Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1999 Rates
Federal RegisterMay 8, 1998
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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems for operating costs and capital-related
costs to implement applicable statutory requirements, including section
4407 of the Balanced Budget Act of 1997, as well as changes arising
from our continuing experience with the systems. In addition, in the
addendum to this proposed rule, we are describing proposed changes in
the amounts and factors necessary to determine rates for Medicare
hospital inpatient services for operating costs and capital-related
costs. These changes would be applicable to discharges occurring on or
after October 1, 1998. We are also setting forth proposed rate-of-
increase limits as well as proposing changes for hospitals and hospital
units excluded from the prospective payment systems.
DATES: Comments will be considered if received at the appropriate
address, as provided below, no later than 5 p.m. on July 7, 1998.
ADDRESSES: Mail written comments (an original and three copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1003-P, P.O. Box 7517,
Baltimore, MD 21207-0517.
If you prefer, you may deliver your written comments (an original
and three copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,
ashington, DC 20201, or
Room C5-09-26, Central Building, 7500 Security Boulevard, Baltimore, MD
21244-1850.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1003-P. Comments received timely will be available
for public inspection as they are received, generally beginning
approximately three weeks after publication of a document, in Room 309-
G of the Department's offices at 200 Independence Avenue, SW,
Washington, DC, on Monday through Friday of each week from 8:30 a.m. to
5 p.m. (phone: (202) 690-7890).
For comments that relate to information collection requirements,
mail a copy of comments to:
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Allison Herron Eydt, HCFA Desk Officer; and
Office of Financial and Human Resources, Management Planning and
Analysis Staff, Room C2-26-17, 7500 Security Boulevard, Baltimore, MD
21244-1850.
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FOR FURTHER INFORMATION CONTACT:
Nancy Edwards, (410) 786-4531, Operating Prospective Payment, DRG, and
Wage Index Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, and Graduate Medical Education Issues.
SUPPLEMENTARY INFORMATION:
I. Background
A. Summary
Sections 1886(d) and (g) of the Social Security Act (the Act), set
forth a system of payment for the operating costs of acute care
hospital inpatient stays under Medicare Part A (Hospital Insurance)
based on prospectively-set rates. Section 1886(g) of the Act requires
the Secretary to pay for the capital-related costs of hospital
inpatient stays under a prospective payment system. Under these
prospective payment systems, 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).
Certain specialty hospitals are excluded from the prospective
payment systems. Under section 1886(d)(1)(B) of the Act, the following
hospitals and units are excluded from PPS: psychiatric hospitals or
units, rehabilitation hospitals or units, children's hospitals, long
term care hospitals, and cancer hospitals. For these hospitals and
units, Medicare payment for operating costs is based on reasonable
costs subject to a hospital-specific annual limit.
Under section 1886(a)(4) of the Act, costs incurred in connection
with approved graduate medical education (GME) programs are excluded
from the operating costs of inpatient hospital services. Hospitals with
approved 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 number of
the hospital's residents in that period and the hospital's costs per
resident in a base year.
The regulations governing the hospital inpatient prospective
payment system are located in 42 CFR Part 412. The regulations
governing excluded hospitals are located in both Parts 412 and 413, and
the graduate medical education regulations are found in Part 413.
On August 29, 1997, we published a final rule with comment period
in the Federal Register (62 FR 45966) setting forth both statutorily
required changes and other changes to the Medicare hospital inpatient
prospective payment systems for both operating costs and capital-
related costs, which were effective for discharges occurring on or
after October 1, 1997. This rule also
[[Page 25577]]
implemented changes addressing payments for excluded hospitals and
payments for graduate medical education costs. This final rule with
comment period followed a proposed rule published in the Federal
Register on June 2, 1997 (62 FR 29902) that set forth proposed updates
and changes.
B. Major Contents of This Proposed Rule
In this proposed rule, we are setting forth proposed changes to the
Medicare hospital inpatient prospective payment systems for both
operating costs and capital-related costs. This proposed rule would be
effective for discharges occurring on or after October 1, 1998.
Following is a summary of the major changes that we are proposing to
make:
1. Changes to the DRG Classifications and Relative Weights
As required by section 1886(d)(4)(C) of the Act, we must adjust the
DRG classifications and relative weights at least annually. Our
proposed changes for FY 1999 are set forth in section II. of this
preamble.
2. Changes to the Hospital Wage Index
In section III. of this preamble, we discuss proposed revisions to
the wage index and the annual update of the wage data. Specific issues
addressed in this section include the following:
FY 1999 wage index update.
Changes to the data categories included in the wage index.
Revisions to the wage index based on hospital
redesignations.
3. Other Decisions and Changes to the Prospective Payment System for
Inpatient Operating and Graduate Medical Education Costs
In section IV. of this preamble, we discuss several provisions of
the regulations in 42 CFR parts 412 and 413 and set forth certain
proposed changes concerning the following:
Definition of transfer cases.
Rural referral centers.
Disproportionate share adjustment.
Bad debts.
Direct graduate medical education programs.
4. Changes to the Prospective Payment System for Capital-Related Costs
In section V. of this preamble, we discuss several provisions of
the regulations in 42 CFR part 412 and set forth certain proposed
changes and clarifications concerning the following:
Capital indirect medical education payments.
Payments to new hospitals.
5. Changes for Hospitals and Hospital Units Excluded from the
Prospective Payment Systems
In section VI. of this preamble, we discuss the following criteria
governing excluded hospital issues:
Hospital-within-a-hospital.
Adjustments to the target amounts for FY 1999.
6. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits
In the addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the FY 1999
prospective payment rates for operating costs and capital-related
costs. We are also proposing update factors for determining the rate-
of-increase limits for cost reporting periods beginning in FY 1999 for
hospitals and hospital units excluded from the prospective payment
system.
7. Impact Analysis
In Appendix A, we set forth an analysis of the impact that the
proposed changes described in this proposed rule would have on affected
entities.
8. Capital Acquisition Model
Appendix B contains the technical appendix on the proposed FY 1999
capital cost model.
9. Report to Congress on the Update Factor for Prospective Payment
Hospitals and Hospitals Excluded from the Prospective Payment System
Section 1886(e)(3)(B) of the Act requires that the Secretary report
to Congress on our initial estimate of a recommended update factor for
FY 1999 for both hospitals included in and hospitals excluded from the
prospective payment systems. This report is included as Appendix C to
this proposed rule.
10. Proposed Recommendation of Update Factor for Hospital Inpatient
Operating Costs
As required by sections 1886(e)(4) and (e)(5) of the Act, Appendix
D provides our recommendation of the appropriate percentage change for
FY 1999 for the following:
Large urban area and other area average standardized
amounts (and hospital-specific rates applicable to sole community and
Medicare-dependent, small rural hospitals) for hospital inpatient
services paid for under the prospective payment system for operating
costs.
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by hospitals and
hospital units excluded from the prospective payment system.
11. Discussion of Medicare Payment Advisory Commission Recommendations
The Balanced Budget Act of 1997 abolished the Prospective Payment
Assessment Commission (ProPAC) and created the Medicare Payment
Advisory Commission (MedPAC). Under section 1805(b) of the Act, MedPAC
is required to submit a report to Congress, not later than March 1 of
each year, that reviews and makes recommendations on Medicare payment
policies. The March 1, 1998 report made several recommendations
concerning hospital inpatient payment policies. We reviewed those
recommendations and this document sets forth our responses to those
recommendations.
Although it has been our practice to include a reprint of ProPAC's
March 1 report as an appendix to the proposed rule, we are not
following that practice with MedPAC reports. For further information
relating specifically to that report or to obtain a copy of the report,
contact MedPAC at (202) 653-7220.
II. Proposed Changes to DRG Classifications and Relative Weights
A. Background
Under the prospective payment system, we pay for inpatient hospital
services on the basis of a rate per discharge that varies by the DRG to
which a beneficiary's stay is assigned. The formula used to calculate
payment for a specific case takes an individual hospital's payment rate
per case and multiplies it by the weight of the DRG to which the case
is assigned. Each DRG weight represents the average resources required
to care for cases in that particular DRG relative to the average
resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
annually. These adjustments are made to reflect changes in treatment
patterns, technology, and any other factors that may change the
relative use of hospital resources. The proposed changes to the DRG
classification system and the proposed recalibration of the DRG weights
for discharges occurring on or after October 1, 1998 are discussed
below.
[[Page 25578]]
B. DRG Reclassification
1. General
Cases are classified into DRGs for payment under the prospective
payment system based on the principal diagnosis, up to eight additional
diagnoses, and up to six procedures performed during the stay, as well
as age, sex, and discharge status of the patient. The diagnosis and
procedure information is reported by the hospital using codes from the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM). The Medicare fiscal intermediary enters the
information into its claims system and subjects it to a series of
automated screens called the Medicare Code Editor (MCE). These screens
are designed to identify cases that require further review before
classification into a DRG can be accomplished.
After screening through the MCE and any further development of the
claims, cases are classified by the GROUPER software program into the
appropriate DRG. The GROUPER program was developed as a means of
classifying each case into a DRG on the basis of the diagnosis and
procedure codes and demographic information (that is, sex, age, and
discharge status). It is used both to classify past cases in order to
measure relative hospital resource consumption to establish the DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible DRG classification
changes and to recalibrate the DRG weights.
Currently, cases are assigned to one of 496 DRGs in 25 major
diagnostic categories (MDCs). Most MDCs are based on a particular organ
system of the body (for example, MDC 6, Diseases and Disorders of the
Digestive System); however, some MDCs are not constructed on this basis
since they involve multiple organ systems (for example, MDC 22, Burns).
In general, cases are assigned to an MDC based on the principal
diagnosis, before assignment to a DRG. However, there are five DRGs to
which cases are directly assigned on the basis of procedure codes.
These are the DRGs for liver, bone marrow, and lung transplant (DRGs
480, 481, and 495, respectively) and the two DRGs for tracheostomies
(DRGs 482 and 483). Cases are assigned to these DRGs before
classification to an MDC.
Within most MDCs, cases are then divided into surgical DRGs (based
on a surgical hierarchy that orders individual procedures or groups of
procedures by resource intensity) and medical DRGs. Medical DRGs
generally are differentiated on the basis of diagnosis and age. Some
surgical and medical DRGs are further differentiated based on the
presence or absence of complications or comorbidities (hereafter CC).
Generally, GROUPER does not consider other procedures; that is,
nonsurgical procedures or minor surgical procedures generally not
performed in an operating room are not listed as operating room (OR)
procedures in the GROUPER decision tables. However, there are a few
non-OR procedures that do affect DRG assignment for certain principal
diagnoses, such as extracorporeal shock wave lithotripsy for patients
with a principal diagnosis of urinary stones.
The changes we are proposing to make to the DRG classification
system for FY 1999 and other decisions concerning DRGs are set forth
below. Unless otherwise noted, our DRG analysis is based on the full
(100 percent) FY 1997 MedPAR file based on bills received through
September 1997.
2. MDC 5 (Diseases and Disorders of the Circulatory System)
In the August 29, 1997 hospital inpatient final rule with comment
period (62 FR 45974), we noted that, because of the many recent changes
in heart surgery, we were considering conducting a comprehensive review
of the MDC 5 surgical DRGs. We have begun that review, and based upon
our analysis thus far, we believe it is appropriate to propose some DRG
changes immediately. These proposed changes are set forth below.
a. Coronary Bypass. There are two DRGs that capture coronary bypass
procedures: DRG 106 (Coronary Bypass with Cardiac Catheterization) and
DRG 107 (Coronary Bypass without Cardiac Catheterization). The
procedures that allow a coronary bypass case to be assigned to DRG 106
include percutaneous valvuloplasty, percutaneous transluminal coronary
angioplasty (PTCA), cardiac catheterization, coronary angiography, and
arteriography.
In analyzing the FY 1997 MedPAR file, we noted that, of cases
assigned to DRG 106, the average standardized charges for coronary
bypass cases with PTCA were significantly higher than those cases
without PTCA. There were approximately 4,400 cases in DRG 106 where
PTCA is performed as a secondary procedure. These cases have an average
standardized charge of approximately $69,000. The average charge of the
approximately 95,000 cases in DRG 106 without PTCA is approximately
$52,000.
Based on this analysis, we are proposing to create a new DRG for
coronary bypass cases with PTCA. The cases currently in DRG 106 without
PTCA would be assigned to another DRG and the cases currently assigned
to DRG 107 would be unmodified. Because we would replace two DRGs with
three new DRGs, we would revise the DRG numbers and titles accordingly.
The new DRGs and their titles are set forth below:
DRG 106 Coronary Bypass with PTCA
DRG 107 Coronary Bypass with Cardiac Catheterization
DRG 109 Coronary Bypass without Cardiac Catheterization
We note that DRG 109 has been an empty DRG for the last several
years.
b. Implantable Heart Assist System and Annuloplasty. In the August
29, 1997 final rule with comment period, we moved implant of an
implantable, pulsatile heart assist system (procedure code 37.66) from
DRGs 110 and 111 (Major Cardiovascular Procedures) 1 to DRG
108 (Other Cardiothoracic Procedures). Although this move improved
payment for these procedures, they were still much more expensive than
the other cases in DRG 108 ($96,000 for heart assist versus an average
of $54,000 for all other cases in the FY 1996 MedPAR file). We stated
that we would continue to review the MDC 5 surgical DRGs in an attempt
to find a DRG placement for these cases that would be more similar in
terms of resource use.
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\1\ A single title combined with two DRG numbers is used to
signify pairs. Generally, the first DRG is for cases with CC and the
second DRG is for cases without CC. If a third number is included,
it represents cases with patients who are age 0-17. Occasionally, a
pair of DRGs is split between age >17 and age 0-17.
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In reviewing the FY 1997 MedPAR file, we note that heart assist
system implant continues to be the most expensive procedure in DRG 108.
In fact, other than heart transplant, heart assist system implant is
the most expensive procedure in MDC 5. The average FY 1997 charge for
these cases, when assigned to DRG 108, is over $150,000 compared to
about $53,000 for all cases in DRG 108. Obviously, the charges for
heart assist implant are increasing at a much greater rate than the
average charges for DRG 108. In addition, the length of stay for cases
coded with 37.66 is approximately 32 days compared to about 11 days for
all other DRG 108 cases.
[[Page 25579]]
One possibility for improving payment for these cases is to move
them to DRGs 104 and 105 (Cardiac Valve Procedures). Those DRGs, which
split on the basis of the performance of cardiac catheterization, have
average charges of approximately $66,000 and $51,000, respectively.
While heart assist implant cases are still more expensive than the
average case in these DRGs, payment would be improved. Clinically,
placement of heart assist implant in DRGs 104 and 105 is not without
precedent. Effective with FY 1988, we placed implant of a total
automatic implantable cardioverter defibrillator (AICD) in these DRGs.
In addition, the vast majority of procedures assigned to DRG 108
involve surgically splitting open the sternum to perform the procedure.
However, implant of the heart assist device does not require this
approach.
