Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for Graduate Medical Education Payment
Federal RegisterAug 18, 2011
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, and 476
[CMS-1518-F; CMS-1430-F]
RIN 0938-AQ24; RIN 0938-AQ92
Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for Graduate Medical Education Payment
AGENCY:
Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION:
Final rules.
SUMMARY:
We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems and to implement certain statutory provisions contained in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act) and other legislation. We also are setting forth the update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.
We are updating the payment policy and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implementing certain statutory changes made by the Affordable Care Act. In addition, we are finalizing an interim final rule with comment period that implements section 203 of the Medicare and Medicaid Extenders Act of 2010 relating to the treatment of teaching hospitals that are members of the same Medicare graduate medical education affiliated groups for the purpose of determining possible full-time equivalent (FTE) resident cap reductions.
DATES:
Effective dates:
These final rules are effective on October 1, 2011, except for the provisions of § 412.230(d)(5), which are effective September 1, 2011. Effective July 29, 2011, the interim rule published March 14, 2011, at 76 FR 13515, is confirmed as final without change.
Applicability dates:
The update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits is applicable beginning on or after October 1, 2011. The payment policy and the annual payment rates for inpatient hospital services provided by IPPS hospitals and by long-term care hospitals (LTCHs) and for implementing certain statutory changes made by the Affordable Care Act and other legislation are applicable to discharges occurring on or after October 1, 2011 unless otherwise specified in this final rule.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH), and Postacute Care Transfer Issues.
Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.
Bridget Dickensheets, (410) 786-8670, Rebasing and Revising of the Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.
James Poyer, (410) 786-2261, Inpatient Quality Reporting—Program Administration, Validation, and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues.
Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.
Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing Efficiency Measures Issues.
SUPPLEMENTARY INFORMATION:
Electronic Access
This
Federal Register
document is also available from the
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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 Web page address is
http://www.gpoaccess.gov/
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swais.access.gpo.gov,
then log in as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then log in as guest (no password required).
Tables Available Only Through the Internet on the CMS Web Site
In the past, a majority of the tables referred to throughout this preamble and in the Addendum to this final rule were published in the
Federal Register
as part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables will no longer be published as part of the annual IPPS and LTCH PPS proposed and final rules. Instead, these tables will be available only through the Internet. The IPPS tables for this final rule are available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp
. Click on the link on the left side of the screen titled, “FY 2012 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2012 final rule are available only through the Internet on the CMS Web site at:
http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp
under the list item for Regulation Number CMS-1518-F. For complete details on the availability of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.
Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Nisha Bhat at (410) 786-4487.
Acronyms
3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public Law 107-105
ASITN American Society of Interventional and Therapeutic Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Public Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation [Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD
Clostridium difficile
-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996, Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, Procedure Coding System
ICR Information collection requirement
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant
Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub. L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90
UHDDS Uniform hospital discharge data set
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
2. Hospitals and Hospital Units Excluded From the IPPS
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical Education (GME)
B. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) Applicable to FY 2012
C. Issuance of a Notice of Proposed Rulemaking
1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages
6. Proposed Changes to the LTCH PPS
7. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
8. Determining Proposed Prospective Payments Rates for LTCHs
9. Impact Analysis
10. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services
11. Discussion of Medicare Payment Advisory Commission Recommendations
D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS Proposed Rule
E. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008
D. FY 2012 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90
3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90
4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
5. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act
6. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90
7. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates
8. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years
9. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
a. Background
b. Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Summary of the RTI Study of Charge Compression and CCR Refinement
3. Summary of Policy Changes Made in FY 2011
4. Discussion for FY 2012
F. Preventable Hospital-Acquired Conditions (HACs), Including Infections
1. Background
a. Statutory Authority
b. HAC Selection
c. Collaborative Process
d. Application of HAC Payment Policy to MS-DRG Classifications
e. Public Input Regarding Selected and Potential Candidate HACs
f. POA Indicator Reporting
2. Additions and Revisions to the HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
b. New Diagnosis Codes Added to Existing HACs
c. Revision to HAC Subcategory Title
d. Conclusion
3. RTI Program Evaluation Summary
a. Background
b. FY 2009 Data Analysis
c. FY 2010 Data Analysis
d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.
e. FY 2010 RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs
f. RTI Analysis of Circumstances When Application of HAC Provisions Would Not Result in MS-DRG Reassignment for Current HACs
g. RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs
h. RTI Analysis of Estimated Net Savings for Current HACs
i. Previously Considered Candidate HACs—RTI Analysis of Frequency of Discharges and POA Indicator Reporting
j. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines
k. Final Policy Regarding Current HACs and Previously Considered Candidate HACs
G. Changes to Specific MS-DRG Classifications
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Noninvasive Mechanical Ventilation
b. Debridement With Mechanical Ventilation Greater Than 96 Hours With Major Operating Room (O.R.) Procedure
c. Autologous Bone Marrow Transplant
2. MDC 1 (Diseases and Disorders of the Nervous System): Rechargeable Dual Array Deep Brain Stimulation System
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat): Skull Based Surgeries
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
b. Aneurysm Repair Procedure Codes
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)
a. Artificial Discs
b. Major Joint Replacement or Reattachment of Lower Extremities
c. Combined Anterior/Posterior Spinal Fusion
6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and Breast): Excisional Debridement of Wound, Infection, or Burn
7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders)
a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles
b. Sleeve Gastrectomy Procedure for Morbid Obesity
8. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period): Discharge Status Code 66 (Discharged/Transferred to Critical Access Hospital (CAH))
9. Medicare Code Editor (MCE) Changes
10. Surgical Hierarchies
11. Complications or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2012
12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 Into MDCs
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989
c. Adding Diagnosis or Procedure Codes to MDCs
13. Changes to the ICD-9-CM Coding System, Including Discussion of the
Replacement of the ICD-9-CM System With the ICD-10-CM and ICD-10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient Claims
d. ICD-10 MS-DRGs
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
b. IPPS Recalled Device Policy Clarification
15. Public Comments on Issues Not Addressed in Proposed Rule
H. Recalibration of MS-DRG Weights
I. 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 2012 Status of Technologies Approved for FY 2011 Add-On Payments
a. Spiration® IBV Valve System
b. Cardio West
TM
Temporary Artificial Heart System (Cardio West
TM
TAH-t)
c. Auto Laser Interstitial Thermal Therapy (AutoLITT
TM
) System
4. FY 2012 Applications for New Technology Add-On Payments
a. AxiaLIF® 2L+
TM
System
b. PerfectCLEAN with Micrillon®
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Occupational Mix Adjustment to the FY 2012 Wage Index
1. Development of Data for the FY 2012 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
3. Calculation of the Occupational Mix Adjustment for FY 2012
D. Worksheet S-3 Wage Data for the FY 2012 Wage Index
1. Included Categories of Costs
2. Changes to the Reporting Requirements for Pension Costs for the Medicare Wage Index
a. Background
b. Allowable Pension Cost for the Medicare Wage Index
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. Method for Computing the FY 2012 Unadjusted Wage Index
1. Steps for Computation
2. Imputed Floor Policy
3. FY 2012 Puerto Rico Wage Index
G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2012 Occupational Mix Adjusted Wage Index
H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications
1. General
2. Effects of Reclassification/Redesignation
3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements and Approvals
b. Applications for Reclassifications for FY 2013
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of Public Law 108-173
7. Waiving Lugar Redesignation for the Out-Migration Adjustment
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single Hospital MSAs
b. Requests for Exceptions to Geographic Reclassification Rules
I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees
J. Process for Requests for Wage Index Data Corrections
K. Labor-Related Share for the FY 2012 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and GME Costs
A. Hospital Inpatient Quality Reporting Program
1. Background
a. Overview
b. Statutory History and History of Measures Adopted for the Hospital IQR Program
c. Maintenance of Technical Specifications for Quality Measures
d. Public Display of Quality Measures
2. Retirement of Hospital IQR Program Measures
a. Considerations in Retiring Quality Measures from the Hospital IQR Program
b. Retirement of Hospital IQR Program Measures for the FY 2014 Payment Determination and Subsequent Years
3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment Determinations
a. Considerations in Expanding and Updating Quality Measures Under the Hospital IQR Program
b. Hospital IQR Program Measures for the FY 2014 Hospital IQR Payment Determination
c. Hospital IQR Program Quality Measures for the FY 2015 Payment Determination
4. Possible New Quality Measures and Measure Topics for Future Years
5. Form, Manner, and Timing of Quality Data Submission
a. Background
b. Procedural Requirements for the FY 2012 Payment Determinations and Subsequent Years
c. Procedural Requirements for FY 2013 and Subsequent Years
d. Data Submission Requirements for Chart-Abstracted Measures
e. Sampling and Case Thresholds Beginning With the FY 2015 Payment Determination
f. HCAHPS Requirements for the FY 2013, FY 2014, and FY 2015 Payment Determinations
g. Procedures for Claims-Based Measures
h. Data Submission Requirements for Structural Measures
i. Data Submission and Reporting Requirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN
6. Chart Validation Requirements for Chart-Abstracted Measures
a. Changes to the Chart Validation Requirements and Methods for the FY 2012 Payment Determination and Subsequent Years
