Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific Providers; Hospital Conditions of Participation; Payment Policies Related to Patient Status

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 414, 419, 424, 482, 485, and 489

[CMS-1599-F; CMS-1455-F]

RINs 0938-AR53 and 0938-AR73

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific Providers; Hospital Conditions of Participation; Payment Policies Related to Patient Status

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. Some of the changes 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. These changes will be applicable to discharges occurring on or after October 1, 2013, unless otherwise specified in this final rule. We also are updating the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits will be effective for cost reporting periods beginning on or after October 1, 2013.

We also are updating the payment policies 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 that were applied to the LTCH PPS by the Affordable Care Act. Generally, these updates and statutory changes will be applicable to discharges occurring on or after October 1, 2013, unless otherwise specified in this final rule.

In addition, we are making a number of changes relating to direct graduate medical education (GME) and indirect medical education (IME) payments. We are establishing new requirements or have revised requirements for quality reporting by specific providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities (IPFs)) that are participating in Medicare.

We are updating policies relating to the Hospital Value-Based Purchasing (VBP) Program and the Hospital Readmissions Reduction Program. In addition, we are revising the conditions of participation (CoPs) for hospitals relating to the administration of vaccines by nursing staff as well as the CoPs for critical access hospitals relating to the provision of acute care inpatient services.

We are finalizing proposals issued in two separate proposed rules that included payment policies related to patient status: payment of Medicare Part B inpatient services; and admission and medical review criteria for payment of hospital inpatient services under Medicare Part A.

DATES:

Effective Date:

These final rules are effective on October 1, 2013.

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, and Medicare Disproportionate Share Hospital (DSH) 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.

Mollie Knight, (410) 786-7948 and Bridget Dickensheets, (410) 786-8670, Market Basket for IPPS Hospitals and LTCHs Issues.

Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.

James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing—Program Administration, Validation, and Reconsideration Issues.

Shaheen Halim, (410) 786-0641, Hospital 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, Hospital Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.

Kim Spalding Bush, (410) 786-3232, Hospital Value-Based Purchasing Efficiency Measures Issues.

James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality Reporting Issues.

Allison Lee, (410) 786-8691 and Jeffrey Buck, (410) 786-0407, Inpatient Psychiatric Facility Quality Reporting Issues.

Sarah Fahrendorf, (410) 786-3112, Conditions of Participation (CoPs) for CAHs Issues.

Commander Scott Cooper, USPHS, (410) 786-9465, Hospital Conditions of Participation (CoPs)—Pneumococcal Vaccine Issues.

Ann Marshall, (410) 786-3059, Medicare Part B Inpatient Billing: Payable Part B Inpatient and Part B Outpatient Services and Beneficiary Utilization Days; and Physician Order and Certification for Payment of Hospital Inpatient Services under Medicare Part A Issues.

Susanne Seagrave, (410) 786-0044, Physician Order and Certification for Payment of Inpatient Rehabilitation Facility Services under Medicare Part A Issues.

Jennifer Dupee, (410) 786-6537, and Jennifer Phillips, (410) 786-1023, Medical Review Criteria for Payment of Hospital Inpatient Services under Medicare Part A Issues.

David Danek, (617) 565-2682, Medicare Part B Inpatient Billing: Hospital and Beneficiary Appeals Issues.

Fred Grabau, (410) 786-0206, Medicare Part B Inpatient Billing: Time Limits for Filing Claims Issues.

Brian Pabst, (410) 786-2487, Medicare Part B Inpatient Billing: Coordination of Benefits Issues.

Anthony Hodge, (410) 786-6645, Qualification for Coverage of Skilled Nursing Facilities Services Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

This

Federal Register

document is also available from the

Federal Register

online database through Federal Digital System (FDsys), a service of the U.S. Government Printing Office. This database can be accessed via the Internet at:

http://www.gpo.gov/fdsys

.

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 the proposed rule and the 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 are no longer published in the

Federal Register

. 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/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html

. Click on the link on the left side of the screen titled, “FY 2014 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2014 final rule are available only through the Internet on the CMS Web site at:

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html

under the list item for Regulation Number CMS-1599-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 Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

ACoS American College of Surgeons

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

APRN Advanced practice registered nurse

ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-5

ASCA Administrative Simplification Compliance Act of 2002, Public Law 107-105

ASITN American Society of Interventional and Therapeutic Neuroradiology

ATRA American Taxpayer Relief Act of 2012, Public Law 112-240

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

CAUTI Catheter-associated urinary tract infection

CBSAs Core-based statistical areas

CC Complication or comorbidity

CCN CMS Certification Number

CCR Cost-to-charge ratio

CDAC [Medicare] Clinical Data Abstraction Center

CDAD

Clostridium difficile

-associated disease

CDC Center for Disease Control and Prevention

CERT Comprehensive error rate testing

CDI

Clostridium difficile

CFR Code of Federal Regulations

CLABSI Central line-associated bloodstream infection

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

DACA Data Accuracy and Completeness Acknowledgement

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

EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 99-272

FAH Federation of American Hospitals

FDA Food and Drug Administration

FFY Federal fiscal year

FPL Federal poverty line

FQHC Federally qualified health center

FR Federal Register

FTE Full-time equivalent

FUH Follow-up after hospitalization for mental illness

FY Fiscal year

GAAP Generally Accepted Accounting Principles

GAF Geographic Adjustment Factor

GME Graduate medical education

HAC Hospital-acquired condition

HAI Healthcare-associated infection

HBIPS Hospital-based inpatient psychiatric services

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

IPFQR Inpatient Psychiatric Facility Quality Reporting [Program]

IPPS [Acute care hospital] inpatient prospective payment system

IRF Inpatient rehabilitation facility

IQR Inpatient Quality Reporting

IVR Interactive voice response

LAMCs Large area metropolitan counties

LOS Length of stay

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

LTCHQR Long-Term Care Hospital Quality Reporting

MA Medicare Advantage

MAC Medicare Administrative Contractor

MAP Measure Application Partnership

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

NHSN National Healthcare Safety Network

NOP Notice of Participation

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 1986, 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

OQR [Hospital] Outpatient Quality Reporting

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PCH PPS-exempt cancer hospital

PCHQR PPS-exempt cancer hospital quality reporting

PMSAs Primary metropolitan statistical areas

POA Present on admission

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]

PQRS Physician Quality Reporting 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

SCIP Surgical Care Improvement Project

SFY State fiscal year

SIC Standard Industrial Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

SSI Surgical site infection

SSI Supplemental Security Income

SSO Short-stay outlier

SUD Substance use disorder

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

TPS Total Performance Score

UHDDS Uniform hospital discharge data set

VBP [Hospital] Value Based Purchasing [Program]

VTE Venous thromboembolism

Table of Contents

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

2. Summary of the Major Provisions

3. Summary of Costs and Benefits

B. 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)

C. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148), the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (Pub. L. 112-240)

D. Issuance of a Notice of Proposed Rulemaking

E. Public Comments Received in Response to the FY 2014 IPPS/LTCH PPS Proposed Rule

F. Finalization of the Proposed Rule on Medicare Part B Inpatient Billing in Hospitals

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights

A. Background

B. MS-DRG Reclassifications

C. Adoption of the MS-DRGs in FY 2008

D. FY 2014 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

2. Adjustment to the Average Standardized Amounts Required by Public Law 110-90

a. Prospective Adjustment Required by Section 7(b)(1)(A) of Public Law 110-90

b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Section 7(b)(1)(B) Public Law 110-90

3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of Public Law 110-90

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA).

7. Additional Prospective Adjustments for the MS-DRG Documentation and Coding Effect through FY 2010 Authorized under Section 1886(d)(3)(A)(vi) of the Act

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Discussion and Policies for FY 2014

F. Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions (HACs), Including Infections

1. Background

2. HAC Selection

3. Present on Admission (POA) Indicator Reporting

4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS

5. Current HACs and Previously Considered Candidate HACs

6. RTI Program Evaluation

7. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

G. Changes to Specific MS-DRG Classifications

1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and Liver Transplants

2. MDC 1(Diseases and Disorders of the Nervous System): Tissue Plasminogen Activator (tPA) (rtPA) Administration within 24 Hours Prior to Admission

3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)

a. Endoscopic Placement of a Bronchial Valve

b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory Arrest

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

a. Discharge/Transfer to Designated Disaster Alternative Care Site

b. Discharges/Transfers with a Planned Acute Care Hospital Inpatient Readmission

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

a. Reverse Shoulder Procedures

b. Total Ankle Replacement Procedures

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

a. Persons Encountering Health Services for Specific Procedures, Not Carried Out

b. Discharges/Transfers of Neonates with a Planned Acute Care Hospital Inpatient Readmission

7. Medicare Code Editor (MCE) Changes

a. Age Conflict Edit

b. Discharge Status Code Updates

8. Surgical Hierarchies

9. Complications or Comorbidity (CC) Exclusions List

a. Background of the CC List and the CC Exclusion List

b. CC Exclusions List for FY 2014

10. 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

11. 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

H. Recalibration of FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights

2. Methodology for Calculation of the Relative Weights

3. Development of National Average CCRs

4. Bundled Payments for Care Improvement (BPCI) Initiative

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 2014 Status of Technology Approved for FY 2013 Add-On Payments

a. AutoLaser Interstitial Therapy (Auto LITT®) System

b. Glucarpidase (Trade Brand Voraxaze®)

c. DIFICID® (Fidaxomicin) Tablets

d. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft

4. FY 2014 Applications for New Technology Add-On Payments

a. Kcentra®

b. Argus® II Retinal Prosthesis System

c. Responsive Neurostimulator (RNS) System

d. Zilver® PTX® Drug Eluting Stent

e. MitraClip® System

III. Changes to the Hospital Wage Index for Acute Care Hospitals

A. Background

B. Core-Based Statistical Areas for the Hospital Wage Index

C. Worksheet S-3 Wage Data for the FY 2014 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals under the IPPS

D. Verification of Worksheet S-3 Wage Data

E. Method for Computing the FY 2014 Unadjusted Wage Index

F. Occupational Mix Adjustment to the FY 2014 Wage Index

1. Development of Data for the FY 2014 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index

3. Calculation of the Occupational Mix Adjustment for FY 2014

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2014 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix Adjusted Wage Index

2. Application of the Rural, Imputed, and Frontier Floors

a. Rural Floor

b. Imputed Floor

c. Frontier Floor

3. FY 2014 Wage Index Tables

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General Policies and Effects of Reclassification/Redesignation

