Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2023 Rates; Quality Programs and Medicare Promoting Interoperability Program Requirements for Eligible Hospitals and Critical Access Hospitals; Costs Incurred for Qualified and Non-Qualified Deferred Compensation Plans; and Changes to Hospital and Critical Access Hospital Conditions of Participation

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 482, 485, and 495

[CMS-1771-P]

RIN 0938-AU84

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2023 Rates; Quality Programs and Medicare Promoting Interoperability Program Requirements for Eligible Hospitals and Critical Access Hospitals; Costs Incurred for Qualified and Non-Qualified Deferred Compensation Plans; and Changes to Hospital and Critical Access Hospital Conditions of Participation

AGENCY:

Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS).

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would: Revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals; make changes relating to Medicare graduate medical education (GME) for teaching hospitals; update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). In additon it would establish new requirements and revise existing requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program; provide estimated and newly established performance standards for the Hospital Value-Based Purchasing (VBP) Program; and propose updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting (IQR) Program, Hospital VBP Program, Hospital-Acquired Condition (HAC) Reduction Program, PPS-Exempt Cancer Hospital Reporting (PCHQR) Program, and the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). It would also revise the hospital and critical access hospital (CAH) conditions of participation (CoPs) for infection prevention and control and antibiotic stewardship programs; and codify and clarify policies related to the costs incurred for qualified and non-qualified deferred compensation plans. Lastly, this proposed rule would provide updates on the Rural Community Hospital Demonstration Program and the Frontier Community Health Integration Project.

DATES:

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

ADDRESSES

section, no later than 5 p.m. EDT on June 17, 2022.

ADDRESSES:

In commenting, please refer to file code CMS-1771-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed):

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

https://www.regulations.gov.

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

2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1771-P, P.O. Box 8013, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1771-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Donald Thompson, (410) 786-4487, and Michele Hudson, (410) 786-4487, Operating Prospective Payment, MS-DRG Relative Weights, Wage Index, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH) Payment Adjustment, Sole Community Hospitals (SCHs), Medicare-Dependent Small Rural Hospital (MDH) Program, Low-Volume Hospital Payment Adjustment, and Critical Access Hospital (CAH) Issues.

Emily Lipkin, (410) 786-3633 and Jim Mildenberger, (410) 786-4551, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Allison Pompey, (410) 786-2348, New Technology Add-On Payments and New COVID-19 Treatments Add-on Payments Issues.

Mady Hue,

marilu.hue@cms.hhs.gov,

and Andrea Hazeley,

andrea.hazeley@cms.hhs.gov,

MS-DRG Classifications Issues.

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

Jeris Smith,

jeris.smith@cms.hhs.gov,

Frontier Community Health Integration Project Demonstration Issues.

Sophia Chan,

sophia.chan@cms.hhs.gov,

Hospital Readmissions Reduction Program—Administration Issues.

Jennifer Robinson,

jennifer.robinson@cms.hhs.gov,

Hospital Readmissions Reduction Program—Measures Issues.

Jennifer Tate,

jennifer.tate@cms.hhs.gov,

Hospital-Acquired Condition Reduction Program—Administration Issues.

Yuling Li,

yuling.li@cms.hhs.gov,

Hospital-Acquired Condition Reduction Program—Measures Issues.

Julia Venanzi,

julia.venanzi@cms.hhs.gov,

Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing Programs—Administration Issues.

Melissa Hager,

melissa.hager@cms.hhs.gov,

Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing Programs—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues.

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

Ora Dawedeit,

ora.dawedeit@cms.hhs.gov,

PPS-Exempt Cancer Hospital Quality Reporting—Administration Issues.

Leah Domino,

leah.domino@cms.hhs.gov,

PPS-Exempt Cancer Hospital Quality Reporting Program—Measure Issues.

Christy Hughes,

christy.hughes@cms.hhs.gov,

Long-Term Care Hospital Quality Reporting Program—Data Reporting Issues.

Elizabeth Holland,

elizabeth.holland@cms.hhs.gov,

Medicare Promoting Interoperability Program.

CAPT Scott Cooper, USPHS, (410) 786-9465, and Dawn Linn,

dawn.linn@cms.hhs.gov,

Conditions of Participation Pandemic Reporting Requirements for Hospitals and Critical Access Hospitals.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:

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

https://www.regulations.gov/.

Follow the search instructions on that website to view public comments.

Tables Available Through the Internet on the CMS Website

The IPPS tables for this fiscal year (FY) 2023 proposed rule are available through the internet on the CMS website at

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

Click on the link on the left side of the screen titled “FY 2023 IPPS Proposed rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2023 proposed rule are available through the internet on the CMS website at

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

under the list item for Regulation Number CMS-1771-P. For further details on the contents of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this FY 2023 IPPS/LTCH PPS proposed rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS websites, as previously identified, should contact Michael Treitel at (410) 786-4552.

Table of Contents

I. Executive Summary and Background

A. Executive Summary

B. Background Summary

C. Summary of Provisions of Recent Legislation That Would Be Implemented in This Proposed Rule

D. Summary of the Provisions of This Proposed Rule

E. Advancing Health Information Exchange

F. Proposed Use of FY 2021 Data and Proposed Methodology Modifications for the FY 2023 IPPS and LTCH PPS Ratesetting

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

A. Background

B. Adoption of the MS-DRGs and MS-DRG Reclassifications

C. Proposed FY 2023 MS-DRG Documentation and Coding Adjustment

D. Proposed Changes to Specific MS-DRG Classifications

E. Recalibration of the FY 2023 MS-DRG Relative Weights

F. Add-On Payments for New Services and Technologies for FY 2023

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

A. Background

B. Worksheet S-3 Wage Data for the Proposed FY 2022 Wage Index

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the Proposed FY 2022 Unadjusted Wage Index

E. Proposed Occupational Mix Adjustment to the FY 2023 Wage Index

F. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2023 Occupational Mix Adjusted Wage Index

G. Application of the Rural Floor, Application of the State Frontier Floor, and Continuation of the Low Wage Index Hospital Policy, and Proposed Budget Neutrality Adjustment

H. Proposed FY 2023 Wage Index Tables

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

J. Proposed Out-Migration Adjustment Based on Commuting Patterns of Hospital Employees

K. Reclassification From Urban to Rural Under Section 1886(d)(8)(E) of the Act Implemented at 42 CFR 412.103

L. Process for Requests for Wage Index Data Corrections

M. Proposed Labor-Related Share for the FY 2023 Wage Index

IV. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) for FY 2023 (§ 412.106)

A. General Discussion

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

C. Empirically Justified Medicare DSH Payments

D. Uncompensated Care Payments

E. Proposed Supplemental Payment for Indian Health Service and Tribal Hospitals and Puerto Rico Hospitals for FY 2023 and Subsequent Fiscal Years

F. Counting Days Associated With Section 1115 Demonstrations in the Medicaid Fraction

V. Other Decisions and Changes to the IPPS for Operating Costs

A. Proposed Changes in the Inpatient Hospital Updates for FY 2022 (§ 412.64(d))

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

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

D. Proposed Changes in the Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

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

F. Proposed Payment for Indirect and Direct Graduate Medical Education Costs (§§ 412.105 and 413.75 Through 413.83)

G. Proposed Payment Adjustment for Certain Clinical Trial and Expanded Access Use Immunotherapy Cases (§§ 412.85 and 412.312)

H. Hospital Readmissions Reduction Program: Proposed Updates and Changes (§§ 412.150 Through 412.154)

I. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy Changes

J. Hospital-Acquired Conditions (HAC) Reduction Program: Proposed Updates and Changes (§ 412.170)

K. Rural Community Hospital Demonstration Program

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

A. Overview

B. Additional Provisions

C. Proposed Annual Update for FY 2023

VII. Proposed Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2023

B. Critical Access Hospitals (CAHs)

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2023

A. Background of the LTCH PPS

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2023

C. Proposed Changes to the LTCH PPS Payment Rates and Other Proposed Changes to the LTCH PPS for FY 2023

IX. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Assessment of the Impact of Climate Change and Health Equity

B. Overarching Principles for Measuring Healthcare Quality Disparities Across CMS Quality Programs—Request for Information

C. Continuing to Advance to Digital Quality Measurement and the Use of Fast Healthcare Interoperability Resources (FHIR) in Hospital Quality Programs—Request for Information

D. Advancing the Trusted Exchange Framework and Common Agreement-Request for Information

E. Hospital Inpatient Quality Reporting (IQR) Program

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

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

H. Proposed Changes to the Medicare Promoting Interoperability Program

X. Changes for Hospitals and Other Providers and Suppliers

A. Codification of the Costs Incurred for Qualified and Non-Qualified Deferred Compensation Plans

B. Condition of Participation (CoP) Requirements for Hospitals and CAHs To Report Data Elements To Address Any Future Pandemics and Epidemics as Determined by the Secretary

C. Request for Public Comments on IPPS Payment Adjustment for N95 Respirators That Are Wholly Domestically Made

XI. MedPAC Recommendations

XII. Other Required Information

A. Publicly Available Files

B. Collection of Information Requirements

C. Response to Comments

Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-

Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2022 and Payment Rates for LTCHs Effective for Discharges Occurring on or After October 1, 2022

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This FY 2023 IPPS/LTCH PPS proposed rule would make payment and policy changes under the Medicare inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it would make payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). This proposed rule also would make policy changes to programs associated with Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. In this FY 2023 proposed rule, we are proposing to implement a permanent policy to cap wage index decreases as well as continuing policies to address wage index disparities impacting low wage index hospitals. We also are proposing to make changes relating to Medicare graduate medical education (GME) for teaching hospitals and new technology add-on payments.

We are proposing to establish new requirements and revise existing requirements for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

We are proposing updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting (IQR) Program, Hospital Value-Based Purchasing (VBP) Program, Hospital-Acquired Condition (HAC) Reduction Program, Long Term Care Hospital Quality Reporting Program (LTCH QRP), and the PPS-Exempt Cancer Hospital Reporting (PCHQR) Program. We are also requesting feedback across programs on health impacts due to climate change and on overarching principles in measuring healthcare quality disparities in hospital quality programs and value-based purchasing programs. We are also seeking feedback on advancing the Trusted Exchange Framework and Common Agreement (TEFCA). Additionally, due to the impact of the COVID-19 PHE on measure data used in our value-based purchasing programs, we are proposing to suppress several measures in the Hospital VBP Program and HAC Reduction Program. In addition to these measure suppressions for the Hospital VBP Program, we are proposing to implement a special scoring methodology for FY 2023 that results in each hospital receiving a value-based incentive payment amount that matches their 2 percent reduction to the base operating DRG payment amount. Similarly, we are also proposing to suppress all six measures in the HAC Reduction Program for the FY 2023 program year. If finalized as proposed, for the FY 2023 program year, hospitals participating in the HAC Reduction Program will not be given a measure score, a Total HAC score, nor will hospitals receive a payment penalty. We are also providing estimated and newly established performance standards for the Hospital VBP Program. For the Hospital Readmissions Reduction Program, we are proposing to resume the use of the one affected measure under the proposed measure suppression policy for the FY 2024 applicable period following suppression of this measure for the FY 2023 applicable period, and incorporating measure updates to the six condition/procedure measures addressed by the Hospital Readmission Reduction Program to account for patient history of COVID-19.

Under various statutory authorities, we either discuss continued program implementation or propose to make changes to the Medicare IPPS, the LTCH PPS, other related payment methodologies and programs for FY 2023 and subsequent fiscal years, and other policies and provisions included in this rule. 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; extended neoplastic disease care 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. (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 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 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 that would otherwise apply to the standardized amount applicable to a subsection (d) hospital for discharges occurring in 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 1866(k) of the Act, which provides for the establishment of 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(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, 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 amended by section 15002 of the 21st Century Cures Act, which establishes the Hospital Readmissions Reduction Program. Under the program, payments for discharges from an applicable hospital as defined under section 1886(d) of the Act will be reduced to

account for certain excess readmissions. section 15002 of the 21st Century Cures Act directs the Secretary to compare hospitals with respect to the number of their Medicare-Medicaid dual-eligible beneficiaries (dual-eligibles) in determining the extent of 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 who are uninsured; 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)(5) of the Act, which requires the Secretary to reduce by two percentage points the annual update to the standard Federal rate for discharges for a long-term care hospital (LTCH) during the rate year for LTCHs that do not submit data in the form, manner, and at a time, specified by the Secretary.

• 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) and amended by section 51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which provided for the establishment of site neutral payment rate criteria under the LTCH PPS, with implementation beginning in FY 2016. Section 51005(b) of the Bipartisan Budget Act of 2018 amended section 1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS comparable amount defined in clause (ii)(I) shall be reduced by 4.6 percent for FYs 2018 through 2026.

