Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate Medical Education in Certain Emergency Situations; Changes to Disclosure of Physician Ownership in Hospitals and Physician Self-Referral Rules; Updates to the Long-Term Care Prospective Payment System; Updates to Certain IPPS-Excluded Hospitals; and Collection of Information Regarding Financial Relationships Between Hospitals
Federal RegisterAug 19, 2008
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 411, 412, 413, 422, and 489
[CMS-1390-F; CMS-1531-IFC1; CMS-1531-IFC2; CMS-1385-F4]
RIN 0938-AP15; RIN 0938-AO35; RIN 0938-AO65
Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate Medical Education in Certain Emergency Situations; Changes to Disclosure of Physician Ownership in Hospitals and Physician Self-Referral Rules; Updates to the Long-Term Care Prospective Payment System; Updates to Certain IPPS-Excluded Hospitals; and Collection of Information Regarding Financial Relationships Between Hospitals
AGENCY:
Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION:
Final rules.
SUMMARY:
We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Deficit Reduction Act of 2005, the Medicare Improvements and Extension Act, Division B, Title I of the Tax Relief and Health Care Act of 2006, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, and the Medicare Improvements for Patients and Providers Act of 2008. In addition, in the Addendum to this final rule, we describe the changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. These changes are generally applicable to discharges occurring on or after October 1, 2008. We also are setting forth the update to the rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits are effective for cost reporting periods beginning on or after October 1, 2008.
In addition to the changes for hospitals paid under the IPPS, this document contains revisions to the patient classifications and relative weights used under the long-term care hospital prospective payment system (LTCH PPS). This document also contains policy changes relating to the requirements for furnishing hospital emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).
In this document, we are responding to public comments and finalizing the policies contained in two interim final rules relating to payments for Medicare graduate medical education to affiliated teaching hospitals in certain emergency situations.
We are revising the regulatory requirements relating to disclosure to patients of physician ownership or investment interests in hospitals and responding to public comments on a collection of information regarding financial relationships between hospitals and physicians. In addition, we are responding to public comments on proposals made in two separate rulemakings related to policies on physician self-referrals and finalizing these policies.
DATES:
Effective Dates:
This final rule is effective on October 1, 2008, with the following exceptions: Amendments to §§ 412.230, 412.232, and 412.234 are effective on September 2, 2008. Amendments to §§ 411.357(a)(5)(ii), (b)(4)(ii), (1)(3)(i) and (ii), and (p)(1)(i)(A) and (B) and the definition of entity in § 411.351 are effective on October 1, 2009.
Applicability Dates:
The provisions of § 412.78 relating to payments to SCHs are applicable for cost reporting periods beginning on or after January 1, 2009. Our process for allowing certain hospitals to opt out of decisions made on behalf of hospitals (as discussed in section III.I.7. of this preamble) are applicable on August 19, 2008.
FOR FURTHER INFORMATION CONTACT:
Gay Burton, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, and Postacute Care Transfer Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs, EMTALA, Hospital Emergency Services, and Hospital-within-Hospital Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment Update Issues.
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing and Readmissions to Hospital Issues.
Rebecca Paul, (410) 786-0852, Collection of Managed Care Encounter Data Issues.
Jacqueline Proctor, (410) 786-8852, Disclosure of Physician Ownership in Hospitals and Financial Relationships between Hospitals and Physicians Issues.
Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1401, Physician Self-Referral Issues.