While reviewing the DRG 108 cases, we also noted that procedure
code 35.33 (annuloplasty) is assigned to this DRG. Annuloplasty is a
valve procedure and is clinically more similar to the cases assigned to
DRGs 104 and 105 than it is to the cases assigned to DRG 108. In
addition, the average standardized charge for annuloplasty cases
assigned to DRG 108 is about $67,000, well above the overall average
charge of approximately $53,000 for cases in DRG 108. Therefore, we are
proposing to move annuloplasty from DRG 108 to DRGs 104 and 105.
In order to more accurately reflect the cases assigned to DRGs 104
and 105, we would retitle them as follows:
DRG 104 Cardiac Valve and Other Major Cardiothoracic Procedures
with Cardiac Catheterization
DRG 105 Cardiac Valve and Other Major Cardiothoracic Procedures
without Cardiac Catheterization.
3. MDC 22 (Burns)
Under the current DRG system, burn cases are assigned to one of six
DRGs in MDC 22 (Burns), which have not been revised since 1986. In our
FY 1998 hospital inpatient proposed rule (June 2, 1997; 62 FR 29912),
in response to inquiries we had received, we indicated that we would
conduct a comprehensive review of MDC 22 to determine whether changes
in these DRGs could more appropriately capture the variation in
resource use associated with different classes of burn patients. We
solicited public comments on this issue, particularly asking for
recommendations on ways to categorize related diagnosis and procedure
codes to produce DRG groupings that would be more homogeneous in terms
of resource use.
Among the comments we received was a proposal (endorsed by the
American Burn Association (ABA)) for restructuring the DRGs based on
several statistical and clinical criteria, including age, severity of
the burn, and the presence of complications or comorbidities. Although
this proposal was structured for a patient population encompassing all
ages of patients, we believed that it showed great promise for Medicare
patients as well. During the last several months, we have worked
closely with representatives of the ABA and with the clinicians who
developed the proposal in order to refine it for Medicare purposes.
Based on this work, we are proposing a new set of DRGs for burn
cases. Under this proposal, we would replace the six existing DRGs in
MDC 22 with eight new DRGs. For ease of reference and classification,
the current DRGs in MDC 22, DRGs 456 through 460 and 472, would no
longer be valid, and we would establish new DRGs 504 through 511 to
contain all cases that currently group to MDC 22. (The complete titles
of the new DRGs are set forth below.)
In reviewing the Medicare burn cases, we found that the most
important distinguishing characteristic in terms of resource use was
the amount of body surface affected by the burn and how much of that
burn was a 3rd degree burn. The second most important factor was
whether or not the patient received a skin graft. Thus, a patient with
burns covering at least 20 percent of body area, with at least 10
percent of that a 3rd degree burn, consumed the most resources.
However, if a patient met these criteria and did not receive a skin
graft, then the case was much less expensive and the average length of
stay fell from over 30 days to 8 days. The first two proposed burn DRGs
would reflect these distinctions (DRGs 504 and 505).
After classifying the most extensive burn cases, we found that the
patients with 3rd degree burns that did not meet the criteria to be
assigned to DRGs 504 and 505 were the most expensive of the remaining
cases (that is, those patients whose burns that did not meet the at
least 20 percent body area or at least 10 percent 3rd degree criteria).
These burns are referred to clinically as ``full-thickness burns.'' A
subset of these full-thickness burn cases, those with skin graft or an
inhalation injury, were much more expensive than the other cases. After
dividing these patients into two groups, with or without skin graft or
inhalation injury, we examined whether other factors had an influence
on resource use. We found that patients who had a CC (complication or
comorbidity) or a concomitant significant trauma consumed more
resources whether or not they had a skin graft or inhalation injury.
Thus, the next four DRGs were defined as full-thickness burns with skin
graft or inhalation injury with or without CC or significant trauma, or
full-thickness burns without skin graft or inhalation injury with or
without CC or significant trauma (DRGs 506 through 509).
Finally, the last two proposed DRGs (510 and 511) are for cases
with nonextensive burns. These cases are also split on the basis of CCs
or concomitant significant trauma.
Consistent with the recommendations of several commenters on last
year's proposed rule, the new burn DRGs would no longer include a
separate DRG for cases in which burn patients were transferred to
another acute care facility. Overall, we estimate that these proposed
changes would increase by more than 25 percent the amount of variation
in resource use explained by the DRGs in MDC 22. They would also
improve the clinical coherence of the cases within each DRG. Thus, we
believe that the proposed DRGs would provide for improved payment for
cases assigned to MDC 22.
The specific diagnosis and procedure codes that would be included
in each of the eight DRGs and their titles are as follows:
DRGs 504 and 505--Extensive 3rd Degree Burns with and without Skin
Graft
DRGs 504 and 505 would include all cases with burns involving at
least 20 percent of body surface area combined with a 3rd degree burn
covering at least 10 percent of body surface area. Thus, these cases
would have diagnosis codes of 948.xx, with a fourth digit of 2 or
higher (indicating that burn extends over 20 percent or more of body
surface) and a fifth digit of 1 or higher (indicating a 3rd degree burn
extending over 10 percent or more of body surface). Cases with the
appropriate diagnosis codes would be classified into DRG 504 if one of
the following skin graft procedure codes is present:
85.82 Split-thickness graft to breast
85.83 Full-thickness graft to breast
85.84 Pedicle graft to breast
86.60 Free skin graft, NOS
86.61 Full-thickness skin graft to hand
86.62 Other skin graft to hand
86.63 Full-thickness skin graft to other sites
86.65 Heterograft to skin
86.66 Homograft to skin
86.67 Dermal regenerative graft (new code in FY 1999--see Table 6A
in section V. of the Addendum)
86.69 Other skin graft to other sites
86.70 Pedicle of flap graft, NOS
[[Page 25580]]
86.71 Cutting and preparation of pedicle grafts or flaps
86.72 Advancement of pedicle graft
86.73 Attachment of pedicle or flap graft to hand
86.74 Attachment of pedicle or flap graft to other sites
86.75 Revision of pedicle or flap graft
86.93 Insertion of tissue expander
DRGs 506 and 507--Full Thickness Burn with Skin Graft or Inhalation
Injury with or without CC or Significant Trauma
These DRGs would include all other cases of 3rd degree burns that
also have either a skin graft or an inhalation injury. Thus, these
cases would have diagnosis codes of 941.xx through 946.xx, and 949.xx,
with a fourth digit of 3 or higher, as well as cases with codes of
948.xx that did not group into DRGs 504 or 505 (that is, 948.00,
948.01, and 948.1x through 948.9x with a fifth digit of 0). In
addition, cases classified into DRGs 506 and 507 must have either one
of the skin graft procedure codes listed above or one of the following
diagnosis codes for inhalation injuries:
518.5 Pulmonary insufficiency following trauma and surgery
518.81 Respiratory failure
518.84 Acute and chronic respiratory failure (new code in FY 1999--
see Table 6A in section V. of the Addendum)
947.1 Burn of larynx, trachea, or lung
987.9 Toxic effect of gas, fume, or vapor, NOS
Cases that meet both of these coding criteria would be assigned to
DRG 506 if there is a diagnosis code indicating either a CC (based on
the standard DRG CC list) or concomitant significant trauma (based on
the significant trauma diagnosis codes, listed by body site, used for
classification in MDC 24).
DRGs 508 and 509--Full Thickness Burn without Skin Graft or Inhalation
Injury with or without CC or Significant Trauma
These DRGs would include all other cases of 3rd degree burns. Thus,
these DRGs would include all cases without a skin graft or inhalation
injury that have diagnosis codes of 941.xx through 946.xx, and 949.xx,
with a fourth digit of 3 or higher, as well as cases with codes of
948.xx that did not group into DRGs 504 or 505. DRG 508 would also
require a secondary diagnosis from the standard CC list or the trauma
list based on the significant trauma diagnosis codes, listed by body
site, used for classification in MDC 24.
DRGs 510 and 511--Nonextensive Burns with and without CC or Significant
Trauma
The remaining burn cases would be classified into one of these two
DRGs, depending on whether or not the claim included a diagnosis code
reflecting the presence of a CC or a significant trauma, as explained
above.
4. Legionnaires' Disease
Effective with discharges occurring on or after October 1, 1997, a
new diagnosis code was created for pneumonia due to Legionnaires'
disease (code 482.84). In the August 29, 1997 final rule with comment
period, we assigned this code to DRGs 79, 80, and 81 (Respiratory
Infections and Inflammations) (62 FR 46090). However, we did not
include this code as a human immunodeficiency virus (HIV) major related
condition in MDC 25 (HIV Infections). Because pneumonia due to
Legionnaires' disease is a serious respiratory condition that has a
deleterious effect on patients with HIV, we are proposing to assign
diagnosis code 482.84 to DRG 489 (HIV with Major Related Condition) as
a major related condition. In addition, we did not assign the code as a
major problem in DRGs 387 (Prematurity with Major Problems) and 389
(Full Term Neonate with Major Problems). These DRGs are assigned to MDC
15 (Newborns and Other Neonates with Conditions Originating in the
Perinatal Period). Again, as a part of this proposed rule, we would
assign diagnosis code 482.84 as a major problem in DRGs 387 and 389
because of its effect on resource use in treating newborns.
5. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different DRG within the MDC to which the principal diagnosis is
assigned. It is, therefore, necessary to have a decision rule by which
these cases are assigned to a single DRG. The surgical hierarchy, an
ordering of surgical classes from most to least resource intensive,
performs that function. Its application ensures that cases involving
multiple surgical procedures are assigned to the DRG associated with
the most resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of DRG reclassification and recalibration, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications, to determine if the ordering of classes coincided
with the intensity of resource utilization, as measured by the same
billing data used to compute the DRG relative weights.
A surgical class can be composed of one or more DRGs. For example,
in MDC 5, the surgical class ``heart transplant'' consists of a single
DRG (DRG 103) and the class ``major cardiovascular procedures''
consists of two DRGs (DRGs 110 and 111). Consequently, in many cases,
the surgical hierarchy has an impact on more than one DRG. The
methodology for determining the most resource-intensive surgical class
involves weighting each DRG for frequency to determine the average
resources for each surgical class. For example, assume surgical class A
includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5.
Assume also that the average charge of DRG 1 is higher than that of DRG
3, but the average charges of DRGs 4 and 5 are higher than the average
charge of DRG 2. To determine whether surgical class A should be higher
or lower than surgical class B in the surgical hierarchy, we would
weight the average charge of each DRG by frequency (that is, by the
number of cases in the DRG) to determine average resource consumption
for the surgical class. The surgical classes would then be ordered from
the class with the highest average resource utilization to that with
the lowest, with the exception of ``other OR procedures'' as discussed
below.
This methodology may occasionally result in a case involving
multiple procedures being assigned to the lower-weighted DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER searches for the procedure in the
most resource-intensive surgical class this result is unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average relative
weight is ordered above a surgical class with a higher average relative
weight. For example, the ``other OR procedures'' surgical class is
uniformly ordered last in the surgical hierarchy of each MDC in which
it occurs, regardless of the fact that the relative weight for the DRG
or DRGs in that surgical class may be higher than that for other
surgical classes in the MDC. The ``other OR procedures'' class is a
group of procedures that are least likely to be related to the
diagnoses in the MDC but are occasionally performed on patients with
these diagnoses. Therefore, these procedures should only be considered
if
[[Page 25581]]
no other procedure more closely related to the diagnoses in the MDC has
been performed.
A second example occurs when the difference between the average
weights for two surgical classes is very small. We have found that
small differences generally do not warrant reordering of the hierarchy
since, by virtue of the hierarchy change, the relative weights are
likely to shift such that the higher-ordered surgical class has a lower
average weight than the class ordered below it.
Based on the preliminary recalibration of the DRGs, we are
proposing to modify the surgical hierarchy as set forth below. As we
stated in the September 1, 1989 final rule (54 FR 36457), we are unable
to test the effects of the proposed revisions to the surgical hierarchy
and to reflect these changes in the proposed relative weights due to
the unavailability of revised GROUPER software at the time this
proposed rule is prepared. Rather, we simulate most major
classification changes to approximate the placement of cases under the
proposed reclassification and then determine the average charge for
each DRG. These average charges then serve as our best estimate of
relative resource use for each surgical class. We test the proposed
surgical hierarchy changes after the revised GROUPER is received and
reflect the final changes in the DRG relative weights in the final
rule. Further, as discussed below in section II.C of this preamble, we
anticipate that the final recalibrated weights will be somewhat
different from those proposed, since they will be based on more
complete data. Consequently, further revision of the hierarchy, using
the above principles, may be necessary in the final rule.
At this time, we would revise the surgical hierarchy for MDC 3
(Diseases and Disorders of the Ear, Nose, Mouth and Throat) as follows:
We would reorder Sinus and Mastoid Procedures (DRGs 53-54)
above Myringotomy with Tube Insertion (DRGs 61-62).
We would reorder Mouth Procedures (DRGs 168-169) above
Tonsil and Adenoid Procedure Except Tonsillectomy and/or Adeniodectomy
Only (DRGs 57-58).
6. Refinement of Complications and Comorbidities List
There is a standard list of diagnoses that are considered CCs. We
developed this list using physician panels to include those diagnoses
that, when present as a secondary condition, would be considered a
substantial complication or comorbidity. In previous years, we have
made changes to the standard list of CCs, either by adding new CCs or
deleting CCs already on the list. At this time, we do not propose to
delete any of the diagnosis codes on the CC list.
In the September 1, 1987 final notice concerning changes to the DRG
classification system (52 FR 33143), we modified the GROUPER logic so
that certain diagnoses included on the standard list of CCs would not
be considered a valid CC in combination with a particular principal
diagnosis. Thus, we created the CC Exclusions List. We made these
changes to preclude coding of CCs for closely related conditions, to
preclude duplicative coding or inconsistent coding from being treated
as CCs, and to ensure that cases are appropriately classified between
the complicated and uncomplicated DRGs in a pair.
In the May 19, 1987 proposed notice concerning changes to the DRG
classification system (52 FR 18877), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another (as subsequently corrected
in the September 1, 1987 final notice (52 FR 33154)).
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for a condition should not be considered CCs for
one another.
Conditions that may not co-exist, such as partial/total,
unilateral/bilateral, obstructed/unobstructed, and benign/malignant,
should not be considered CCs for one another.
The same condition in anatomically proximal sites should
not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. The FY 1988 revisions were intended to be
only a first step toward refinement of the CC list in that the criteria
used for eliminating certain diagnoses from consideration as CCs were
intended to identify only the most obvious diagnoses that should not be
considered complications or comorbidities of another diagnosis. For
that reason, and in light of comments and questions on the CC list, we
have continued to review the remaining CCs to identify additional
exclusions and to remove diagnoses from the master list that have been
shown not to meet the definition of a CC. (See the September 30, 1988
final rule for the revision made for the discharges occurring in FY
1989 (53 FR 38485); the September 1, 1989 final rule for the FY 1990
revision (54 FR 36552); the September 4, 1990 final rule for the FY
1991 revision (55 FR 36126); the August 30, 1991 final rule for the FY
1992 revision (56 FR 43209); the September 1, 1992 final rule for the
FY 1993 revision (57 FR 39753); the September 1, 1993 final rule for
the FY 1994 revisions (58 FR 46278); the September 1, 1994 final rule
for the FY 1995 revisions (59 FR 45334); the September 1, 1995 final
rule for the FY 1996 revisions (60 FR 45782); the August 30, 1996 final
rule for the FY 1997 revisions (61 FR 46171); and the August 29, 1997
final rule for the FY 1998 revisions (62 FR 45966)).
