FY 2005 Blended Wage Index H. Proposed Revisions to the Wage Index Based on Hospital Redesignation 1. General 2. Effects of Reclassification 3. FY 2005 Issues a. FY 2005 MGCRB Reclassifications b. Implementation of New MSAs c. Redesignations under Section 1886(d)(8)(B) of the Act d. Reclassifications Under Section 508 of Public Law 108-173 e. Proposed Wage Index Adjustment Based on Commuting Patterns of Hospital Employees (1) Data (2) Qualifying Counties (3) The Adjustment (4) Automatic Adjustments 4. Proposed FY 2005 Reclassifications I. Process for Requests for Wage Index Data Corrections 1. Worksheet S-3 Wage Data 2. Occupational Mix Data 3. All FY 2005 Wage Index Data J. Proposed Revision of the Labor-Related Share of the Wage Index IV. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs A. Postacute Care Transfer Payment Policy 1. Background 2. Proposed Changes to DRGs Subject to the Postacute Care Transfer Policy B. Payments for Inpatient Care in Providers That Change Classification Status During a Patient Stay C. Geographic Reclassifications—Definitions of Urban and Rural Areas D. Equalization of Urban and Rural Standardized Amounts E. Reporting of Hospital Quality Data for Annual Hospital Payment Update 1. Background 2. Requirements for Hospital Reporting of Quality Data 3. Submission of Hospital Data for FYs 2006 and 2007 4. Proposed Regulation Change F. Proposed Revision of the Labor-Related Share of the Hospital Wage Index G. Wage Index Adjustment for Commuting Patterns of Hospital Employees H. Additional Payments for New Medical Services and Technology: Proposed Policy Changes I. Rural Referral Centers 1. Case-Mix Index 2. Discharges J. Additional Payments to Hospitals with High Percentage of End-Stage Renal Disease (ESRD) Discharges K. Indirect Medical Education (IME) Adjustment 1. IME Adjustment Factor Formula Multipliers 2. IME Adjustment Formula Multiplier for Redistributed FTE Resident Slots 3. Technical Changes L. Payment to Disproportionate Share Hospitals 1. Enhanced DSH Adjustment for Rural Hospitals and Urban Hospitals with Fewer Than 100 Beds 2. Proposals Relating to Available Beds and Patient Days for the DSH Adjustment M. Payment Adjustments for Low-Volume Hospitals N. Medicare Geographic Classification Review Board (MGCRB) Reclassifications 1. Background 2. Standardized Amount Reclassification Provisions 3. Reclassification of Urban Rural Referral Centers 4. Special Circumstances of Sole Community Hospitals (SCHs) in Low Population Density States 5. Possible Reclassifications for Dominant Hospitals and Hospitals in Single-Hospital MSAs 6. Special Circumstances of Hospitals in All-Urban States O. Payment for Direct Graduate Medical Education 1. Background 2. Reductions of and Increases in Hospitals' FTE Resident Caps for GME Payment Purposes under Section 422 of Public Law 108-173 a. General Background on Methodology for Determining the FTE Resident Count b. Reduction of Hospitals' FTE Resident Caps under the Provisions of Section 422 of Public Law 108-173 c. Hospitals Subject to the FTE Resident Cap Reduction d. Exemption from FTE Resident Cap Reduction for Certain Rural Hospitals e. Determining the Estimated Number of FTE Resident Slots Available for Redistribution f. Determining the Possible Reduction to a Hospital's FTE Resident Cap (1) Reference Resident Level—General (2) Expansion of an Existing Program (3) Audits of the Reference Cost Reporting Periods (4) Expansions Under Newly Approved Programs (5) Affiliations g. Criteria for Determining Hospitals That Will Receive Increases in Their FTE Resident Caps h. Application Process for the Increases in Hospitals' FTE Resident Caps i. CMS Evaluation of Applications for Increases in FTE Resident Caps j. Application of Locality-Adjusted National Average Per Resident Amount (PRA) k. Application of Section 422 to Hospitals That Participate in Demonstration Projects or Voluntary Reduction Programs l. Application of Section 422 to Hospitals That File Low Utilization Medicare Cost Reports m. Specific Solicitation for Public Comment on the Proposals n. CMS Evaluation Form o. CMS Central and CMS Regional Office Mailing Addresses for Applications for Increases in FTE Resident Caps 3. Direct GME Initial Residency Period a. Background b. Direct GME Initial Residency Period Limitation: Simultaneous Match Issue c. Exception to Initial Residency Period for Geriatric Residency or Fellowship Programs 4. Per Resident Amount: Extension of Update Limitation on High-Cost Programs 5. Residents Training in Nonhospital Settings a. Background b. Moratorium on Disallowances of Allopathic or Osteopathic Family Practice Residents Training Time in Nonhospital Settings (1) Cost Reports That Are Settled Between January 1, 2004 and December 31, 2004 (2) Family Practice Residents That Are Training in Nonhospital Settings Between January 1, 2004 and December 31, 2004 c. Requirements for Written Agreements for Residency Training in Nonhospital Settings P. Rural Community Hospital Demonstration Program Q. Special Circumstances of Hospitals Facing High Malpractice Insurance Rate Increases V. Proposed Changes to the PPS for Capital-Related Costs A. Background B. Payments to Hospitals Located in Puerto Rico C. Exception Payment for Extraordinary Circumstances A. Treatment of Hospitals Previously Reclassified for the Operating PPS E. Definition of Large Urban Area Standardized Amounts VI. Proposed 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 3. Implementation of a PPS for IRFs 4. Implementation of a PPS for LTCHs 5. Development of a PPS for IPFs 6. Technical Changes Related to Establishment of Payments for Excluded Hospitals B. Criteria for Classification of Hospitals-Within-Hospitals C. Critical Access Hospitals (CAHs) 1. Background 2. Payment Amounts for Inpatient CAH Services 3. Condition for Application of Special Professional Service Payment Adjustment 4. Coverage of Costs for Certain Emergency Room On-Call Providers 5. Authorization of Periodic Interim Payments for CAHs 6. Revision of the Bed Limit for CAHs 7. Authority to Establish Psychiatric and Rehabilitation Distinct Part Units of CAHs 8. Waiver Authority for Designation of a CAH as a Necessary Provider 9. Payment for Clinical Diagnostic Laboratory Tests 10. Proposed Technical Changes in Part 489 VII. Proposed Changes to the Disclosure of Information Requirements for Quality Improvement Organizations (QIOs) A. Background B. Provisions of the Proposed Regulations C. Technical Changes VIII. Proposed Policy Changes Relating to Medicare Provider Agreements for Compliance with Bloodborne Pathogens Standards, Hospital Conditions of Participation for Discharge Planning, and Fire Safety Requirements for Certain Health Care Facilities A. Conditions of Participation for Discharge Planning 1. Background 2. Implementation B. Compliance with Bloodborne Pathogens Standards C. Fire Safety Requirements for Certain Health Care Facilities 1. Background 2. Proposed Changes to the Regulations IX. MedPAC Recommendations X. Other Required Information A. Requests for Data from the Public 1. CMS Wage Data 2. CMS Hospital Wage Indices (Formerly: Urban and Rural Wage Index Values Only) 3. PPS SSA/FIPS MSA State and County Crosswalk 4. Reclassified Hospitals New Wage Index (Formerly: Reclassified Hospitals by Provider Only) 5. PPS-IV to PPS-XII Minimum Data Set 6. PPS-IX to PPS-XII Capital Data Set 7. PPS-XIII to PPS-XIX Hospital Data Set 8. Provider-Specific File 9. CMS Medicare Case-Mix Index File 10. DRG Relative Weights (Formerly Table 5 DRG) 11. PPS Payment Impact File 12. AOR/BOR Tables 13. Prospective Payment System (PPS) Standardizing File B. Collection of Information Requirements C. Public Comments Regulation Text Addendum —Proposed Schedule of Standardized Amounts Effective with Discharges Occurring On or After October 1, 2004 and Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2004 Tables Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (71.1 Percent Labor Share/28.9 Percent Nonlabor Share If Wage Index Is Greater Than 1) Table 1B—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1) Table 1C—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor Table 1D—Capital Standard Federal Payment Rate Table 2—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2003; Hospital Average Hourly Wage for Federal Fiscal Years 2003 (1999 Wage Data), 2004 (2000 Wage Data), and 2005 (2001 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 4J—Wage Index Adjustment for Commuting Hospital Employees (Out-Migration) In Qualifying Counties—FY 2005 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 2003 MedPAR Update December 2003 GROUPER V21.0 Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2003 MedPAR Update December 2003 GROUPER V22.0 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 9A—Hospital Reclassifications and Redesignations by Individual Hospital—FY 2004 Table 9B—Hospital Reclassifications and Redesignation by Individual Hospital Under Section 508 of Public Law 108-173—FY 2004 Table 10—Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased to Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Diagnosis-Related Groups (DRGs)—March 2004 Table 11—Proposed FY 2005 LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and 5/6ths of the Geometric Average Length of Stay 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 or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments. Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid 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 (referred to as inpatient psychiatric facilities (IPFs)), 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. IRFs Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and 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; 67 FR 49982, August 1, 2002; and 68 FR 45674, August 1, 2003). 