• Section 1899B of the Act, as added by section 2(a) of the Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) (Pub. L. 113-185), which provides for the establishment of standardized data reporting for certain post-acute care providers, including LTCHs.

• Section 1861(e) of the Act provides the specific statutory authority for the hospital CoPs; section 1820(e) of the Act provides similar authority for CAHs. The hospital provision at section 1861(e)(9) of the Act authorizes the Secretary to issue any regulations he or she deems necessary to protect the health and safety of patients receiving services in those facilities; the CAH provision at section 1820(e)(3) of the Act authorizes the Secretary to issue such other criteria as he or she may require.

2. Summary of the Major Provisions

The following is a summary of the major provisions in this proposed rule. In general, these major provisions are being proposed as part of the annual update to the payment policies and payment rates, consistent with the applicable statutory provisions. A general summary of the proposed changes in this proposed rule is presented in section I.D. of the preamble of this proposed rule.

a. Proposed MS-DRG Documentation and Coding Adjustment

Section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112- 240) amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment to the standardized amount of Medicare payments to acute care hospitals to account for changes in MS-DRG documentation and coding that do not reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. The FY 2014 through FY 2017 adjustments represented 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. Section 414 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10) replaced the single positive adjustment we intended to make in FY 2018 with a 0.5 percent positive adjustment to the standardized amount of Medicare payments to acute care hospitals for FYs 2018 through 2023. (The FY 2018 adjustment was subsequently adjusted to 0.4588 percent by section 15005 of the 21st Century Cures Act.) Therefore, for FY 2023, we are proposing to make an adjustment of + 0.5 percent to the standardized amount.

b. Proposed Use of FY 2021 Data and Proposed Methodology Modifications for the FY 2023 IPPS and LTCH PPS Ratesetting

For the IPPS and LTCH PPS ratesetting, our longstanding goal is always to use the best available data overall. In section I.F. of the preamble of this proposed rule, we discuss our proposal to return to our historical practice of using the most recent data available for purposes of FY 2023 ratesetting, including the FY 2021 MedPAR claims and FY 2020 cost report data, with certain proposed modifications to our usual ratesetting methodologies to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries at IPPS hospitals and LTCHs as compared to FY 2021. As discussed in greater detail in section I.F of the preamble of this proposed rule, we believe that it is reasonable to assume that some Medicare beneficiaries will continue to be hospitalized with COVID-19 at IPPS hospitals and LTCHs in FY 2023. Given this expectation, we believe it is appropriate to use FY 2021 data, as the most recent available data during the period of the COVID-19 PHE, for purposes of the FY 2023 IPPS and LTCH PPS ratesetting. However, as also discussed in greater detail in section I.F. of the preamble of this proposed rule, we believe it is reasonable to assume based on the information available at this time that there will be fewer COVID-19 hospitalizations in FY 2023 than in FY 2021. Therefore, we are proposing to use the FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting but with modifications to our usual ratesetting methodologies to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries at IPPS hospitals and LTCHs as compared to FY 2021. As discussed in section I.O. of Appendix A of this proposed rule, we are also requesting comments on, as an alternative to our proposed approach, the use of the FY 2021 data for purposes of FY 2023 ratesetting without the proposed modifications to our usual methodologies for the calculation of the FY 2023 MS-DRG and MS-LTC-DRG relative weights or the usual methodologies used to determine the FY 2023 outlier fixed-loss amount for IPPS cases and LTCH PPS standard Federal payment rate cases.

c. Proposed Continuation of the Low Wage Index Hospital Policy

To help mitigate wage index disparities between high wage and low

wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326 through 42332), we adopted a policy to increase the wage index values for certain hospitals with low wage index values (the low wage index hospital policy). This policy was adopted in a budget neutral manner through an adjustment applied to the standardized amounts for all hospitals. We also indicated our intention that this policy would be effective for at least 4 years, beginning in FY 2020, in order to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation. We are proposing for the low wage index hospital policy to continue for FY 2023, and are also proposing to apply this policy in a budget neutral manner by applying an adjustment to the standardized amounts.

d. Proposed Permanent Cap on Wage Index Decreases

Consistent with section 1886(d)(3)(E) of the Act, we adjust the IPPS standardized amounts for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level and update the wage index annually based on a survey of wages and wage-related costs of short-term, acute care hospitals. As described in section III.N. of the preamble of this proposed rule, we have further considered the comments we received during the FY 2022 rulemaking recommending a permanent 5 percent cap policy to prevent large year-to-year variations in wage index values as a means to reduce overall volatility for hospitals. Under the authority at sections 1886(d)(3)(E) and 1886(d)(5)(I)(i) of the Act, for FY 2023 and subsequent years, we are proposing to apply a 5-percent cap on any decrease to a hospital's wage index from its wage index in the prior FY, regardless of the circumstances causing the decline. That is, we are proposing that a hospital's wage index for FY 2023 would not be less than 95 percent of its final wage index for FY 2022, and that for subsequent years, a hospital's wage index would not be less than 95 percent of its final wage index for the prior FY. We are also proposing to apply this proposed wage index cap policy in a budget neutral manner through a national adjustment to the standardized amount under our authority in sections 1886(d)(3)(E) and 1886(d)(5)(I)(i) of the Act.

e. Proposed DSH Payment Adjustment and Additional Payment for Uncompensated Care

Under section 1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting in FY 2014, Medicare disproportionate share hospitals (DSHs) 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 the amount that otherwise would have been paid as Medicare DSH payments, is paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH will receive an additional payment based on its share of the total amount of uncompensated care for all Medicare DSHs for a given time period.

In this proposed rule, we are proposing to update our estimates of the three factors used to determine uncompensated care payments for FY 2023. We are also proposing to continue to use uninsured estimates produced by CMS' Office of the Actuary (OACT) as part of the development of the National Health Expenditure Accounts (NHEA) in conjunction with more recently available data in the calculation of Factor 2. For FY 2023, we are proposing to use the two most recent years of audited data on uncompensated care costs from Worksheet S-10 of the FY 2018 cost reports and the FY 2019 cost reports to calculate Factor 3 in the uncompensated care payment methodology for all eligible hospitals. In addition, for FY 2024 and subsequent fiscal years, we are proposing to use a three-year average of the data on uncompensated care costs from Worksheet S-10 for the three most recent fiscal years for which audited data are available. Beginning in FY 2023, we are proposing to discontinue the use of low-income insured days as a proxy for uncompensated care to determine Factor 3 for Indian Health Service (IHS) and Tribal hospitals and hospitals located in Puerto Rico. In addition, we are proposing certain methodological changes for calculating Factor 3 for FY 2023 and subsequent fiscal years.

We recognize that our proposal to discontinue the use of the low-income insured days proxy to calculate uncompensated care payments for Indian Health Service (IHS) and Tribal hospitals and hospitals located in Puerto Rico could result in a significant financial disruption for these hospitals. Accordingly, we are proposing to use our exceptions and adjustments authority under section 1886(d)(5)(I) to establish a new supplemental payment for IHS and Tribal hospitals and hospitals located in Puerto Rico, beginning in FY 2023.

Additionally, we are proposing to revise our regulation governing the calculation of the Medicaid fraction of the DSH calculation. Under this proposal, we would revise our regulation to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” in section 1886(d)(5)(F)(vi) of the Act to mean patients who receive health insurance authorized by a section 1115 demonstration or patients who pay for all or substantially all of the cost of such health insurance with premium assistance authorized by a section 1115 demonstration, where state expenditures to provide the health insurance or premium assistance may be matched with funds from Title XIX. Moreover, of the groups we “regard as” Medicaid eligible, we propose to include in the Medicaid fraction only the days of those patients who obtain health insurance directly or with premium assistance that provides essential health benefits (EHB) as set forth in 42 CFR part 440, subpart C, for an Alternative Benefit Plan (ABP), and for patients obtaining premium assistance, only the days of those patients for which the premium assistance is equal to or greater than 90 percent of the cost of the health insurance, provided the patient is not also entitled to Medicare Part A.

f. Proposed Changes to GME Payments Based on

Milton S. Hershey Medical Center, et al.

v.

Becerra

Litigation

On May 17, 2021, the U.S. District Court for the District of Columbia ruled against CMS's method of calculating direct GME payments to teaching hospitals when those hospitals' weighted full-time equivalent (FTE) counts exceed their direct GME FTE cap. In

Milton S. Hershey Medical Center, et al.

v.

Becerra,

the court ordered CMS to recalculate reimbursement owed, holding that CMS's regulation impermissibly modified the statutory weighting factors. The plaintiffs in these consolidated cases alleged that as far back as 2005, the proportional reduction that CMS applied to the weighted FTE count when the weighted FTE count exceeded the FTE cap conflicted with the Medicare statute, and it was an arbitrary and capricious exercise of agency discretion under the Administrative Procedure Act. The court held that the

proportional reduction methodology impermissibly modified the weighting factors statutorily assigned to residents and fellows. The court granted the motion for summary judgment to plaintiffs' motions, denied defendant's, and remanded to the Agency so that it could recalculate plaintiffs' reimbursement payments consistent with the court's opinion.

After reviewing the statutory language regarding the direct GME FTE cap and the court's opinion, we have decided to propose a modified policy to be applied prospectively for all teaching hospitals, as well as retroactively to the providers and cost years in Hershey and certain other providers as described in greater detail in section V.F.2. of the preamble of this proposed rule. The proposed modified policy would address situations for applying the FTE cap when a hospital's weighted FTE count is greater than its FTE cap, but would not reduce the weighting factor of residents that are beyond their initial residency period to an amount less than 0.5. Specifically, effective for cost reporting periods beginning on or after October 1, 2022, we are proposing that the hospital's unweighted number of FTE residents exceeds the FTE cap, and the number of weighted FTE residents also exceeds that FTE cap, the respective primary care and obstetrics and gynecology weighted FTE counts and other weighted FTE counts are adjusted to make the total weighted FTE count equal the FTE cap. If the number of weighted FTE residents does not exceed that FTE cap, then the allowable weighted FTE count for direct GME payment is the actual weighted FTE count.

g. Reduction of Hospital Payments for Excess Readmissions

We are proposing to make changes to policies for the Hospital Readmissions Reduction Program, which was established under section 1886(q) of the Act, as amended by section 15002 of the 21st Century Cures 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), elective primary total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary artery bypass graft (CABG) surgery. In this FY 2023 IPPS/LTCH PPS proposed rule, we are discussing the following policies: (1) Proposal to resume use of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) for the FY 2024 program year; (2) modification of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) to exclude COVID-19 diagnosed patients from the measure denominator, beginning with the Hospital Specific Reports (HSRs) for the FY 2023 program year; and (3) modification of all six condition/procedure specific measures to include a covariate adjustment for patient history of COVID-19 within one year prior to the index admission beginning with the FY 2023 program year. We are also seeking comment on updating the to incorporate provider performance for socially at-risk populations.

h. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP Program under which value-based incentive payments are made in a fiscal year to hospitals based on their performance on measures established for a performance period for such fiscal year. In this proposed rule, we are proposing to: (1) Suppress the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) and five Hospital Acquired Infection (HAI) measures, for the FY 2023 Program year; and (2) update the baseline periods for certain measures for the FY 2025 program year. We are also proposing to revise the scoring and payment methodology for the FY 2023 program year such that hospitals will not receive Total Performance Scores (TPSs). Instead, we are proposing to award each hospital a payment incentive multiplier that results in a value-based incentive payment that is equal to the amount withheld for the fiscal year (2 percent). We note that we are also announcing technical updates to the measures in the Clinical Outcomes Domain.

i. Hospital-Acquired Condition (HAC) Reduction Program

We are proposing changes to the HAC Reduction program, which was established under Section 1886(p) of the Act, to provide an incentive to hospitals to reduce the incidence of hospital-acquired conditions. We refer readers to the FY 2022 IPPS/LTCH PPS final rule for further details on our measure suppression policy (86 FR 45301 through 45304). In this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing to: (1) Suppress the CMS PSI 90 measure and the five CDC NHSN HAI measures from the calculation of measure scores and the Total HAC Score, thereby not penalizing any hospital under the HAC Reduction Program FY 2023 program year; (2) publicly and confidentially report CDC NHSN HAI measure results but not calculate or report measure results for the CMS PSI 90 measure for the HAC Reduction Program FY 2023 program year; (3) suppress CY 2021 CDC NHSN HAI measures data from the FY 2024 HAC Reduction Program Year; (4) update the measure specification to the minimum volume threshold for the CMS PSI 90 measure beginning with the FY 2023 program year; (5) update the measure specifications to risk-adjust for COVID-19 diagnosis in the CMS PSI 90 measure beginning with the FY 2024 HAC Reduction Program Year; (6) request information from stakeholders on the potential adoption of two digital National Healthcare Safety Network (NHSN) measures: The NHSN Healthcare-associated

Clostridioides difficile

Infection Outcome measure and NHSN Hospital-Onset Bacteremia & Fungemia Outcome measure; (7) request information on overarching principles for measuring healthcare quality disparities across CMS Quality Programs; (8) update the NHSN CDC HAI data submission requirements for newly opened hospitals beginning in the FY 2024 HAC Reduction Program Year; and (9) clarify the removal of the no mapped location policy beginning with the FY 2023 program year.

j. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) hospitals are required to report data on measures selected by the Secretary for a fiscal year in order to receive the full annual percentage increase.

