Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and 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; Technical Changes Relating to Costs to Organizations and Medicare Cost Reports; Finalization of Interim Final Rules With Comment Period on LTCH PPS Payments for Severe Wounds, Modifications of Limitations on Redesignation by the Medicare Geographic Classification Review Board, and Extensions of Payments to MDHs and Low-Volume Hospitals

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, and 489

[CMS-1655-F; CMS-16644-F; CMS-1632-F2]

RIN 0938-AS77; 0938-AS88; 0938-AS41

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and 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; Technical Changes Relating to Costs to Organizations and Medicare Cost Reports; Finalization of Interim Final Rules With Comment Period on LTCH PPS Payments for Severe Wounds, Modifications of Limitations on Redesignation by the Medicare Geographic Classification Review Board, and Extensions of Payments to MDHs and Low-Volume Hospitals

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems for FY 2017. Some of these changes will implement certain statutory provisions contained in the Pathway for Sustainable Growth 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 updating the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) for FY 2017.

In addition, we are making changes relating to direct graduate medical education (GME) and indirect medical education payments; establishing new requirements or revising existing requirements for quality reporting by specific Medicare providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities), including related provisions for eligible hospitals and critical access hospitals (CAHs) participating in the Electronic Health Record Incentive Program; updating policies relating to the Hospital Value-Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition Reduction Program; implementing 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; announcing the implementation of the Frontier Community Health Integration Project Demonstration; and making technical corrections and changes to regulations relating to costs to related organizations and Medicare cost reports; we are providing notice of the closure of three teaching hospitals and the opportunity to apply for available GME resident slots under section 5506 of the Affordable Care Act.

We are finalizing the provisions of interim final rules with comment period that relate to a temporary exception for certain wound care discharges from the application of the site neutral payment rate under the LTCH PPS for certain LTCHs; application of two judicial decisions relating to modifications of limitations on redesignation by the Medicare Geographic Classification Review Board; and legislative extensions of the Medicare-dependent, small rural hospital program and changes to the payment adjustment for low-volume hospitals.

DATES:

Effective Date:

These final rules are effective on October 1, 2016.

FOR FURTHER INFORMATION CONTACT:

Ing Jye Cheng, (410) 786-4548, and Donald Thompson, (410) 786-44487, 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—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

This

Federal Register

document is 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 final 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 Final Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2017 final rule are available through the Internet on the CMS Web site at:

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

under the list item for Regulation Number CMS-1655-F. For further details on the contents of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

ACoS American College of Surgeons

AHA American Hospital Association

AHIC American Health Information Community

AHIMA American Health Information Management Association

AHRQ Agency for Healthcare Research and Quality

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

PRA Paperwork Reduction Act

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 Implemented in This Final 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 (Public Law 114-10)

5. The Consolidated Appropriations Act, 2016 (Public Law 114-113)

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

D. Issuance of Notice of Proposed Rulemaking

E. Finalization of Interim Final Rule With Comment Period on the Temporary Exception to the Site Neutral Payment Rate Under the LTCH PPS for Certain Severe Wound Discharges From Certain LTCHs as Required by the Consolidated Appropriations Act, 2016; and Modification of Limitation on Redesignation by the Medicare Geographic Classification Review Board

G. Finalization of Interim Final Rule With Comment Period on Medicare Dependent Small Rural Hospital Program and Payment to Low-Volume Hospitals

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

A. Background

B. MS-DRG Reclassifications

C. Adoption of the MS-DRGs in FY 2008

D. FY 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. 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. 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 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. 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. 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): 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. 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. Changes to Surgical Hierarchies

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

15. Complications or Comorbidity (CC) Exclusions List

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

b. 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. 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. Changes for FY 2017

19. Other 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

20. Out of Scope Public Comments Received

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

1. Data Sources for Developing the Relative Weights

2. Methodology for Calculation of the Relative Weights

3. Development of National Average CCRs

H. 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. 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. 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. Defitelio® (Defibrotide)

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

g Vistogard

TM

(Uridine Triacetate)

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

A. Background

1. Legislative Authority

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

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

1. Included Categories of Costs

2. Excluded Categories of Costs

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

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the FY 2017 Unadjusted Wage Index

