Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates
Federal RegisterMay 3, 2007
Ask Donna
What actually matters in this document.
Text
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 411, 412, 413, and 489
[CMS-1533-P]
RIN 0938-AO70
Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 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 certain provisions made by the Deficit Reduction Act of 2005 (Pub. L. 109-171), the Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief and Health Care Act of 2006 (Pub. L. 109-432), and the Pandemic and All-Hazards Preparedness Act (Pub. L. 109-417). 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. We also are setting forth proposed rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid in full or in part on a reasonable cost basis subject to these limits or that have a portion of a prospective payment system payment based on reasonable cost principles. These proposed changes would be applicable to discharges occurring on or after October 1, 2007.
In this proposed rule, we discuss our proposals to further refine the diagnosis-related group (DRG) system under the IPPS to better recognize severity of illness among patients—for FY 2008, we are proposing to adopt a Medicare Severity DRG (MS-DRG) classification system for the IPPS. We are also proposing to use the structure of the proposed MS-DRG system for the LTCH prospective payment system (referred to as MS-LTC-DRGs) for FY 2008.
Among the other policy changes that we are proposing to make are changes related to: Limited revisions of the reclassification of cases to proposed MS-DRGs, the proposed relative weights for the proposed MS-LTC-DRGs; the wage data, including the occupational mix data, used to compute the wage index; applications for new technologies and medical services add-on payments; payments to hospitals for the indirect costs of graduate medical education; submission of hospital quality data; provisions governing application of sanctions relating to the Emergency Medical Treatment and Labor Act of 1986 (EMTALA); provisions governing disclosure of physician ownership in hospitals and patient safety measures; and provisions relating to services furnished to beneficiaries in custody of penal authorities.
DATES:
To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 12, 2007.
ADDRESSES:
In commenting, please refer to file code CMS-1533-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates, please):
1.
Electronically.
You may submit electronic comments on specific issues in this regulation to
http://www.cms.hhs.gov/eRulemaking
. Click on the link “Submit electronic comments on CMS regulations with an open comment period”. (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.)
2.
By regular mail.
You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1533-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received before the close of the comment period.
3.
By express or overnight mail.
You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1533-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4.
By hand or courier.
If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or 7500 Security Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the Hubert H. 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 persons wishing to retain proof of filing by stamping in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.
Submission of comments on paperwork requirements.
You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the “Collection of Information Requirements” section in this document.
For information on viewing public comments, see the beginning of the
SUPPLEMENTARY INFORMATION
section.
FOR FURTHER INFORMATION CONTACT:
Marc Hartstein, (410) 786-4548, Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and Technology Add-On Payments, and Hospital Geographic Reclassifications Issues
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Critical Access Hospitals, and Long-Term Care (LTC)-DRG Issues
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Issues
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment Update Issues
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing Issues
Jacqueline Proctor, (410) 786-8852, Disclosure of Physician Ownership in Hospitals and Patient Safety Measures Issues
Fred Grabau, (410) 786-0206, Services to Beneficiaries in Custody of Penal Authorities Issues
SUPPLEMENTARY INFORMATION:
Submitting Comments:
We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1533-P
and the specific “issue identifier” that precedes the section on which you choose to comment.
Inspection of Public Comments:
All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:
http://www.cms.hhs.gov/eRulemaking
. Click on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments.
Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.
Electronic Access
This
Federal Register
document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents' home page address is
http://www.gpoaccess.gov/
, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password 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
AHA American Hospital Association
AHIMA American Health Information Management Association
AHRQ Agency for Health Care Research and Quality
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ASC Ambulatory surgical center
ASP Average sales price
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Pub. L. 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC Clinical Data Abstraction Center
CIPI Capital input price index
CPI Consumer price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-272
CPI Consumer price index
CY Calendar year
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L. 99-272
FDA Food and Drug Administration
FFY Federal fiscal year
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIC Health insurance card
HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HSA Health savings account
HSCRC Maryland Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Edition, Procedure Coding System
IHS Indian Health Service
IME Indirect medical education
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS Acute care hospital inpatient prospective payment system
IRF Inpatient rehabilitation facility
JCAHO Joint Commission on Accreditation of Healthcare Organizations
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Pub. L. 109-432
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
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)
PRM Provider Reimbursement Manual
PPI Producer price index
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)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RRC Rural referral center
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSA Social Security Administration
SSI Supplemental Security Income
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248
UHDDS Uniform hospital discharge data set
VBP Value-based purchasing
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
2. Hospitals and Hospital Units Excluded From the IPPS
a. Inpatient Rehabilitation Facilities (IRFs)
b. Long-Term Care Hospitals (LTCHs)
c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
C. Provisions of the Medicare Improvements and Extension Act Under Division B of the Tax Relief and Health Care Act of 2006
D. Provisions of the Pandemic and All-Hazards Preparedness Act
E. Major Contents of this Proposed Rule
1. Proposed DRG Reclassifications and Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage Index
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
4. Proposed Changes to the IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rate for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages
6. Services Furnished to Beneficiaries in Custody of Penal Authorities
7. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits
8. Impact Analysis
9. Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services
10. Discussion of Medicare Payment Advisory Commission Recommendations
II. Proposed Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Yearly Review for Making DRG Changes
C. MedPAC Recommendations for Revisions to the IPPS DRG System
D. Refinement of DRGs Based on Severity of Illness
1. Evaluation of Alternative Severity-Adjusted DRG Systems
a. Overview of Alternative DRG Classification Systems
b. Comparative Performance in Explaining Variation in Resource Use
c. Payment Accuracy and Case-Mix Impact
d. Issues for Future Consideration
2. Development of Proposed Medicare Severity DRGs (MS-DRGs)
a. Comprehensive Review of the CC List
b. Chronic Diagnosis Codes
c. Acute Diagnosis Codes
d. Prior Research on Subdivisions of CCs Into Multiple Categories
e. Proposed Medicare Severity DRGs (MS-DRGs)
3. Dividing Proposed MS-DRGs on the Basis of the CCs and MCCs
4. Conclusion
5. Impact of the Proposed MS-DRGs
6. Changes to Case-Mix Index (CMI) from the Proposed MS-DRGs
7. Effect of the Proposed MS-DRGs on the Outlier Threshold
8. Effect of the Proposed MS-DRGs on the Postacute Care Transfer Policy
E. Refinement of the Relative Weight Calculation
1. Summary of RTI's Report on Charge Compression
2. RTI Recommendations
a. Short-Term Recommendations
b. Medium-Term Recommendations
c. Long-Term Recommendations
F. Hospital-Acquired Conditions, Including Infections
1. General
2. Legislative Requirements
3. Public Input
4. Collaborative Effort
5. Criteria for Selection of the Hospital-Acquired Conditions
6. Proposed Selection of Hospital-Acquired Conditions
7. Other Issues
G. Proposed Changes to the Specific DRG Classifications
1. Pre-MDC: Intestinal Transplantations
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Implantable Neurostimulators
b. Intracranial Stents
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat)—Cochler Implants
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)
a. Hip and Knee Replacements
b. Spinal Fusions
c. Spinal Disc Devices
d. Other Spinal DRGs
5. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasm): Endoscopic Procedures
6. Medicare Code Editor (MCE) Changes
a. Non-Covered Procedure Edit: Code 00.62 (Percutaneous Angioplasty or Atherectomy of Intracranial Vessel(s))
b. Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R. Procedures Edit 10
c. Limited Coverage Edit 17
7. Surgical Hierarchies
8. CC Exclusion List Proposed for FY 2008
a. Background
b. Proposed CC Exclusions List for FY 2008
9. Review of Procedure Codes in CMS DRGs 468, 476, and 477
a. Moving Procedure Codes From CMS DRG 468 (Proposed MS-DRGs 981 Through 983) or CMS DRG 477 (Proposed MS-DRGs 987 Through 989) to MDCs
b. Reassignment of Procedures Among CMS DRGs 468, 476, and 477 (Proposed MS-DRG 981 Through 983, 984 Through 986, and 987 Through 989)
c. Adding Diagnosis or Procedure Codes to MDCs
10. Changes to the ICD-9-CM Coding System
11. Other Issues
a. Seizures and Headaches
b. Devices That Are Replaced Without Cost or Where Credit for a Replaced Device Is Furnished to the Hospital
H. Recalibration of DRG Weights
I. Proposed MS-LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2008
1. Background
2. Proposed Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications Into DRGs
3. Development of the Proposed FY 2008 MS-LTC-DRG Relative Weights
a. General Overview of Development of the Proposed MS-LTC-DRG Relative Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Proposed Treatment of Severity Levels in Developing Relative Weights
e. Proposed Low-Volume MS-LTC-DRGs
4. Steps for Determining the Proposed FY 2008 MS-LTC-DRG Relative Weights
J. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments
3. FY 2008 Status of Technologies Approved for FY 2007 Add-On Payments
a. Endovascular Graft Repair of the Thoracic Aorta
b. Restore
®
Rechargeable Implantable Neurostimulators
c. X STOP Interspinous Process Decompression System
4. FY 2008 Application for New Technology Add-On Payments
5. Technical Correction
III. Proposed Changes to the Hospital Wage Index
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Proposed Occupational Mix Adjustment to the Proposed FY 2008 Wage Index
1. Development of Data for the Proposed FY 2008 Occupational Mix Adjustment
2. Timeline for the Collection, Review, and Correction of the Occupational Mix Data
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2008
4. Proposed 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
D. Worksheet S-3 Wage Data for the Proposed FY 2008 Wage Index
1. Included Categories of Costs
2. Contract Labor for Indirect Patient Care Services
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers Other Than Acute Care Hospitals Under the IPPS
E. Verification of Worksheet S-3 Wage Data
F. Wage Index for Multicampus Hospitals
G. Computation of the Proposed FY 2008 Unadjusted Wage Index
1. Method for Computing the Proposed FY 2008 Unadjusted Wage Index
2. Expiration of the Imputed Floor
3. CAHs Reverting Back to IPPS Hospitals and Raising the Rural Floor
4. Application of Rural Floor Budget Neutrality
H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2008 Occupational Mix Adjusted Wage Index
I. Revisions to the Proposed Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2008 MGCRB Reclassifications
4. Hospitals That Applied for Reclassification Effective in FY 2008 and Reinstating Reclassifications in FY 2008
5. Clarification of Policy on Reinstating Reclassifications
6. “Fallback” Reclassifications
7. Geographic Reclassification Issues for Multicampus Hospitals
8. Redesignations of Hospitals under Section 1886(d)(8)(B) of the Act
9. Reclassifications Under Section 1886(d)(8)(B) of the Act
10. New England Deemed Counties
11. Reclassifications under Section 508 of Pub. L. 108-173
12. Other Issues
J. Proposed FY 2008 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees
K. Process for Requests for Wage Index Data Corrections
L. Labor-Related Share for the Proposed Wage Index for FY 2008
M. Wage Index Study Required Under Pub. L. 109-432
N. Proxy for the Hospital Market Basket
IV. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital Payment Update
1. Background
2. FY 2008 Quality Measures
3. New Quality Measures and Data Submission Requirements for FY 2009 and Subsequent Years
a. Proposed New Quality Measures for FY 2009 and Subsequent Years
b. Data Submission
4. Retiring or Modifying RHQDAPU Program Quality Measures
5. Procedures for the RHQDAPU Program for FY 2008 and FY 2009
a. Procedures for Participating in the RHQDAPU Program
b. Chart Validation Requirements
c. Data Validation and Attestation
d. Public Display
e. Reconsideration and Appeal Procedures
f. RHQDAPU Program Withdrawal Requirements
6. Electronic Medical Records
7. New Hospitals
B. Development of the Medicare Hospital Value-Based Purchasing Plan
C. Rural Referral Centers (RRCs)
1. Proposed Annual Update of RRC Status Criteria
a. Case-Mix Index
b. Discharges
2. Acquired Rural Status of RRCs
D. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2008
3. Time Spent by Residents on Vacation or Sick Leave and in Orientation
a. Background
b. Vacation and Sick Leave Time
c. Orientation Activities
d. Proposed Regulation Changes
E. Hospital Emergency Services Under EMTALA
1. Background
2. Recent Legislation Affecting EMTALA Implementation
a. Secretary's Authority to Waive Requirements During National Emergencies
b. Provisions of the Pandemic and All-Hazards Preparedness Act
c. Proposed Revisions to the EMTALA Regulations
F. Disclosure of Physician Ownership in Hospitals and Patient Safety Measures
1. Disclosure of Physician Ownership in Hospitals
2. Patient Safety Measures
G. Rural Community Hospital Demonstration Program
V. Proposed Changes to the IPPS for Capital-Related Costs
A. Background
B. Proposed Policy Change
VI. Proposed Changes for Hospitals and Hospital Units Excluded From the IPPS
A. Payments to Existing and New Excluded Hospitals and Hospital Units
B. Separate PPS for IRFs
C. Separate PPS for LTCHs
D. Separate PPS for IPFs
E. Determining Proposed LTCH Cost-to-Charge Ratios (CCRs) Under the LTCH PPS
VII. Services Furnished to Beneficiaries in Custody of Penal Authorities
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
C. Response to Public Comments
Regulation Text
Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2007
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2008
A. Calculation of the Proposed Adjusted Standardized Amount
1. Standardization of Base-Year Costs or Target Amounts
2. Computing the Proposed Average Standardized Amount
3. Updating the Proposed Average Standardized Amount
4. Other Adjustments to the Average Standardized Amount
a. Proposed Recalibration of DRG Weights and Updated Wage Index—Budget Neutrality Adjustment
b. Reclassified Hospitals—Budget Neutrality Adjustment
c. Case-Mix Budget Neutrality Adjustment
d. Outliers
