Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; Quality Reporting Requirements for Specific Providers; Graduate Medical Education; Hospital Notification Procedures Applicable to Beneficiaries Receiving Observation Services; and Technical Changes Relating to Costs to Organizations and Medicare Cost Reports

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, and 485

[CMS-1655-P]

RIN 0938-AS77

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; Quality Reporting Requirements for Specific Providers; Graduate Medical Education; Hospital Notification Procedures Applicable to Beneficiaries Receiving Observation Services; and Technical Changes Relating to Costs to Organizations and Medicare Cost Reports

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems for FY 2017. Some of the proposed changes would implement certain statutory provisions contained in the Pathway for Sustainable Growth (SGR) Reform Act of 2013, the Improving Medicare Post-Acute Care Transformation Act of 2014, the Notice of Observation Treatment and Implications for Care Eligibility Act of 2015, and other legislation. We also are providing the estimated market basket update to apply to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits for FY 2017.

We are proposing to update 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) for FY 2017.

In addition, we are proposing to make changes relating to direct graduate medical education (GME) and indirect medical education (IME) payments to hospitals with rural track training programs. We are proposing to establish new requirements or revise requirements for quality reporting by specific providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities) that are participating in Medicare, including related provisions for eligible hospitals and critical care hospitals (CAHs) participating in the Electronic Health Record (EHR) Incentive Program. We are proposing to update policies relating to the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction Program. We also are proposing to: Implement statutory provisions that require hospitals and CAHs to furnish notification to Medicare beneficiaries, including Medicare Advantage enrollees, when the beneficiaries receive outpatient observation services for more than 24 hours; announce the implementation of the Frontier Community Health Integration Project Demonstration; and make technical corrections and changes to regulations relating to costs to organizations and Medicare cost reports.

DATES:

To be assured consideration, comments must be received at one of the addresses provided in the

ADDRESSES

section, no later than 5 p.m. EDT on June 17, 2016.

ADDRESSES:

In commenting, please refer to file code CMS-1655-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (no duplicates, please):

1.

Electronically.

You may (and we encourage you to) submit electronic comments on this regulation to

http://www.regulations.gov

. Follow the instructions under the “submit a comment” tab.

2.

By regular mail.

You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1655-P, P.O. Box 8011, Baltimore, MD 21244-1850.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.

By express or overnight mail.

You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1655-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.

By hand or courier.

If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses:

a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call the telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, we refer readers to the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Ing Jye Cheng, (410) 786-4548, and Donald Thompson, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH) Issues, Medicare-Dependent Small Rural Hospital (MDH) Program, and Low-Volume Hospital Payment Adjustment Issues.

Michele Hudson, (410) 786-4487, and Emily Lipkin, (410) 786-3633, 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, Rebasing and Revising the LTCH Market Basket Issues.

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

Jason Pteroski, (410) 786-4681, and Siddhartha Mazumdar, (410) 786-6673, Frontier Community Health Integration Project Demonstration Issues.

Kathryn McCann Smith, (410) 786-7623, Hospital Notification Procedures for Beneficiaries Receiving Outpatient Observation Services Issues; or

Stephanie Simons, (206) 615-2420, only for Related Medicare Health Plans Issues.

Lein Han, (617) 879-0129, Hospital Readmissions Reduction Program—Readmission Measures for Hospitals Issues.

Delia Houseal, (410) 786-2724, Hospital-Acquired Condition Reduction Program and Hospital Readmissions Reduction Program—Program Administration Issues.

Joseph Clift, (410) 786-4165, Hospital-Acquired Condition Reduction Program—Measures Issues.

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

Cindy Tourison, (410) 786-1093, Hospital Inpatient Quality Reporting—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues.

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

Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

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

Mary Pratt, (410) 786-6867, Long-Term Care Hospital Quality Data Reporting Issues.

Jeffrey Buck, (410) 786-0407 and Cindy Tourison (410) 786-1093, Inpatient Psychiatric Facilities Quality Data Reporting Issues.

Deborah Krauss, (410) 786-5264, and Lisa Marie Gomez, (410) 786-1175, EHR Incentive Program Clinical Quality Measure Related Issues.

Elizabeth Myers, (410) 786-4751, EHR Incentive Program Nonclinical Quality Measure Related Issues.

Lauren Wu, (202) 690-7151, Certified EHR Technology Related Issues.

Kellie Shannon, (410) 786-0416, Technical Changes Relating to Costs to Organizations and Medicare Cost Reports Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

Inspection of Public Comments:

All public comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all public comments received before the close of the comment period on the following Web site as soon as possible after they have been received:

http://www.regulations.gov

. Follow the search instructions on that Web site to view public comments.

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 generally will be available only through the Internet. The IPPS tables for this proposed rule are available 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 2017 IPPS Proposed Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCHy PPS tables for this FY 2017 proposed rule are available through the Internyet 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-1655-P. For further details on the contents of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this proposed 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

AJCC American Joint Committee on Cancer

ALOS Average length of stay-

ALTHA Acute Long-Term Hospital Association

AMA American Medical Association

AMGA American Medical Group Association

AMI Acute myocardial infarction

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

ASPE Assistant Secretary for Planning and Evaluation (DHHS)

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

CABG Coronary artery bypass graft [surgery]

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 Centers for Disease Control and Prevention

CERT Comprehensive error rate testing

CDI

Clostridium difficile

[C. difficile] infection

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

COPD Chronic obstructive pulmonary disease

CPI Consumer price index

CQL Clinical quality language

CQM Clinical quality measure

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

EBRT External beam radiotherapy

ECE Extraordinary circumstances exemption

ECI Employment cost index

eCQM Electronic clinical quality measure

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

EP Eligible professional

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

FY Fiscal year

GAF Geographic Adjustment Factor

GME Graduate medical education

HAC Hospital-acquired condition

HAI Healthcare-associated infection

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems

HCFA Health Care Financing Administration

HCO High-cost outlier

HCP Healthcare personnel

HCRIS Hospital Cost Report Information System

HF Heart failure

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

HwH Hospital-within-hospital

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

ICU Intensive care unit

IGI IHS Global Insight, Inc.

IHS Indian Health Service

IME Indirect medical education

IMPACT Act Improving Medicare Post-Acute Care Transformation Act of 2014, Public Law 113-185

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 [Hospital] Inpatient Quality Reporting

LAMCs Large area metropolitan counties

LEP Limited English proficiency

LOC Limitation on charges

LOS Length of stay

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

LTCH QRP Long-Term Care Hospital Quality Reporting Program

MA Medicare Advantage

MAC Medicare Administrative Contractor

MACRA Medicare Access and CHIP Reauthorization Act of 2015, Public Law 114-10

MAP Measure Application Partnership

MCC Major complication or comorbidity

MCE Medicare Code Editor

MCO Managed care organization

MDC Major diagnostic category

MDH Medicare-dependent, small rural hospital

MedPAC Medicare Payment Advisory Commission

MedPAR Medicare Provider Analysis and Review File

MEI Medicare Economic Index

MGCRB Medicare Geographic Classification Review Board

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

MOON Medicare Outpatient Observation Notice

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

MU Meaningful Use [EHR Incentive Program]

MUC Measure under consideration

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

NOTICE Act Notice of Observation Treatment and Implication for Care Eligibility Act, Public Law 114-42

NQF National Quality Forum

NQS National Quality Strategy

NTIS National Technical Information Service

NTTAA National Technology Transfer and Advancement Act of 1991, Public Law 104-113

NUBC National Uniform Billing Code

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

ONC Office of the National Coordinator for Health Information Technology

OPM [U.S.] Office of Personnel Management

OQR [Hospital] Outpatient Quality Reporting

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PAC Post-acute care

PAMA Protecting Access to Medicare Act of 2014, Public Law 113-93

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

PPR Potentially Preventable Readmissions

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

PSI Patient safety indicator

PS&R Provider Statistical and Reimbursement [System]

PQRS Physician Quality Reporting System

PUF Public use file

QDM Quality data model

QIES ASAP Quality Improvement Evaluation System Assessment Submission and Processing

QIG Quality Improvement Group [CMS]

QIO Quality Improvement Organization

QM Quality measure

QRDA Quality Reporting Document Architecture

RFA Regulatory Flexibility Act, Public Law 96-354

RHC Rural health clinic

RHQDAPU Reporting hospital quality data for annual payment update

RIM Reference information model

RNHCI Religious nonmedical health care institution

RPL Rehabilitation psychiatric long-term care (hospital)

RRC Rural referral center

RSMR Risk-standard mortality rate

RSP Risk-standardized payment

RSSR Risk-standard readmission rate

RTI Research Triangle Institute, International

RUCAs Rural-urban commuting area codes

RY Rate year

SAF Standard Analytic File

SCH Sole community hospital

SCHIP State Child Health Insurance Program

SCIP Surgical Care Improvement Project

SFY State fiscal year

SGR Sustainable Growth Rate

SIC Standard Industrial Classification

SIR Standardized infection ratio

SNF Skilled nursing facility

SNF QRP Skilled Nursing Facility Quality Reporting Program

SNF VBP Skilled Nursing Facility Value-Based Purchasing

SOCs Standard occupational classifications

SOM State Operations Manual

SRR Standardized risk ratio

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

THA/TKA Total hip arthroplasty/total knee arthroplasty

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

UR Utilization review

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. Summary of Provisions of Recent Legislation Proposed to be Implemented in this Proposed Rule

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

2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)

3. Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) (Pub. L. 113-185)

4. The Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 (Pub. L. 114-10)

5. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113)

6. The Notice of Observation Treatment and Implication for Care Eligibility Act (the NOTICE Act) of 2015 (Pub. L. 114-42)

D. Summary of the Provisions of this Proposed Rule

II. Proposed 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. Proposed FY 2017 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) of 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. Proposed Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Discussion of Policy for FY 2017

F. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for MS-DRG Updates

a. Conversion of MS-DRGs to the International Classification of Diseases, 10th Revision (ICD-10)

b. Basis for Proposed FY 2017 MS-DRG Updates

2. Pre-Major Diagnostic Category (Pre-MDC): Total Artificial Heart Replacement

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

a. Endovascular Embolization (Coiling) or Occlusion of Head and Neck Procedures

b. Mechanical Complication Codes

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

a. Proposed Reassignment of Diagnosis Code R22.2 (Localized Swelling, Mass and Lump, Trunk)

b. Pulmonary Embolism with tPA or Other Thrombolytic Therapy

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

a. Implant of Loop Recorder

b. Endovascular Thrombectomy of the Lower Limbs

c. Pacemaker Procedures Code Combinations

d. Transcatheter Mitral Valve Repair with Implant

e. MS-DRG 245 (AICD Generator Procedures)

6. MDC 6 (Diseases and Disorders of the Digestive System): Excision of Ileum

7. MDC 7 (Diseases and Disorders of the Hepatobiliary System and Pancreas): Bypass Procedures of the Veins

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

a. Proposed Updates to MS-DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity with and without MCC, respectively)

(1) Total Ankle Replacement (TAR) Procedures

(2) Hip Replacements Procedures with Principal Diagnosis of Hip Fracture

b. Revision of Total Ankle Replacement Procedures

(1) Revision of Total Ankle Replacement Procedures

(2) Combination Codes for Removal and Replacement of Knee Joints

c. Decompression Laminectomy

d. Lordosis

9. MDC 13 (Diseases and Disorders of the Female Reproductive System): Pelvic Evisceration

10. MDC 19 (Mental Diseases and Disorders): Proposed Modification of Title of MS-DRG 884 (Organic Disturbances and Mental Retardation)

11. MDC 23 (Factors Influencing Health Status and Other Contacts with Health Services): Logic of MS-DRGs 945 and 946 (Rehabilitation with and without CC/MCC, Respectively)

12. Proposed Medicare Code Editor (MCE) Changes

a. Age Conflict Edit

(1) Newborn Diagnosis Category

(2) Pediatric Diagnosis Category

b. Sex Conflict Edit

c. Non-Covered Procedure Edit

(1) Endovascular Mechanical Thrombectomy

(2) Radical Prostatectomy

d. Unacceptable Principal Diagnosis Edit

(1) Liveborn Infant

(2) Multiple Gestation

(3) Supervision of High Risk Pregnancy

e. Other MCE Issues

(1) Procedure Inconsistent with Length of Stay Edit

(2) Maternity Diagnoses

(3) Manifestation Codes Not Allowed as Principal Diagnosis Edit

(4) Questionable Admission Edit

(5) Removal of Edits and Future Enhancement

13. Proposed Changes to Surgical Hierarchies

14. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2017

15. Proposed Complications or Comorbidity (CC) Exclusions List

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

b. Proposed CC Exclusions List for FY 2017

16. 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

(1) Angioplasty of Extracranial Vessel

(2) Excision of Abdominal Arteries

(3) Excision of Retroperitoneal Tissue

(4) Occlusion of Vessels: Esophageal Varices

(5) Excision of Vulva

(6) Lymph Node Biopsy

(7) Obstetrical Laceration Repair

17. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems

a. ICD-10 Coordination and Maintenance Committee

b. Code Freeze

18. Replaced Devices Offered without Cost or With a Credit

a. Background

b. Proposed Changes for FY 2017

19. Other Proposed Policy Changes

a. MS-DRG GROUPER Logic

(1) Operations on Products of Conception

(2) Other Heart Revascularization

(3) Procedures on Vascular Bodies: Chemoreceptors

(4) Repair of the Intestine

(5) Insertion of Infusion Pump

(6) Procedures on the Bursa

(7) Procedures on the Breast

(8) Excision of Subcutaneous Tissue and Fascia

(9) Shoulder Replacement

(10) Reposition

(11) Insertion of Infusion Device

(12) Bladder Neck Repair

(13) Future Consideration

b. Issues Relating to MS-DRG 999 (Ungroupable)

c. Other Operating Room (O.R.) and Non-O.R. Issues

(1) O.R. Procedures to Non-O.R. Procedures

(a) Endoscopic/Transorifice Insertion

(b) Endoscopic/Transorifice Removal

(c) Tracheostomy Device Removal

(d) Endoscopic/Percutaneous Insertion

(e) Percutaneous Removal

(f) Percutaneous Drainage

(g) Percutaneous Inspection

(h) Inspection without Incision

(i) Dilation of Stomach

(j) Endoscopic/Percutaneous Occlusion

(k) Infusion Device

(2) Non-O.R. Procedures to O.R. Procedures

(a) Drainage of Pleural Cavity

(b) Drainage of Cerebral Ventricle

G. Recalibration of the Proposed FY 2017 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights

2. Methodology for Calculation of the Proposed Relative Weights

3. Development of National Average CCRs

H. Proposed Add-On Payments for New Services and Technologies

1. Background

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

3. ICD-10-PCS Section “X” Codes for Certain New Medical Services and Technologies

4. Proposed FY 2017 Status of Technologies Approved for FY 2016 Add-On Payments

a. Kcentra

TM

b. Argus® II Retinal Prosthesis System

c. CardioMEMS

TM

HF (Heart Failure) Monitoring System

d. MitraClip® System

e. Responsive Neurostimulator (RNS®) System

f. Blinatumomab (BLINCYTO

TM

Trade Brand)

g. Lutonix® Drug Coated Balloon PTA Catheter and In.PACT

TM

Admiral

TM

Pacliaxel Coated Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter

5. Proposed FY 2017 Applications for New Technology Add-On Payments

a. MAGEC® Spinal Bracing and Distraction System (MAGEC® Spine)

b. MIRODERM Biologic Wound Matrix (MIRODERM)

c. Idarucizumab

d. Titan Spine (Titan Spine Endoskeleton® nanoLOCK

TM

Interbody Device)

e. Andexanet Alfa

f. Defitelio® (Defibrotide)

g. EDWARDS INTUITY Elite

TM

Valve System

h. GORE® EXCLUDER® Iliac Branch Endoprosthesis (IBE)

i. Vistogard

TM

(Uridine Triacetate)

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

A. Background

1. Legislative Authority

2. Core-Based Statistical Areas (CBSAs) Revisions for the Proposed FY 2017 Hospital Wage Index

B. Worksheet S-3 Wage Data for the Proposed FY 2017 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

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the Proposed FY 2017 Unadjusted Wage Index

E. Proposed Occupational Mix Adjustment to the FY 2017 Wage Index

1. Use of 2013 Occupational Mix Survey for the Proposed FY 2017 Wage Index

2. Development of the 2016 Medicare Wage Index Occupational Mix Survey for the FY 2019 Wage Index

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2017

F. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2017 Occupational Mix Adjusted Wage Index

G. Transitional Wage Indexes

1. Background

2. Transition for Hospitals in Urban Areas That Became Rural

3. Transition for Hospitals Deemed Urban under Section 1886(d)(8)(B) of the Act Where the Urban Area Became Rural under the New OMB Delineations

4. Budget Neutrality

H. Proposed Application of the Proposed Rural, Imputed, and Frontier Floors

1. Proposed Rural Floor

2. Proposed Imputed Floor for FY 2017

3. Proposed State Frontier Floor for FY 2017

I. Proposed FY 2017 Wage Index Tables

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

1. General Policies and Effects of Reclassification and Redesignation

2. MGCRB Reclassification and Redesignation Issues for FY 2017

a. FY 2017 Reclassification Requirements and Approvals

b. Requirements for FY 2018 Applications and Proposed Revisions Regarding Paper Application Requirements

c. Other Policy Regarding Reclassifications for Terminated Hospitals

3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the Act

4. Waiving Lugar Redesignation for the Out-Migration Adjustment

K. Proposed Out-Migration Adjustment Based on Commuting Patterns of Hospital Employees for FY 2017

L. Notification Regarding Proposed CMS “Lock-In” Date for Urban to Rural Reclassifications Under § 412.103

M. Process for Requests for Wage Index Data Corrections

N. Proposed Labor Market Share for the Proposed FY 2017 Wage Index

O. Solicitation of Comments on Treatment of Overhead and Home Office Costs in the Wage Index Calculation

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

A. Changes to Operating Payments for Subsection (d) Puerto Rico Hospitals as a Result of Section 601 of Public Law 114-113

B. Proposed Changes in the Inpatient Hospital Updates for FY 2017 (§§ 412.64(d) and 412.211(c))

1. Proposed FY 2017 Inpatient Hospital Update

2. Proposed FY 2017 Puerto Rico Hospital Update

3. Electronic Health Records (EHR) Adjustment to IPPS Market Basket

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

1. Case-Mix Index (CMI)

2. Discharges

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

E. Indirect Medical Education (IME) Payment Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2017

2. Other Proposed Policy Changes Affecting IME

F. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2017 and Subsequent Years (§ 412.106)

1. General Discussion

2. Eligibility for Empirically Justified Medicare DSH Payments and Uncompensated Care Payments

3. Empirically Justified Medicare DSH Payments

4. Uncompensated Care Payments

a. Calculation of Proposed Factor 1 for FY 2017

b. Calculation of Proposed Factor 2 for FY 2017

c. Calculation of Proposed Factor 3 for FY 2017

d. Proposed Calculation of Factor 3 for FY 2018 and Subsequent Fiscal Years

(1) Background

(2) Proposed Data Source and Time Period for FY 2018 and Subsequent Years, Including Methodology for Incorporating Worksheet S-10 Data

(3) Proposed Definition of Uncompensated Care for FY 2018 and Subsequent Fiscal Years

(4) Other Methodological Considerations for FY 2018 and Subsequent Fiscal Years

G. Hospital Readmissions Reduction Program: Proposed Updates and Changes (§§ 412.150 through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Regulatory Background

3. Proposed Policies for the FY 2017 Hospital Readmissions Reduction Program

4. Maintenance of Technical Specifications for Quality Measures

5. Proposed Applicable Period for FY 2017

6. Proposed Calculation of Aggregate Payments for Excess Readmissions for FY 2017

7. Extraordinary Circumstance Exception Policy

8. Timeline for Public Reporting of Excess Readmission Ratios on

Hospital Compare

for the FY 2017 Payment Determination

H. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy Changes for the FY 2018 Program Year and Subsequent Years