b. Supplements to the Chart Validation Process for the FY 2014 Payment Determination and Subsequent Years
7. QIO Regulation Changes for Provider Medical Record Deadlines Possibly Including Serious Reportable Events
8. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2012 Payment Determination and Subsequent Years
9. Public Display Requirements for the FY 2014 Payment Determination and Subsequent Years
10. Reconsideration and Appeal Procedures for the FY 2012 Payment Determination
11. Hospital IQR Program Disaster Waivers
12. Electronic Health Records (EHRs)
a. Background
b. HITECH Act EHR Provisions
B. Hospital Value-Based Purchasing (VBP) Program
1. Background
2. Overview of the Hospital VBP Program Proposed Rule
3. FY 2014 Hospital VBP Program Measures
a. Background
b. Efficiency Measure—Medicare Spending per Beneficiary Measure—for the FY 2014 Hospital VBP Program
4. Efficiency Domain (Medicare Spending per Beneficiary Measure) Performance Period and Baseline Period
5. Simultaneous Specification of Additional Measures for the Hospital VBP Program and the Hospital IQR Program
6. Responses to Additional Hospital VBP Program Comments
C. Hospital Readmissions Reduction Program
1. Background
a. Overview
b. Statutory Basis for the Hospital Readmissions Reduction Program
2. Implementation of the Hospital Readmissions Reduction Program
a. Overview
b. Provisions in the FY 2012 IPPS/LTCH PPS Rulemaking
c. Provisions to be Included in the FY 2013 IPPS/LTCH PPS Proposed Rule
d. Expansion of the Applicable Conditions To Be Included in the Future Rulemaking
3. Provisions of the Hospital Readmissions Reduction Program
a. Applicable Conditions for FY 2013 Hospital Readmissions Reduction Program
b. Definition of “Readmissions”
c. Readmission Measures and Related Methodology
D. Rural Referral Centers (RRCs) (§ 412.96)
1. Case-Mix Index (CMI)
2. Discharges
E. Payment Adjustment for Low-Volume Hospitals (§ 412.101)
1. Background
2. Temporary Changes for FYs 2011 and 2012
3. Discharge Data Source Used to Identify Qualifying Low-Volume Hospitals and Calculate the Payment Adjustment (Percentage Increase) for FY 2012
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2012
G. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME) (§§ 412.105 and 412.106)
1. Background
2. Policy Change Relating to the Exclusion of Hospice Beds and Patient Days From the Calculation of the Medicare DSH Payment Adjustment and the IME Payment Adjustment
a. Background
b. Hospice Inpatient Services
H. Medicare-Dependent, Small Rural Hospitals (MDHs) (§ 412.108)
1. Background
2. Extension of the MDH Program
I. Certified Register Nurse Anesthetists (CRNA) Services Furnished in Rural Hospitals and CAHs (§ 412.113)
J. Additional Payments for Qualifying Hospitals With Lowest per Enrollee Medicare Spending
1. Background
2. Method for Identifying Qualifying Hospitals and Eligible Counties
3. Determination of Annual Payment Amounts
4. Eligible Counties and Qualifying Hospitals
5. Payment Determination and Distributions for FY 2011 and FY 2012
K. Changes in the Inpatient Hospital Update
1. FY 2012 Inpatient Hospital Update
2. FY 2012 Puerto Rico Hospital Update
3. Productivity Adjustment
L. Additional Payments to Hospitals With High Percentage of End-Stage Renal Disease (ESRD) Discharges (§ 412.104)
M. Changes to the Reporting Requirements for Pension Costs for Medicare Cost-Finding Purposes
1. Background
2. Allowable Defined Benefit Pension Plan Cost for Medicare Cost-Finding Purposes
N. Rural Community Hospital Demonstration Program
1. Background
2. Changes to the Demonstration Program Made by the Affordable Care Act
3. FY 2012 Budget Neutrality Adjustment
a. Component of the FY 2012 Budget Neutrality Adjustment that Accounts for Estimated Demonstration Program Costs of the “Pre-Expansion” Participating Hospitals
b. Portion of the FY 2012 Budget Neutrality Adjustment That Accounts for Estimated FY 2012 Demonstration Program Costs for Hospitals Newly Selected to Participate in the Demonstration Program
c. Portion of the FY 2012 Budget Neutrality Adjustment to Offset the Amount by Which the Costs of the Demonstration Program in FYs 2007 and 2008 Exceeded the Amount That Was Identified in the FYs 2007 and 2008 IPPS Final Rules as the Budget Neutrality Offset for FYs 2007 and 2008
O. Bundling of Payments for Services Provided to Outpatients Who Later Are Admitted as Inpatients: 3-Day Payment Window
1. Background
2. Establishment of Condition Code 51 (Attestation of Unrelated Outpatient Nondiagnostic Services)
3. Applicability of the Payment Window Policy to Services Furnished at Physicians' Practices
P. Changes to MS-DRGs Subject to the Postacute Care Transfer Policy
1. Background
2. Changes to the Postacute Care Transfer MS-DRGs
Q. Hospital Services Furnished Under Arrangements
R. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Purposes
1. Background and Provisions of the Interim Final Rule With Comment Period
a. Statutory Authority
b. Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of the Affordable Care Act
c. Treatment of Affiliated Groups Under Section 5503 of the Affordable Care Act
d. Section 203 of the Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309)
2. Summary of the Provisions of the Interim Final Rule With Comment Period
3. Summary of Public Comments, Departmental Responses, and Statements of Final Policies
a. Summary of Public Comments and Departmental Responses
b. Final Policies
4. Collection of Information Requirements
5. Regulatory Impact Statement
a. Statement of Need
b. Overall Impact
c. Anticipated Effects
d. Alternatives Considered
e. Conclusion
6. Comment on Issues Outside of the Scope of the Interim Final Rule With Comment Period
V. Changes to the IPPS for Capital-Related Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Changes for FY 2012: MS-DRG Documentation and Coding Adjustment
1. Background
2. Prospsective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2012 and Subsequent Years
3. Documentation and Coding Adjustment to the Puerto Rico-Specific Capital Rate
F. Other Proposed Changes for FY 2012
VI. Changes for Hospitals Excluded From the IPPS
A. Excluded Hospitals
B. Critical Access Hospital (CAH) Payment for Ambulance Services
1. Background
2. Requirement for CAH Ambulance Within a 35-Mile Location of a CAH or Entity
C. Report of Adjustment (Exceptions) Payments
VII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2012
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance
B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights
1. Background
2. Patient Classifications Into MS-LTC-DRGs
a. Background
b. Changes to the MS-LTC-DRGs for FY 2012
3. Development of the FY 2012 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative Weights
b. Development of the MS-LTC-DRG Relative Weights for FY 2012
c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative Weights
f. Low-Volume MS-LTC-DRGs
g. Steps for Determining the Proposed FY 2012 MS-LTC-DRG Relative Weights
C. Quality Reporting Program for LTCHs
1. Background and Statutory Authority
2. Quality Measures for the LTCH Quality Reporting Program for FY 2014
a. Considerations in the Selection of the Quality Measures
b. LTCH Quality Measures for FY 2014 Payment Determination
3. Possible LTCH Quality Measures Under Consideration for Future Years
4. Data Submission Methods and Timelines
a. Method of Data Submission for HAIs
b. Timeline for Data Reporting Related to HAIs
c. Method of Data Collection and Submission for the Pressure Ulcer Measure Data
d. Timeline for Data Reporting Related to Pressure Ulcers
5. Public Reporting and Availability of Data Submitted
D. Rebasing and Revising of the Market Basket Used Under the LTCH PPS
1. Background
2. Overview of the FY 2008-Based RPL Market Basket
3. Rebasing and Revising of the RPL Market Basket
a. Development of Cost Categories
b. Final Cost Category Computation
c. Selection of Price Proxies
d. Methodology for Capital Portion of the RPL Market Basket
e. FY 2012 Market Basket Update for LTCHs
f. Labor-Related Share
E. Changes to the LTCH Payment Rates and Other Changes to the FY 2012 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. FY 2012 LTCH PPS Annual Market Basket Update
a. Overview
b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act
c. Market Basket Under the LTCH PPS for FY 2012
d. Productivity Adjustment
e. Annual Market Basket Update for LTCHs for FY 2012
3. Budget Neutrality Adjustment for the Changes to the Area Wage Level Adjustment
4. Greater Than 25 Day Average Length of Stay Requirement for LTCHs
a. Determining the Average Length of Stay When There is a Change of Ownership
b. Inclusion of Medicare Advantage (MA) Days in the Average Length of Stay Calculation
F. Application of LTCH Moratorium on the Increase in Beds at Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH Satellite Facilities Established or Classified as Such Under Section 114(d)(2) of Public Law 110-173
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Statutory Requirement for Solicitation of Comments
2. ICRs for Add-On Payments for New Services and Technologies
3. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
4. ICRs for the Occupational Mix Adjustment to the FY 2012 Index (Hospital Wage Index Occupational Mix Survey)
5. Hospital Applications for Geographic Reclassifications by the MGCRB
6. ICRs for the Quality Reporting Program for LTCHs
Regulation Text
Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2011
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2012
A. Calculation of the Adjusted Standardized Amount
B. Adjustments for Area Wage Levels and Cost-of-Living
C. MS-DRG Relative Weights
D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2012
A. Determination of Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update
B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2012
C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages for FY 2012
V. Changes to the Payment Rates for the LTCH PPS for FY 2012
A. LTCH PPS Standard Federal Rate for FY 2012
B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2012
C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
D. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2012
VI. Tables Referenced in This Final Rulemaking and Available Through the Internet on the CMS Web Site
Appendix A—Economic Analyses
I. Regulatory Impact Analysis
A. Introduction
B. Need
C. Objectives of the IPPS
D. Limitations of Our Analysis for the IPPS
E. Hospitals Included in and Excluded From the IPPS
F. Effects on Hospitals and Hospital Units Excluded From the IPPS
G. Quantitative Effects of the Policy Changes Under the IPPS for Operating Costs
1. Basis and Methodology of Estimates
2. Analysis of Table I
3. Impact Analysis of Table II
H. Effects of Other Policy Changes
1. Effects of Policy on HACs, Including Infections
2. Effects of Policy Changes Relating to New Medical Service and Technology Add-On Payments
3. Effects of Requirements for Hospital Inpatient Quality Reporting (IQR) Program
4. Effects of Additional Hospital Value-Based Purchasing (VBP) Program Requirements
5. Effects of Requirements for Hospital Readmissions Reduction Program
6. Effects of Policy Changes Relating to Payment Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME)
7. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment
8. Effects of Changes Relating to MDHs
9. Effects of Policy Relating to CRNA Services Furnished in Rural Hospitals and CAHs
10. Effects of Changes Relating to ESRD Add-On Payment
11. Effects of Changes Relating to the Reporting Requirements for Pension Costs for Medicare Cost-Finding and Wage Reporting Purposes
12. Effects of Implementation of Rural Community Hospital Demonstration Program
13. Effects of Changes to List of MS-DRGs Subject to the Postacute Care Transfer and DRG Special Pay Policy
14. Effects of Changes Relating to Hospital Services Furnished Under Arrangements
15. Effects of Change Relating to CAH Payment for Ambulance Services
16. Effects of Finalization of Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes
I. Effects of Changes in the Capital IPPS
1. General Considerations
2. Results
J. Effects of Payment Rate Changes and Policy Changes Under the LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals
3. Anticipated Effects of LTCH PPS Payment Rate Change and Policy Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Alternatives Considered
L. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
M. Accounting Statements and Tables
1. Acute Care Hospitals
2. LTCHs
II. Regulatory Flexibility Act (RFA) Analysis
III. Unfunded Mandate Reform Act (UMRA) Analysis
IV. 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 2012
A. Final FY 2012 Inpatient Hospital Update
B. Final Update for SCHs and MDHs for FY 2012
C. Final FY 2012 Puerto Rico Hospital Update
D. Final Update for Hospitals Excluded From the IPPS
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).