e. Proposed Rural Community Hospital Demonstration Program Adjustment (Section 410A of Pub. L. 108-173)
5. Proposed FY 2008 Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
1. Proposed Adjustment for Area Wage Levels
2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
C. Proposed DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates for FY 2008
1. Federal Rate
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
b. Updating the FY 1982, FY 1987, FY 1996, and FY 2002 Hospital-Specific Rates for FY 2008
3. General Formula for Calculation of Proposed Prospective Payment Rates for Hospitals Located in Puerto Rico Beginning On or After October 1, 2007 and Before October 1, 2008
a. Puerto Rico Rate
b. National Rate
III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2008
A. Determination of Proposed Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update
1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
b. Comparison of CMS and MedPAC Update Recommendation
2. Proposed Outlier Payment Adjustment Factor
3. Proposed Budget Neutrality Adjustment Factor for Changes in DRG Classifications and Weights and the GAF
4. Proposed Exceptions Payment Adjustment Factor
5. Proposed Capital Standard Federal Rate for FY 2008
6. Proposed Special Capital Rate for Puerto Rico Hospitals
B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2008
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2008
IV. Proposed Changes to Payment Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages
A. Payments to Existing Excluded Hospitals and Units
B. New Excluded Hospitals and Units
V. Tables
Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Is Greater Than 1)
Table 1B—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1)
Table 1C—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor
Table 1D—Capital Standard Federal Payment Rate
Table 2—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2006; Hospital Wage Indexes for Federal Fiscal Year 2008; Hospital Average Hourly Wages for Federal Fiscal Years 2006 (2002 Wage Data), 2007 (2003 Wage Data), and 2008 (2004 Wage Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A—FY 2008 and 3-Year Average Hourly Wage for Urban Areas by CBSA
Table 3B—FY 2008 and 3-Year Average Hourly Wage for Rural Areas by CBSA
Table 4A—Wage Index and Capital Geographic Adjustment Factor (GAF) for Urban Areas by CBSA—FY 2008
Table 4B—Wage Index and Capital Geographic Adjustment Factor (GAF) for Rural Areas by CBSA—FY 2008
Table 4C—Wage Index and Capital Geographic Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA—FY 2008
Table 4F—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) by CBSA—FY 2008
Table 4J—Out-Migration Wage Adjustment—FY 2008
Table 5—List of Proposed Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay
Table 6A—New Diagnosis Codes
Table 6B—New Procedure Codes
Table 6C—Invalid Diagnosis Codes
Table 6D—Invalid Procedure Codes
Table 6E—Revised Diagnosis Code Titles
Table 6F—Revised Procedure Code Titles
Table 6G—Additions to the CC Exclusion List (Available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6H—Deletions from the CC Exclusion List (Available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6I—Complete List of Complication and Comorbidity (CC) Exclusions (Available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6J—Major Complication and Comorbidity (MCC) List
Table 6K—Complications and Comorbidity (CC) List
Table 7A—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2006 MedPAR Update—December 2006 GROUPER V24.0 CMS-DRGs
Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2006 MedPAR Update—December 2006 GROUPER V25.0 CMS DRGs
Table 8A—Proposed Statewide Average Operating Cost-to-Charge Ratios—March 2007
Table 8B—Proposed Statewide Average Capital Cost-to-Charge Ratios—March 2007
Table 8C—Proposed Statewide Average Total Cost-to-Charge Ratios for LTCHs—March 2007
Table 9A—Hospital Reclassifications and Redesignations—FY 2008
Table 9C—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2008
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 Proposed Medicare Severity Diagnosis-Related Groups (MS-DRGs)—March 2007
Table 11—Proposed FY 2008 MS-LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and 5/6ths of the Geometric Average Length of Stay
Appendix A—Regulatory Impact Analysis
I. Overall Impact
II. Objectives
III. Limitations on Our Analysis
IV. Hospitals Included In and Excluded From the IPPS
V. Effects on Excluded Hospitals and Hospital Units
VI. Quantitative Effects of the Proposed Policy Changes Under the IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Proposed Changes to the DRG Reclassifications and Relative Cost-Based Weights (Column 2)
D. Effects of Proposed Wage Index Changes (Column 3)
E. Combined Effects of Proposed DRG and Wage Index Changes (Column 4)
F. Effects of the Expiration of the 3-Year Provision Allowing Urban Hospitals That Were Converted to Rural as a Result of the FY 2005 Labor Market Area Changes to Maintain the Wage Index of the Urban Labor Market Area in Which They Were Formerly Located (Column 5)
G. Effects of MGCRB Reclassifications (Column 6)
H. Effects of the Adjustment to the Application of the Rural Floor (Column 7)
I. Effects of Expiration of the Imputed Rural Floor (Column 8)
J. Effects of the Expiration of Section 508 of Pub. L. 108-173 (Column 9)
K. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 10)
L. Effects of All Proposed Changes With CMI Adjustment Prior to Assumed Growth (Column 11)
M. Effects of All Proposed Changes With CMI Adjustment and Assumed Growth (Column 12)
N. Effects of Proposed Policy on Payment Adjustment for Low-Volume Hospitals
O. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on Hospital-Acquired Conditions, Including Infections
B. Effects of Proposed MS-LTC-DRG Reclassifications and Relative Weights for LTCHs
C. Effects of Proposed New Technology Add-On Payments
D. Effects of Requirements for Hospital Reporting of Quality Data for Annual Hospital Payment Update
E. Effects of Proposed Policy on Cancellation of Classification of Acquired Rural Status and Rural Referral Centers
F. Effects of Proposed Policy Change on Payment for Indirect Graduate Medical Education
G. Effects of Proposed Policy Changes Relating to Emergency Services Under EMTALA
H. Effects of Proposed Policy on Disclosure of Physician Ownership in Hospitals and Patient Safety Measures
I. Effects of Implementation of Rural Community Hospital Demonstration Program
J. Effects of Proposed Policy Changes on Services Furnished to Beneficiaries in Custody of Penal Authorities
VIII. Effects of Proposed Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866
Appendix B—Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2008
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at
predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).
The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located; 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, FY 1996, or FY 2002) 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. (Until FY 2007, an MDH has received the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospital-specific rate if the hospital-specific rate is higher than the IPPS rate. In addition, an MDH does not have the option of using FY 1996 as the base year for its hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the IPPS rate and its hospital-specific rate, if the hospital-specific rate is higher than the IPPS rate.)
Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.
a. Inpatient Rehabilitation Facilities (IRFs)
Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR part 412, subpart P.
b. Long-Term Care Hospitals (LTCHs)
Under the authority of sections 123(a) and (c) of Pub. L. 106-113 and section 307(b)(1) of Pub. L. 106-554, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of “new” under § 412.23(e)(4) are paid, during a 5-year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of “new” could elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5-year transition. For cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a) and (c) of Pub. L. 106-113, inpatient
psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF PPS. Under the IPF PPS, some IPFs are transitioning from being paid for inpatient hospital services based on a blend of reasonable cost-based payment and a Federal per diem payment rate, effective for cost reporting periods beginning on or after January 1, 2005. For cost reporting periods beginning on or after January 1, 2008, all IPFs will be paid 100 percent of the Federal per diem payment amount. The existing regulations governing payment under the IPF PPS are located in 42 CFR 412, subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415.
4. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act; the amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413.
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
The Deficit Reduction Act of 2005 (DRA), Pub. L. 109-171, made a number of changes to the Act relating to prospective payments to hospitals and other providers for inpatient services. This proposed rule would implement amendments made by (1) section 5001(a), which, effective for FY 2007 and subsequent years, expands the requirements for hospital quality data reporting; and (2) section 5001(c), which requires the Secretary to select, by October 1, 2007, at least two hospital-acquired conditions that meet certain specified criteria that will be subject to a quality adjustment in DRG payments during FY 2008.
In this proposed rule, we also discuss our development of a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals, in accordance with the requirements of section 5001(b) of Pub. L. 109-171.
C. Provisions of the Medicare Improvements and Extension Act Under Division B of the Tax Relief and Health Care Act of 2006
In this proposed rule, we discuss the provisions of section 106(b)(1) of the Medicare Improvements and Extensions Act under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA), Pub. L. 109-432, which requires MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare wage index classification system applied under the Medicare Prospective Payment System. Section 106(b) of the MIEA-TRHCA requires the report to include any alternatives that MedPAC recommends to the method to compute the wage index under section 1886(d)(3)(E) of the Act.
In addition, we discuss the provisions of section 106(b)(2) of the MIEA-TRHCA, which instructs the Secretary of Health and Human Services, taking into account MedPAC's recommendations on the Medicare wage index classification system, to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS.
We note that we published a notice in the
Federal Register
on March 23, 2007 (72 FR 13799) that addressed the provisions of section 106(a) of the MIEA-TRHCA relating to the extension of geographic reclassifications of hospitals under section 508 of Pub. L. 108-173 (that expired on March 31, 2007) through September 30, 2007.
D. Provisions of the Pandemic and All-Hazards Preparedness Act
On December 19, 2006, Congress enacted the Pandemic and All-Hazards Preparedness Act, Pub. L. 109-417. Section 302(b) of Pub. L. 109-417 makes two specific changes that affect EMTALA implementation in emergency areas during an emergency period. Specifically section 302(b)(1)(A) of Pub. L. 109-417 amended section 1135(b)(3)(B) of the Act to state that sanctions may be waived for the direction or relocation of an individual for screening where, in the case of a public health emergency that involves a pandemic infections disease, that direction or relocation occurs pursuant to a State pandemic preparedness plan. In addition, sections 302(b)(1)(B) and (b)(1)(C) of Pub. L. 109-417 amended section 1135(b)(3)(B) of the Act to state that, if a public health emergency involves a pandemic infectious disease (such as pandemic influenza), the duration of a waiver or modification under section 1135(b)(3) of the Act (relating to EMTALA) shall be determined in accordance with section 1135(e) of the Act as that subsection applies to public health emergencies.
In this proposed rule, we are proposing to make changes to the EMTALA regulations to conform them to the sanction waiver provisions of section 302(b) of Pub. L. 109-417.
E. Major Contents of This Proposed Rule
In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2008. We also are setting forth proposed changes relating to payments for IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis. The changes being proposed would be effective for discharges occurring on or after October 1, 2007, unless otherwise noted.
The following is a summary of the major changes that we are proposing to make:
1. Proposed DRG Reclassifications and Recalibrations of Relative Weights
We are proposing to adopt a Medicare Severity DRG (MS-DRG) classification system for the IPPS to better recognize severity of illness. We present the methodology we used to establish the proposed MS-DRGs and discuss our efforts to further analyze alternative severity-adjusted DRG systems and to refine the relative weight calculations for DRGs.
We present a proposed listing and discussion of hospital-acquired conditions, including infections, which we have evaluated and are considering for selection to be subject to the statutorily required quality adjustment in DRG payments for FY 2008.
We are proposing limited annual revisions to the DRG classification system in the following areas: intestinal transplants, neurostimulators, intracranial stents, cochlear implants, knee and hip replacements, spinal fusions and spinal disc devices, and endoscopic procedures.
We are presenting our reevaluation of certain FY 2007 applicants for add-on payments for high-cost new medical services and technologies, and our analysis of the FY 2008 applicant
(including public input, as directed by Pub. L. 108-173, obtained in a town hall 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 2008. We are proposing that the LTC-DRGs would be revised to mirror the proposed MS-DRGs for the IPPS.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to this proposed rule, we are proposing revisions to the wage index and the annual update of the wage data. Specific issues addressed include the following:
• The FY 2008 wage index update, using wage data from cost reporting periods that began during FY 2004.
• Analysis and implementation of the proposed FY 2008 occupational mix adjustment to the wage index.
• Proposed changes relating to expiration of the imputed floor for the wage index and application of budget neutrality for the rural floor.
• Proposed changes in determining the wage index for multicampus hospitals.
• The proposed revisions to the wage index based on hospital redesignations and reclassifications, including reclassifications for multicampus hospitals.
• The proposed adjustment to the wage index for FY 2008 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• The timetable for reviewing and verifying the wage data that will be in effect for the proposed FY 2008 wage index.
• The labor-related share for the FY 2008 wage index, including the labor-related share for Puerto Rico.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
In section IV. of the preamble to this proposed rule, we discuss a number of provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:
• The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
• Development of the Medicare value-based purchasing plan and scheduled “listening sessions.”
• The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status and a proposed policy change relating to the acquired rural status of RRCs.
• The statutorily-required IME adjustment factor for FY 2008 and a proposed policy change relating to determining counts of residents on vacation or sick leave and in orientation for IME and direct GME purposes.
• Proposed changes relating to waiver of sanctions for requirements for emergency services for hospitals under EMTALA during national emergency.
• Proposed policy changes relating to disclosure to patients of physician ownership of hospitals and patient safety measures.
• Discussion of the fourth year of implementation of the Rural Community Hospital Demonstration Program.
4. Proposed Changes to the IPPS for Capital-Related Costs
In section V. of the preamble to this proposed rule, we discuss the payment policy requirements for capital-related costs and capital payments to hospitals and propose changes relating to adjustments to the Federal capital rate to address continuous large positive margins.
5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages
In section VI. of the preamble to this proposed rule, we discuss payments to excluded hospitals and hospital units, and proposed changes for determining LTCH CCRs under the LTCH PPS.