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. IPFs 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 IPFs 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 maintains budget neutrality. We published a proposed rule to implement the PPS for IPFs on November 28, 2003 (68 FR 66920). The November 28, 2003 proposed rule proposed an April 1, 2004 effective date for purposes of ratesetting and calculating impacts. However, the proposed rule was unusually complex because it proposed a completely new payment system for inpatient hospital services furnished by psychiatric hospitals and units and the public requested additional time to comment. As a result, we extended the comment period for the proposed rule. Thus, we are still in the process of analyzing public comments and developing a final rule for publication. Consequently, an April 1, 2004 effective date for the IPF PPS is no longer possible. 3. Critical Access Hospitals (CAHs) Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services 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 (GME) Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act; the amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413. On August 1, 2003, we published a final rule in the Federal Register (68 FR 45346) that implemented changes to the Medicare hospital inpatient prospective payment systems for both operating cost and capital-related costs, as well as changes addressing payments for excluded hospitals and payments for GME costs. Generally these changes were effective for discharges occurring on or after October 1, 2003. On October 6, 2003, we published a document in the Federal Register (68 FR 57731) that corrected technical errors made in the August 1, 2003 final rule. B. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108-173, was enacted. Public Law 108-173 made a number of changes to the Act relating to prospective payments to hospitals for inpatient services, payments to excluded hospitals and units, and payments to CAHs. This proposed rule would implement amendments made by the following sections of Public Law 108-173: Section 401, which provides that, for discharges occurring in a fiscal year beginning with FY 2004 under the IPPS, Medicare will pay hospitals in rural and small urban areas in the 50 States using the standardized amount (computed for the previous fiscal year) that would be used to pay hospitals in large urban areas (or beginning with FY 2005, for all hospitals in the previous fiscal year), increased by the appropriate market basket percentage increase. One standardized amount for hospitals in Puerto Rico would be established that would equal the amount for hospitals in large urban areas in Puerto Rico. Section 402, which provides that for discharges occurring on or after April 1, 2004, the DSH payment adjustment for a hospital that is not a large urban or large rural hospital will be calculated using the current DSH adjustment formula for large urban hospitals, subject to a limit of 12 percent for any of these hospitals that are not rural referral centers. (There is no limit on the DSH payment percentage for rural referral centers.) Section 403, which provides that, for discharges occurring on or after October 1, 2004, a hospital's labor-related share to which the wage index is applied will be decreased to 62 percent of the standardized amount when such a change will result in higher total payments to the hospital. This provision also applies to the labor-related share of the standardized amount for hospitals in Puerto Rico. Section 405(a), which provides that inpatient, outpatient, and covered SNF services provided by a CAH will be reimbursed at 101 percent of reasonable costs for services furnished to Medicare beneficiaries. This provision is applicable to payments for services furnished during cost reporting periods beginning on or after January 1, 2004. Section 405(b), which expands coverage of the costs associated with covered Medicare services furnished by on-call emergency room providers in CAHs to include services furnished by physician assistants, nurse practitioners, and clinical nurse specialists, effective for costs incurred for services furnished on or after January 1, 2005. Section 405(c), which provides that eligible CAHs may receive payments for their inpatient services on a periodic interim payment (PIP) basis, effective with payments made on or after July 1, 2004. Section 405(d), which allows CAHs to elect to receive payments under the optional payment method (a payment encompassing both inpatient CAH services and physician and practitioner services to outpatients) even if some practitioners do not reassign to the CAH their rights to bill for professional services to CAH outpatients. This provision applies to cost reporting periods occurring on or after July 1, 2004, except that in the case of a CAH that made an election of the optional payment method before November 1, 2003, the provision applies to cost reporting periods beginning on or after July 1, 2001. Section 405(e), which increases the limit on the number of beds that a CAH may have for acute care from 15 to 25 beds. This provision applies to CAH designations made before, on, or after January 1, 2004. Any election made in accordance to the regulations promulgated to implement this provision will only apply prospectively. Section 405(g), which provides that a CAH may establish psychiatric and rehabilitation distinct part units and limits the number of beds in each unit to no more than 10. Services in these distinct part units will be paid under the reasonable cost-based methodology. This provision applies to cost reporting periods beginning on or after October 1, 2004. Section 405(h), which terminates a State's authority to waive the location requirement for a CAH by designating the CAH as the necessary provider, effective January 1, 2006. A grandfathering provision is included for CAHs that are certified as necessary providers prior to January 1, 2006, which allows any CAH that is designated as a necessary provider in its State's rural health plan prior to January 1, 2006, to maintain its necessary provider designation. Section 406, which provides for a graduated adjustment to the inpatient prospective payment rates to account for the higher costs associated with hospitals described under section 1886(d) of the Act that are located more than 25 road miles from another subsection (d) hospital and that have less than 800 discharges during a fiscal year, effective for discharges occurring on or after October 1, 2004. The increase in these payments may not be greater than 25 percent and the determination of the percentage payment increase is not subject to administrative or judicial review. Section 410A, which authorizes the Secretary to establish a demonstration program to test the feasibility and advisability of the establishment of rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The Secretary must select up to 15 rural community hospitals to participate in the demonstration. The Secretary must implement the demonstration program not later than January 1, 2005, but may not implement the program before October 1, 2004. Section 422(a), which provides that a hospital's GME FTE resident cap will be reduced, and the reduction will be redistributed among other hospitals if the hospital's resident count is less than its resident cap (rural hospitals with less than 250 acute care inpatient beds will be exempt) in a particular reference period. This provision is effective for cost reporting periods occurring on or after July 1, 2005. Section 422(b), which specifies that the formula multiplier for the IME adjustment is 0.66 for FTE residents attributable to redistributed resident positions, effective for discharges occurring on or after July 1, 2005. Section 501, which provides the update factor for payments for the hospital inpatient operating costs for FY 2005 and subsequent fiscal years is the market basket percentage increase. For FYs 2005 through 2007, the update factor will be the market basket percentage increase minus 0.4 percentage points for any “subsection (d) hospital” that does not submit hospital quality data on 10 measures as specified by the Secretary. Section 502, which modifies the IME formula multiplier to be used in the calculation of the IME adjustment for midway through FY 2004 and provides a new schedule of formula multipliers for FYs 2005 and thereafter. Section 503(a), which includes a requirement for updating the ICD-9-CM diagnosis and procedure codes in April 1 of each year, in addition to the current process of annual updates on October 1 of each year. This change will not affect Medicare payments or DRG classifications until the fiscal year that begins after that date. Section 503(b), which provides for changes to the threshold amount for determining eligibility of new technologies or medical services for add-on payments; provides for public input on applications for new technology or medical service add-on payments prior to the publication of a proposed rule; provides for reconsideration of applications received for FY 2004 that were denied; provides for preference in the use of DRG adjustments; and provides that new technology or medical service payments shall not be budget neutral. This provision is effective for fiscal years beginning in FY 2005. Section 504, which increases the national portion of the operating PPS payment rate for hospitals in Puerto Rico from 50 percent of the Federal rate to 75 percent of the Federal rate and decreases the Puerto Rico portion of the operating PPS payment from 50 percent to 25 percent, effective for discharges occurring on or after October 1, 2004. For the period of April 1, 2004 through September 30, 2004, payments for hospitals in Puerto Rico will be based on 62.5 percent Federal rate and 37.5 percent of the Puerto Rico rate. Section 505, which provides for an increase in a hospital's wage index value to take into consideration a commuter wage adjustment for hospital employees who reside in a county and work in a different area with a higher wage index. Section 508, which provides for the establishment of a one-time process for a hospital to appeal its geographic classification for wage index purposes. By law, any reclassification resulting from this one-time appeal applies for a 3-year period to discharges occurring on or after April 1, 2004. Section 711, which freezes the annual CPI-U updates to hospital-specific per resident amount (PRAs) for GME payments for those PRAs that exceed the ceiling, effective for cost reporting periods beginning FY 2004 through FY 2013. Section 712, which provides for an exception to the initial residency