In this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing several changes to the Hospital IQR Program. We are proposing the adoption of 10 new measures: (1) Hospital Commitment to Health Equity beginning with the CY 2023 reporting period/FY 2025 payment determination; (2) Screening for Social Drivers of Health beginning with voluntary reporting for the CY 2023 reporting period and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (3) Screen Positive Rate for Social Drivers of Health beginning with voluntary reporting for the CY 2023 reporting period and mandatory reporting beginning with the CY 2024 reporting

period/FY 2026 payment determination; (4) Cesarean Birth electronic clinical quality measure (eCQM) with inclusion in the measure set beginning with the CY 2023 reporting period/FY 2025 payment determination, and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (5) Severe Obstetric Complications eCQM with inclusion in the measure set beginning with the CY 2023 reporting period/FY 2025 payment determination, and mandatory reporting beginning with the CY 2024 reporting period/FY 2026 payment determination; (6) Hospital-Harm—Opioid-Related Adverse Events eCQM (NQF #3501e) beginning with the CY 2024 reporting period/FY 2026 payment determination; (7) Global Malnutrition Composite Score eCQM (NQF #3592e) beginning with the CY 2024 reporting period/FY 2026 payment determination; (8) Hospital-Level, Risk Standardized Patient-Reported Outcomes Performance Measure Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #3559) beginning with two voluntary periods, followed by mandatory reporting for the reporting period which runs from July 1, 2025 through June 30, 2026, impacting the FY 2028 payment determination; (9) Medicare Spending Per Beneficiary (MSPB) Hospital (NQF #2158) beginning with the FY 2024 payment determination; and (10) Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary THA/TKA (NQF #1550) beginning with the FY 2024 payment determination. We are proposing refinements to two current measures beginning with the FY 2024 payment determination: (1) Hospital‐Level, Risk‐Standardized Payment Associated with an Episode-of-Care for Primary Elective THA/TKA; and (2) Excess Days in Acute Care (EDAC) After Hospitalization for Acute Myocardial Infarction (AMI) (NQF #2881). We are also requesting comment on the potential future development and inclusion of two National Healthcare Safety Network (NHSN) measures: (1) Healthcare-Associated

Clostridioides difficile

Infection Outcome; and (2) Hospital-Onset Bacteremia & Fungemia Outcome.

We are proposing changes to current policies related to eCQMs and hybrid measures: (1) A proposal to modify the eCQM reporting and submission requirements to increase the number of eCQMs to be reported beginning with the CY 2024 reporting period/FY 2026 payment determination; (2) a proposal to remove the zero denominator declarations and case threshold exemption policies for hybrid measures beginning with the FY 2026 payment determination; (3) a proposal for the data submission and reporting requirements for patient-reported outcome-based performance measures (PRO-PMs) beginning with the FY 2026 payment determination; and (4) a proposal to modify the eCQM validation policy to increase the requirement from 75 percent to 100 percent of requested medical records, beginning with the FY 2025 payment determination.

With respect to public reporting, we are proposing to establish a hospital designation related to maternity care to be publicly-reported on a public-facing website beginning in Fall 2023, and are also seeking comments on other potential associated activities regarding this designation. Additionally, we are seeking comments on ongoing ways we can advance digital quality measurement and use of Fast Healthcare Interoperability Resources (FHIR).

k. PPS-Exempt Cancer Hospital Quality Reporting Program

Section 1866(k)(1) of the Act requires, for purposes of FY 2014 and each subsequent fiscal year, that a hospital described in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH) submit data in accordance with section 1866(k)(2) of the Act with respect to such fiscal year. There is no financial impact to PCH Medicare payment if a PCH does not participate.

In this FY 2023 IPPS/LTCH PPS proposed rule, we are proposing to adopt a patient safety exception into the measure removal policy. We are also proposing to begin public display of the 30-Day Unplanned Readmissions for Cancer Patients measure (NQF #3188) (PCH-36), the Proportion of Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 Days of Life measure (NQF #0210) (PCH-32), the Proportion of Patients Who Died from Cancer Not Admitted to Hospice measure (NQF #0215) (PCH-34), the Proportion of Patients Who Died from Cancer Admitted to the ICU in the Last 30 Days of Life measure (NQF #0213) (PCH-33), and the Proportion of Patients Who Died from Cancer Admitted to Hospice for Less Than Three Days measure (NQF #0216) (PCH-35). In addition, along with the Hospital IQR and HAC Reduction Programs, we are requesting comment on the potential adoption of two digital National Healthcare Safety Network (NHSN) measures: The NHSN Healthcare-associated

Clostridioides difficile

Infection Outcome measure and NHSN Hospital-Onset Bacteremia and Fungemia Outcome measure.

l. Medicare Promoting Interoperability Program

For CY 2023, we are proposing several changes to the Medicare Promoting Interoperability Program. Specifically, we are proposing: (1) To require and modify the Electronic Prescribing Objective's Query of Prescription Drug Monitoring Program (PDMP) measure while maintaining the associated points at 10 points beginning with the EHR reporting period in CY 2023; (2) to expand the Query of PDMP measure to include Schedule II, III, and IV drugs beginning with the CY 2023 EHR reporting period; (3) to add a new Health Information Exchange (HIE) Objective option, the Enabling Exchange under the Trusted Exchange Framework and Common Agreement (TEFCA) measure (requiring a yes/no response), as an optional alternative to fulfill the objective, beginning with the CY 2023 EHR reporting period; (4) to modify the Public Health and Clinical Data Exchange Objective by adding an Antibiotic Use and Antibiotic Resistance (AUR) measure in addition to the current four required measures (Syndromic Surveillance Reporting, Immunization Registry Reporting, Electronic Case Reporting, and Electronic Reportable Laboratory Result Reporting beginning in the CY 2023 EHR reporting period; (5) to consolidate the current options from three to two levels of active engagement for the Public Health and Clinical Data Exchange Objective and to require the reporting of active engagement for the measures under the objective beginning with the CY 2023 EHR reporting period; (6) to modify the scoring methodology for the Medicare Promoting Interoperability Program beginning in CY 2023; (7) to institute public reporting of certain Medicare Promoting Interoperability Program data beginning with the CY 2023 EHR reporting period; (8) to remove regulation text for the objectives and measures in the Medicare Promoting Interoperability Program from paragraph (e) under 42 CFR 495.24 and add new paragraph (f) beginning in CY 2023; and (9) to adopt two new eCQMs in the Medicare Promoting Interoperability Program's eCQM measure set beginning with the CY 2023 reporting period, two new eCQMs in the Medicare Promoting Interoperability Program's eCQM measure set beginning with the CY 2024 reporting period, and modify the eCQM data reporting and submission requirements to increase the number of eCQMs required to be reported and the total number of eCQMs

to be reported beginning with the CY 2024 reporting period, which is in alignment with the eCQM updates proposed for the Hospital IQR Program.

m. Condition of Participation (CoP) Requirements for Hospitals and CAHs To Report Data Elements To Address Any Future Pandemics and Epidemics as Determined by the Secretary

In this proposed rule, we would revise the hospital and CAH infection prevention and control CoP requirements to continue COVID-19 reporting requirements commencing either upon the conclusion of the current COVID-19 PHE declaration or the effective date of this proposed rule, whichever is later, and lasting until April 30, 2024 (unless the Secretary determines an earlier end date). We also propose additional requirements to address future PHEs related to epidemics and pandemics. Specifically, when the Secretary has declared a PHE, we propose to require hospitals and CAHs to report specific data elements to the CDC's National Health Safety Network (NHSN), or other CDC-supported surveillance systems, as determined by the Secretary. The proposed requirements of this section would apply to local, state, and national PHEs as declared by the Secretary. Additionally, we are proposing that the hospital (or CAH) provide the information specified on a daily basis, unless the Secretary specifies a lesser frequency contingent upon the state of the PHE and ongoing risks.

n. Comment Solicitation on IPPS and Outpatient Prospective Payment System (OPPS) Payment Adjustments for Wholly Domestically Made National Institute for Occupational Safety and Health (NIOSH)-Approved Surgical N95 Respirators

As discussed in section X.C. of the preamble of this proposed rule, the Biden-Harris Administration has made it a priority to ensure America is prepared to continue to respond to COVID-19, and to combat future pandemics. A significant action to improve hospital preparedness and readiness for future threats might be to provide payment adjustments to hospitals to recognize the additional resource costs they incur to acquire NIOSH-approved surgical N95 respirators that are wholly domestically made. These surgical respirators, which faced severe shortage at the onset of the COVID-19 pandemic, are essential for the protection of beneficiaries and hospital personnel that interface with patients. The Department of Health and Human Services (HHS) recognizes that procurement of surgical N95 respirators that are wholly domestically made, while critical to pandemic preparedness and protecting health care workers and patients, can result in additional resource costs for hospitals.

We are interested in feedback and comments on the appropriateness of payment adjustments that would account for these additional resource costs. We believe such a payment adjustment could help achieve a strategic policy goal, namely, sustaining a level of supply resilience for surgical N95 respirators that is critical to protect the health and safety of personnel and patients in a public health emergency. We are considering such payment adjustments to apply to 2023 and potentially subsequent years. We realize there may be different ways a payment adjustment to recognize the additional resource costs hospitals incur when purchasing wholly domestically made NIOSH-approved surgical N95 respirators could be implemented and seek comment on two potential frameworks and alternative approaches.

3. Summary of Costs and Benefits

The following table provides a summary of the costs, savings, and benefits associated with the major provisions described in section I.A.3. of the preamble of this proposed rule.

BILLING CODE 4120-01-P

EP10MY22.000

EP10MY22.001

EP10MY22.002

BILLING CODE 4120-01-C

B. Background Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of 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 beginning on October 1, 2013, that considers the amount of uncompensated care furnished by the hospital relative to all other qualifying hospitals.

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. In general, 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. In addition, certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add-on payment, they 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 and, as we are proposing beginning in FY 2023 for IHS and Tribal hospitals and hospitals located in Puerto Rico, the proposed new supplemental payment.

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 an 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 2022. For discharges occurring on or after October 1, 2007, but before October 1, 2022, 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 (or, as amended by the Bipartisan Budget Act of 2018, a hospital located in a State with no rural area that meets certain statutory criteria), 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). As section 50205 of the Bipartisan Budget Act extended the MDH program through FY 2022 only, for FY 2023, beginning on October 1, 2022, the MDH program will no longer be in effect absent a change in law. Because the MDH program is not authorized by statute beyond September 30, 2022, beginning October 1, 2022, all hospitals that previously qualified for MDH status under section 1886(d)(5)(G) of the Act will no longer have MDH status and will be paid based on the IPPS Federal rate.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services in accordance with a prospective payment system established by the Secretary. The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain 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; extended neoplastic disease care 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 included along with the IPPS annual update in this 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. Similarly, extended neoplastic disease care hospitals are paid on a reasonable cost basis, 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). 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, effective for LTCH's cost reporting periods beginning in FY 2016 cost reporting period, LTCHs are generally paid for 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.

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) of the Act and existing regulations under 42 CFR part 413.

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 That Would Be Implemented in This Proposed Rule

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

Section 414 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA, Pub. L. 114-10) specifies a 0.5 percent positive adjustment to the standardized amount of Medicare payments to acute care hospitals for FYs 2018 through 2023. These adjustments follow the recoupment adjustment to the standardized amounts under section 1886(d) of the Act based upon the Secretary's estimates for discharges occurring from FYs 2014 through 2017 to fully offset $11 billion, in accordance with section 631 of the ATRA. The FY 2018 adjustment was subsequently adjusted to 0.4588 percent by section 15005 of the 21st Century Cures Act.

D. Summary of the Provisions of This Proposed Rule

In this proposed rule, we set forth proposed payment and policy changes to the Medicare IPPS for FY 2023 operating costs and capital-related costs of acute care hospitals and certain hospitals and hospital units that are excluded from IPPS. 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 2023.

The following is a general summary of the changes that we are proposing to make in this proposed rule.