6. Services Furnished to Beneficiaries in Custody of Penal Authorities
In section VII. of the preamble to this proposed rule, we clarify when individuals are considered to be in “custody” for purposes of Medicare payment for services furnished to beneficiaries who are under penal authorities.
7. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits
In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2008 prospective payment rates for operating costs and capital-related costs. We also establish the proposed threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2008 for hospitals and hospital units excluded from the PPS.
8. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals.
9. Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services
In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2008 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.
10. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2007 recommendation concerning hospital inpatient payment policies addressed 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 of this proposed rule. For further information relating specifically to the MedPAC March 2007 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at:
http://www.medpac.gov
.
II. Proposed Changes to DRG Classifications and Relative Weights
(If you choose to comment on issues in this section, please include the caption “DRG Reclassifications” at the beginning of your comment.)
A. Background
Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to
which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.
B. DRG Reclassifications
1. General
As discussed in the preamble to the FY 2007 IPPS final rule (71 FR 47881 through 47971), we are focusing our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its “Report to the Congress, Physician-Owned Specialty Hospitals” in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking into account severity of illness and applying hospital-specific relative value (HSRV) weights to DRGs.
1
We began this reform process by adopting cost-based weights over a 3-year transition period beginning in FY 2007 and making interim changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and modifying 32 others across 13 different clinical areas involving nearly 1.7 million cases. As described below in more detail, these refinements are intermediate steps towards comprehensive reform of both the relative weights and the DRG system that is occurring as we undertake further study.
1
Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty Hospitals
, March 2005, page viii.
Currently, cases are classified into CMS 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).
The process of forming the DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The MDCs were formed by physician panels as the first step toward ensuring that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final DRG could contain patients in different MDCs. Most MDCs are based on a particular organ system of the body. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2007, cases are assigned to one of 538 DRGs in 25 MDCs. The table below lists the 25 MDCs.
Major Diagnostic Categories (MDCs)
1
Diseases and Disorders of the Nervous System.
2
Diseases and Disorders of the Eye.
3
Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
4
Diseases and Disorders of the Respiratory System.
5
Diseases and Disorders of the Circulatory System.
6
Diseases and Disorders of the Digestive System.
7
Diseases and Disorders of the Hepatobiliary System and Pancreas.
8
Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
9
Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
10
Endocrine, Nutritional and Metabolic Diseases and Disorders.
11
Diseases and Disorders of the Kidney and Urinary Tract.
12
Diseases and Disorders of the Male Reproductive System.
13
Diseases and Disorders of the Female Reproductive System.
14
Pregnancy, Childbirth, and the Puerperium.
15
Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
16
Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
17
Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
18
Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
19
Mental Diseases and Disorders.
20
Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
21
Injuries, Poisonings, and Toxic Effects of Drugs.
22
Burns.
23
Factors Influencing Health Status and Other Contacts with Health Services.
24
Multiple Significant Trauma.
25
Human Immunodeficiency Virus Infections.
In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to a DRG. However, for FY 2007, there are 9 DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These DRGs are for heart transplant or implant of heart assist systems, liver and/or intestinal transplants, bone marrow transplants, lung transplants, simultaneous pancreas/kidney transplants, pancreas transplants, and
for tracheostomies. Cases are assigned to these DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.
Pre-Major Diagnostic Categories (Pre-MDCs)
DRG 103
Heart Transplant or Implant of Heart Assist System.
DRG 480
Liver Transplant and/or Intestinal Transplant.
DRG 481
Bone Marrow Transplant.
DRG 482
Tracheostomy for Face, Mouth, and Neck Diagnoses.
DRG 495
Lung Transplant.
DRG 512
Simultaneous Pancreas/Kidney Transplant.
DRG 513
Pancreas Transplant.
DRG 541
ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
DRG 542
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis without Major O.R.
Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on the consumption of hospital resources. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC).
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. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones.
Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications, comorbidities, or the patient's age would consistently affect the consumption of hospital resources. Physician panels classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial CC. A substantial CC was defined as a condition which, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least one day in at least 75 percent of the patients. Each medical and surgical class within an MDC was tested to determine if the presence of any substantial CC would consistently affect the consumption of hospital resources.
A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into 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, the PRICER software calculates a base DRG payment. The PRICER calculates the payment 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 FY 2000 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule.
In this IPPS proposed rule for FY 2008, we are proposing to adopt significant changes to the current DRGs. As described in detail below, we are proposing significant improvement in the DRG system to recognize severity of illness and resource usage by proposing to adopt Medicare Severity DRGs (MS-DRGs). The changes we are proposing in this proposed rule would be reflected in the FY 2008 GROUPER, Version 25.0, and would be effective for discharges occurring on or after October 1, 2007. Unless otherwise noted in this proposed rule, our DRG analysis is based on data from the December 2006 update of the FY 2006 MedPAR file, which contains hospital bills received through December 31, 2006, for discharges occurring in FY 2006.
2. Yearly Review for Making DRG Changes
Many of the changes to the DRG classifications we make annually 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 annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in
the 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 actual process of forming the DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. We describe in detail below the process we used to develop the proposed MS-DRGs. In addition, in deciding whether to make further modification to the proposed MS-DRGs for particular circumstances brought to our attention, we would consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the proposed MS-DRG. We would evaluate patient care costs using average charges and lengths of stay as proxies for costs and rely on the judgment of our medical officers to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we would consider both the absolute and percentage differences in average charges between the cases we would select for review and the remainder of cases in the MS-DRG. We also would consider variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we also would consider the number of patients who will have a given set of characteristics and generally would prefer not to create a new DRG unless it would include a substantial number of cases.
C. MedPAC Recommendations for Revisions to the IPPS DRG System
In the FY 2006 and FY 2007 IPPS final rules, we discussed a number of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482 and 71 FR 47881 through 47939).
In Recommendations 1-3 in the 2005 Report to Congress on Physician-Owned Specialty Hospitals, MedPAC recommended that CMS:
• Refine the current DRGs to more fully capture differences in severity of illness among patients.
• Base the DRG relative weights on the estimated cost of providing care.
• Base the weights on the national average of the hospital-specific relative values (HSRVs) for each DRG (using hospital-specific costs to derive the HSRVs).
• Adjust the DRG relative weights to account for differences in the prevalence of high-cost outlier cases.
• Implement the case-mix measurement and outlier policies over a transitional period.
As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). However, based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. Rather, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contain 1,666,476 cases and represent a number of body systems. In creating these 20 new DRGs, we deleted 8 and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008. In the FY 2007 IPPS final rule, we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's to adopt severity DRGs. We describe in detail below the progress we have made on these two initiatives, our proposed actions for FY 2008, and our plans for continued analysis of reform of the DRG system for FY 2009. We note that revising the DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and the DSH adjustments. We discuss these implications in more detail in the following sections.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology beginning with the FY 2007 IPPS proposed rule. Although we proposed to adopt HSRV weights for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the hospital-specific portion of the methodology. The cost weights are being adopted over a 3-year transition period in 1/3 increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the hospital-specific methodology as well as other issues brought to our attention with respect to the cost weights. There was significant concern in the public comments that we account for charge compression or the practice of applying a higher charge markup over costs to lower cost than higher cost items and services, if we are to develop relative weights based on cost. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost report to determine departmental level cost-to-charge ratios (CCRs) to apply to charges on the Medicare claims to determine the cost weights. The commenters were concerned about potential distortions to the cost weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International to study both charge compression and to what extent our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost report and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the
RAND Corporation is analyzing the HSRV cost-weighting methodology.
As we present below, we believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any system that groups cases will always present some opportunities for providers to specialize in cases they believe to have higher margins, we believe that the changes we have adopted and the continuing reforms we are proposing to adopt for FY 2008 will improve payment accuracy and reduce financial incentives to create specialty hospitals.
D. Refinement of DRGs Based on Severity of Illness
(If you choose to comment on issues in this section, please include the caption “DRG Reform and Proposed MS-DRGs” at the beginning of your comment.)
For purposes of the following discussions, the term “CMS DRGs” means the DRG system we currently use under the IPPS; the term “Medicare-Severity DRGs (MS-DRGs)” means the revisions that we are proposing to make to the current CMS DRGs to better recognize severity of illness and resource use based on case complexity. Although we have found the terms “CMS DRGs” and “MS-DRGs” useful to distinguish the current DRG system from the DRGs that we are proposing to adopt for FY 2008, we are interested in public comments on how to best refer to both the current DRGs and the proposed DRGs to avoid confusion and improve clarity.
1. Evaluation of Alternative Severity-Adjusted DRG Systems
In the FY 2007 IPPS final rule, we stated our intent to engage a contractor to assist us with an evaluation of alternative DRG systems that may better recognize severity than the current CMS DRGs. We noted it was possible that some of the alternative systems would better recognize severity of illness and are based on the current CMS DRGs. We further stated that if we were to develop a clinical severity concept using the current CMS DRGs as the starting point, it was possible that several of the issues raised by commenters (in response to the CS DRGs, which, in the FY 2007 IPPS proposed rule, we proposed to adopt for FY 2008 or earlier) would no longer be a concern. We noted that if we were to propose adoption of severity DRGs for FY 2008, we would consider the issues raised by commenters on last year's proposed rule as we continued to make further refinements to account for complexity as well as severity to better reflect relative resource use. We stated that we believed it was likely that at least one of several alternative severity-adjusted DRG systems suggested for review (or potentially a system we would develop ourselves) would be suitable to achieve our goal of improving payment accuracy beginning in FY 2008.
On September 1, 2006, we awarded a contract to the RAND Corporation to perform an evaluation of alternative severity-adjusted DRG classification systems. RAND is evaluating several alternative DRG systems based on how well they are suited to classifying and making payments for inpatient hospital services provided to Medicare patients. Each system is being assessed on its ability to differentiate among severity of illness. A final report is due on or before September 1, 2007.
RAND's draft interim report focused on the following criteria:
• Severity-adjusted DRG classification systems: —How well does each classification system explain variation in resource use? —How would the classification system affect a hospital's patient mix? —Are the groupings manageable, administratively feasible and understandable?
• Payment accuracy—What are the payment implications of selected models?
In response to our request, several vendors of DRG systems submitted their products for evaluation. The following products are currently being evaluated by RAND:
3M/Health Information Systems (HIS)
• CMS DRGs modified for AP-DRG Logic (CMS + AP-DRGs)
• Consolidated Severity-Adjusted DRGs (CS DRGs)
Health Systems Consultants (HSC)
• Refined DRGs (HSC-DRGs)
HSS/Ingenix
• All-Payer Severity DRGs with Medicare modifications (MM-APS-DRGs)
Solucient
• Solucient Refined DRGs (Sol-DRGs)
Vendors submitted their commercial (off-the-shelf) software to RAND in late September 2006. The five systems were compared to the CMS DRGs that were in effect as of October 1, 2006 (FY 2007). RAND assigned FY 2004 and FY 2005 Medicare discharges from acute care hospitals to the FY 2007 CMS DRGs and to each of the alternative severity-adjusted DRG systems. RAND's initial analysis provided an overview of each alternative DRG classification system, their comparative performance in explaining variation in resource use, differences in DRG grouping logic, and case-mix change.
A Technical Expert Panel comprised of individuals representing academic institutions, hospital associations, and MedPAC was formed in October 2006. The members received the preliminary draft report of RAND's alternative severity-adjusted DRG systems evaluation in early January 2007. The panel met with RAND and CMS on January 18, 2007, to discuss the preliminary draft report and to provide additional comments. RAND incorporated items raised by the panel into its preliminary draft report and submitted a revised interim report to CMS in mid-March 2007. CMS posted RAND's interim report on the CMS Web site in late March 2007. Interested individuals can view RAND's interim report on the CMS Web site at:
http://www.cms.hhs.gov/Reports/downloads/Wynn0307.pdf.
At this time, RAND has not completed its final evaluation. RAND's interim report reflects its preliminary evaluation of the alternative DRG systems using the criteria described above. In the project's second phase, RAND will continue to evaluate alternative DRG systems as well as to compare performance using HSRVs. As RAND has not completed its evaluation of alternative DRG systems, we are not ready at this time to propose use of one of the alternative DRG systems being evaluated for Medicare in FY 2008. Further, even if RAND had completed its evaluation, we would need to explore whether any transition issues would need to be resolved before we are ready to propose adopting an alternative DRG system. Among other issues, we would need to evaluate the legal and contractual issues associated with adopting a proprietary DRG product. Although vendors for four of the five systems have indicated a willingness to make their products available in the public domain, we believe it is likely there would need to be some discussion as to whether there would be any limitations (such as the source code as well as the DRG logic) on the availability of the DRG systems to hospitals or competing vendors. Further, we would need to resolve contractual issues for updates and maintenance of an alternative DRG system and consider how they interact with our current ongoing contract to maintain the CMS DRGs. There may be further system conversion issues that we have not yet considered. The RAND
contract will be complete by September 1, 2007. Once RAND completes its work, we believe we will be in a better position to evaluate whether it would be appropriate to propose to adopt one of the five alternative DRG systems for purposes of the IPPS.
As discussed later in this proposed rule, we are proposing to adopt MS-DRGs beginning with FY 2008. The MS-DRGs are the result of modifications to the CMS DRGs to better account for severity. While we are proposing to implement the MS-DRGs on October 1, 2007, we believe the MS-DRGs should be evaluated by RAND. We have instructed RAND to evaluate the proposed MS-DRGs using the same criteria that it is applying to the other DRG systems. As described below, we believe the proposed MS-DRGs represent a substantial improvement in the recognition of severity of illness and resource consumption. For this reason, we are proposing to adopt MS-DRGs for FY 2008.