We are proposing a limited revision of the CC Exclusions List to
take into account the changes that will be made in the ICD-9-CM
diagnosis coding system effective October 1, 1998. (See section II.B.8,
below, for a discussion of ICD-9-CM changes.) These proposed changes
are being made in accordance with the principles established when we
created the CC Exclusions List in 1987.
Tables 6F and 6G in section V. of the Addendum to this proposed
rule contain the proposed revisions to the CC Exclusions List that
would be effective for discharges occurring on or after October 1,
1998. Each table shows the principal diagnoses with proposed changes to
the excluded CCs. Each of these principal diagnoses is shown with an
asterisk and the additions or deletions to the CC Exclusions List are
provided in an indented column immediately following the affected
principal diagnosis.
CCs that are added to the list are in Table 6F--Additions to the CC
Exclusions List. Beginning with discharges on or after October 1, 1998,
the indented diagnoses will not be recognized by the GROUPER as valid
CCs for the asterisked principal diagnosis.
CCs that are deleted from the list are in Table 6G--Deletions from
the CC Exclusions List. Beginning with discharges on or after October
1, 1998 the indented diagnoses will be recognized by the GROUPER as
valid CCs for the asterisked principal diagnosis.
Copies of the original CC Exclusions List applicable to FY 1988 can
be obtained from the National Technical Information Service (NTIS) of
the Department of Commerce. It is available in hard copy for $92.00
plus $6.00 shipping and handling and on microfiche for $20.50, plus
$4.00 for shipping and handling. A request for the FY 1988 CC
Exclusions List (which
[[Page 25582]]
should include the identification accession number (PB) 88-133970)
should be made to the following address: National Technical Information
Service; United States Department of Commerce; 5285 Port Royal Road;
Springfield, Virginia 22161; or by calling (703) 487-4650.
Users should be aware of the fact that all revisions to the CC
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997, and 1998) and those in Tables 6F and 6G of this document must be
incorporated into the list purchased from NTIS in order to obtain the
CC Exclusions List applicable for discharges occurring on or after
October 1, 1998.
Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with HCFA, is
responsible for updating and maintaining the GROUPER program. The
current DRG Definitions Manual, Version 15.0, is available for $195.00,
which includes $15.00 for shipping and handling. Version 16.0 of this
manual, which will include the final FY 1999 DRG changes, will be
available in October 1998 for $225.00. These manuals may be obtained by
writing 3M/HIS at the following address: 100 Barnes Road; Wallingford,
Connecticut 06492; or by calling (203) 949-0303. Please specify the
revision or revisions requested.
7. Review of Procedure Codes in DRGs 468, 476, and 477
Each year, we review cases assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR
Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive
OR Procedure Unrelated to Principal Diagnosis) in order to determine
whether it would be appropriate to change the procedures assigned among
these DRGs.
DRGs 468, 476, and 477 are reserved for those cases in which none
of the OR procedures performed is related to the principal diagnosis.
These DRGs are intended to capture atypical cases, that is, those cases
not occurring with sufficient frequency to represent a distinct,
recognizable clinical group. DRG 476 is assigned to those discharges in
which one or more of the following prostatic procedures are performed
and are unrelated to the principal diagnosis:
60.0 Incision of prostate
60.12 Open biopsy of prostate
60.15 Biopsy of periprostatic tissue
60.18 Other diagnostic procedures on prostate and periprostatic
tissue
60.21 Transurethral prostatectomy
60.29 Other transurethral prostatectomy
60.61 Local excision of lesion of prostate
60.69 Prostatectomy NEC
60.81 Incision of periprostatic tissue
60.82 Excision of periprostatic tissue
60.93 Repair of prostate
60.94 Control of (postoperative) hemorrhage of prostate
60.95 Transurethral balloon dilation of the prostatic urethra
60.99 Other operations on prostate
All remaining OR procedures are assigned to DRGs 468 and 477, with
DRG 477 assigned to those discharges in which the only procedures
performed are nonextensive procedures that are unrelated to the
principal diagnosis. The original list of the ICD-9-CM procedure codes
for the procedures we consider nonextensive procedures, if performed
with an unrelated principal diagnosis, was published in Table 6C in
section IV. of the Addendum to the September 30, 1988 final rule (53 FR
38591). As part of the final rules published on September 4, 1990,
August 30, 1991, September 1, 1992, September 1, 1993, September 1,
1994, September 1, 1995, August 30, 1996, and August 29, 1997, we moved
several other procedures from DRG 468 to 477, as well as moving some
procedures from DRG 477 to 468. (See 55 FR 36135, 56 FR 43212, 57 FR
23625, 58 FR 46279, 59 FR 45336, 60 FR 45783, 61 FR 46173, and 62 FR
45981, respectively.)
a. Adding Procedure Codes to MDCs. We annually conduct a review of
procedures producing DRG 468 or 477 assignments on the basis of volume
of cases in these DRGs with each procedure. Our medical consultants
then identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical DRGs for the MDC in which the diagnosis falls.
Based on this year's review, we did not identify any necessary changes;
therefore, we are not proposing to move any procedures from DRGs 468
and 477 to one of the surgical DRGs.
b. Reassignment of Procedures Among DRGs 468, 476, and 477. We
also reviewed the list of procedures that produce assignments to DRGs
468, 476, and 477 to ascertain if any of those procedures should be
moved from one of these DRGs to another based on average charges and
length of stay. Generally, we move only those procedures for which we
have an adequate number of discharges to analyze the data. Based on our
review this year, we are not proposing to move any procedures from DRG
468 to DRGs 476 or 477, from DRG 476 to DRGs 468 or 477, or from DRG
477 to DRGS 468 or 476.
8. Changes to the ICD-9-CM Coding System
As discussed above in section II.B.1 of this preamble, the ICD-9-CM
is a coding system that is used for the reporting of diagnoses and
procedures performed on a patient. In September 1985, the ICD-9-CM
Coordination and Maintenance Committee was formed. This is a Federal
interdepartmental committee charged with the mission of maintaining and
updating the ICD-9-CM. That mission includes approving coding changes,
and developing errata, addenda, and other modifications to the ICD-9-CM
to reflect newly developed procedures and technologies and newly
identified diseases. The Committee is also responsible for promoting
the use of Federal and non-Federal educational programs and other
communication techniques with a view toward standardizing coding
applications and upgrading the quality of the classification system.
The Committee is co-chaired by the National Center for Health
Statistics (NCHS) and HCFA. The NCHS has lead responsibility for the
ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic
Index for Diseases while HCFA has lead responsibility for the ICD-9-CM
procedure codes included in the Tabular List and Alphabetic Index for
Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding fields, such
as the American Health Information Management Association (AHIMA)
(formerly American Medical Record Association (AMRA)), the American
Hospital Association (AHA), and various physician specialty groups as
well as physicians, medical record administrators, health information
management professionals, and other members of the public to contribute
ideas on coding matters. After considering the opinions expressed at
the public meetings and in writing, the Committee formulates
recommendations, which then must be approved by the agencies.
The Committee presented proposals for coding changes at public
meetings held on June 5 and December 4 and 5, 1997, and finalized the
coding changes after consideration of comments received at the meetings
and in writing
[[Page 25583]]
within 30 days following the December 1997 meeting. The initial meeting
for consideration of coding issues for implementation in FY 2000 will
be held on June 4, 1998. Copies of the minutes of the 1997 meetings can
be obtained from the HCFA Home Page @ http://www.hcfa.gov/pubaffr.htm,
under the ``What's New'' listing. Paper copies of these minutes are no
longer available and the mailing list has been discontinued. We
encourage commenters to address suggestions on coding issues involving
diagnosis codes to: Donna Pickett, Co-Chairperson; ICD-9-CM
Coordination and Maintenance Committee; NCHS; Room 1100; 6525 Belcrest
Road; Hyattsville, Maryland 20782. Comments may be sent by E-mail to:
[email protected].
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination
and Maintenance Committee; HCFA, Center for Health Plans and Providers,
Plan and Provider Purchasing Policy Group, Division of Acute Care; C5-
06-27; 7500 Security Boulevard; Baltimore, Maryland 21244-1850.
Comments may be sent by E-mail to: [email protected].
The ICD-9-CM code changes that have been approved will become
effective October 1, 1998. The new ICD-9-CM codes are listed, along
with their proposed DRG classifications, in Tables 6A and 6B (New
Diagnosis Codes and New Procedure Codes, respectively) in section V. of
the Addendum to this proposed rule. As we stated above, the code
numbers and their titles were presented for public comment in the ICD-
9-CM Coordination and Maintenance Committee meetings. Both oral and
written comments were considered before the codes were approved.
Therefore, we are soliciting comments only on the proposed DRG
classifications.
Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment.
Diagnosis codes that have been replaced by expanded codes, other codes,
or have been deleted are in Table 6C (Invalid Diagnosis Codes). These
invalid diagnosis codes will not be recognized by the GROUPER beginning
with discharges occurring on or after October 1, 1998. The
corresponding new or expanded diagnosis codes are included in Table 6A.
Procedure codes that have been replaced by expanded codes, other codes,
or have been deleted are in Table 6D (Invalid Procedure Codes).
Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis
Code Titles), which also include the proposed DRG assignments for these
revised codes. For FY 1999, there are no revisions to procedure code
titles.
9. Other Issues--
a. Palliative Care. Effective October 1, 1996 (FY 1997), we
introduced a diagnosis code to allow the identification of those cases
in which palliative care was delivered to a hospital inpatient. This
code, V66.7 (Encounter for palliative care), was unusual in that there
had been no previous code assignment that included the concept of
palliative care. Since this was a new concept, instructional materials
were developed and distributed by the AHA as well as specialty groups
on the use of this new code. With new codes, it sometimes takes several
years for physician documentation to improve and for coders to become
accustomed to looking for this type of information in order to assign a
code. There is an inclusion note listed under V66.7 which indicates
that this code should be used as a secondary diagnosis only; the
patient's medical problem would always be listed first. Currently, use
of diagnosis code V66.7 does not have an impact on DRG assignment.
Consistent with prior practice, we have waited until the FY 1997 data
became available for analysis before considering any possible
modifications to the DRGs.
In analyzing the FY 1997 bills received through September 1997, we
found that 4,769 discharges included V66.7 as a secondary diagnosis.
These cases were widely distributed throughout 199 DRGs. The vast
majority of these DRGs included five or fewer discharges with use of
palliative care. Only 12 DRGs included more than 100 cases. These were
the following:
------------------------------------------------------------------------
Number of
DRG Title cases
------------------------------------------------------------------------
10............................... Nervous System Neoplasms 144
with CC.
14............................... Specific Cerebrovascular 272
Disorders Except TIA.
79............................... Respiratory Infections 139
and Inflammations Age
>17 with CC.
82............................... Respiratory Neoplasms... 526
89............................... Simple Pneumonia and 200
Pleurisy Age >17 with
CC.
127.............................. Heart Failure and Shock. 184
172.............................. Digestive Malignancy 226
with CC.
203.............................. Malignancy of 285
Hepatobiliary System or
Pancreas.
239.............................. Pathological Fractures 218
and Musculoskeletal and
Connective Tissue
Malignancy.
296.............................. Nutritional and 173
Miscellaneous Metabolic
Disorders Age >17 with
CC.
403.............................. Lymphoma and Non-Acute 178
Leukemia with CC.
416.............................. Septicemia Age >17...... 147
------------------------------------------------------------------------
Six of these DRGs are cancer-related; however, the other DRGs are
quite diverse. Upon further analysis, we found that, for the most part,
discharges with code V66.7 do not significantly differ in length of
stay from the discharges in the same DRG without code V66.7. Discharges
with code V66.7 are sometimes longer and sometimes shorter and the
comparative length of stay for a given DRG tends to vary by only one
day. In general, the average charges for a palliative care case
discharge with a secondary code of V66.7 were lower than the charges
for other discharges within the DRG. However, these differences were
relatively small and were well within the standard variation of charges
for cases in the DRG.
One approach we could take to revise the DRGs would be to divide
those DRGs with a large number of cases coded with V66.7 into two
different DRGs, with and without palliative care. However, the
relatively small proportion of cases in each DRG argues against this
approach; no DRG has more than 1 percent of its cases coded with
palliative care and, in most cases, the percentage is well under 1
percent. An alternative approach would be to group all palliative care
cases, regardless of the underlying disease or condition, into one new
DRG. However, the charges of these cases are so varied that this is not
a logical choice. In addition, there is a lack of clinical coherence in
such an approach. The underlying diagnoses of
[[Page 25584]]
these cases range from respiratory conditions to heart failure to
septicemia. Because there are so few cases in the FY 1997 data and they
are so widely dispersed among different DRGs, we are not proposing a
DRG modification at this time. We will make a more detailed analysis of
these cases over the next year based on a more complete FY 1997 data
file as well as review of the FY 1998 cases that will be available
later this year. As time goes by, hospital coders and physicians should
become more aware of this code and we hope that more complete data will
assist our decision making process.
b. PTCA. Effective with discharges occurring on or after October 1,
1997, we reassigned cases of PTCA with coronary artery stent implant
from DRG 112 to DRG 116. In the August 29, 1997 final rule with comment
period, we responded to several commenters who contended that PTCA
cases treated with platelet inhibitors were as resource intensive as
the PTCA with stent implant cases and that these cases should also be
moved to DRG 116. However, there is currently no code that describes
the infusion of platelet inhibitors. Therefore, we were unable to make
any changes in the DRGs for FY 1998.
As set forth in Table 6B, New Procedure Codes in section V. of the
addendum to this proposed rule, a new procedure code for injection or
infusion of platelet inhibitors (code 99.20) will be effective with
discharges occurring on or after October 1, 1998. Our usual policy on
new codes is to assign them to the same DRG or DRGs as their
predecessor code. Because infusion of platelet inhibitors is currently
assigned to a non-OR procedure code, we followed our usual practice and
designated code 99.20 as a non-OR code that does not affect DRG
assignment.
We will not have any data on this new code until we receive bills
for FY 1999. Thus, we would be unable to make any changes in DRG
assignment until FY 2001. We note, however, that the Conference Report
that accompanied the Balanced Budget Act of 1997 contained language
stating that ``* * * in order to ensure that Medicare beneficiaries
have access to innovative new drug therapies, the Conferees believe
that HCFA should consider, to the extent feasible, reliable, validated
data other than MedPAR data in annually recalibrating and reclassifying
the DRGs.'' (H.R. Rep. No. 105-217.734). At this time, we have received
no data that would allow us to make an appropriate modification of DRG
112 for PTCA cases with platelet infusion therapy. When we develop the
final rule, we will review and analyze any data we receive about the
use of platelet inhibitors for Medicare beneficiaries. If we believe
that the data are adequate to allow identification of the percentage of
cases in DRG 112 that receive this therapy and the charge and length of
stay data convince us that these cases should be moved, we will
consider such a move effective for discharges occurring on or after
October 1, 1998.