1. Background

a. Statutory Background and Overview of Past Program Years

b. FY 2017 Program Year Payment Details

2. PSI 90 Measure in the FY 2018 and Future Program Years

a. Proposed PSI 90 Measure Performance Period Change for the FY 2018 Program Year

b. Intent To Propose in Future Rulemaking To Adopt the Modified PSI 90 Measure

3. Retention Policy, Domain Name Proposal, and Updating of Quality Measures for the FY 2019 Program Year

a. Retention of Previously Adopted Hospital VBP Program Measures

b. Proposed Domain Name Change

c. Proposed Inclusion of Selected Ward Non-Intensive Care Unit (ICU) Locations in Certain NHSN Measures Beginning With the FY 2019 Program Year

d. Summary of Previously Adopted Measures and Newly Proposed Measure Refinements for the FY 2019 Program Year

4. Newly Proposed Measures and Measure Refinements for the FY 2021 Program Year and Subsequent Years

a. Condition-Specific Hospital Level, Risk-Standardized Payment Measures

b. Proposed Update to an Existing Measure for the FY 2021 Program Year: Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia (PN) Hospitalization (NQF #0468) (Updated Cohort)

5. Proposed New Measure for the FY 2022 Program Year: Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery (NQF #2558)

6. Previously Adopted and Newly Proposed Baseline and Performance Periods

a. Background

b. Patient- and Caregiver-Centered Experience of Care/Care Coordination Domain (Proposed Person and Community Engagement Domain)

c. Efficiency and Cost Reduction Domain

d. Safety Domain

e. Clinical Care Domain

f. Summary of Previously Adopted and Newly Proposed Baseline and Performance Periods for the FY 2018, FY 2019, FY 2020, FY 2021, and FY 2022 Program Years

7. Proposed Immediate Jeopardy Policy Changes

a. Background

b. Proposed Increase of Immediate Jeopardy Citations From Two to Three Surveys

c. EMTALA-Related Immediate Jeopardy Citations

8. Proposed Performance Standards for the Hospital VBP Program

a. Background

b. Previously Adopted and Proposed Performance Standards for the FY 2019 Program Year

c. Previously Adopted Performance Standards for Certain Measures for the FY 2020 Program Year

d. Previously Adopted and Newly Proposed Performance Standards for Certain Measures for the FY 2021 Program Year

e. Proposed Performance Standards for Certain Measures for the FY 2022 Program Year

9. FY 2019 Program Year Scoring Methodology

a. Domain Weighting for the FY 2019 Program Year for Hospitals That Receive a Score on All Domains

b. Domain Weighting for the FY 2019 Program Year for Hospitals Receiving Scores on Fewer Than Four Domains

I. Proposed Changes to the Hospital-Acquired Condition (HAC) Reduction Program

1. Background

2. Statutory Basis for the HAC Reduction Program

3. Overview of Previous HAC Reduction Program Rulemaking

4. Implementation of the HAC Reduction Program for FY 2017

a. Clarification of Complete Data Requirements for Domain 1

b. Clarification of NHSN CDC HAI Data Submission Requirements for Newly Opened Hospitals

5. Implementation of the HAC Reduction Program for FY 2018

a. Proposed Adoption of PSI 90: Patient Safety and Adverse Events Composite (NQF # 0531)

b. Applicable Time Periods for the FY 2018 HAC Reduction Program and the FY 2019 HAC Reduction Program

c. Proposed Changes to the HAC Reduction Program Scoring Methodology

6. Request for Comments on Additional Measures for Potential Future Adoption

7. Maintenance of Technical Specifications for Quality Measures

8. Extraordinary Circumstance Exception Policy for the HAC Reduction Program Beginning in FY 2016 and for Subsequent Years

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

1. Background

2. Change in New Program Growth From 3 Years to 5 Years

a. Urban and Rural Hospitals

b. Proposed Policy Changes Relating to Rural Training Tracks at Urban Hospitals

c. Proposed Effective Date

K. Rural Community Hospital Demonstration Program

1. Background

2. Budget Neutrality Offset Adjustments: Fiscal Years 2005 Through 2016

a. Fiscal Years 2005 Through 2013

b. Fiscal Years 2014 and 2015

c. Fiscal Year 2016

3. Proposed Budget Neutrality Methodology for FY 2017

L. Proposed Hospital and CAH Notification Procedures for Outpatients Receiving Observation Services

1. Background

a. Statutory Authority

b. Proposed Effective Date

2. Proposed Implementation of the NOTICE Act Provisions

a. Proposed Notice Process

b. Proposed Notification Recipients

c. Proposed Timing of Notice Delivery

d. Proposed Requirements for Written Notice

e. Outpatient Observation Services and Beneficiary Financial Liability

f. Delivering the Medicare Outpatient Observation Notice

g. Proposed Oral Notice

h. Proposed Signature Requirements

i. No Appeal Rights Under the NOTICE Act

M. Proposed Technical Changes and Correction of Typographical Errors in Certain Regulations Under 42 CFR part 413 Relating to Costs to Related Organizations and Medicare Cost Reports

1. General Background

2. Proposed Technical Change to Regulations at 42 CFR 413.17(d)(1) on Cost to Related Organizations

3. Proposed Changes to 42 CFR 413.24(f)(4)(i) Relating to Electronic Submission of Cost Reports

4. Proposed Technical Changes to 42 CFR 413.24(f)(4)(ii) Relating to Electronic Submission of Cost Reports and Due Dates

5. Proposed Technical Changes to 42 CFR 413.24(f)(4)(iv) Relating to Reporting Entities, Cost Report Certification Statement, Electronic Submission and Cost Reports Due Dates

6. Proposed Technical Correction to 42 CFR 413.200(c)(1)(i) Relating to Medicare Cost Report Due Dates for Organ Procurement Organizations and Histocompatibility Laboratories

N. Clarification Regarding the Medicare Utilization Requirement for Medicare-

Dependent, Small Rural Hospitals (MDHs) (§ 412.108)

1. Background

2. Clarification of Medicare Utilization Criterion for MDH Classification

O. Adjustment to IPPS Rates Resulting From 2-Midnight Policy

V. Proposed Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Proposed Changes in Payments for Hospitals Located in Puerto Rico

C. Proposed Annual Update for FY 2017

VI. Proposed Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2017

B. Critical Care Hospitals (CAHs)

1. Background

2. Frontier Community Health Integration Project (FCHIP) Demonstration

VII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2015

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. Proposed Modifications to the Application of the Site Neutral Payment Rate (§ 412.522)

1. Background

2. Technical Correction of Definition of “Subsection (d) Hospital” for the Site Neutral Payment Rate (§ 412.503)

C. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2017

1. Background

2. Patient Classifications Into MS-LTC-DRGs

a. Background

b. Proposed Changes to the MS-LTC-DRGs for FY 2017

3. Development of the Proposed FY 2017 MS-LTC-DRG Relative Weights

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

b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2017

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative Weights

f. Proposed Low-Volume MS-LTC-DRGs

g. Steps for Determining the Proposed FY 2017 MS-LTC-DRG Relative Weights

D. Proposed Rebasing of the LTCH Market Basket

1. Background

2. Overview of the Proposed 2013-Based LTCH Market Basket

3. Development of the Proposed 2013-Based LTCH Market Basket Cost Categories and Weights

a. Use of Medicare Cost Report Data

(1) Wages and Salaries Costs

(2) Employee Benefit Costs

(3) Contract Labor Costs

(4) Pharmaceutical Costs

(5) Professional Liability Insurance Costs

(6) Capital Costs

b. Final Major Cost Category Computation

c. Derivation of the Detailed Operating Cost Weights

d. Derivation of the Detailed Capital Cost Weights

e. Proposed 2013-Based LTCH Market Basket Cost Categories and Weights

4. Selection of Proposed Price Proxies

a. Price Proxies for the Operating Portion of the Proposed 2013-Based LTCH Market Basket

(1) Wages and Salaries

(2) Employee Benefits

(3) Electricity

(4) Fuel, Oil, and Gasoline

(5) Water and Sewage

(6) Professional Liability Insurance

(7) Pharmaceuticals

(8) Food: Direct Purchases

(9) Food: Contract Services

(10) Chemicals

(11) Medical Instruments

(12) Rubber and Plastics

(13) Paper and Printing Products

(14) Miscellaneous Products

(15) Professional Fees: Labor-Related

(16) Administrative and Facilities Support Services

(17) Installation, Maintenance, and Repair Services

(18) All Other: Labor-Related Services

(19) Professional Fees: Nonlabor-Related

(20) Financial Services

(21) Telephone Services

(22) All Other: Nonlabor-Related Services

b. Price Proxies for the Capital Portion of the Proposed 2013-Based LTCH Market Basket

(1) Capital Price Proxies Prior to Vintage Weighting

(2) Vintage Weights for Price Proxies

c. Summary of Price Proxies of the Proposed 2013-Based LTCH Market Basket

d. Proposed FY 2017 Market Basket Update for LTCHs

e. Proposed FY 2017 Labor-Related Share

E. Proposed Changes to the LTCH PPS Payment Rates and Other Proposed Changes to the LTCH PPS for FY 2017

1. Overview of Development of the LTCH PPS Standard Federal Payment Rates

2. Proposed FY 2017 LTCH PPS Standard Federal Payment Rate Annual Market Basket Update

a. Overview

b. Proposed Market Basket Under the LTCH PPS for FY 2017

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

d. Proposed Adjustment to the LTCH PPS Standard Federal Payment Rate Under the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

e. Proposed Annual Market Basket Update Under the LTCH PPS for FY 2017

3. Proposed Update Under the Payment Adjustment for “Subclause (II)” LTCHs

F. Proposed Modifications to the “25-Percent Threshold Policy” Payment Adjustments (§§ 412.534 and 412.536)

G. Proposed Refinement to the Payment Adjustment for “Subclause II” LTCHs

VIII. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background

a. History of the Hospital IQR Program

b. Maintenance of Technical Specifications for Quality Measures

c. Public Display of Quality Measures

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

3. Removal and Suspension of Hospital IQR Program Measures

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

b. Proposed Removal of Hospital IQR Program Measures for the FY 2019 Payment Determination and Subsequent Years