As stated earlier, a final report is expected from RAND by September 1, 2007. This report will include further analysis of the five alternative DRG systems and the additional evaluation of the MS-DRGs. We look forward to reviewing RAND's final report that will provide a comprehensive evaluation of each severity DRG system that has been examined. We anticipate that after this process is completed, we will have the necessary information to decide our next steps in the reform of the IPPS. Meanwhile, we are proposing to adopt the MS-DRGs for FY 2008 and are providing the following update on RAND's progress in evaluating alternative DRG systems.
We invite public comment regarding RAND's preliminary analysis of each vendor-supplied alternative severity-adjusted DRG system described below.
a. Overview of Alternative DRG Classification Systems
Analysis of how each of the five severity-adjusted DRG systems performs began by using the current CMS DRGs as a baseline. Two of the five systems (CS DRGs and MM-APS-DRGs) are derivatives of all-patient severity-adjusted DRG systems that have been modified by their developers for the Medicare population and two of the systems (HSC-DRGs and Sol-DRGs) are all-patient systems that incorporate severity levels into the CMS DRGs. The CMS-AP-DRGs are a combination of CMS DRGs and a modification for the Medicare population of the major CC severity groupings used in the AP-DRG system. (The AP-DRG system was developed by 3M/HIS specifically for the State of New York to capture the non-Medicare population.)
Table A below shows how each of the five alternative severity-adjusted systems classifies patients into base DRGs and their corresponding severity levels.
Table A.—Logic of CMS and Alternative DRG Systems
Classification element
CMS DRG
CMS+AP-DRG
HSC-DRG
Sol--DRG
MM-APS-DRG
Con-APR-DRG
Number of MDCs
25
25
25
25
25
25
Number of Pre-MDC base DRGs
9
9
9
9
9
7
Number of base DRGs
379
379
215 ADRGs
248 ADRGs
361
379
Total number of Pre-MDC DRGs
9
9
30
27
27
9
Total number of DRGs
538
602
1,274
1,261
915
859
Number of CC (severity) subclasses
2
3
3 (medical) or 4 (surgical)
3 (medical) or 4 (surgical)
3
4
CC subclasses
With CC without CC for selected base DRGs
Without CC With CC for selected base DRGs and With MCC across DRGs within MDC
No CC, Class C CC, Class B CC, Class A CC (surgical only)
Minor/no substantial CCs, moderate CCs, MCCs, catastrophic CCs (surgical only)
Without CC, with CC with MCC with some collapsing at base DRG level
Minor, moderate, major, severe with some collapsing at DRG level.
Multiple CCs recognized
No
No
No
No
Yes (in computation of weights
Yes.
CC assignment specific to base DRG
Mostly no
Mostly no
Mostly no
Mostly no
No
Yes.
Logic of CC subdivision
Presence/absence
Presence/absence
Presence/absence
Presence/absence
Presence/absence
18-step process.
Logic of MDC assignment
Principal diagnosis
Principal diagnosis
Principal diagnosis
Principal diagnosis
Principal diagnosis
Principal diagnosis with rerouting.
Death used in DRG assignment
Yes (in selected DRGs)
Yes (in selected DRGs)
Yes (includes “early death” DRGs)
Yes (includes “early death” DRGs)
Yes (in selected DRGs)
No.
Complications of care are CCs
Yes
Yes
Yes
Yes
Yes, when recognized as a CC No, when CC represents “poor medical care”
Few.
RAND's preliminary evaluation of the logic for each system demonstrated the following:
• Four systems add severity levels to the base CMS DRGs; the CS DRGs add severity levels to base APR-DRGs, which are comparable but not identical to the base CMS DRGs. Both the CS DRGs and MM-APS-DRGs collapse some base DRGs with low Medicare volume.
• The HSC-DRGs and the Sol-DRGs use uniform severity levels for each base DRG (three for medical and four for surgical). The general structure of the MM-APS-DRG logic includes three severity levels for each base DRG, but some severity levels for the same base DRG are consolidated to address Medicare low-volume DRGs and monotonicity issues. Monotonicity is when the average costs for a severity group consistently rise as the severity level of the group increases. For example, in a monotonic system, if within a base DRG there are three severity groups and level 1 severity is less than level 2 severity and level 2 severity is less than level 3 severity, the average costs for a level 3 case would be greater than the average costs for a level 2 case, which would be greater than the average costs for a level 1 case. The general structure of the CS DRGs includes four severity levels for each base DRG. However, severity level consolidations occur to address Medicare low-volume DRGs and monotonicity. The CS DRGs consolidate both adjacent severity levels for the same base DRG and the same severity level across multiple base DRGs (especially for severity level 4).
• Under the CMS+AP-DRGs and MM-APS-DRGs, each diagnosis is assigned a uniform CC-severity level across all base DRGs (other than CCs on the exclusion list for specific principal diagnoses). The remaining systems assign diagnoses to CC-severity level classifications by groups of DRGs.
• Under the grouping logic used by all systems other than the CS DRGs, each discharge is assigned to the highest severity level of any secondary diagnosis. The CS DRGs adjust the initial severity level assignment based on other factors, including the presence of additional CCs. None of the other systems adjust the severity level classification for additional factors or CCs. However, the MM-APS-DRG system handles additional CCs through an enhanced relative weight.
• The HSC-DRGs and the Sol-DRGs have a medical “early death” DRG within each MDC.
• The CS DRGs do not use death in the grouping logic. In addition, most complications of care do not affect the DRG assignment.
b. Comparative Performance in Explaining Variation in Resource Use
In evaluating the comparative performance of each alternative DRG system, RAND used MedPAR data from FY 2004 and FY 2005. RAND excluded data from CAHs, Indian Health Service (IHS) hospitals, and hospitals that have all-inclusive rate charging practices. Consistent with CMS practice, RAND did not exclude data from Maryland hospitals, which operate under an IPPS waiver. Records that failed edits for data consistency or that had missing variables that were needed to determine standardized costs were also excluded.
RAND reported that evaluation of each alternative severity-adjusted DRG system is a complex process due to differences in how each of the severity levels are applied, the number of severity-adjusted DRGs in each system, and the average number of discharges assigned to each DRG. In addition, the manner in which the DRGs for patients 0-17 years of age are assigned in the severity-adjusted systems affects the number of low-volume DRGs using Medicare discharges.
Low-volume, severity-adjusted DRGs can affect the relative performance of a classification system. However, the percentage of Medicare discharges assigned to these DRGs is small—approximately 0.7 percent in the HSC-DRG and Sol-DRG systems compared to 0.1 percent in the CMS DRGs.
In determining how much within-DRG variation exists for each alternative severity-adjusted DRG system, RAND calculated the mean standardized cost, standard deviation, and coefficient of variation for each DRG among the systems. The coefficient of variation (CV) is the standard deviation divided by the mean. The CV allowed RAND to compare the variation of populations that contain significantly different mean values. Preliminary results of the comparison demonstrate that all five severity-adjusted systems reduce the amount of variation within DRGs. The HSC-DRGs and Sol-DRGs have a slightly higher proportion of patients assigned to DRGs with a CV<76 percent but also have a higher proportion of patients assigned to DRGs with a CV≥100 percent. The CS DRGs had a slightly lower percentage of patients assigned to DRGs with a CV<76 percent than the other severity-adjusted systems. The MM-APS-DRGs, CS DRGs, and CMS+AP-DRGs all have fewer than 2 percent of patients assigned to DRGs with a CV≥100 percent.
RAND utilized a general linear regression model to evaluate how well each severity-adjusted DRG system explains variation in costs per case. The initial results demonstrate that all five severity-adjusted DRG systems predict cost better than the CMS DRGs. The CS DRGs have higher adjusted R
2
values (explanatory power) than the other severity-adjusted systems in nearly every MDC. In general, the adjusted R
2
value for the CS DRGs is 0.4458, a 13-percent improvement over the adjusted R
2
value for the CMS DRGs. The HSC-DRGs demonstrate an 11-percent improvement, while the adjusted R
2
values for the MM-APS-DRGs and Sol-DRGs are 10.0 percent and 9.7 percent higher respectively, than the CMS DRG R
2
value. The CMS+AP-DRGs show the smallest improvement, nearly 8 percent.
Another aspect of RAND's evaluation was to identify the validity of each alternative DRG system as a measurement for resource costs. For a base DRG, the severity levels should be monotonic; that is, the mean cost per discharge should increase simultaneously with an increase in the severity level. A distinction between patient groups and varying treatment costs should be accomplished by the severity levels. RAND studied the percentage differences and absolute differences in cost between the severity levels within the base DRGs for each system under evaluation. For the two systems (CMS+AP-DRGs and CS DRGs) that include several base DRGs, RAND assigned those discharges to the lower severity level base DRG. Following that methodology, RAND was able to calculate how much more costly the discharges assigned to the consolidated or lower severity levels were than the discharges in the base DRG assigned to the next higher severity level. Preliminary results demonstrate that, overall, monotonicity is not a factor across the alternative DRG systems. There are only a small percentage of discharges that are assigned to nonmonotonic DRGs. When a DRG is nonmonotonic, the mean cost in the higher severity level is less than the mean cost in the lower severity level.
Using the data from severity of illness levels 1 through 3 (except for the MM-APS-DRGs, which do not have a severity of illness level 3), RAND calculated the discharge-weighted mean cost difference between severity levels and the mean ratio of the cost per discharge for the higher severity level to the adjacent lower severity level. The greatest cost discrimination was present in the higher severity levels versus the lower severity levels across all the systems. The mean cost difference between severity of illness level 1 and severity of illness level 0 was reported to be less than $2,000 for all the severity-adjusted systems. The CMS+AP DRGs have the least amount of cost discrimination between severity levels ($2,117), while the MM-APS-DRG system has the highest mean cost difference ($2,385). The remaining systems demonstrated equivalent percentage cost differences between the
severity levels as shown in Table B below.
BILLING CODE 4120-01-P
EP03MY07.000
BILLING CODE 4120-01-C
In examining whether each of the alternative DRG systems provided stability in the relative weights from year to year, RAND compared the relative weights derived from the MedPAR data in FY 2004 to the relative weights data from FY 2005. RAND's preliminary results demonstrate that generally, across all the systems, only a small percentage of DRGs had greater than a 5 percent change in relative weights. The HSC-DRGs and Sol-DRGs had a higher proportion of DRGs with a greater than 5 percent change in relative weights than the other systems. Fewer than 10 percent of the DRGs in the remaining systems had relative weight changes greater than 10 percent. In addition to differences in the number of DRGs and the methodology of assigning the severity levels, RAND noted additional factors that may affect the comparative performance of each alternative severity-adjusted DRG system. For further details and discussion, we encourage readers to view RAND's full interim report on the CMS Web site at:
http://www.cms.hhs.gov/Reports/downloads/Wynn0307.pdf.
c. Payment Accuracy and Case-Mix Impact
Similar to how CMS established the relative weights in the FY 2007 IPPS final rule, RAND used standardized costs as determined by the national CCR and the FY 2005 MedPAR data to construct relative weights for each of the DRG systems being evaluated. RAND analyzed the effect of variations in the
explanatory power on the distribution of Medicare payments for each system under evaluation. The preliminary findings indicate payment accuracy is improved by each severity-adjusted system by redistributing payment from lower-cost discharges to higher-cost discharges. However, the total payment redistribution across systems differs and reflects the payment impact of improved explanatory power. Although these findings are estimates, the percent of total payment redistributed was the least under the CMS+AP-DRGs (7.1 percent) and the most under the CS DRGs (11.9 percent).
Table C shows changes in case-mix index (CMI) by hospital category across alternative severity-adjusted DRG systems. Preliminary results demonstrate that under the severity-adjusted systems, urban hospitals have a higher average CMI than under the CMS DRGs, and rural hospitals have a lower CMI. The analysis suggests that any system adopted to better recognize severity of illness with a budget neutrality constraint will result in payment redistribution that can be expected to benefit urban hospitals at the expense of rural hospitals. This impact occurs because patients treated in urban hospitals are generally more severely ill than patients in rural hospitals and the CMS DRGs are not currently recognizing the full extent of these differences. For purposes of the study, RAND assumed no behavioral changes in coding practice or the types of patients treated.
The shift in case-mix (CMI) is greatest with the CS DRGs. The CMI for rural hospitals is 2.4 percent lower than under the CMS DRGs. The CMI for large urban (hospitals located in CBSAs with greater than 1 million population) and other urban hospitals is 0.6 percent and 0.1 percent higher, respectively, for the CS DRGs. The CMI generally increases for larger hospitals and decreases for smaller hospitals. Under the CMS+AP-DRG, HSC-DRG, and Sol-DRG systems, greater than 70 percent of hospitals would experience less than a 2.5 percent change in their CMI. Under the MM-APS-DRG and Con-APR-DRG systems, 65 and 45 percent of hospitals, respectively, would experience less than a 2.5 percent change. The percentage of hospitals experiencing less than a 5 percent change is significant across all of the CMS-based DRG systems.