C. Recalibration of DRG Weights
We are proposing to use the same basic methodology for the FY 1999
recalibration as we did for FY 1998. (See the August 29, 1997 final
rule with comment (62 FR 45982).) That is, we would recalibrate the
weights based on charge data for Medicare discharges. However, we would
use the most current charge information available, the FY 1997 MedPAR
file, rather than the FY 1996 MedPAR file. The MedPAR file is based on
fully-coded diagnostic and surgical procedure data for all Medicare
inpatient hospital bills.
The proposed recalibrated DRG relative weights are constructed from
FY 1997 MedPAR data, based on bills received by HCFA through December
1997, from all hospitals subject to the prospective payment system and
short-term acute care hospitals in waiver States. The FY 1997 MedPAR
file includes data for approximately 11.2 million Medicare discharges.
The methodology used to calculate the proposed DRG relative weights
from the FY 1997 MedPAR file is as follows:
To the extent possible, all the claims were regrouped
using the proposed DRG classification revisions discussed above in
section II.B of this preamble. As noted in section II.B.5, due to the
unavailability of revised GROUPER software, we simulate most major
classification changes to approximate the placement of cases under the
proposed reclassification. However, there are some changes that cannot
be modeled.
Charges were standardized to remove the effects of
differences in area wage levels, indirect medical education costs,
disproportionate share payments, and, for hospitals in Alaska and
Hawaii, the applicable cost-of-living adjustment.
The average standardized charge per DRG was calculated by
summing the standardized charges for all cases in the DRG and dividing
that amount by the number of cases classified in the DRG.
We then eliminated statistical outliers, using the same
criteria as was used in computing the current weights. That is, all
cases that are outside of 3.0 standard deviations from the mean of the
log distribution of both the charges per case and the charges per day
for each DRG.
The average charge for each DRG was then recomputed
(excluding the statistical outliers) and divided by the national
average standardized charge per case to determine the relative weight.
A transfer case is counted as a fraction of a case based on the ratio
of its length of stay to the geometric mean length of stay of the cases
assigned to the DRG. That is, a 5-day length of stay transfer case
assigned to a DRG with a geometric mean length of stay of 10 days is
counted as 0.5 of a total case.
We established the relative weight for heart and heart-
lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner
consistent with the methodology for all other DRGs except that the
transplant cases that were used to establish the weights were limited
to those Medicare-approved heart, heart-lung, liver, and lung
transplant centers that have cases in the FY 1995 MedPAR file.
(Medicare coverage for heart, heart-lung, liver, and lung transplants
is limited to those facilities that have received approval from HCFA as
transplant centers.)
Acquisition costs for kidney, heart, heart-lung, liver,
and lung transplants continue to be paid on a reasonable cost basis.
Unlike other excluded costs, the acquisition costs are concentrated in
specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant
for heart and heart-lung transplants); DRG 480 (Liver Transplant); and
DRG 495 (Lung Transplant)). Because these costs are paid separately
from the prospective payment rate, it is necessary to make an
adjustment to prevent the relative weights for these DRGs from
including the effect of the acquisition costs. Therefore, we subtracted
the acquisition charges from the total charges on each transplant bill
that showed acquisition charges before computing the average charge for
the DRG and before eliminating statistical outliers.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We propose to use that same case threshold
in recalibrating the DRG weights for FY 1999. Using the FY 1997 MedPAR
data set, there are 38 DRGs that contain fewer than 10 cases. We
computed the weights for the 38 low-volume DRGs by adjusting the FY
1998 weights of these DRGs by the percentage change in the average
weight of the cases in the other DRGs.
The weights developed according to the methodology described above,
using the proposed DRG classification
[[Page 25585]]
changes, result in an average case weight that is different from the
average case weight before recalibration. Therefore, the new weights
are normalized by an adjustment factor, so that the average case weight
after recalibration is equal to the average case weight before
recalibration. This adjustment is intended to ensure that recalibration
by itself neither increases nor decreases total payments under the
prospective payment system.
Section 1886(d)(4)(C)(iii) of the Act requires that beginning with
FY 1991, reclassification and recalibration changes be made in a manner
that assures that the aggregate payments are neither greater than nor
less than the aggregate payments that would have been made without the
changes. Although normalization is intended to achieve this effect,
equating the average case weight after recalibration to the average
case weight before recalibration does not necessarily achieve budget
neutrality with respect to aggregate payments to hospitals because
payment to hospitals is affected by factors other than average case
weight. Therefore, as we have done in past years and as discussed in
section II.A.4.b of the Addendum to this proposed rule, we are
proposing to make a budget neutrality adjustment to assure that the
requirement of section 1886(d)(4)(C)(iii) of the Act is met.
III. Proposed Changes to the Hospital Wage Index
A. Background
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the 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.'' In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New
England County Metropolitan Areas (NECMAs) issued by the Office of
Management and Budget (OMB). OMB also designates Consolidated MSAs
(CMSAs). A CMSA is a metropolitan area with a population of one million
or more, comprised of two or more PMSAs (identified by their separate
economic and social character). For purposes of the hospital wage
index, we use the PMSAs rather than CMSAs since they allow a more
precise breakdown of labor costs. If a metropolitan area is not
designated as part of a PMSA, we use the applicable MSA. Rural areas
are areas outside a designated MSA, PMSA, or NECMA.
We note that effective April 1, 1990, the term Metropolitan Area
(MA) replaced the term Metropolitan Statistical Area (MSA) (which had
been used since June 30, 1983) to describe the set of metropolitan
areas comprised of MSAs, PMSAs, and CMSAs. The terminology was changed
by OMB in the March 30, 1990 Federal Register to distinguish between
the individual metropolitan areas known as MSAs and the set of all
metropolitan areas (MSAs, PMSAs, and CMSAs) (55 FR 12154). For purposes
of the prospective payment system, we will continue to refer to these
areas as MSAs.
Section 1886(d)(3)(E) of the Act also requires that the wage index
be updated annually beginning October 1, 1993. Furthermore, this
section provides that the Secretary base the update on a survey of
wages and wage-related costs of short-term, acute care hospitals. The
survey should measure, to the extent feasible, the earnings and paid
hours of employment by occupational category, and must exclude the
wages and wage-related costs incurred in furnishing skilled nursing
services. We also adjust the wage index, as discussed below in section
III.F, to take into account the geographic reclassification of
hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of
the Act.
B. FY 1999 Wage Index Update
The proposed FY 1999 wage index in section V of the Addendum
(effective for hospital discharges occurring on or after October 1,
1998 and before October 1, 1999) is based on the data collected from
the Medicare cost reports submitted by hospitals for cost reporting
periods beginning in FY 1995 (the FY 1998 wage index was based on FY
1994 wage data). The proposed FY 1999 wage index includes the following
categories of data, which were also included in the FY 1998 wage index:
Total salaries and hours from short-term, acute care
hospitals.
Home office costs and hours.
Direct patient care contract labor costs and hours.
The proposed wage index also continues to exclude the direct
salaries and hours for nonhospital services such as skilled nursing
facility services, home health services, or other subprovider
components that are not subject to the prospective payment system.
Finally, as discussed in detail in the August 29, 1997 final rule with
comment period, we would calculate a separate Puerto Rico-specific wage
index and apply it to the Puerto Rico standardized amount. (See 62 FR
45984 and 46041) This wage index is based solely on Puerto Rico's data.
For FY 1999 we are proposing to include two changes to the
categories: we will add contract labor costs and hours for top
management positions and replace the fringe benefit category with the
wage-related costs associated with hospital and home office salaries
category. These two changes reflect changes to the Medicare cost report
that were implemented in the FY 1995 hospital prospective payment
system September 1, 1994 final rule with comment period (59 FR 45355).
The changes were made to the cost report for cost reporting periods
beginning during FY 1995. Because we are using wage data from the FY
1995 cost report for the proposed FY 1999 wage index, these two changes
will be reflected in the wage index for the first time in FY 1999.
As discussed in detail in the September 1, 1994 final rule with
comment period (59 FR 45355), we expanded the definition of contract
services reported on the Worksheet S-3 to include the labor-related
costs associated with contract personnel in a hospital's top four
management positions: Chief Executive Officer (CEO)/Hospital
Administrator, Chief Operating Officer (COO), Chief Financial Officer
(CFO), and Nursing Administrator. We also revised the cost report to
reflect a change in terminology from ``fringe benefits'' to ``wage-
related costs,'' to promote the consistent reporting of these costs.
(See September 1, 1994 final rule with comment period 59 FR 45356-
45359.) We made this change in terminology because we believe that it
will eliminate confusion regarding those wage-related costs that are
incorporated in the wage index versus the broader definition of fringe
benefits recognized under the Medicare cost reimbursement principles.
Wage-related costs, which include core and other wage-related costs,
are reported on the Form HCFA-339, the Provider Cost Report
Reimbursement Questionnaire.
Finally, we have analyzed the wage data for the following costs,
which were separately reported for the first time on the FY 1995 cost
reports:
Physician Part A costs.
Resident and Certified Registered Nurse Anesthetist (CRNA)
Part A costs.
Overhead cost and hours by cost center.
Our analysis and proposals concerning these data are set forth
below in section III.C.
[[Page 25586]]
C. Proposals Concerning the FY 1999 Wage Index
1. Physician Part A Costs.
Currently, if a hospital directly employs a physician, the Part A
portion of the physician's salary and wage-related costs (that is,
administrative and teaching service) is included in the calculation of
the wage index. However, the costs for contract physician Part A
services are not included. Our policy has been that, to be included in
the wage index calculation, a contracted service must be related to
direct patient care, or, beginning with the FY 1999 wage index, top
level management (see discussion above). Because some States have laws
that prohibit hospitals from directly hiring physicians, the hospitals
in those States have claimed that they are disadvantaged by the wage
index's exclusion of contract physician Part A costs. We began
collecting separate wage data for both direct and contract physician
Part A services on the FY 1995 cost report in order to analyze this
issue. As we discussed in the September 1, 1994 final rule with comment
period (59 FR 45354), our original purpose in collecting these data was
to exclude all Part A physician costs from the wage index.
When we made the change to the cost report, there were five States
in which hospitals were prohibited from directly employing physicians.
We understand that only two States currently maintain this prohibition:
Texas and California. Thus, the number of hospitals affected by our
current policy has decreased. Nevertheless, the fact that hospitals in
these two States are still prohibited from directly employing
physicians for Part A services and, therefore, must enter into
contractual agreements with physicians for these services, perpetuates
the perceived inequity.
The main reasons we planned to exclude all Part A physician costs
rather than include the contract costs was our concern that it would be
difficult to accurately attribute the Part A costs and hours of these
contract physicians and including these costs could inappropriately
inflate the hospitals' average hourly wages. That is, we anticipated
that average costs for contract physicians would be significantly
higher than the costs for those physicians directly employed by the
hospital. However, our analysis of the data shows that the average
hourly wages for contract physician Part A costs are very similar to,
and, in fact slightly lower than, the costs for salaried Part A
physician services.
Based on this result, we believe that continuing to include the
direct physician Part A costs and adding the costs for contract
physicians would be the better policy. Thus, we are proposing to
calculate the FY 1999 wage index including both direct and contract
physician Part A costs.
Of the 5,115 hospitals included in the FY 1995 wage data file,
approximately 23 percent reported contract physician Part A costs.
Including these costs would raise the wage index values for one MSA (2
hospitals) by more than 5 percent and 5 MSAs (60 hospitals) by between
2 and 5 percent. One Statewide rural area (68 hospitals) would
experience a decrease between 2 and 5 percent. The wage index values
for the remaining 365 areas (5,055 hospitals) would be relatively
unaffected, experiencing changes of between -2 and 2 percent. We
understand that an unusually large number of hospitals have requested
changes to these wage data; therefore, there may be relatively
significant differences between the wage data file used to calculate
the proposed wage index and the final corrected wage data in the file
used to calculate the final wage index. Because of this, we will
reevaluate our decision based on that final wage data, which will be
submitted by April 6, 1998. If we find significant differences in the
contract labor costs, we may reconsider our proposal.
2. Resident and CRNA Part A Costs
The wage index presently includes salaries and wage-related costs
for residents in approved medical education programs and for CRNAs
employed by hospitals under the rural pass-through provision. However,
Medicare pays for these costs outside the prospective payment system.
Removing these costs from the wage index calculation would be
consistent with our general policy to exclude costs that are not paid
through the prospective payment system, but, because they were not
separately identifiable, we could not remove them.
In the September 1, 1994 final rule with comment period (59 FR
45355), we stated that we would begin collecting the resident and CRNA
wage data separately and would evaluate the data before proposing a
change in computing the wage index. However, there were data reporting
problems associated with these costs on the FY 1995 cost report. The
original instructions for reporting resident costs on Line 6 of
Worksheet S-3, Part III, erroneously included teaching physician
salaries and other teaching program costs from Worksheet A of the cost
report. Although we issued revised instructions to correct this error,
we now understand these revisions may not have been uniformly
instituted. Another issue relating to residents' salaries stems from
apparent underreporting of these costs by hospitals and inconsistent
treatment of the associated wage-related costs.
In addition, the original Worksheet S-3 and reporting instructions
did not provide for the separate reporting of CRNA wage-related costs.
Another issue with the FY 1995 wage data is the inclusion of contract
CRNA Part A costs in the contract labor costs reported on Worksheet S-
3. We believe that much of the CRNA Part A costs are reported under
contract labor, rather than under salaried employee costs, due to the
heavy use of contract labor by rural hospitals. We do not believe that
it would be feasible at this time to try to remove these CRNA Part A
costs from the contract labor costs. We improved the reporting
instructions for CRNA costs on the FY 1996 cost report.
Our analysis of the CRNA and resident wage data submitted on the FY
1995 cost report convinces us that these data are inaccurately and
incompletely reported by hospitals. For example, although there are
over 900 teaching hospitals receiving graduate medical education
payments, only about 800 hospitals reported resident cost data. Because
we do not want to make a relatively significant change in the wage
index data calculation without complete and accurate data upon which to
base our decision, we are proposing to delay any decision regarding
excluding resident and CRNA costs from the wage index until at least
next year. We will review the FY 1996 data when it becomes available
later this year and present our analysis and any proposals in next
year's proposed rule.
3. Overhead Allocation
Prior years' wage index calculations have excluded the direct wages
and hours associated with certain subprovider components that are
excluded from the prospective payment system; however, the overhead
costs associated with excluded components have not been removed. We
have previously attempted to remove the overhead costs associated with
these excluded areas of the hospital on two separate occasions. Based
on the quality of the data, as well as comments we received from the
public, these proposals were never implemented.
In the September 1, 1995 final rule with comment period (60 FR
45797), we discussed the results of the second of these efforts. Our
analysis was prompted by several suggestions from hospital
representatives that the current methodology, which removes the higher
[[Page 25587]]
nursing costs in excluded areas from the hospital's direct salaries but
leaves in the lower general services salaries, negatively distorts
wages. However, the results of our analysis at that time dissuaded us
from proposing to exclude these areas' overhead costs because the data
were unreliable. We revised the FY 1995 cost report to allow for the
reporting of the overhead salaries and hours. We stated that we would
reexamine this issue when the FY 1995 cost report data became
available.