The base payment rate is comprised of a standardized amount that is divided
into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.
If the hospital treats a high percentage of certain 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 varies based on the outcome of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.
The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.
Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2012, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.
Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA, Public Law 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are now included as part of the IPPS annual update document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs per discharge.
The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) of the Act). During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. Beginning
October 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR Part 413.
B. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) Applicable to FY 2012
The Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.”) A number of the provisions of the Affordable Care Act affect the updates to the IPPS and the LTCH PPS and providers and suppliers. The provisions of the Affordable Care Act that were applicable to the IPPS and the LTCH PPS for FYs 2010 and 2011 were implemented in the following documents:
On June 2, 2010, we issued in the
Federal Register
a notice (75 FR 31118) that contained the final wage indices, hospital reclassifications, payment rates, impacts, and other related tables, effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, which were required by or directly resulted from implementation of provisions of the Affordable Care Act.
On August 16, 2010, we issued in the
Federal Register
a final rule (75 FR 50042) that implemented provisions of the Affordable Care Act applicable to the IPPS and LTCH/PPS for FY 2011.
In this final rule, we are implementing the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS and LTCH PPS for FY 2012:
• Section 3001 of Public Law 111-148, which provides for establishment of a hospital value-based purchasing program and applicable measures for value-based incentive payments with respect to discharges occurring during FY 2013.
• Section 3004 of Public Law 111-148, which provides for the submission of quality data for LTCHs beginning in FY 2013 in order to receive the full annual update to the payment rates beginning with FY 2014 and the establishment of quality data measures by FY 2012 for the FY 2014 payment determination.
• Section 3025 of Public Law 111-148, which provides for a hospital readmissions reduction program and related quality data reporting measures.
• Section 3124 of Public Law 111-148, which provides for extension of the Medicare-dependent, small rural hospital (MDH) program through FY 2012.
• Section 3401 of Public Law 111-148, which provides for the incorporation of productivity improvements into the market basket updates for IPPS hospitals and LTCHs.
In addition, we are continuing in FY 2012 to implement the following provisions, which were initiated in FY 2011:
• Section 10324 of Public Law 111-148, which provided for a wage adjustment for hospitals located in frontier States.
• Sections 3401 and 10319 of Public Law 111-148 and section 1105 of Public Law 111-152, which revise certain market basket update percentages for IPPS and LTCH PPS payment rates for FY 2012.
• Sections 3125 and 10314 of Public Law 111-148, which provide for temporary percentage increases in payment adjustments to low-volume hospitals for discharges occurring in FY 2012.
• Section 1109 of Public Law 111-152, which provides for additional payments in FY 2012 for qualifying hospitals in the lowest quartile of per capita Medicare spending.
• Section 5503 of Public Law 111-148, as amended by Public Law 111-152 and section 203 of Public Law 111-309, which provides for the reduction in FTE resident caps for direct GME under Medicare for certain hospitals, and to authorize the “redistribution” of the estimated number of FTE resident slots to other qualified hospitals. In addition, section 5503 requires the application of these provisions to IME in the same manner as the FTE resident caps for direct GME.
C. Issuance of a Notice of Proposed Rulemaking
The May 5, 2011
Federal Register
(76 FR 25788) included the proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2012. We also set forth proposed changes relating to payments for IME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2012.
Below is a summary of the major changes that we proposed to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights
In section II. of the preamble of the proposed rule, we included—
• Proposed changes to MS-DRG classifications based on our yearly review.
• Proposed application of the documentation and coding adjustment for FY 2012 resulting from implementation of the MS-DRG system.
• A discussion of the Research Triangle Institute, International (RTI) reports and recommendations relating to charge compression.
• Proposed recalibrations of the MS-DRG relative weights.
• Proposed changes to hospital-acquired conditions (HACs) and a listing and discussion of HACs, including infections, that would be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2012.
We discussed the FY 2012 status of new technologies approved for add-on payments for FY 2011 and presented our evaluation and analysis of the FY 2012 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Public Law 108-173, obtained in a town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed included the following:
• The proposed FY 2012 wage index update using wage data from cost reporting periods beginning in FY 2008.
• Analysis and implementation of the proposed FY 2012 occupational mix adjustment to the wage index for acute care hospitals, including discussion of the 2010 occupational mix survey.
• A proposal to change the reporting requirements for pension costs for the Medicare wage index.
• Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.
• The proposed adjustment to the wage index for acute care hospitals for FY 2012 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• The timetable for reviewing and verifying the wage data used to compute the proposed FY 2012 hospital wage index.
• Determination of the labor-related share for the proposed FY 2012 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
In section IV. of the preamble of the proposed rule, we discussed a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 476, including the following:
• The reporting of hospital quality data under the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full annual payment update increase.
• The proposed implementation of the Hospital Value-Based Purchasing Program measures.
• The proposed establishment of hospital readmission measures for reporting of hospital quality data.
• The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
• The statutorily required IME adjustment factor for FY 2012.
• Proposed payment adjustment for low-volume hospitals.
• Proposal for counting hospice days in the formula for determining the payment adjustment for disproportionate share hospitals.
• Proposal for making additional payments for qualifying hospitals with lowest per enrollee Medicare spending for FY 2012.
• Proposal to clarify ESRD add-on payment requirements based on cost report requirements.
• Proposal relating to changes to the reporting requirements for pension costs for Medicare cost-finding purposes.
• Proposal to implement statutory change to the hospital payment update, including incorporation of a productivity adjustment.
• Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
• Discussion of August 2010 interim final rule with comment period and further proposed changes relating to the 3-day payment window for payments for services provided to outpatients who are later admitted as inpatients.
4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs
In section V. of the preamble to the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2012 and the proposed MS-DRG documentation and coding adjustment for FY 2012.
5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages
In section VI. of the preamble of the proposed rule, we discussed proposed changes to payments to certain excluded hospitals. In addition, we discussed proposed changes relating to payment for TEFRA services furnished under arrangements and payment for ambulance services furnished by CAH-owned and operated entities.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2012, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2012 and the proposed rebasing and revising of the market basket for LTCHs. In addition, we set forth proposals for implementing the quality data reporting program for LTCHs. We also proposed to clarify two policies regarding the calculation of the average length of stay requirement for LTCHs, and proposed a policy to address a LTCH moratorium issue.
7. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2012 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also proposed to establish the threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2012 for certain hospitals excluded from the IPPS.
8. Determining Proposed Prospective Payment Rates for LTCHs
In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2012 prospective standard Federal rate. We also proposed to establish the proposed adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
9. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals and LTCHs.
10. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services
In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2012 for the following:
• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).
• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.
• The standard Federal rate for hospital inpatient services furnished by LTCHs.
11. 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 2011 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs under the IPPS, for hospitals and distinct part hospital units excluded from the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2011 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at:
http://www.medpac.gov
.
D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS Proposed Rule
We received approximately 385 timely pieces of correspondence containing multiple comments on the FY 2012 IPPS/LTCH PPS proposed rule. We note that some of these public comments were outside of the scope of the proposed rule. These out-of-scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those comments are set forth in the various sections of this final rule under the appropriate heading.
E. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes
On March 14, 2011, we issued in the
Federal Register
(76 FR 13515) an interim final rule with comment period to implement section 203 of the Medicare and Medicaid Extenders Act of 2010 (MMEA), Public Law 111-309, relating to the treatment of teaching hospitals that are members of the same Medicare graduate medical education (GME) affiliated groups for the purpose of determining possible full-time equivalent (FTE) resident cap reductions. We received nine timely pieces of correspondence in response this interim final rule with comment period. In section IV.R. of this document, we are summarizing and responding to these public comments and are finalizing the policies contained in the interim final rule with comment period without modification.
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.
B. MS-DRG Reclassifications
1. General
As discussed in the preamble to the FY 2008 IPPS final rule with comment period (72 FR 47138), we focused our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its “Report to the Congress, Physician-Owned Specialty Hospitals” in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking severity of illness into account and applying hospital-specific relative value (HSRV) weights to DRGs.