2. FY 2014 MGCRB Reclassifications

a. FY 2014 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2015

3. Redesignations of Hospitals under Section 1886(d)(8)(B) of the Act

4. Reclassifications under Section 1886(d)(8)(B) of the Act Seeking Reclassification by the MGCRB

5. Waiving Lugar Redesignation for the Out-Migration Adjustment

I. FY 2014 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 Proposed FY 2014 Wage Index

IV. Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

A. Background

B. Rebasing and Revising the IPPS Market Basket

1. Development of Cost Categories and Weights

2. Cost Category Computation

3. Selection of Price Proxies

4. Labor-Related Share

C. Market Basket for Certain Hospitals Presently Excluded from the IPPS

D. Rebasing and Revising the Capital Input Price Index (CIPI)

V. Other Decisions and Changes to the IPPS for Operating Costs and Graduate Medical Education (GME) Costs

A. Inpatient Hospital Updates for FY 2014 (§§ 412.64(d) and 412.211(c))

1. FY 2014 Inpatient Hospital Update

2. FY 2014 Puerto Rico Hospital Update

B. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI) and Discharge Criteria (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

C. Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Background

a. Original Implementation of the Low-Volume Hospital Payment Adjustment

b. Affordable Care Act Provisions for FYs 2011 and 2012

2. Provisions of the ATRA for FY 2013

a. Background

b. Conforming Regulatory Changes

3. Low-Volume Hospital Definition and Payment Adjustment for FY 2014 and Subsequent Years

D. Indirect Medical Education (IME) Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2014

2. Other Policy Changes Affecting GME

E. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) § 412.106)

1. Background

2. Counting of Patient Days Associated with Patients Enrolled in Medicare Advantage Plans in the Medicare and Medicaid Fractions of the Disproportionate Share Patient Percentage (DPP) Calculation

3. New Payment Adjustment Methodology for Medicare DSH under Section 3133 of the Affordable Care Act

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

1. Background

2. Provisions of the ATRA for FY 2013

a. Background

b. Conforming Regulatory Changes

c. Expiration of the MDH Program

G. Hospital Readmissions Reduction Program (§§ 412.150 through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Overview

3. FY 2014 Policies for the Hospital Readmissions Reduction Program

a. Overview

b. Refinement of the Readmission Measures and Related Methodology for FY 2014 and Subsequent Years Payment Determinations

c. Expansion of the Applicable Conditions for FY 2015

d. Hospitals Paid under Section 1814(b)(3) of the Act, Including the Process to be Exempt from the Hospital Readmissions Reduction Program and Definition of “Base Operating DRG Payment Amount” for Such Hospitals (§ 412.152 and § 412.154(d))

e. Floor Adjustment Factor for FY 2014 (§ 412.154(c)(2))

f. Applicable Period for FY 2014

g. Refinements of the Methodology to Calculate the Aggregate Payments for Excess Readmissions

h. Clarification of Reporting Hospital-Specific Information, Including Opportunity to Review and Submit Corrections

H. Hospital Value-Based Purchasing Program (§§ 412.160 through 412.165)

1. Statutory Background

2. Overview of the FY 2013 Hospital VBP Program

3. FY 2014 Payment Details

4. FY 2014 Hospital VBP Program Measures

5. FY 2015 Hospital VBP Program Measures

6. FY 2016 Hospital VBP Program Measures

a. Measures Previously Adopted and Removal of AMI-8a, PN-3b, and HF-1 Measures

b. New Measures for the FY 2016 Hospital VBP Program

c. Future Measures for the Efficiency Domain

7. Performance Periods and Baseline Periods

a. Background

b. Clinical Process of Care Domain Performance Period and Baseline Periods for the FY 2016 Hospital VBP Program

c. Experience of Care Domain Performance Period and Baseline Period for the FY 2016 Hospital VBP Program

d. Efficiency Domain Measure Performance Period and Baseline Period for the FY 2016 Hospital VBP Program

e. Outcome Domain Performance Periods and Baseline Periods for the FY 2017 through FY 2019 Hospital VBP Programs

8. Performance Standards for the Hospital VBP Program

a. Background

b. Performance Standards for the FY 2016 Hospital VBP Program Measures

c. Certain Performance Standards for the FY 2017, FY 2018, and FY 2019 Hospital VBP Programs

9. FY 2016 Hospital VBP Program Scoring Methodology

a. General Hospital VBP Program Scoring Methodology

b. Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals That Receive a Score on All Domains

c. Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals Receiving Scores on Fewer than Four Domains

d. Domain Reclassification and Domain Weighting for the FY 2017 Hospital VBP Program

e. Disaster/Extraordinary Circumstance Waivers under the Hospital VBP Program

10. Applicability of the Hospital VBP Program to Hospitals

a. Background

b. Minimum Numbers of Cases and Measures for the FY 2016 Hospital VBP Program Outcome Domain

c. Hospitals Paid under Section 1814(b)(3) of the Act

I. Hospital-Acquired Condition (HAC) Reduction Program

1. Background

2. Statutory Basis for the HAC Reduction Program

3. Implementation of the HAC Reduction Program

a. Definitions

b. Payment Adjustment under the HAC Reduction Program, Including Exemptions

c. Measure Selection and Conditions, Including a Proposed Risk-Adjustment Scoring Methodology

d. Criteria for Applicable Hospitals and Performance Scoring

e. Reporting Hospital-Specific Information, Including the Review and Correction of Information

f. Limitation on Administrative and Judicial Review

J. Payment for Graduate Medical Education (GME) and Indirect Medical Education (IME) Costs (§§ 412.105, 413.75 through 413.83)

1. Background

2. Inclusion of Labor and Delivery Days in the Calculation of Medicare Utilization for Direct GME Payment Purposes and for Other Medicare Purposes

3. Notice of Closure of Teaching Hospital and Opportunity to Apply for Available Slots

4. Payments for Residents Training in Approved Residency Programs at CAHs

a. Background

b. Residents in Approved Medical Residency Training Programs That Train at CAHs

5. Expiration of Inflation Update Freeze for High Per Resident Amounts (PRAs)

K. Rural Community Hospital Demonstration Program

1. Background

2. FY 2014 Budget Neutrality Offset Amount

L. Hospital Emergency Services under EMTALA: Technical Change (§ 489.24(f))

M. Hospital Services Furnished under Arrangements

VI. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

C. Other Changes for FY 2014—Adjustment to Offset the Cost of the Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A

D. Annual Update for FY 2014

VII. Changes for Hospitals Excluded from the IPPS

A. Rate-of-Increase in Payments to Excluded Hospitals for FY 2014

B. Report of Adjustment (Exceptions) Payments

C. Critical Access Hospitals (CAHs): Changes to Conditions of Participation (CoPs)

1. Background

2. Policy Changes

VIII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2014

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 for FY 2014

1. Background

2. Patient Classifications into MS-LTC-DRGs

a. Background

b. Changes to the MS-LTC-DRGs for FY 2014

3. Development of the FY 2014 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 2014

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 FY 2014 MS-LTC-DRG Relative Weights

C. LTCH PPS Payment Rates for FY 2014

1. Overview of Development of the LTCH Payment Rates

2. FY 2014 LTCH PPS Annual Market Basket Increase

a. Overview

b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act

c. Adjustment to the Annual Update to the LTCH PPS Standard Federal Rate under the Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Background

2. Reduction to the Annual Update to the LTCH PPS Standard Federal Rate under the LTCHQR Program

d. Market Basket Under the LTCH PPS for FY 2014

e. Annual Market Basket Update for LTCHs for FY 2014

3. Adjustment for the Second Year of the Phase-In of the One-Time Prospective Adjustment to the Standard Federal Rate under § 412.523(d)(3)

D. Expiration of Certain Payment Rules for LTCH Services—The 25-Percent Threshold Payment Adjustment

E. Research on the Development of a Patient Criteria-Based Payment Adjustment under the LTCH PPS

1. Overview

2. MedPAC's 2004 Report to Congress

3. LTCHs in the Medicare Program

4. CMS' Research: The RTI Report

5. CMS' Report to Congress: Determining Medical Necessity and Appropriateness of Care for Medicare Long-Term Care Hospitals

6. Current Practices in LTCHs

7. Identification of Chronically Critically Ill/Medically Complex (CCI/MC) Patients

8. LTCH PPS Payments for CCI/MC Patients

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background

a. History of Measures Adopted for the Hospital IQR Program

b. Maintenance of Technical Specifications for Quality Measures

c. Public Display of Quality Measures

2. Removal and Suspension of Hospital IQR Program Measures

a. Considerations in Removing Quality Measures from the Hospital IQR Program

b. Hospital IQR Program Measures Removed in Previous Rulemaking

c. Removal of Hospital IQR Program Measures for the FY 2016 Payment Determination and Subsequent Years

d. Suspension of Data Collection for the FY 2014 Payment Determination and Subsequent Years

3. Process for Retaining Previously Adopted Hospital IQR Program Measures for Subsequent Payment Determinations

4. Additional Considerations in Expanding and Updating Quality Measures under the Hospital IQR Program

5. Changes to Hospital IQR Program Measures Previously Adopted for the FY 2015 and FY 2016 Payment Determinations and Subsequent Years

a. Previously Adopted Hospital IQR Program Measures for the FY 2015 Payment Determination and Subsequent Years

b. Refinements to Existing Measures in the Hospital IQR Program

6. Additional Hospital IQR Program Measures for the FY 2016 Payment Determination and Subsequent Years

a. Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization Measure (NQF #1891)

b. Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization Measure (NQF #1893)

c. Hospital 30-day, All-Cause Risk-Standardized Rate of Readmission Following Acute Ischemic Stroke (Stroke Readmission) Measure

d. Hospital 30-Day, All-Cause Risk-Standardized Rate of Mortality Following an Admission for Acute Ischemic Stroke (Stroke Mortality) Measure

e. Hospital Risk-Standardized Payment Associated with a 30-day Episode-of-Care for Acute Myocardial Infarction (AMI) Measure

7. Electronic Clinical Quality Measures

8. Possible New Quality Measures and Measure Topics for Future Years

9. Form, Manner, and Timing of Quality Data Submission

a. Background

b. Procedural Requirements for the FY 2016 Payment Determination and Subsequent Years

c. Data Submission Requirements for Chart-Abstracted Measures

d. Data Submission Requirements for Quality Measures That May be Voluntarily Electronically Reported for the FY 2016 Payment Determination

e. Sampling and Case Thresholds for the FY 2016 Payment Determination and Subsequent Years

f. HCAHPS Requirements for the FY 2017 Payment Determination and Subsequent Years

g. Data Submission Requirements for Structural Measures for the FY 2015 and FY 2016 Payment Determinations

h. Data Submission and Reporting Requirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

10. Modifications to the Validation Process for Chart-Abstracted Measures under the Hospital IQR Program

a. Timing and Number of Quarters Included in Validation

b. Selection of Measures and Sampling of Charts to be Included in Validation

c. Procedures for Scoring Records for Validation

d. Procedures to Select Hospitals for Validation

e. Procedures for Submitting Records for Validation

11. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2015 Payment Determination and Subsequent Years