To allocate overhead costs based on the data reported on Worksheet
S-3, we first determined the ratio of the hours reported directly to
excluded areas compared to the total hours. Total overhead hours and
salaries were then multiplied by this ratio to allocate the proportion
of overhead costs attributable to excluded areas. Next, the overhead
hours and salaries attributable to excluded areas were subtracted from
the hospital's total hours and salaries, and an average hourly wage
reflecting this overhead allocation was computed.
Of the 5,115 hospitals in the FY 1995 wage data file, 3,661
reported overhead hours (hospitals were only required to separately
report overhead hours if their number of directly assigned excluded
hours exceeded 5 percent of their total hours). The overhead allocation
would result in an increase in the wage index value of more than 5
percent for only one MSA (2 hospitals). A total of 12 labor areas (5
Statewide rural (206 hospitals) and 7 MSAs (25 hospitals)) would
experience an increase of between 2 percent and 5 percent. Only one MSA
(29 hospitals) would experience a decline of between 2 and 5 percent.
The wage index value for the remaining 358 areas (4,921 hospitals)
would be affected by less than 2 percent.
We are proposing to include this exclusion of overhead allocation
in the calculation of the FY 1999 wage index. Although the overall
impact on hospitals of this change is relatively small, we believe it
is an appropriate step toward improving the overall consistency of the
wage index. Additionally, we believe this change will significantly
increase the accuracy of the wage data for individual hospitals,
especially hospitals that have a relatively small portion of their
facility devoted to acute inpatient care.
D. Verification of Wage Data From the Medicare Cost Report
The data for the proposed FY 1999 wage index were obtained from
Worksheet S-3, Parts III and IV of the FY 1995 Medicare cost reports.
The data file used to construct the proposed wage index includes FY
1995 data submitted to the Health Care Provider Cost Report Information
System (HCRIS) as of early January 1998. As in past years, we performed
an intensive review of the wage data, mostly through the use of edits
designed to identify aberrant data.
Of the 5,123 hospitals originally in the data file, 851 hospitals
had data elements that failed an edit. From mid-January to mid-February
1998, intermediaries contacted hospitals to revise or verify data
elements that resulted in the edit failures.
As of February 17, 1998, 31 hospitals still had unresolved data
elements. These unresolved data elements are included in the
calculation of the proposed FY 1999 wage index pending their resolution
before calculation of the final FY 1999 wage index. We have instructed
the intermediaries to complete their verification of questionable data
elements and to transmit any changes to the wage data (through HCRIS)
no later than April 6, 1998. We expect that all unresolved data
elements will be resolved by that date. The revised data will be
reflected in the final rule.
Also, as part of our editing process, we deleted data for eight
hospitals that failed edits. For two of these hospitals, we were unable
to obtain sufficient documentation to verify or revise the data because
the hospitals are no longer participating in the Medicare program or
are in bankruptcy status. The data from the remaining six participating
hospitals were removed because inclusion of their data would have
significantly distorted the wage index values. The data for these six
hospitals will be included in the final wage index if we receive
corrected data that passes our edits. As a result, the proposed FY 1999
wage index is calculated based on FY 1995 wage data for 5,115
hospitals.
E. Computation of the Wage Index
The method used to compute the proposed wage index is as follows:
Step 1--As noted above, we are proposing to base the FY 1999 wage
index on wage data reported on the FY 1995 Medicare cost reports. We
gathered data from each of the non-Federal, short-term, acute care
hospitals for which data were reported on the Worksheet S-3, Parts III
and IV of the Medicare cost report for the hospital's cost reporting
period beginning on or after October 1, 1994 and before October 1,
1995. In addition, we included data from a few hospitals that had cost
reporting periods beginning in September 1994 and reported a cost
reporting period exceeding 52 weeks. These data were included because
no other data from these hospitals would be available for the cost
reporting period described above, and particular labor market areas
might be affected due to the omission of these hospitals. However, we
generally describe these wage data as FY 1995 data.
Step 2--For each hospital, we subtracted the excluded salaries
(that is, direct salaries attributable to skilled nursing facility
services, home health services, and other subprovider components not
subject to the prospective payment system) from gross hospital salaries
to determine net hospital salaries. To determine total salaries plus
wage-related costs, we added the costs of contract labor for direct
patient care, certain top management, and physician Part A services;
hospital wage-related costs, and any home office salaries and wage-
related costs reported by the hospital, to the net hospital salaries.
The actual calculation is the sum of lines 2, 4, 6, and 33 of Worksheet
S-3, Part III. This calculation differs from the one computed on line
32 of Worksheet S-3, Part III. Therefore, a hospital's average hourly
wage calculated under Step 2 will be different from the average hourly
wage shown on line 32, column 5.
Step 3--For each hospital, we subtracted the reported excluded
hours from the gross hospital hours to determine net hospital hours. To
determine total hours, we increased the net hours by the addition of
home office hours and hours for contract labor attributable to direct
patient care, certain top management, and physician Part A salaries.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocated overhead
costs. First, we determined the ratio of excluded area hours (Line 24
of Worksheet S-3, Part III) to revised total hours (Line 9 of Worksheet
S-3, Part III, adding back CRNA Part A, physician Part A, and resident
hours). Second, we computed the amounts of overhead salaries and hours
to be allocated to excluded areas by multiplying the above ratio by the
total overhead salaries and hours reported on Line 16 of Worksheet S-3,
Part IV. Finally, we subtracted the computed overhead salaries and
hours associated with excluded areas from the total salaries and hours
derived in Steps 2 and 3.
Step 5--For each hospital, we adjusted the total salaries plus
wage-related costs to a common period to determine total adjusted
salaries plus wage-related costs. To make the wage inflation
adjustment, we estimated the percentage change in the employment
[[Page 25588]]
cost index (ECI) for compensation for each 30-day increment from
October 14, 1994 through April 15, 1996, for private industry hospital
workers from the Bureau of Labor Statistics Compensation and Working
Conditions. For previous wage indexes, we used the percentage change in
average hourly earnings for hospital industry workers to make the wage
inflation adjustment. For FY 1999 we are proposing to use the ECI for
compensation for private industry hospital workers because it reflects
the price increase associated with total compensation (salaries plus
fringes) rather than just the increase in salaries, which is what the
average hourly earnings category reflected. In addition, the ECI
includes managers as well as other hospital workers. We are also
proposing to change the methodology used to compute the monthly update
factors. This new methodology uses actual quarterly ECI data to
determine the monthly update factors. The methodology assures that the
update factors match the actual quarterly and annual percent changes.
The inflation factors used to inflate the hospital's data were based on
the midpoint of the cost reporting period as indicated below.
Midpoint of Cost Reporting Period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/94...................................... 11/15/94 1.032882
11/14/94...................................... 12/15/94 1.030771
12/14/94...................................... 01/15/95 1.028721
01/14/95...................................... 02/15/95 1.026731
02/14/95...................................... 03/15/95 1.024776
03/14/95...................................... 04/15/95 1.022827
04/14/95...................................... 05/15/95 1.020886
05/14/95...................................... 06/15/95 1.018901
06/14/95...................................... 07/15/95 1.016822
07/14/95...................................... 08/15/95 1.014649
08/14/95...................................... 09/15/95 1.012446
09/14/95...................................... 10/15/95 1.010279
10/14/95...................................... 11/15/95 1.008146
11/14/95...................................... 12/15/95 1.006047
12/14/95...................................... 01/15/96 1.003981
01/14/96...................................... 02/15/96 1.001950
02/14/96...................................... 03/15/96 1.000000
03/14/96...................................... 04/15/96 0.998181
------------------------------------------------------------------------
For example, the midpoint of a cost reporting period beginning
January 1, 1995 and ending December 31, 1995 is June 30, 1995. An
inflation adjustment factor of 1.016822 would be applied to the wages
of a hospital with such a cost reporting period. In addition, for the
data for any cost reporting period that began in FY 1995 and covers a
period of less than 360 days or greater than 370 days, we annualized
the data to reflect a 1-year cost report. Annualization is accomplished
by dividing the data by the number of days in the cost report and then
multiplying the results by 365.
Step 6--Each hospital was assigned to its appropriate urban or
rural labor market area prior to any reclassifications under sections
1886(d)(8)(B) or 1886(d)(10) of the Act. Within each urban or rural
labor market area, we added the total adjusted salaries plus wage-
related costs obtained in Step 5 for all hospitals in that area to
determine the total adjusted salaries plus wage-related costs for the
labor market area.
Step 7--We divided the total adjusted salaries plus wage-related
costs obtained in Step 6 by the sum of the total hours (from Step 4)
for all hospitals in each labor market area to determine an average
hourly wage for the area.
Step 8--We added the total adjusted salaries plus wage-related
costs obtained in Step 5 for all hospitals in the Nation and then
divided the sum by the national sum of total hours from Step 4 to
arrive at a national average hourly wage. Using the data as described
above, the national average hourly wage is $20.6036.
Step 9--For each urban or rural labor market area, we calculated
the hospital wage index value by dividing the area average hourly wage
obtained in Step 7 by the national average hourly wage computed in Step
8.
Step 10--Following the process set forth above, we developed a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. We added the total adjusted salaries
plus wage-related costs (as calculated in Step 5) for all hospitals in
Puerto Rico and divided the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall average hourly wage of
$9.3339 for Puerto Rico. For each labor market area in Puerto Rico, we
calculated the hospital wage index value by dividing the area average
hourly wage (as calculated in Step 7) by the overall Puerto Rico
average hourly wage.
Step 11--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is not located in a rural area may not be less
than the area wage index applicable to hospitals located in rural areas
in that State. Furthermore, this wage index floor is to be implemented
in such a manner as to assure that aggregate prospective payment system
payments are not greater or less than those which would have been made
in the year if this section did not apply. For FY 1999, this change
affects 229 hospitals in 34 MSAs. The MSAs affected by this provision
are identified in Table 4A by a footnote.
F. Revisions to the Wage Index Based on Hospital Redesignation
Under section 1886(d)(8)(B) of the Act, hospitals in certain rural
counties adjacent to one or more MSAs are considered to be located in
one of the adjacent MSAs if certain standards are met. Under section
1886(d)(10) of the Act, the Medicare Geographic Classification Review
Board (MGCRB) considers applications by hospitals for geographic
reclassification for purposes of payment under the prospective payment
system.
The methodology for determining the wage index values for
redesignated hospitals is applied jointly to the hospitals located in
those rural counties that were deemed urban under section 1886(d)(8)(B)
of the Act and those hospitals that were reclassified as a result of
the MGCRB decisions under section 1886(d)(10) of the Act. Section
1886(d)(8)(C) of the Act provides that the application of the wage
index to redesignated hospitals is dependent on the hypothetical impact
that the wage data from these hospitals would have on the wage index
value for the area to which they have been redesignated. Therefore, as
provided in section 1886(d)(8)(C) of the Act, the wage index values
were determined by considering the following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the hospitals that are
redesignated are subject to that combined wage index value.
If including the wage data for the redesignated hospitals
increases the wage index value for the area to which the hospitals are
redesignated, both the area and the redesignated hospitals receive the
combined wage index value.
The wage index value for a redesignated urban or rural
hospital cannot be reduced below the wage index value for the rural
areas of the State in which the hospital is located.
Rural areas whose wage index values would be reduced by
excluding the wage data for hospitals that have been redesignated to
another area continue to have their wage index values calculated as if
no redesignation had occurred.
Rural areas whose wage index values increase as a result
of excluding
[[Page 25589]]
the wage data for the hospitals that have been redesignated to another
area have their wage index values calculated exclusive of the wage data
of the redesignated hospitals.
The wage index value for an urban area is calculated
exclusive of the wage data for hospitals that have been reclassified to
another area. However, geographic reclassification may not reduce the
wage index value for an urban area below the statewide rural wage index
value.
We note that, except for those rural areas where redesignation
would reduce the rural wage index value, the wage index value for each
area is computed exclusive of the wage data for hospitals that have
been redesignated from the area for purposes of their wage index. As a
result, several urban areas listed in Table 4a have no hospitals
remaining in the area. This is because all the hospitals originally in
these urban areas have been reclassified to another area by the MGCRB.
These areas with no remaining hospitals receive the prereclassified
wage index value. The prereclassified wage index value will apply as
long as the area remains empty.
The proposed revised wage index values for FY 1999 are shown in
Tables 4A, 4B, 4C, and 4F in the Addendum to this proposed rule.
Hospitals that are redesignated should use the wage index values shown
in Table 4C. Areas in Table 4C may have more than one wage index value
because the wage index value for a redesignated urban or rural hospital
cannot be reduced below the wage index value for the rural areas of the
State in which the hospital is located. When the wage index value of
the area to which a hospital is redesignated is lower than the wage
index value for the rural areas of the State in which the hospital is
located, the redesignated hospital receives the higher wage index
value, that is, the wage index value for the rural areas of the State
in which it is located, rather than the wage index value otherwise
applicable to the redesignated hospitals.
Tables 4D and 4E list the average hourly wage for each labor market
area, prior to the redesignation of hospitals, based on the FY 1995
wage data. In addition, Table 3C in the Addendum to this proposed rule
includes the adjusted average hourly wage for each hospital based on
the FY 1995 data (as calculated from Steps 4 and 5, above). The MGCRB
will use the average hourly wage published in the final rule to
evaluate a hospital's application for reclassification, unless that
average hourly wage is later revised in accordance with the wage data
correction policy described in Sec. 412.63(w)(2). In such cases, the
MGCRB will use the most recent revised data used for purposes of the
hospital wage index. Hospitals that choose to apply before publication
of the final rule may use the proposed wage data in applying to the
MGCRB for wage index reclassifications that would be effective for FY
2000. We note that in adjudicating these wage index reclassification
requests during FY 1999, the MGCRB will use the average hourly wages
for each hospital and labor market area that are reflected in the final
FY 1999 wage index.
At the time this proposed wage index was constructed, the MGCRB had
completed its review. The proposed FY 1999 wage index values
incorporate all 435 hospitals redesignated for purposes of the wage
index (hospitals redesignated under section 1886(d)(8)(B) or
1886(d)(10) of the Act) for FY 1999. The final number of
reclassifications may be different because some MGCRB decisions are
still under review by the Administrator and because some hospitals may
withdraw their requests for reclassification.
Any changes to the wage index that result from withdrawals of
requests for reclassification, wage index corrections, appeals, and the
Administrator's review process will be incorporated into the wage index
values published in the final rule. The changes may affect not only the
wage index value for specific geographic areas, but also whether
redesignated hospitals receive the wage index value for the area to
which they are redesignated, or a wage index value that includes the
data for both the hospitals already in the area and the redesignated
hospitals. Further, the wage index value for the area from which the
hospitals are redesignated may be affected.
Under Sec. 412.273, hospitals that have been reclassified by the
MGCRB are permitted to withdraw their applications within 45 days of
the publication of this Federal Register document. The request for
withdrawal of an application for reclassification that would be
effective in FY 1999 must be received by the MGCRB by June 22, 1998. A
hospital that requests to withdraw its application may not later
request that the MGCRB decision be reinstated.