1
We began this reform process by adopting cost-based weights over a 3-year transition period beginning in FY 2007 and making interim changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and modifying 32 other DRGs across 13 different clinical areas involving nearly 1.7 million cases. As described in more detail below, these refinements were intermediate steps towards comprehensive reform of both the relative weights and the DRG system as we undertook further study. For FY 2008, we adopted 745 new Medicare Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system, based on severity levels of illness, was established (72 FR 47141).
1
Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty Hospitals
, March 2005, page viii.
Currently, cases are classified into MS-DRGs for payment under the IPPS based on the following information reported by the hospital: The principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. (We refer readers to section II.G.11.c. of this final rule for a discussion of our efforts to increase our internal systems capacity to process diagnosis and procedures on hospital claims to 25 diagnosis codes and 25 procedure codes prior to the use of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure coding, effective October 1, 2013.) In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1, 2013. We refer readers to section II.G.11.b. of this final rule for a reference to the replacement of ICD-9-CM, Volumes 1 and 2, including the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and ICD-10-PCS Guidelines for Coding and Reporting, effective October 1, 2013 (FY 2014).
The process of developing the MS-DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The MDCs were formulated by physician panels to ensure that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final MS-DRG could contain patients in different MDCs. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in
accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2012, cases will be assigned to one of 751 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.
Major Diagnostic Categories
[MDCs]
1
Diseases and Disorders of the Nervous System.
2
Diseases and Disorders of the Eye.
3
Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
4
Diseases and Disorders of the Respiratory System.
5
Diseases and Disorders of the Circulatory System.
6
Diseases and Disorders of the Digestive System.
7
Diseases and Disorders of the Hepatobiliary System and Pancreas.
8
Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
9
Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
10
Endocrine, Nutritional and Metabolic Diseases and Disorders.
11
Diseases and Disorders of the Kidney and Urinary Tract.
12
Diseases and Disorders of the Male Reproductive System.
13
Diseases and Disorders of the Female Reproductive System.
14
Pregnancy, Childbirth, and the Puerperium.
15
Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
16
Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
17
Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
18
Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
19
Mental Diseases and Disorders.
20
Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
21
Injuries, Poisonings, and Toxic Effects of Drugs.
22
Burns.
23
Factors Influencing Health Status and Other Contacts with Health Services.
24
Multiple Significant Trauma.
25
Human Immunodeficiency Virus Infections.
In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 28.0), there are 13 MS-DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These MS-DRGs are for heart transplant or implant of heart assist systems; liver and/or intestinal transplants; bone marrow transplants; lung transplants; simultaneous pancreas/kidney transplants; pancreas transplants; and tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the 13 current pre-MDCs.
Pre-Major Diagnostic Categories
[Pre-MDCs]
MS-DRG 001
Heart Transplant or Implant of Heart Assist System with MCC.
MS-DRG 002
Heart Transplant or Implant of Heart Assist System without MCC.
MS-DRG 003
ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 004
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 005
Liver Transplant with MCC or Intestinal Transplant.
MS-DRG 006
Liver Transplant without MCC.
MS-DRG 007
Lung Transplant.
MS-DRG 008
Simultaneous Pancreas/Kidney Transplant.
MS-DRG 009
Bone Marrow Transplant.
MS-DRG 010
Pancreas Transplant.
MS-DRG 011
Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
MS-DRG 012
Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
MS-DRG 013
Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.
Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC).
Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect MS-DRG
assignment for certain principal diagnoses. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. Lithotripsy procedures are not routinely performed in an operating room. Therefore, lithotripsy codes are not classified as O.R. procedures. However, our clinical advisors believe that patients with urinary stones who undergo extracorporeal shock wave lithotripsy should be considered similar to other patients who undergo O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.
Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect hospital resource consumption. Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).
A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.
After patient information is screened through the MCE and further development of the claim is conducted, the cases are classified into the appropriate MS-DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into an MS-DRG on the basis of the diagnosis and procedure codes and, for a limited number of MS-DRGs, demographic information (that is, sex, age, and discharge status).
After cases are screened through the MCE and assigned to an MS-DRG by the GROUPER, the PRICER software calculates a base MS-DRG payment. The PRICER calculates the payment for each case covered by the IPPS based on the MS-DRG relative weight and additional factors associated with each hospital, such as IME and DSH payment adjustments. These additional factors increase the payment amount to hospitals above the base MS-DRG payment.
The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible MS-DRG classification changes and to recalibrate the MS-DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41499 and 41500), we discussed a process for considering non-MedPAR data in the recalibration process. We stated that for use of non-MedPAR data to be feasible for purposes of DRG recalibration and reclassification, the data must, among other things: (1) Be independently verified; (2) reflect a complete set of cases (or a representative sample of cases); and (3) enable us to calculate appropriate DRG relative weights and ensure that cases are classified to the “correct” DRG, and to one DRG only, in the recalibration process. Further, 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 depend 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 non-MedPAR database should be submitted by early December for consideration in conjunction with the next year's proposed rule.
As we indicated above, for FY 2008, we made significant improvements in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our MS-DRG analysis for the FY 2012 proposed rule was based on data from the September 2010 update of the FY 2010 MedPAR file, which contained hospital bills received through September 30, 2010, for discharges occurring through September 30, 2010. For this FY 2012 final rule, our MS-DRG analysis is based on data from the March 2011 update of the FY 2010 MedPAR file, which contained hospital bills received through March 31, 2011, for discharges occurring through September 30, 2010.
2. Yearly Review for Making MS-DRG Changes
Many of the changes to the MS-DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, comments about MS-DRG classification issues should be submitted no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.
The actual process of forming the MS-DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS-DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS-DRG. We also considered variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.
C. Adoption of the MS-DRGs in FY 2008
In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed a number
of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). Based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 IPPS final rule (71 FR 47906 through 47912), we discussed several concerns raised by public commenters regarding the proposal to adopt CS DRGs. We acknowledged the many public comments suggesting the logic of Medicare's DRG system should continue to remain in the public domain as it has since the inception of the PPS. We also acknowledged concerns about the impact on hospitals and software vendors of moving to a proprietary system. Several commenters suggested that CMS refine the existing DRG classification system to preserve the many policy decisions that were made over the last 20 years and were already incorporated into the DRG system, such as complexity of services and new device technologies. Consistent with the concerns expressed in the public comments, this option had the advantage of using the existing DRGs as a starting point (which was already familiar to the public) and retained the benefit of many DRG decisions that were made in recent years. We stated our belief that the suggested approach of incorporating severity measures into the existing DRG system was a viable option that would be evaluated.
Therefore, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.
In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives and our actions for FYs 2008, 2009, 2010, and 2011, and our proposed and final actions for FY 2012 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2012 in other sections of this preamble and in the Addendum to this final rule.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights were adopted over a 3-year transition period in
1/3
increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the HSRV-based methodology as well as other issues brought to our attention related to the cost-based weighting methodology adopted in the FY 2007 final rule. There was significant concern in the public comments that our cost-based weighting methodology does not adequately account for charge compression—the practice of applying a higher percentage charge markup over costs to lower cost items and services and a lower percentage charge markup over costs to higher cost items and services. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost reports to determine departmental level cost-to-charge ratios (CCRs) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International (RTI) to study both charge compression and the extent, if any, to which our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this final rule for a discussion of the issue of charge compression and the cost-weighting methodology for FY 2012.
We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are proposing to make in this proposed rule for FY 2012 will improve payment accuracy and reduce financial incentives to create specialty hospitals.
We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full discussion of how the MS-DRG system was established based
on severity levels of illness (72 FR 47141).
D. FY 2012 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
As we discussed earlier in this preamble, we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, there are 751 MS-DRGs, which include 4 additional MS-DRGs that we are adopting for FY 2012.) By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.
In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We provided for phasing in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.
On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not adjust the FY 2010 −1.8 percent documentation and coding adjustment promulgated in the FY 2008 IPPS final rule with comment period. To comply with section 7(a) of Public Law 110-90, we promulgated a final rule on November 27, 2007 (72 FR 66886) that modified the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly. These revisions were effective on October 1, 2007.
For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As discussed in the FY 2009 IPPS final rule (73 FR 48447) and required by statute, we applied a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment for FY 2009 was in addition to the −0.6 percent adjustment for FY 2008, yielding a combined effect of −1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90
Section 7(b)(1)(A) of Public Law 110-90 requires that, if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Public Law 110-90
If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup (or repay, in the case of underpayments) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
In order to implement the requirements of section 7 of Public Law 110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that we planned a thorough retrospective evaluation of our claims data. We stated that the results of this evaluation would be used by our actuaries to determine any necessary payment adjustments to the standardized amounts under section 1886(d) of the Act to ensure the budget neutrality of the MS-DRGs implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 23541 through 23542), we described our preliminary plan for a retrospective analysis of inpatient hospital claims
data and invited public input on our proposed methodology.
In that proposed rule, we indicated that we intended to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expected that the two largest parts of this overall national average change would be attributable to underlying changes in actual patient severity of illness and to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we planned to isolate the effect of shifts in cases
among
base DRGs from the effect of shifts in the types of cases
within
base DRGs.
The MS-DRGs divide the base DRGs into three severity levels (with MCC, with CC, and without CC); the previously used CMS DRGs had only two severity levels (with CC and without CC). Under the CMS DRG system, the majority of hospital discharges had a secondary diagnosis which was on the CC list, which led to the higher severity level. The MS-DRGs significantly changed the code lists of what was classified as an MCC or a CC. Many codes that were previously classified as a CC are no longer included on the MS-DRG CC list because the data and clinical review showed these conditions did not lead to a significant increase in resource use. The addition of a new level of high severity conditions, the MCC list, also provided a new incentive to code more precisely in order to increase the severity level. We anticipated that hospitals would examine the MS-DRG MCC and CC code lists and then work with physicians and coders on documentation and coding practices so that coders could appropriately assign codes from the highest possible severity level. We note that there have been numerous seminars and training sessions on this particular coding issue. The topic of improving documentation practices in order to code conditions on the MCC list was also discussed extensively by participants at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Participants discussed their hospitals' efforts to encourage physicians to provide more precise documentation so that coders could appropriately assign codes that would lead to a higher severity level. Because we expected most of the documentation and coding changes under the MS-DRG system would occur in the secondary diagnoses, we believed that the shifts among base DRGs were less likely to be the result of the MS-DRG system and the shifts within base DRGs were more likely to be the result of the MS-DRG system. We also anticipated evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the documentation and coding payment effect and to quantify their impact. This step entailed analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.