period for purposes of direct GME payments for geriatric residency or fellowship programs that allows the 2 years spent in an approved geriatric program to be counted as part of the resident's initial training period, but not to count against any limitation on the initial residency period. This provision is effective for cost reporting periods beginning on or after October 1, 2003. Section 713, which, during a 1-year moratorium period of January 1, 2004 through December 31, 2004, allows hospitals to count allopathic or osteopathic family practice residents training in nonhospital settings for IME and direct GME purposes, without regard to the financial arrangement between the hospital and the teaching physician practicing in the nonhospital setting to which the resident is assigned. Section 733, which provides for the Medicare payment of routine costs, as well as costs relating to the transplantation and appropriate related items and services, for Medicare beneficiaries participating in a clinical trial involving pancreatic islet cell transplantation, beginning no earlier than October 1, 2004. Section 926, which requires the Secretary to make information publicly available that enables hospital discharge planners, Medicare beneficiaries, and the public to identify skilled nursing facilities (SNFs) that are participating in the Medicare program, and requires a hospital, as part of its discharge planning, to evaluate a patient's need for SNF care. Section 947, which requires that, by July 1, 2004, hospitals not otherwise subject to the Occupational Safety and Health Act (OSHA) (or a State occupational safety and health plan that is approved under section 18(b) of that Act) must comply with the OSHA bloodborne pathogens (BBP) standard as part of their Medicare provider agreements. C. Major Contents of This Proposed Rule In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs under the IPPS for FY 2005. We also are setting forth proposed changes relating to payments for GME costs, payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis, payments for DSH, requirements and payments for CAHs, conditions of participation for hospitals relating to discharge planning and fire safety requirements, requirements for Medicare provider agreements relating to bloodborne pathogen standards, and QIO disclosure of information requirements. The changes being proposed would be effective for discharges occurring on or after October 1, 2004, unless otherwise noted. The following is a summary of the major changes that we are proposing to make: 1. Proposed Changes to the DRG Reclassifications and Recalibrations of Relative Weights As required by section 1886(d)(4)(C) of the Act, we are proposing annual adjustments to the DRG classifications and relative weights. Based on analyses of Medicare claims data, in section II. of this preamble, we are proposing to establish a number of new DRGs and make changes to the designation of diagnosis and procedure codes under other existing DRGs. Our proposed changes for FY 2005 are set forth in section II. of this preamble. Among the proposed changes discussed are: • Restructuring and retitling of several DRGs to reflect expanded coverage of heart assist systems such as ventricular assist devices (VAD) or left ventricular assist devices (LVAD) as destination (or permanent) therapy for end-stage heart failure patients who are not candidates for heart transplantation: DRG 103 (Heart Transplant or Implant of Heart Assist System) (proposed title change), DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization) and DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures Without Cardiac Catheterization), and DRG 525 (Other Heart Assist System Implant) (proposed title change). • Addition of pacemaker device and lead procedure code combinations that could lead to the assignment of DRG 115 (Permanent Cardiac Pacemaker Implant with Acute Myocardial Infarction, Heart Failure, or Shock or ACID Lead or Generator Procedures) and DRG 116 (Other Permanent Cardiac Pacemaker Implant). • Movement of the procedure code for 360 spinal fusion from DRG 496 (Combined Anterior/Posterior Spinal Fusion) to DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC). • Addition of combination codes, which also include heart failure, to the list of major problems under DRG 387 (Prematurity With Major Problems) and DRG 389 (Full-Term Neonate With Major Problems). • Modification of DRGs 504 through 509 under MDC 22 (Burns) to recognize the impact of long-term mechanical ventilation on burn cases and renaming DRG 504 as proposed title “Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours With Skin Graft” and DRG 505 as proposed title “Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours Without Skin Graft.” • Deletion of DRG 483 (Tracheostomy for Face, Mouth, and Neck Diagnoses) and splitting the assignment of cases to two proposed new DRGs on the basis of the performance of a major operating room procedure: proposed new DRGs 541 and 542 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnosis With and Without Major Operating Room Procedure, respectively). We also are presenting our reevaluation of FY 2004 applicants for add-on payments for high-cost new medical services and technologies, and our analysis of FY 2005 applicants (including public input, as directed by Public Law 108-173, obtained in a town meeting). We are proposing the annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights for use under the LTCH PPS for FY 2005. 2. Proposed Changes to the Hospital Wage Index In section III. of this preamble, we are proposing revisions to the wage index and the annual update of the wage data. Specific issues addressed in this section included the following: • The proposed FY 2005 wage index update, using wage data from cost reporting periods that began during FY 2001. • Proposed revised labor market areas as a result of OMB revised definitions of geographical statistical areas. • A discussion of the collection of occupational mix data and the proposed occupational mix adjustment to the wage index that we are proposing to apply beginning October 1, 2004. • The proposed revisions to the wage index based on hospital redesignations and reclassifications, including changes that reflect the new OMB standards for assignment of hospitals to geographic areas. • The proposed adjustment to the wage index based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index, to implement section 505 of Public Law 108-173. • A discussion of eligible hospitals reclassified under the one-time appeals process under section 508 of Public Law 108-173. • Proposed changes to the labor-related share to which the wage index is applied in determining the PPS rate for hospitals located in specific geographic areas, to implement section 403 of Public Law 108-173. • The revised timetable for reviewing and verifying the wage data that is in effect for the proposed FY 2005 wage index. 3. Other Decisions and Proposed Changes to the PPS for Inpatient Operating and GME Costs In section IV. of this preamble, we discuss a number of provisions of the regulations in 42 CFR Parts 412 and 413 and set forth proposed changes concerning the following: • Proposed expansion of the current postacute care transfer policy. • Payments for inpatient care in providers that change classification status during a patient stay. • Proposed changes in the definitions of urban and rural areas for geographic reclassifications purposes. • Equalization of the standardized amount for urban and rural hospitals. • The reporting of hospital quality data as a condition for receiving the full annual payment update increase. • Proposed revision of the regulations to reflect the revision of the labor share of the wage index. • Proposed revision of the regulations to reflect the wage index adjustment for commuting patterns of hospital employees who live in one county and commute to work in other areas with higher level wages. • Proposed changes in the threshold amount for eligibility for new medical services and technology add-on payments. • Proposed revision to our policy on additional payments to hospitals with high percentages of ESRD discharges. • Proposed changes to the IME adjustment formula multipliers, and the formula multiplier applicable to redistribution of unused numbers of FTE residents slots. • Proposed changes in DSH adjustment payments to rural and small urban hospitals. • Proposed payment adjustments for low-volume hospitals. • Proposed changes in policy affecting hospitals that apply as a group for reclassification and a discussion of possible reclassifications for dominant hospitals and hospitals in single-hospital MSAs. • Proposed changes in policies governing payments for direct GME, including the redistribution of unused FTE resident slots; changes in the GME initial residency period; extension of the update limitation on hospital-specific per resident amounts; and changes in the policies on residents training in nonhospital settings, including written agreements for teaching physician compensation. • An announcement of the rural community hospital demonstration to be established under section 410A of Public Law 108-173 and the opportunity for eligible hospitals to apply for participation in the demonstration program. • A solicitation of public comments on the effect of increases in malpractice insurance premiums on hospitals participating in the Medicare program and beneficiary access of services. 4. Proposed Changes to the PPS for Capital-Related Costs In section V. of this preamble, we discuss the payment requirements for capital-related costs and propose changes relating to capital payments to hospitals located in Puerto Rico, changes in the policies on exception payments for extraordinary circumstances, treatment of hospitals previously reclassified for the operating standardized amounts, and capital payment adjustments based on the proposed changes in geographic classifications. 