G. Requests for Wage Data Corrections
As a part of the August 29, 1997 final rule with comment period, we
implemented a new timetable for requesting wage data corrections (62 FR
45990). In February 1998, we notified hospitals again of these changes
through a memorandum to the fiscal intermediaries. To allow hospitals
time to evaluate the wage data used to construct the proposed FY 1999
hospital wage index, we made available to the public a data file
containing the FY 1995 hospital wage data. In a memorandum dated
February 2, 1998, we instructed all Medicare intermediaries to inform
the prospective payment hospitals that they serve of the availability
of the wage data file and the process and timeframe for requesting
revisions. The wage data file was made available February 6, 1998,
through the Internet at HCFA's home page (http://www.hcfa.gov). The
intermediaries were also instructed to advise hospitals of the
alternative availability of these data through their representative
hospital organizations or directly from HCFA. Additional details on
ordering this data file are discussed in section IX.A of this preamble,
``Requests for Data from the Public.''
In addition, Table 3C in the Addendum to this proposed rule
contains each hospital's adjusted average hourly wage used to construct
the proposed wage index values. A hospital can verify its adjusted
average hourly wage, as calculated from Steps 4 and 5 of the
computation of the wage index (see section III.E of this preamble,
above) based on the wage data on the hospital's cost report (after
taking into account any adjustments made by the intermediary), by
dividing the adjusted average hourly wage in Table 3C by the applicable
wage adjustment factors as set forth above in Step 5 of the computation
of the wage index. As noted above, however, a hospital's average hourly
wages using this calculation will vary from the average hourly wages
shown on Line 32 of Worksheet S-3, Part III. An updated Table 3C (along
with applicable wage adjustment factors) will be included in the final
rule.
We believe hospitals have had ample time to ensure the accuracy of
their FY 1995 wage data. Moreover, the ultimate responsibility for
accurately completing the cost report rests with the hospital, which
must attest to the accuracy of the data at the time the cost report is
filed. However, if after review of the wage data file released February
6, a hospital believed that its FY 1995 wage data were incorrectly
reported, the hospital was to submit corrections along with complete,
detailed supporting documentation to its intermediary by March 9, 1998.
To be reflected in the final wage index, any wage data corrections must
be reviewed and verified by the intermediary and transmitted to HCFA on
or before April 6, 1998. These deadlines are necessary
[[Page 25590]]
to allow sufficient time to review and process the data so that the
final wage index calculation can be completed for development of the
final prospective payment rates to be published by August 1, 1998. We
cannot guarantee that corrections transmitted to HCFA after April 6
will be reflected in the final wage index.
After reviewing requested changes submitted by hospitals,
intermediaries transmitted any revised cost reports to HCRIS and
forwarded a copy of the revised Worksheet S-3, Parts III and IV to the
hospitals. If requested changes were not accepted, fiscal
intermediaries notified hospitals of the reasons why the changes were
not accepted. This procedure ensures that hospitals have every
opportunity to verify the data that will be used to construct their
wage index values. We believe that fiscal intermediaries are generally
in the best position to make evaluations regarding the appropriateness
of a particular cost and whether it should be included in the wage
index data. However, if a hospital disagrees with the intermediary's
resolution of a requested change, the hospital may contact HCFA in an
effort to resolve policy disputes. We note that the April 6 deadline
also applies to these requested changes. We will not consider factual
determinations at this time as these should have been resolved earlier
in the process.
We have created the process described above to resolve all
substantive wage data correction disputes before we finalize the wage
data for the FY 1999 payment rates. Accordingly, hospitals that do not
meet the procedural deadlines set forth above will not be afforded a
later opportunity to submit wage corrections or to dispute the
intermediary's decision with respect to requested changes.
We note that, beginning this year with the FY 1999 wage index, the
final wage index that is published August 1 will incorporate all
corrections, including those to correct data entry or tabulation errors
of the final wage data by the intermediary or HCFA. The final wage data
public use file will be released by May 7, 1998. Hospitals will have
until June 5, 1998, to submit requests to correct errors in the final
wage data due to data entry or tabulation errors by the intermediary or
HCFA. The correction requests that will be considered after the March 9
deadline will be limited to errors in the entry or tabulation of the
final wage data which the hospital could not have known about prior to
March 9, 1998.
The final wage data file released in early May will contain the
wage data that will be used to construct the wage index values in the
final rule. As with the file made available in February, HCFA will make
the final wage data file released in May available to hospital
associations and the public (on the Internet). This file, however, is
being made available only for the limited purpose of identifying any
potential errors made by HCFA or the intermediary in the entry of the
final wage data that result from the correction process described above
(with the March 9 deadline), not for the initiation of new wage data
correction requests. Hospitals are encouraged to review their hospital
wage data promptly after the release of the final file.
If, after reviewing the final file, a hospital believes that its
wage data are incorrect due to a fiscal intermediary or HCFA error in
the entry or tabulation of the final wage data, it should send a letter
to both its fiscal intermediary and HCFA. The letters should outline
why the hospital believes an error exists and provide all supporting
information, including dates. These requests must be received by HCFA
and the intermediaries no later than June 5, 1998. Requests mailed to
HCFA should be sent to: Health Care Financing Administration; Center
for Health Plans and Providers; Attention: Stephen Phillips, Technical
Advisor; Division of Acute Care; C5-06-27; 7500 Security Boulevard;
Baltimore, MD 21244-1850. Each request also must be sent to the
hospital's fiscal intermediary. The intermediary will review requests
upon receipt and contact HCFA immediately to discuss its findings.
At this time, changes to the hospital wage data will be made only
in those very limited situations involving an error by the intermediary
or HCFA that the hospital could not have known about before its review
of the final wage data file. Specifically, neither the intermediary nor
HCFA will accept the following types of requests at this stage of the
process:
Requests for wage data corrections that were submitted too
late to be included in the data transmitted to HCRIS on or before April
6, 1998.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 1998
wage data file.
Requests to revisit factual determinations or policy
interpretations made by the intermediary or HCFA during the wage data
correction process.
Verified corrections to the wage index received timely (that is, by
June 5, 1998) will be incorporated into the final wage index to be
published by August 1, 1998, and effective October 1, 1998.
Again, we believe the wage data correction process described above
provides hospitals with sufficient opportunity to bring errors in their
wage data to the intermediary's attention. Moreover, because hospitals
will have access to the final wage data by early May, they will have
the opportunity to detect any data entry or tabulation errors made by
the intermediary or HCFA before the development and publication of the
FY 1999 wage index by August 1, 1998, and the implementation of the FY
1999 wage index on October 1, 1998. If hospitals avail themselves of
this opportunity, the wage index implemented on October 1 should be
free of such errors. Nevertheless, in the unlikely event that errors
should occur after that date, we retain the right to make midyear
changes to the wage index under very limited circumstances.
Specifically, in accordance with Sec. 412.63(w)(2), we may make
midyear corrections to the wage index only in those limited
circumstances where a hospital can show: (1) That the intermediary or
HCFA made an error in tabulating its data; and (2) that the hospital
could not have known about the error, or did not have an opportunity to
correct the error, before the beginning of FY 1999 (that is, by the
June 5, 1998 deadline). As indicated earlier, since a hospital will
have the opportunity to verify its data, and the intermediary will
notify the hospital of any changes, we do not foresee any specific
circumstances under which midyear corrections would be made. However,
should a midyear correction be necessary, the wage index change for the
affected area will be effective prospectively from the date the
correction is made.
IV.-V. Other Decisions and Changes to the Prospective Payment
System for Inpatient Operating Costs
A. Definition of Transfers (Sec. 412.4)
Pursuant to section 1886(d)(5)(I) of the Act, the prospective
payment system distinguishes between ``discharges,'' situations in
which a patient leaves an acute care (prospective payment) hospital
after receiving complete acute care treatment, and ``transfers,''
situations in which the patient is transferred to another acute care
hospital for related care. If a full DRG payment were made to each
hospital involved in a transfer situation, irrespective of the length
of time the patient spent in the ``sending'' hospital prior to
transfer, a strong incentive to increase transfers would be created,
thereby unnecessarily endangering
[[Page 25591]]
patients' health. Therefore, our policy, which is set forth in the
regulations at Sec. 412.4, provides that, in a transfer situation, full
payment is made to the final discharging hospital and each transferring
hospital is paid a per diem rate for each day of the stay, not to
exceed the full DRG payment that would have been made if the patient
had been discharged without being transferred.
Currently, the per diem rate paid to a transferring hospital is
determined by dividing the full DRG payment that would have been paid
in a nontransfer situation by the geometric mean length of stay for the
DRG into which the case falls. Hospitals receive twice the per diem for
the first day of the stay and the per diem for every following day up
to the full DRG amount. Transferring hospitals are also eligible for
outlier payments for cases that meet the cost outlier criteria
established for all other cases (nontransfer and transfer cases alike)
classified to the DRG. Two exceptions to the transfer payment policy
are transfer cases classified into DRG 385 (Neonates, Died or
Transferred to Another Acute Care Facility) and DRG 456 (Burns,
Transferred to Another Acute Care Facility), which receive the full DRG
payment instead of being paid on a per diem basis.
Under section 1886(d)(5)(J) of the Act, which was added by section
4407 of the Balanced Budget Act of 1997, a ``qualified discharge'' from
one of 10 DRGs selected by the Secretary to a postacute care provider
will be treated as a transfer case beginning with discharges on or
after October 1, 1998. Section 1886(d)(5)(J)(iii) confers broad
authority on the Secretary to select 10 DRGs ``based upon a high volume
of discharges classified within such group and a disproportionate use
of'' certain post discharge services. Section 1886(d)(5)(J)(ii) defines
a ``qualified discharge'' as a discharge from a prospective payment
hospital of an individual whose hospital stay is classified in one of
the 10 selected DRGs if, upon such discharge, the individual--
Is admitted to a hospital or hospital unit that is not a
prospective payment system hospital;
Is admitted to a skilled nursing facility; or
Is provided home health services by a home health agency
if the services relate to the condition or diagnosis for which the
individual received inpatient hospital services and if these services
are provided within an appropriate period as determined by the
Secretary.
The Conference Agreement that accompanied the law noted that
``(t)he Conferees are concerned that Medicare may in some cases be
overpaying hospitals for patients who are transferred to a post acute
care setting after a very short acute care hospital stay. The Conferees
believe that Medicare's payment system should continue to provide
hospitals with strong incentives to treat patients in the most
effective and efficient manner, while at the same time, adjust PPS
[prospective payment system] payments in a manner that accounts for
reduced hospital lengths of stay because of a discharge to another
setting.'' (H.R. Rep. No. 105-217, 740.) In its March 1, 1997 report,
ProPAC expressed similar concerns: ``* * * length of stay declines have
been greater in DRGs associated with substantial postacute care use,
suggesting a shift in care from hospital inpatient to postacute
settings'' (pp. 21-22).
In fact, based on the latest available data, overall Medicare
hospital costs per case have decreased during FYs 1994 and 1995. This
unprecedented real decline in costs per case has led to historically
high Medicare operating margins (over 10 percent on average). Along
with these declining lengths of stay and costs per case, there has been
an increase in the utilization of postacute care. In 1990, the rate of
skilled nursing facility services per 1,000 Medicare enrollees was 19.
By 1995, it had grown to 33. Corresponding numbers for home health
agency services are 58 per 1,000 Medicare enrollees during 1990 and 93
per 1,000 enrollees during 1995. Although home health services are not
always directly related to a hospitalization episode, there does appear
to be a trend toward increased use of home health for the provision of
postacute care rehabilitation services. Previous analysis of the
percentage of hospital discharges that receive postacute home health
care showed a 10.3 percent increase in 1994 compared to 1992.
Our proposals to implement section 1886(d)(5)(J) of the Act are set
forth below.
1. Selection of 10 DRGs
Section 1886(d)(5)(J)(iii)(I) of the Act provides that the
Secretary select 10 DRGs based on a high volume of discharges to
postacute care and a disproportionate use of postacute care services.
Therefore, in order to select the DRGs to be paid as transfers, we
first identified those DRGs with the highest percentage of postacute
care.
We used the FY 1996 MedPAR file because the complete FY 1997 MedPAR
file was not available at the time we conducted our analysis. To
identify postacute care utilization, we merged hospital inpatient bill
files with postacute care bill files matching beneficiary
identification numbers and discharge and admission dates. We created
this file rather than depend on information concerning discharge
destination on the inpatient bill because we have found that the
discharge destination codes included on the hospital bills are often
inaccurate in identifying discharges to a facility other than another
prospective payment hospital.
Section 1886(d)(5)(J)(ii)(III) of the Act requires the Secretary to
choose an appropriate window of days in which the home health services
start in order for the discharge to meet the definition of a transfer.
In order to include postdischarge home health utilization in our
analysis, we identified all hospital discharges for patients who
received any home health care within 7 days after the date of
discharge. (As described below in section IV.A.2., we ultimately
decided to propose 3 days as the window for home health services.)
Starting with the DRG with the highest percentage of postacute care
discharges and continuing in descending order, we selected the first 20
DRGs that had a relatively large number of discharges to postacute care
(our lower limit was 14,000 cases). In order to select 10 DRGs from the
20 DRGs on our list, for each of the DRGs we considered the volume and
percent age of discharges to postacute care that occurred before the
mean length of stay and whether the discharges occurring early in the
stay were more likely to receive postacute care. The following table
lists the 10 DRGs we are proposing to include under our expanded
transfer definition, their percentage of postacute utilization compared
to total cases, and the total number of cases identified as going to
postacute care.
[[Page 25592]]
------------------------------------------------------------------------
Percent of Number of
DRG Title and type of DRG postacute postacute
(surgical or medical) utilization cases
------------------------------------------------------------------------
14................. Specific Cerebrovascular 49.5 186,845
Disorders Except
Transient Ischemic
Attack (Medical).
113................ Amputation for 59.0 28,402
Circulatory System
Disorders Excluding
Upper Limb and Toe
(Surgical).
209................ Major Joint Limb 71.9 257,875
Reattachment Procedures
of Lower Extremity
(Surgical).
210................ Hip and Femur Procedures 77.8 111,799
Except Major Joint Age
>17 With CC (Surgical).
211................ Hip and Femur Procedures 74.2 19,548
Except Major Joint Age
>17 Without CC
(Surgical).
236................ Fractures of Hip and 61.2 24,498
Pelvis (Medical).
263................ Skin Graft and/or 49.4 14,499
Debridement for Skin
Ulcer or Cellulitis With
CC (Surgical).
264................ Skin Graft and/or 39.3 1,328
Debridement for Skin
Ulcer or Cellulitis W/O
CC (Surgical).
429................ Organic Disturbances and 45.4 19,314
Mental Retardation
(Medical).
483................ Tracheostomy Except for 45.3 18,254
Face, Mouth and Neck
Diagnoses (Surgical).
------------------------------------------------------------------------
We included DRG 263 on the list because of its ranking in the top
20 DRGs in terms of postacute utilization and volume of discharges to
postacute care. DRGs 263 and 264 are paired DRGS; that is, the only
difference in the cases assigned to DRG 263 as opposed to DRG 264 is
that the patient has a complicating or comorbid condition. If we
included only DRG 263 in the list, it would be possible for a transfer
case with a relatively short length of stay that should be assigned to
DRG 263 and receive a relatively small transfer payment to be assigned
instead to DRG 264, and receive the full DRG payment, simply by failing
to include the CC diagnosis code on the bill. Therefore, our choice was
to either delete DRG 263 from the list or add DRG 264. We decided to
include DRG 264 in the proposed list because DRG 263 fully meets all
the conditions for inclusion on the list of 10 DRGS.