E. Occupational Mix Adjustment to the FY 2017 Wage Index

1. Use of 2013 Occupational Mix Survey for the 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 Occupational Mix Adjustment for FY 2017

F. Analysis and Implementation of the Occupational Mix Adjustment and the 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. Application of the Rural, Imputed, and Frontier Floors

1. Rural Floor

2. Imputed Floor for FY 2017

3. State Frontier Floor for FY 2017

I. FY 2017 Wage Index Tables

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

1. General Policies and Effects of Reclassification and Redesignation

2. Finalization of Interim Final Rule With Comment Period on Provisions Related to Modification on Limitations on Redesignations by the Medicare Geographic Classification Review Board (MGCRB)

a. Background

b. Criteria for an Individual Hospital Seeking Redesignation to Another Area (§ 412.103)—Application of Policy Provisions

c. Final Rule Provisions

d. Impact

3. Other MGCRB Reclassification and Redesignation Issues for FY 2017

a. FY 2017 Reclassification Requirements and Approvals

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

c. Other Policy Regarding Reclassifications for Terminated Hospitals

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

5. Waiving Lugar Redesignation for the Out-Migration Adjustment

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

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

M. Process for Requests for Wage Index Data Corrections

N. Labor Market Share for the FY 2017 Wage Index

O. Public Comments on Treatment of Overhead and Home Office Costs in the Wage Index Calculation as a Result of Our Solicitation

IV. Other Decisions and 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 Pub. L. 114-113

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

1. FY 2017 Inpatient Hospital Update

2. FY 2017 Puerto Rico Hospital Update

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

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

1. Case-Mix Index (CMI)

2. Discharges

D. 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 Policy Changes Affecting IME

F. 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 Factor 1 for FY 2017

b. Calculation of Factor 2 for FY 2017

c. Calculation of Factor 3 for FY 2017

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

(1) Background

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

(3) 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: Updates and Changes (§§ 412.150 Through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Regulatory Background

3. Policies for the FY 2017 Hospital Readmissions Reduction Program

4. Maintenance of Technical Specifications for Quality Measures

5. Applicable Period for FY 2017

6. 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: 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 Program and Future Program Years

a. 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 Change, and Updating of Quality Measures for the FY 2019 Program Year

a. Retention of Previously Adopted Hospital VBP Program Measures

b. Domain Name Change

c. 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 Finalized Measure Refinements for the FY 2019 Program Year

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

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

b. Finalized 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. 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 Finalized Baseline and Performance Periods

a. Background

b. Patient- and Caregiver-Centered Experience of Care/Care Coordination Domain (Person and Community Engagement Domain Beginning With the FY 2019 Program Year)

c. Efficiency and Cost Reduction Domain

d. Safety Domain

e. Clinical Care Domain

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

7. Immediate Jeopardy Policy Changes

a. Background

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

c. EMTALA-Related Immediate Jeopardy Citations

8. Performance Standards for the Hospital VBP Program

a. Background

b. Previously Adopted and Newly Finalized 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 Finalized Performance Standards for Certain Measures for the FY 2021 Program Year

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

1. Background

2. 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

3. Implementation of the HAC Reduction Program for FY 2018

a. Adoption of Modified 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. Changes to the HAC Reduction Program Scoring Methodology

4. Comments on Additional Measures for Potential Future Adoption

5. Maintenance of Technical Specifications for Quality Measures

6. 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. Policy Changes Relating to Rural Training Tracks at Urban Hospitals

c. Effective Date

3. Section 5506 Closed Hospitals

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. Budget Neutrality Methodology for FY 2017 and Reconciliation for FYs 2011 Through 2016

a. Budget Neutrality Methodology for FY 2017

b. Budget Neutrality Offset Reconciliation for FYs 2011 Through 2016

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

1. Background

a. Statutory Authority

b. Effective Date

2. Implementation of the NOTICE Act Provisions

a. Notice Process

b. Notification Recipients

c. Timing of Notice Delivery

d. Requirements for Written Notice

e. Outpatient Observation Services and Beneficiary Financial Liability

f. Delivering the Medicare Outpatient Observation Notice

g. Oral Notice

h. Signature Requirements

i. No Appeal Rights Under the NOTICE Act

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

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

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

5. 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. 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. Finalization of Interim Final Rule With Comment Period Implementing Legislative Extensions Relating to the Payment Adjustments for Low-Volume Hospitals and the Medicare-Dependent, Small Rural Hospital (MDH) Program