5. Proposed Changes for Hospitals and Hospital Units Excluded From the IPPS In section VI. of this preamble, we discuss the following proposed revisions and clarifications concerning excluded hospitals and hospital units and CAHs: • Proposed changes in the payment rate for new excluded hospitals. • Proposed changes to the criteria for determining payments to hospitals-within-hospitals. • Proposed changes to the policies governing payment to CAHs, including a change in the payment percentage for services furnished by CAHs; changes in the rules governing the election by a CAH of the optional method of payment; expansion of the payment to emergency room on-call providers to include physician assistants, nurse practitioners, and clinical nurse specialists; authorization for the making of periodic interim payments (PIPs) for CAHs for inpatient services furnished; revision of the bed count limit for CAHs from 15 to 25 acute care beds; proposed requirements for establishing psychiatric and rehabilitation distinct part units in CAHs; and termination of the location requirement for a CAH by designating the CAH as a necessary provider. 6. Proposed Changes to QIO Disclosure of Information Requirements In section VII. of this preamble, we discuss our proposed clarification of the requirements for disclosure by QIOs of information on institutions and practitioners collected in the course of the QIO's quality improvement activities. 7. Proposed Changes Relating to Medicare Provider Agreements, Hospital Conditions of Participation, and Fire Safety Requirements for Certain Health Care Facilities In section VIII. of this preamble, we are proposing to— • Require hospitals, as part of the discharge planning standard under the Medicare hospital conditions of participation, to furnish a list of Medicare-participating home health agencies to patients who receive home health services after discharge and to provide information on Medicare-certified SNFs to patients who are likely to need posthospital extended care services. • Require that Medicare provider agreements include provisions that would ensure that all hospital employees who may come into contact with human blood in the course of their duties are provided proper protection from bloodborne pathogens. • Correct a technical error relating to the application of the 2000 edition of the Life Safety Code as the fire safety requirements for certain health care facilities; and clarify the effective date for the prohibition on the use of roller latches in these facilities. 8. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2005 prospective payment rates for operating costs and capital-related costs. We also establish the proposed threshold amounts for outlier cases. In addition, we address proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2005 for hospitals and hospital units excluded from the PPS. 9. 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. 10. Recommendation of Update Factor for Hospital Inpatient Operating Costs In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2005 for the following: • A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs (and hospital-specific rates applicable to SCHs and MDHs). • Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS. 11. 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. MedPAC's March 2004 recommendation concerning hospital inpatient payment policies addressed only the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and for hospitals and distinct part hospital units excluded from the IPPS. This recommendation is addressed in Appendix B. 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: www.medpac.gov. II. Proposed 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. The proposed changes to the DRG classification system and the proposed recalibration of the DRG weights for discharges occurring on or after October 1, 2004, are discussed below. B. DRG Reclassifications [If you choose to comment on issues in this section, please include the caption “DRG Reclassifications” at the beginning of your comment.] 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 2004, cases are assigned to one of 522 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 (MDCs). 1—Diseases and Disorders of the Nervous System. 2—Diseases and Disorders of the Eye. 3—Diseases and Disorders of the Ear, Nose, Mouth, and Throat. 4—Diseases and Disorders of the Respiratory System. 5—Diseases and Disorders of the Circulatory System. 6—Diseases and Disorders of the Digestive System. 7—Diseases and Disorders of the Hepatobiliary System and Pancreas. 8—Diseases and Disorders of the Musculoskeletal System and Connective Tissue. 9—Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast. 10—Endocrine, Nutritional and Metabolic Diseases and Disorders. 11—Diseases and Disorders of the Kidney and Urinary Tract. 12—Diseases and Disorders of the Male Reproductive System. 13—Diseases and Disorders of the Female Reproductive System. 14—Pregnancy, Childbirth, and the Puerperium. 15—Newborns and Other Neonates with Conditions Originating in the Perinatal Period. 16—Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders. 17—Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms. 18—Infectious and Parasitic Diseases (Systemic or Unspecified Sites). 19—Mental Diseases and Disorders. 20—Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders. 21—Injuries, Poisonings, and Toxic Effects of Drugs. 22—Burns. 23—Factors Influencing Health Status and Other Contacts with Health Services. 24—Multiple Significant Trauma. 25—Human Immunodeficiency Virus Infections In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to a DRG. However, for FY 2004, 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 and for tracheostomies. Cases are assigned to these DRGs before they are classified to an MDC. The table below lists the current eight pre-MDCs. Pre-Major Diagnostic Categories (Pre-MDCs) DRG 103—Heart Transplant. DRG 480—Liver Transplant. DRG 481—Bone Marrow Transplant. DRG 482—Tracheostomy for Face, Mouth, and Neck Diagnoses. DRG 483—Tracheostomy with Mechanical Ventiliation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnoses. DRG 495—Lung Transplant. DRG 512—Simultaneous Pancreas/Kidney Transplant. DRG 513—Pancreas Transplant 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 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, the 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 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. The changes we are proposing to the DRG classification system for the FY 2005 GROUPER version 22.0 and to the methodology used to recalibrate the DRG weights are set forth below. Unless otherwise noted in this proposed rule, our DRG analysis is based on data from the December 2003 update of the FY 2003 MedPAR file, which contains hospital bills received through December 31, 2003 for discharges in FY 2003. 2. MDC 1 (Diseases and Disorders of the Nervous System): Intracranial Hemorrhage and Stroke With Infarction It has come to our attention that the title of DRG 14 (Intracranial Hemorrhage and Stroke With Infarction) may be misleading because it implies that a combination of conditions exists when the DRG is assigned. When we developed this title, we did not intend to imply that a combination of conditions exists. Therefore, we are proposing to change the title of DRG 14 to read “Intracranial Hemorrhage or Cerebral Infarction”. 3. MDC 5 (Diseases and Disorders of the Circulatory System) a. Heart Assist System Implant Circulatory support devices, also known as heart assist systems, ventricular assist devices (VADs) or left ventricular assist devices (LVADs), offer a surgical alternative for end-stage heart failure patients. This type of device is often implanted near a patient's native heart and assumes the pumping function of the weakened heart's left ventricle. In many cases, heart transplantation would be the treatment of choice for this type of patient. However, the low number of donor hearts limits this treatment option. We have reviewed the payment and DRG assignment for this type of device many times in the past. The reader is referred to the August 1, 2002 IPPS final rule (67 FR 49989) for a complete listing of those discussions. In the August 1, 2002 final rule (67 FR 49990), we attempted to clinically and financially align VAD procedures by creating new DRG 525 (Heart Assist System Implant). We also noted that cases in which a heart transplant also occurred during the same hospitalization episode would continue to be assigned to DRG 103 (Heart Transplant). At that time, we announced that DRG 525 would consist of any principal diagnosis in MDC 5, plus one of the following surgical procedure codes: • 37.62, Insertion of nonimplantable heart assist system • 37.63, Repair of heart assist system • 37.65, Implant of external heart assist system • 37.66, Insertion of implantable heart assist system (To avoid confusion, we note that the titles of codes 37.62, 37.63, 37.65, and 37.66 have been revised for FY 2005 through the ICD-9-CM Coordination and Maintenance Committee process as reflected in Table 6F, Revised Procedure Code Titles in the Addendum to this proposed rule.) Commenters on the May 19, 2003 proposed rule that preceded the August 1, 2003 IPPS (FY 2004) final rule notified us that procedure code 37.66 was neither a clinical nor a financial match to the rest of the procedure codes now assigned to DRG 525. We did not modify DRG 525 for FY 2004. We agreed that we would continue to evaluate whether to make further changes to DRG 525. After publication of the August 1, 2003 final rule, we again reviewed the MedPAR data concerning DRG 525, and came to the conclusion that procedure code 37.62 is different in terms of clinical procedures and resource utilization from the other procedure codes assigned to DRG 525. Therefore, in a correction to the August 1, 2003 IPPS (FY 2004) final rule, published on October 6, 2003 (68 FR 57733), we revised the composition of DRG 525 by correcting the assignment of procedures to DRG 525 in light of the lower charges associated with procedure code 37.62. We moved code 37.62 into DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedures With Cardiac Catheterization) and DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures Without Cardiac Catheterization), and left procedure codes 37.63, 37.65, and 37.66 in DRG 525. In addition, we have evaluated a request for expanded coverage for VADs and LVADs as destination (or permanent) therapy for end-stage