4. Previously Adopted Hospital IQR Program Measures for the FY 2018 and FY 2019 Payment Determination and Subsequent Years

5. Expansion and Updating of Quality Measures

6. Proposed Refinements to Existing Measures in the Hospital IQR Program

a. Proposed Expansion of the Cohort for the PN Payment Measure: Hospital-Level, Risk-Standardized Payment Associated With a 30-Day Episode-of-Care for Pneumonia (NQF # 2579)

b. Proposed Adoption of Modified PSI 90: Patient Safety and Adverse Events Composite Measure (NQF #0531)

7. Proposed Additional Hospital IQR Program Measures for the FY 2019 Payment Determinations and Subsequent Years

a. Proposed Adoption of Three Clinical Episode-Based Payment Measures

b. Proposed Adoption of Excess Days in Acute Care After Hospitalization for Pneumonia (PN Excess Days) Measure

c. Summary of Previously Adopted and Newly Proposed Hospital IQR Program Measures for the FY 2019 Payment Determination and Subsequent Years

8. Proposed Changes to Policies on Reporting of eCQMs

a. Proposed Requirement That Hospitals Report on All eCQMs in the Hospital IQR Program Measure Set for the CY 2017 Reporting Period/FY 2019 Payment Determination and Subsequent Years

b. Proposed Requirement That Hospitals Report a Full Year of eCQM Data

c. Clarification Regarding Data Submission for ED-1, ED-2, PC-01, STK-4, VTE-5, and VTE-6

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

a. Potential Inclusion of the National Institutes of Health (NIH) Stroke Scale for the Hospital 30-Day Mortality Following Acute Ischemic Stroke Hospitalization Measure Beginning as Early as the FY 2022 Payment Determination

b. Potential Inclusion of National Healthcare Safety Network (NHSN) Antimicrobial Use Measure (NQF #2720)

c. Potential Measures for Behavioral Health in the Hospital IQR Program

d. Potential Public Reporting of Quality Measures Data Stratified by Race, Ethnicity, Sex, and Disability and Future Hospital Quality Measures That Incorporate Health Equity

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

a. Background

b. Procedural Requirements for the FY 2019 Payment Determination and Subsequent Years

c. Data Submission Requirements for Chart-Abstracted Measures

d. Proposed Alignment of the Hospital IQR Program With the Medicare and Medicaid EHR Incentive Programs for Eligible Hospitals and CAHs

e. Sampling and Case Thresholds for the FY 2019 Payment Determination and Subsequent Years

f. HCAHPS Requirements for the FY 2019 Payment Determination and Subsequent Years

g. Data Submission Requirements for Structural Measures for the FY 2019 Payment Determination and Subsequent Years

h. Data Submission and Reporting Requirements for HAI Measures Reported via NHSN

11. Proposed Modifications to the Existing Processes for Validation of Hospital IQR Program Data

a. Background

b. Proposed Modifications to the Existing Processes for Validation of Hospital IQR Program Data

12. Data Accuracy and Completeness Acknowledgement (DACA) Requirements for the FY 2019 Payment Determination and Subsequent Years

13. Public Display Requirements for the FY 2019 Payment Determination and Subsequent Years

14. Reconsideration and Appeal Procedures for the FY 2019 Payment Determination and Subsequent Years

15. Proposed Changes to the Hospital IQR Program Extraordinary Circumstances Extensions or Exemptions (ECE) Policy

a. Proposal To Extend the General ECE Request Deadline for Non-eCQM Circumstances

b. Proposal To Establish a Separate Submission Deadline for ECE Requests Related to eCQMs

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

1. Background

2. Proposed Criteria for Removal and Retention of PCHQR Program Measures

3. Retention and Proposed Update to Previously Finalized Quality Measures for PCHs Beginning With the FY 2019 Program Year

a. Background

b. Proposed Update of Oncology: Radiation Dose Limits to Normal Tissues (NQF #0382) Measure for FY 2019 Program Year and Subsequent Years

4. Proposed New Quality Measure Beginning With the FY 2019 Program Year

a. Considerations in the Selection of Quality Measures

b. Admissions and Emergency Department (ED) Visits for Patients Receiving Outpatient Chemotherapy

5. Possible New Quality Measure Topics for Future Years

6. Maintenance of Technical Specifications for Quality Measures

7. Public Display Requirements

a. Background

b. Proposed Additional Public Display Requirements

c. Proposed Public Display of Additional PCHQR Measure

d. Proposed Public Display of Updated Measure

e. Proposed Postponement of Public Display of Two Measures

8. Form, Manner, and Timing of Data Submission

9. Exceptions From PCHQR Program Requirements

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

1. Background and Statutory Authority

2. General Considerations Used for Selection of Quality, Resource Use, and Other Measures for the LTCH QRP

3. Policy for Retention of LTCH QRP Measures Adopted for Previous Payment Determinations

4. Policy for Adopting Changes to LTCH QRP Measures

5. Quality Measures Previously Finalized for and Currently Used in the LTCH QRP

6. LTCH QRP Quality, Resource Use and Other Measures Proposed for the FY 2018 Payment Determination and Subsequent Years

a. Proposal To Address the IMPACT Act Domain of Resource Use and Other Measures: Total Estimated MSPB—PAC LTCH QRP

b. Proposal To Address the IMPACT Act Domain of Resource Use and Other Measures: Discharge to Community-Post-Acute Care (PAC) Long-Term Care Hospital Quality Reporting Program

c. Proposal To Address the IMPACT Act Domain of Resource Use and Other Measures: Potentially Preventable 30-Day Post-Discharge Readmission Measure for the Long-Term Care Hospital Quality Reporting Program

7. LTCH QRP Quality Measure Proposed for the FY 2020 Payment Determination and Subsequent Years

a. Background

b. Quality Measure Addressing the IMPACT Act Domain of Medication Reconciliation: Drug Regimen Review Conducted With Follow-Up for Identified Issues-Post-Acute Care LTCH QRP

8. LTCH QRP Quality Measures and Measure Concepts Under Consideration for Future Years

9. Proposed Form, Manner, and Timing of Quality Data Submission for the FY 2018 Payment Determination and Subsequent Years

a. Background

b. Timeline for Data Submission Under the LTCH QRP for the FY 2018 and Subsequent Years Payment Determinations

c. Proposed Timeline and Data Submission Mechanisms for the FY 2018 Payment Determination and Subsequent Years for New LTCH QRP Resource Use and Other Measures—Claims-Based Measures

d. Proposal To Revise the Previously Adopted Data Collection Period and Submission Deadlines for Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680) for the FY 2019 Payment Determination and Subsequent Years

e. Proposed Timeline and Data Submission Mechanisms for the Proposed LTCH QRP Quality Measure for the FY 2020 Payment Determination and Subsequent Years

10. LTCH QRP Data Completion Thresholds for the FY 2016 Payment Determination and Subsequent Years

11. LTCH QRP Data Validation Process for the FY 2016 Payment Determination and Subsequent Years

12. Proposed Change to Previously Codified LTCH QRP Submission Exception and Extension Policies

13. Previously Finalized LTCH QRP Reconsideration and Appeals Procedures

14. Proposals and Policies Regarding Public Display of Measure Data for the LTCH QRP and Procedures for the Opportunity To Review and Correct Data and Information

a. Public Display of Measures

b. Procedures for the Opportunity To Review and Correct Data and Information

15. Proposed Mechanism for Providing Feedback Reports to LTCHs

D. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

1. Background

a. Statutory Authority

b. Covered Entities

c. Considerations in Selecting Quality Measures

2. Retention of IPFQR Program Measures Adopted in Previous Payment Determinations

3. Proposed Update to Previously Finalized Measure: Screening for Metabolic Disorders

4. Proposed New Quality Measures for the FY 2019 Payment Determination and Subsequent Years

a. SUB-3—Alcohol and Other Drug Use Disorder Treatment Provided or Offered at Discharge and the Subset Measure SUB-3a—Alcohol and Other Drug Use Disorder Treatment at Discharge (NQF #1664)

b. Thirty-Day All-Cause Unplanned Readmission Following Psychiatric Hospitalization in an IPF

5. Summary of Proposed Measures for the FY 2019 Payment Determination and Subsequent Years

6. Possible IPFQR Program Measures and Topics for Future Consideration

7. Public Display and Review Requirements

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

a. Procedural and Submission Requirements

b. Proposed Change to the Reporting Periods and Submission Timeframes

c. Population and Sampling

d. Data Accuracy and Completeness Acknowledgement (DACA) Requirements

9. Reconsideration and Appeals Procedures

10. Exceptions to Quality Reporting Requirements

E. Clinical Quality Measurement for Eligible Hospitals and Critical Access Hospitals (CAHs) Participating in the EHR Incentive Programs in 2017

1. Background

2. CQM Reporting for the Medicare and Medicaid EHR Incentive Programs in 2017

a. Background

b. CQM Reporting Period for the Medicare and Medicaid EHR Incentive Programs in CY 2017

c. CQM Reporting Form and Method for the Medicare EHR Incentive Program in 2017

IX. MedPAC Recommendations

X. 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 Proposed FY 2017 Wage Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for the Notice of Observation Treatment by Hospitals and CAHs

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 Program (LTCH QRP)

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

11. ICRs for the Electronic Health Record (EHR) Incentive Program and Meaningful Use

C. Response to Public Comments

Regulation Text

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2016 and Payment Rates for LTCHs Effective With Discharges Occurring on or After October 1, 2016

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2017

A. Calculation of the Adjusted Standardized Amount

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

C. Calculation of the Prospective Payment Rates

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2017

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

B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2017

C. Capital Input Price Index

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase Percentages for FY 2017

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2017

A. Proposed LTCH PPS Standard Federal Payment Rate for FY 2017

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for FY 2017

1. Background

2. Proposed Geographic Classifications (Labor Market Areas) for the LTCH PPS Standard Federal Payment Rate

3. Proposed Labor-Related Share for the LTCH PPS Standard Federal Payment Rate

4. Proposed Wage Index for FY 2017 for the LTCH PPS Standard Federal Payment Rate

5. Proposed Budget Neutrality Adjustment for Changes to the LTCH PPS Standard Federal Payment Rate Area Wage Level Adjustment