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Acronyms
AARP American Association of Retired Persons
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AF Artrial fibrillation
AHA American Hospital Association
AICD Automatic implantable cardioverter defibrillator
AHIMA American Health Information Management Association
AHIC American Health Information Community
AHRQ Agency for Healthcare Research and Quality
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ASC Ambulatory surgical center
ASITN American Society of Interventional and Therapeutic Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Public Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation [Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD
Clostridium difficile
-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 99-272
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DFRR Disclosure of financial relationship report
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
DVT Deep vein thrombosis
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 99-272
ESRD End-stage renal disease
FAH Federation of Hospitals
FDA Food and Drug Administration
FHA Federal Health Architecture
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIC Health insurance card
HIPAA Health Insurance Portability and Accountability Act of 1996, Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HWH Hospital-within-a hospital
ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Edition, Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant
Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PE Pulmonary embolism
PMS As Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RAPS Risk Adjustment Processing System
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RRC Rural referral center
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248
TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law. 110-09
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
VAP Ventilator-associated pneumonia
VBP Value-based purchasing
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
2. Hospitals and Hospital Units Excluded From the IPPS
a. Inpatient Rehabilitation Facilities (IRFs)
b. Long-Term Care Hospitals (LTCHs)
c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)
D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007
E. Issuance of a Notice of Proposed Rulemaking
1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage Index
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
4. Proposed Changes to the IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Units
6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals
7. Proposed Changes and Solicitation of Comments on Physician Self-Referral Provisions
8. Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians
9. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services
12. Disclosure of Financial Relationships Report (DFRR) Form
13. Discussion of Medicare Payment Advisory Commission Recommendations
F. Public Comments Received on the FY 2009 IPPS Proposed Rule and Issues in Related Rules
1. Comments on the FY 2009 IPPS Proposed Rule
2. Comments on Phase-Out of the Capital Teaching Adjustment Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment Period
3. Comments on Policy Revisions Related to Payment to Medicare GME Affiliated Hospitals in Certain Declared Emergency Areas Included in Two Interim Final Rules With Comment Period
4. Comments on Proposed Policy Revisions Related to Physician Self-Referrals Included in the CY 2008 Physician Fee Schedule Proposed Rule
G. Provisions of the Medicare Improvements for Patients and Providers Act of 2008
II. Changes to Medicare Severity DRG (MS-DRG) Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008
D. MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount
1. MS-DRG Documentation and Coding Adjustment
2. Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates
3. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
4. Potential Additional Payment Adjustments in FYs 2010 Through 2012
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Summary of RTI's Report on Charge Compression
3. Summary of RAND's Study of Alternative Relative Weight Methodologies
4. Refining the Medicare Cost Report
5. Timeline for Revising the Medicare Cost Report
6. Revenue Codes Used in the MedPAR File
F. Preventable Hospital-Acquired Conditions (HACs), Including Infections
1. General Background
2. Statutory Authority
3. Public Input
4. Collaborative Process
5. Selection Criteria for HACs
6. HACs Selected During FY 2008 IPPS Rulemaking and Changes to Certain Codes
a. Foreign Object Retained After Surgery
b. Pressure Ulcers: Changes in Code Assignments
7. Candidate HACs
a. Manifestations of Poor Glycemic Control
b. Surgical Site Infections
c. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)
d. Delirium
e. Ventilator-Associated Pneumonia (VAP)
f.
Staphylococcus aureus
Septicemia
g.
Clostridium difficile
-Associated Disease (CDAD)
h. Legionnaires' Disease
i. Iatrogenic Pneumothorax
j. Methicillin-resistant
Staphylococcus aureus
(MRSA)
8. Present on Admission Indicator Reporting (POA)
9. Enhancement and Future Issues
a. Risk-Adjustment of Payments Related to HACs
b. Risk-Based Measurement of HACs
c. Use of POA Information
d. Transition to ICD-10
e. Healthcare-Associated Conditions in Other Payment Settings
f. Relationship to NQF's Serious Reportable Adverse Events
g. Additional Potential Candidate HACs, Suggested Through Comment
10. HAC Coding
a. Foreign Object Retained After Surgery
b. MRSA
c. POA
11. HACs Selected for Implementation on October 1, 2008
G. Changes to Specific MS-DRG Classifications
1. Pre-MDCs: Artificial Heart Devices