heart failure patients who are not candidates for heart transplantation. VADs and LVADs had been approved for support of blood circulation post-cardiotomy (effective for services performed on or after October 18, 1993) and as a bridge to heart transplant (effective for services performed on or after January 22, 1996) to assist a damaged or weakened heart in pumping blood. The criteria that must be fulfilled in order for Medicare coverage to be provided for these purposes have been previously discussed in the August 1, 2000 final rule (65 FR 47058), and can also be accessed online at: www.cms.gov/manuals/pm_trans/r2ncd1.pdf. As a result of that review, effective for services performed on or after October 1, 2003, VADs have been approved as destination therapy for patients requiring permanent mechanical cardiac support. Briefly, VADs used for destination therapy are covered only if they have received approval from the FDA for that purpose, and the device is used according to the FDA-approved labeling instructions. VADs are covered for patients who have chronic end-stage heart failure (New York Heart Association Class IV end-stage left ventricular failure for at least 90 days with a life expectancy of less than 2 years). Implanting facilities as well as patients must also meet all of the additional conditions that are listed in the national coverage determination for artificial hearts and related devices, which is posted on the above CMS Web site. In light of the new indication of destination therapy, we again reviewed the FY 2003 MedPAR data for all cases in which a VAD had been implanted, using the criterion of any case containing a procedure code of 37.66. We found a total of 65 cases in 3 DRGs: DRG 103 (Heart Transplant); DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses); and DRG 525 (Heart Assist System Implant). The following table displays our findings: — DRG with code 37.66 reported Count Average length of stay Average charges 103 14 77.36 $836,011 483 6 100.50 1,400,706 525 45 38.93 308,725 The remaining 354 cases in DRG 103 that did not report code 37.66 had average charges of $282,578. The remaining 171 cases in DRG 525 that did not contain code 37.66 had an average length of stay of 12.39 days and average charges of $168,388. The 45 cases in DRG 525 with code 37.66 accounted for 26 percent of the cases. However, the average charges for these cases are approximately $140,340 higher than the average charges for cases in DRG 525 that did not report code 37.66. Commenters on the FY 2004 final rule suggested adding code 37.66 to DRG 103. We were concerned with the timing of that comment, as it was received after publication of the proposed rule. We noted that the commenter's suggestions on the structure of the DRGs involved were significant, and that change of that magnitude should be subject to public review and comment. We also noted that we would evaluate the suggestion further. (68 FR 45370) However, as one of the indications for this device has become destination therapy, and as this new indication is more clinically aligned with DRG 103, we are proposing to remove procedure code 37.66 from DRG 525 and assign it to DRG 103. We also are proposing to change the title of DRG 103 to “Heart Transplant or Implant of Heart Assist System”. The proposed restructured DRG 103 would include any principal diagnosis in MDC 5, plus one of the following surgical procedure codes: • 33.6, Combined heart-lung transplantation • 37.51, Heart transplantation • 37.66, Insertion of implantable heart assist system In addition to the proposed changes to DRG 103, we are proposing to change the title of DRG 525 to “Other Heart Assist System Implant”. In conjunction with the above data review, we also looked at DRGs 104 and 105. DRGs 104 and 105 had been restructured in FY 2003 by assigning code 37.62 to them. ( Note: The code title for 37.62 has been revised, effective FY 2005, as reflected in Table 6F of the Addendum to this proposed rule). We examined the MedPAR data and found that the average charges were $113,667 and $82,899, respectively, for DRGs 104 and 105 for cases not reporting code 37.62, while cases containing code 37.62 had average charges of $124,559 and $166,129, respectively. The removal of code 37.66 from DRG 525 would have the effect of clinically realigning that DRG to be more coherent. As a result of the proposal to remove code 37.66 from DRG 525 and assign it to DRG 103, we also are proposing to remove code 37.62 from DRGs 104 and 105 and assign it back into DRG 525. In addition, the average charges for code 37.62 shown above in DRGs 104 and 105 ($124,559 and $166,129) more closely match the average charges reported for the 171 cases in DRG 525, absent code 37.66 ($168,388). The proposed restructured DRG 525 would include any principal diagnosis in MDC 5, plus the following surgical procedure codes: • 37.52, Implantation of total replacement heart system* • 37.53, Replacement or repair of thoracic unit of total replacement heart system* • 37.54, Replacement or repair of other implantable component of total replacement heart system* • 37.62, Insertion of nonimplantable heart assist system • 37.63, Repair of heart assist system • 37.65, Implant of external heart assist system *These codes represent noncovered services for Medicare beneficiaries. However, it is our longstanding practice to assign every code in the ICD-9-CM classification to a DRG. Therefore, they have been assigned to DRG 525. b. Cardiac Resychronization Therapy and Heart Failure We received a request from a manufacturer of a Cardiac Resynchronization Therapy Defibrillator (CRT-D) device for a modification to DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction/Heart Failure/Shock) and DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock). The commenter pointed out that defibrillator device implantations, including the CRT-D type of defibrillator, are assigned to DRG 535 when the patient also has a cardiac catheterization and has either an acute myocardial infarction, heart failure, or shock as a principal diagnosis. If the patient receiving the defibrillator implant and cardiac catheterization does not have a principal diagnosis of acute myocardial infarction, heart failure, or shock, the cases are assigned to DRG 536. The commenter requested that cases be assigned to DRG 535 when the patient has heart failure as either a principal diagnosis or a secondary diagnosis. The commenter stated that patients receive a CRT-D (as opposed to other types of defibrillators) when they have both heart failure and arrhythmia. The commenter was concerned that some coders may sequence the heart failure as a secondary diagnosis, which would result in the patient being assigned to DRG 536. As stated earlier, DRGs 535 and 536 are split based on the principal diagnosis of acute myocardial infarction, heart failure, or shock. Cases are not assigned to DRG 535 when heart failure is a secondary diagnosis. The commenter described a scenario where a patient was admitted with heart failure for an evaluation of the need for a CRT-D implantation. The hospitalization studies indicated that the patient had a ventricular tachycardia. The commenter indicated that coders would be confused as to which code should be listed as the principal diagnosis. CMS' review of this scenario as described would be that the heart failure led to the admission and would be the principal diagnosis. This case would properly be assigned to DRG 535. Furthermore, when two conditions are considered to be equally responsible for the admission, either one of the two conditions may be selected as the principal diagnosis. The commenter also stated that its own study shows CRT-D patients have significantly higher charges than do other patients in DRGs 535 and 536 who receive an implantable defibrillator. This was the case whether heart failure was used as a principal or secondary diagnosis. A cardiac catheterization is a diagnostic procedure 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 examined the MedPAR file for all cases in DRGs 535 and 536 and only cases in DRG 536 in which acute myocardial infarction or heart failure was listed as a secondary diagnosis. The following chart illustrates the results of our findings: DRGs Count Average length of stay Average charges 535 6,801 9.50 $110,663.57 536—All cases 17,454 5.47 89,493.85 536—Cases With Secondary Diagnosis of Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock 8,562 6.5 94,832.14 The data show that cases with a secondary diagnosis of acute myocardial infarction or heart failure have average charges ($94,832.14) closer to the overall average charges for DRG 536 ($89,493.85) where they are currently assigned. Overall charges for DRG 535 were $110,663.57. We do not believe these data support modifying DRG 535 and DRG 536 as requested. Many of the CRT-D patients who are admitted for heart failure would be assigned into DRG 535. Furthermore, modifying the DRG logic for one specific type of defibrillator (CRT-D) is not consistent with our overall policy of grouping similar types of patients together in the same DRG. In addition, to modify the DRG logic for the small percentage of cases where there might be confusion concerning the selection of the principal diagnosis does not seem prudent. Therefore, we are not proposing a modification to DRG 535 or 536 for CRT-Ds. c. Combination Cardiac Pacemaker Devices and Lead Codes We received a comment that recommended that we include additional combination procedure codes representing cardiac pacemaker device and lead codes under DRG 115 (Permanent Cardiac Pacemaker Implant With Acute Myocardial Infarction, Heart Failure, or Shock or ACID Lead or Generator Procedures) and DRG 116 (Other Permanent Cardiac Pacemaker Implant). DRGs 115 and 116 are assigned when a complete pacemaker unit with leads is implanted. Combinations of pacemaker devices and lead codes that would lead to the DRG assignment are listed under DRGs 115 and 116. The commenter recommended that the following pacemaker device and lead procedure code combinations be added to these two DRGs: • 00.53 & 37.70 • 00.53 & 37.71 • 00.53 & 37.72 • 00.53 & 37.73 • 00.53 & 37.74 • 00.53 & 37.76 These codes are defined as follows: • 00.53, Implantation or replacement of cardiac resynchronization pacemaker, pulse generator only [CRT-P] • 37.70, Initial insertion of pacemaker lead [electrode], not otherwise specified • 37.71, Initial insertion of transvenous lead [electrode] into ventricle • 37.72, Initial insertion of transvenous lead [electrode] into atrium and ventricle • 37.73, Initial insertion of transvenous lead [electrode] into atrium • 37.74, Initial insertion or replacement of epicardial lead [electrode] into epicadium • 37.76, Replacement of transvenous atrial and/or ventricular lead(s) [electrode] We have consulted our medical advisors and they agree that these recommended procedure code combinations also describe pacemaker device and lead implantations and should be included under DRGs 115 and 116. Therefore, we are proposing to add the recommended procedure code combinations to the list of procedure code combinations under DRGs 115 and 116. 