12. Public Display Requirements for the FY 2016 Payment Determination and Subsequent Years

13. Reconsideration and Appeal Procedures for the FY 2015 Payment Determination and Subsequent Years

14. Hospital IQR Program Extraordinary Circumstances Extensions or Waivers

B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Statutory Authority

2. Covered Entities

3. Previously Finalized Quality Measures for PCHs for the FY 2014 Program Year and Subsequent Years

4. Considerations in the Selection of the Quality Measures

5. New Quality Measures

a. New Measure Beginning for the FY 2015 Program Year and Subsequent Years—NHSN Healthcare-Associated Infection (HAI) Measure: Surgical Site Infection (SSI) (NQF #0753)

b. New Measures Beginning for the FY 2016 PQHQR Program Year and Subsequent Years

6. Possible New Quality Measure Topics for Future Years

7. Maintenance of Technical Specifications for Quality Measures

8. Public Display Requirements for the FY 2014 Program Year and Subsequent Years

9. Form, Manner, and Timing of Data Submission Beginning with FY 2015 Program Year and Subsequent Years

a. Background

b. Waivers from Program Requirements

c. Reporting Periods and Submission Timelines for the Finalized SSI Measure

d. Exceptions to Reporting and Data Submission for HAI Measures (CAUTI, CLABSI, and SSI)

e. Reporting and Data Submission Requirements for the Finalized Clincial Process/Oncology Care Measures

f. Reporting and Data Submission Requirements for the Finalized SCIP Measures

g. HCAHPS Requirements

C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Statutory History

2. General Considerations Used for Selection of Quality Measures for the LTCHQR Program

3. Process for Retention of LTCHQR Program Measures Adopted in Previous Payment Determinations

4. Process for Adopting Changes to LTCHQR Program Measures

5. Previously Adopted Quality Measures for the FY 2014 and FY 2015 Payment Determinations and Subsequent Years

6. Previously Adopted Quality Measures for the FY 2016 Payment Determination and Subsequent Years

7. Revisions to Previously Adopted Quality Measures

a. Revisions for Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431)

b. Revisions for Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) for the FY 2016 Payment Determination and Subsequent Years

c. Revisions for Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF #0678) for the FY 2015 Payment Determination and Subsequent Years

8. New LTCHQR Program Quality Measures Affecting the FY 2017 an FY 2018 Payment Determinations and Subsequent Years

a. Considerations in Updating and Expanding Quality Measures under the LTCHQR Program for the FY 2017 Payment Determination and Subsequent Years

b. New LTCHQR Program Quality Measures for the FY 2017 Payment Determination and Subsequent Years

c. New LTCHQR Program Quality Measure for the FY 2018 Payment Determination and Subsequent Years

d. LTCHQR Program Quality Measures and Concepts under Consideration for Future Years Payment Determinations

9. Form, Manner, and Timing of Quality Data Submission for the FY 2016 Payment Determination and Subsequent Years

a. Background

b. Finalized Timeline for Data Submission under the LTCHQR Program for the FY 2016 Payment Determination

c. Timeline for Data Submission for the NQF #0431 Influenza Vaccination Coverage Among Healthcare Personnel Measure for the FY 2016 Payment Determination and Subsequent Years

d. Timeline for Data Submission for the NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) Measure for the FY 2016 Payment Determination and Subsequent Years

e. Timeline for Data Submission under the LTCHQR Program for the FY 2017 Payment Determination and Subsequent Years

f. Timeline for Data Submission under the LTCHQR Program for the FY 2018 Payment Determination and Subsequent Years

10. Public Display of Data Quality Measures for the LTCHQR Program

11. LTCHQR Program Submission Waiver Requirements for the FY 2015 Payment Determination and Subsequent Years

12. LTCHQR Program Reconsideration and Appeals for the FY 2015 Payment Determination and Subsequent Years

a. LTCHQR Program Reconsideration and Appeals for the FY 2014 Payment Determination

b. LTCHQR Program Reconsideration and Appeals for the FY 2015 Payment Determination

D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority

2. Application of the Payment Update Reduction for Failure to Report for the FY 2014 Payment Determination and Subsequent Years

3. Covered Entities

4. Considerations in Selecting Quality Measures

5. Quality Measures for the FY 2015 Payment Determination and Subsequent Years

a. Background

b. New Quality Measures for the FY 2016 Payment Determination and Subsequent Years

c. Maintenance of Technical Specifications for Quality Measures

6. Request for Voluntary Information—IPF Assessment of Patient Experience of Care

7. Request for Recommendations for New Quality Measures for Future Years

8. Public Display Requirements for the FY 2014 Payment Determination and Subsequent Years

9. Form, Manner, and Timing of Quality Data Submission for the FY 2014 Payment Determination and Subsequent Years

a. Background

b. Procedural Requirements

c. Submission Requirements for the FY 2016 Payment Determination and Subsequent Years

d. Reporting Requirements for the FY 2016 Payment Determination and Subsequent Years

e. Population, Sampling, and Minimum Case Threshold for the FY 2016 Payment Determination and Subsequent Years

f. Data Accuracy and Completeness Acknowledgement (DACA) Requirements

10. Reconsideration and Appeals Procedures for the FY 2014 Payment Determination and Subsequent Years

11. Waivers from Quality Reporting Requirements for the FY 2014 Payment Determination and Subsequent Years

12. Electronic Health Records (EHRs)

E. Electronic Health Records (EHRs) Incentive Program and Meaningful Use (MU)

1. Background

2. Expanded Electronic Submission Period for CQMs

3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2014

4. Case Number Threshold Exemption—Requirements Regarding Data Submission

X. Change to the Medicare Hospital Conditions of Participation (CoPs) Relating to the Administration of Pneumococcal Vaccines

XI. Payment Policies Related to Patient Status

A. Background

B. Payment of Medicare Part B Hospital Inpatient Services

1. Payable Medicare Part B Inpatient Services

a. Payment Methodology

b. Other Revisions Resulting from Our Review of the Regulations

2. Billing for Part B Outpatient Services in the 3-Day Payment Window

3. Applicability: Hospital Self-Audit

4. Applicability: Types of Hospitals

5. Beneficiary Liability under Section 1879 of the Act

6. Applicable Beneficiary Liability: Hospital Services

7. Applicable Beneficiary Liability: Skilled Nursing Facility Services

8. Time Limits for Filing Claims

9. Appeal Procedures

10. Coordination of Benefits with Supplemental Insurers

11. Public Comments on Other Issues

a. Application to Disproportionate Share Hospital (DSH) Payments, Indirect Medical Education (IME) and Graduate Medical Education (GME) Payments, and Other IPPS Adjustments

b. Application to Beneficiary Utilization Days under Medicare Part A

c. Applicability to the Medicare Advantage (MA) Program

12. Regulatory Impact Analysis: Final Part B Inpatient Payment Policy

a. Statement of Need

b. Overall Impact

c. Estimated Impacts of the Final Part B Inpatient Payment Policy

d. Alternatives Considered

e. Accounting Statement and Table

f. Conclusion

13. Collection of Information Requirements

C. Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A

1. Background

2. Requirements for Physician Orders and Physician Certification

a. Applicability for All Hospitals

b. Applicability to Inpatient Rehabilitation Facilities (IRFs)

3. Inpatient Admission Guidelines

a. Correct Coding Reviews

b. Complete and Accurate Documentation

c. Medical Necessity Reviews

4. Impacts of Changes in Admission and Medical Review Criteria

XII. MedPAC Recommendations

XIII. 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 Occupational Mix Adjustment to the FY 2014 Wage Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for Application for GME Resident Slots

6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

8. ICRs for Hospital Value-Based Purchasing (VBP) Program

9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR) Program

10. ICRs for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

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, 2013 and Payment Rates for LTCHs Effective with Discharges Occurring on or after October 1, 2013

I. Summary and Background

II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2014

A. Calculation of the Adjusted Standardized Amount

B. Adjustments for Area Wage Levels and Cost-of-Living

C. Calculation of the Prospective Payment Rates

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2014

A. Determination of Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2014

C. Capital Input Price Index

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase Percentages for FY 2014

V. Updates to the Payment Rates for the LTCH PPS for FY 2014

A. LTCH PPS Standard Federal Rate for FY 2014

B. Adjustment for Area Wage Levels under the LTCH PPS for FY 2014

1. Background

2. Geographic Classifications/Labor Market Area Definitions

3. LTCH PPS Labor-Related Share

4. LTCH PPS Wage Index for FY 2014

5. Budget Neutrality Adjustment for Changes to the Area Wage Level Adjustment

C. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located in Alaska and Hawaii

D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

E. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2014

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

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 MS-DRGs for Preventable HACs, Including Infections

2. Effects of Policy Relating to New Medical Service and Technology Add-On Payments

3. Effects of Payment Adjustment for Low-Volume Hospitals for FY 2014

4. Effects of Extension of the MDH Program

5. Effects of Changes under the FY 2014 Hospital Value-Based Purchasing (VBP) Program

6. Effects of the Implementation of the HAC Reduction Program

7. Effects of Policy Changes Relating to Payments for Direct GME and IME Costs

8. Effects of Implementation of Rural Community Hospital Demonstration Program

9. Effects of the Extended Effective Date for Policy on Hospital Services Furnished under Arrangements

I. Effects of Policy Relating to the Furnishing of Acute Care Inpatient Services by CAHs

J. Effects of Changes to the COPs for Hospitals Relating to the Administration of Pneumococcal Vaccines

K. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

L. 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 Changes and Policy Changes

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

M. Effects of Requirements for Hospital Inpatient Quality Reporting (IQR) Program

N. Effects of Changes in the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

O. Effects of Changes in the LTCH Quality Reporting (LTCHQR) Program

P. Effects of Changes in the Requirements for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

II. Alternatives Considered

III. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

IV. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

C. Part B Inpatient Hospital Services

V. Regulatory Flexibility Act (RFA) Analysis

VI. Impact on Small Rural Hospitals

VII. Unfunded Mandate Reform Act (UMRA) Analysis

VIII. 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 2014

A. FY 2014 Inpatient Hospital Update

B. Update for SCHs for FY 2014

C. FY 2014 Puerto Rico Hospital Update

D. Update for Hospitals Excluded from the IPPS

E. Update for LTCHs for FY 2014

III. Secretary's Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This final rule makes payment and policy changes under the Medicare inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it makes payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). It also makes policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs.

Under various statutory authorities, we are making changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 2014 and subsequent fiscal years. These statutory authorities include, but are not limited to, the following:

• Section 1886(d) of the Social Security Act (the Act), which 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 that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).

• Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.