In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for performing a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patient severity of illness.
A few commenters, including MedPAC, expressed support for the analytic approach described in the FY 2009 IPPS proposed rule. A number of other commenters expressed concerns about certain aspects of the approach and/or suggested alternate analyses or study designs. In addition, one commenter recommended that any determination or retrospective evaluation by the actuaries of the impact of the MS-DRGs on case-mix be open to public scrutiny prior to the implementation of the payment adjustments beginning in FY 2010.
We took these comments into consideration as we developed our proposed analysis plan, and in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092 through 24101), we solicited public comment on our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we updated this analysis with FY 2008 data for claims paid through March 2009, and we noted that the estimates for all IPPS remained essentially the same to those in the proposed rule (42 FR 43770, 43775). Also, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772), we responded to comments on our methodology for the retrospective evaluation of FY 2008 claims data. We refer readers to that final rule for a detailed description of our analysis and prior responses to comments.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068), we performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims. We note that, in the FY 2011 IPPS/LTCH PPS proposed rule, we performed this analysis using FY 2009 claims paid through December 2009. In the FY 2011 IPPS/LTCH PPS final rule, we updated the analysis with FY 2009 claims paid through March 2010, as we discussed in the proposed rule. We note that, for all IPPS hospitals, other than those in Puerto Rico, the estimates were unchanged from those in the proposed rule. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068) for a detailed description of our analysis and prior responses to comments. The results of the analysis for the FY 2011 proposed and final rules provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.
As in prior years, the FY 2008 and FY 2009 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effect. Interested individuals may still order these files through the Web site at:
http://www.cms.hhs.gov/LimitedDataSets/
by clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web page describes the file and provides directions and further detailed instructions for how to order.
Persons placing an order must send the following: A Letter of Request, the LDS Data Use Agreement and Research Protocol (refer to the Web site for further instructions), the LDS Form, and a check for $3,655 to:
Mailing address if using the U.S. Postal Service: Centers for Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520.
Mailing address if using express mail: Centers for Medicare & Medicaid Services, OFM/Division of Accounting—RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.
5. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act
Based on our evaluation of FY 2008 Medicare claims data that were most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, the estimated 2.5 percent change in FY 2008 case-mix due to changes in
documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public comment on our proposal to make a −1.9 percent prospective adjustment to the standardized amounts under section 1886(d) of the Act to address the effects of documentation and coding changes unrelated to changes in real case-mix in FY 2008. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, in response to public comments, we indicated that we fully understood that our proposed adjustment of −1.9 percent would reduce the increase in payments that affected hospitals would have received in FY 2009 in the absence of the adjustment, and we determined that it would be appropriate to postpone adopting documentation and coding adjustments as authorized under section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the Act until a full analysis of case-mix changes could be completed. We refer readers to the FY 2010 IPPS/LTCH PPS final rule (74 FR 43767 through 43777) for a detailed description of our proposal, responses to comments, and finalized policy.
After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50073), we found a total prospective documentation and coding effect of 1.054. After accounting for the −0.6 percent and the −0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we found a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an “appropriate” adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we believe we have some discretion as to the manner in which we apply the prospective adjustment of −3.9 percent. We indicated that applying the full prospective adjustment of −3.9 percent for FY 2011, in combination with the proposed recoupment adjustment of −2.9 percent in FY 2011 (discussed below) would require an aggregate adjustment of −6.8 percent. As we discuss elsewhere in this section II.D., and more extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. As we also discuss below in this section II.D., we are required to implement the remaining adjustment in section 7(b)(1)(B) of Public Law 110-90 no later than the FY 2012 rulemaking period, and accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed a recoupment adjustment under section 7(b)(1)(B) of −2.9 percent for FY 2011 (75 FR 23870 and 23871). Therefore, we stated that we believed it was appropriate to not implement any or all of the −3.9 percent prospective adjustment in FY 2011. Accordingly, we did not propose a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 through 23870) for FY 2011. We note that, as a result, payments in FY 2011 (and in each future year until we implement the requisite adjustment) would be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9 percentage point increase will result in an aggregate payment of approximately $4 billion. We also noted that payments in FY 2010 were also expected to be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90, which our actuaries estimated increased aggregate payments by approximately $4 billion in FY 2010.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25803 and 25804), we indicated that because further delay of this prospective adjustment will result in a continued accrual of unrecoverable overpayments, it was imperative that we proposed a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we proposed a −3.15 percent prospective adjustment to the standardized amount to partially eliminate the full effect of the documentation and coding changes on future payments. Due to the offsetting nature of the remaining recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 (described below in section II.D.6. of this preamble), and after considering other payment adjustments to FY 2012 rates proposed elsewhere within the proposed rule, we indicated that we believe the proposed −3.15 percent adjustment would allow for a significant reduction in potential unrecoverable overpayments, yet would maintain a comparable adjustment level between FY 2011 and FY 2012, reflecting the applicable percentage increase with a documentation and coding adjustment. We stated that we recognize that an additional adjustment of −0.75 (3.9 minus 3.15) percent would be required in future rule making to complete the necessary −3.9 adjustment to meet CMS' statutory requirement under section 7(b)(1)(A) of Public Law 110-90. In the proposed rule, we indicated that we were not at that time proposing a timeline to implement the remainder of this prospective adjustment.
6. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90
As discussed in section II.D.1. of this preamble, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2008 and FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule with comment period (74 FR 43773), we estimated a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008, exceeding the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. We stated that our actuaries had estimated that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion in FY 2008. We did not propose to make an adjustment to the FY 2010 average standardized amounts to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but stated in the proposed rule that we intended to address this issue in future rulemaking. In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43774), we stated that because we would not receive all FY 2009 claims data prior to publication of the final rule, we would address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we performed a retrospective evaluation of the FY 2009 claims data. In response to public comments in FY 2010, we indicated that we recognized that any adjustment to account for the documentation and coding effect observed in the FY 2008 and FY 2009 claims data may result in significant future payment reductions for providers. However, we indicated that we are required under section 7(b)(1)(B) of Public Law 110-90 to recover the difference of actual documentation and coding effect in FY 2008 and FY 2009 that is greater than the prior adjustments. We agreed with the commenters who requested that CMS delay any adjustment and, for the reasons stated above, indicated that we expected to address this issue in the FY 2011 rulemaking. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777) for a detailed description of our proposal, responses to comments, and finalized policy.
As we indicated in the FY 2011 IPPS/LTCH PPS final rule, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 and FY 2009 exceeded the −0.6 and −0.9 percent prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90 for those 2 years, respectively, by 1.9 percentage points in FY 2008 and 3.9 percentage points in FY 2009. In total, this change exceeded the cumulative prospective adjustments by 5.8 (1.9 plus 3.9) percentage points. Our actuaries estimated that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. In the FY 2011 IPPS/LTCH PPS final rule, we noted that there may be a need to actuarially adjust the recoupment adjustment to accurately reflect accumulated interest. Therefore, we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012, subject to actuarial adjustment to reflect accumulated interest, would be necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23871), we stated that we intended to take into account the need to reflect accumulated interest in proposing a recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 for FY 2012.
It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to make an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude would allow us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY 2012).
Unlike the permanent prospective adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is not cumulative, and, therefore, would be removed for subsequent fiscal years once we have completely offset the increase in aggregate payments for discharges for FY 2008 and FY 2009 expenditures. In keeping with our practice of moderating payment adjustments when necessary, we stated that we anticipated that the proposal of phasing in the recoupment adjustment will have an additional, and significant, moderating effect on implementing the requirements of section 7(b)(1)(B) of Public Law 110-90 for FY 2012.
In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on our proposal to offset part of the total 5.8 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-DRGs in FY 2011, noting that this proposal would result in a −2.9 percent adjustment to the standardized amount. We received numerous comments on our proposal, especially from national and regional hospital associations, hospital systems, and individual hospitals. MedPAC also commented on our proposal. We refer readers to the FY 2011 IPPS/LTCH PPS final rule with comment period (75 FR 50055 through 50073) for a detailed description of our analysis and prior responses to comments, and finalized policy.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50068), we finalized the proposed adjustment to the standardized amount of −2.9 percent, which represented approximately half of the aggregate recoupment adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. We were persuaded by both the MedPAC's analysis, and our own review of the methodologies recommended by various commenters, that the methodology we employed to determine the required recoupment adjustment was sound. Since the statute required that we implement the entire recoupment adjustment no later than FY 2012, we have sought, as we commonly do, to moderate the potential impact on hospitals by phasing in the required adjustment over more than one year. As we stated in prior rulemaking, a major advantage of making the −2.9 percent adjustment to the standardized amount in FY 2011 was that, because the required recoupment adjustment is not cumulative, we anticipated removing the FY 2011 −2.9 percent adjustment from the rates (in other words, making a positive 2.9 percent adjustment to the rates) in FY 2012, at the same time that the law required us to apply the remaining approximately −2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 −2.9 percent adjustment and then applying the remaining adjustment of approximately −2.9 percent, would effectively cancel each other out. The result of these two steps would be an aggregate adjustment of approximately 0.0 percent. While we stated in the FY 2011 IPPS/LTCH PPS final rule the need to potentially adjust the remaining −2.9 percent estimate to account for accumulated interest, our actuaries have determined that there has been no significant interest accumulation and that no additional adjustment will be required. Therefore, for FY 2012, pursuant to the timeframes set forth by section 7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in the FY 2011 IPPS/LTCH PPS final rule, we proposed to complete the recoupment adjustment by implementing the remaining −2.9 percent adjustment, in addition to removing the effect of the −2.9 percent adjustment to the standardized amount finalized for FY 2011. Because these adjustments will, in effect, balance out, there will be no year-to-year change in the standardized amount due to this recoupment adjustment. As this
adjustment will complete the required recoupment for overpayments due to documentation and coding effects on discharges occurring in FYs 2008 and 2009, we anticipate removing the effect of this adjustment by adding 2.9 percent to the standardized amount in FY 2013. We continue to believe that this is a reasonable and fair approach that satisfies the requirements of the statute while substantially moderating the financial impact on hospitals.