2. Postacute Care Settings
Section 1886(d)(5)(J)(ii) of the Act requires the Secretary to
define and pay as transfers cases from one of 10 DRGs selected by the
Secretary if the individual is discharged to one of the following
settings:
A hospital or hospital unit that is not a subsection
[1886](d) hospital, that is a hospital or unit excluded from the
inpatient prospective payment system.
A skilled nursing facility that is, a facility that meets
the definition of a skilled nursing facility set forth at section 1819
of the Act.
Home health services provided by a home health agency, if
the services are related to the condition or diagnosis for which the
individual received inpatient hospital services, and if the home health
services are provided within an appropriate period (as determined by
the Secretary).
Section 1886(d)(1)(B) of the Act defines the hospitals and hospital
units that are excluded from the prospective payment system as the
following: psychiatric, rehabilitation, childrens', long-term care, and
cancer hospitals and psychiatric and rehabilitation distinct part units
of a hospital. Therefore, any discharge from a prospective payment
hospital from one of the 10 proposed DRGS that is admitted to one of
these types of facilities on the date of discharge from the acute
hospital, on or after October 1, 1998, would be considered a transfer
and paid accordingly under the prospective payment systems (operating
and capital) for inpatient hospital services.
A discharge from a prospective payment hospital to a skilled
nursing facility would include cases discharged from one of the 10 DRGS
from an inpatient bed in the hospital to a bed in the same hospital
that has been designated for the provision of skilled nursing care (a
``swing'' bed). The swing bed provision allows certain small rural
hospitals to furnish services in inpatient beds which, if furnished by
a skilled nursing facility, would constitute extended care services. In
addition, any patient who receives swing-bed services is deemed to have
received extended care services as if furnished by a skilled nursing
facility. Thus, if swing beds are not included in the transfer policy,
those hospitals with swing bed agreements could move patients assigned
to one of the 10 selected DRGs as if it were a discharge from an
inpatient bed to a swing bed and receive payment. We do not believe
that this would be a fair policy in that it would create a payment
advantage for swing bed hospitals. Therefore, we are providing in the
regulations that a discharge to a swing bed will be paid as a transfer
when the patient is classified to one of the 10 selected DRGs.
Section 1886(d)(5)(J)(ii)(III) of the Act states that the discharge
of an individual who receives home health services upon discharge will
be treated as a transfer if ``such services are provided within an
appropriate period (as determined by the Secretary) * * *.'' As
discussed above in section IV.A.1, we began our analysis using 7 days
(one week) as the time period we would consider. We now believe that 3
days after the date of discharge is a more appropriate timeframe. Based
on our analysis of the FY 1996 bills, approximately 90 percent of
patients began receiving home health care within 3 days. We are
particularly interested in receiving comments on the appropriate period
of time in which home health services should begin in the context of
the transfer policy.
With regard to an appropriate definition of ``home health services
* * * relate[d] to the condition or diagnosis for which the individual
received inpatient hospital services * * *'', we considered several
possible approaches. Under one approach we could compare the principal
diagnosis of the inpatient stay to the diagnosis code indicated on the
home health bill, similar to our policy on the 3-day payment window for
preadmission services. However, we believe that is far too restrictive
in terms of qualifying discharges for transfer payment. In addition, a
hospital will not know when it discharges a patient to home health what
diagnosis code the home health agency will put on the bill. Therefore,
the hospital would not be able to correctly code the inpatient bill as
a transfer or discharge.
We also considered proposing that any home health care that begins
within the designated timeframe be included ``as related'' in our
definition. However, this definition might be too broad and the
hospital would not be able to predict which cases should be coded as
transfers because the hospital often may not know about home health
services that are provided upon discharge but were not ordered or
planned for as part of the hospital discharge plan.
We are proposing that home health services would be considered
related to the hospital discharge if the patient is discharged from the
hospital with a written plan of care for the provision of home health
care services from a home health agency. In this way, the hospital
would be fully aware of the status of the patient when discharged and
could be held responsible for correctly coding the
[[Page 25593]]
discharge as a transfer on the inpatient bill. In general, this would
mean that the home health service would qualify as a Part A home health
benefit under section 1861(tt) of the Act as added by section 4611(b)
of the BBA.
We note, however, that we plan to compare inpatient bills with home
health service bills for care provided within 3 days after discharge,
similar to our current claims edit for hospital to hospital transfers.
If we find that home health services were provided within the
postdischarge window, the hospital will be notified and the hospital
payment adjusted unless the hospital can submit documentation verifying
the discharge status of the patient. This will alert hospitals if there
are problems with their discharge/transfer billing and allow them to
adjust their discharge planning process and billing practices. If we
find a continued pattern of a hospital billing for cases from the 10
DRGs as discharges and our records indicate that the patients are
receiving postacute care services from an excluded hospital, a skilled
nursing facility, or within the 3-day home health service window, the
hospitals may be investigated for fraudulent or abusive billing
practices.
3. Payment Methodology
The statute does not dictate the payment methodology we must use
for these transfer cases. However, section 1886(d)(5)(J)(i) of the Act
provides that the payment amount for a case may not exceed the sum of
half the full DRG payment amount and half of the payment amount under
the current per diem payment methodology.
Based on our analysis comparing the costs per case for the
transfers in the 10 DRGs with payments under our current transfer
payment methodology, we found that most of the 10 DRGs are
appropriately paid using our current methodology (that is, twice the
per diem for the first day and the per diem for each subsequent day).
In fact, this payment would, on average, slightly exceed costs.
However, this is not true of DRGs 209, 210, and 211. For those three
DRGs, a disproportionate percentage (about 50 percent) of the costs of
the case are incurred on the first day of the stay. Therefore, we are
proposing to pay DRGs 209, 210, and 211 based on 50 percent of the DRG
payment for the first day of the stay and 50 percent of the per diem
for the remaining days of the stay. The other seven DRGs would be paid
under the current transfer payment methodology.
In Appendix E to this proposed rule, we have included tables that
illustrate, for 9 of the 10 DRGs, the number of total and postacute
discharges by length of stay, the geometric mean lengths of stay from
FY 1983 through FY 1997, and the estimated average costs and transfer
payments by length of stay. (The summary information for DRG 264 was
not available at the time of publication because it was not included in
the original data file of 20 DRGs used for our analysis.) For DRGs 209,
210, and 211, the payment line is determined on the basis of the
alternative payment formula described above.
These tables demonstrate that a very large number of discharges
from these 10 DRGs receive postacute care. In addition, the length of
stay for these DRGs has decreased sharply over the last several years.
We believe that this proposed policy will both decrease the hospitals'
financial incentive to discharge patients very early in the stay, often
before the full course of acute care treatment has ended, as well as
pay the hospital at an appropriate level when it does move patients
into postacute care.
We would revise Sec. 412.4 to reflect these proposed policies. In
addition, we would delete the reference in current Sec. 412.4(d)(2) to
DRG 456 (Burns, Transferred to Another Acute Care Facility) because we
are proposing to replace that DRG, as discussed in section II.B.3 of
this preamble. There would no longer be any burn DRG with a transfer
designation.
B. Rural Referral Centers (Sec. 412.96)
Under the authority of section 1886(d)(5)(C)(i) of the Act,
Sec. 412.96 sets forth the criteria a hospital must meet in order to
receive special treatment under the prospective payment system as a
rural referral center. For discharges occurring before October 1, 1994,
rural referral centers received the benefit of payment based on the
other urban rather than the rural standardized amount. As of that date,
the other urban and rural standardized amounts were the same. However,
rural referral centers continue to receive special treatment under both
the disproportionate share hospital payment adjustment and the criteria
for geographic reclassification.
One of the criteria under which a rural hospital may qualify as a
rural referral center is to have 275 or more beds available for use. A
rural hospital that does not meet the bed size criterion can qualify as
a rural referral center if the hospital meets two mandatory criteria
(specifying a minimum case-mix index and a minimum number of
discharges) and at least one of the three optional criteria (relating
to specialty composition of medical staff, source of inpatients, or
volume of referrals). With respect to the two mandatory criteria, a
hospital may be classified as a rural referral center if its--
Case-mix index is at least equal to the lower of the
median case-mix index for urban hospitals in its census region,
excluding hospitals with approved teaching programs, or the median
case-mix index for all urban hospitals nationally; and
Number of discharges is at least 5,000 discharges per year
or, if fewer, the median number of discharges for urban hospitals in
the census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year.)
1. Case-Mix Index
Section 412.96(c)(1) provides that HCFA will establish updated
national and regional case-mix index values in each year's annual
notice of prospective payment rates for purposes of determining rural
referral center status. The methodology we use to determine the
proposed national and regional case-mix index values, is set forth in
regulations at Sec. 412.96(c)(1)(ii). The proposed national case-mix
index value includes all urban hospitals nationwide, and the proposed
regional values are the median values of urban hospitals within each
census region, excluding those with approved teaching programs (that
is, those hospitals receiving indirect medical education payments as
provided in Sec. 412.105).
These values are based on discharges occurring during FY 1997
(October 1, 1996 through September 30, 1997) and include bills posted
to HCFA's records through December 1997. Therefore, in addition to
meeting other criteria, for hospitals with fewer than 275 beds, we are
proposing that to qualify for initial rural referral center status for
cost reporting periods beginning on or after October 1, 1998, a
hospital's case-mix index value for FY 1997 would have to be at least--
1.3578; or
Equal to the median case-mix index value for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 412.105) calculated by HCFA for the census region in
which the hospital is located.
The median case-mix values by region are set forth in the table
below:
------------------------------------------------------------------------
Case-mix
Region index
value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)..................... 1.2533
2. Middle Atlantic (PA, NJ, NY)............................. 1.2499
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)...... 1.3468
[[Page 25594]]
4. East North Central (IL, IN, MI, OH, WI).................. 1.2717
5. East South Central (AL, KY, MS, TN)...................... 1.2965
6. West North Central (IA, KS, MN, MO, NE, ND, SD).......... 1.2264
7. West South Central (AR, LA, OK, TX)...................... 1.3351
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................ 1.3752
9. Pacific (AK, CA, HI, OR, WA)............................. 1.3405
------------------------------------------------------------------------
The above numbers will be revised in the final rule to the extent
required to reflect the updated MedPAR file, which will contain data
from additional bills received for discharges through March 31, 1997.
For the benefit of hospitals seeking to qualify as referral centers
or those wishing to know how their case-mix index value compares to the
criteria, we are publishing each hospital's FY 1997 case-mix index
value in Table 3C in section IV. of the Addendum to this proposed rule.
In keeping with our policy on discharges, these case-mix index values
are computed based on all Medicare patient discharges subject to DRG-
based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that HCFA will set forth the
national and regional numbers of discharges in each year's annual
notice of prospective payment rates for purposes of determining
referral center status. As specified in section 1886(d)(5)(C)(ii) of
the Act, the national standard is set at 5,000 discharges. However, we
are proposing to update the regional standards. The proposed regional
standards are based on discharges for urban hospitals' cost reporting
periods that began during FY 1996 (that is, October 1, 1995 through
September 30, 1996). That is the latest year for which we have complete
discharge data available.
Therefore, in addition to meeting other criteria, we are proposing
that to qualify for initial rural referral center status for cost
reporting periods beginning on or after October 1, 1998, the number of
discharges a hospital must have for its cost reporting period that
began during FY 1997 would have to be at least--
5,000; or
Equal to the median number of discharges for urban
hospitals in the census region in which the hospital is located, as
indicated in the table below.
------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)..................... 6658
2. Middle Atlantic (PA, NJ, NY)............................. 8477
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)...... 7505
4. East North Central (IL, IN, MI, OH, WI).................. 7273
5. East South Central (AL, KY, MS, TN)...................... 6852
6. West North Central (IA, KS, MN, MO, NE, ND, SD).......... 5346
7. West South Central (AR, LA, OK, TX)...................... 5179
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................ 7926
9. Pacific (AK, CA, HI, OR, WA)............................. 5945
------------------------------------------------------------------------
We note that the number of discharges for hospitals in each census
region is greater than the national standard of 5,000 discharges.
Therefore, 5,000 discharges is the minimum criteria for all hospitals.
These numbers will be revised in the final rule based on the latest FY
1996 cost report data.
We reiterate that, to qualify for rural referral center status for
cost reporting periods beginning on or after October 1, 1998, an
osteopathic hospital's number of discharges for its cost reporting
period that began during FY 1996 would have to be at least 3,000.
C. Payments to Disproportionate Share Hospitals: Conforming Change
Regarding Interpretation of Medicaid Patient Days Included in
Disproportionate Patient Percentage (Sec. 412.106)
Effective for discharges beginning on or after May 1, 1986,
hospitals that treat a disproportionately large number of low-income
patients receive additional payments through the disproportionate share
(DSH) adjustment. One means of determining a hospital's DSH payment
adjustment for a cost reporting period requires calculation of its
disproportionate patient percentage for the period. The
disproportionate patient percentage is the sum of a prescribed Medicare
fraction and a Medicaid fraction for the hospital's fiscal period.
Under clause (I) of section 1886(d)(5)(F)(vi) of the Act and
Sec. 412.106(b)(2), the Medicare fraction is determined by dividing the
number of the hospital's patient days for patients who were entitled
(for such days) to benefits under both Medicare Part A and Supplemental
Security Income (SSI) under Title XVI of the Act, by the total number
of the hospital's patient days for the patients who were entitled to
Medicare Part A. The Medicaid fraction is determined, in accordance
with clause (II) of section 1886(d)(5)(F)(vi) of the Act and
Sec. 412.106(b)(4), by dividing the number of the hospital's patient
days for patients who (for such days) were eligible for medical
assistance under a State Medicaid plan approved under Title XIX of the
Act but who were not entitled to Medicare Part A, by the total number
of the hospital's patient days for that period.
Initially, HCFA calculated the Medicaid fraction by interpreting
section 1886(d)(5)(F)(vi)(II) of the Act to recognize as Medicaid
patient days only those days for which the hospital received Medicaid
payment for inpatient hospital services. See 51 FR 31454, 31460 (1986).
The agency's interpretation was declared invalid by four Federal
circuit courts of appeals. See Cabell Huntington Hosp., Inc. v.
Shalala, 101 F.3d 984, 990-91 (4th Cir. 1996) (following three other
circuits). These courts held that the statute requires, for purposes of
calculating the Medicaid fraction, inclusion of each patient day of
service for which a patient was eligible on that day for medical
assistance under an approved State Medicaid plan. Specifically, the
statute requires inclusion of each hospital patient day for a patient
eligible for Medicaid on such day, regardless of whether particular
items or services were covered or paid under the State Medicaid plan.
On February 27, 1997, the HCFA Administrator issued HCFA Ruling 97-
2, which acquiesced in the four adverse appellate court decisions. The
Ruling changed the agency's statutory construction to comport with
those decisions, in order to facilitate nationwide uniformity in the
calculation of the Medicaid fraction. Like the court decisions, the
Ruling provides that a hospital's Medicaid patient days include each
patient day of service for which a patient was eligible on such day for
medical assistance under an approved State Medicaid plan, regardless of
whether particular items or services were covered or paid under the
State plan. The Ruling also reflects the hospital's burden of
furnishing data adequate to prove each claimed Medicaid patient day,
and of verifying with the State that a patient was eligible for
Medicaid during each day of the inpatient hospital stay.