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

In section II. of the preamble of this proposed rule, we include the following:

• Proposed changes to MS-DRG classifications based on our yearly review for FY 2023.

• Proposed adjustment to the standardized amounts under section 1886(d) of the Act for FY 2023 in accordance with the amendments made to section 7(b)(1)(B) of Public Law 110-90 by section 414 of the MACRA.

• Proposed recalibration of the MS-DRG relative weights, including a proposed 10 percent cap on decreases in an MS-DRG relative weight from one fiscal year to the next.

• A discussion of the proposed FY 2023 status of new technologies approved for add-on payments for FY 2022, a presentation of our evaluation and analysis of the FY 2023 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) for applications not submitted under an alternative pathway, and a discussion of the proposed status of FY 2023 new technology applicants under the alternative pathways for certain medical devices and certain antimicrobial products.

• A proposal to use National Drug Codes (NDCs) to identify cases involving use of therapeutic agents approved for new technology add-on payments.

• A proposal to publicly post online future applications for new technology add-on payments. Specifically, beginning with the FY 2024 application cycle, we are proposing to post online the completed application forms and certain related materials and updated application information submitted subsequent to the initial application submission for new technology add-on payments, with the exception of certain cost and volume information and certain additional materials (as discussed more fully in section II.F.9. of this proposed rule), no later than the issuance of the proposed rule.

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

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

• The proposed FY 2023 wage index update using wage data from cost reporting periods beginning in FY 2019.

• Calculation, analysis, and implementation of the proposed occupational mix adjustment to the wage index for acute care hospitals for FY 2023 based on the 2019 Occupational Mix Survey.

• Proposed application of the rural, imputed and frontier State floors, and continuation of the low wage index hospital policy.

• 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.

• Proposed adjustment to the wage index for acute care hospitals for FY 2023 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.

• Proposed permanent cap on annual wage index decreases.

• Proposed labor-related share for the proposed FY 2023 wage index.

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

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

• Proposed inpatient hospital update for FY 2023.

• 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 2023 and subsequent years.

• The statutorily required IME adjustment factor for FY 2023.

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

• Proposed new supplemental payment for IHS/Tribal and Puerto Rico hospitals.

• Proposed revisions to the regulations regarding the counting of days associated with section 1115 demonstrations in the Medicaid fraction.

• Discussion of statutory expiration of the MDH program at the end of FY 2022.

• Proposed requirements for payment adjustments under the Hospital Readmissions Reduction Program for FY 2023.

• The provision of estimated and newly established performance standards for the calculation of value-based incentive payments, as well as a proposal to suppress multiple measures and provide net-neutral payment adjustments under the Hospital Value-Based Purchasing Program.

• Proposed requirements for payment adjustments to hospitals under the HAC Reduction Program for FY 2023.

• Discussion of and proposed changes relating to the implementation of the Rural Community Hospital Demonstration Program in FY 2023.

• Proposed GME payment change in response to

Milton S. Hershey Medical Center et al

v.

Becerra

litigation.

• Proposed nursing and allied health education program Medicare Advantage (MA) add-on rates and direct GME MA percent reductions for CYs 2020 and 2021.

• Proposal to allow Medicare GME affiliation agreements within certain rural track full-time equivalent limitations.

• Proposed payment adjustment for certain clinical trial and expanded access use immunotherapy cases.

4. Proposed FY 2023 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble to this proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2023.

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

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

• Proposed changes to payments to certain excluded hospitals for FY 2023.

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

6. Proposed Changes to the LTCH PPS

In section VIII. of the preamble of this proposed rule, we set forth proposed changes to the LTCH PPS Federal payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2023.

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

In section IX. of the preamble of this proposed rule, we address the following:

• Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program.

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

• For the Long Term Care Hospital Quality Reporting Program (LTCH QRP), we are requesting information on CMS' overarching principles for measuring healthcare disparities across CMS Quality Programs, including the LTCH QRP. We are also requesting information on the potential adoption of one future National Healthcare Safety Network (NHSN) digital quality measure (dQM) for the LTCH QRP, as well as quality measure concepts under consideration for future years.

• Proposed changes to requirements pertaining to eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program.

8. Other Proposals and Comment Solicitations Included in This Proposed Rule

Section X. of the preamble to this proposed rule includes the following:

• Proposals to codify policies related to the costs incurred for qualified and non-qualified deferred compensation plans.

• Proposed changes pertaining to the CoPs at 42 CFR part 482 for hospitals, and at 42 CFR part 485, subpart F, for CAHs.

• Solicitation of comments on the appropriateness of payment adjustments that would account for the additional resource costs for hospitals for the procurement of wholly domestically made NIOSH-approved surgical N95 respirators.

9. Other Provisions of This Proposed Rule

Section XI. of the preamble to this proposed rule includes our discussion of the MedPAC Recommendations.

Section XII. of the preamble to this proposed rule includes the following:

• A descriptive listing of the public use files associated with the proposed rule.

• The collection of information requirements for entities based on our proposals.

• Information regarding our responses to public comments.

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

In sections II. and III. of the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2023 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, in section IV. of the Addendum to this proposed rule, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2023 for certain hospitals excluded from the IPPS.

11. Determining Prospective Payment Rates for LTCHs

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 2023 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 2023. We are proposing to establish the adjustments for the wage index, 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.

12. Impact Analysis

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

13. 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 provide our recommendations of the appropriate percentage changes for FY 2023 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.

14. 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 2022 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 address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2022 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's website at

https://www.medpac.gov.

E. Advancing Health Information Exchange

The Department of Health and Human Services (HHS) has a number of initiatives designed to encourage and support the adoption of interoperable health information technology and to promote nationwide health information exchange to improve health care and patient access to their digital health information.

To further

interoperability in post-acute care settings, CMS and the Office of the National Coordinator for Health Information Technology (ONC) participate in the Post-Acute Care Interoperability Workgroup (PACIO) to facilitate collaboration with industry stakeholders to develop Health Level Seven International® (HL7) Fast Healthcare Interoperability Resources® (FHIR) standards. These standards could support the exchange and reuse of patient assessment data derived from the post-acute care (PAC) setting assessment tools, such as Minimum Data Set (MDS), Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI), Long Term Care Hospital (LTCH) Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS), Outcome and Assessment Information Set (OASIS), and other sources.

1 2

The PACIO Project has focused on HL7 FHIR implementation guides for functional status, cognitive status and new use cases on advance directives, re-assessment timepoints, and Speech, Language, Swallowing Cognitive communications and Hearing (SPLASCH).

3

We encourage PAC provider and health internet technology (IT) vendor participation as the efforts advance. The CMS Data Element Library (DEL) continues to be updated and serves as a resource for PAC assessment data elements and their associated mappings to health IT standards, such as Logical Observation Identifiers Names and Codes (LOINC) and Systematized Nomenclature of Medicine Clinical Terms (SNOMED).

4

The DEL furthers CMS' goal of data standardization and interoperability. Standards in the DEL can be referenced on the CMS website (

https://del.cms.gov/DELWeb/pubHome

) and in the ONC Interoperability Standards Advisory (ISA). The 2022 ISA is available at

https://www.healthit.gov/isa/sites/isa/files/inline-files/2022-ISA-Reference-Edition.pdf.

1

HL7 FHIR Release 4. Available at:

https://www.hl7.org/fhir/.

2

HL7 FHIR. PACIO Functional Status Implementation Guide. Available at:

https://paciowg.github.io/functional-status-ig/.

3

PACIO Project. Available at:

http://pacioproject.org/about/.

4

CMS Data Element Library Fact Sheet. Available at:

https://www.cms.gov/newsroom/fact-sheets/cms-data-element-library-fact-sheet.

5

Public Law 114-255, sections 4001 through 4008. Available at:

https://www.govinfo.gov/content/pkg/PLAW-114publ255/html/PLAW-114publ255.htm.

6

The Trusted Exchange Framework (TEF): Principles for Trusted Exchange (Jan. 2022). Available at:

https://www.healthit.gov/sites/default/files/page/2022-01/Trusted_Exchange_Framework_0122.pdf.

7

Common Agreement for Nationwide Health Information Interoperability Version 1 (Jan. 2022). Available at:

https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf.

The 21st Century Cures Act (Cures Act) (Pub. L. 114-255, enacted December 13, 2016) required HHS and ONC to take steps further interoperability for providers in settings across the care continuum.

5

Specifically, section 4003(b) of the Cures Act required ONC to take steps to advance interoperability through the development of a trusted exchange framework and common agreement aimed at establishing a universal floor of interoperability across the country. On January 18, 2022, ONC announced a significant milestone by releasing the Trusted Exchange Framework

6

and Common Agreement Version 1.

7

The Trusted Exchange Frameworkis a set of non-binding principles for health information exchange, and the Common Agreement is a contract that advances those principles. The Common Agreement and the incorporated by reference Qualified Health Information Network Technical Framework Version 1 establish the technical infrastructure model and governing approach for different health information networks and their users to securely share clinical

information with each other, all under commonly agreed to terms. The technical and policy architecture of how exchange occurs under the Trusted Exchange Framework and the Common Agreement follows a network-of-networks structure, which allows for connections at different levels and is inclusive of many different types of entities at those different levels, such as health information networks, healthcare practices, hospitals, public health agencies, and Individual Access Services (IAS) Providers.

8

For more information, we refer readers to

https://www.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement.

8

The Common Agreement defines Individual Access Services (IAS) as “with respect to the Exchange Purposes definition, the services provided utilizing the Connectivity Services, to the extent consistent with Applicable Law, to an Individual with whom the QHIN, Participant, or Subparticipant has a Direct Relationship to satisfy that Individual's ability to access, inspect, or obtain a copy of that Individual's Required Information that is then maintained by or for any QHIN, Participant, or Subparticipant.” The Common Agreement defines “IAS Provider” as: “Each QHIN, Participant, and Subparticipant that offers Individual Access Services.”

See

Common Agreement for Nationwide Health Information Interoperability Version 1, at 7 (Jan. 2022),

https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf.

We invite providers to learn more about these important developments and how they are likely to affect hospitals.

F. Proposed Use of FY 2021 Data and Proposed Methodology Modifications for the FY 2023 IPPS and LTCH PPS Ratesetting

We primarily use two data sources in the IPPS and LTCH PPS ratesetting: Claims data and cost report data. The claims data source is the MedPAR file, which includes fully coded diagnostic and procedure data for all Medicare inpatient hospital bills for discharges in a fiscal year. The cost report data source is the Medicare hospital cost report data files from the most recent quarterly Healthcare Cost Report Information System (HCRIS) release. Our goal is always to use the best available data overall for ratesetting. Ordinarily, the best available MedPAR data is the most recent MedPAR file that contains claims from discharges for the fiscal year that is 2 years prior to the fiscal year that is the subject of the rulemaking. Ordinarily, the best available cost report data is based on the cost reports beginning 3 fiscal years prior to the fiscal year that is the subject of the rulemaking. However, in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44789 through 44793), we finalized our proposal to use FY 2019 data for the FY 2022 ratesetting for circumstances where the FY 2020 data (the most recently available data at the time of rulemaking) was significantly impacted by the COVID-19 PHE.

As we discussed in the FY 2022 IPPS/LTCH PPS final rule, the FY 2020 MedPAR claims file and the FY 2019 HCRIS dataset both contained data that was significantly impacted by the COVID-19 PHE, primarily in that the utilization of services at IPPS hospitals and LTCHs was generally markedly different for certain types of services in FY 2020 than would have been expected in the absence of the PHE. However, the most recent vaccination and hospitalization data from the CDC at the time of development of that rule supported our belief at the time that the risk of COVID-19 in FY 2022 would be significantly lower than the risk of COVID-19 in FY 2020 and there would be fewer COVID-19 hospitalizations for Medicare beneficiaries in FY 2022 than there were in FY 2020. Therefore, we finalized our proposal to use FY 2019 data for the FY 2022 ratesetting for circumstances where the FY 2020 data was significantly impacted by the COVID-19 PHE, based on the belief that FY 2019 data from before the COVID-19 PHE would be a better overall approximation of the FY 2022 inpatient experience at both IPPS hospitals and LTCHs. For example, we used the FY 2019 MedPAR claims data for purposes where we ordinarily would have used the FY 2020 MedPAR claims data. We also used cost report data from the FY 2018 HCRIS file for purposes where we ordinarily would have used the FY 2019 HCRIS file (since the FY 2019 cost report data from HCRIS contained many cost reports ending in FY 2020 based on each hospital's cost reporting period).