Comment:
One commenter, MedPAC, reiterated its general support for the methodology used by our actuaries to estimate the magnitude of documentation and coding effect on IPPS payments due to the adoption of the MS-DRG system. In its letter, MedPAC explained that the methodology used by our actuaries “is akin to comparing two sets of payments: What payments actually were in fiscal year 2009 under the 2009 MS-DRGs and relative weights; and what payments would have been in 2009 if MS-DRGs had not been adopted and CMS had continued to use the prior (2007) CMS DRGs and weights.” MedPAC noted that by taking the difference between these two sets of payments, the methodology is designed to capture “the new GROUPER's interaction with how hospitals changed their documentation and coding. After the adoption of MS-DRGs in 2008, hospitals switched from recording general descriptions of patients' chronic conditions—which no longer affect payments under MS-DRGs—to recording the specific acute manifestations of patients' chronic conditions, which trigger higher payments under MS-DRGs. However, the same changes in diagnosis documentation and coding have little or no effect on the CMI measured using the 2007 CMS-DRGs and weights. This is because in that version of the GROUPER, both acute manifestations of chronic conditions and general descriptions of chronic conditions trigger higher payments. In contrast, when hospitals had little incentive to change documentation and coding—in 2007, for example—the two CMIs are approximately equal.”
Consistent with its comments in prior years, MedPAC's comment noted that its analysis of Medicare hospital inpatient claims for 2007-2009 yielded similar estimates of the documentation and coding effect. MedPAC concluded that “CMS would need to reduce IPPS payments temporarily by 5.8 percent to recover overpayments that occurred in 2008 and 2009. CMS also expected that overpayments equal to 3.9 percent of annual IPPS payments would continue through 2010, 2011, and future years until CMS makes a prospective offsetting adjustment (−3.9 percent) to the IPPS payments rates.”
MedPAC's comment described potential circumstances in which the methodology used both by our actuaries and MedPAC could overestimate the documentation and coding effect, noting that these possible circumstances “could cause only a small change in the estimated effect of documentation changes.”
MedPAC stated, “In response to the new MS-DRGs, hospitals had an incentive to report diagnoses that count as CCs in the new system. MedPAC's argument is that hospitals may also have stopped reporting diagnoses that counted as CCs in the old system, but do not count in the new one.” In short, MedPAC argued that the disappearance of the general chronic condition codes could have caused the CMIs based on the old FY 2007 GROUPER and weights to be understated in FYs 2008 and 2009. Thus, because CMIs based on the 2007 GROUPER and weights are the denominators of the documentation change estimates, understatement would bias the estimates upward. However, understatement would occur only to the extent that hospitals, when coding: (1) Did not replace such general chronic condition codes with corresponding acute manifestation codes and (2) the patient had no other secondary diagnosis code that qualified as a CC in the old GROUPER and are now CCs or MCCs under the MS-DRGs.
MedPAC's analysis concluded that the maximum possible effect of this potential overestimation is 0.36 percent, and “that total overpayments due to documentation changes in 2008 and 2009 may have ranged from 5.1 to 5.8 percent of IPPS payments ($6.0 to $6.9 billion).”
MedPAC recommended that CMS slow the pace of the payment adjustments so that hospitals would receive a net 1 percent update in FY 2012, as it recommend in its March 2011 Report to Congress. Furthermore, MedPAC stated that legislation should be enacted to require the Secretary of Health and Human Services to adjust payments further to recover all overpayments that have occurred or will occur in FYs 2010, 2011, and 2012 because the prospective adjustment was not completed. MedPAC asserted that:
“To allow payments to increase due to documentation and coding changes would undermine Congressional policy on updates. If Congress wants more money to flow into the hospital sector, a higher update is the appropriate mechanism, not cumulative changes in documentation and coding. Indeed, allowing those changes to increase hospital payments through the back door could eventually discourage needed refinements to the case-mix system in a tight budget era. In other words, if more money inevitably leaks into the system every time case-mix is refined, then there may be pressure to stop refining. That would lead to inequities for both providers and patients.”
Response:
We appreciate MedPAC's analysis and continued support of the methodology used to determine the documentation and coding effect, and we agree that this methodology appropriately isolates the documentation and coding effect from real case-mix. With the exception of the possible overstatement described above, we note that MedPAC's analysis yielded results similar to CMS' determination of the documentation and coding effect. Based on our evaluation of FY 2008 and FY 2009 claims, we continue to believe that $6.9 billion dollars in overpayments were made during the period of FY 2008 and 2009. We estimate that a recoupment adjustment totaling 5.8 percent is necessary to recover these overpayments, and that operating IPPS rates are currently overstated by 3.9 percent. We also note that section 7(b)(1)(B) of the TMA requires the agency to recover these overpayments by FY 2012 and that section 7(b)(1)(A) of the TMA requires the agency to adjust rates to ensure that aggregate payments do not continue to be overstated.
With regard to MedPAC's analysis regarding the possible overestimate of the documentation and coding effect, we note that MedPAC characterized the potential effect as “small” and provided no corroborating analysis or specific examples of when this scenario may have occurred. We consulted with our medical coding experts and were unable to identify specific examples to support MedPAC's hypothesis. We note that MedPAC stated in its comment letter that the potential for overestimation exists only to the extent that “hospitals (1) did not replace such general chronic condition codes with corresponding acute manifestation codes and (2) the patient had no other secondary diagnosis code that qualified as a CC in the old grouper.” We reviewed coding changes that occurred during the transition to MS-DRGs and were able to identify codes that would result in a CC prior to MS-DRGs but would not result in a CC in the MS-DRG system. However, we were unable to identify an instance where this would necessarily result in a lower MS-DRG assignment because more specific codes were
developed to support the more refined MS-DRG system and we would expect hospitals to use the more specific codes. For instance, congestive heart failure was a CC under CMS DRGs, but is not a CC under MS-DRGs. Under MS-DRGs, we started requiring more specific information on the type of heart failure in order to count this as a CC or MCC. Generally, under the MS-DRG system, the “unspecified” codes in a category no longer result in CCs.
We did not receive any other public comments regarding MedPAC's statements that we may have overestimated the effect of the documentation and coding by considering cases grouped under the MS-DRG system as having a higher severity due to being coded without appropriate CCs under the pre-MS-DRG system.
At this time, we believe it would not be appropriate to revise our estimates based solely on MedPAC's analysis without knowing of any specific examples of the scenario described above. Without this information, we cannot determine whether there was a sufficient volume of cases to cause a potential documentation and coding overestimate. However, we welcome specific examples from the public to possibly inform future rulemaking.
We acknowledge MedPAC's recommendation to provide hospitals with a net 1 percent update. As noted above, the comment restates MedPAC's recommendation from its March 2011 Report to Congress. We address this issue below in our response to comments by the provider community that expressed concern regarding the impact of various payment adjustments on hospitals.
We also acknowledge MedPAC's request that additional statutory authority be granted to the Secretary of Health and Human Services to recover overpayments made during subsequent fiscal years.
Lastly, we agree with MedPAC that it is important to continue refining the methodology of how case mix is measured to ensure payment accuracy. We note that in this final rule we discuss potential refinements to the MS-DRG relative weight system, and CMS' active engagement in implementing the ICD-10 system. These discussions illustrate the efforts the agency is undertaking to improve the ability to measure case mix precisely and to pay hospitals for inpatient services more accurately.
Comment:
Most commenters, including national hospital associations, continued to acknowledge that there were documentation and coding increases in FY 2008 and FY 2009 that were in excess of the statutory 0.6 percent and 0.9 percent adjustments specified in section 7(a) of the TMA. However, as in prior rulemakings on this issue, most commenters again questioned the methodology employed by MedPAC and our actuaries to determine the magnitude of the excess.
We also received Congressional correspondence from numerous members of Congress stating that hospitals had expressed concerns regarding the CMS Actuary's methodology and requesting that CMS ensure that its methodology accurately reflects changes in patient severity prior to finalizing adjustments for documentation and coding in response to hospitals' concerns. Specifically, the correspondence suggested that CMS could consider alternative methodologies for estimating the effect of documentation and coding, including trend-based analysis and chart abstraction.
Several commenters stated that historical case mix trend is inconsistent with our estimate of the effect of the FY 2008 and FY 2009 documentation and coding changes due to the implementation of the MS-DRGs. One commenter stated “Our analysis, which used multiple years of patient claims, clearly shows that a significant portion of the change CMS found is actually the continuation of historical trends, rather than the effect of documentation and coding changes due to implementation of MS-DRGs. This analysis found a cumulative documentation and coding effect of 3.6 percent for FYs 2008 and 2009, as opposed to the 5.4 percent that CMS found.”