The Ruling further provides that the agency's new interpretation is
effective February 27, 1997 for each cost reporting period that: (1)
Begins on or after that effective date; (2) was not settled, as of that
date, on the Medicaid patient days issue, by means of an applicable
notice of program reimbursement (NPR) (see Sec. 405.1803); or (3) was
settled through such an NPR
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as of the Ruling's effective date and is the subject of a pending
administrative appeal or civil action that satisfies all applicable
jurisdictional requirements of the Medicare statute and regulations.
The Ruling also provides, however, that the change in statutory
interpretation effected by the Ruling is not a basis for reopening a
hospital cost reporting period (see Secs. 405.1885-405.1889) that was
finalized previously on the same matter at issue.
We propose to revise Sec. 412.106(b)(4) in order to conform the
Medicare regulations to the new statutory construction issued in HCFA
Ruling 97-2. The revisions are necessary to ensure that the regulations
comport with the four appellate court decisions that declared invalid
the agency's prior interpretation and led to the issuance of the HCFA
Ruling. The proposed revisions will further facilitate nationwide
uniformity in the calculation of the Medicaid fraction.
Since the proposed revisions are intended simply to conform the
regulations to HCFA Ruling 97-2 (and hence to the four adverse court
decisions), revised Sec. 412.106(b)(4) would reiterate the Ruling's
change of interpretation that the Medicaid fraction under section
1886(d)(5)(F)(vi)(II) of the Act includes each hospital patient day for
a patient eligible for Medicaid on such day, regardless of whether
particular items or services were covered or paid under the State
Medicaid Plan. Our proposed revisions to Sec. 412.106(b)(4), like the
Ruling, would continue to place on the hospital the burdens of
production, proof, and verification as to each claimed Medicaid patient
day.
Under our proposal, revised Sec. 412.106(b)(4) would apply to cost
reporting periods beginning on or after October 1, 1998. HCFA Ruling
97-2, which includes the same provisions as proposed
Sec. 412.106(b)(4), would continue to apply to any cost reporting
period beginning before October 1, 1998 provided that, as of February
27, 1997, there is for such period: no submitted cost report; no cost
report settled on the Medicaid patient days issue through an applicable
NPR; or a cost report settled on that issue, which is also the subject
of a jurisdictionally proper administrative appeal or civil action on
the issue.
D. Payment for Bad Debts (Sec. 413.80)
Section 4451 of the Balanced Budget Act of 1997 reduces the payment
for enrollee bad debt for hospitals. Specifically, this provision
reduces the amount of bad debts otherwise treated as allowable costs,
attributable to the deductibles and coinsurance amounts under this
title, by 25 percent for cost reporting periods beginning during fiscal
year 1998, by 40 percent for cost reporting periods beginning during
fiscal year 1999, and by 45 percent for cost reporting periods
beginning during a subsequent fiscal year. This proposed rule would
conform the regulations to the statute.
Section 4451 of the Balanced Budget Act of 1997 also provides that
in determining such reasonable costs for hospitals, any copayments
reduced under the election available for hospital outpatient services
under section 1833(t)(5)(B) of the Act will not be treated as a bad
debt. This provision will be implemented in the outpatient prospective
payment system regulation that implements section 4521, 4522, and 4523
of the Balanced Budget Act of 1997, to be published later this year.
E. Payment for Direct Costs of Graduate Medical Education to Hospitals
and Nonhospital Providers (Secs. 405.2468, 413.85, and 413.86)
1. Introduction
Currently, under section 1886(h) of the Act, Medicare pays only
hospitals for the costs of graduate medical education (GME) training.
We do not pay nonhospital sites for the costs they incur in training
medical residents. There has been a general trend to shift patient care
from the inpatient setting to the less expensive nonhospital setting
where appropriate. Consistent with this trend in patient care, the BBA
allows for direct GME payment to qualified nonhospital providers to
encourage more training of future physicians in nonhospital settings.
Under section 1886(k) of the Act, as added by section 4625 of the
BBA, the Secretary is now authorized, but not required, to pay
qualified nonhospital providers for the direct costs of GME training.
The Conference Report also notes that the Conferees believe paying
nonhospital providers for GME costs may help alleviate physician
shortages in underserved rural areas. We believe that providing
Medicare payment directly to nonhospital providers may facilitate more
training and better quality training in nonhospital sites.
2. Statutory Background
Section 1886(k) of the Act states: ``For cost reporting periods
beginning on or after October 1, 1997, the Secretary may establish
rules for payment to qualified nonhospital providers for their direct
costs of medical education, if those costs are incurred in the
operation of an approved medical residency training programs described
in subsection (h).'' The statute further provides that, to the extent
the Secretary exercises this broad discretionary authority, the rules
``shall specify the amounts, form, and manner in which such payments
will be made and the portion of such payments that will be made from
each of the trust funds under this title.''
a. Payments Only to ``Qualified Nonhospital Providers''. The
statute confers broad discretion on the Secretary regarding whether and
how to pay nonhospital providers for direct GME costs. However, the
statute does specify the entities whom the Secretary can pay--
``qualified nonhospital providers.'' Section 1886(k)(2) of the Act
defines ``qualified nonhospital providers'' to include: Federally
Qualified Health Centers (FQHCs), as defined in section 1861(aa)(4);
Rural Health Centers (RHCs), as defined in section 1861(aa)(2);
Medicare+Choice organizations; and such other providers (other than
hospitals) as the Secretary determines to be appropriate.
b. Payments Only for the ``Direct Costs'' of Training. The statute
also specifies the costs the Secretary can pay for under section
1886(k) of the Act. Medicare pays hospitals for both the direct and
indirect costs of medical education under sections 1886(h) and
1886(d)(5)(B) of the Act respectively, but section 1886(k) of the Act
provides for payment to nonhospital providers only for the direct costs
of medical education.
In addition, section 1886(k) of the Act provides for payment for
the direct costs of training medical residents only if those costs are
incurred in the operation of an ``approved medical residency training
program.'' Section 1886(h)(5)(A) of the Act defines an ``approved
medical residency training program'' as a ``residency or other
postgraduate medical training program participation in which may be
counted toward certification in a specialty or subspecialty and
includes formal postgraduate training programs in geriatric medicine
approved by the Secretary.'' Implementing regulations at Sec. 413.86(b)
state that an approved medical residency training program includes
allopathic and osteopathic training programs as well as training
programs for dentistry and podiatry. Therefore, the statute authorizes
Medicare payments to nonhospital providers only for the costs of
training medical residents, not for the costs of training other health
professionals.
In addition to adding section 1886(k) of the Act, section 4625 of
the BBA amends section 1886(h)(3)(B) of the Act to prohibit double
payments for direct
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GME to a hospital and a qualified nonhospital provider. This
prohibition on double payments requires that the Secretary reduce a
hospital's GME payments (the ``aggregate approved amount'' as defined
in section 1886(h)(3)(b) of the Act) to the extent we pay a nonhospital
provider for GME under section 1886(k) of the Act.
3. Proposed Policies
Pursuant to section 4625 of the BBA, we are proposing policies to
provide Medicare payment to nonhospital providers for the direct costs
of GME training, effective for portions of cost reporting periods
occurring on or after January 1, 1999. We believe that these payments
will serve the Congressional intent to encourage and support training
in nonhospital settings.
a. Definition of ``Qualified Non-Hospital Providers''. Under our
proposed policy, Medicare would make GME payments to the following
``qualified nonhospital providers''--FQHCs, RHCs, and Medicare+Choice
organizations. Under the authority of section 1886(k)(2)(D) of the Act,
the Secretary may expand the definition of a ``qualified nonhospital
provider'' to include such other providers (other than hospitals) as
the Secretary determines to be appropriate. Once we have gained
experience providing direct GME payments to FQHCs, RHCs, and
Medicare+Choice organizations, we may consider including other types of
nonhospital providers in the definition of a ``qualified nonhospital
provider.''
Additionally, we propose that, under certain circumstances, a
hospital may continue to receive GME payments for residents who train
in the nonhospital setting. In those instances where a hospital is
eligible to continue receiving GME payments for residents who train in
the nonhospital setting, the nonhospital provider could receive payment
from the hospital for costs they incur in training medical residents.
Thus, our policy promotes the intent of section 4625 of the BBA to
provide financial support, either directly from Medicare or through the
hospital, to nonhospital providers for the direct costs of training
residents in the nonhospital site.
b. Definition of ``Direct Costs'' of Medical Education for Non-
Hospital Providers. Section 4625 of the BBA provides for payment to
nonhospital providers only for the direct costs of training residents.
Our proposed definition of ``direct costs'' for nonhospital providers
is comparable to the direct costs for hospitals under section 1886(h)
of the Act. Under our proposed policy, direct GME costs are those costs
that are incurred by the nonhospital site for the education activities
of the approved program and that are the proximate result of training
medical residents in the nonhospital site. Direct costs for nonhospital
providers would include:
Residents' salaries and fringe benefits (including related
travel and lodging expenses where applicable);
That portion of costs of the teaching physicians' salaries
and fringe benefits that are related to the time spent in teaching and
supervision of residents; and
Other related GME overhead costs.
Consistent with our policies on direct GME costs for hospitals,
direct GME costs for nonhospital providers would not include normal
operating costs or the marginal increase in costs that the nonhospital
site experiences as a result of having an approved medical residency
training program. For example, a decrease in productivity and increased
intensity in treatment patterns as the result of a training program do
not constitute ``direct costs'' of training residents in the
nonhospital setting; rather, these are the ``indirect costs'' of such
training.
Also consistent with our policies for direct GME payments to
hospitals, we propose to pay qualified nonhospital providers only for
training that is related to the delivery of patient care services.
Sections 1886(h) (``Payments for Direct GME Costs'') and 1886(h)(4)(E)
of the Act (``Counting Time Spent in Outpatient Settings'') provide
support continuing our longstanding policy of paying only for training
that is associated with patient care services. In particular, section
1886(h)(4)(E) of the Act states:
Such rules shall provide that only time spent in activities
relating to patient care shall be counted and that all the time so
spent by a resident under an approved medical residency training
program shall be counted towards the determination of full-time
equivalency, without regard to the setting in which the activities
are performed, if the hospital incurs all, or substantially all, of
the costs for the training program in that setting.
In addition, section 1861(b) of the Act describes the types of patient
care services that are reimbursable. Specifically, section 1861(b)(6)
of the Act indicates that the training of interns or residents under an
approved teaching program are included as reimbursable patient care
costs.
Moreover, direct GME costs for nonhospital providers, like direct
GME costs for hospitals, would include only that portion of costs of
the teaching physicians' salaries and fringe benefits associated with
time spent in teaching and supervising residents. Specifically, a
teaching physician's time spent on teaching of a general nature would
constitute a direct GME cost, while teaching of a patient-specific
nature would not constitute a direct cost. In addition, direct costs in
the nonhospital setting would include that portion of teaching
physicians' salaries and fringe benefits associated with time spent
developing resident schedules and evaluating or rating the residents.
Direct costs would also include a teaching physician's office costs
allocated to GME.
By contrast, direct GME costs for nonhospital providers would not
include the following: A teaching physician's time spent in the care of
individual patients which results in billable services; teaching
physicians' activities that are related to the education of other
health professionals (i.e., classroom instruction in connection with
approved activities other than GME such as provider-operated nursing
programs); teaching physicians' time spent on administrative and
supervisory services to the provider that are unrelated to approved
educational activities (i.e. operating costs); and teaching physician
activities that involve nonallowable costs such as research and medical
school activities that are not related to patient care in the
nonhospital setting.
GME overhead costs include only those costs that are allocable to
direct GME and that are not used in patient care. For example, a
portion of administrative and general costs could be appropriately
allocated to an RHC or FQHC's GME cost center. Similarly, a conference
room that is dedicated specifically for the training of residents could
be appropriately allocated to an RHC or FQHC's GME cost center. By
contrast, patient care rooms added to an RHC or an FQHC cannot be
appropriately allocated to an RHC or FQHC's GME cost center.
One of the advantages of our proposed definition of ``direct
costs'' is that it is administratively feasible. Our definition of
``direct costs'' for nonhospital providers is comparable to the direct
costs that are included in the per resident amount paid to hospitals
under section 1886(h) of the Act. At present, there is limited
information regarding the actual costs of training residents in
nonhospital sites. After we gain experience providing direct GME
payments to qualified nonhospital providers and have reviewed the GME
costs separately reported by these nonhospital providers, we may revise
the definition of ``direct costs.'' We are
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soliciting comments on other elements that may constitute direct costs
of GME in the nonhospital site that can be identified, reported, and
verified as directly attributable to GME activities through the cost
reporting process. We are interested in comments on whether we should
include other costs in the definition of ``direct costs'' for
nonhospital providers and on the administrative feasibility of
identifying the GME portion of those costs.
c. Determining Direct Costs. One of our major concerns in
developing policies for paying nonhospital providers for the direct
costs of GME is the administrative feasibility of determining the
amount of direct costs incurred by the nonhospital provider. It is our
understanding that, currently, hospitals and nonhospital sites often
share, to varying degrees, the costs of training residents in the
nonhospital site. Because of the difficulty in apportioning costs
between the hospital and the nonhospital for the training in the
nonhospital site, we believe that it is not administratively feasible
to pay both the hospital and the nonhospital site for the cost of
training in the nonhospital site. We have been unable to devise a
method for accurately apportioning costs between the two entities.
Furthermore, the potential for both the hospital and the
nonhospital site to be paid for the same direct GME expenses poses a
significant problem for complying with section 1886(h)(3)(B) of the
Act, as amended by the BBA, which specifically prohibits double
payments. Under this provision, the Secretary shall reduce the
hospital's GME payment (the ``aggregate approved amount'') to the
extent we pay nonhospital providers for GME costs under section 1886(k)
of the Act. Consequently, our policy must ensure that Medicare does not
pay two entities for the same training time in the nonhospital site.
Given that the hospital's per resident amount can include, but is
not necessarily based on the costs of training in the nonhospital site,
we were not able to devise an equitable way of reducing the hospital's
per resident payment to reflect payments made under section 1886(k) of
the Act. It would not be equitable to subtract the exact amount of
payment made to the qualified nonhospital provider from the hospital's
per resident payment because the payment made to the nonhospital site
is unrelated to the hospital's per resident amount. The hospital per
resident amount is based on specific GME costs incurred by the hospital
in the 1984 base year. Those costs included in the per resident amount
have no relevance to the costs incurred in the nonhospital setting
almost 15 years after the 1984 base year. We believe that the
residents' salaries, teaching physicians' salaries, and overhead costs
for the nonhospital setting will constitute a different proportion of
the total GME costs in the nonhospital setting as compared with the
hospital setting. Rather, it would be more equitable to determine the
proportion of costs incurred by each entity and reduce the hospital's
per resident payment by the proportion of GME costs incurred by the
nonhospital site; however, since specific components of the per
resident amount were not identified in the hospital's GME base year
(1984), we cannot accurately determin
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