Teaching hospitals commonly treat a higher number of complex cases. However, depending on the severity-adjusted DRG system being analyzed, the impact will vary. In the CMS+AP-DRG, HSC-DRG, and MM-APS-DRG systems, facilities with large teaching programs (100 or more residents) demonstrated a larger increase than those facilities with smaller teaching programs. Under the Sol-DRG system, facilities with large teaching programs would experience a 0.1 percent increase, while facilities with the smaller teaching programs would experience a 0.2 percent increase. The CS DRGs showed similar results for hospitals with large teaching programs, but hospitals with the smaller teaching programs would experience an increase of 0.7 percent, relative to the CMS DRGs. RAND found that CMI would decline for nonteaching hospitals from severity adjusted DRGs, from a 0.2 percent decrease under the HSC-DRGs and Sol-DRGs compared to a 0.5 percent decrease under the CS DRGs.
Table C.—CMI Change in Alternative DRG Systems Relative to the CMS DRG CMI
N
hospitals
N
discharges
CMS
DRG
CMI
Percentage change from CMS-DRG-CMI
CMS + AP-DRG
HSC-DRG
Sol-DRG
MM-APS-DRG
Con-APR-DRG
ALL
3,890
12,165,763
1.00
0.0
0.0
0.0
0.0
0.0
By Geographic Location:
Large urban areas (pop>1 million)
1,485
5,715,356
1.02
0.5
0.4
0.3
0.6
0.6
Other urban areas (pop<1 million)
1,186
4,578,447
1.04
−0.2
−0.2
−0.1
−0.2
0.1
Rural hospitals
1,219
1,871,960
0.84
−1.3
−0.9
−1.0
−1.4
−2.4
Bed Size (Urban):
0-99 beds
685
611,139
0.91
−1.0
−1.1
−1.1
−1.3
−1.6
100-199 beds
875
2,346,922
0.93
0.0
0.1
0.0
0.1
0.0
200-299 beds
511
2,446,737
1.00
0.1
0.2
0.3
0.3
0.6
300-499 beds
433
2,965,216
1.08
0.3
0.3
0.3
0.4
0.8
500 or more beds
167
1,923,789
1.17
0.6
0.3
0.2
0.4
0.4
Bed Size (Rural):
0-49 beds
543
330,242
0.73
−2.5
−2.1
−2.2
−2.7
−5.0
50-99 beds
398
595,599
0.80
−1.4
−1.0
−1.1
−1.6
−2.7
100-149 beds
160
415,367
0.85
−1.1
−0.7
−0.8
−1.2
−2.0
150-199 beds
69
260,910
0.91
−0.8
−0.6
−0.7
−0.8
−1.5
200 or more beds
49
269,842
0.99
−0.6
−0.1
−0.1
−0.6
−0.5
Urban by Region:
New England
129
541,471
0.99
0.1
−0.2
−0.5
−0.5
−0.6
Middle Atlantic
370
1,621,488
1.00
0.0
−0.4
−0.5
−0.3
−1.5
South Atlantic
432
2,208,336
1.04
0.5
0.7
0.7
0.7
1.4
East North Central
410
1,856,164
1.03
0.6
0.7
0.6
0.8
1.5
East South Central
168
696,943
1.06
−0.2
−0.2
−0.2
−0.2
−0.3
West North Central
164
657,322
1.08
−0.3
−0.3
0.0
−0.3
0.3
West South Central
369
1,115,411
1.05
0.1
0.0
0.1
0.3
0.5
Mountain
153
465,093
1.08
0.4
0.2
0.5
0.4
1.0
Pacific
423
1,016,135
1.03
0.0
−0.2
−0.1
−0.1
0.2
Puerto Rico
53
115,440
0.87
−1.1
−1.4
−0.1
−1.2
−5.1
Rural by Region:
New England
34
49,842
0.90
−0.6
−0.6
−0.5
−1.1
−0.6
Middle Atlantic
68
139,639
0.85
−1.1
−0.7
−0.7
−1.3
−1.5
South Atlantic
191
409,116
0.82
−0.8
−0.4
−0.5
−0.9
−1.8
East North Central
163
290,069
0.87
−1.1
−0.7
−0.9
−1.3
−1.8
East South Central
201
328,326
0.82
−1.5
−0.9
−1.1
−1.4
−3.2
West North Central
184
240,449
0.87
−1.6
−1.2
−1.1
−1.8
−2.5
West South Central
227
266,419
0.80
−2.1
−1.8
−1.9
−2.0
−4.3
Mountain
91
80,219
0.85
−1.2
−1.0
−0.4
−1.3
−1.2
Pacific
60
67,881
0.86
−0.9
−1.0
−1.1
−1.4
−1.6
Teaching Status:
Non-teaching
2,791
6,115,193
0.92
−0.4
−0.2
−0.2
−0.4
−0.5
Fewer than 100 Residents
853
4,061,451
1.04
0.1
0.2
0.2
0.2
0.7
100 or more Residents
246
1,989,119
1.16
0.8
0.3
0.1
0.5
0.0
Urban DSH:
Non-DSH
778
2,574,640
1.02
−0.1
0.0
0.1
−0.2
0.5
100 or more beds
1,541
7,378,095
1.05
0.3
0.2
0.2
0.4
0.4
Less than 100 beds
352
341,068
0.82
−0.9
−0.8
−1.0
−1.1
−2.0
Rural DSH:
Non-DSH
238
300,747
0.87
−1.4
−1.0
−0.9
−1.7
−1.9
SCH
402
599,823
0.83
−1.3
−1.0
−1.0
−1.4
−2.4
RRC
132
466,395
0.92
−0.8
−0.3
−0.5
−0.7
−1.4
Other Rural:
100 or more beds
60
135,146
0.80
−0.9
−0.8
−1.2
−1.3
−2.0
Less than 100 beds
387
369,849
0.74
−2.1
−1.6
−1.7
−2.2
−4.3
Urban teaching and DSH:
Both teaching and DSH
829
4,705,476
1.09
0.5
0.3
0.3
0.5
0.5
Teaching and no DSH
204
1,108,092
1.06
0.0
0.1
0.0
−0.1
0.4
No teaching and DSH
1,064
3,013,687
0.95
−0.1
0.1
0.0
0.1
0.1
No teaching and no DSH
574
1,466,548
1.00
−0.2
−0.1
0.1
−0.3
0.5
Rural Hospital Types:
RRC
145
519,808
0.92
−0.8
−0.4
−0.5
−0.7
−1.4
SCH
423
457,119
0.79
−1.6
−1.2
−1.2
−1.7
−3.0
MDH
180
164,453
0.75
−2.1
−1.7
−1.7
−2.3
−4.1
SCH and RRC
76
266,027
0.92
−0.9
−0.7
−0.7
−1.1
−1.3
MDH and RRC
8
19,746
0.85
−1.4
−0.6
−0.8
−1.6
−1.9
Other Rural
387
444,807
0.77
−1.6
−1.2
−1.4
−1.8
−3.3
RAND also noted that changes in coding patterns or behaviors could improve payments with each severity adjusted DRG system. Increases in CMI after adopting the system could be the result of improved coding rather than increases in actual patient severity. Although the State of Maryland's experience using the APR-DRG system is an indicator, coding behaviors are expected to vary under alternative systems according to RAND. Therefore, the risk of case-mix growth due to improved documentation and coding exists with any system. However, RAND advises that the amount of risk can be assessed based on the logic of the DRG system and result in anticipated changes in coding behavior. RAND found that the CMS+AP-DRG system may have the lowest risk of case-mix increase, while the CS DRGs present the greatest risk. The remaining systems under evaluation demonstrated equivalent risk, based on the DRG logic and other features specific to each system.
In section II.D.2.c. of the preamble of this proposed rule, the CMI impact under the proposed MS-DRGs using the State of Maryland's experience and data is described in detail. RAND's final report will include a comparison of the CMI impact under the proposed MS-DRG system with the CMI impact of the other alternative severity-adjusted DRG systems.
d. Other Issues for Consideration
RAND was asked to examine whether each of the alternative severity-adjusted DRG systems under evaluation appear to contain logic that is manageable, administratively feasible, and understandable. Although its evaluation is not yet complete, RAND's preliminary results describe the extent to which those features are present in the grouping logic of each system. A brief summary of these findings and other discussion points follow. For more complete details of the grouping logic for each system evaluated, we encourage readers to review RAND's interim report at the following Web site:
http://www.cms.hhs.gov/Reports/downloads/Wynn0307.pdf.
To increase and promote understanding of a DRG classification system, the grouping logic should include a uniform structure. With the exception of the CS DRGs, RAND found that there is uniformity in the hierarchical structure for assigning discharges to MDCs, DRGs, and severity levels for each system evaluated. The CS DRGs utilize a complex rerouting logic and severity of illness level assignment. However, the result is a higher explanatory power that accounts for limitations in the current system. Therefore, due to the complexities associated with that system, it may not easily be understood. However, if the results yield clinically coherent groups of patients with comparable costs, RAND concluded that the system may be worth exploring further. The HSC-DRG and Sol-DRG grouping logic uses a standard number of severity levels for each base DRG, although the result is an increase in the number of low-volume DRGs. The standard severity level structure provides increased understanding, although as mentioned previously, low-volume, severity-adjusted DRGs can affect the relative performance of a classification system. The MM-APS-DRGs and CS DRGs use standard DRG severity levels. However, the method of collapsing DRGs varies due to the modifications made for Medicare use. By only collapsing DRGs to determine relative weights, RAND
notes it is possible to preserve the underlying DRG structure, which perhaps would lead to a more understandable system.
As stated earlier, there are also several transition issues that require attention when evaluating alternative severity-adjusted DRG systems. In determining how manageable, administratively feasible, and understandable the systems being evaluated are, consideration should be given to how they crosswalk or map to the current CMS DRGs. Because four of the systems under evaluation are based on the underlying CMS DRG grouping logic to establish their base DRGs (CMS+AP-DRGs, HSC-DRGs, Sol-DRGs, and MM-APS-DRGs), the CMS DRGs are able to crosswalk smoothly to these severity-adjusted DRGs. Conversely, crosswalking in reverse or backward mapping from the CMS+AP DRGs to the CMS DRGs is problematic due to the discharges in one severity level of the CMS+AP-DRG system compared to several base CMS DRGs. As expected, the CS DRGs do not crosswalk easily to the CMS DRGs due to the complex grouping logic. The MM-APS-DRGs pose unique complications as well due to the large number (over 1,000) of DRGs.
System updates are another important factor that may have serious implications. All of the DRG systems RAND evaluated were reported to make annual updates to reflect ICD-9-CM coding changes. However, the CC severity level assignments for each system have not routinely been reviewed and revised. The review of the CC exclusion list and severity level assignments should be reviewed where appropriate to reflect current patterns of care, according to RAND.
Accessibility to each of the severity-adjusted DRG system's logic and software is also a concern. Each system RAND analyzed is currently maintained as a proprietary product. In general, all of the vendors indicated a willingness to place their product in the public domain, under certain terms. As such, we believe it is likely there would need to be discussion as to whether there would be any limitations (such as the source code as well as the DRG logic) on the availability of the DRG systems to hospitals or competing vendors. The intent of each vendor to provide public access to its grouper logic and software is described in further detail in RAND's interim report.
The RAND contract will be complete by September 1, 2007. The final report will include evaluation of the proposed MS-DRGs, with further analysis of the five alternative severity-adjusted DRG classification systems. RAND will also study various approaches to estimating costs and developing relative weights, as well as the payment impacts of alternative methodologies. Again, we invite public comment on RAND's preliminary analysis of the alternative severity-adjusted DRG systems. The interim report can be viewed on the CMS Web site at:
http://www.cms.hhs.gov/Reports/downloads/Wynn0307.pdf.
2. Development of Proposed Medicare Severity DRGs (MS-DRGs)
As discussed previously, we are committed to continuing our efforts of making refinements to the current CMS DRGs to better recognize severity of illness. In the FY 2007 final rule, we stated that we had begun a comprehensive review of over 13,000 diagnosis codes to determine which codes should be classified as CCs when present as a secondary diagnosis. We stated that we would also build on the severity DRG work we performed in the mid-1990's. We received a number of public comments on last year's proposed rule that supported the refinement of the current CMS DRGs so that they better capture severity.
We also committed to performing a more broad based analysis of the entire DRG system to better recognize severity of illness. As a result of this broad based analysis, we developed the proposed MS-DRGs. The proposed MS-DRGs represent a comprehensive approach to applying a severity of illness stratification for Medicare patients throughout the DRGs. As discussed in section II.D.5. of the preamble of this proposed rule, the proposed MS-DRGs maintain the significant advancements in identifying medical technology made to the DRGs in past years. At the same time, they greatly improve our ability to identify groups of patients with varying levels of severity using secondary diagnoses. Further, they improve our ability to assign patients to different DRG severity levels based on resource use that is independent of the patient's secondary diagnosis—referred to in this discussion as “complexity.” We are proposing to adopt the MS-DRGs for FY 2008 and submit the system to RAND as part of its evaluation of alternative DRG systems. We encourage comments on both our proposed methodology as well as on the resulting proposed DRG structure.
a. Comprehensive Review of the CC List
Our efforts to better recognize severity of illness began with a comprehensive review of the CC list. Currently, 115 DRGs are split based on the presence or absence of a CC. For these DRGs, the presence of a CC assigns the discharge to a higher weighted DRG. The list of diagnoses designated as a CC was initially created at Yale University in 1980-1981 as part of the project to develop an ICD-9-CM version of the DRGs. The researchers at Yale University developed the ICD-9-CM DRGs using national hospital data with diagnoses and procedures coded in ICD-9-CM from the second half of 1979. Because hospitals only began reporting ICD-9-CM codes in 1979, discharge abstracts at that time were much less likely to fully report all secondary diagnoses. As a result, the Yale University researchers developed a liberal definition of a CC as any secondary diagnosis that “would cause an increase in length of stay by at least 1 day in at least 75 percent of the patients.” Because of the likely underreporting of secondary diagnoses in the 1979 data, the Yale University researchers also used age as a surrogate for identifying patients with a CC. The original version of the ICD-9-CM DRGs assigned patients to a CC DRG if they had a secondary diagnosis on the CC list or if the patient was 70 years or older.