Several commenters submitted an historical case-mix trend analysis last year, which showed a documentation and coding effect of 2.3 percent. An analysis submitted by the same commenters this year showed a cumulative documentation and coding increase through FY 2009 of 3.6 percent. The commenters revised their analysis to respond to CMS comments made in last year's rule. Specifically, the national hospital associations stated that, “This year we make several modifications to that trend-based analysis to respond to CMS' critiques as enumerated in the FY 2011 inpatient PPS final rule. Given that we have addressed the agency's concerns, we are hopeful that it will give our methodology fresh consideration.” One hospital association also pointed out that CMS included an assumption regarding real case-mix growth in the adjustment for “changes in case-mix” in the capital update framework at § 412.308(c)(1)(ii) and suggested that the estimate made by our actuaries regarding documentation and coding be reduced by this assumption in order to maintain consistency with the capital update framework.
Commenters also examined the methodology used by our actuaries and MedPAC using index number theory. As stated by these commenters, “the relative case weights in a given grouper are like relative prices in a price index calculation (in fact they are relative prices for the different MS-DRGs) and the quantities of discharges in various MS-DRGs are like the quantities of goods in the price index calculation.” Commenters claimed that, based on index number theory, the methodology employed by MedPAC and our actuaries can only provide upper and lower bounds of the combined effect of documentation and coding and real case-mix change. MedPAC, however, indicated that knowledge of the 2007 MS-DRG GROUPER, the new MS-DRG GROUPER, historical documentation of patients' diagnoses, and the changes CMS made when it created the MS-DRGs can be used to narrow the range of the potential documentation and coding effect as described above, although they noted that these “could cause only a small change in the estimated effect of documentation changes.”
As in past years, several commenters indicated that CMS should use medical records data to distinguish documentation and coding changes from real case-mix changes. MedPAC disagreed with the commenters' rationale that the use of medical records data could determine the effect of both documentation and coding, and stated the following: “Gold-standard coders, however, only see the diagnoses written in the record and therefore are not able to distinguish changes in documentation from real changes in patients' diagnoses. This method of recoding existing documentation only works in situations where hospitals have no incentive to change documentation. That is clearly not the case with the transition to MS-DRGs.”
Response:
We disagree that the new analysis presented by the national hospital associations has addressed our concerns with the use of a trend analysis to determine the documentation and coding increase when a more direct measurement of the relevant increase can be obtained using our proposed methodology. In last year's rule, we expressed several concerns with regard to the use of a trend analysis, stating, “We believe that the determination of an appropriate
historical trend is less straightforward than our methodology, which, as described above, simply removes real case-mix growth from the calculation” (75 FR 50066). While we pointed out certain analytical flaws in the trend analysis used last year (for a full discussion, we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50065 through 50066)), we did not state the correction of those flaws would yield a better documentation and coding estimate than the direct estimate obtained under our proposed methodology. In fact, we noted that “changes in case-mix do not necessarily follow a consistent pattern over time.” MedPAC provided analysis in its comment letter which supported CMS' position. MedPAC's analysis demonstrated that CMI growth was modest at best, never exceeding plus or minus 1 percent the decade prior to the introduction of MS-DRGs, and in some years was negative.
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The national hospital associations' most significant response to our critique of their previous analysis in the FY 2011 IPPS/LTCH PPS final rule was to expand the time period upon which its trend analysis is based to include years where there were sustained negative changes in actual CMI. This raised their estimate of documentation and coding from 2.3 percent to 3.6 percent. We believe that this increase demonstrates the variability in the estimates that can be obtained using trend analyses. We also stated in last year's final rule that “despite our position that our methodology more directly measures the relevant increase, we did examine the alternative approach favored by commenters for calculating the documentation and classification increase. As a general statement, the approach of examining historical trends to estimate what case-mix would have been in the absence of the adoption of the MS-DRGs should not necessarily yield significantly different results from the analysis done by our actuaries and the MedPAC, if an appropriate historical trend can be determined.”
We reiterate our concerns with the use of historical trends to determine documentation and coding this year, and we do not believe that the modifications to the commenters' analysis address all of these concerns. In particular, we agree with MedPAC that “absent changes in documentation and coding and the shift away from inpatient surgeries, real changes in the CMI in 2008 through 2010 would be completely consistent with historical CMI changes since 2001.” In performing its analysis, MedPAC adjusted for changes in the share of cases with surgery, share of cases with CCs, and the estimated effects of changes in documentation and coding. MedPAC summarized the results of its analysis in the following graph.
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In summary, with respect to trend analysis, we continue to believe that the determination of an appropriate historical trend is less straightforward than our proposed methodology, which simply removes real case-mix growth from the calculation. In addition, the estimates obtained using our proposed methodology are consistent with the historical case-mix growth, as demonstrated by MedPAC.
We also disagree with commenters who stated that the methodology employed by MedPAC and our actuaries can only provide upper and lower bounds of the combined effect of documentation and coding and real case-mix change and cannot separate documentation and coding effects from real case-mix change. While MedPAC recognized that the potential for a range of estimates may exist, MedPAC disagreed with the conclusion that index number theory, as described above, should be used to determine this range. MedPAC stated that “in this instance at least, the estimated range between the lower and upper bounds based on this approach is so wide that the estimates are useless for policy making.” We agree with MedPAC that the wide range resulting from an index number theory approach renders such an approach useless in this context.
In response to commenters' support for using hospital records to distinguish documentation and coding effect from real case-mix changes, we agree with MedPAC's rationale that such an analysis would fail to capture changes in documentation. MedPAC stated: “In our view, this approach does not work. The reason is that hospitals had an incentive to persuade attending physicians to be more specific in describing patients' acute manifestations of chronic conditions in their medical records. Some hospitals hired documentation specialists with the goal of changing physicians' medical record documentation, not simply to do a better job of coding what they wrote in the record (Hahey 2008). Gold-standard coders, however, only see the diagnoses written in the record and therefore are not able to distinguish changes in documentation from real changes in patients' diagnoses. This method of recoding existing documentation only works in situations where hospitals have no incentive to change documentation. That is clearly not the case with the transition to MS-DRGs. Thus, a very important part of the effect of changes in documentation and coding cannot be detected by the proposed method.”
We also note that as one part of our initial documentation and coding analysis, we attempted to examine coding changes based on hospital chart data from the Medicare Clinical Data Abstraction Center (CDAC). However, as we described in the FY 2010 IPPS/LTCH PPS final rule, it was not possible to perform this analysis due to aberrant CDAC data. We stated, “While we attempted to use the CDAC data to distinguish real increase in case-mix growth from documentation and coding in the overall case-mix number, we found aberrant data and significant variation across the FY 1999-FY 2007 analysis period. It was not possible to distinguish changes in documentation and coding from changes in real case-mix in the CDAC data. Therefore, we concluded that the CDAC data would not support analysis of real case-mix growth that could be used in our retrospective evaluation of the FY 2008 claims data.” (74 FR 43769)
Finally, we disagree with the commenters' suggestion that the assumptions in the capital update framework should be applied in our actuaries' estimate of documentation and coding, because the capital update framework is intended for projection purposes and would be inappropriate to use as a proxy for historical trends.
After careful consideration of all of the public comments we received, including alternatives suggested by commenters, we remain confident in the accuracy of our methodology and its appropriateness in determining the required adjustment amounts.
Comment:
Numerous commenters expressed concern regarding the potentially severe negative fiscal impact that would be experienced by providers if the proposed documentation and coding improvement adjustment were to
be implemented. As noted above, MedPAC recommended that CMS reduce its proposed −3.15 percent adjustment to be consistent with a net update factor of +1.0 percent, as it recommended in its March 2011 Report to Congress.
As noted previously, we also received Congressional correspondence from numerous members of Congress that requested CMS to reconsider what would be an appropriate adjustment to hospital payments and also requested that CMS reexamine its methodology. This correspondence noted that hospitals would experience payment reductions if the proposed rule were finalized without modification and further stated that hospitals needed “adequate Medicare reimbursement to ensure that patients and communities receive the care they need.”
Response:
We recognize the concerns regarding possible financial disruption that may be caused by the proposed documentation and coding improvement payment adjustment. We note, however, that these payment adjustments are necessary to correct past overpayments due solely to documentation and coding improvements. We have already delayed implementation of the required prospective adjustment amount, and we proposed only a portion of the remaining required adjustment to allow hospitals time to adjust to future payment differences and to moderate the effect of this adjustment in any given year. We are required under section 7(b)(1)(B) of the TMA to complete the remaining one-time −2.9 percent recoupment adjustment for FY 2008 and FY 2009 overpayments in FY 2012, and we believe the impact of completing this adjustment to be reasonable considering it will be completely offset by removing the FY 2011 recoupment adjustment by placing a +2.9 percent adjustment back to the standardized amount. In FY 2013, a positive +2.9 percent adjustment will be made, completing the recoupment process.
In the proposed rule, we stated it was imperative that CMS make a significant prospective adjustment amount in FY 2012 to prevent the accumulation of unrecoverable overpayments. As stated in previous responses to comments, we remain confident in the accuracy of the overall methodology and its appropriateness in determining the required adjustment amount. However, after consideration of the public comments, and in keeping with our longstanding policy to mitigate, when possible, the effects of significant downward adjustments on hospitals, we are finalizing a prospective adjustment of −2.0 percent, which is a reduction from our proposed adjustment of −3.15 percent. We note that this adjustment will result in a total update of +1.0 percent, in accordance with MedPAC's recommendation in its March 2011 Report to Congress for hospitals that report quality data consistent with the requirements of the Hospital IQR Program. Specifically, as discussed elsewhere in this final rule, the applicable percentage increase for FY 2012 is +1.9 percent (based on a market basket of +3.0 percent, a multifactor productivity adjustment of −1.0 percentage point, and a statutory adjustment of −0.1 percentage point in accordance with section 3401 of the Affordable Care Act). When combined with the +1.1 adjustment in light of
Cape Cod v. Sebelius,
630 F.3d 203 (D.C. Cir. 2011) discussed elsewhere in this final rule, the applicable percentage increase of +1.9 percent and this proposed prospective adjustment of −2.0 percent results in a net total update of +1.0 percent, prior to additional adjustments for budget neutrality and other policy adjustments. We believe that this level of adjustment will help to minimize year to year volatility in payment rates due to the required documentation and coding adjustment. As we stated in the proposed rule, our analysis found that a prospective adjustment of −3.9 percent continues to be necessary. Because we are making a −2.0 percent prospective adjustment for FY 2012, a remaining prospective of adjustment of −1.9 percent will be necessary. While we are not at this time stating when we will make the remaining required −1.9 percent prospective adjustment, we consider it feasible to make all or most of the adjustment in FY 2013, when a +2.9 percent adjustment will be factored into rates to offset the one-time FY 2012 recoupment adjustment.