O. Clarification Regarding the Medicare Utilization Requirement for Medicare-Dependent, Small Rural Hospitals (MDHs) (§ 412.108)

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

V. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Changes in Payments for Hospitals Located in Puerto Rico

C. Annual Update for FY 2017

VI. Changes for Hospitals Excluded From the IPPS

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

B. Report of Adjustment (Exceptions) Payments

C. Critical Care Hospitals (CAHs)

1. Background

2. Frontier Community Health Integration Project (FCHIP) Demonstration

VII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2017

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. 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)

3. Finalization of Interim Final Rule With Comment Period: Temporary Exception to the Site Neutral Payment Rate Under the LTCH PPS for Certain Severe Wound Discharges From Certain LTCHs

C. 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. Changes to the MS-LTC-DRGs for FY 2017

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

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

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

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

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

f. Low-Volume MS-LTC-DRGs

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

D. Rebasing of the LTCH Market Basket

1. Background

2. Overview of the 2013-Based LTCH Market Basket

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

4. Selection of Price Proxies

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

d. FY 2017 Market Basket Update for LTCHs

e. FY 2017 Labor-Related Share

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

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

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

a. Overview

b. Market Basket Under the LTCH PPS for FY 2017

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

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

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

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

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

G. 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. 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 Payment Determination and Subsequent Years

5. Expansion and Updating of Quality Measures

6. Refinements to Existing Measures in the Hospital IQR Program

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

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

a. Adoption of Three Clinical Episode-Based Payment Measures

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

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

8. Changes to Policies on Reporting of eCQMs

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

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

a. Background

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

a. Extension of the General ECE Request Deadline for Non-eCQM Circumstances

b. Establishment of a Separate Submission Deadline for ECE Requests Related to eCQMs

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

1. Background

2. Criteria for Removal and Retention of PCHQR Program Measures

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

a. Background

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

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

a. Considerations in the Selection of Quality Measures

b. Adoption of the Admissions and Emergency Department (ED) Visits for Patients Receiving Outpatient Chemotherapy Measure

5. Possible New Quality Measure Topics for Future Years

6. Maintenance of Technical Specifications for Quality Measures

7. Public Display Requirements

a. Background

b. Additional Public Display Requirements

c. Public Display of Additional PCHQR Measure

d. Public Display of Updated Measure

e. 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 for the FY 2018 Payment Determination and Subsequent Years

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

b. Measure To Address the IMPACT Act Domain of Resource Use and Other Measures: Discharge to Community-Post Acute Care (PAC) LTCH QRP

c. Measure To Address the IMPACT Act Domain of Resource Use and Other Measures: Potentially Preventable 30-Day Post-Discharge Readmission Measure for the LTCH QRP

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

a. Background

b. Measure To Address 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. 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 Payment Determination and Subsequent Years

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

d. Revisions to 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. Timeline and Data Submission Mechanisms for the Newly Finalized 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. Change to Previously Codified LTCH QRP Submission Exception and Extension Policies

13. Previously Finalized LTCH QRP Reconsideration and Appeals Procedures

14. 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. 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. Update to Previously Finalized Measure: Screening for Metabolic Disorders

4. 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) (SUB-3 and SUB3a)

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

5. Summary of 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. 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 FY 2017 Wage Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for Applications for GME Resident Slots