With the implementation of the IPPS in FY 1984, the coding of secondary diagnoses by hospitals dramatically improved. During the first 4 years of the IPPS, the CC definition included the age 70 criterion. With the improved coding and reporting of diagnoses associated with the implementation of the IPPS, the use of age as a surrogate for CCs was no longer necessary. Thus, beginning in FY 1988, the age 70 criterion was removed from the CC definition and a CC DRG was defined exclusively by the presence of a secondary diagnosis on the CC list.
Except for new diagnosis codes that were added to ICD-9-CM after FY 1984 (for example, HIV), the CC list of diagnoses currently used in the CMS DRGs is virtually identical to the CC list created at Yale University. However, there have been dramatic changes not only in the accuracy and completeness of the coding of secondary diagnoses but also in the characteristics of patients admitted to hospitals and the practice patterns within hospitals as well.
Since the implementation of the IPPS, Medicare average length of stay has dropped dramatically from 9.8 days in 1983 to 5.7 days in 2005. The economic incentives inherent in DRGs motivated a change in practice patterns to discharge patients earlier from the hospital. These changes were facilitated by the increased availability of postacute care services, such as nursing homes and home health services, which
allowed problems previously requiring continued hospitalization to be effectively treated outside the acute care hospital. Furthermore, there has also been a dramatic shift to outpatient surgery that avoids costly inpatient stays. Many surgical procedures formerly performed in the hospital are now routinely performed on an outpatient basis. As a result, patients admitted to the hospital today are on average more likely to have a CC than when the IPPS was implemented. The net effect of better coding of secondary diagnoses, reductions in hospital length of stay, increased availability of postacute care services, and the shift to outpatient care is that most patients (nearly 80 percent) admitted to a hospital now have a CC. As a result of the changes that have occurred during the 22 years since the implementation of the IPPS, the CC list as currently defined has lost much of its power to discriminate hospital resource use.
Currently, 115 CMS DRGs have a CC subdivision. Up until FY 2002, the number of DRGs with a CC subdivision remained essentially unchanged from the original FY 1984 version of the DRGs. As a means of improving the payment accuracy of the DRGs, beginning with the FY 2002 DRG update, each base CMS DRG without a CC subdivision was evaluated to determine if a CC subdivision was warranted. Over the past five DRG updates, only seven base CMS DRGs have had a CC subdivision added. The primary constraint preventing a significant increase in the number of base CMS DRGs with a CC subdivision is the low number of patients that would be assigned to the non-CC group. Thus, the expansion of the number of CMS DRGs subdivided based on a CC is constrained because the vast majority of patients would be assigned to the CC group and few patients would be assigned to the non-CC group. To remedy these problems, we reviewed each of the 13,549 secondary diagnosis codes to evaluate their assignment as a CC or non-CC using statistical information from the Medicare claims data and applying medical judgment based on current clinical practice. We refer to this list in this section as the “revised CC list.”
The need for a revised CC list prompted a reexamination of the secondary diagnoses that qualify as a CC. Our intent was to better distinguish cases that are likely to result in increased hospital resource use based on secondary diagnosis. Using a combination of mathematical data and the judgment of our medical officers, we included the condition on the CC list if it could demonstrate that its presence would lead to substantially increased hospital resource use.
Diagnoses may require increased hospital resource use because of a need for such services as:
• Intensive monitoring (for example, an intensive care unit (ICU) stay).
• Expensive and technically complex services (for example, heart transplant).
• Extensive care requiring a greater number of caregivers (for example, nursing care for a quadriplegic). There are 3,326 diagnosis codes on the current CC list. Our 2006 review of the CC list reduced the number of diagnosis codes on the CC list to 2,583. Based on the current CC list, 77.6 percent of patients have at least one CC present. Based on the revised CC list from our 2007 review, the percent of patients having at least one CC present would be reduced to 41.24 percent.
b. Chronic Diagnosis Codes
The 1979 data used in the original formation of the CC list often did not have the manifestations of a chronic disease fully coded. As a result, the CC list included many chronic diseases with a broad range of manifestations. Such chronic illness diagnoses usually do not cause a significant increase in hospital resource use unless there is an acute exacerbation present or there is a significant deterioration in the underlying chronic condition. Therefore, in the revised CC list, we removed chronic diseases without a significant acute manifestation. Recognition of the impact of the chronic disease is accomplished by separately coding the acute manifestation. For example, the mitral valve disease codes (codes 396.0 through 396.9) are assigned to the current CC list. However, unless the mitral valve abnormalities are associated with other diagnoses indicating acute deterioration, such as acute congestive heart failure, acute pulmonary edema, or respiratory failure, they would not be expected to significantly increase hospital resource use. Therefore, the revised CC list did not include the mitral valve codes. Recognition of the contribution of mitral valve disease to the complexity of hospital care would be accomplished by separately coding those diseases on the CC list that are associated with an acute exacerbation or deterioration of the mitral valve disease.
The revised CC list applied the criterion that chronic diagnoses having a broad range of manifestations are not assigned to the CC list as long as there are codes available that allow the acute manifestations of the disease to be coded separately. For some diseases, there are ICD-9-CM codes that explicitly include a specification of the acute exacerbation of the underlying disease. For example, for congestive heart failure, the following codes specify an acute exacerbation of the congestive heart failure:
• 428.21, Acute systolic heart failure
• 428.41, Acute systolic and diastolic heart failure
• 428.43, Acute on chronic systolic heart failure
• 428.31, Acute diastolic heart failure
• 428.33, Acute on chronic diastolic heart failure
These congestive heart failure codes are included on the revised CC List. However, the following congestive heart failure codes do not indicate an acute exacerbation and are not included in the revised CC list:
• 428.0, Congestive heart failure not otherwise specified
• 428.1, Left heart failure
• 428.20, Systolic heart failure not otherwise specified
• 428.22, Chronic systolic heart failure
• 428.32, Chronic diastolic heart failure
• 428.40, Systolic and diastolic heart failure
• 428.9, Heart failure not otherwise specified
As a result of this approach, most chronic diseases were not assigned to the revised CC list. In general, a significant acute manifestation of the chronic disease must be present and coded for the patient to be assigned a CC. We made exceptions for diagnosis codes that indicate a chronic disease in which the underlying illness has reached an advanced stage or is associated with systemic physiologic decompensation and debility. The presence of such advanced chronic diseases, even in the absence of a separately coded acute manifestation, significantly adds to the treatment complexity of the patient. Thus, the presence of the advanced chronic disease inherently makes the reason for admission more difficult to treat. For example, under the revised CC list, stage IV, V, or end-stage chronic renal failure (codes 585.4 through 585.6) are designated as a CC, but stage I through III chronic renal failure (codes 585.1 through 585.3) are not. For obesity, a body mass index over 35 (codes V85.35 through V85.4) is a CC, but a body mass index between 19 and 35 is not. End-stage renal failure and extreme obesity are examples of chronic diseases for which the advanced stage of the disease is clearly specified.
However, for most major chronic diseases, the stage of the disease is not clearly specified in the code. These
codes were evaluated based on the consistency and intensity of the physiologic decompensation and debility associated with the chronic disease. For example, quadriplegia (codes 344.00 through 344.09) requires extensive care with a substantial increase in nursing services and more intensive monitoring. Therefore, quadriplegia is considered a CC in the revised CC list.
c. Acute Diagnosis Codes
Examples of acute diseases included on the revised CC list included acute myocardial infarction (AMI), cerebrovascular accident (CVA) or stroke, acute respiratory failure, acute renal failure, pneumonia and septicemia. These six diseases are representative of the types of illnesses we included on the revised CC list. Other acute diseases were designated as a CC if their impact on hospital resource use would be expected to be comparable to these representative acute diseases. For example, acute endocarditis was included on the CC list but urinary tract infection was not.
The revised CC list is essentially comprised of significant acute disease, acute exacerbations of significant chronic diseases, advanced or end stage chronic diseases and chronic diseases associated with extensive debility. Compared to the existing CC list, the revised CC list requires a secondary diagnosis to have a consistently greater impact on hospital resource.
The following Table D compares the current CC list and the revised CC list. There are 3,326 diagnosis codes on the current CC list. The CC revisions reduce the number of diagnosis codes on the CC list to 2,583. Based on the current CC list, 77.6 percent of patients have at least one CC present, using FY 2006 MedPAR data. Based on the revised CC list, the percent of patients having at least one CC present is reduced to 40.34 percent. The revised CC list increases the difference in average charges between patients with and without a CC by 56 percent ($15,236 versus $9,743).
Table D.—Comparison of Current CC List and Revised CC List
Current CC list
Revised CC list
Codes designated as a CC
3,326
2,583
Percent of patients with one or more CCs
77.66
40.34
Percent of patients with no CC
22.34
59.66
Average charge of patients with one or more CCs
$24,538
$31,451
Average charge of patients with no CCs
$14,795
$16,215
The analysis above suggests that merely reviewing and updating the CC list can lead to significant improvements in the ability of the CMS DRGs to recognize severity of illness. Although we could potentially adopt this one change to better recognize severity of illness in the CMS DRGs, we have undertaken additional analyses that further refine secondary diagnoses into MCCs, CCs and non-CCs as described below.
d. Prior Research on Subdivision of CCs into Multiple Categories
(1) Refined DRGs
During the mid-1980s, CMS (then HCFA) funded a project at Yale University to revise the use of CCs in the CMS DRGs. The Yale University project mapped all secondary diagnoses that were considered a CC in the CMS DRGs into 136 secondary diagnosis groups, each of which was assigned a CC complexity level. For surgical patients, each of the 136 secondary diagnosis groups was assigned to 1 of 4 CC complexity levels (non-CC, moderate CC, MCC, and catastrophic CC). For medical patients, each of the 136 secondary diagnosis groups was assigned to 1 of 3 CC complexity levels (non-CC, moderate/MCC, and catastrophic CC). All age subdivisions and CC subdivisions in the DRGs were eliminated and replaced by the four CC subgroups for surgical patients, or the three CC subgroups for medical patients. The Yale University project did not reevaluate the categorization of secondary diagnosis as a CC versus a non-CC. Only the diagnoses on the standard CC list were used to create the moderate, major, and catastrophic subgroups. All secondary diagnoses in a secondary diagnosis group were assigned the same level, and a patient was assigned to the subgroup corresponding to the highest level secondary diagnosis. The number of secondary diagnoses had no effect on the subgroup assigned to the patient (that is, multiple secondary diagnoses at one level did not cause a patient to be assigned to a higher subgroup). The DRG system developed by the Yale University project demonstrated that a subdivision of the CCs into multiple subclasses would improve the predictability of hospital costs.
(2) 1994 Severity DRGs
We also examined the work we performed in the mid-1990's to revise the CMS DRGs to better capture severity. In 1993, we reevaluated the use of CCs within the CMS DRGs. The reevaluation excluded the CMS DRGs associated with pregnancy, newborn, and pediatric patients (MDCs 14 and 15 and DRGs defined based on age 0-17). The major CC list from the AP-DRGs that are used for Medicaid payment by New York and other States was used to identify an initial list of MCCs. Using Medicare data, we reevaluated the categorization of each secondary diagnosis as a non-CC, CC, or an MCC. The end result was that 111 diagnoses that were non-CCs in the standard CMS DRGs were made a CC, 220 diagnoses that were a CC were made a non-CC, and 395 CCs were considered an MCC.
All CC splits in the CMS DRGs were eliminated, and an additional 24 DRGs were merged together. The resulting base CMS DRGs were then subdivided into three, two, or no subgroups based on an analysis of Medicare data. The result was 84 DRGs with no subgroups, 124 DRGs with two subgroups, and 85 DRGs with three subgroups. An additional 63 pregnancy, newborn, and pediatric DRGs not evaluated resulted in a total of 652 DRGs.
A patient was assigned to the CC subgroup corresponding to the highest level secondary diagnosis. Multiple secondary diagnoses at one level did not cause a patient to be assigned to a higher subgroup. The categorization of a diagnosis as non-CC, CC, or MCC was uniform across the CMS DRGs, and there were no modifications for specific DRGs. As part of the FY 1995 IPPS proposed rule, we made a complete file of the revised DRG descriptions available to the public. However, we never adopted the revised DRGs (55 FR 27756).
e. Proposed Medicare Severity DRGs (MS-DRGs)
We had several options in developing a refinement to the current CMS DRGs to better recognize increased resource use due to severity of illness. One
option would involve simply taking the work performed in 1994 and then updating it with all the code changes that have taken place since then. We were reluctant to do this because of changes in medical practices as well as the substantial change in ICD-9-CM codes since that time. Another option would be to build on current CMS DRGs which include a number of advancements that better identify medical practices and technologies. Many commenters on the FY 2007 IPPS proposed rule urged us to take the latter approach because they believed the current base CMS DRGs clearly differentiate between the complexities of varying surgical procedures and medical devices. Therefore, we chose the option of developing a new severity DRG system based on the current CMS DRGs.