Similar to our analysis of the FY 2020 MedPAR claims file and the FY 2019 HCRIS dataset for the FY 2022 IPPS/LTCH PPS rulemaking, the FY 2021 MedPAR claims file and the FY 2020 HCRIS dataset also both contain data that was significantly impacted by the virus that causes COVID-19, primarily in that the utilization of services at IPPS hospitals and LTCHs was again generally markedly different for certain types of services in FY 2021 than would have been expected in the absence of the virus that causes COVID-19. Specifically, the share of admissions at IPPS hospitals and LTCHs for MS-DRGs and MS-LTC-DRGs associated with the treatment of COVID-19 continued to remain significantly higher than levels prior to the COVID-19 PHE. For example, in FY 2019, the share of IPPS cases and LTCH PPS standard Federal payment rate cases grouped to MS-DRG and MS-LTC-DRG 177 (Respiratory infections and inflammations with MCC) was approximately 1 percent and 2 percent, respectively. In comparison, in FY 2021, the share of IPPS cases and LTCH PPS standard Federal payment rate cases grouped to MS-DRG 177 was approximately 6 percent and 8 percent, respectively. However, as we discuss further in this section, in light of the expected continued impact on hospitalizations of the virus that causes COVID-19, we believe it is appropriate to use the FY 2021 data reflecting this impact for this FY 2023 IPPS/LTCH PPS rulemaking, with some proposed modifications to our usual ratesetting methodologies to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries at IPPS hospitals and LTCHs as compared to FY 2021.

The CDC graph below illustrates new inpatient hospital admissions of patients with confirmed COVID-19 from August 1, 2020 through February 15, 2022. (

https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/02182022/images/hospitalizations_02182022.jpg?_=35767,

accessed February 22, 2022)

EP10MY22.003

The low point of the graph (late June 2021) approximately coincides with the time of the development of the FY 2022 IPPS/LTCH PPS final rule and generally supports, in conjunction with the other factors discussed in that rulemaking (including the most recent vaccination data from the CDC), our assumption in the final rule that the FY 2022 time period would be more similar to the time period prior to the PHE. However, as can be seen in the graph, the virus that causes COVID-19 has continued to significantly impact hospitalizations for the time period subsequent to the development of the FY 2022 IPPS/LTCH PPS final rule. As the CDC has noted, the most recent increase in hospitalizations has been primarily associated with the Omicron variant of the virus.

9

The CDC has stated that new variants will continue to emerge. Viruses constantly change through mutation and sometimes these mutations result in a new variant of the virus. The CDC and other public health organizations monitor all variants of the virus that causes COVID-19 in the United States and globally. Scientists monitor all variants but may classify certain ones as variants being monitored, variants of interest, variants of concern and variants of high consequence. Some variants spread more easily and quickly than other variants, which may lead to more cases of COVID-19. Even if a variant causes less severe disease in general, an increase in the overall number of cases could cause an increase in hospitalizations. (see

https://www.cdc.gov/coronavirus/2019-ncov/variants/about-variants.html,

accessed February 25, 2022)

9

https://www.cdc.gov/coronavirus/2019-ncov/variants/omicron-variant.html.

Given the effects of the virus that causes COVID-19 in the Medicare FY 2020 data, the Medicare FY 2021 data, and the CDC hospitalization data, coupled with the expectation for future variants, we believe that it is reasonable to assume that some Medicare beneficiaries will continue to be hospitalized with COVID-19 at IPPS hospitals and LTCHs in FY 2023. Accordingly, we believe it is appropriate to use FY 2021 data, specifically the FY 2021 MedPAR claims file and the FY 2020 HCRIS dataset (which contains data from many cost reports ending in FY 2021 based on each hospital's cost reporting period) as the most recent available data during the period of the COVID-19 PHE, for purposes of the FY 2023 IPPS and LTCH PPS ratesetting. However, we also believe it is reasonable to assume based on the information available at this time that there will be fewer COVID-19 hospitalizations in FY 2023 than in FY 2021 given the more recent trends in the CDC hospitalization data since the Omicron variant peak in January, 2022. Accordingly, because we anticipate Medicare inpatient hospitalizations for COVID-19 will continue in FY 2023 but at a lower level, we are proposing to use FY 2021 data for purposes of the FY 2023 IPPS and LTCH PPS ratesetting but with modifications to our usual ratesetting methodologies to account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries at IPPS hospitals and LTCHs as compared to FY 2021.

First, we are proposing to modify the calculation of the FY 2023 MS-DRG and MS-LTC-DRG relative weights. We observed that COVID-19 cases were impacting the relative weights as calculated using the FY 2021 MedPAR data for a few COVID-19-related MS-DRGs and MS-LTC-DRGs. As an example, for MS-DRG and MS-LTC-DRG 870 (Septicemia or Severe Sepsis with MV >96 hours), the MS-DRG and MS-LTC-DRG relative weights calculated using the FY 2021 MedPAR data are approximately 9 and 3 percent higher, respectively, compared to their relative weights if calculated excluding COVID-19 cases. Because this MS-DRG contains a mix of COVID-19 cases and non-COVID-19 cases with different average costs, the relative weight for this MS-DRG is dependent on that mix of cases. As noted previously, we believe it is reasonable to assume that there will be fewer COVID-19 hospitalizations among Medicare beneficiaries in FY 2023 than there were in FY 2021; however it is not possible to know precisely how COVID-19 hospitalizations in FY 2023 will compare to FY 2021. We believe that averaging the relative weights as calculated with and without the COVID-19 cases reflected in the FY 2021 MedPAR data would reflect a reasonable estimation of the case mix for FY 2023 based on the information available at this time, and more accurately estimate the relative resource use for the cases treated in FY 2023. Therefore, we are proposing to calculate the relative weights for FY 2023 by first calculating two sets of weights, one including and one excluding COVID-19 claims, and then averaging the two sets of relative weights to determine the proposed FY 2023 relative weight values. We believe this proposed modification to our relative weight setting methodology would appropriately reduce, but not remove entirely, the effect of COVID-19 cases on the relative weight calculations, consistent with our expectation that Medicare inpatient hospitalizations for COVID-19 will continue in FY 2023 at a lower level as compared to FY 2021,

and provide a more accurate estimate of relative resource use for FY 2023 than if we were to calculate the proposed relative weights using all applicable cases in the FY 2021 data. The proposal for modifying the methodology for determining the FY 2023 IPPS MS-DRG relative weights is discussed in greater detail in section II.E. of the preamble of this proposed rule. The proposal for modifying the methodology for determining the FY 2023 LTCH PPS MS-LTC-DRG relative weights is discussed in greater detail in section VIII.B. of the preamble of this proposed rule.

We also are proposing to modify our methodologies for determining the FY 2023 outlier fixed-loss amount for IPPS cases and LTCH PPS standard Federal payment rate cases. The methodologies for determining both of these outlier fixed-loss amounts include calculating and applying a charge inflation factor to increase charges from the claim year to the rulemaking year, as well as calculating and applying CCR adjustment factors to adjust CCRs used to make payments in the current year to the rulemaking year. The charge inflation factors calculated using the two most recently available years of MedPAR claims data (FY 2020 and FY 2021) that would ordinarily be used for this FY 2023 proposed rule to inflate the charges on the FY 2021 MedPAR claims were abnormally high as compared to recent historical levels prior to the PHE (for example, for the IPPS, approximately 10 percent based on the FY 2020 and FY 2021 MedPAR claims data as compared to approximately 6 percent based on the FY 2018 and FY 2019 MedPAR claims data). Furthermore, the IPPS operating and capital CCR adjustment factors calculated based on the percentage changes in the CCRs from the December 2020 update of the PSF to the December 2021 update of the PSF that would ordinarily be used for this FY 2023 proposed rule to adjust the CCRs from the December 2021 update of the PSF were also abnormally high as compared to recent historical levels prior to the PHE (for example, for the IPPS operating CCR adjustment factor, a factor of approximately 1.03 based on the December 2020 and December 2021 updates to the PSF as compared to a factor of approximately 0.97 based on the March 2019 and March 2020 updates to the PSF). We believe these abnormally high charge inflation and CCR adjustment factors as compared to historical levels were partially due to the high number of COVID-19 cases with higher charges that were treated in IPPS hospitals and LTCHs in FY 2021. As we previously stated, we believe there will be fewer COVID-19 cases in FY 2023 than in FY 2021. Therefore, we do not believe it is reasonable to assume charges and CCRs will continue to increase at these abnormally high rates. Consequently, when determining the FY 2023 outlier fixed-loss amounts for IPPS cases and LTCH PPS standard Federal payment rate cases, we are proposing to inflate the charges on the FY 2021 MedPAR claims using charge inflation factors computed by comparing the average covered charge per case in the March 2019 MedPAR file of FY 2018 to the average covered charge per case in the March 2020 MedPAR file of FY 2019, which is the last 1-year period prior to the COVID-19 PHE. We also are proposing to adjust the CCRs from the December 2021 update of the PSF by comparing the percentage change in the national average case-weighted CCR from the March 2019 update of the PSF to the national average case-weighted CCR from the March 2020 update of the PSF, which is the last 1-year period prior to the COVID-19 PHE. We believe using the charge inflation factors and CCR adjustment factors derived from data prior to the COVID-19 PHE would provide a more reasonable approximation of the increase in costs that will occur from FY 2021 to FY 2023 because we do not believe the charge inflation that has occurred during the PHE will continue as the number of higher cost COVID-19 cases declines. The proposal for modifying the methodology for determining the FY 2023 outlier fixed-loss amounts for IPPS cases is discussed in greater detail in section II.A.4. of the addendum to this proposed rule. The proposal for modifying the methodology for determining the FY 2023 outlier fixed-loss amounts for LTCH PPS standard Federal payment rate cases is discussed in greater detail in section V.D.3. of the addendum to this proposed rule.

As discussed in section I.O. of Appendix A of this proposed rule, we are also requesting comments on, as an alternative to our proposed approach, the use of the FY 2021 data for purposes of FY 2023 ratesetting without these proposed modifications to our usual methodologies for the calculation of the FY 2023 MS-DRG and MS-LTC-DRG relative weights or the usual methodologies used to determine the FY 2023 outlier fixed-loss amount for IPPS cases and LTCH PPS standard Federal payment rate cases. We note that the FY 2023 outlier fixed-loss amount would be significantly higher under this alternative approach. In order to illustrate the effect of our proposed modifications on the relative weights and fixed loss amount, we are making available supplemental information, including the relative weights and fixed loss amount calculated without the proposed modifications to our usual methodologies, as described in section I.O. of Appendix A of this proposed rule. We refer the reader to section I.O. of Appendix A of this proposed rule for a discussion of the files that we are making available with regard to our alternative approach.

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

A. Background

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

Section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually to account for changes in resource consumption. 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. Adoption of the MS-DRGs and MS-DRG Reclassifications

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).

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 through 2022 IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76

FR 51485 through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through 56872; 82 FR 38010 through 38085, 83 FR 41158 through 41258, 84 FR 42058 through 42165, 85 FR 58445 through 58596, 86 FR 44795 through 44961, respectively).

C. Proposed FY 2023 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 and the Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

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. 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 percentage points to the national standardized amount. We provided for phasing in this -4.8 percentage point adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of -1.2 percentage points for FY 2008, -1.8 percentage points for FY 2009, and -1.8 percentage points for FY 2010.

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

As discussed in prior year rulemakings, and most recently in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56780 through 56782), we implemented a series of adjustments required under sections 7(b)(1)(A) and 7(b)(1)(B) of Public Law 110-90, based on a retrospective review of FY 2008 and FY 2009 claims data. We completed these adjustments in FY 2013 but indicated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 53275) that delaying full implementation 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, and that these overpayments could not be recovered under Public Law 110-90.

In addition, as discussed in prior rulemakings and most recently in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38008 through 38009), section 631 of the American Taxpayer Relief Act of 2012 (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 represented 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.

2. Adjustments Made for FYs 2018, 2019, 2020, 2021, and 2022 as Required Under Section 414 of Public Law 114-10 (MACRA) and Section 15005 of Public Law 114-255

As stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785), once the recoupment required under section 631 of the ATRA was complete, we had anticipated making a single positive adjustment in FY 2018 to offset the reductions required to recoup the $11 billion under section 631 of the ATRA. However, section 414 of the MACRA (which was enacted on April 16, 2015) replaced the single positive adjustment we intended to make in FY 2018 with a 0.5 percentage point positive adjustment for each of FYs 2018 through 2023. In the FY 2017 rulemaking, we indicated that we would address the adjustments for FY 2018 and later fiscal years in future rulemaking. Section 15005 of the 21st Century Cures Act (Pub. L. 114-255), which was enacted on December 13, 2016, amended section 7(b)(1)(B) of the TMA, as amended by section 631 of the ATRA and section 414 of the MACRA, to reduce the adjustment for FY 2018 from a 0.5 percentage point positive adjustment to a 0.4588 percentage point positive adjustment. As we discussed in the FY 2018 rulemaking, we believe the directive under section 15005 of Public Law 114-255 is clear. Therefore, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38009) for FY 2018, we implemented the required +0.4588 percentage point adjustment to the standardized amount. In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41157), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42057), FY 2021 IPPS/LTCH PPS final rule (85 FR 58444 and 58445), and the FY 2022 IPPS/LTCH PPS final rule (86 FR 44794 and 44795), consistent with the requirements of section 414 of the MACRA, we implemented 0.5 percentage point positive adjustments to the standardized amount for FY 2019, FY 2020, FY 2021, and FY 2022, respectively. We indicated the FY 2018, FY 2019, FY 2020, FY 2021, and FY 2022 adjustments were permanent adjustments to payment rates. We also stated that we plan to propose a future adjustment required under section 414 of the MACRA for FY 2023 in future rulemaking.