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

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

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

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

10. ICRs for the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

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

12. ICRs for the Electronic Health Record (EHR) Incentive Programs and Meaningful Use

Regulation Text

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

I. Summary and Background

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

C. Calculation of the Prospective Payment Rates

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

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

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

C. Capital Input Price Index

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

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

A. LTCH PPS Standard Federal Payment Rate for FY 2017

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

1. Background

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

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

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

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

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

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

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

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

VI. Tables Referenced in This Final Rule and Available Through the Internet on the CMS Web site

Appendix A—Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

B. Need

C. Objectives of the IPPS

D. Limitations of Our Analysis

E. Hospitals Included in and Excluded From the IPPS

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

G. Quantitative Effects of the Policy Changes Under the IPPS for Operating Costs

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Policy Changes

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

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

3. Effects of Reduction Under the Hospital Readmissions Reduction Program

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

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

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

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

I. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

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

1. Introduction and General Considerations

2. Impact on Rural Hospitals

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

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

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

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

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

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

O. Effects of Requirements Regarding the Electronic Health Record (EHR) Incentive Programs and Meaningful Use

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. FY 2017 Inpatient Hospital Update

B. Update for SCHs and MDHs for FY 2017

C. FY 2017 Puerto Rico Hospital Update

D. Update for Hospitals Excluded From the IPPS

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

We are establishing new requirements or revising 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 access hospitals (CAHs) participating in the Electronic Health Record (EHR) Incentive Program. We are updating policies relating to the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction Program. We are implementing 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; announcing the implementation of the Frontier Community Health Integration Project Demonstration; and making technical corrections and changes to regulations relating to costs to organizations and Medicare cost reports. In addition, in this final rule, we are providing notice of the closure of three teaching hospitals and the opportunity for hospitals to apply for available graduate medical education resident slots under section 5506 of the Affordable Care Act.

Under various statutory authorities, we are making changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 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; cancer hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.

• Sections 123(a) and (c) of the BBRA (Pub. L. 106-113) and section 307(b)(1) of the BIPA (Pub. L. 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 Sustainable Growth Rate (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 Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), 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, Pub. L. 113-185), 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 extends, 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 extends, through FY 2017, the Medicare-dependent, small rural hospital (MDH) program.

• Section 1886(m)(6)(A)(i) and (E) of the Act, as amended and added by section 231 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113), which established a temporary exception to the site neutral payment rate under the LTCH PPS for certain severe wound discharges from certain LTCHs occurring prior to January 1, 2017.

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 Pub. L. 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 Pub. L. 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Pub. L. 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 making an additional −1.5 percent recoupment adjustment to the standardized amount.

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

In this final rule, we are making 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 making 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 making 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 final 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 revising 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 final rule, we are updating one previously adopted measure beginning with the FY 2019 program year; indicating our intent to propose to remove one measure beginning with the FY 2019 program year and our intent to propose to adopt one measure in future rulemaking; adopting two new measures beginning with the FY 2021 program year; updating one previously adopted measure beginning with the FY 2021 program year; and adopting one new measure beginning with the FY 2022 program year. We also are changing the performance period for one previously adopted measure for the FY 2018 program year and changing 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 making 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 final rule, we are promulgating the following HAC Reduction Program policies: (1) Establishing NHSN CDC HAI data submission requirements for newly opened hospitals; (2) clarifying 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 final rule, we are updating our estimates of the three factors used to determine uncompensated care payments for FY 2017 and continuing 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 using 14 percent of Medicaid days as a proxy for SSI days in the calculation of Factor 3. We are continuing 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 expanding 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. At this time, we are not finalizing a future transition to using Worksheet S-10 data to determine the amounts and distribution of uncompensated care payments.

Specifically, we had proposed to use 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. In light of public comments, we believe it would be appropriate to institute certain additional quality control and data improvement measures to the Worksheet S-10 instructions and data prior to moving forward with incorporation of Worksheet S-10 data into the calculation of Factor 3. Consequently, we are not finalizing our proposal to begin to incorporate Worksheet S-10 data into the computation of Factor 3 for FY 2018. In light of the significant concerns expressed by commenters regarding the Worksheet S-10 data, we are postponing the decision regarding when to begin incorporating data from Worksheet S-10 and proceeding with revisions to the cost report instructions for Worksheet S-10. We expect data from the revised Worksheet S-10 to be available to use in the calculation of Factor 3 in the near future, and no later than FY 2021. With regard to how Factor 3 will be computed in FY 2018 and subsequent years, we intend to explore whether there is an appropriate proxy for uncompensated care that could be used to calculate Factor 3 until we determine that data from the revised Worksheet S-10 can be used for this purpose. We will undertake further notice-and-comment rulemaking to address the issue of the appropriate data to use to determine Factor 3 for FY 2018 and subsequent fiscal years.