The development of the 1994 Severity DRGs involved three steps:
• Consolidation of existing DRGs into base DRGs.
• Categorization of each diagnosis as an MCC, CC, or non-CC.
• Subdivision of each base DRG into subclasses based on CCs.
We reviewed and revised each of the three steps and applied them to our current CMS DRGs to develop DRGs that better identify severity of illness among Medicare patients. We refer to this proposed system as the Medicare Severity DRGs (MS-DRGs). The purpose of the proposed MS-DRGs is to more accurately stratify groups of Medicare patients with varying levels of severity.
(1) Consolidation of Existing CMS DRGs Into Proposed Base MS-DRGs
The first step in our process was the consolidation of existing CMS DRGs into new proposed base MS-DRGs. We combined together the 115 pairs of CMS DRGs that are subdivided based on the presence of a CC. We further consolidated the CMS DRGs that are split on the basis of a major cardiovascular condition, AMI with and without major complication (CMS DRGs 121 and 122), and cardiac catheterization with and without complex diagnoses (CMS DRGs 124 and 125). We also consolidated the three pairs of burn CMS DRGs that were defined based on the presence of a CC or a significant trauma (CMS DRGs 506 and 507; 508 and 509; and 510 and 511). Next, we consolidated the 43 pediatric CMS DRGs that are defined based on age less than or equal to 17. These pediatric CMS DRGs contain a very low volume of Medicare patients. As shown in Table 10 of the FY 2007 IPPS final rule (71 FR 48318), only two of these pediatric CMS DRGs contained more than 100 patients (CMS DRGs 298 and 333). Seventeen of these pediatric DRGs had no patients (CMS DRGs 30, 33, 41, 48, 54, 58, 137, 252, 255, 282, 330, 340, 343, 393, 405, 446, and 448). As we have stated frequently, our primary focus in maintaining the CMS DRGs is to serve the Medicare population. We do not have the data or the expertise to maintain the DRGs in clinical areas that are not relevant to the Medicare population. We continue to encourage users of the CMS DRGs (or MS-DRGs if adopted) to make relevant adaptations if they are being used for a non-Medicare patient population.
In addition to the pediatric CMS DRGs defined by the age of the patient, there are a number of CMS DRGs that relate primarily to the pediatric or adult population that have very low volume in the Medicare population, such as male sterilization, tubal interruptions, circumcisions, tonsillectomies, and myringotomies. These CMS DRGs were consolidated into the most clinically similar proposed MS-DRG.
Over the past two decades, the site of service for some elective procedures such as carpal tunnel release, cataract extraction, and laparoscopy has shifted from the inpatient to the outpatient setting, resulting in the CMS DRGs associated with these procedures having very low volume. These CMS DRGs were also consolidated into the most clinically similar proposed MS-DRG. In addition, there were some clinically related CMS DRGs that had significant Medicare patient volume but had no significant difference in resource use. For example, thyroid (CMS DRG 290) and parathyroid (CMS DRG 289) procedures were virtually identical in terms of hospital resource use and were, therefore, consolidated. In total, 34 of these CMS DRGs were consolidated. The DRG consolidations are summarized in Table E below.
Four pairs of proposed MS-DRGs (223 and 224; 228 and 229; 323 and 324; and 551 and 552) were defined based on the presence of a CC or some other condition. For example, proposed MS-DRG 323 is defined based on the presence of a CC or the performance of extracorporeal shock wave lithotripsy. For these proposed MS-DRGs, the CC condition was removed and the pair of DRGs remains separate but defined based only on the other condition (that is, proposed MS-DRG 323 became urinary stones with extracorporeal shock wave lithotripsy). As was done in the 1994 severity DRG work, we did not consolidate any of the CMS DRGs for maternity or newborn cases.
Before proceeding further, we made one additional change to a base DRG assignment after completing these consolidations. We assigned cranial-facial bone procedures to a proposed new base DRG (Cranial/Facial Bone Procedures). These cases were previously assigned to DRGs 52 and 55 through 63.
Table E below shows how DRGs in the CMS DRGs (Version 24.0) were consolidated into proposed new base MS-DRGs. We refer readers to section II.D.2. of the preamble of this proposed rule for a detailed discussion of CCs and MCCs under the proposed MS-DRGs.
Table E.—DRG Consolidation
CMS-DRG Version 24.0
DRG description
Proposed 2008 MS-DRG
Proposed new base MS-DRGs description
6
7,8
Carpal Tunnel Release
Peripheral & Cranial Nerve & Other Nervous System Procedure
40
41
42
Peripheral & Cranial Nerve & Other Nervous System Procedure with MCC, with CC, and without CC/MCC.
36
38
39
42
Retinal Procedures
Primary Iris Procedures
Lens Procedures with or without Vitrectomy
Intraocular Procedures Except Retina, Iris & Lens
116
117
Intraocular Procedures with and without CC/MCC.
43
46,47,48
Hyphema
Other Disorders of the Eye
124
125
Other Disorders of the Eye with and without MCC.
50
51
Sialoadenectomy
Salivary Gland Procedures Except Sialoadenectomy
139
Salivary Gland Procedures.
52
55
Cleft Lip & Palate Repair
Miscellaneous Ear, Nose, Mouth & Throat Procedures
133
134
Other Ear, Nose, Mouth & Throat O.R. Procedures with and without CC/MCC.
56
57,58
59,60
61,62
63
Rhinoplasty
Tonsillectomy & Adenoidectomy Procedure, Except Tonsillectomy &/or Adenoidectomy Only
Tonsillectomy &/or Adenoidectomy Only
Myringotomy with Tube Insertion
Other Ear, Nose, Mouth & Throat O.R. Procedures
131
132
New DRG—Cranial/Facial Bone Procedures with and without CC/MCC.
67
68,69,70
71
Epiglottitis
Otitis Media & Upper Respiratory Infection
Laryngotracheitis
152
153
Otitis Media & Upper Respiratory Infection with and without MCC.
72
73,74
Nasal, Trauma & Deformity
Other Ear, Nose, Mouth & Throat Diagnoses
154
155
156
Other Ear, Nose, Mouth & Throat Diagnoses with MCC, with CC, without CC/MCC.
185,186
187
Dental & Oral Diseases Except Extractions & Restorations
Dental Extractions & Restorations
157
158
159
Dental & Oral Diseases with MCC, with CC, without CC/MCC.
199
200
Hepatobiliary Diagnostic Procedure for Malignancy
Hepatobiliary Diagnostic Procedure for Non-Malignancy
420
421
422
Hepatobiliary Diagnostic Procedures with MCC, with CC, without CC/MCC.
244,245
246
Bone diseases & Specific Arthropathies
Non-Specific Arthropathies
553
554
Bone Diseases & Arthropathies with and without MCC.
259,260
261
262
Subtotal Mastectomy for Malignancy
*
Breast Procedures for Non-Malignancy Except Biopsy & Local Excision
Breast Biopsy & Local Excision for Non-Malignancy
584
585
Breast Biopsy, Local Excision & Other Breast Procedures with and without CC/MCC.
267
268
269,270
Perianal & Pilonidal Procedures
Skin, Subcutaneous Tissue & Breast Plastic Procedures
Other Skin, Subcutaneous Tissue & Breast Procedure
579
580
581
Other Skin, Subcutaneous Tissue & Breast Procedures with MCC, with CC, without CC/MCC.
289
290
291
Parathyroid Procedures
Thyroid Procedures
Thyroglossal Procedures
625
626
627
Thyroid, Parathyroid & Thyroglossal Procedures with MCC, with CC, without CC/MCC.
294
295
Diabetes > 35
Diabetes < 35
637
638
639
Diabetes with MCC, with CC, without CC/MCC.
338
339,340
Testes Procedures for Malignancy
Testes Procedures, Non-Malignancy
711
712
Testes Procedures with and without CC/MCC.
342,343
Circumcision
Procedure 64.0 changed to non-O.R. Cases with only this procedure will go to medical DRGs.
351
352
Sterilization, Male
Other Male Reproductive System Diagnoses
729
730
Other Male Reproductive System Diagnoses with and without CC/MCC.
361
362
363
364
Laparoscopy & Incisional Tubal Interruption
Endoscopic Tubal Interruption
D&C, Conization & Radio-Implant, for Malignancy
D&C, Conization Except for Malignancy
History of Malignancy with Endoscopy
744
745
D&C, Conization, Laparascopy & Tubal Interruption with and without CC/MCC.
411
412
413,414
History of Malignancy without Endoscopy
Other Myeloproliferative Disease or Poorly Differentiated Neoplasm Diagnosis
843
844
845
Other Myeloproliferative Disease or Poorly Differentiated Neoplasm Diagnosis with MCC, with CC, without CC/MCC.
465
466
Aftercare with History of Malignancy as Secondary Diagnosis
Aftercare without History of Malignancy as Secondary Diagnosis
949
950
Aftercare with and without CC/MCC.
*Codes 85.22 and 85.23 in CMS DRGs 259 and 260 were moved to proposed MS-DRG 582 and 583.
As summarized in the Table F, the consolidation resulted in the formation of 335 proposed base MS-DRGs.
Table F.—Consolidation of Current CMS DRGs Into Proposed MS-DRGs
Number
Current CMS DRGs
538
Elimination of CC subgroups
−114
Elimination of MCC subgroups
−7
Elimination of CC complexity subgroups
−5
Elimination of age 0-17 subgroups
−43
Consolidation due to volume or resource similarity
−34
New DRG
+1
Revised Base DRGs
311
Newborn, maternity and error DRGs
+24
Base DRGs for severity subdivision
335
The end result of the consolidation of the CMS DRGs in the proposed MS-DRGs was similar to the consolidation performed in the 1994 severity DRGs. The 1994 DRG consolidations resulted in 356 base DRGs plus 2 error DRGs. The number of the 1994 base DRGs is different because new CMS DRGs have been added since 1994, the 43 age 0-17 pediatric CMS DRGs were not consolidated, and some of the volume shifts to outpatient care had not yet occurred in 1994. In the 1994 severity DRGs, 24 DRGs were consolidated due to volume or resource similarity. Sixteen of these 1994 DRG consolidations are included in the 34 consolidations done in the 2007 consolidations. However, due to concerns expressed by our physician consultants, 8 of the DRG consolidations from 1994 were not done. For example, interstitial lung disease (DRGs 92 and 93) was not consolidated with simple pneumonia and pleurisy (DRGs 89, 90, 91) as was done in the 1994 consolidations.
(2) Categorization of Diagnoses
We decided to establish three different levels of CC severity into which we would subdivide the diagnosis codes. The proposed three levels are MCC, CC, and non-CC. Diagnosis codes classified as MCCs reflect the highest level of severity. The next level of severity includes diagnosis codes classified as CCs. The lowest level is for non-CCs. Non-CCs are diagnosis codes that do not significantly affect severity of illness and resource use. Therefore, secondary diagnoses that are non-CCs do not affect the DRG assignment under either the current CMS DRGs or the proposed MS-DRGs.
The categorization of diagnoses as an MCC, CC, or non-CC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. In order to begin this iterative process, we started with an initial categorization of each diagnosis as an MCC, CC, or non-CC. As noted previously the 1994 CC revision began by separating CCs into MCC and CC based on the AP-DRG major CCs. One way to begin this iterative process would have been to use the 1994 CC categorization. However, the 1994 CC categorization was based on FY 1992 data and ICD-9-CM diagnosis codes, which now are 15 years old. Since 1992, 1,897 new diagnoses codes have been added, and 346 diagnoses codes have been deleted. Because the revised CC list (explained in section II.C.2.a. of this preamble) was based on current ICD-9-CM codes and used recent data, we decided to utilize the revised CC list rather than the 1994 categorization as our starting point for determining whether each secondary diagnosis should be an MCC, a CC, or a non-CC.
The revised CC list categorizes each diagnosis as a CC or a non-CC. We decided to use this list in combination with the categorization under the AP-DRGs and the APR DRGs. The AP-DRGs and the APR-DRGs are updated annually with current codes and provide a good comparison source to use with the revised CC list. We designated as an MCC any diagnosis that was a CC in the revised CC list and was an AP-DRG major CC and was an APR DRG default severity level 3 (major) or 4 (extensive). We designated as a non-CC any diagnosis that was a non-CC in the revised CC list and was an AP-DRG non-CC and was an APR DRG default severity level of 1 (minor). Any diagnoses that did not meet either of the above two criteria was designated as a CC.
The only exception to our approach was for diagnoses related to newborns, maternity, and congenital anomalies. These diagnoses are very low volume in the Medicare population and were not reviewed for purposes of creating the revised CC list. We used the APR DRGs to categorize these diagnoses. For newborn, obstetric, and congenital anomaly diagnoses, we designated the APR DRG default severity level 3 (major) and 4 (extreme) diagnoses as an MCC, the APR-DRG default severity level 2 (moderate) diagnoses as a CC, and the APR DRG default severity 1 (minor) diagnoses as a non-CC. Table G summarizes the number of codes in each CC category.
Table G.—Initial Categorization of CC Codes
Number of codes
MCC
1,096
CC
4,221
Non-CC
8,232
Total
13,549
This initial CC categorization of diagnosis codes was used to begin the iterative process of determining the proposed final CC categorization for each diagnosis code.