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

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

E. Proposed Update to the IPPS Comparable/Equivalent Amounts to Reflect the Statutory Changes to the IPPS DSH Payment Adjustment Methodology

F. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for FY 2017

VI. Tables Referenced in This Proposed 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 Proposed 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 Proposed Policy Changes

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

2. Effect of Proposed Changes Relating to Payment Adjustment for Medicare Disproportionate Share Hospitals

3. Effects of Proposed Reduction Under the Hospital Readmissions Reduction Program

4. Effects of Proposed Changes Under the FY 2017 Hospital Value-Based Purchasing (VBP) Program

5. Effects of the Proposed Changes to the HAC Reduction Program for FY 2017

6. Effects of Proposed Policy Changes Relating to Direct GME and IME Payments for Rural Training Tracks at Urban Hospitals

7. Effects of Implementation of Rural Community Hospital Demonstration Program

8. Effects of Proposed Implementation of the Notice of Observation Treatment and Implications for Care Eligibility Act (NOTICE Act)

9. Effects of Proposed Technical Changes and Correction of Typographical Errors in Certain Regulations Under 42 CFR part 413 Relating to Costs to Related Organizations and Medicare Cost Reports

10. Effects of Proposed Implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

2. Results

J. Effects of Proposed Payment Rate Changes and Policy Changes Under the LTCH PPS

1. Introduction and General Considerations

2. Impact on Rural Hospitals

3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes and Policy Changes

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

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

L. Effects of Proposed Requirements for the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

M. Effects of Proposed Requirements for the Long-Term Care Hospital Quality Reporting Program (LTCH QRP) for the FY 2018 Payment Determination and Subsequent Years

N. Effects of Proposed Updates to the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

O. Effects of Proposed Requirements Regarding Electronic Health Record (EHR) Meaningful Use Program

P. Alternatives Considered

Q. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

II. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

III. Regulatory Flexibility Act (RFA) Analysis

IV. Impact on Small Rural Hospitals

V. Unfunded Mandate Reform Act (UMRA) Analysis

VI. 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 2017

A. Proposed FY 2017 Inpatient Hospital Update

B. Proposed Update for SCHs and MDHs for FY 2017

C. Proposed FY 2017 Puerto Rico Hospital Update

D. Proposed Update for Hospitals Excluded From the IPPS

E. Proposed Update for LTCHs for FY 2017

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 proposed rule would make 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 would make 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 would make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs.

We are proposing to establish new requirements or revise requirements for quality reporting by specific providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities) that are participating in Medicare, including related provisions for eligible hospitals and critical assess hospitals (CAHs) participating in the Electronic Health Record (EHR) Incentive Program. We are proposing to update policies relating to the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction Program. We also are proposing to: Implement statutory provisions that require hospitals and CAHs to furnish notification to Medicare beneficiaries, including Medicare Advantage enrollees, when the beneficiaries receive outpatient observation services for more than 24 hours; announce the implementation of the Frontier Community Health Integration Project Demonstration; make technical corrections and changes to regulations relating to costs to organizations and Medicare cost reports.

Under various statutory authorities, we are proposing to make changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 2017 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 specify 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(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 a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions.

• 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 3133 of the Affordable Care Act, which provides for a reduction to disproportionate share hospital (DSH) 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 requires that, for fiscal year 2014 and each subsequent fiscal year, subsection (d) hospitals that would otherwise receive a DSH payment made under section 1886(d)(5)(F) of the Act will receive two separate payments: (1) 25 percent of the amount they previously would have received under section 1886(d)(5)(F) of the Act 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 section 1886(d)(5)(F) of the Act; (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(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS with implementation beginning in FY 2016.

• Section 1886(m)(5)(D)(iv) of the Act, as added by section 1206 (c) of the Pathway for SGR Reform Act of 2013, which provides for the establishment of a functional status quality measure under the LTCH QRP for change in

mobility among inpatients requiring ventilator support.

• Section 1899B of the Act, as added by the Improving Medicare Post-Acute Care Transformation Act of 2014 (the IMPACT Act), which imposes data reporting requirements for certain post-acute care providers, including LTCHs.

• Section 1886(d)(12) of the Act, as amended by section 204 of the Medicare Access and CHIP Reauthorization Act of 2015, which extended, through FY 2017, changes to the inpatient hospital payment adjustment for certain low-volume hospitals; and section 1886(d)(5)(G) of the Act, as amended by section 205 of the Medicare Access and CHIP Reauthorization Act of 2015, which extended, through FY 2017, the Medicare-dependent, small rural hospital (MDH) program.

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 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 estimated 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 one year, 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 made a −0.8 percent recoupment adjustment to the standardized amount in FY 2014, FY 2015, and FY 2016. For FY 2017, we are proposing to make an additional −1.5 percent recoupment adjustment to the standardized amount.

b. Adjustment to IPPS Rates Resulting From 2-Midnight Policy

In this proposed rule, we are proposing a permanent adjustment of (1/0.998) to the standardized amount, the hospital-specific payment rates, and the national capital Federal rate using our authority under sections 1886(d)(5)(I)(i) and 1886(g) of the Act to prospectively remove the 0.2 percent reduction to the rate put in place in FY 2014 to offset the estimated increase in IPPS expenditures as a result of the 2-midnight policy. In addition, we are proposing a temporary one-time prospective increase to the FY 2017 standardized amount, the hospital-specific payment rates, and the national capital Federal rate of 0.6 percent by including a temporary one-time factor of 1.006 in the calculation of the standardized amount, the hospital-specific payment rates, and the national capital Federal rate using our authority under sections 1886(d)(5)(I)(i) and 1886(g) of the Act, to address the effects of the 0.2 percent reduction to the rate for the 2-midnight policy in effect for FYs 2014, 2015, and 2016.

c. Reduction of Hospital Payments for Excess Readmissions

We are proposing to make changes to policies for the Hospital Readmissions Reduction Program, which is established under section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, as amended by section 10309 of the Affordable Care Act. 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 FY 2017 and subsequent years, the reduction is based on a hospital's risk-adjusted readmission rate during a 3-year period for acute myocardial infarction (AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary artery bypass graft (CABG). In this proposed rule, to align with other quality reporting programs and allow us to post data as soon as possible, we are clarifying our public reporting policy so that excess readmission rates will be posted to the

Hospital Compare

Web site as soon as feasible following the preview period, and we are proposing the methodology to include the addition of the CABG applicable condition in the calculation of the readmissions payment adjustment for FY 2017.

d. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year.

In this proposed rule, we are proposing to refine two previously adopted measures beginning with the FY 2019 program year, to update one previously adopted measure beginning with the FY 2021 program year, to adopt two new measures beginning with the FY 2021 program year, and to adopt one new measure beginning with the FY 2022 program year. We also are proposing to change the performance period for one previously adopted measure for the FY 2018 program year and to change the name of the Patient- and Caregiver-Centered Experience of Care/Care Coordination domain to the Person and Community Engagement domain beginning with the FY 2019 program year. In addition, we are proposing changes to the immediate jeopardy citation policy.

e. Hospital-Acquired Condition (HAC) Reduction Program

Section 1886(p) of the Act, as added under section 3008(a) of the Affordable Care Act, establishes an incentive to hospitals to reduce the incidence of hospital-acquired conditions by requiring the Secretary to make an adjustment to payments to applicable hospitals effective for discharges beginning on October 1, 2014. This 1-percent payment reduction applies to a hospital whose ranking is in the top quartile (25 percent) of all applicable hospitals, relative to the national average, of conditions acquired during the applicable period and on all of the hospital's discharges for the specified fiscal year. In this proposed rule, we are proposing the following HAC Reduction Program policies: (1) Establishing NHSN CDC HAI data submission requirements for newly opened hospitals; (2) a clarification of data requirements for Domain 1 scoring; (3) establishing performance periods for the FY 2018 and FY 2019 HAC Reduction Programs, including revising our regulations to accommodate variable timeframes; (4) adopting the refined PSI 90: Patient Safety and Adverse Events Composite (NQF #0531); and (5) changing the program scoring methodology from the current decile-based scoring to a continuous scoring methodology.

f. DSH Payment Adjustment and 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. 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 statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of the Act. 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 will receive an additional payment based on its share of the total amount of uncompensated care for all Medicare DSHs for a given time period.

In this proposed rule, we are proposing to update our estimates of the three factors used to determine uncompensated care payments for FY 2017 and proposing to continue our methodology of using a hospital's share of insured low-income days for purposes of determining Factor 3. For Puerto Rico hospitals, we are proposing to use 14 percent of Medicaid days as a proxy for SSI days in the calculation of Factor 3. We are proposing to continue to use the methodology we established in FY 2015 to calculate the uncompensated care payment amounts for merged hospitals such that we combine uncompensated care data for the hospitals that have undergone a merger in order to calculate their relative share of uncompensated care. We are proposing to expand the time period of the data used to calculate the uncompensated care payment amounts to be distributed, from one cost reporting period to three cost reporting periods. We also are proposing a future transition to using Worksheet S-10 data to determine the amounts and distribution of uncompensated care payments. Specifically, we are proposing a 3-year transition beginning in FY 2018 where we use a combination of Worksheet S-10 and proxy data until FY 2020 when all data used in computing the uncompensated care payment amounts to be distributed would come from Worksheet S-10.

g. Payments for Capital-Related Costs for Hospitals Located in Puerto Rico

Capital IPPS payments to hospitals located in Puerto Rico are currently computed based on a blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent of the capital IPPS Federal rate. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016. In this proposed rule, we are proposing to revise the calculation of capital IPPS payments to hospitals located in Puerto Rico to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, beginning in FY 2017.

h. Proposed Changes to the LTCH PPS

In this proposed rule, we are proposing to revise and rebase the market basket used under the LTCH PPS (currently the 2009-based LTCH-specific market basket) to reflect a 2013 base year. In addition, in this proposed rule, we are proposing to change our 25-percent threshold policy by proposing to sunset our existing regulations at 42 CFR 412.534 and 412.536 and replace them with a single consolidated 25-percent threshold policy at proposed § 412.538. We also are proposing to change our existing regulations limiting allowable charges to beneficiaries for Subclause (II) LTCHs and proposing to make technical corrections to § 412.503.

i. 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 payments. In past years, we have established measures for reporting data and the process for submittal and validation of the data.