• 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), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of long-term care hospitals (LTCHs) described in section 1886(d)(1)(B)(iv) of the Act.

• Sections 1814(l), 1820, and 1834(g) of the Act, which specifies that payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services and that these payments are generally based on 101 percent of reasonable cost.

• Section 1866(k) of the Act, as added by section 3005 of the Affordable Care Act, which establishes a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as “PPS-Exempt Cancer Hospitals.”

• 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.

• Section 1886(d)(4)(D) of the Act, which addresses certain hospital-acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (CDC), at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with CDC, from time to time as long as the list contains at least two conditions. Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, effective with discharges occurring on or after October 1, 2007, submit information on Medicare claims specifying whether diagnoses were present on admission (POA). Section 1886(d)(4)(D)(i) of the Act specifies that effective for discharges occurring on or after October 1, 2008, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not POA.

• Section 1886(a)(4) of the Act, which specifies that 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.

• Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage

increase in payments to a subsection (d) hospital for a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary.

• Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year.

• Section 1886(p) of the Act, as added by section 3008 of the Affordable Care Act, which establishes an adjustment to hospital payments for hospital-acquired conditions (HACs), or a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions, effective for discharges beginning on October 1, 2014.

• Section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act and amended by section 10309 of the Affordable Care Act, which establishes the “Hospital Readmissions Reduction Program” effective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals under section 1886(d) of the Act will be reduced to account for certain excess readmissions.

• Section 1886(r) of the Act, as added by section 3313 of the Affordable Care Act, which provides for a reduction to disproportionate share payments under section 1886(d)(5)(F) of the Act and for a new uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act now requires that, for “fiscal year 2014 and each subsequent fiscal year,” “subsection (d) hospitals” that would otherwise receive a “disproportionate share payment . . . made under subsection (d)(5)(F)” will receive two separate payments: (1) 25 percent of the amount they previously would have received under subsection (d)(5)(F) for DSH (“the empirically justified amount”), and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under subsection (d)(5)(F); (2) 1 minus the percent change in the percent of individuals under the age of 65 who are uninsured (minus 0.1 percentage points for FY 2014, and minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage.

• Section 1886(s)(4) of the Act, as added and amended by section 3401(f) and 10322(a) of the Affordable Care Act, respectively, which requires the Secretary to implement a quality reporting program for inpatient psychiatric hospitals and psychiatric units. Under this program, known as the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program, beginning with FY 2014, the Secretary must reduce any annual update to a standard Federal rate for discharges occurring during a fiscal year by 2.0 percentage points for any inpatient psychiatric hospital or psychiatric unit that does not comply with quality data submission requirements with respect to an applicable fiscal year.

2. Summary of the Major Provisions

a. MS-DRG Documentation and Coding Adjustment

Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-240) amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment to the standardized amount of Medicare payments to acute care hospitals to account for changes in MS-DRG documentation and coding that do not reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law 110-90.

While our actuaries estimate that a −9.3 percent adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to delay or phase in rate adjustments over more than one year, in order to moderate the effects on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, we are making a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. Although we are not making an additional prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effects through FY 2010, we solicited public comments as to whether any portion of the proposed −0.8 percent recoupment adjustment to the operating IPPS standardized amount should be reduced and instead applied as a prospective adjustment to the operating IPPS standardized amount (and hospital-specific rates) for the cumulative MS-DRG documentation and coding effect through FY 2010. The public comments that we received are addressed in section II.C. of the preamble of this final rule.

b. Refinement of the MS-DRG Relative Weight Calculation

Beginning in FY 2007, we implemented relative weights for DRGs based on cost report data instead of charge information. To address the issue of charge compression (the hospital practice of applying higher charges to lower cost items and applying lesser charges to higher cost items) when using cost report data to set the MS-DRG relative weights, in FYs 2009 and 2010, we created additional cost centers on the Medicare cost report to distinguish implantable devices from other medical supplies, MRIs and CT scans, respectively, from other radiology services, and cardiac catheterization from other cardiology services. As compared to previous years, we currently have a significant volume of hospitals completing all, or some, of these new cost centers on the Medicare cost report. Therefore, beginning in FY 2014, we are calculating the MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost report data for implantable devices, MRIs, CT scans, and cardiac catheterization.

c. Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

In section IV. of the preamble of this final rule, we are rebasing and revising the acute care hospital operating and capital market baskets used to update IPPS payment rates. For both market baskets, we are updating the base year cost weights from a FY 2006 base year to a FY 2010 base year. We also are recalculating the labor-related share using the FY 2010-based hospital market basket, for discharges occurring on or after October 1, 2013. We used the FY 2010-based market baskets in developing the FY 2014 update factor for the operating and capital prospective payment rates and the FY 2014 update factor for the excluded hospital rate-of-increase limits. We also are setting forth the data sources used to determine the revised market basket costs weights.

d. Reduction of Hospital Payments for Excess Readmissions

We are making a number of changes in policies to implement section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, which

establishes the Hospital Readmissions Reduction Program. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payment to account for excess readmissions of selected applicable conditions. For FYs 2013 and 2014, these conditions are acute myocardial infarction, heart failure, and pneumonia. For FY 2014, we are establishing additional exclusions to the three existing readmission measures (that is, the excess readmission ratio) to account for additional planned readmissions. We also are establishing additional readmissions measures to be used in the Hospital Readmissions Reduction Program for FY 2015. In addition, we are specifying that the readmissions payment adjustment factors for FY 2014 can be no more than a 2-percent reduction (there is a 1-percent cap in FY 2013), in accordance with the statute. We are making a change in the methodology we use to calculate the readmissions payment adjustment factors to make it more consistent with the calculation of the excess readmissions ratio.

e. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year are to be established by the Secretary.

In this final rule, we are outlining payment details for the FY 2014 Hospital VBP Program. In addition, we are establishing numerous policies for the FY 2016 Hospital VBP Program, including measures, performance standards, and performance and baseline periods. We also are establishing a disaster/extraordinary circumstances exceptions process, domain reclassification and weighting based on CMS' National Quality Strategy for the FY 2017 Hospital VBP Program, and certain measures, performance and baseline periods, and performance standards for the FY 2017 through FY 2019 Programs.

f. Hospital-Acquired Condition (HAC) Reduction Program

In this final rule, we are establishing measures, scoring, and risk adjustment methodology to implement the FY 2015 payment adjustment under the HAC Reduction Program. Section 1886(p) of the Act, as added under section 3008(a) of the Affordable Care Act, establishes an adjustment to hospital payments for HACs, or a HAC Reduction program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce HACs, effective for discharges beginning on October 1, 2014 and for subsequent program years. The amount of payment shall be equal to 99 percent of the amount of payment that would otherwise apply to such discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable.

g. Counting of Inpatient Days for Medicare Payment or Eligibility Purposes

In response to a comment we received on the FY 2013 IPPS/LTCH PPS final rule and consistent with the inpatient day counting rules for DSH as clarified in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we are providing that patient days associated with maternity patients who were admitted as inpatients and were receiving ancillary labor and delivery services at the time the inpatient routine census is taken, regardless of whether the patient actually occupied a routine bed prior to occupying an ancillary labor and delivery bed and regardless of whether the patient occupies a “maternity suite” in which labor, delivery recovery, and postpartum care all take place in the same room, would be included in the Medicare utilization calculation. We understand that including labor and delivery inpatient days in the Medicare utilization calculation invariably will reduce direct GME payments because direct GME payments are based, in part, on a hospital's Medicare utilization ratio and the denominator of that ratio, which includes the hospital's total inpatient days, will increase at a higher rate than the numerator of the ratio, which includes the hospital's Medicare inpatient days. However, because the Medicare utilization ratio is a comparison of a hospital's total Medicare inpatient days to its total inpatient days, we believe that revising the ratio to include labor and delivery days is appropriate because they are inpatient days and therefore should be counted as such. We are including labor and delivery days as inpatient days in the Medicare utilization calculation effective for cost reporting periods beginning on or after October 1, 2013.

h. Changes to the DSH Payment Adjustment and the Provision of Additional Payment for Uncompensated Care

Section 3133 of the Affordable Care Act modified the Medicare disproportionate share hospital (DSH) payment methodology beginning in FY 2014. Currently, Medicare DSHs qualify for a DSH payment adjustment under a statutory formula that considers their Medicare utilization due to beneficiaries who also receive Supplemental Security Income benefits and their Medicaid utilization. Under section 1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting in FY 2014, DSHs will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments. The remaining amount, equal to 75 percent of what otherwise would have been paid as Medicare DSH payments, will be paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH hospital will receive its additional amount based on its share of the total amount of uncompensated care for all Medicare DSH hospitals for a given time period. In this final rule, we are implementing these statutory changes.

i. Medicare Part B Inpatient Billing in Hospitals

We are finalizing our proposal that when a Medicare Part A claim for hospital inpatient services is denied because the inpatient admission was determined not reasonable and necessary, or if a hospital determines under 42 CFR 482.30(d) or § 485.641 after a beneficiary is discharged that his or her inpatient admission was not reasonable and necessary, the hospital may be paid for the Part B services that would have been reasonable and necessary if the beneficiary had been treated as a hospital outpatient rather than admitted as an inpatient, provided the beneficiary is enrolled in Medicare Part B. We are finalizing our proposal to continue applying the timely filing restriction to the billing of all Part B inpatient services, under which claims for Part B services must be filed within 1 year from the date of service. However, we are modifying what we stated in the preamble of the proposed rule regarding the applicability of the CMS Ruling 1455-R to certain claims. We will permit hospitals to follow the Part B billing timeframes established in the Ruling after the effective date of this rule, provided (1) the Part A claim denial was one to which the Ruling originally applied; or (2) the Part A inpatient claims has a date of admission before October 1, 2013, and is denied after September 30, 2013 on the grounds that although the medical care was reasonable and necessary, the inpatient admission was not. In this final rule, we

also describe the beneficiary liability and other impacts of our final policies.

j. Admission and Medical Review Criteria for Hospital Inpatient Services Under Medicare Part A

To reduce uncertainty regarding the requirements for payments to hospitals and CAHs under Medicare Part A related to when a Medicare beneficiary should be admitted as a hospital inpatient, in this final rule, we are clarifying the rules governing physician orders of hospital inpatient admissions for payment under Medicare Part A. We are clarifying and specifying in the regulations that an individual becomes an inpatient of a hospital, including a CAH, when formally admitted as such pursuant to an order for inpatient admission by a physician or other qualified practitioner described in the final regulations. The order is required for payment of hospital inpatient services under Medicare Part A. We are specifying that for those hospital stays in which the physician expects the beneficiary to require care that crosses 2 midnights and admits the beneficiary based upon that expectation, Medicare Part A payment is generally appropriate. Conversely, we are specifying that hospital stays in which the physician expects the patient to require care less than 2 midnights, payment under Medicare Part A is generally inappropriate. This will revise our guidance to hospitals and physicians relating to when hospital inpatient admissions are determined reasonable and necessary for payment under Part A. We also are using our exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to offset the additional IPPS expenditures under this policy change by reducing the standardized amount, the hospital-specific amount, and the Puerto Rico-specific standardized amount by 0.2 percent.