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 final rule, we are revising 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. Changes to the LTCH PPS

In this final rule, we are revising and rebasing 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 final rule, we are changing our 25-percent threshold policy by sunsetting our existing regulations at 42 CFR 412.534 and 412.536 and replacing them with a single consolidated 25-percent threshold policy at § 412.538. We also are amending our existing regulations limiting allowable charges to beneficiaries for “subclause (II)” LTCHs and making technical corrections to § 412.503. In addition, in this document, we are finalizing an April 21, 2016 interim final rule with comment period relating to a temporary exception from the site neutral payment rate under the LTCH PPS for certain severe wound care discharges from certain LTCHs.

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 final rule, we are making several changes. First, we are removing 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 also removing in their chart-abstracted form, because they are “topped-out,” and two others are structural measures.

Second, we are refining 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 adding 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 summarize public comment we received 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 summarize public comment we received 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 modifying our proposal and requiring hospitals to select and submit 8 of the available eCQMs included in the Hospital IQR Program measure set for four quarters of data, on an annual basis, for the CY 2017 reporting period/FY 2019 payment determination and the CY 2018 reporting period/FY 2020 payment determination, in order to align the Hospital IQR Program with the Medicare and Medicaid EHR Incentive Programs. Also, we are establishing related eCQM submission requirements beginning with the FY 2019 payment determination.

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

Seventh, we are updating 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 final rule, we are specifying three new measures for the FY 2018 payment determination and subsequent years to meet the requirements as set forth by the IMPACT Act. These 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 establishing one new quality measure to meet the requirements of the IMPACT Act for the FY 2020 determination and subsequent years. That 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.

Initially, we publicly reported quality data on four quality measures. In this final rule, we are providing that we will publicly report data in 2017 on four additional measures. We are promulgating additional details regarding procedures that will 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 will 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 changing 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 final rule, for the IPFQR Program, we are making several changes. We are making a technical update to the previously finalized measure, “Screening for Metabolic Disorders.” We are finalizing 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 & Other Drug Use Disorder Treatment at Discharge (NQF #1664); and

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

In addition, we are finalizing our proposal to include SUB-3: Alcohol & Other Drug Use Disorder Treatment Provided or Offered at Discharge and subset measure SUB-3a: Alcohol & Other Drug Use Disorder Treatment at Discharge (NQF #1664) in the list of measures covered by the global sample for the FY 2019 payment determination and subsequent years as proposed. Also, we are finalizing that we will make the data for the IPFQR Program available as soon as possible and announce both the date of the public display of the program's data and the 30-day preview period, which will be approximately 12 weeks before the public display date, via subregulatory methods, as opposed to rulemaking. For the FY 2017 payment determination only, we also are finalizing our proposal that, if it is technically feasible to display the data in December 2016, we would provide data to IPFs for a 2-week preview period that would start on October 1, 2016, as proposed. Moreover, we are finalizing as proposed that as a courtesy, for the FY 2017 payment determination only, if we are able to display the data in December 2016, we would ensure that IPFs have approximately 30 days for review if they so choose by providing IPFs with their data as early as mid-September.

3. Summary of Costs and Benefits

• Adjustment for MS-DRG Documentation and Coding Changes. We are making 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 Pub. L. 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 adjustment and the adjustments made in FYs 2014, 2015, and 2016, we estimate that we will 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 FY 2017 recoupment adjustment, and we will address this MACRA provision in future rulemaking.

• Adjustment to IPPS Payment Rates as a Result of the 2-Midnight Policy. The adjustment to IPPS rates resulting

from the 2-midnight policy will increase IPPS payment rates by (1/0.998) * 1.006 for FY 2017. The 1.006 is a one-time factor that will 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 will apply a one-time factor of (1/1.006) in the calculation of the rates to remove this one-time prospective increase.

• 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 final rule, we estimate that 2,588 hospitals will have their base operating DRG payments reduced by their determined proxy FY 2017 hospital-specific readmission adjustment. As a result, we estimate that the Hospital Readmissions Reduction Program will save approximately $528 million in FY 2017, an increase of approximately $108 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 $1.8 billion.