In this proposed rule, we are making several proposals. First, we are proposing to remove 15 measures for the FY 2019 payment determination and subsequent years. Thirteen of these measures are electronic clinical quality measures (eCQMs), two of which we are proposing also to remove in their chart-abstracted form, because they are “topped-out,” and two others are structural measures.

Second, we are proposing to refine two previously adopted measures beginning with the FY 2018 payment determination: (1) The Hospital-level, Risk-standardized Payment Associated with a 30-day Episode-of-Care for Pneumonia (NQF #2579); and (2) the Patient Safety and Adverse Events Composite (NQF #0531).

Third, we are proposing to add four new claims-based measures: (1) Aortic Aneurysm Procedure Clinical Episode-Based Payment Measure; (2) Cholecystectomy and Common Duct Exploration Clinical Episode-Based Payment Measure; (3) Spinal Fusion Clinical Episode-Based Payment Measure; and (4) Excess Days in Acute Care after Hospitalization for Pneumonia for the FY 2019 payment determination and subsequent years.

Fourth, we are inviting public comment on potential new quality measures under consideration for future inclusion in the Hospital IQR Program: (1) A refined version of the NIH Stroke Scale for the Hospital 30-Day Mortality Following Acute Ischemic Stroke Hospitalization Measure beginning as early as the FY 2022 payment determination; (2) the National Healthcare Safety Network (NHSN) Antimicrobial Use Measure (NQF #2720); and (3) one or more measures of behavioral health for the inpatient hospital setting, including measures previously adopted for the IPFQR Program (80 FR 46417). Also, we are seeking public comment on the possibility of future stratification of Hospital IQR Program data by race, ethnicity, sex, and disability on

Hospital Compare

, as well as on potential future hospital quality measures that incorporate health equity.

Fifth, we are proposing to require hospitals to submit all available eCQMs included in the Hospital IQR Program measure set for four quarters of data, on an annual basis, beginning with the CY 2017 reporting period/FY 2019 payment determination, in order to align the Hospital IQR Program with the Medicare and Medicaid EHR Incentive Programs. Also, we are proposing related eCQM submission requirements beginning with the FY 2019 payment determination.

Sixth, we are proposing to modify the existing validation process for Hospital IQR Program data to include validation of eCQMs beginning with the FY 2020 payment determination.

Seventh, we are proposing to update our Extraordinary Circumstances Extensions or Exemptions (ECE) policy by: (1) Extending the ECE request deadline for non-eCQM circumstances from 30 to 90 calendar days following an extraordinary circumstance, beginning in FY 2017 as related to extraordinary circumstance events that occur on or after October 1, 2016; and (2) establishing a separate submission deadline of April 1 following the end of the reporting calendar year for ECEs related to eCQMs beginning with an April 1, 2017 deadline and applying for subsequent eCQM reporting years.

j. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

Section 3004(a) of the Affordable Care Act amended section 1886(m)(5) of the Act to require the Secretary to establish the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). This program applies to all hospitals certified by Medicare as LTCHs. Beginning with the FY 2014 payment determination and subsequent years, the Secretary is required to reduce any annual update to the LTCH PPS standard Federal rate for discharges occurring during such fiscal year by 2 percentage points for any LTCH that does not comply with the requirements established by the Secretary.

The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) amended the Act in ways that affect the LTCH QRP. Specifically, section 2(a) of the IMPACT Act amended title XVIII of the Act by adding section 1899B, titled Standardized Post-Acute Care (PAC) Assessment Data for Quality, Payment, and Discharge Planning. The Act requires that each LTCH submit, for FYs beginning on or after the specified application date (as defined in section 1899B(a)(2)(E) of the Act), data on quality measures specified under section 1899B(c)(1) of the Act and data on resource use and other measures specified under section 1899B(d)(1) of the Act in a manner and within the timeframes specified by the Secretary. In addition, each LTCH is required to submit standardized patient assessment data required under section 1899B(b)(1) of the Act in a manner and within the timeframes specified by the Secretary. Sections 1899B(c)(1) and 1899B(d)(1) of the Act require the Secretary to specify quality measures and resource use and other measures with respect to certain domains no later than the specified application date in section 1899B(a)(2)(E) of the Act that applies to each measure domain and PAC provider setting.

In this proposed rule, we are proposing three new measures for the FY 2018 payment determination and subsequent years to meet the requirements as set forth by the IMPACT Act. These proposed measures are: (1) MSPB-PAC LTCH QRP; (2) Discharge to Community-PAC LTCH QRP; and (3) Potentially Preventable 30-Day Post-Discharge Readmission Measure for the PAC LTCH QRP. We also are proposing one new quality measure to meet the requirements of the IMPACT Act for the FY 2020 determination and subsequent years. The proposed measure, Drug Regimen Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, addresses the IMPACT Act domain of Medication Reconciliation.

In addition, we will publicly report LTCH quality data beginning in fall 2016, on a CMS Web site, such as

Hospital Compare.

We will initially publicly report quality data on four quality measures. In this proposed rule, we are proposing to publicly report data in 2017 on four additional measures. We are proposing additional details regarding procedures that would allow individual LTCHs to review and correct their data and information on measures that are to be made public before those measure data are made public. We also are proposing to provide confidential feedback reports to LTCHs on their performance on the specified measures, beginning 1 year after the specified application date that applies to such measures and LTCHs.

Finally, we are proposing to change the timing for submission of exception and extension requests from 30 days to 90 days from the date of the qualifying event which is preventing an LTCH from submitting their quality data for the LTCH QRP.

k. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

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)(C) of the Act requires that, for FY 2014 (October 1, 2013 through September 30, 2014) and each subsequent year, each psychiatric hospital and psychiatric unit must submit to the Secretary data on quality measures as specified by the Secretary. The data must be submitted in a form and manner and at a time specified by the Secretary. In this proposed rule, for the IPFQR Program, we are making several proposals. We are proposing two new measures beginning with the FY 2019 payment determination:

• SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided or Offered at Discharge and SUB-3a Alcohol and Other Drug Use Disorder Treatment at Discharge (NQF #1664); and

• Thirty-day all-cause unplanned readmission following psychiatric hospitalization in an IPF.

We also are proposing a technical update to the previously finalized measure, “Screening for Metabolic Disorder.” In addition, we are proposing to no longer specify in rulemaking the date of the public display of the program's data or that the preview period will be approximately 12 weeks before the public display date.

3. Summary of Costs and Benefits

• Adjustment for MS-DRG Documentation and Coding Changes. We are proposing to make a −1.5 percent recoupment adjustment to the standardized amount for FY 2017 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 estimated 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. Taking into account the cumulative effects of this proposed adjustment and the adjustments made in FYs 2014, 2015, and 2016, we estimate that we would recover the full $11 billion required under section 631 of the ATRA by the end of FY 2017. We note that section 414 of the MACRA (Pub. L. 114-10), enacted on April 16, 2015, requires us to not make the single positive adjustment we intended to make in FY 2018, but instead make a 0.5 percent positive adjustment for each of FYs 2018 through 2023. The provision under section 414 of the MACRA does not impact our proposed FY 2017 recoupment adjustment, and we will address this MACRA provision in future rulemaking.

• Proposed Adjustment to IPPS Payment Rates as a Result of the 2-Midnight Policy. The proposed adjustment to IPPS rates resulting from the 2-midnight policy would increase IPPS payment rates by (1/0.998) * 1.006 for FY 2017. The 1.006 is a one-time factor that would be applied to the standardized amount, the hospital-specific rates, and the national capital Federal rate for FY 2017 only. Therefore, for FY 2018, we would apply a one-time factor of (1/1.006) in the calculation of the rates to remove this one-time prospective increase.

• Proposed Changes to the Hospital Readmissions Reduction Program. For FY 2017 and subsequent years, the

reduction is based on a hospital's risk-adjusted readmission rate during a 3-year period for acute myocardial infarction (AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary artery bypass graft (CABG). Overall, in this proposed rule, we estimate that 2,603 hospitals will have their base operating DRG payments reduced by their proposed proxy FY 2017 hospital-specific readmission adjustment. As a result, we estimate that the Hospital Readmissions Reduction Program will save approximately $532 million in FY 2017, an increase of approximately $100 million over the estimated FY 2016 savings. This increase in the estimated savings for the Hospital Readmissions Reduction Program in FY 2017 as compared to FY 2016 is primarily due to the inclusion of the refinement of the pneumonia readmissions measure, which expanded the measure cohort, along with the addition of the CABG readmission measure, in the calculation of the payment adjustment.

• Value-Based Incentive Payments under the Hospital VBP Program. We estimate that there will be no net financial impact to the Hospital VBP Program for the FY 2017 program year in the aggregate because, by law, the amount available for value-based incentive payments under the program in a given year must be equal to the total amount of base operating MS-DRG payment amount reductions for that year, as estimated by the Secretary. The estimated amount of base operating MS-DRG payment amount reductions for the FY 2017 program year and, therefore, the estimated amount available for value-based incentive payments for FY 2017 discharges is approximately $1.7 billion.

• Proposed Changes to the HAC Reduction Program. In regard to the five proposed changes to existing HAC Reduction Program policies described earlier, because a hospital's Total HAC score and its ranking in comparison to other hospitals in any given year depends on several different factors, any significant impact due to the HAC Reduction Program proposed changes for FY 2017, including which hospitals receive the adjustment, would depend on actual experience.