LTCH PPS Standard Federal Rate

In section VIII.A. of the preamble of this final rule, we present the LTCH PPS standard Federal rate for FY 2014, which includes an adjustment factor of 0.98734 for the second year of the 3-year phase-in of the permanent one-time adjustment to the standard Federal rate. In addition, under the LTCH Quality Reporting (LTCHQR) Program, the annual update to the standard Federal rate will be reduced by 2 percentage points for LTCHs that fail to submit data for FY 2014 on specific measures under section 3004 of the Affordable Care Act.

l. Expiration of Certain Payment Rules for LTCH Services and Research on the Development of a Patient Criteria-Based Payment Adjustment Under the LTCH PPS

In section VIII.D. of the preamble of this final rule, we note the expiration of the moratorium on the full implementation of the “25 percent threshold” payment adjustment to LTCHs under the LTCH PPS for cost reporting periods beginning on or after October 1, 2013.

In section VIII.E. of the preamble of this final rule, we discuss the ongoing research being done by a CMS contractor, Kennell and Associates (Kennell) and its subcontractor, Research Triangle Institute, International (RTI), on the development of a payment adjustment under the LTCH PPS based on the establishment of LTCH patient criteria that was described in the proposed rule.

m. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, hospitals are required to report data on measures selected by the Secretary for the Hospital IQR Program in order to receive the full annual percentage increase. In past rules, we have established measures for reporting and the process for submittal and validation of the data.

In this final rule, we are making several changes to: (1) The measure set, including the removal of some measures, the suspension of one measure, the refinement of some measures, and the adoption of several new measures; (2) the administrative processes; and (3) the validation methodologies. We also are allowing hospitals the option of reporting up to four measure sets electronically for the FY 2016 payment determination. These changes will improve the timeliness and efficiency of the Hospital IQR Program and begin the process of incorporating electronic reporting into the Hospital IQR Program.

n. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

Section 1886(s)(4) of the Act authorizes the Secretary to implement a quality reporting program for inpatient psychiatric hospitals and psychiatric units. Section 1886(s)(4) of the Act, as added and amended by sections 3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary to implement a quality reporting program for inpatient psychiatric hospitals and psychiatric units. Section 1886(s)(4)(A)(i) of the Act requires that, for rate year 2014 and each subsequent rate year, the Secretary shall reduce any annual update to a standard Federal rate for discharges occurring during such rate year by 2.0 percentage points for any inpatient psychiatric hospital or psychiatric unit that does not comply with quality data submission requirements with respect to an applicable rate year.

In this final rule, we are establishing new measures and related policies for the IPFQR Program beginning with FY 2016.

3. Summary of Costs and Benefits

• Adjustment for MS-DRG Documentation and Coding Changes. We are making a −0.8 percent recoupment adjustment to the standardized amount for FY 2014 to implement, in part, the requirement of section 631 of the ATRA that the Secretary make an adjustment totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This recoupment adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law 110-90.

While our actuaries estimate that a −9.3 percent recoupment adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to delay or phase in rate adjustments over more than one year, in order to moderate the effects on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, we are making a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. We estimate that this level of adjustment would recover $0.96 billion in FY 2014, with approximately $10.04 billion remaining to be addressed. We are not making any future adjustments at this time but note that if recoupment adjustments of approximately −0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, we estimate that the entire $11 billion will be recovered by the end of the statutory 4-year timeline.

• Refinement of the MS-DRG Relative Weight Calculation. We refer readers to section VI.C. of Appendix A of this final rule for the overall IPPS operating impact, which includes the impact for the refinement of the MS-DRG relative weight calculation. This impact models payments to various hospital types using relative weights developed from 19 CCRs as compared to 15 CCRs. As

with other changes to the MS-DRGs, these changes are to be implemented in a budget neutral manner.

• Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals.

The finalized FY 2010-based IPPS market basket update (as measured by percentage increase) for FY 2014 is currently forecasted to be the same as the market basket update based on the FY 2006-based IPPS market basket at 2.5 percent (currently used under the IPPS). Therefore, we are projecting that there will be no fiscal impact on the IPPS operating payment rates in FY 2014 as a result of the rebasing and revision of the IPPS market basket.

The FY 2010-based IPPS capital input price index update (as measured by percentage increase) for FY 2014 is currently forecasted to be 1.2 percent, 0.2 percentage point lower than the update based on the FY 2006-based capital input price index. Therefore, we are projecting that there will be a fiscal impact of −$16 million to the IPPS capital payments in FY 2014 as a result of this policy (0.2 percentage point * annual capital IPPS payments of approximately $8 billion).

In addition, we are updating the labor-related share under the IPPS for FY 2014 based on the final FY 2010-based IPPS market basket, which will result in a labor-related share of 69.6 percent (compared to the FY 2013 labor-related share of 68.8 percent) or 62 percent, depending on which results in higher payments to the hospital. For FY 2014, the labor-related share for the Puerto Rico-specific standardized amount will be either 63.2 percent or 62 percent, depending on which results in higher payments to the hospital. We are projecting that there will be no impact on aggregate IPPS payments as a result of this policy due to the statutory requirement that any changes to the IPPS area wage adjustment (including the labor-related share) are adopted in a budget neutral manner.

• Reduction to Hospital Payments for Excess Readmissions. The provisions of section 1886(q) of the Act which establishes the Hospital Readmissions Reduction Program are not budget neutral. For FY 2014, a hospital's readmissions payment adjustment factor is the higher of a ratio of a hospital's aggregate payments for excess readmissions to its aggregate payments for all discharges, or 0.98 (that is, or a 2-percent reduction). In this final rule, we estimate that the reduction to a hospital's base operating DRG payment amount to account for excess readmissions of selected applicable conditions under the Hospital Readmissions Reduction Program will result in a 0.2 percent decrease, or approximately −$227 million, in payments to hospitals for FY 2014.

• Value-Based Incentive Payments under the Hospital Value-Based Purchasing (VBP) Program. We estimate that there will be no net financial impact to the Hospital VBP Program for FY 2014 in the aggregate because, by law, the amount available for value-based incentive payments under the program in a given fiscal year must be equal to the total amount of base operating DRG payment amount reductions for that year, as estimated by the Secretary. The estimated amount of base operating DRG payment amount reductions for FY 2014, and therefore the estimated amount available for value-based incentive payments for FY 2014 discharges, is approximately $1.1 billion. We believe that the program's benefits will be seen in improved patient outcomes, safety, and in the patient's experience of care. However, we cannot estimate these benefits in actual dollar and patient terms.

• Implementation of the HAC Reduction Program for FY 2014. We note that there is no payment impact for FY 2014 for implementing the HAC Reduction Program. For FY 2015, we are presenting the overall impact of the HAC Reduction Program provision along with other IPPS payment provision impacts in section I.G. of Appendix A of this final rule.

• Counting of Inpatient Days in the Medicare Utilization Calculation. We believe our policy change to include labor and delivery days as inpatient days in the Medicare utilization calculation will result in a savings of approximately $19 million for FY 2014.

• Changes to the Medicare DSH Payment Adjustment and Provision of Additional Payment for Uncompensated Care. Under section 1886(r) of the Act (as added by section 3313 of the Affordable Care Act), disproportionate share payments to hospitals under section 1886(d)(5)(F) of the Act are reduced and an additional payment to eligible hospitals will be made beginning in FY 2014. Hospitals that receive Medicare DSH payments will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments. The remainder, equal to 75 percent of what otherwise would have been paid as Medicare DSH payments, will be the basis for additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured and additional statutory adjustments. Each hospital that receives Medicare DSH payments will receive an additional payment based on its share of the total uncompensated care amount reported by Medicare DSHs. The reduction to Medicare DSH payments is not budget neutral.

We are specifying that 75 percent of what otherwise would have been paid for Medicare DSH payments is adjusted to 94.3 percent of that amount for changes in the percentage of individuals that are uninsured and additional statutory adjustments. In other words, Medicare DSH payments prior to the application of section 3133 of the Affordable Care Act are adjusted to 70.7 percent (the product of 75 percent and 94.3 percent) and that resulting payment amount is used to create an additional payment for a hospital's relative uncompensated care. As a result, we project that the reduction of Medicare DSH payments and the inclusion of the additional payments will reduce payments overall by 0.4 percent as compared to Medicare DSH payments prior to the implementation of section 3133 of the Affordable Care Act. The additional payments have redistributive effects based on a hospital's uncompensated care amount relative to the uncompensated care amount for all hospitals that are estimated to receive Medicare DSH payments. These additional payments will be made through the claims processing system for each hospital discharge.

• Part B Hospital Inpatient Payment Policy. In this final rule, we are revising Medicare's policy for payment of Part B hospital inpatient services following the denial of a Part A hospital inpatient claim on the basis that the inpatient admission was not reasonable and necessary, but hospital outpatient services would have been reasonable and necessary in treating the beneficiary. We estimate that the final policy will result in an approximately $4.6 billion decrease in Medicare program expenditures over 5 years. In section XI. of the preamble of this final rule, we set forth a detailed analysis of the regulatory and Federalism impacts that the policy changes are expected to have on affected entities and beneficiaries.

• Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A. In this final rule, we are making changes relating to admission and medical review criteria for hospital inpatient admissions under Medicare Part A. One aspect of these changes is that hospital inpatient admissions spanning 2 midnights in the hospital will generally qualify as appropriate for payment under Medicare Part A. Our actuaries estimate

that the change will increase IPPS expenditures by approximately $220 million due to an expected net increase in inpatient encounters. We are using our exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to make a reduction of 0.2 percent to the standardized amount, the Puerto Rico standardized amount, and the hospital-specific payment rate to offset this estimated $200 million in additional IPPS expenditures. We also are applying that 0.2 percent reduction to the capital Federal rates using our authority under section 1886(g) of the Act.