The table below summarizes the adjustments for FY 2012 for documentation and coding for IPPS hospitals.
FY 2012 MS-DRG Documentation and Coding Adjustment
Required
prospective
adjustment for FYs 2008-2009
Remaining
required recoupment adjustment for FYs 2008-2009
Total remaining adjustment
Prospective adjustment for FY 2012
Recoupment adjustment to FY 2012
payments
Remaining prospective adjustment
Level of Adjustments
−3.9%
−2.9%
−6.8%
−2.0%
−2.9%
−1.9%
7. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: The Federal rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; the updated hospital-specific rate based on FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period (72 FR 47152 through 47188), we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that final rule with comment period, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the Act, which provides us with the authority to adjust “the standardized amount” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix.
However, in the final rule that appeared in the
Federal Register
on November 27, 2007 (72 FR 66886), we
rescinded the application of the documentation and coding adjustment to the hospital-specific rates retroactive to October 1, 2007. In that final rule, we indicated that, while we still believe it would be appropriate to apply the documentation and coding adjustment to the hospital-specific rates, upon further review, we decided that the application of the documentation and coding adjustment to the hospital-specific rates is not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting “the standardized amount” under section 1886(d) of the Act and does not mention adjusting the hospital-specific rates.
In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rates should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patient severity of illness. While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment provision authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In the FY 2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, for the FY 2010 rulemaking, we planned to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. We further indicated that if we found evidence of significant increases in case-mix for patients treated in these hospitals that do not reflect real changes in case-mix, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act.
In response to public comments received on the FY 2009 IPPS proposed rule, we stated in the FY 2009 IPPS final rule that we would consider whether such a proposal was warranted for FY 2010. To gather information to evaluate these considerations, we indicated that we planned to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we found that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 was warranted, we indicated that we would propose to make such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.
8. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule (74 FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we discussed our retrospective evaluation of the FY 2008 claims data for SCHs and MDHs using the same methodology described earlier for other IPPS hospitals. We found that, independently for both SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 slightly exceeded the proposed 2.5 percent result discussed earlier for other IPPS hospitals, but did not significantly differ from that result. We refer readers to those rules for a more complete discussion.
Therefore, consistent with our statements in prior IPPS rules, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act to prospectively adjust the hospital-specific rates by the proposed −2.5 percent in FY 2010 to account for our estimated documentation and coding effect in FY 2008 that does not reflect real changes in case-mix. We proposed to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments for SCHs and MDHs not reflective of an increase in real case-mix. The proposed −2.5 percent adjustment to the hospital-specific rates exceeded the −1.9 percent adjustment to the national standardized amount under section 7(b)(1)(A) of Public Law 110-90 because, unlike the national standardized rates, the FY 2008 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), we solicited public comment on this proposal. Consistent with our approach for IPPS hospitals discussed earlier, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed adoption of a documentation and coding adjustment to the hospital-specific rate until FY 2011. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule for a more detailed discussion of our proposal, responses to comments, and finalized policy.
As we have noted previously, because SCHs and MDHs use the same MS-DRG system as all other IPPS hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to a prospective budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. We believe the documentation and coding estimates for all subsection (d) hospitals should be the same. While the findings for the documentation and coding effect for all IPPS hospitals are similar to the effect for SCHs and slightly different to the effect for MDHs, we continue to believe that this is the appropriate policy so as to neither advantage or disadvantage different types of providers. As we discuss in section II.D.4. of this preamble, our best estimate, based on the most recently available data, is that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of the documentation and coding changes on future payments to SCHs and MDHs. Unlike the case of standardized amounts paid to IPPS hospitals, prior to FY 2011, we had not made any previous adjustments to the hospital-specific rates paid to SCHs and MDHs to account for documentation and coding changes. Therefore, the entire −5.4 percent recoupment adjustment needed to be made, as opposed to a −3.9 percent remaining adjustment for IPPS hospitals.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50068 through 50071), we made an adjustment to the standardized
amount for IPPS hospitals of −2.9 percent under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. As we noted in the FY 2011 IPPS/LTCH PPS final rule, in determining the level and pace of adjustments to account for such documentation and coding changes, we believe that it is important to maintain, as much as possible, both consistency and equity among these classes of hospitals. Therefore, we finalized a prospective adjustment of −2.9 percent to the hospital-specific rates paid to SCHs and MDHs. We refer readers to the FY 2011 IPPS/LTCH PPS final rule for a more detailed discussion of our proposal, responses to comments, and finalized policy.
As discussed earlier in this section II.D., in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed a net −3.15 percent documentation and coding adjustment for IPPS hospitals in FY 2012 (−3.15 percent prospective adjustment plus a −2.9 percent recoupment adjustment in FY 2012, offset by the removal of the −2.9 percent recoupment adjustment for FY 2010). The proposed IPPS adjustment exceeded the remaining −2.5 percent documentation and coding adjustment for hospitals receiving a hospital-specific rate (that is, the entire −5.4 percent adjustment, minus the −2.9 percent adjustment finalized for FY 2011). As we indicated in the FY 2011 IPPS/LTCH PPS proposed rule and final rule, we are continuing, as much as possible, consistent with section 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments. We believe that any adjustment to the hospital-specific rate due to documentation and coding effect should be as similar as possible to adjustments to the IPPS rate. Accordingly, we proposed a −2.5 percent payment adjustment to the hospital-specific rate. We believe that proposing the entire remaining prospective adjustment of −2.5 percent would allow CMS to maintain, to the extent possible, similarity and consistency in payment rates for different IPPS hospitals paid using the MS-DRG. As discussed below, we took a similar approach in finalizing an adjustment to the Puerto-Rico specific rate in FY 2011.
Comment:
Numerous commenters requested that CMS rescind its proposed documentation and coding adjustment for SCHs and MDHs and questioned CMS' statutory authority to apply this adjustment to providers receiving a hospital-specific rate. The commenters argued that because section 1886(d)(3)(A)(vi) of the Act only authorizes application of a documentation and coding adjustment to the standardized amount, Congress' specific instruction as to the applicability of this type of adjustment makes it impermissible for CMS to apply the adjustment to the hospital-specific rates. Furthermore, commenters contend that, due to their critical role in isolated communities, any negative documentation and coding adjustment to SCHs and MDHs would endanger their ability to provide the type of care that Congress specifically sought to protect by establishing their special Medicare payment systems.
Response:
We continue to disagree with the commenters that the Secretary's broad authority to make exceptions and adjustment to payment amounts under section 1886(d)(3)(A)(vi) of the Act cannot be applied in this instance. We have discussed the basis for applying such an adjustment in prior rules (in the FY 2009 proposed rule (73 FR 23540), the FY 2009 IPPS final rule (73 FR 48448), and the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24098)) and do not agree that the language in section 1886(d)(3)(A)(vi) of the Act limits our authority under section 1886(d)(5)(I)(i) of the Act to make such an adjustment. We recognize that SCHs and MDHs are entitled, through legislation, to receive the hospital-specific rate in order to compensate for their unique service requirements in the provider community. Similar to our approach with IPPS hospitals, we are implementing a phase-in of the documentation and coding adjustment over an appropriate period, beginning in FY 2011. We will continue to separately analyze SCH and MDH claims data to ensure than any future adjustment is appropriate for these provider types.
Comment:
MedPAC responded to our request for comments regarding the level of adjustment for special categories of hospitals, such as hospitals paid under the hospital-specific payment rate, by pointing out hospitals have the same financial incentives for documentation and coding improvements and the same ability to benefit from the resulting change in case-mix, and by recommending that “all IPPS hospitals should be treated the same.” At the same time, MedPAC also stated that “delaying prevention of overpayments * * * creates a problem because overpayments will continue to accumulate in 2010 and later years until the effect of documentation and coding improvement is fully offset in the payment rates.” In setting forward its multi-year recommendation to CMS for complying with the requirements of section 7 of Public Law 110-90, MedPAC emphasized “minimizing the accumulation of overpayments.”
Response:
We appreciate MedPAC's comments and agree that it is appropriate to conclude that hospitals paid under the hospital-specific rate have experienced a 5.4-percent increase documentation and coding in FYs 2008 and 2009, insofar as these hospitals had the same financial incentives to improve documentation and coding in those years as other IPPS hospitals. We further agree with MedPAC that it is appropriate to focus on minimizing the accumulation of overpayments, and we interpret this to mean that MedPAC recommends that CMS move forward as quickly as possible with prospective adjustments at an appropriate level. We appreciate MedPAC's guidance that “all hospitals be treated the same,” and stress the importance of consistent treatment of various classes of similarly situated hospitals in our payment policy determinations.
We continue to believe that any adjustment to the hospital-specific rate due to documentation and coding effect should be as similar as possible to adjustments to the standardized amount. Accordingly, because we are finalizing a prospective adjustment to
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