3. Proposed Adjustment for FY 2023

Consistent with the requirements of section 414 of the MACRA, we are proposing to implement a 0.5 percentage point positive adjustment to the standardized amount for FY 2023. This would constitute a permanent adjustment to payment rates. This proposed 0.5 percentage point positive adjustment is the final adjustment prescribed by section 414 of the MACRA. Along with the 0.4588 percentage point positive adjustment for FY 2018, and the 0.5 percentage point positive adjustments for FY 2019, FY 2020, FY 2021, and FY 2022, this final proposed adjustment will result in combined positive adjustment of 2.9588 percentage points (or the sum of the adjustments for FYs 2018 through 2023) to the standardized amount.

D. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed FY 2023 MS-DRG Updates

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

As of October 1, 2015, providers use the International Classification of Diseases, 10th Revision (ICD-10) coding system to report diagnoses and procedures for Medicare hospital inpatient services under the MS-DRG system instead of the ICD-9-CM coding system, which was used through September 30, 2015. The ICD-10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting. For a detailed discussion of the conversion of the MS-DRGs to ICD-10, we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 56789).

b. Basis for Proposed FY 2023 MS-DRG Updates

Given the need for more time to carefully evaluate requests and propose updates, as discussed in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38010), we changed the deadline to request updates to the MS-DRGs to November 1 of each year, which provided an additional five weeks for the data analysis and review process. In the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32472), we stated that with the continued increase in the number and complexity of the requested changes to the MS-DRG classifications since the adoption of ICD-10 MS-DRGs, and to consider as many requests as possible, more time is needed to carefully evaluate the requested changes, analyze claims data, and consider any proposed updates. We further stated we were changing the deadline to request changes to the MS-DRGs to October 20 of each year to allow for additional time for the review and consideration of any proposed updates. However, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58445), due to the unique circumstances for the FY 2021 IPPS/LTCH PPS final rule for which we waived the delayed effective date, we maintained the deadline of November 1, 2020 for FY 2022 MS-DRG classification change requests. We also noted that we expected to reconsider a change in the deadline beginning with comments and suggestions submitted for FY 2023. In the FY 2022 IPPS/LTCH PPS proposed rule, we stated that while we continue to believe that a change in the deadline from November 1 to October 20 would provide hospitals sufficient time to assess potential impacts and inform future MS-DRG recommendations, we were maintaining the deadline of November 1 for FY 2023 MS-DRG classification change requests. As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44795), we received public comments expressing support for a future change to the deadline for requesting updates to the MS-DRG classifications from November 1 to October 20, and we noted in response that we may consider any changes to the deadline or frequency for submissions of requests for MS-DRG classification changes for future fiscal years. Beginning with FY 2024 MS-DRG classification change requests, we are changing the deadline to request changes to the MS-DRGs to October 20th of each year to allow for additional time for the review and consideration of any proposed updates. As previously discussed, we continue to believe such a change would allow hospitals sufficient time to assess potential impacts and inform future MS-DRG recommendations, while also providing CMS the additional time needed for evaluation of the requested changes, analysis of claims data, and consideration of any proposed updates.

We are also changing the process for submitting requested updates to the MS-DRG classifications, beginning with the FY 2024 MS-DRG classification change requests. CMS is in the process of implementing a new electronic application intake system, Medicare Electronic Application Request Information System

TM

(MEARIS

TM

), that will be available for users to begin gaining familiarity with a new approach and process to submit new technology add-on payment applications, requests for ICD-10-PCS procedure codes, and other requests. To simplify and streamline the process for submission of standardized applications and requests that inform payment policy under the IPPS, we will also be using this new system for submission of MS-DRG classification change requests. We believe that submission of MS-DRG reclassification requests through MEARIS

TM

will not only help CMS to track such requests, but it will also create efficiencies for requestors when compared to the previous submission process.

Accordingly, beginning with the FY 2024 MS-DRG classification change requests, CMS will only accept such requests submitted via MEARIS

TM

, and will no longer consider any such requests that are sent via email. We anticipate that, beginning April 5, 2022, MEARIS

TM

will be available for users to begin gaining familiarity with this new approach for submitting MS-DRG classification change requests. MEARIS

TM

, including the mechanism for submitting MS-DRG classification change requests, can be accessed at

https://mearis.cms.gov.

We encourage users to register and begin using this system to provide feedback on their experience with this initial version. We note that within MEARIS

TM

, we have built in several resources to support users, including a “Resources” section (available at

https://mearis.cms.gov/public/resources

) and technical support available under “Useful Links” at the bottom of the MEARIS

TM

site. Questions regarding the MEARIS

TM

system can be submitted to CMS using the form available under “Contact” at

https://mearis.cms.gov/public/resources?app=msdrg.

We also note that, as discussed in section II.D.17. of the preamble of this proposed rule, effective January 5, 2022, MEARIS

TM

was made available for users to begin gaining familiarity with a new approach and process to submit ICD-10-PCS procedure code requests.

As noted previously, interested parties had to submit MS-DRG classification change requests for FY 2023 by November 1, 2021. As we have discussed in prior rulemaking, we may not be able to fully consider all of the requests that we receive for the upcoming fiscal year. We have found that, with the implementation of ICD-10, some types of requested changes to the MS-DRG classifications require more extensive research to identify and analyze all of the data that are relevant to evaluating the potential change. We note in the discussion that follows those topics for which further research and analysis are required, and which we will continue to consider in connection with future rulemaking. Interested parties should submit any comments and suggestions for FY 2024 by October 20, 2022 via the new electronic intake system, Medicare Electronic Application Request Information System

TM

(MEARIS

TM

) at

https://mearis.cms.gov/public/home.

As we did for the FY 2022 IPPS/LTCH PPS proposed rule, for this FY 2023 IPPS/LTCH PPS proposed rule we are providing a test version of the ICD-10

MS-DRG GROUPER Software, Version 40, so that the public can better analyze and understand the impact of the proposals included in this proposed rule. We note that this test software reflects the proposed GROUPER logic for FY 2023. Therefore, it includes the new diagnosis and procedure codes that are effective for FY 2023 as reflected in Table 6A.—New Diagnosis Codes—FY 2023 and Table 6B.—New Procedure Codes—FY 2023 associated with this proposed rule and does not include the diagnosis codes that are invalid beginning in FY 2023 as reflected in Table 6C.—Invalid Diagnosis Codes—FY 2023 associated with this proposed rule. We note that at the time of the development of this proposed rule there were no procedure codes designated as invalid for FY 2023, and therefore, there is no Table 6D—Invalid Procedure Codes—FY 2023 associated with this proposed rule. These tables are not published in the Addendum to this proposed rule, but are available via the internet on the CMS website at

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

as described in section VI. of the Addendum to this proposed rule. Because the diagnosis codes no longer valid for FY 2023 are not reflected in the test software, we are making available a supplemental file in Table 6P.1a that includes the mapped Version 40 FY 2023 ICD-10-CM codes and the deleted Version 39.1 FY 2022 ICD-10-CM codes that should be used for testing purposes with users' available claims data. Therefore, users will have access to the test software allowing them to build case examples that reflect the proposals included in this proposed rule. In addition, users will be able to view the draft version of the ICD-10 MS-DRG Definitions Manual, Version 40.

The test version of the ICD-10 MS-DRG GROUPER Software, Version 40, the draft version of the ICD-10 MS-DRG Definitions Manual, Version 40, and the supplemental mapping files in Table 6P.1a of the FY 2022 and FY 2023 ICD-10-CM diagnosis codes are available at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.

Following are the changes that we are proposing to the MS-DRGs for FY 2023. We are inviting public comments on each of the MS-DRG classification proposed changes, as well as our proposals to maintain certain existing MS-DRG classifications discussed in this proposed rule. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data and consultation with our clinical advisors. In other cases, we are proposing to maintain the existing MS-DRG classifications based on our analysis of claims data and consultation with our clinical advisors. As discussed in section I.F. of the preamble of this proposed rule, we are proposing to use the FY 2021 MedPAR data for purposes of this FY 2023 IPPS rulemaking, with certain proposed modifications to the relative weight and outlier methodologies. For this FY 2023 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2021 update of the FY 2021 MedPAR file, which contains hospital bills received from October 1, 2020 through September 30, 2021, for discharges occurring through September 30, 2021. In our discussion of the proposed MS-DRG reclassification changes, we refer to these claims data as the “September 2021 update of the FY 2021 MedPAR file.”

As explained in previous rulemaking (76 FR 51487), in deciding whether to propose to make further modifications to the MS-DRGs for particular circumstances brought to our attention, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients represented in the MS-DRG. We evaluate patient care costs using average costs and lengths of stay and rely on the judgment of our clinical advisors to determine whether patients are clinically distinct or similar to other patients represented in the MS-DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of costs or length of stay, or both. Further, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases.

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized our proposal to expand our existing criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG. Specifically, we finalized the expansion of the criteria to include the NonCC subgroup for a three-way severity level split. We stated our belief that applying these criteria to the NonCC subgroup would better reflect resource stratification as well as promote stability in the relative weights by avoiding low volume counts for the NonCC level MS-DRGs. We noted that in our analysis of MS-DRG classification requests for FY 2021 that were received by November 1, 2019, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups. We also noted that the application of the NonCC subgroup criteria going forward may result in modifications to certain MS-DRGs that are currently split into three severity levels and result in MS-DRGs that are split into two severity levels. We stated that any proposed modifications to the MS-DRGs would be addressed in future rulemaking consistent with our annual process and reflected in Table 5—Proposed List of Medicare Severity Diagnosis Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay for the applicable fiscal year.

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798), we finalized a delay in applying this technical criterion to existing MS-DRGs until FY 2023 or future rulemaking, in light of the PHE. Commenters recommended that a complete analysis of the MS-DRG changes to be proposed for future rulemaking in connection with the expanded three-way severity split criteria be conducted and made available to enable the public an opportunity to review and consider the redistribution of cases, the impact to the relative weights, payment rates, and hospital case mix to allow meaningful comment prior to implementation.

In our analysis of the MS-DRG classification requests for FY 2023 that we received by November 1, 2021, as well as any additional analyses that were conducted in connection with those requests, we applied these criteria to each of the MCC, CC, and NonCC subgroups, as described in the following table.

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In general, once the decision has been made to propose to make further modifications to the MS-DRGs as described previously, such as creating a new base MS-DRG, or in our evaluation of a specific MS-DRG classification request to split (or subdivide) an existing base MS-DRG into severity levels, all five criteria must be met for the base MS-DRG to be split (or subdivided) by a CC subgroup. We note that in our analysis of requests to create a new MS-DRG, we typically evaluate the most recent year of MedPAR claims data available. For example, we stated earlier that for this FY 2023 IPPS/LTCH PPS proposed rule, our MS-DRG analysis was based on ICD-10 claims data from the September 2021 update of the FY 2021 MedPAR file. However, in our evaluation of requests to split an existing base MS-DRG into severity levels, as noted in prior rulemaking (80 FR 49368), we typically analyze the most recent 2 years of data. This analysis includes 2 years of MedPAR claims data to compare the data results from 1 year to the next to avoid making determinations about whether additional severity levels are warranted based on an isolated year's data fluctuation and also, to validate that the established severity levels within a base MS-DRG are supported. The first step in our process of evaluating if the creation of a new CC subgroup within a base MS-DRG is warranted is to determine if all the criteria are satisfied for a three-way split. If the criteria fail, the next step is to determine if the criteria are satisfied for a two-way split. If the criteria for both of the two-way splits fail, then a split (or CC subgroup) would generally not be warranted for that base MS-DRG. If the three-way split fails on any one of the five criteria and all five criteria for both two-way splits (1_23 and 12_3) are met, we would apply the two-way split with the highest R2 value. We note that if the request to split (or subdivide) an existing base MS-DRG into severity levels specifies the request is for either one of the two-way splits (1_23 or 12_3), in response to the specific request, we will evaluate the criteria for both of the two-way splits, however we do not also evaluate the criteria for a three-way split.