4. MDC 6 (Diseases and Disorders of the Digestive System): Artificial Anal Sphincter In the FY 2003 IPPS final rule (67 FR 50242), we created two new codes for procedures involving an artificial anal sphincter, effective for discharges occurring on or after October 1, 2002: code 49.75 (Implantation or revision of artificial anal sphincter) that is used to identify cases involving implantation or revision of an artificial anal sphincter and code 49.76 (Removal of artificial anal sphincter) that is used to identify cases involving the removal of the device. In Table 6B of that final rule, we assigned both codes to one of four MDCs, based on principal diagnosis, and one of six DRGs within those MDCs. In the August 1, 2003 IPPS final rule (68 FR 45372), we discussed the assignment of these codes in response to a request we had received to consider reassignment of these two codes to different MDCs and DRGs. The requester believed that the average charges ($44,000) for these codes warranted reassignment. In the August 1, 2003 IPPS final rule, we stated that we did not have sufficient MedPAR data available on the reporting of codes 49.75 and 49.76 to make a determination on DRG reassignment of these codes. We agreed that, if warranted, we would give further consideration to the DRG assignments of these codes because it is our customary practice to review DRG assignment(s) for newly created codes to determine clinical coherence and similar resource consumption after we have had the opportunity to collect MedPAR data on utilization, average length of stay charges, and distribution throughout the system. Therefore, we reviewed the FY 2003 MedPAR data for the presence of codes 49.75 and 49.76. We then arrayed the results by DRG, count, average length of stay, charges, and the presence or absence of a secondary diagnosis that could be classified as a CC. We found that there were a total of 13 cases in 5 total DRGs with CCs, and 9 cases in 4 total DRGs without CCs, for a total of 22 cases that reported these procedure codes. We had anticipated that the majority of cases would have been found in DRGs 157 (Anal and Stomal Procedures With CC) and 158 (Anal and Stomal Procedures Without CC), but found only 2 cases grouped to DRG 157 and 4 cases grouped to DRG 158. Our data showed average charges of $22,374 for the cases with CC, and average charges of $20,831 for the cases without CC. Average charges for DRG 157 were $18,196, while average charges for DRG 158 were $9,348. Our medical advisors also reviewed the contents of DRGs 157 and 158. The consensus was that codes 49.75 and 49.76 are not a clinical match to the other procedure codes found in these two DRGs. The other procedure codes in DRGs 157 and 158 are for simpler and less invasive procedures. In some circumstances, these procedures could potentially be performed in an outpatient setting or in a physician's office. Our medical advisors determined that clinical coherence was not demonstrated and recommended that we move these codes to DRGs 146 (Rectal Resection With CC) and 147 (Rectal Resection Without CC), as these anal sphincter procedures more closely resemble the procedures in these DRGs. In addition, the average charges for paired DRG 146 ($33,853) and DRG 147 ($21,747) more closely resemble the actual average charges found in the MedPAR data for these cases. Even though there are few reports of codes 49.75 and 49.76 in the MedPAR data and we do not anticipate a significant increase in utilization of these procedures, we are proposing that these two codes would only be removed from paired DRG 157 and 158 and reassigned to paired DRG 146 and 147 under MDC 6 (Diseases and Disorders of the Digestive System). All other MDC and DRG assignments for codes 49.75 and 49.76 would remain the same. 5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) a. 360 Spinal Fusions We received a comment that suggested procedure code 81.61 (360 Spinal fusion) should not be included in DRG 496 (Combined Anterior/Posterior Spinal Fusion). The commenter stated that code 81.61 does not represent the same types of cases as other codes included in DRG 496. The commenter indicated that cases reported with code 81.61 involve making only one incision, and then fusing both the anterior and posterior portion of the spine. All other cases in DRG 496 involve two separate surgical approaches used to reach the site of the spinal fusion. For these other patients, an incision is made into the patient, and a fusion is made in part of the spine. The patient is then turned over and a separate incision is made so that a fusion can be made in another part of the spine. The commenter added that these two separate incisions and fusions are more time consuming than the single incision used for code 81.61. The commenter also stated that patients receiving the two surgical approaches have a longer recovery period and use more hospital resources. We examined data in the MedPAR file for cases assigned to DRG 496 and found the following: DRG Count Average length of stay Average charges 496—All Cases 2,706 8.0 $74,967.33 496—Cases with code 81.61 829 4.7 50,659.69 496—Cases with code 81.61 with CC 451 5.4 55,639.50 496—Cases with code 81.61 without CC 378 3.8 44,718.16 496—Cases without 81.61 1877 9.4 85,703.09 We also examined cases in related DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC) in which code 81.61 was not reported. The chart below reflects our findings. DRG Count Average length of stay Average charges 497 16,965 6.19 $49,315.27 498 11,598 3.95 37,450.68 These data clearly show that cases with code 81.61 have significantly less average charges than other cases in DRG 496 that have two surgical approaches. Cases with code 81.61 are more closely aligned with cases in DRG 497 and DRG 498. Furthermore, including code 81.61 will have the effect of lowering the relative weights for DRG 496 in future years. Therefore, we are proposing to remove code 81.61 from DRG 496 and reassign it to DRGs 497 and 498. b. Multiple Level Spinal Fusion On October 1, 2003 (68 FR 45596), the following new ICD-9-CM procedure codes were created to identify the number of levels of vertebra fused during a spinal fusion procedure: • 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 Prior to the creation of these new codes, 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. In the August 1, 2003 final rule, we discussed the creation of these new codes and the lack of sufficient MedPAR data with the new multiple level spinal fusion codes (68 FR 45369). The commenter had conducted an analysis and submitted data to support redefining the spinal fusion DRGs. The analysis found that increasing the levels fused from 1 to 2 levels to 3 levels or more levels increased the mean standardized charges by 38 percent for lumbar/thoracic fusions, and by 47 percent for cervical fusions. The following current spinal fusion DRGs separate cases based on whether or not a CC is present: DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC); DRG 519 (Cervical Spinal Fusion With CC) and DRG 520 (Cervical Spinal Fusion Without CC). However, the difference in charges associated with the current CC split was only slightly greater than the difference attributable to the number of levels fused as found by the commenter's analysis. In addition, adopting the commenter's recommendation would have necessitated adjusting the DRG relative weights using non-MedPAR data because Medicare claims data with the new ICD-9-CM codes would not have been available until the FY 2003 MedPAR file. Therefore, at that time, we did not redefine the spinal fusion DRGs to differentiate on the basis of the number of levels of vertebrae involved in a spinal fusion procedure. We did not yet have any reported cases utilizing the new multilevel spinal fusion codes in our data. We stated that we would wait until sufficient data with the new multilevel spinal fusion codes were available before making a final determination on whether multilevel spinal fusions should be incorporated into the spinal fusion DRG structure. The codes went into effect on October 1, 2003 and we have not received any data using these codes. Spinal surgery is an area of rapid changes. In addition, we have created a series of new procedure codes that describe a new type of spinal surgery, spinal disc replacement. (See codes 84.60 through 84.69 in Table 6B in the Addendum to this proposed rule that will go into effect on October 1, 2004.) Our medical advisors describe this new surgical procedure as a more conservative approach for back pain than the spinal fusion surgical procedure. With only limited data concerning multiple level spinal fusion and the rapid changes in spinal surgery, we believe it is more prudent not to propose the establishment of new DRGs based on the number of levels of vertebrae involved in a spinal fusion procedure at this time. In addition, no other surgical DRG is split based on the number of procedures performed. For instance, the same DRG is assigned whether one or more angioplasties are performed on a patient's arteries. The insertion of multiple stents within an artery does not result in a different DRG assignment. Similarly, the excision of neoplasms from multiple sites does not lead to a different DRG assignment. To begin splitting DRGs based on the number of procedures performed or devices inserted could set a new and significant precedent for DRG policy. Therefore, while we will continue to study this area, we are not proposing to redefine the spinal fusion DRGs based on the number of levels of vertebrae fused at this time. 6. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period) We continue to receive comments that MDC 15 (Newborn and Other Neonates With Conditions Originating in the Perinatal Period) does not adequately capture care provided for newborns and neonates by hospitals. The commenters point out that we have not updated the DRGs within MDC 15 as we have for other parts of the DRG system. Our primary focus of updates to the Medicare DRG classification system is on changes relating to the Medicare patient population, not the pediatric or neonatal patient populations. However, we acknowledge the Medicare DRGs are sometimes used to classify other patient populations. Over the years, we have received comments about aspects of the Medicare newborn DRGs that appear problematic, and we have responded to these on an individual basis. In the May 9, 2002 IPPS proposed rule (67 FR 31413), we proposed extensive changes to multiple DRGs within MDC 15. Because of our limited data and experience with newborn cases under Medicare, we contacted the National Association of Children's Hospitals and Related Institutions (NACHRI) to obtain proposals for possible revisions of the DRG categories within MDC 15. We received extensive comments opposing these revisions. Therefore, we did not implement the proposals. We advise those non-Medicare systems that need a more up-to-date system to choose from other systems that are currently in use in this country, or to develop their own modifications. As previously stated, we do not have the data or the expertise to develop more extensive newborn and pediatric DRGs. Our mission in maintaining the Medicare DRGs is to serve the Medicare population. Therefore, we will make only minor corrections of obvious errors to the DRGs within MDC 15. At this time, we do not plan to conduct a more extensive analysis involving major revisions to these DRGs. In the IPPS final rule for FY 2004 (68 FR 45360), we added heart failure diagnosis codes 428.20 through 428.43 to the list of secondary diagnosis of major problem under DRG 387 (Prematurity With Major Problems) and DRG 389 (Full-Term Neonate With Major Problems). We received a comment after the August 1, 2003 final rule stating that we should add the following list of combination codes, which also include heart failure, to the list of major problems under DRGs 387 and 389: • 398.91, Rheumatic heart failure (congestive) • 402.01, Malignant hypertensive heart disease, with heart failure • 402.11, Benign hypertensive heart disease, with heart failure • 402.91, Unspecified hypertensive heart disease, 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, Unspecified hypertensive heart and renal disease, with heart failure • 404.93, Unspecified hypertensive heart and renal disease, with heart failure and renal failure. • 428.9, Heart failure, unspecified We agree that the codes listed above also include heart failure and should also be added to DRGs 387 and 389 as major problems. Therefore, we are proposing to add the heart failure codes listed above to DRGs 387 and 389 as major problems. 7. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders): Drug-Induced Dementia We received a request from a commenter that we remove the principal diagnosis code 292.82 (Drug-induced dementia) from MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders) and the following DRGs under MDC 20: • DRG 521 (Alcohol/Drug Abuse or Dependence With CC) • DRG 522 (Alcohol/Drug Abuse or Dependence With Rehabilitation Therapy Without CC) • DRG 523 (Alcohol/Drug Abuse or Dependence Without Rehabilitation Therapy Without CC) The commenter indicated that a patient who has a drug-induced dementia should not be classified to an alcohol/drug DRG. However, the commenter did not propose a new DRG assignment for code 292.82. Our medical advisors have evaluated the request and determined that the most appropriate DRG classification for a patient with drug-induced dementia would be within MDC 20. The medical advisors indicated that because this mental condition is drug induced, it is appropriately classified to DRGs 521 through 523 in MDC 20. Therefore, we are not proposing a new DRG classification for the principal diagnosis code 292.82. 8. MDC 22 (Burns): Burn Patients on Mechanical Ventilation We have received concerns 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 Pre-MDC DRG 482 (Tracheostomy for Face, Mouth, and Neck Diagnoses) or DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis 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+ hours) for the first time in the DRG assignment (67 FR 49996). The modification was partially in response to concerns that hospitals could omit diagnosis codes indicating face, mouth, or neck diagnoses in order to have cases assigned to DRG 483 rather than the much lower paying DRG 482 (the payment for DRG 483 is more than four times greater than the DRG 482 payment weight). In addition, 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. The modification was the first attempt to refine DRGs 482 and 483 so that patients who receive long-term mechanical ventilation for more than 96 hours are differentiated from those who receive mechanical ventilation for less than 96 hours. The modification was intended to ensure that patients who have a tracheostomy and continuous mechanical ventilation greater than 96 hours (code 96.72) would be assigned to DRG 483. By making the GROUPER recognize long-term mechanical ventilation and assigning those patients to the higher weighted DRG 483, we encouraged hospitals to be more aware of the importance of reporting code 96.72 and to increase reporting of code 96.72 when, in fact, patients had been on the mechanical ventilator for greater than 96 hours. We stated in the August 1, 2002 final rule that, once we received more accurate data, we would give consideration to further modifying DRGs 482 and 483 based on the presence of code 96.72. To assess the DRG payments for burn patients on mechanical ventilation, we analyzed FY 2003 MedPAR data for burn cases in the following DRGs to determine the frequency for which these burn cases were treated with continuous mechanical ventilation for 96 or more consecutive hours (code 96.72): • DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses) • DRG 504 (Extensive 3rd Degree Burns With Skin Graft) • DRG 505 (Extensive 3rd Degree Burns Without Skin Graft) • DRG 506 (Full Thickness Burn With Skin Graft or Inhalation Injury With CC or Significant Trauma) • DRG 507 (Full Thickness Burn With Skin Graft or Inhalation Injury Without CC or Significant Trauma) • DRG 508 (Full Thickness Burn Without Skin Graft or Inhalation Injury With CC or Significant Trauma) • DRG 509 (Full Thickness Burn Without Skin Graft or Inhalation Injury Without CC or Significant Trauma) • DRG 510 (Nonextensive Burns With CC or Significant Trauma) • DRG 511 (Nonextensive Burns Without CC or Significant Trauma) The following chart summarizes those findings: DRG Count Average length of stay Average charges 483—All cases 31,754 37.68 $210,631.94 483—Cases with code 96.72 reported 19,669 36.54 195,171.66 483—Cases without code 96.72 reported 12,085 39.52 235,794.39 504—All cases 98 30.54 191,645.49 504—Cases with code 97.62 reported 19 25.79 264,095.16 504—Cases without code 96.72 reported 79 31.68 174,220.89 505—All cases 119 2.96 18,619.78 505—Cases with code 96.72 reported 20 7.70 42,613.00 505—Cases without code 96.72 reported 99 2.00 13,772.67 506—All cases 754 16.15 61,370.63 506—Cases with code 96.72 reported 54 20.13 138,272.46 506—Cases without code 96.72 reported 700 15.85 55,438.20 507—All cases 236 8.78 25,891.89 507—Cases with code 96.72 reported 1 38.00 137,132.00 507—Cases without code 96.72 reported 235 8.66 25,418.53 508—All cases 448 7.02 18,332.46 508—Cases with code 96.72 reported 5 10.40 83,171.80 508—Cases without code 96.72 reported 443 6.98 17,600.64 509—All cases 117 4.32 8,994.71 509—Cases with code 96.72 reported 0 0 0 509—Cases without code 96.72 reported 117 4.32 8,994.71 510—All cases 1,209 6.90 18,457.21 510—Cases with code 96.72 reported 21 20.52 93,925.62 510—Cases without code 96.72 reported 1,188 6.66 17,123.18 511—All cases 413 4.18 10,046.89 511—Cases with code 96.72 reported 0 0 0 511—Cases without code 96.72 reported 413 4.18 10,046.89 We found 120 cases that reported code 96.72 within the 3,394 burn DRG cases (DRGs 504 through 511). Cases reporting code 96.72 have significantly longer average lengths of stay and average charges. The majority (54) of these cases that reported code 96.72 were in DRG 506. The cases with code 96.72 reported had average charges approximately 1.5 times higher than other cases in DRG 506 without code 96.72. We noted that there were 21 cases that reported code 96.72 within DRG 510. Since the 21 patients were on continuous mechanical ventilation for 96 consecutive hours or more, it seems surprising that the principal diagnosis was listed as one of the nonextensive burn codes included in DRG 510. A closer review of these cases shows some questionable coding and reporting of information. It would appear that hospitals did not always correctly select the principal diagnosis (the reason after study that led to the hospital admission). For instance, one admission was for a second-degree burn of the ear. This patient was on a ventilator for over 96 hours. It would appear that the reason for the admission was a diagnosis other than the burn of the ear. Other cases where the patient received long-term mechanical ventilation included those with a principal diagnosis of first degree burn of the face, second degree burn of the nose, second degree burn of the lip, and an unspecified burn of the foot. These four cases reported average charges ranging from $48,551 to $186,824 and had lengths of stay ranging from 8 to 36 days. The impact of long-term mechanical ventilation is quite clear on burn cases as was shown by the data above. Therefore, we are proposing to modify the burn DRGs 504 through 