• Hospital Inpatient Quality Reporting (IQR) Program. We are providing that hospitals participating in the Hospital IQR Program will have the option to report a subset of measures electronically in CY 2014 for the FY 2016 payment determination. Under this policy, hospitals may choose to report the measures in four measure sets electronically or as chart-abstracted measures in CY 2014. For the FY 2016 payment determination, we also are removing seven measures (six chart-abstracted measures and one structural measure) and suspending one measure. We also are adopting five new claims-based measures for the FY 2016 payment determination and subsequent years. For the FY 2016 payment determination and subsequent years, we will validate two additional chart-abstracted HAI measures: MRSA

bacteremia,

and

C. difficile.

We also are reducing the number of records used for HAI validation from 48 records per year to 36 records per year beginning with the FY 2015 payment determination. Finally, we are allowing hospitals to submit patient charts for purposes of validation either in paper form or by means of electronic transmission. We believe the changes to the measure set, processes, and validation methodologies, the electronic submission of records for validation, as well as allowing hospitals to report certain measures electronically for the FY 2016 payment determination will result in improved program efficiency and begin the process of incorporating electronic reporting into the program. We estimate that the combination of these changes and the reduction in measures mentioned above will reduce burden hours by 700,000 hours annually.

• Update to the LTCH PPS Standard Federal Rate and Other Payment Factors. Based on the best available data for the 425 LTCHs in our database, we estimate that the changes we are presenting in the preamble and Addendum of this final rule, including the update to the standard Federal rate for FY 2014, the changes to the area wage adjustment for FY 2014, and the changes to short-stay outliers and high-cost outliers, will result in an increase in estimated payments from FY 2013 of approximately $72 million (or 1.3 percent). Although we generally project an increase in payments for all LTCHs in FY 2014 as compared to FY 2013, we expect rural LTCHs to experience slightly lower increases than the national average due to decreases in their wage index for FY 2014 compared to FY 2013. In addition, under current law, our moratoria on the full implementation of the “25-percent threshold” payment adjustment policy will expire for certain LTCHs for cost reporting periods beginning on or after October 1, 2013. These regulatory moratoria extended, for an additional year, the 5-year statutory moratorium on the application of the “25-percent threshold” payment adjustment policy as provided by section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the Affordable Care Act, which expired for cost reporting periods beginning on or after October 1, 2012 (“October LTCHs”), and for other LTCHs and LTCH satellite facilities for cost reporting periods beginning on or after July 1, 2012 (“July LTCHs”) (77 FR 53483 through 53484, as amended by the FY 2013 IPPS/LTCH PPS correcting amendment (77 FR 63751 through 63753)), as explained in section VIII.D. of the preamble of this proposed rule. We estimate that the expiration of the regulatory moratoria will result in a reduction in payments of $90 million to LTCHs. Overall, we estimate that the effect of the changes we are making for FY 2014 in conjunction with the expiration of the regulatory moratoria would result in a decrease in aggregate LTCH PPS payments in FY 2014 relative to FY 2013 of approximately -$18 million (that is, the estimated increase of $72 million plus the estimated reduction of $90 million, as described above).

B. 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 use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these “subsection (d) hospitals.” 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. The Affordable Care Act revised the Medicare DSH payment methodology and provides for a new additional Medicare payment that considers the amount of uncompensated care beginning on October 1, 2013.

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, 2013, 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. (We note that the statutory provision for payments to MDHs expires at the end of FY 2013, that is, on September 30, 2013.) 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, Pub. L. 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.

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) of the Act effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123 of the BBRA and section 307(b) of the BIPA (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 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.

C. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148), the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)

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, 2011, and 2012 were implemented in the June 2, 2010

Federal Register

notice (75 FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).

The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), enacted on January 2, 2013, also made a number of changes that affect the IPPS. We announced changes related to certain IPPS provisions for FY 2013 pursuant to sections 605 and 606 of Public Law 112-240 in a notice issued in the

Federal Register

on March 7, 2013 (78 FR 14689).

1. 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)

In this final rule, we are implementing, or continuing in FY 2014 to implement, the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS, the LTCH PPS, and PPS-exempt cancer hospitals:

• Section 3001(a) of Public Law 111-148, which requires the establishment of a hospital inpatient value-based purchasing program under which value-based incentive payments are made in a fiscal year to hospitals that meet performance standards for the performance period for that fiscal year.

• Section 3004 of Public Law 111-148, which provides for the submission of quality data by LTCHs in order for them to receive the full annual update to the payment rates beginning with the FY 2014 rate year.

• Section 3005 of Public Law 111-148, which provides for the establishment of a quality reporting program for PPS-exempt cancer hospitals beginning with FY 2014, and for subsequent program years.

• Section 3008 of Public Law 111-148, which establishes the Hospital-Acquired Condition (HAC) Reduction Program and requires the Secretary to make an adjustment to hospital payments for applicable hospitals, effective for discharges beginning on October 1, 2014, and for subsequent program years.

• Section 3025 of Public Law 111-148, which establishes a hospital readmissions reduction program and requires the Secretary to reduce payments to applicable hospitals with excess readmissions effective for discharges beginning on or after October 1, 2012.

• Section 3133 of Public Law 111-148, as amended by section 10316 of Public Law 111-148 and section 1104 of Pub. L. 111-152, which modifies the methodologies for determining Medicare DSH payments and creates a new additional payment for uncompensated care.

• Section 3401 of Public Law 111-148, which provides for the incorporation of productivity adjustments into the market basket updates for IPPS hospitals and LTCHs.

• Section 10324 of Public Law 111-148, which provides 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 2014.

• Section 5506 of Public Law 111-148, which added a provision to the Act that instructs the Secretary to establish a process by regulation under which, in the event a teaching hospital closes, the Secretary will permanently increase the FTE resident caps for hospitals that meet certain criteria up to the number of the closed hospital's FTE resident caps. The Secretary is directed to ensure that the aggregate number of FTE resident cap slots distributed is equal to the amount of slots in the closed hospital's direct GME and IME FTE resident caps, respectively.

2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)

In this final rule, we are implementing or making conforming changes to regulation text in accordance with the following provisions (or portions of the following provisions) of the American Taxpayer Relief Act of 2012 that are applicable to the IPPS:

• Section 605, which amended sections 1886(d)(12)(B), (C)(i), and (D) of the Act to extend changes to the payment methodology for the Medicare inpatient hospital payment adjustment for low-volume hospitals through September 30, 2013 (FY 2013). Beginning with FY 2014, the preexisting low-volume hospital qualifying criteria and payment adjustment, as implemented in FY 2005, will resume.

• Section 606(a), which amended sections 1886(d)(5)(G)(i) and (ii)(II) of the Act to extend the MDH program through September 30, 2013 (FY 2013), and section 606(b), which made conforming amendments to sections 1886(b)(3)(D)(i) and (iv) of the Act and amended section 13501(e)(2) of the Omnibus Budget Reconciliation Act of 1993 to permit hospitals to decline reclassification through FY 2013.

• Section 631, which amended section 7(b)(1)(B) of Public Law 110-90 and requires a recoupment adjustment to the standardized amounts under section 1886(d) of the Act based upon the Secretary's estimates for discharges occurring in FY 2014 through FY 2017 to fully offset $11 billion (which represents the amount of the increase in aggregate payments from FYs 2008 through 2013 for which an adjustment was not previously applied).

D. Issuance of a Notice of Proposed Rulemaking

On May 10, 2013, we published in the

Federal Register

(78 FR 27486) a proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals for FY 2014. We also set forth proposed changes relating to payments for IME and GME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, in the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2014.

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 2014 resulting from implementation of the MS-DRG system.

• A discussion of the Research Triangle Institute, International (RTI) reports and analyses relating to charge compression, including a proposal to calculate the MS-DRG relative weights using 19 CCRs.

• 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 adjustment in MS-DRG payments for FY 2014.

• A discussion of the FY 2014 status of new technologies approved for add-on payments for FY 2013 and a presentation of our evaluation and

analysis of the FY 2014 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 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 include the following:

• The proposed FY 2014 wage index update using wage data from cost reporting periods beginning in FY 2010.

• Analysis and implementation of the proposed FY 2014 occupational mix adjustment to the wage index for acute care hospitals, including the proposed application of the rural floor, the imputed rural floor calculated under the original and alternative methodologies, and the frontier State floor.

• 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 2014 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 2014 hospital wage index.

• Determination of the labor-related share for the proposed FY 2014 wage index.

3. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

In section IV. of the preamble of the proposed rule, we proposed to rebase and revise the acute care hospital operating and capital market baskets to be used in developing the FY 2014 update factor for the operating and capital prospective payment rates and the FY 2014 update factor for the excluded hospital rate-of-increase limits. We also set forth the data sources used to determine the proposed revised market basket costs weights.

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

In section V. of the preamble of the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412 and 413, including the following:

• Proposed changes to the inpatient hospital update for FY 2014, including incorporation of a productivity adjustment.

• The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.

• Proposed payment adjustment for low-volume hospitals for FY 2014.

• The statutorily required IME adjustment factor for FY 2014.

• Proposed changes to the methodologies for determining Medicare DSH payments and proposals to implement the new additional payments for uncompensated care.

• Discussion of the extension of the MDH program through FY 2013.

• Proposed changes to the rules for payment adjustments under the Hospital Readmissions Reduction Program based on hospital readmission measures and the process for hospital review and correction of those rates.

• Proposed changes to the requirements and provision of value-based incentive payments under the Hospital Value-Based Purchasing Program.

• Proposed requirements for payment adjustments to hospitals under the HAC Reduction Program.

• Proposal for counting labor and delivery inpatient days in the calculation of Medicare utilization for direct GME purposes and for other payment and eligibility purposes.

• Announcement of an additional closed hospital and redistribution of resident cap slots relating to direct GME and IME payments.

• Proposed clarifications of policies on payments for residents training in approved residency programs at CAHs.

• Announcement of the expiration of the inflation update freeze for high per resident amounts (PRAs).

• Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.

• Extending the effective date of policies relating to hospital services furnished under arrangements.

• Proposed medical review policy that hospital stays in which the physician expects the patient to require a stay that crosses 2 midnights are generally appropriate for payment under Medicare Part A, while hospital stays in which the physician expects the patient to require a stay that does not cross 2 midnights are generally inappropriate for payment under Medicare Part A.

5. Proposed FY 2014 Policy Governing the IPPS for Capital-Related Costs

In section VI. 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 2014 and other related proposed policy changes.

6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VII. of the preamble of the proposed rule, we discussed—

• Proposed changes to payments to certain excluded hospitals for FY 2014.

• Proposed changes to the conditions of participation (CoPs) relating to administration of pneumococcal vaccine and CAH payment for acute care inpatient services.

7. Proposed Changes to the LTCH PPS

In section VIII. 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 2014. We also noted that the moratorium on the full implementation of the “25-percent threshold” payment adjustment will expire for certain cost reporting periods beginning on or after October 1, 2013. In addition, in this section, we discussed the research being done by Kennell and Associates (Kennell) and its subcontractor, Research Triangle Institute, International (RTI), under a contract with CMS that is intended to inform the development of a payment adjustment under the LTCH PPS based on the establishment of LTCH patient criteria which were described in the proposed rule at 78 FR 27668 through 27676.