• Changes to the HAC Reduction Program. In regard to the five 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 changes for FY 2017, including which hospitals will receive the adjustment, will 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 55.36 percent of the amount to reflect changes in the percentage of individuals that are uninsured and additional statutory adjustments. In other words, approximately 41.52 percent (the product of 75 percent and 55.36 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, will reduce payments overall by approximately 0.4 percent as compared to overall payments with 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 calculated payment amount is not directly tied to a hospital's number of discharges.

• Update to the LTCH PPS Payment Rates and Other Payment Factors. Based on the best available data for the 420 LTCHs in our data base, we estimate that the changes to the payment rates and factors that we are presenting in the preamble and Addendum of this final 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 update to the LTCH PPS standard Federal payment rate for FY 2017, the update to the LTCH PPS adjustment for differences in area wage levels (which includes the update to the labor-related share based on the 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 will result in an estimated decrease in payments from FY 2016 of approximately $376 million.

• Hospital Inpatient Quality Reporting (IQR) Program. In this final rule, we are removing 15 measures for the FY 2019 payment determination and subsequent years. We are adding 4 new claims-based measures to the Hospital IQR Program for the FY 2019 payment determination and subsequent years. We also are modifying our proposal and requiring hospitals to report on 8 of the available Hospital IQR Program electronic clinical quality measures that align with the Medicare and Medicaid EHR Incentive Programs for four quarters of data on an annual basis for the FY 2019 and FY 2020 payment determination. In addition, we are modifying 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 a total hospital cost decrease of $50.4 million across 3,300 IPPS hospitals.

• Changes Related to the LTCH QRP. In this final rule, we are specifying 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 expansion of 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 final rule. There is no additional burden for the three other claims-based measures being adopted. Overall, we estimate the total cost for the 13 previously adopted measures and the 4 new measures will be $27,905 per LTCH annually or $12,054,724 for all LTCHs annually. These estimates are 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 new measures for FY 2017. Section VIII.C. of the preamble of this final rule includes a detailed discussion of the policies.

• Changes to the IPFQR Program. In this final rule, we are adding two new measures beginning with the FY 2019 payment determination and for subsequent years. One of these measures, the 30-Day All-Cause Unplanned Readmission Following Psychiatric Hospitalization in an IPF measure, is calculated from administrative claims data. For the second measure, we estimate that our policies will 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; cancer hospitals; and hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). 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, hospitals located outside the 50 States, the District of Columbia, and Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa), 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 the Pathway for SGR Reform Act of 2013 (Pub. L. 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 Implemented in This Final 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 final rule, we are making policy changes to implement section 631 of the ATRA, 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 final 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 final 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 final rule, we are updating 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 are finalizing in this 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 amended section 1886(m)(6) of the Act to provide for a temporary exception to the site neutral payment rate under the LTCH PPS for certain severe wound discharges from certain LTCHs occurring prior to January 1, 2017. This provision was implemented in an interim final rule with comment period that appeared in the

Federal Register

on April 21, 2016 (81 FR 23428 through 23438). We are finalizing that interim final rule with comment period in section VII.B.3. of this FY 2017 IPPS/LTCH PPS final rule. 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 final rule, we are making 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 final rule, we are implementing the provisions of Public Law 114-42.

D. Issuance of a Notice of Proposed Rulemaking

In the proposed rule that appeared in the

Federal Register

on April 27, 2016 (81 FR 24946), we set 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, we set 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 proposed to make:

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights

In section II. of the preamble of the proposed rule, we included—

• Proposed changes to MS-DRG classifications based on our yearly review 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 Pub. L. 108-173, obtained in a town hall meeting).

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

In section III. of the preamble to the proposed rule, we proposed to make revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed included, but were 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 the 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 the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR parts 412 and 413, including the following:

• Proposed 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.