For this FY 2023 IPPS/LTCH PPS proposed rule, using the September 2021 update of the FY 2021 MedPAR file, we also analyzed how applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would affect the MS-DRG structure beginning in FY 2023. Findings from our analysis indicated that approximately 41 MS-DRGs would be subject to change based on the three-way severity level split criterion finalized in FY 2021. Specifically, we found that applying the NonCC subgroup criteria to all MS-DRGs currently split into three severity levels would result in the deletion of 123 MS-DRGs (41 MS-DRGs × 3 severity levels = 123) and the creation of 75 new MS-DRGs. These updates would also involve a redistribution of cases, which would impact the relative weights, and, thus, the payment rates proposed for particular types of cases. We refer the reader to Table 6P.1b for the list of the 123 MS-DRGs that would be subject to deletion and the list of the 75 new MS-DRGs that would be proposed for creation for FY 2023 under this policy if the NonCC subgroup criteria were applied.

In light of the ongoing public health emergency (PHE), we continue to have concerns about the impact of implementing this volume of MS-DRG changes at this time, and believe it may be appropriate to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs to maintain more stability in the current MS-DRG structure and until such time additional analyses can be performed to assess impacts, as discussed in response to comments in the FY 2022 IPPS/LTCH PPS final rule. Therefore, we are proposing not to apply the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2023, and to instead maintain the current structure of the 41 MS-DRGs that currently have a three-way severity level split (total of 123 MS-DRGs) that would otherwise be subject to these criteria. We intend to address the application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split in future rulemaking.

2. Pre-MDC: MS-DRG 018 Chimeric Antigen Receptor (CAR) T-Cell and Other Immunotherapies

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44798 through 44806), we finalized our proposal to assign procedure codes describing CAR T-cell, non-CAR T-cell, and other immunotherapies to Pre-MDC MS-DRG

018 and to revise the title for Pre-MDC MS-DRG 018 to “Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies” to reflect this assignment. In that discussion, we noted that a few commenters recommended we continue to work with stakeholders on ways to improve the predictability and stability of hospital payments for these complex, novel cell therapies and that we should continue to monitor and assess the appropriateness of therapies assigned to MS-DRG 018, if they continue to be aligned on resource use, and whether additional refinements or MS-DRGs may be warranted in the future.

We also noted that the process of code creation and proposed assignment to the most appropriate MS-DRG exists independently, regardless of whether there is an associated application for a new technology add-on payment for a product or technology submitted for consideration in a given fiscal year. Specifically, requests for a new code(s) or updates to existing codes are addressed through the ICD-10 Coordination and Maintenance Committee meetings, held annually in the spring and fall, where code proposals are presented and the public is provided the opportunity to comment. All codes finalized from the fall meeting are subsequently proposed for assignment under the ICD-10 MS-DRGs through rulemaking. We refer the reader to section II.D.17 of the preamble of this proposed rule for additional information regarding the ICD-10 Coordination and Maintenance Committee meeting process.

There were no requests or proposals for new procedure codes to describe the administration of a CAR T-cell or another type of gene or cellular therapy discussed at the September 14-15, 2021 ICD-10 Coordination and Maintenance Committee meeting. For the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting, there were topics included on the agenda and in the related meeting materials that included proposals for new procedure codes to describe the administration of a CAR T-cell or another type of gene or cellular therapy product. The agenda and related meeting materials for these specific topics are available via the internet on the CMS website at

https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials.

As stated in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44805) and noted previously, the process of code creation and proposed assignment to the most appropriate MS-DRG exists independently, regardless of whether there is an associated application for a new technology add-on payment for a product or technology submitted for consideration in a given fiscal year. We also clarified that the assignment of a procedure code to a MS-DRG is not dependent upon a product's Food and Drug Administration (FDA) approval. Similarly, the creation of a code to describe a technology that is utilized in the performance of a procedure or service does not require FDA approval of the technology.

Because the diagnosis and procedure code proposals that are presented at the March meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, as noted in prior rulemaking, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code.

In response to commenters' recommendation that we continue to assess the appropriateness of the therapies assigned to Pre-MDC MS-DRG 018, we are providing the results of our data analysis using the September 2021 update of the FY 2021 MedPAR file for cases reporting the administration of a CAR T-cell or other immunotherapy in Pre-MDC MS-DRG 018 and the number of cases reporting a secondary diagnosis of Z00.6 (Encounter for examination for normal comparison and control in clinical research program). We note that if a procedure code that is assigned to the logic for Pre-MDC MS-DRG 018 is not listed it is because there were no cases found. We also note there were no cases reporting diagnosis code Z00.6 as a principal diagnosis. Our findings are shown in the following table.

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The data show that there is a wide range in the volume of cases (4 cases versus 435 cases), average length of stay (11.3 days versus 20.3 days), and average costs ($157,950 versus $310,561) reporting the administration of CAR T-cell therapies in MS-DRG 018. This is to be expected since these therapies continue to evolve and the ICD-10-PCS coding to identify and describe these therapies also continues to be refined through the ICD-10 Coordination and Maintenance Committee meeting process. As additional claims data becomes available for these therapies, we will continue to evaluate to determine if further modifications to Pre-MDC MS-DRG 018 are warranted.

In response to our statement in the FY 2022 IPPS/LTCH PPS final rule that we plan to continue engaging with stakeholders on additional options for consideration in this field of cellular and gene therapies, we received additional feedback and suggestions, including recommendations for Town Hall meetings/listening sessions to discuss the interconnectedness of these issues; exploration of what was described as a different set and kind of MS-DRGs that would reward providers for controlling patient care costs, without consideration of product costs outside of their control; and evaluation of the creation and assignment of multiple MS-DRGs for cell and gene therapy cases: One to cover patient care costs, the other to cover product costs across therapeutic product categories.

We appreciate this additional feedback and will continue to consider these issues and suggestions in connection with future rulemaking. We also intend to continue engaging with stakeholders by sharing updates from our analysis of claims data as we examine and explore potential refinements for these therapies under the IPPS.

a. Laser Interstitial Thermal Therapy (LITT)

In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44812 through 44814), we finalized the reassignment of 31 ICD-10-PCS procedure codes describing laser interstitial thermal therapy (LITT) of various body parts to more clinically appropriate MS-DRGs, as shown in Table 6P.2b associated with the FY 2022 IPPS/LTCH PPS final rule and available via the internet on the CMS website at

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

including the reassignment of procedure codes D0Y0KZZ (Laser interstitial thermal therapy of brain) and D0Y1KZZ (Laser interstitial thermal therapy of brain stem), which were reassigned from MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy with Neurostimulator), MS-DRG 024 (Craniotomy with Major Device Implant or Acute Complex CNS Principal Diagnosis without MCC), and MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 040, 041, and 042 (Peripheral, Cranial Nerve and Other Nervous System Procedures with MCC, with CC and without CC/MCC, respectively).

We also finalized the redesignation of these two LITT procedures (codes D0Y0KZZ and D0Y1KZZ) and the reassignment from extensive O.R. procedures in MS-DRGs 981, 982 and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) to non-extensive O.R procedures in MS-DRGs 987, 989, and 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) (86 FR 44889).

For FY 2023, we received two requests from the manufacturers of the LITT technology (Medtronic and Monteris® Medical) to reverse the MS-DRG reassignment for the ICD-10 procedure codes that identify LITT of the brain and brain stem (codes D0Y0KZZ and D0Y1KZZ) from the MS-DRGs for peripheral, cranial nerve and other nervous system procedures (MS-DRGs 040, 041, and 042) back to the MS-DRGs for craniotomy and endovascular procedures (MS-DRGs 023, 024, 025, 026, and 027). The first

requestor acknowledged that the technique utilized in the performance of LITT procedures for the brain and brain stem are minimally invasive and do not involve a craniotomy however, the requestor also stated the procedures assigned to MS-DRGs 025, 026, and 027 are not exclusive to craniotomies. The requestor further stated that these LITT procedures involve a twist drill or burr hole and are similar to other non-craniotomy procedures in MS-DRGs 025, 026, and 027 including radioactive elements and neurostimulator leads that involve inserting these devices into the brain.

In its review of the other procedures assigned to MS-DRGs 040, 041, and 042, the requestor stated that there are distinct clinical differences between the invasiveness of LITT that involves instrumentation being placed deeply within the brain tissue and the non-invasiveness of stereotactic radiosurgery that does not involve entering the brain with instrumentation. The requestor also indicated LITT utilizes a different modality via direct thermal ablation compared to stereotactic radiosurgery that utilizes externally-generated ionizing radiation.

The requestor performed its own data analysis for LITT procedures of the brain and brain stem using MedPAR data from FY 2019 through FY 2022 impact files. According to the requestor, its findings demonstrate that the costs of the cases reporting LITT of the brain or brain stem are better aligned with MS-DRGs 025, 026, and 027 compared to MS-DRGs 040, 041, and 042.

The second requestor similarly discussed the steps and resources involved in the performance of LITT procedures for the brain and brain stem, provided its detailed analysis on the indications for LITT (brain tumors and epileptic foci), compared LITT to other procedures in MS-DRGs 025, 026, and 027 and stated that the majority of the procedures currently assigned to MS-DRGs 040, 041, 042 are not performed for the treatment of brain cancer or epilepsy. The requestor stated that the LITT procedure is on the inpatient only list and is only performed on Medicare beneficiaries in the inpatient hospital setting. The requestor provided the top 10 principal diagnoses associated with LITT of brain cases it found based on its analysis, and identified the diagnoses for which there were less than 10 cases with an asterisk, as reflected in the following table.

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The requestor asserted that the statement in the FY 2022 IPPS/LTCH PPS final rule that the technique to perform the LITT procedure on brain and brain stem structures is considered minimally invasive and does not involve a craniotomy, and that therefore, continued assignment to the craniotomy MS-DRGs is not clinically appropriate, mischaracterizes both the LITT procedures and universe of services assigned to MS-DRGs 023 through 027. The requestor acknowledged that the craniotomy procedures listed in the logic for MS-DRGs 023 through 027 include open procedures but stated the logic also lists less invasive procedures including percutaneous and percutaneous endoscopic procedures. The requestor asserted that open procedures are a minority of the ICD-10-PCS codes assigned to these MS-DRGs.

In addition, the requestor stated that LITT and craniotomy are in fact very clinically similar; in that both procedures are intended to remove and destroy the targeted tumor and lesion with a different surgical tool used (scalpel versus heated ablation probe). According to the requestor, brain LITT procedures involve insertion of laser probes into the brain which requires opening both the skull and dura, similar to a craniotomy. The requestor also stated that craniotomy and LITT share several procedural characteristics and provided the following list.

• Require an operating room;

• Performed under general anesthesia;

• Require creation of burr holes and invasive skull fixation;

• Require a sterile field, incision, opening of the skull and dura;

• Cause tissue to be immediately destroyed or excised;

• Carry a risk of immediate intracranial bleeding;

• Require closure of the scalp wound;

• Risk intracranial infection; and

• Require a hospital stay of one or more nights.

In contrast, the requestor stated that procedures assigned to MS-DRGs 040, 041, and 042 are primarily nerve procedures or excision or detachment procedures performed on parts of the body other than the head, including the upper and lower extremities. According to the requestor, none of the procedures in MS-DRGs 040, 041, and 042 require drilling into the patient's skull, a step which is integral to LITT. The requestor provided the following top 10 principal

diagnoses associated with cases it found in MS-DRGs 040, 041, and 042 during its analysis and stated that most of the procedures assigned to MS-DRGs 040, 041, and 042 are not typically performed in the treatment of brain cancer or epilepsy.

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However, the requestor stated an exception is stereotactic radiosurgery (SRS) procedures performed on the brain and brain stem that are assigned to MS-DRGs 040, 041, and 042 and are used to treat brain cancer. According to the requestor, craniotomy, LITT and SRS are all image-guided procedures used to treat a variety of brain disorders including tumors and epilepsy, although it stated that is where any similarity between LITT and SRS ends and where the procedural similarities between craniotomy and LITT begin.

The requestor stated SRS is a non-invasive procedure that gradually destroys or inactivates tissues in or around the brain and is typically performed on an outpatient basis while inpatient SRS treatment is rare. According to the requestor, SRS does not require an operating room, is rarely done under general anesthesia (children and highly claustrophobic individuals being an exception), and does not require (but can use) rigid skull fixation. In addition, the requestor stated that because it is non-invasive, there is no need for a sterile field, incision, opening/closing of the skull, opening/closing of the dura, suturing/stapling the wound, and produces essentially no risk of immediate intracranial bleeding or delayed infection. According to the requestor, LITT is much more invasive than SRS using a head frame and involves and requires the same surgical skill and hospital resources as craniotomies.