• Medicare DSH Payment Adjustment and Additional Payment for Uncompensated Care. Under section 1886(r) of the Act (as added by section 3133 of the Affordable Care Act), DSH payments to hospitals under section 1886(d)(5)(F) of the Act are reduced and an additional payment for uncompensated care is made to eligible hospitals 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 in section 1886(d)(5)(F) of the Act. The remainder, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, will be the basis for determining the additional payments for uncompensated care 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 for uncompensated care based on its share of the total uncompensated care amount reported by Medicare DSHs. The reduction to Medicare DSH payments is not budget neutral.

For FY 2017, we are providing that the 75 percent of what otherwise would have been paid for Medicare DSH is adjusted to approximately 56.74 percent of the amount to reflect changes in the percentage of individuals that are uninsured and additional statutory adjustments. In other words, approximately 42.56 percent (the product of 75 percent and 56.74 percent) of our estimate of Medicare DSH payments, prior to the application of section 3133 of the Affordable Care Act, is available to make additional payments to hospitals for their relative share of the total amount of uncompensated care. We project that estimated Medicare DSH payments, and additional payments for uncompensated care made for FY 2017, would reduce payments overall by approximately 0.3 percent as compared to the estimate of Medicare DSH payments and uncompensated care payments that will be distributed in FY 2016. 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, and the proposed payment amount is not directly tied to a hospital's number of discharges.

• Proposed Update to the LTCH PPS Payment Rates and Other Payment Factors. Based on the best available data for the 419 LTCHs in our data base, we estimate that the proposed changes to the payment rates and factors that we are presenting in the preamble and Addendum of this proposed rule, which includes the second year under the transition of the statutory application of the new site neutral payment rate required by section 1886(m)(6)(A) of the Act, the proposed update to the LTCH PPS standard Federal payment rate for FY 2017, the proposed update to the LTCH PPS adjustment for differences in area wage levels (which includes the proposed update to the labor-related share based on the proposed revised and rebased LTCH PPS market basket) and estimated changes to the site neutral payment rate and short-stay outlier (SSO) and high-cost outlier (HCO) payments would result in an estimated decrease in payments from FY 2016 of approximately $355 million.

• Hospital Inpatient Quality Reporting (IQR) Program. In this proposed rule, we are proposing to remove 15 measures for the FY 2019 payment determination and subsequent years. We are proposing to add four new claims-based measures to the Hospital IQR Program for the FY 2019 payment determination and subsequent years. We also are proposing to require hospitals to report on all Hospital IQR Program electronic clinical quality measures that align with the Medicare EHR Incentive Program for four quarters of data on an annual basis for the FY 2019 payment determination and subsequent years. In addition, we are proposing to modify the existing validation process for the Hospital IQR Program data to include a random sample of up to 200 hospitals for validation of eCQMs. We estimate that our policies for the adoption and removal of measures will result in total hospital costs of $30 million across 3,300 IPPS hospitals.

• Proposed Changes Related to the LTCH QRP. In this proposed rule, we are proposing four quality measures for the LTCH QRP. We estimate that the total cost related to one of these proposed measures, the Drug Regimen Review Conducted with Follow-up for Identified Issues-PAC measure, would be $3,080 per LTCH annually, or $1,330,721 for all LTCHs annually. We also estimate that while there will be some additional burden associated with our proposal to expand data collection for the measure NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (77 FR 53624 through 53627), this burden has been previously accounted for in PRA submissions approved under OMB control number 0938-1163. For a detailed explanation, we refer readers to section I.M. of Appendix A (Economic Analyses) of this proposed rule. There is no additional burden for the three other claims-based measures proposed for adoption. Overall, we estimate the total cost for the 13 previously adopted measures and the four proposed new

measures would be $27,905 per LTCH annually or $12,054,724 for all LTCHs annually. These estimates were based on 432 LTCHs that are currently certified by Medicare. This is an average increase of 14 percent over the burden for FY 2016. This increase includes all quality measures that LTCHs are required to report, with the exception of the four proposed measures for FY 2017. Section VIII.C. of this proposed rule includes a detailed discussion of the policies.

• Proposed Changes to the IPFQR Program. In this proposed rule, we are proposing to add two new measures beginning with the FY 2019 payment determination and for subsequent years. One of these measures, the 30-Day All-Cause Unplanned Readmissions following Psychiatric Hospitalization in an Inpatient Psychiatric Facility measure, is calculated from administrative claims data. For the second measure, we estimate that our proposed policies would result in total costs of $11,834,748 for 1,684 IPFs nationwide.

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 training residents in an approved residency program(s), 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. SCHs are the sole source of care 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.

Under current law, the Medicare-dependent, small rural hospital (MDH) program is effective through FY 2017. Through and including FY 2006, an MDH received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate was exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. For discharges occurring on or after October 1, 2007, but before October 1, 2017, an MDH receives 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. MDHs are a major source of care for Medicare beneficiaries in their areas. 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).

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: Inpatient rehabilitation facility (IRF) 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 IRF hospitals and units, 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. Section 1206(a) of Public Law 113-67 established the site neutral payment rate under the LTCH PPS, which made the LTCH PPS a dual rate payment system beginning in FY 2016. Under this statute, based on a rolling effective date that is linked to the date on which a given LTCH's Federal FY 2016 cost reporting period begins, LTCHs are paid for LTCH discharges at the site neutral payment rate unless the discharge meets the patient criteria for payment at the LTCH PPS standard Federal payment 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. Summary of Provisions of Recent Legislation Proposed To Be Implemented in This Proposed Rule

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

The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), enacted on January 2, 2013, made a number of changes that affect the IPPS. In this proposed rule, we are proposing to make policy changes to implement section 631 of the American Taxpayer Relief Act of 2012, 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).

2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)

The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) introduced new payment rules in the LTCH PPS. Under section 1206 of this law, discharges in cost reporting periods beginning on or after October 1, 2015 under the LTCH PPS will receive payment under a site neutral rate unless the discharge meets certain patient-specific criteria. In this proposed rule, we are providing clarifications to prior policy changes that implemented provisions under section 1206 of the Pathway for SGR Reform Act.

3. Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) (Pub. L. 113-185)

The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act (Pub. L. 113-185), enacted on October 6, 2014, made a number of changes that affect the Long-Term Care Quality Reporting Program (LTCH QRP). In this proposed rule, we are continuing to implement portions of section 1899B of the Act, as added by section 2 of the IMPACT Act, which, in part, requires LTCHs, among other postacute care providers, to report standardized patient assessment data, data on quality measures, and data on resource use and other measures.

4. The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 114-10)

The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 114-10) extended the MDH program and changes to the payment adjustment for low-volume hospitals through FY 2017. In this proposed rule, we are proposing to update the low-volume hospital payment adjustment for FY 2017 under the extension of the temporary changes to the low-volume hospital payment adjustment provided for by section 204 of Public Law 114-10. We also state our intention to finalize in the FY 2017 IPPS/LTCH PPS final rule the provisions of the FY 2016 IPPS/LTCH PPS interim final rule with comment period (80 FR 49594 through 49597) that implemented sections 204 and 205 of Public Law 114-10.

5. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113)

The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), enacted on December 18, 2015, made changes that affect the IPPS and the LTCH PPS. Section 231 of Public Law 114-113 provides for a temporary exception for certain wound care discharges from the application of the site neutral payment rate under the LTCH PPS for certain LTCHs, which is being implemented in an interim final rule with comment period. Section 601 of Public Law 114-113 made changes to the payment calculation for operating IPPS payments for hospitals located in Puerto Rico. Section 602 of Public Law 114-113 specifies that Puerto Rico hospitals are eligible for incentive payments for the

meaningful use of certified EHR technology, effective beginning FY 2016, and also applies the adjustments to the applicable percentage increase under the statute for Puerto Rico hospitals that are not meaningful EHR users, effective FY 2022. In this proposed rule, we are proposing conforming changes to our regulations to reflect the provisions of section 601 of Public Law 114-113, which increased the applicable Federal percentage of the operating IPPS payment for hospitals located in Puerto Rico from 75 percent to 100 percent and decreased the applicable Puerto Rico percentage of the operating IPPS payments for hospitals located in Puerto Rico from 25 percent to zero percent, applicable to discharges occurring on or after January 1, 2016.

6. The Notice of Observation Treatment and Implication for Care Eligibility Act (the NOTICE Act) (Pub. L. 114-42)

The Notice of Observation Treatment and Implication for Care Eligibility Act (the NOTICE Act) (Pub. L. 114-42) enacted on August 6, 2015, amended section 1866(a)(1) of the Act by adding new subparagraph (Y) that requires hospitals and CAHs to provide written notification and an oral explanation of such notification to individuals receiving observation services as outpatients for more than 24 hours at the hospitals or CAHs. In this proposed rule, we are proposing to implement the provisions of Public Law 114-42.

D. Summary of the Provisions of This Proposed Rule

In this proposed rule, we are setting forth proposed payment and policy changes to the Medicare IPPS for FY 2017 operating costs and for capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS, including proposed changes relating to payments for IME and direct GME to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, in this proposed rule, we are setting forth proposed changes to the payment rates, factors, and other payment and policy-related changes to programs associated with payment rate policies under the LTCH PPS for FY 2017.

Below is a summary of the major changes that we are proposing 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 include—

• Proposed changes to MS-DRG classifications based on our yearly review for FY 2017.

• Proposed application of the documentation and coding adjustment for FY 2017 resulting from implementation of the MS-DRG system.

• Proposed recalibrations of the MS-DRG relative weights.

• A discussion of the FY 2017 status of new technologies approved for add-on payments for FY 2016 and a presentation of our evaluation and analysis of the FY 2017 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Public Law 108-173, obtained in a town hall meeting).

2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

In section III. of the preamble to this proposed rule, we are proposing revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include, but not limited to, the following:

• The proposed FY 2017 wage index update using wage data from cost reporting periods beginning in FY 2013.

• Calculation of the proposed occupational mix adjustment for FY 2017 based on the 2013 Occupational Mix Survey.

• Analysis and implementation of the proposed FY 2017 occupational mix adjustment to the wage index for acute care hospitals.

• Proposed application of the rural floor, the proposed imputed floor, and the proposed frontier State floor.