8. Proposed Changes Relating to Quality Data Reporting for Specific Providers and Suppliers

In section IX. of the preamble of the proposed rule, we addressed—

• Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full applicable percentage increase.

• Proposed changes to the requirements for the quality reporting program for PPS-exempt cancer hospitals (PCHQR Program).

• Proposed changes to the requirements under the LTCH Quality Reporting (LTCHQR) Program.

• Proposed changes to the requirements under the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program.

9. Determining 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 2014 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We 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 2014 for certain hospitals excluded from the IPPS.

10. Determining 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 2014 prospective standard Federal rate. We proposed to establish the 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.

11. 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, LTCHs, PCHs, and IPFs.

12. 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 2014 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).

• 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.

13. 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 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2013 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs for hospitals under the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2013 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

.

E. Public Comments Received in Response to the FY 2014 IPPS/LTCH PPS Proposed Rule

We received approximately 721 timely pieces of correspondence containing multiple comments on the FY 2014 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 public comments are set forth in the various sections of this final rule under the appropriate heading.

F. Finalization of the Proposed Rule on Medicare Part B Inpatient Billing in Hospitals

On March 18, 2013, we issued in the

Federal Register

(78 FR 16632) a proposed rule that proposed to revise Medicare's payment policies under Part B when a Part A hospital inpatient claim is denied because the inpatient admission was not reasonable and necessary, but hospital outpatient services would have been reasonable and necessary in treating the beneficiary. We received 392 timely pieces of correspondence in response to this proposed rule. In section XI. of this document, we summarize and respond to these public comments and discuss our final policies after taking into consideration the public comments we received.

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 diagnosis-related groups (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

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 through 50055), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 through 51487), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273).

C. Adoption of the MS-DRGs in FY 2008

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189).

D. FY 2014 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189), 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.) 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, and we finalized the FY 2008 adjustment through rulemaking, effective October 1, 2007 (72 FR 66886).

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent, and we finalized that adjustment through rulemaking (73 FR 48447). The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, which reflected the amendments made 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. Adjustment to the Average Standardized Amounts Required by Public Law 110-90

a. Prospective Adjustment 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.

b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Section 7(b)(1)(B) 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 only make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.

3. 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 performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008 using the methodology first described in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and later discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772). We performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims (75 FR 50057 through 50068). The results of the analysis for the FY 2011 proposed and final rules, and subsequent evaluations in FY 2012, supported that the 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system. We were persuaded by both MedPAC's analysis (as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50064 through 50065)) and our own review of the methodologies recommended by various commenters that the methodology we employed to determine the required documentation and coding adjustments was sound.

As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effects. Interested individuals may still order these files through the Web site at:

http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/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.

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777), we opted to delay the implementation of any documentation and coding adjustment until a full analysis of case-mix changes based on FY 2009 claims data could be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule 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 percent. 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 that do not reflect real changes in case-mix 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 the law provided some discretion as to the manner in which we applied the prospective adjustment of −3.9 percent. As we discussed 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. Therefore, we stated that we believed it was appropriate to not implement the −3.9 percent prospective adjustment in FY 2011 because we finalized a −2.9 percent recoupment adjustment for that year. 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). We note that, as a result, payments in FY 2011 (and in each future year until we implemented the requisite adjustment) would be higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we indicated that, because further delay of this prospective adjustment will result in a continued accrual of unrecoverable overpayments, it was imperative that we implement a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we implemented a −2.0 percent prospective adjustment to the standardized amount to partially eliminate the full effect of the documentation and coding changes that do not reflect real changes in case-mix on future payments.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 53276), we completed the prospective portion of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 by finalizing a −1.9 percent adjustment to the standardized amount for FY 2013. We stated that this adjustment would remove the remaining effect of the documentation and coding changes that do not reflect real changes in case-mix that occurred in FY 2008 and FY 2009. We believe it was imperative to implement the full remaining adjustment, as any further delay would result in an overstated standardized amount in FY 2013 and any future years until a full adjustment is made.

We note again that delaying full implementation of the prospective portion of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 2012 being overstated. These overpayments could not be recovered by CMS as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to overpayments made in FY 2008 and FY 2009.

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of Public Law 110-90

As discussed in section II.D.3. of the preamble of this final rule, 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. Our actuaries estimated that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. Therefore, as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012 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.

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 final rule, we made 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 allowed 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). For FY 2012, in accordance with 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 completed 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 (76 FR 51489 and 51498). Because these adjustments, in effect, balanced out, there was no year-to-year change in the standardized amount due to this recoupment adjustment for FY 2012. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53276), we made a final +2.9 percent adjustment to the standardized amount, completing the recoupment portion of section 7(b)(1)(B) of Public Law 110-90. We note that with this positive adjustment, according to our estimates, all overpayments made in FY 2008 and FY 2009 have been fully recaptured with appropriate interest, and the standardized amount has been returned to the appropriate baseline.

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment or adjustments totaling $11 billion by FY 2017. This adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. As discussed earlier, this delay in implementation resulted in overstated payment rates in FYs 2010, 2011, and 2012. The resulting overpayments could not have been recovered under Public Law 110-90.

Similar to the adjustments authorized under section 7(b)(1)(B) of Public Law 110-90, the adjustment required under section 631 of the ATRA is a one-time recoupment of a prior overpayment, not a permanent reduction to payment rates. Therefore, any adjustment made to reduce rates in one year would eventually be offset by a positive adjustment, once the necessary amount of overpayment is recovered.

As we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27504 through 27505), our actuaries estimate that a −9.3 percent adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014. In its March 2013 “Report to Congress: Medicare Payment Policy,” MedPAC estimates that a −2.4 percent adjustment made in FY 2014, and not removed until FY 2018, also would recover the required recoupment amount. It is often our practice to delay or 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 2014 IPPS/LTCH PPS proposed rule (78 FR 27504 through 27505), we proposed a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. As we stated in the proposed rule, we estimate that this level of adjustment would recover up to $0.96 billion in FY 2014, with at least $10.04 billion remaining to be recovered by FY 2017. If adjustments of approximately −0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, using standard inflation factors, we estimate that the entire $11 billion would be accounted for by the end of the statutory 4-year timeline. As estimates of any future adjustments are subject to slight variations in total savings, we did not propose specific adjustments for FYs 2015, 2016, or 2017 at that time. We stated that we believe that this level of adjustment for FY 2014 is a reasonable and fair approach that satisfies the requirements of the statute while mitigating extreme annual fluctuations in payment rates. In addition, we again noted that this −0.8 percent recoupment adjustment, and future adjustments under this authority, will be eventually offset by an equivalent positive adjustment once the full $11 billion recoupment requirement has been realized.

We discuss the comments we received on this proposal and our final policy for FY 2014 in the section below.

7. Additional Prospective Adjustments for the MS-DRG Documentation and Coding Effect Through FY 2010 Authorized 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 if the Secretary determines such adjustments to be necessary for any subsequent fiscal years in order to eliminate the effect of coding or classification changes that do not reflect real changes in case-mix. After review of comments and recommendations received in a FY 2012 public comment letter from MedPAC (available on the Internet at:

http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf

), we analyzed claims data in FY 2010 to determine whether any additional adjustment would be appropriate to ensure that the introduction of MS-DRGs was implemented in a budget neutral manner. We analyzed FY 2010 data on claims paid through December 2011 using the same claims-based methodology as described in previous rulemaking (73 FR 43768 and 43775). We determined a total additional prospective documentation and coding effect of 0.8 percent through FY 2010 and found that this effect was present for both IPPS hospitals paid with the standardized amount and IPPS hospitals paid using their hospital-specific payment rates.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we proposed an additional −0.8 percent prospective adjustment to the standardized amount to account for this effect. We indicated that this additional prospective adjustment of −0.8 percent, when combined with the other prospective MS-DRG documentation and coding adjustments already made or proposed would eliminate the future effect of MS-DRG documentation and coding that did not reflect real changes in case-mix for discharges occurring through FY 2010. As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53278 through 53280), numerous commenters objected to the CMS proposal to make an adjustment to account for payment increases due to MS-DRG documentation and coding that did not reflect real changes in case-mix for discharges occurring through FY 2010. Many commenters continued to assert that our estimates of documentation and coding were overstated, and could be explained by other factors. These commenters also focused on part of the analysis provided by MedPAC in its FY 2012 public comment letter indicating that a slightly smaller additional prospective adjustment of −0.55 percent rather than −0.8 percent might be required to offset the cumulative MS-DRG documentation and coding effect through FY 2010. Specifically, while MedPAC supported the overall methodology, it suggested that it was possible that changes in documentation and coding to optimize payments under the MS-DRG GROUPERs and relative weights may have resulted in slightly less than optimal payments under the FY 2007 GROUPER and relative weights (the denominator of the documentation and coding change estimate). Many commenters requested that, given the MedPAC analysis, if CMS were to apply an additional prospective adjustment to the MS-DRG documentation and coding effect through FY 2010, it should subtract 0.25 percentage points from its estimate, for an adjustment of −0.55 percent.

After considering the public comments, we recognized that the issue of the estimate to use for the cumulative MS-DRG documentation and coding effect through FY 2010 may merit further consideration. Therefore, as discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53278 through 53280), we decided not to finalize the proposed −0.8 percent adjustment to the standardized amount and the hospital-specific rate until more analysis could be completed.

CMS is continuing to consider whether MedPAC's recommendation that an adjustment to offset the cumulative documentation and coding effects through FY 2010 under section 1886(d)(3)(A)(vi) of the Act is appropriate and supported by a review of the claims data. After further consideration of the MedPAC analysis and the request by many public commenters, if we were to apply an additional prospective adjustment for the cumulative MS-DRG documentation

and coding effect through FY 2010, we believe the most appropriate additional adjustment is −0.55 percent.

As discussed in section II.D.6. of the preamble of the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27505), because we proposed a −0.8 percent recoupment adjustment, we did not propose a prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effect through FY 2010. However, we solicited public comments as to whether any portion of the proposed −0.8 percent recoupment adjustment should be reduced and instead applied to a prospective adjustment for the cumulative MS-DRG documentation and coding effect through FY 2010. For example, we could apply a −0.25 percent recoupment adjustment, and a −0.55 prospective adjustment, for a total FY 2014 adjustment of −0.8 percent. Reducing the recoupment adjustment in FY 2014 would require relatively larger adjustments for FYs 2015, 2016, and/or 2017, but making a prospective adjustment of −0.55 percent would eliminate future payment increases due to MS-DRG documentation and coding that did not reflect real changes in case-mix for discharges occurring through FY 2010. As we discuss above, because the documentation and coding effect through FY 2010 was found for both IPPS hospitals paid with the standardized amount and IPPS hospitals paid under their hospital-specific payment rate, if we were to apply a prospective adjustment to remove this effect, we also would apply such an adjustment to the hospital-specific payment rate, using the Secretary's broad authority under section 1886(d)(5)(I)(i) of the Act (77 FR 53276 through 53277). Therefore, if we attribute a portion of the −0.8 percent adjustment for FY 2014 to the prospective adjustment, we also would make appropriate adjustments to the hospital-specific payment rates. Puerto Rico-specific rates would not be affected, as we previously found no significant additional MS-DRG documentation and coding effect for FY 2010 that would warrant any additional adjustment to the Puerto Rico-specific rate (77 FR 53279).