Following the submission of the two FY 2023 MS-DRG classification change requests for LITT, these same two requestors (the manufacturers of the LITT technology) submitted a joint code proposal requesting an overall change to how LITT is classified within the ICD-10-PCS classification and for consideration as an agenda topic to be discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting. The proposal was presented and discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting. We refer the reader to the CMS website at

https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials

for additional detailed information regarding the request, including a recording of the discussion and the related meeting materials. Public comments in response to the code proposal were due by April 8, 2022.

Because the diagnosis and procedure code proposals that are presented at the March ICD-10-CM Coordination and Maintenance Committee meeting for an October 1 implementation (upcoming FY) are not finalized in time to include in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes in association with the proposed rule, as we have noted in prior rulemaking and discuss further in this section, we use our established process to examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. We have noted in prior rulemaking that this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code. Under this established process, the MS-DRG assignment for the upcoming fiscal year for any new diagnosis or procedure codes finalized after the March meeting would be reflected in Table 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes associated with the final rule for that fiscal year. However, in light of the unique circumstances relating to these procedures, for which there is a pending proposal to reclassify LITT within ICD-10-PCS and for new procedure codes discussed at the March meeting, as well as an MS-DRG reclassification request to reassign the existing codes describing these procedures, we address in this section first, the code proposal discussed at the March meeting and the possible MS-DRG assignments for any new codes that may be approved, and then secondly, the requested reassignment of the existing codes, in the event the new codes are not approved.

To summarize, as discussed at the March meeting, the code proposal is to reclassify LITT procedures from the Radiation Therapy section of ICD-10-PCS (Section D) to the Medical and Surgical section of ICD-10-PCS. Specifically, the proposal is to reclassify LITT procedures to the root operation Destruction. In ICD-10-PCS, the root operation Destruction is defined as physical eradication of all or a portion

of a body part by the direct use of energy, force, or a destructive agent. According to the requestors, LITT is misclassified to section D—Radiation Therapy in ICD-10-PCS possibly because of terminology that was used for predicate devices, whose indications included the phrase “interstitial irradiation or thermal therapy” in describing LITT's method of action. The requestors stated LITT is thermal therapy, destroying soft tissue using heat generated by a laser probe at the target site and that the LITT procedure does not use ionizing radiation, which is what the term “radiation” commonly refers to in the general medical sense. The requestors also stated that by itself, radiation is a broad term and provided an example that the spectrum of electromagnetic radiation technically encompasses low energy non-ionizing radio waves, microwaves, and infrared to high energy ionizing X-rays and gamma rays while ionizing radiation creates ions in the cells it passes through by removing electrons, a process which kills or alters the cells over time.

The requestors further stated that only certain medical uses of radiation are classified to section D—Radiation Therapy. For instance, section D—Radiation Therapy categorizes treatments using ionizing radiation, including beam radiation, brachytherapy, and stereotactic radiosurgery. All of these deliver concentrated ionizing radiation to eradicate abnormal cells, most commonly neoplasms. Other treatments classified to section D—Radiation Therapy, such as hyperthermia, are used as adjuncts to ionizing radiation. The requestors asserted that while LITT eradicates abnormal cells, it does so with heat, not ionizing radiation and rather than a radiation therapy procedure, LITT is a surgical procedure. According to the requestors, LITT would be more appropriately classified as an ablation procedure with the root operation Destruction.

The original request for a new code(s) to describe the LITT technology was initially discussed at the September 24-25, 2008 ICD-9-CM Coordination and Maintenance Committee meeting. At that time, the requestor sought an April 1, 2009 implementation date. Public comments opposed an April 1, 2009 implementation date, therefore, effective October 1, 2009 (FY 2010), ICD-9-CM procedure codes were created to identify procedures performed utilizing the LITT technology. The following table lists the ICD-9-CM procedure codes describing LITT and their respective MDC and MS-DRG assignments under the ICD-9 based MS-DRGs. We refer the reader to the ICD-9 and ICD-10 MS-DRG Definitions Manual Files V33 (available via the internet on the CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/FY2016-Final-Rule-Correction-Notice-Files

(in the Downloads section) for complete documentation of the GROUPER logic for ICD-9.

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The requestors maintain that although LITT was used to treat a variety of anatomic sites when it was first introduced, its current primary use is intracranial, specifically to treat brain tumors and epileptic foci. However, the requestors stated it is also used to treat radiation necrosis, an inflammatory response from prior treatment with ionizing radiation.

Currently, in the U.S. there are only two LITT systems in use, Visualase

TM

MRI-Guided Laser Ablation (Medtronic) and the Neuroblate® System (Monteris® Medical). The requestors also stated that over the last six years, the Indications for Use (IFU) for one of the two U.S. approved LITT technologies (Neuroblate®) has been updated to reflect the system's current use in the brain and to align with the intended neurosurgical patient population. The requestor indicated applications in the spine are also anticipated in the future within the central nervous system.

As previously noted, the deadline for receipt of public comments for the proposed reclassification of LITT procedures that was presented at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting along with the corresponding proposal for new procedure codes was April 8, 2022, and the final code decisions on these proposals are not yet available for inclusion in Table 6B.—New Procedure Codes associated with this FY 2023 IPPS/LTCH PPS proposed rule. However, as discussed in prior rulemaking (86 FR 44805), codes that are finalized after the March meeting are reviewed and subject to our established process of initially reviewing the predecessor codes MS-DRG assignment and designation, while considering

other relevant factors (for example, severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition) as previously described. The codes that are finalized after the March meeting are specifically identified with a footnote in Tables 6A.—New Diagnosis Codes and Table 6B.—New Procedure Codes that are made publicly available in association with the final rule via the internet on the CMS website at

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

The public may provide feedback on these finalized assignments, which is then taken into consideration for the following fiscal year.

Accordingly, as previously discussed, the MS-DRG assignment for any new procedure codes describing LITT, if finalized following the March meeting, would be reflected in Table 6B.—New Procedure Codes associated with the final rule for FY 2023. However, in light of the unique circumstances with respect to these procedures, for which there is both a proposal for reclassifying LITT from the Radiation Therapy section of the procedure code classification to the Medical/Surgical section with new ICD-10-PCS procedure code(s) and a separate MS-DRG reclassification request on the existing procedure codes, we are providing the opportunity for public comment on possible MS-DRG assignments for the requested new procedure codes describing LITT that may apply based on the application of our established process and analysis, in the event the new codes are finalized for FY 2023. We note that while we discuss the potential MS-DRG assignments for new procedure codes describing LITT, stakeholders may use current coding information to consider the potential MS-DRG assignments for any other procedure codes that may be finalized after the March meeting and submit public comments for consideration. Specifically, in the ICD-10 Coordination and Maintenance Committee meeting materials (available via the internet on the CMS website at

https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials

), for each procedure code proposal we provide the current coding that is applicable within the classification and that should be reported in the absence of a more unique code, or until such time a new code is created and becomes effective. The procedure code(s) listed in current coding are generally, but not always, the same code(s) that are considered as the predecessor code(s) for purposes of MS-DRG assignment. As previously noted, our process for determining the MS-DRG assignment for a new procedure code does not automatically result in the new procedure code being assigned to the same MS-DRG or having the same designation (O.R. versus Non-O.R.) as the predecessor code. However, this current coding information can be used in conjunction with the GROUPER logic, as set forth in the ICD-10 MS-DRG Definitions Manual and publicly available via the internet on our CMS website at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software

to review the MS-DRG assignment of the current code(s) and examine the potential MS-DRG assignment of the proposed code(s), to assist in formulating any public comments for submission to CMS for consideration.

We note that, unlike the typical code request for a new or revised procedure code that involves a new technology or a new approach to performing an existing procedure, the circumstances for this particular request are distinct in that the code request would reclassify LITT within the ICD-10-PCS classification from section D—Radiation Therapy to the root operation Destruction in the Medical and Surgical section of ICD-10-PCS. Therefore, in light of the unique considerations with respect to the requested reclassification of the LITT procedures in connection with the pending code proposal, we believe it is appropriate to utilize the assignments and designations of the procedure codes describing Destruction of the respective anatomic body site as predecessor codes rather than the current codes describing LITT from the Radiation Therapy section of ICD-10-PCS in considering potential MS-DRG assignment for the requested new LITT procedure codes.

As previously discussed, under our established process for determining the MS-DRG assignment for newly approved procedure codes, we examine the MS-DRG assignment for the predecessor codes to determine the most appropriate MS-DRG assignment for the new codes. Specifically, we review the predecessor code and MS-DRG assignment most closely associated with the new procedure code, and in the absence of claims data, we consider other factors that may be relevant to the MS-DRG assignment, including the severity of illness, treatment difficulty, complexity of service and the resources utilized in the diagnosis and/or treatment of the condition. As we have noted in prior rulemaking, this process does not automatically result in the new procedure code being assigned to the same MS-DRG or to have the same designation (O.R. versus Non-O.R.) as the predecessor code.

Applying this established review process to the proposed codes for the LITT procedures, we believe that, based on the predecessor codes, and as previously noted, the potential assignments and designations would align with the assignments and designations of the procedure codes describing Destruction of the respective anatomic body site. For example, as discussed earlier in this section of this proposed rule, the code request involved reclassifying LITT procedures from section D—Radiation Therapy to the root operation Destruction in the Medical and Surgical section of ICD-10-PCS. The root operation Destruction is appropriate to identify and report procedures, such as ablation, that are performed on various body parts. The code request also involved creating what is referred to as a qualifier value, to uniquely describe LITT as the modality. The qualifier value is the seventh character or digit, in a valid ICD-10-PCS procedure code.

The following ICD-10-PCS table illustrates an example of the proposed procedure codes for LITT of the brain and brain stem, and cervical, thoracic, and lumbar spinal cord body parts, including the qualifier value that was presented and discussed at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting.

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We note that the code proposal presented only provided the body part value 0 Brain, for reporting any LITT procedures performed on the brain, as well as, the brain stem, consistent with the current available body part option in Table 005, Destruction of Central Nervous System and Cranial Nerves, where the predecessor code is located. The predecessor code(s) and associated MS-DRG assignments for the proposed new procedure code(s) describing LITT of the brain and spinal cord under MDC 01 are identified as follows.

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As shown in the table, the procedure codes describing destruction of brain with an open, percutaneous or percutaneous endoscopic approach are assigned to MS-DRGs 023 through 027 (craniotomy and endovascular procedures) and the procedure codes describing destruction of cervical, thoracic or lumbar spinal cord with an open, percutaneous or percutaneous endoscopic approach are assigned to MS-DRG 028 (Spinal Procedures with MCC), MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030 (Spinal Procedures without CC/MCC).

We refer the reader to Table 6P.2a associated with this proposed rule (and available via the internet at

https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps

) to review the potential MDCs, MS-DRGs, and O.R. versus Non-O.R. designations identified based on this analysis of the proposed new procedure codes describing LITT as presented and discussed at the meeting. We note that Table 6P.2a also includes the predecessor codes that we utilized to inform this analysis. If finalized, the new procedure codes would be included in the FY 2023 code update files that are made available in late May/early June via the internet on the CMS website at

https://www.cms.gov/medicare/coding/icd10.

Additionally, if finalized, the new procedure codes describing LITT would be displayed in Table 6B.—New Procedure Codes, and the existing codes describing LITT would be deleted and reflected in Table 6D.—Invalid Procedure Codes, in association with the FY 2023 IPPS/LTCH PPS final rule. We refer the reader to section II.D.14. for further information regarding the files.

As previously discussed, we also received requests to reassign the existing ICD-10 procedure codes that identify LITT of the brain and brain stem (codes D0Y0KZZ and D0Y1KZZ). In the event there is not support for the proposed reclassification of LITT procedures and the corresponding new procedure codes as presented at the March 8-9, 2022 ICD-10 Coordination and Maintenance Committee meeting, we are also providing the results of our analysis of these existing codes and our proposed MS-DRG assignments for FY 2023, if those existing codes are retained.

We examined claims data from the September 2021 update of the FY 2021 MedPAR file for MS-DRGs 023, 024, 025, 026, and 027, in addition to MS-DRGs 040, 041, and 042 for cases reporting LITT of the brain (code D0Y0KZZ) or brain stem (code D0Y1KZZ). We note that if a procedure code is not listed it is because there were no cases found reporting that procedure code. Our findings are shown in the following tables.

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As shown, we found a total of 123 cases reporting LITT of the brain across MS-DRGs 023, 025, 026, and 027. There were no cases found in MS-DRG 024. The cases reporting LITT of the brain grouped to these MS-DRGs because another O.R. procedure that is assigned to the respective MS-DRG was also repor

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