(3) Additional CC Exclusions
For some CMS DRGs, the presence of specific secondary diagnoses affects the base DRG assignment. For example, in MDC 5 (Diseases and Disorders of the Circulatory System), the presence of an AMI code as the principal diagnosis or as a secondary diagnosis will cause the patient to be assigned to the AMI DRGs (CMS DRGs 121 through 123). Therefore, if the AMI code is present as
a secondary diagnosis, it should not be used to assign the CC category for a patient because it is redundant within the definition of the base DRG. Similarly, for MDC 24 (Multiple Significant Trauma), specific combinations of significant trauma as principal or secondary diagnosis cause the assignment to the multiple trauma DRGs (CMS DRGs 484 through 487). Therefore, any secondary diagnosis of trauma is redundant with the definition of the multiple trauma DRGs and should not be used to determine the CC category for a patient. Any secondary diagnoses that are used to assign a specific proposed base MS-DRG were excluded from the determination of the CC category for patients assigned to that proposed base MS-DRG.
(4) Analysis of Secondary Diagnoses
The 311 proposed base MS-DRGs (335 total base DRGs minus the MDC 14, MDC 5, and error DRGs) were subdivided into three CC subgroups. Patients were assigned to the subgroup corresponding to the most extreme CC present). All but four of the proposed base MS-DRGs had strictly monotonically increasing average charges across the three CC subgroups (that is, average charges progressively increased from the non-CC to the CC to the MCC subgroups). The four proposed MS-DRGs that failed to have monotonically increasing charges all had at least one CC subgroup with very low volume. For example, the non-CC subgroup for the pancreas transplant DRG (CMS DRG 513) had only 2 cases. The overall statistics by CC subgroup for the 311 proposed base MS-DRG is contained in Table H. Patients in the MCC subgroup have average charges that are nearly double the average charge for patients in the CC subgroup. The CC subgroup with the largest number of patients is the non-CC subgroup with 41.1 percent of the patients.
Table H.—Overall Statistics for Proposed MS-DRGs Excluding Those in MDCs 14 and 15
CC subgroup
Number of cases
Percent
Average charges
Major
2,604,696
22.2
$44,246
CC
4,293,744
36.6
24,131
Non-CC
4,818,411
41.1
18,435
In order to evaluate the initial assignment of secondary diagnoses to the three CC subclasses, we devised a system that determined the impact on resource use of each secondary diagnosis. For each secondary diagnosis, we measured the impact in resource use for the following three subsets of patients:
(a) Patients with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs.
(b) Patients with at least one other secondary diagnosis that is a CC but none that is an MCC.
(c) Patients with at least one other secondary diagnosis that is an MCC.
Numerical resource impact values were assigned for each diagnosis as follows:
Value
Meaning
0
Significantly below expected value for the non-CC subgroup.
1
Approximately equal to expected value for the non-CC subgroup.
2
Approximately equal to expected value for the CC subgroup.
3
Approximately equal to expected value for the MCC subgroup.
4
Significantly above the expected value for the MCC subgroup.
Each diagnosis for which Medicare data were available was evaluated to determine its impact on resource use and to determine the most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order to make this determination, the average charge for each subset of cases was compared to the expected charge for cases in that subset. The following format was used to evaluate each diagnosis:
Code
Diagnosis
Cnt1
C1
Cnt2
C2
Cnt3
C3
Count (Cnt) is the number of patients in each subset and C1, C2, and C3 are a measure of the impact on resource use of patients in each of the subsets. The C1, C2, and C3 values are a measure of the ratio of average charges for patients with these conditions to the expected average charge across all cases. The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a major CC. The C3 value reflects a patient with at least one other secondary diagnosis that is a major CC. A value close to 1.0 in the C1 field would suggest that the code produces the same expected value as a non-CC diagnosis. That is, average charges for the case are similar to the expected average charges for that subset and the diagnosis is not expected to increase resource usage. A higher value in the C1 (or C2 and C3) field suggests more resource usage is associated with the diagnosis and an increased likelihood that it is more like a CC or major CC than a non-CC. Thus, a value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or non-CC. For example, a C1 value of 1.8 for a secondary diagnosis means that for the subset of patients who have the secondary diagnosis and have either no other secondary diagnosis present, or all the other secondary diagnoses present are non-CCs, the impact on resource use of the secondary diagnoses is greater than the expected value for a non-CC by an amount equal to 80 percent of the difference between the expected value of a CC and a non-CC (that is, the impact on resource use of the secondary diagnosis is closer to a CC than a non-CC).
Table I below shows examples of the results.
Table I.—Examples of Impact on Resource Use of Secondary Diagnoses
Code
Cnt1
C1
CntC2
C2
Cnt3
C3
CC subclass
401.1, Benign essential hypertension
12,308
0.955
40,113
1.715
5,297
2.384
Non-CC.
530.81, Esophageal reflux
294,673
0.986
917,058
1.639
122,076
2.302
Non-CC
560.1, Paralytic Ileus
10,651
1.466
87,788
2.320
51,303
3.226
CC
491.20, Obstructive chronic bronchitis
7,003
1.416
32,276
2.193
13,355
3.035
CC
410.71, Subendocardial infarction initial episode
1,657
2.245
30,226
2.778
42,862
3.232
MCC
518.81, Acute respiratory failure
5,332
2.096
118,937
2.936
223,054
3.337
MCC
The resource use impact reports were produced for all diagnoses except obstetric, newborn, and congenital anomalies (10,690 diagnoses). These mathematical constructs were used as guides in conjunction with the judgment of our clinical staff to classify each secondary diagnosis reviewed as an MCC, CC or non-CC. Our clinical panel reviewed the resource use impact reports and modified 14.9 percent of the initial CC subclass assignments as summarized in Table J below. The rows in the table are the initial CC subclass categories and the columns are the final CC subclass categories.
Table J.—CC Subclass Modifications
Initial CC subclass
Final CC subclass
MCC
CC
Non-CC
Total
Percent
MCC
847
62
0
909
8.5
CC
542
2,579
737
3,858
36.1
Non-CC
0
272
5,651
5,923
55.4
Total
1,389
2,913
6,388
10,690
Percent
13.0
27.2
59.8
Of the diagnoses initially designated as an MCC, 6.8 percent were made a CC (62/909), and of the diagnoses initially designated as non-CC, 4.6 percent were made a CC (272/5,923). The major shift occurred in the diagnoses initially assigned to the CC subclass. Fourteen percent of the diagnoses initially designated as a CC were made an MCC (542/3858), and 19.1 percent of the diagnoses initially designated a CC were made a non-CC (737/3,858). In determining the CC subclass assigned to a diagnosis, imprecise codes were, in general, not assigned to the MCC or CC subclass. For example, the congestive heart failure codes have the following CC subclass assignments:
Code
CC subclass assignment
428.21, Acute systolic heart failure
MCC
428.41, Acute systolic & diastolic heart failure
MCC
428.43, Acute on chronic systolic heart failure
MCC
428.31, Acute diastolic heart failure
MCC
428.33, Acute on chronic diastolic heart failure
MCC
428.1, Left heart failure
CC
428.20, Systolic heart failure NOS
CC
428.22, Chronic systolic heart failure
CC
428.32, Chronic diastolic heart failure
CC
428.40, Systolic & diastolic heart failure
CC
428.0, Congestive heart failure NOS
NonCC
428.9, Heart failure NOS
Non-CC
The acute heart failure codes are MCCs, and the chronic heart failure codes are CCs. However, Not Otherwise Specified (NOS) heart failure codes are non-CCs. Thus, the precise type of heart failure must be specified in order for an MCC or CC to be assigned.
There are currently 13,549 ICD-9-CM diagnosis codes. The External Cause of Injury and Poisoning codes (E800—E999) and congenital codes were not included in our current CC review for the proposed MS-DRGs. We excluded the External Cause of Injury and Poisoning codes (E codes) from consideration as an MCC or a CC because they describe how an injury occurred, and not the exact nature of the injury. For instance, if a patient fell on the deck of a boat and fractured his or her skull, one would assign an E code to describe the fall on the boat. A separate diagnosis code would be assigned to describe the exact nature of any resulting injury such as a contusion, fractured bone, or skull fracture and concussion. A patient would be assigned to a severity level based on the exact nature of the injury and not the manner in which the injury occurred. Therefore, we decided not to classify any of the E codes as either an MCC or a CC. The congenital codes describe abnormalities when a baby is born. At times, a beneficiary may live with these congenital abnormalities for years without a problem. The congenital abnormalities may later lead to complications that require hospital admissions. Should these congenital abnormalities lead to medical problems that result in a hospital admission for a Medicare beneficiary, the exact nature of the condition being treated would also be assigned a code. This more precise code would be evaluated to determine whether or not it was an MCC or a CC. Therefore, we decided not to classify congenital abnormality codes as an MCC or a CC, but to instead use the other reported diagnosis codes that better describe the reason for the admission. Excluding the external cause of injury codes, we reviewed 10,690 diagnosis codes.
As was done in our 1994 severity proposal, diagnoses that were closely associated with patient mortality were assigned different CC subclasses, depending on whether the patient lived or died. These diagnoses are:
• 427.41, Ventricular fibrillation
• 427.5, Cardiac arrest
• 785.51, Cardiogenic shock
• 785.59, Other shock without mention of trauma
• 799.1, Respiratory arrest
Resource use for patients with these diagnoses who were discharged alive was consistent with an MCC. Resource use for patients with these diagnoses who died was consistent with a non-CC. Further, most patients who died could legitimately have one of these diagnoses coded. As a result, these diagnoses are assigned an MCC subclass for patients who lived and a non-CC subclass for patients who died.
For some secondary diagnoses assigned to the CC subclass, our medical consultants identified specific clinical situations in which the diagnosis should not be considered a CC. In such clinical situations, the CC exclusion list was used to exclude the secondary diagnosis from consideration in determining the CC subgroup essentially making the secondary diagnosis a non-CC. For example, primary cardiomyopathy (code 425.4) is designated as a CC. However, for patients admitted for congestive heart failure, our medical consultants believed that primary cardiomyopathy should be treated as a non-CC. In order to accomplish that, the congestive heart failure principal diagnoses were added to the CC exclusion list for primary cardiomyopathy as a secondary diagnosis.
The list of diagnosis codes that we are proposing to classify as an MCC is included in Table 6J in the Addendum of this proposed rule. The diagnosis codes that we are proposing to classify as a CC are included in Table 6K in the Addendum of this proposed rule. The proposed E-codes, which are diagnosis codes used to classify external causes of injury and poisoning, are not included in this list. All proposed E-codes are designated as non-CCs under the current CMS DRG system and our evaluation supports this non-CC designation as appropriate.
3. Dividing Proposed MS-DRGs on the Basis of the CCs and MCCs
In developing the proposed MS-DRGs, two of our major goals were to create DRGs that would more accurately reflect the severity of the cases assigned to them and to create groups that would have sufficient volume so that meaningful and stable payment weights could be developed. As noted above, we excluded the CMS DRGs in MDCs 14 and 15 from consideration because these DRGs are low volume. As stated previously, we do not have the expertise or data to maintain the CMS DRGs for newborns, pediatric, and maternity patients. We continue to maintain MDCs 14 and 15 without modification in order to have MS-DRGs available for these patients in the rare instance where there is a Medicare beneficiary admitted for maternity or newborn care.
In designating a proposed MS-DRG as one that will be subdivided into subgroups based on the presence of a CC or MCC, we developed a set of criteria to facilitate our decision-making process. In order to warrant creation of a CC or major CC subgroup within a base MS-DRG, the subgroup had to meet all of the following five criteria:
• A reduction in variance of charges of at least 3 percent.
• At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
• At least 500 cases are in the CC or MCC subgroup.
• There is at least a 20-percent difference in average charges between subgroups.
• There is a $4,000 difference in average charge between subgroups.
Our objective in developing these criteria was to create homogeneous subgroups that are significantly different from one another in terms of resource use, that have enough volume to be meaningful, and that improve our ability to explain variance in resource use. These criteria are essentially the same criteria we used in our 1994 severity analysis.
To begin our analysis, we subdivided each of the base MS-DRGs into three subgroups: non-CC, CC, and MCC. Each subgroup was then analyzed in relation to the other two subgroups using the volume, charge, and reduction in variance criteria. The criteria were applied in the following hierarchical manner:
• If a three-way subdivision met the criteria, we subdivided the base MS-DRG into three CC subgroups.
• If only one type of two-way subdivisions met the criteria, we subdivided the base MS-DRG into two CC subgroups based on the type of two-way subdivision that met the criteria.
• If both types of two-way subdivisions met the criteria, we subdivided the base MS-DRG into two CC subgroups based on the type of two-way subdivision with the highest R
2
(most explanatory power to explain the difference in average charges).
• Otherwise, we did not subdivide the base MS-DRG into CC subgroups.
For any given base MS-DRG, our evaluation in some cases showed that a subdivision between a non-CC and a combined CC/MCC subgroup was all that was warranted (that is, there was not a great enough difference between the CC and MCC subgroups to justify separate CC and MCC subgroups). Conversely, in some cases, even though an MCC subgroup was warranted, there was not a sufficient difference between the non-CC and CC subgroups to justify separate non-CC and CC subgroups.
Based on this methodology, a base MS-DRG may be subdivided according to the following three alternatives, rather than the current “with CC” and “without CC” division.
• DRGs with three subgroups (MCC, CC, and non-CC).
• DRGs with two subgroups consisting of an MCC subgroup but with the CC and non-CC subgroups combined. We refer to these groups as “with MCC” and “without MCC.”
• DRGs with two subgroups consisting of a non-CC subgroup but with the CC and MCC subgroups combined. We refer to these two groups as “with CC/MCC” and “without CC/MCC.”
A
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.