Comment:

The majority of commenters were satisfied with CMS' proposal to phase in the $11 billion adjustment required under section 631 of the ATRA. Commenters encouraged CMS to continue to implement the required adjustment gradually through FY 2017.

Response:

We concur with commenters that a gradual implementation of this adjustment is the most prudent course of action. We believe that the proposed level of adjustment for FY 2014 is a reasonable and fair approach that satisfies the requirements of the statute while mitigating extreme annual fluctuations in payment rates. Therefore, we are finalizing a −0.8 percent documentation and coding adjustment to the standardized amount for FY 2014.

Comment:

Many commenters, including a national hospital association, were appreciative that CMS has reduced its original estimate of FY 2010 documentation and coding effects from 0.8 percent to 0.55 percent and believed that the 0.8 estimate was overstated. However, some commenters contended that this overstatement was not limited to FY 2010 alone. These commenters, while continuing to fundamentally disagree with the validity of underlying methodology employed by CMS, as previously described in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274-53275), requested that a prospective adjustment for any documentation and coding effect determined to have occurred in FY 2010 be partially or wholly offset by any similar overstatement that occurred in the adjustments made for documentation and coding effects that occurred during FY 2008 and FY 2009.

Response:

In the proposed rule (78 FR 27505), we acknowledged that, after further consideration of the MedPAC analysis of claims data, if we were to apply an additional prospective adjustment for the cumulative MS-DRG documentation and coding effect through FY 2010, we believe the most appropriate additional adjustment is −0.55 percent, rather than the adjustment proposed in prior rulemaking of −0.8 percent. With respect to our previously finalized recoupment adjustments for documentation and coding effects in FY 2008 and FY 2009, however, we note, as discussed earlier, that section 7(b)(1)(B) of Public Law 110-90 required the Secretary to make the FY 2008 and FY 2009 recoupment adjustments based on estimates and also required that the Secretary make these adjustments for discharges occurring only in FYs 2010, 2011, and/or 2012. The Secretary made the FY 2008 and FY 2009 recoupment adjustments to the standardized amounts for discharges occurring in FY 2011 and FY 2012 based on the best estimates available at the time. We also note that section 631 of the ATRA states that the $11 billion recoupment figure “represents the amount of the increase in aggregate payments from fiscal years 2008 through 2013 for which an adjustment was not previously applied.” Any adjustment to the FY 2008 and FY 2009 recoupment, therefore, is subsumed in the $11 billion recoupment figure.

Comment:

Many commenters requested that CMS not apply any of the proposed −0.8 percent recoupment adjustment as a prospective adjustment to account for any MS-DRG documentation and coding effect that occurred in FY 2010. In addition to overall concerns with CMS' methodology, commenters indicated that any prospective adjustment in addition to the recoupment required by section 631 of the ATRA would be too financially burdensome, and would be contrary to the agency's stated goal of mitigating extreme fluctuations in payment rates.

MedPAC recommended that CMS implement the full −0.55 percent prospective adjustment for FY 2010 documentation and coding in FY 2014, reducing the FY 2014 recoupment adjustment to −0.25 percent. While MedPAC acknowledged that such an action would require relatively larger adjustments in FYs 2015 through 2017 to satisfy the $11 billion recoupment requirement, it pointed out that further delay of FY 2010 documentation and coding adjustments would lead to overpayments in future fiscal years, and that, in general, prospective adjustments should be prioritized over retroactive adjustments.

Response:

We have considered all of the comments received. While we are firmly committed to ensuring that changes in documentation and coding do not lead to increases in payments, we have decided not to apply a prospective adjustment to account for any documentation and coding effect that occurred in FY 2010 at this time. We note that the $11 billion recoupment required by section 631 of the ATRA will require additional documentation and coding adjustments between FY 2014 and FY 2017. If we were to apply a −0.55 percent prospective documentation and coding adjustment for FY 2014, we would be concerned that additional larger adjustments will be needed in future years to recoup the $11 billion required by ATRA. We will continue to take into account public input and any future legislation on this issue.

Comment:

Several commenters opposed the implementation of any prospective adjustment to the hospital-specific rate. Similar to comments submitted in response to the FY 2013 IPPS/LTCH PPS proposed rule, as summarized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53277),

commenters stated that the broad authority granted to the Secretary in section 1886(d)(5)(I)(i) of the Act is not so broad as to extend the scope of a legislative directive that was specifically limited to hospitals paid under a prospective payment system. Commenters also contended that the plain language of section 7(b)(1) of Public Law 110-90, as amended by the ATRA, provides clear instructions that the documentation and coding adjustment is only intended to apply to the standardized amounts.

Response:

We continue to disagree that we do not have the authority to make prospective documentation and coding adjustments to the hospital-specific rates. We do not believe that the language in section 7(b)(1) of Public Law 110-90, as amended by the ATRA, or in section 1886(d)(3)(A)(iv) of the Act creates a limit on the broad authority granted under section 1886(d)(5)(I) of the Act. We have discussed the basis for applying any such prospective adjustment to the hospital-specific rate in our prior rules, beginning with the FY 2009 IPPS/LTCH PPS final rule (73 FR 48448). We also note that the proposed −0.8 percent recoupment adjustment for FY 2014 pursuant to section 631 of ATRA, which we are finalizing in this final rule, applies only to the standardized amount and not to the hospital-specific rates. Section 631 of the ATRA does not provide authority for a recoupment adjustment to the hospital-specific rate. However, as discussed in the FY 2010 IPPS/LTCH final rule (74 FR 24098), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50067 through 50071), the FY 2012 IPPS/LTCH PPS (76 FR 51498 through 51499), and the FY 2013 IPPS/LTCH PPS final rule (75 FR 53277 through 53278), we continue to believe that any prospective documentation and coding adjustments applied to the standardized amount should also be similarly applied to the hospital-specific rate. As discussed in the previous response, we are not making any prospective adjustment in FY 2014 to account for FY 2010 documentation and coding effects. Therefore, no documentation and coding adjustment will be applied to the hospital-specific rate in FY 2014.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

Beginning in FY 2007, we implemented relative weights for DRGs based on cost report data instead of charge information. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

As we implemented cost-based relative weights, some public commenters raised concerns about potential bias in the weights due to “charge compression,” which is 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. As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to the Research Triangle Institute, International (RTI) to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the cost-to-charge ratios (CCRs) across services within cost centers. For a detailed summary of RTI's findings, recommendations, and public comments that we received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 through 48453). In addition, we refer readers to RTI's July 2008 final report titled “Refining Cost to Charge Ratios for Calculating APC and MS-DRG Relative Payment Weights” (

http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf

).

In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the FY 2009 IPPS/LTCH PPS final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining the items that should be reported in these respective cost centers, we adopted the commenters' recommendations that hospitals should use revenue codes established by the AHA's National Uniform Billing Committee to determine the items that should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. Accordingly, a new subscripted line for “Implantable Devices Charged to Patients” was created in July 2009. This new subscripted cost center has been available for use for cost reporting periods beginning on or after May 1, 2009.

As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527), in addition to the findings regarding implantable devices, RTI also found that the costs and charges of computed tomography (CT) scans, magnetic resonance imaging (MRI), and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and the OPPS relative weights would better estimate the costs of those services if CMS were to add standard cost centers for CT scans, MRIs, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the costs from charges on claims data. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create standard cost centers for CT scans, MRIs, and cardiac catheterization, and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS-2552-10. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed discussion of the reasons for the creation of standard cost centers for CT scans, MRIs, and cardiac catheterization.) The new standard cost centers for CT scans, MRIs, and cardiac catheterization are effective for cost reporting periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10.

In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due to what is typically a 3-year lag between the reporting of cost report data and the availability for use in ratesetting, we anticipated that we might be able to use data from the new “Implantable Devices Charged to Patients” cost center to develop a CCR for “Implantable Devices Charged to Patients” in the FY 2012 or FY 2013 IPPS rulemaking cycle. However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR

43782), due to delays in the issuance of the revised cost report Form CMS 2552-10, we determined that a new CCR for “Implantable Devices Charged to Patients” might not be available before FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for CT scans, MRIs, and cardiac catheterization, we explained that data from any new cost centers that may be created will not be available until at least 3 years after they are first used (75 FR 50077). In preparation for the FY 2012 IPPS rulemaking, we checked the availability of data in the “Implantable Devices Charged to Patients” cost center on the FY 2009 cost reports, but we did not believe that there was a sufficient amount of data from which to generate a meaningful analysis in this particular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for “Implantable Devices Charged to Patients” for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would reassess the availability of data for the “Implantable Devices Charged to Patients” cost center for the FY 2013 IPPS/LTCH PPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

During the development of the FY 2013 IPPS/LTCH PPS proposed and final rules, hospitals were still in the process of transitioning from the previous cost report Form CMS-2552-96 to the new cost report Form CMS-2552-10. Therefore, we were able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates on or after October 1, 2009, and before May 1, 2010; that is, those cost reports on Form CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not available because cost reports filed on the Form CMS-2552-10 were not accessible in the HCRIS. Further complicating matters was that, due to additional unforeseen technical difficulties, the corresponding information regarding charges for implantable devices on hospital claims was not yet available to us in the MedPAR file. Without the breakout in the MedPAR file of charges associated with implantable devices to correspond to the costs of implantable devices on the cost report, we believed that we had no choice but to continue computing the relative weights with the current CCR that combines the costs and charges for supplies and implantable devices. We stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281 through 53283) that when we do have the necessary data for supplies and implantable devices on the claims in the MedPAR file to create distinct CCRs for the respective cost centers for supplies and implantable devices, we hoped that we would also have data for an analysis of creating distinct CCRs for CT scans, MRIs, and cardiac catheterization, which could then be finalized through rulemaking.

2. Discussion of Proposed and Final Policy for FY 2014

As we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27506-27507), to calculate the proposed FY 2014 MS-DRG relative weights, we proposed to continue our current methodology of using the two most recent data sources: The December 2012 update of the FY 2012 MedPAR file as the claims data source and the December 2012 update of FY 2011 HCRIS as the co

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