• Transitional wage indexes relating to the continued use of the revised OMB labor market area delineations based on 2010 Decennial Census data.

• Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications under sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.

• Notification regarding proposed CMS “lock-in” date for urban to rural reclassifications under § 412.103.

• The proposed adjustment to the wage index for acute care hospitals for FY 2017 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.

• Determination of the labor-related share for the proposed FY 2017 wage index.

• Solicitation of Comments on Treatment of Overhead and Home Office Costs in the Wage Index Calculation

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

In section IV. of the preamble of this proposed rule, we discuss proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR parts 412 and 413, including the following:

• Proposed conforming changes to our regulations to reflect the changes to operating payments for subsection (d) Puerto Rico hospitals in accordance with the provisions of section 601 of Public Law 114-113.

• Proposed changes to the inpatient hospital update for FY 2017.

• 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 2017.

• The statutorily required IME adjustment factor for FY 2017.

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

• 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 for FY 2017.

• Proposed changes to the requirements and provision of value-based incentive payments under the Hospital Value-Based Purchasing Program for FY 2017.

• Proposed requirements for payment adjustments to hospitals under the HAC Reduction Program for FY 2017.

• Proposed changes relating to direct GME and IME payments to urban hospitals with rural track training programs.

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

• Proposed implementation of the Notice of Observation Treatment and Implications for Care Eligibility Act (the NOTICE Act) for hospitals and CAHs.

• Proposed technical changes and corrections to regulations relating to cost to related organizations and Medicare cost reports.

4. Proposed FY 2017 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to this proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital

payments to hospitals for FY 2017. In addition, we discuss proposed changes to the calculation of capital IPPS payments to hospitals located in Puerto Rico to parallel the change in the statutory calculation of operating IPPS payments to hospitals located in Puerto Rico, beginning in FY 2017.

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

In section VI. of the preamble of this proposed rule, we discuss—

• Proposed changes to payments to certain excluded hospitals for FY 2017.

• Proposed implementation of the Frontier Community Health Integration Project (FCHIP) Demonstration.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of this proposed rule, we set forth—

• Proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2017.

• Proposals to sunset our existing 25-percent threshold policy regulations, and replace them with single consolidated 25 percent threshold policy regulation.

• Proposed changes to the limitation on charges (LOC) to beneficiaries and related billing requirements for “subclause (II)” LTCHs to align those LTCH PPS payment adjustment policies with the LOC policies applied in the TEFRA payment context.

• Proposed technical corrections to certain definitions to correct and clarify their use under the application of the site neutral payment rate and proposed additional definitions in accordance with our proposed modifications to the 25-percent policy.

• Proposed rebasing and revising of the LTCH market basket to update the LTCH PPS, effective for FY 2017.

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

In section VIII. of the preamble of the proposed rule, we address—

• 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 Program (LTCH QRP).

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

• Proposed changes relating to clinical quality measures for the Medicare Electronic Health Record (EHR) Incentive Program and eligible hospitals and CAHs.

8. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2017 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We are proposing to establish the threshold amounts for outlier cases. In addition, we address the update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2017 for certain hospitals excluded from the IPPS.

9. Determining Prospective Payment Rates for LTCHs

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2017 LTCH PPS standard Federal payment rate and other factors used to determine LTCH PPS payments under both the LTCH PPS standard Federal payment rate and the site neutral payment rate in FY 2017. We are proposing to establish the adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the applicable fixed-loss amounts and the LTCH cost-to-charge ratios (CCRs) for both payment rates. We also are providing the estimated market basket update to apply to the ceiling used to determine payments under the existing payment adjustment for “subclause (II)” LTCHs for cost reporting periods beginning in FY 2017.

10. Impact Analysis

In Appendix A of this proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals, CAHs, LTCHs, PCHs, and IPFs.

11. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2017 for the following:

• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).

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

• The LTCH PPS standard Federal payment rate and the site neutral payment rate for hospital inpatient services provided for LTCH PPS discharges.

12. 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 2016 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 this proposed rule. For further information relating specifically to the MedPAC March 2016 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

.

II. Proposed 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), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50512), the FY 2015 IPPS/LTCH PPS final rule (79 FR 49871), and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49342).

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. Proposed FY 2017 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, for FY 2016, there are 756 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 (Pub. L. 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 effective October 1, 2008 (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 section 7(a) of 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 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 IPPS/LTCH PPS 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 proposed 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 CMS 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 CMS 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 (refer to the Web site for the required payment amount) 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 5.4 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 believed 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 fiscal 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 noted that, as a result, payments in FY 2011 (and in each future fiscal 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 would 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 instead of the full −3.9 percent.

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 believed that 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 fiscal years until a full adjustment was made.

We noted 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

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 there was a 5.8 percentage point difference resulting 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 payment rate adjustments over more than one year in order to moderate the effect on payment 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. Proposed 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, we anticipated that any adjustment made to reduce payment rates in one year would eventually be offset by a positive adjustment in 2018, once the necessary amount of overpayment was recovered. However, section 414 of the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, Public Law 114-10, enacted on April 16, 2015, replaced the single positive adjustment we intended to make in FY 2018 with a 0.5 percent positive adjustment for each of FYs 2018 through 2023. We stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49345) that we will address this MACRA provision in future rulemaking.

As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), 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 phase in payment rate adjustments over more than one year, in order to moderate the effect on payment rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, and after consideration of the public comments we received, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 50517), we implemented a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. We stated that 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 will 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 provide for specific adjustments for FYs 2015, 2016, or 2017 at that time. We stated that we believed that this level of adjustment for FY 2014 was a reasonable and fair approach that satisfies the requirements of the statute while mitigating extreme annual fluctuations in payment rates.

Consistent with the approach discussed in the FY 2014 rulemaking for recouping the $11 billion required by section 631 of the ATRA, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49874) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49345), we implemented additional −0.8 percent recoupment adjustments to the standardized amount in FY 2015 and FY 2016, respectively. We estimated that these adjustments, combined with leaving the prior −0.8 percent adjustments in place, would recover up to $2 billion in FY 2015 and another $3 billion in FY 2016. When combined with the approximately $1 billion adjustment made in FY 2014, we estimated that approximately $5 to $6 billion would be left to recover under section 631 of the ATRA by the end of FY 2016.

However, due to lower than previously estimated inpatient spending, an adjustment of −0.8 percent in FY 2017 would not recoup the $11 billion under section 631 of the ATRA. Based on the FY 2017 President's Budget, our actuaries currently estimate that FY 2014 through FY 2016 spending subject to the documentation and coding recoupment adjustment in the absence of the −0.8 percent adjustments made in FYs 2014 through 2016 would have been $123.783 billion in FY 2014, $124.361 billion in FY 2015, and $127.060 billion in FY 2016. As shown in the following table, the amount recouped in each of those fiscal years is therefore calculated as the difference between those amounts and the amounts determined to have been spent in those years with the −0.8 percent adjustment applied, namely $122.801 billion in FY 2014, $122.395 billion in FY 2015, and $124.059 billion in FY 2016. This yields an estimated total recoupment through the end of FY 2016 of $5.950 billion.

Recoupment Made Under Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

IPPS

Spending *

(billions)

Cumulative adjustment factor

Adjusted IPPS spending

(billions)

Recoupment amount

(billions)

FY 2014

$122.801

1.00800

$123.783

$0.98

FY 2015

122.395

1.01606

124.361

1.97

FY 2016

124.059

1.02419

127.060

3.00

Total

5.95

* Based on FY 2017 President's Budget, including capital, IME, and DSH payments.

These estimates and the estimate of FY 2017 spending subject to the documentation and coding recoupment adjustment also will be contained in a memorandum from the Office of the Actuary that we will make publicly available on the CMS Web site. A description of the President's Budget for FY 2017 is currently available on the OMB Web site at:

https://www.whitehouse.gov/omb/budget

.

Our actuaries currently estimate that the FY 2017 spending subject to the documentation and coding recoupment adjustment (including capital, IME, and DSH payment) would be $129.625 billion in the absence of any documentation and recoupment adjustments from FY 2014 through FY 2017. Therefore, our actuaries currently estimate that, to the nearest tenth of a percent, the FY 2017 documentation and coding adjustment factor that will recoup as closely as possible $11 billion from FY 2014 through FY 2017 without exceeding this amount is −1.5 percent. This adjustment factor yields an estimated spending amount in FY 2017 of $124.693 billion, calculated as $129.625/(1.008*1.008*1.008*1.015). This estimated −1.5 percent adjustment factor will be updated for the final rule based on the FY 2017 President's Budget Midsession Review. It is possible that, based on updated estimates, the necessary adjustment factor to the nearest tenth of a percent could be different than our actuaries' current estimate of −1.5 percent. The proposed −1.5 percent adjustment would be the final adjustment required under section 631 of the ATRA, and when combined with the effects of previous adjustments made in FY 2014, FY 2015, and FY 2016, we estimate will satisfy the section 631 of the ATRA recoupment. As stated earlier, once the recoupment was complete, we had anticipated making a single positive adjustment in FY 2018 to offset the reductions required to recoup the $11 billion under section 631 of the ATRA. However, as stated earlier, section 414 of the MACRA requires that we not make the single positive adjustment we intended to make in FY 2018, but instead make a 0.5 percent positive adjustment for each of FYs 2018 through 2023. The provision under section 414 of the MACRA does not impact our proposed FY 2017 adjustment, and we will address this MACRA provision in future rulemaking.

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 cost-to-charge ratio (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 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 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 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 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 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/LTCH PPS 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. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we stated that, prior to proposing to create these CCRs, we would first thoroughly analyze and determine the impacts of the data, and that distinct CCRs for these new cost centers would be used in the calculation of the relative weights only if they were first finalized through rulemaking.

At the time of the development of the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27506 through 27507), we had a substantial number of hospitals completing all, or some, of these new cost centers on the FY 2011 Medicare cost reports, compared to prior years. We stated that we believed that the analytic findings described using the FY 2011 cost report d

This text is long and has been trimmed here. Open the source document for the complete record.