509 under MDC 22 to recognize this impact. We are proposing to modify DRG 504 and DRG 505 so that code 96.72 will be assigned to these DRGs when there is a principal diagnosis of extensive third degree burns or full thickness burns (those cases currently assigned to DRGs 504 through 509). In other words, when cases currently in DRGs 506 through 509 also have code 96.72 reported, they would now be assigned to DRGs 504 or 505. We are proposing to modify the titles of DRGs 504 and 505 to reflect the proposed changes in reporting code 96.72 as follows: • Proposed DRG 504 (Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours With Skin Graft) • Proposed DRG 505 (Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours Without Skin Graft) Cases currently assigned to DRGs 504 and 505 that do not entail 96+ hours of mechanical ventilation will continue to be assigned to DRGs 504 and 505 because they would have extensive burns, as required by the DRG logic. We are not proposing to include DRG 510 and DRG 511 within this revised DRG logic. Cases currently assigned to DRG 510 or DRG 511 that also report code 96.72 would not be reassigned to DRGs 504 and 505. We recommend that hospitals examine cases that are assigned to DRG 510 or DRG 511 and that have code 96.72 to determine if there are possible coding problems or other issues. As stated earlier, in examining reported cases within DRG 510, we noted several cases with code 96.72 that appear to have an incorrect principal diagnosis. It would appear that the principal diagnosis may more appropriately be related to an inhalation injury, if the injury was present at the time of admission. We are specifically seeking comments on our proposal to move cases reporting code 96.72 from DRGs 506 through 509 and assign them to DRGs 504 and 505. We also are seeking comments on our proposal not to include DRGs 510 and 511 in this proposed revision. 9. Pre-MDC: Tracheostomy In the August 1, 2002 IPPS final rule (67 FR 49996), for FY 2003, we modified DRG 482 (Tracheostomy for Face, Mouth, and Neck Diagnoses) and DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses) to recognize procedure code 96.72 (Continuous mechanical ventilation 96+ hours) in the DRG 483 assignment. As discussed earlier, we were concerned about an underreporting of code 96.72 and wanted to encourage increased reporting of this code. We examined cases in the MedPAR file in which code 96.72 was reported within DRGs 482 and 483. The following chart illustrates the average charges and lengths of stays for cases within DRGs 482 and 483 with and without code 96.72 reported: DRG Count Average length of stay Average charges 482—All cases 3,557 11.77 $45,419.10 482—Cases with code 96.72 22 31.64 137,880.41 482—Cases without code 96.72 3,535 11.64 44,843.67 483—All cases 31,754 37.68 210,631.94 483—Cases with code 96.72 19,669 36.54 195,171.66 483—Cases without code 96.72 12,085 39.52 235,794.39 Of the 3,557 cases reported in DRG 482, only 22 cases reported code 96.72. These 22 cases did not have a tracheostomy performed. All 22 cases reported code 30.4 (Laryngectomy), which also leads to an assignment of DRG 482. It would appear that the long-term mechanical ventilation was performed through an endotracheal tube instead of through a tracheostomy. While the average charges for DRG 482 cases with code 96.72 reported were significantly higher than the average charges for other cases in the DRG, we do not believe that the very limited number of cases (22) warrants proposing a DRG modification. Therefore, we are not proposing any modification for DRG 482 at this time. We will continue to monitor cases assigned to this DRG. In DRG 483, 19,669 cases were reported with code 96.72. However, the data were counter-intuitive. While one would expect to find higher average charges for cases reported with code 96.72, the opposite is the case. Cases in DRG 483 reported with code 96.72 had average charges that were $40,623 lower than those not reported with code 96.72. Clearly, the presence or absence of code 96.72 does not explain differences in charges for patients within DRG 483. As stated earlier, we are concerned that hospitals may not always report code 96.72 because of space limitations. The electronic billing system limits the number of procedure codes that can be reported to six codes. We then looked at whether or not another major O.R. procedure is performed in addition to a tracheostomy. The DRG 483 logic requires that all patients assigned to DRG 483 have a tracheostomy. We examined cases in DRG 483 in the MedPAR file and discovered that those patients in DRG 483 who have a major procedure performed in addition to the tracheostomy have higher charges. A major procedure is a procedure whose code is included on the list that would be assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), except for tracheostomy codes 31.21 and 31.29. Currently, this additional O.R. procedure does not affect the DRG assignment for cases assigned to DRG 483. The following chart reflects our findings. DRG Count Average length of stay Average Charges 483—All Cases 31,754 37.68 $210,631.94 483—Cases with major O.R. procedure 15,664 42.70 255,914.00 483—Cases without major O.R. procedure 12,867 32.7 168,890.20 We found that cases of patients assigned to DRG 483 who had a major procedure (in addition to the required tracheostomy) had average charges that were $87,023 higher than the average charges for cases without a major O.R. procedure and an average length of stay of 5 days more than those without a major O.R. procedure. We found that the performance of an additional major O.R. procedure helps to identify the more expensive patients within DRG 483. Therefore, as a result of our findings, we are proposing to modify DRG 483 by dividing these cases into two new DRGs depending on whether or not there is a major O.R. procedure reported (in addition to the tracheostomy). We are proposing to delete DRG 483 and create two new DRGs as follows: • Proposed new DRG 541 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses With Major O.R. Procedure) • Proposed new DRG 542 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses Without Major O.R. Procedure) We are specifically seeking comments on our proposal to delete DRG 483 and replace it with two proposed new DRGs by splitting the assignment of cases on the basis of the performance of a major O.R. procedure (in addition to the tracheostomy). 10. Medicare Code Editor (MCE) Changes [If you choose to comment on issues in this section, please include the caption “Medicare Code Editor” at the beginning of your comment.] As explained under section II.B.1. of this preamble, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. In this proposed rule, we are proposing to make changes to three of the edits in the MCE. a. Edit 11 (Noncovered Procedures) in the MCE contains codes that describe procedures for which Medicare does not provide reimbursement. We received a request to remove procedure codes relating to stem cell transplants from Edit 11 to conform the MCE edit to our published coverage decisions in the Medicare Coverage Issues Manual. In accordance with chapter 13, section 4 of the Program Integrity Manual (PIM), contractor discretion exists to cover diagnoses that are not explicitly stated in a national coverage decision as noncovered. Specifically this section states: that “a local medical review policy (LMRP)” must be clear, concise, properly formatted and not restrict or conflict with NCDs or coverage provision in interpretive manuals. If an NCD or coverage provision in an interpretive manual states that a given item is “covered for diagnoses/conditions A, B, and C,” contractors may not use that as a basis to develop LMRP to cover only “diagnosis/conditions A, B, C”. When an NCD or coverage provision in an interpretive manual does not exclude coverage for other diagnoses/conditions, contractors must allow for individual consideration unless the LMRP supports automatic denial for some or all of those other diagnoses/conditions.” The national coverage decision on stem cell transplantation provides for coverage of certain diagnoses and excludes coverage for other diagnoses. However, the vast majority of diagnoses are not mentioned as either covered or noncovered. In accordance with the above-cited provision of the PIM, contractors must allow for individual consideration of these diagnoses. Thus, they are not appropriate for inclusion in the edit for noncovered procedures. We agree that we need to make conforming changes relating to stem cell transplants. Therefore, we are proposing the following restructure of Edit 11: This list contains ICD-9-CM procedure codes identified as “Noncovered Procedures” that are always considered noncovered procedures: • 11.71, Keratomileusis • 11.72, Keratophakia • 11.75, Radial keratotomy • 11.76, Epikeratophakia • 36.32, Other transmyocardial revascularization • 37.35, Partial ventriculectomy • 37.52, Implantation of total replacement heart system • 37.53, Replacement or repair of thoracic unit of total replacement heart system • 37.54, Replacement or repair of other implantable component of total replacement heart system • 39.28, Extracranial-intracranial (EC-IC) vascular bypass • 44.93, Insertion of gastric bubble (balloon) • 50.51, Auxiliary liver transplant • 52.83, Heterotransplant of pancreas • 57.96, Implantation of electronic bladder stimulator • 57.97, Replacement of electronic bladder stimulator • 63.70, Male sterilization procedure, not otherwise specified • 63.71, Ligation of vas deferens • 63.72, Ligation of spermatic cord • 63.73, Vasectomy • 64.5, Operations for sex transformation, not elsewhere classified • 66.21, Bilateral endoscopic ligation and crushing of fallopian tubes • 66.22, Bilateral endoscopic ligation and division of fallopian tubes • 66.29, Other bilateral endoscopic destruction or occlusion of fallopian tubes • 66.31, Other bilateral ligation and crushing of fallopian tubes • 66.32, Other bilateral ligation and division of fallopian tubes • 66.39, Other bilateral destruction or occlusion of fallopian tubes • 98.52, Extracorporeal shockwav [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A04-10932. Public record. Not legal advice.