• 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 the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2017. In addition, we discussed 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 the proposed rule, we discussed—

• 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 the 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 to beneficiaries and related billing requirements for “subclause (II)” LTCHs to align those LTCH PPS payment adjustment policies with the limitation on charges 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 addressed—

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

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

• Proposed changes to the requirements under the LTCH Quality Reporting 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 section V. of the Addendum to the 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 proposed to establish the threshold amounts for outlier cases. In addition, we addressed 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 the 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 proposed 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 provided 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 the 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 the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 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 the 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

.

E. Finalization of Interim Final Rule With Comment Period on the Temporary Exception to the Site Neutral Payment Rate Under the LTCH PPS for Certain Severe Wound Discharges From Certain LTCHs Required by the Consolidated Appropriations Act, 2016 and Modification of Limitations on Redesignation by the Medicare Geographic Classification Review Board

In the interim final rule with comment period that appeared in the

Federal Register

on April 21, 2016 (CMS-1664-IFC; 81 FR 23428 through 23438), we addressed provisions relating to (1) a temporary exception to the site neutral payment rate under the LTCH PPS for certain severe wound discharges from certain LTCHs; and (2) application of two judicial decisions relating to modifications of the limitations on redesignation by the Medicare Geographic Classification Review Board.

In response to the section of the interim final rule with comment period on the temporary exception to the site neutral payment rate under the LTCH PPS for certain severe wound discharges from certain LTCHs, we received 22 timely pieces of correspondence. In section VII.B.3. of the preamble of this final rule, we summarize our policies and these public comments, present our responses, and finalize our policies regarding this temporary exception.

In response to the section of the interim final rule with comment period on modification of limitations on redesignation by the MGCRB, we received 7 timely pieces of correspondence. In section III,J,2. of the preamble of this final rule, we summarize these public comments, present our responses, and finalize these provisions.

F. Finalization of Interim Final Rule With Comment Period Implementing Legislative Extensions Relating to the Payment Adjustment for Low-Volume Hospitals and the Medicare-Dependent, Small Rural Hospital (MDH) Program

In the interim final rule with comment period that appeared in the

Federal Register

on August 17, 2015, as part of the FY 2017 IPPS/LTCH PPS final rule, we addressed the legislative extensions relating to the payment adjustment for low-volume hospitals and the MDH program (CMS-1632-IFC; 80 FR 49594). In response to this interim final rule with comment period, we received 14 timely pieces of correspondence. However, all of the correspondence included public comments that were outside the scope of the provisions of the interim final rule with comment period. We are finalizing this interim final rule with comment in section IV.N. of the preamble of this final rule.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

B. MS-DRG Reclassifications

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766) and the FYs 2011, 2012, 2013, 2014, 2015, and 2016 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; and 80 FR 49342, respectively).

C. Adoption of the MS-DRGs in FY 2008

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

D. FY 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. (As a result of this final rule, for FY 2017, there are 757 MS-DRGs.) By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We provided for phasing in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Public Law 110-90). Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009, and we finalized the FY 2008 adjustment through rulemaking, effective October 1, 2007 (72 FR 66886).

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent, and we finalized that adjustment through rulemaking 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. 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 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 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, as indicated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24966), due to lower than previously estimated inpatient spending, we determined that 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 estimated for the proposed rule 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 are included in a memorandum from the Office of the Actuary that we made publicly available on the CMS Web site at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS

on the FY 2017 IPPS Proposed Rule Home Page. 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

.

For the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24967), our actuaries estimated 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, at the time of issuance of the FY 2017 proposed rule, our actuaries estimated 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). We indicated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24967) that this estimated proposed −1.5 percent adjustment factor would be updated for the final rule based on the FY 2017 President's Budget Midsession Review. We noted that, based on updated estimates, the necessary adjustment factor to the nearest tenth of a percent could be different than our actuaries' estimate of −1.5 percent.

Comment:

MedPAC reiterated its previous support for the recovery of past overpayments due to documentation and coding. MedPAC stated that the law stipulates the amount of the recovery and the timing of the recovery. MedPAC also stated that CMS has little discretion and is proceeding as required by law.

Response:

We appreciate MedPAC's support for our proposal.

Comment:

The vast majority of commenters urged CMS to use its older estimate of the required adjustment for FY 2017 of −0.8 percentage point, rather than its updated proposed estimate of −1.5 percentage points. Commenters argued that the ATRA does not require CMS to update the initial FY 2017 estimate discussed in the FY 2014 final rule with more recent data, that the law allows CMS to continue using the older analysis, and that revisiting the actual recoupments for the preceding fiscal years is not consistent with the ATRA. The commenters' bases for this argument included that it would be a better interpretation of the statute and it is more consistent with CMS' approach regarding its use of estimates for outlier payments. The commenters also stated

that CMS should take into account any savings in Medicare Advantage (MA) payments when determining the $11 billion recoupment or otherwise adjust the $11 billion for policies that have been implemented since the passage of the ATRA. Many commenters also believed that the proposed −1.5 percent adjustment was inconsistent with Congressional intent in the ATRA and the MACRA, which they asserted reflected Congress' expectation that the final reduction would be 0.8 percentage points or at least statutorily limited the difference between the negative recoupment adjustments under the ATRA and the positive adjustments under the MACRA. Commenters further stated that if CMS does finalize its proposed adjustment under the ATRA for FY 2017, it should make an offsetting adjustment in FY 2018 to address the difference between the FY 2017 adjustment and the positive adjustments provided for under the MACRA.

Response:

We believe our proposed adjustment for FY 2017 is most consistent with the requirement under section 631 of the ATRA to make an adjustment to “fully offset” $11 billion by FY 2017. While we recognize that the commenters have advocated for alternative interpretations of the legislation, we believe the most straightforward reading is that the ATRA requires us to make a recoupment adjustment or adjustments totaling $11 billion by FY 2017. If we were to use the older estimate of a −0.8 percent adjustment for FY 2017, we would only recoup an estimated $10.1 billion, which we do not believe would be consistent with the requirement under the ATRA to offset $11 billion by FY 2017. As we explained in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49345) and prior rules, because estimates of future adjustments were subject to variations in total estimated savings, we did not address the specific amount of the final adjustment required under section 631 of the ATRA for FY 2017 at that time.

In response to comments that we should take into account any savings in MA payments when determining the $11 billion recoupment or otherwise adjust the $11 billion for policies that have been implemented since the passage of the ATRA, we note that our approach for estimating the FY 2017 adjustment is consistent with our historic approach for estimating adjustments to address documentation and coding effects. There is no evidence in the legislative language that, in determining the adjustments necessary to achieve the $11 billion offset required under the ATRA, CMS should include impacts on MA payments or make adjustments for policies that have been implemented since the passage of the ATRA. We also believe that the commenters' suggestion should be evaluated in the context of MedPAC's comment and prior comments on this issue that we should recover past overpayments due to changes in documentation and coding. As stated previously, the $11 billion recoupment under the ATRA 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. Adopting an interpretation that reduces the amount of our proposed FY 2017 adjustment creates a greater differential by the end of FY 2017 between the payment increases that occurred due to documentation and coding and the amount recovered. We do not believe increasing this differential would be an appropriate policy. We also note that it has been our consistent practice in implementing the ATRA to not account for MA discharges or savings and find no indication or expectation under the MACRA to change this approach.

With respect to the additional issues of Congressional intent raised by commenters, we disagree that the ATRA and the MACRA, in conjunction, somehow ratify a −0.8 percent adjustment for FY 2017 or statutorily limit the difference between the adjustments under the ATRA and adjustments under the MACRA. As commenters have noted, even if we did adopt an adjustment of −0.8 percent for FY 2017, the cumulative effect of our ATRA adjustment would be −3.2 percentage points, while the MACRA only requires cumulative positive adjustments of +3.0 percent, leaving a −0.2 percent gap between our ATRA adjustments and the MACRA adjustments. It is not clear to us that the MACRA provision was intended to augment or limit CMS' separate obligation, pursuant to the ATRA, to fully offset $11 billion by FY 2017 under section 7(b)(1)(A)(ii) of the TMA, when that language was not changed by the MACRA and, as noted, the MACRA would not fully restore even an estimated −3.2 percent adjustment. Moreover, limiting the ATRA adjustment in this manner would create a greater differential by the end of FY 2017 between the payment increases that occurred due to documentation and coding and the amount recovered.

With regard to the comme

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