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator (tPA)
b. Intractable Epilepsy With Video Electroencephalogram (EEG)
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and Generator Procedures
b. Left Atrial Appendage Device
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions
a. Brief History of Development of Hip and Knee Replacement Codes
b. Prior Recommendations of the AAHKS
c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and AAHKS' Recommendations
d. AAHKS' Recommendations for FY 2009
e. CMS' Response to AAHKS' Recommendations
f. Conclusion
5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified Sites): Severe Sepsis
6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic Compartment Syndrome
7. Medicare Code Editor (MCE) Changes
a. List of Unacceptable Principal Diagnoses in MCE
b. Diagnoses Allowed for Males Only Edit
c. Limited Coverage Edit
8. Surgical Hierarchies
9. CC Exclusions List
a. Background
b. CC Exclusions List for FY 2009
10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 989
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 to MDCs
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989
c. Adding Diagnosis or Procedure Codes to MDCs
11. Changes to the ICD-9-CM Coding System
12. Other MS-DRG Issues
a. Heart Transplants or Implants of Heart Assist System and Liver Transplants
b. New Codes for Pressure Ulcers
c. Coronary Artery Stents
d. TherOx (Downstream(r) System)
e. Spinal Disc Devices
f. Spinal Fusion
g. Special Treatment for Hospitals With High Percentages of ESRD Discharges
H. Recalibration of MS-DRG Weights
I. Medicare Severity Long-Term Care Diagnosis Related Group (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY 2009
1. Background
2. Changes in the MS-LTC-DRG Classifications
a. Background
b. Patient Classifications Into MS-LTC-DRGs
3. Development of the FY 2009 MS-LTC-DRG Relative Weights
a. General Overview of Development of the MS-LTC-DRG Relative Weights
b. Data
c. Hospital-Specific Relative Value (HSRV) Methodology
d. Treatment of Severity Levels in Developing Relative Weights
e. Low-Volume MS-LTC-DRGs
4. Steps for Determining the FY 2009 MS-LTC-DRG Relative Weights
5. Other Comments
J. Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments
3. FY 2009 Status of Technologies Approved for FY 2008 Add-On Payments
4. FY 2009 Applications for New Technology Add-On Payments
a. CardioWest
TM
Temporary Total Artificial Heart System (CardioWest
TM
TAH-t)
b. Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV)
c. Oxiplex®
d. TherOx Downstream® System
5. Regulatory Changes
III. Changes to the Hospital Wage Index
A. Background
B. Requirements of Section 106 of the MIEA-TRHCA
1. Wage Index Study Required Under the MIEA-TRHCA
a. Legislative Requirement
b. MedPAC's Recommendations
c. CMS Contract for Impact Analysis and Study of Wage Index Reform
d. Public Comments Received on the MedPAC Recommendations and the CMS/Acumen Wage Index Study and Analysis
e. Impact Analysis of Using MedPAC's Recommended Wage Index
2. CMS Proposals and Final Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA
a. Proposed and Final Revision of the Reclassification Average Hourly Wage Comparison Criteria
b. Within-State Budget Neutrality Adjustment for the Rural and Imputed Floors
c. Within-State Budget Neutrality Adjustment for Geographic Reclassification
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Occupational Mix Adjustment to the FY 2009 Wage Index
1. Development of Data for the FY 2009 Occupational Mix Adjustment
2. Calculation of the Occupational Mix Adjustment for FY 2009
3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
E. Worksheet S-3 Wage Data for the FY 2009 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals Under the IPPS
F. Verification of Worksheet S-3 Wage Data
1. Wage Data for Multicampus Hospitals
2. New Orleans' Post-Katrina Wage Index
G. Method for Computing the FY 2009 Unadjusted Wage Index
H. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2009 Occupational Mix Adjusted Wage Index
I. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2009 MGCRB Reclassifications
4. FY 2008 Policy Clarifications and Revisions
5. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
6. Reclassifications Under Section 1886(d)(8)(B) of the Act
7. Reclassifications Under Section 508 of Public Law 108-173
J. FY 2009 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees
K. Process for Requests for Wage Index Data Corrections
L. Labor-Related Share for the Wage Index for FY 2009
IV. Other Decisions and Changes to the IPPS for Operating Costs and GME Costs
A. Changes to the Postacute Care Transfer Policy
1. Background
2. Policy Change Relating to Transfers to Home With a Written Plan for the Provision of Home Health Services
3. Evaluation of MS-DRGs Under Postacute Care Transfer Policy for FY 2009
B. Reporting of Hospital Quality Data for Annual Hospital Payment Update 1. Background
a. Overview
b. Voluntary Hospital Quality Data Reporting
c. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108-173
d. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 109-171
2. Quality Measures for the FY 2010 Payment Determination and Subsequent Years
a. Quality Measures for the FY 2010 Payment Determination
b. Possible New Quality Measures, Measure Sets, and Program Requirements for the FY 2011 Payment Determination and Subsequent Years
c. Considerations in Expanding and Updating Quality Measures Under the RHQDAPU Program
3. Form and Manner and Timing of Quality Data Submission
4. RHQDAPU Program Procedures for FY 2009 and FY 2010
a. RHQDAPU Program Procedures for FY 2009
b. RHQDAPU Program Procedures for FY 2010
5. HCAHPS Requirements for FY 2009 and FY 2010
a. FY 2009 HCAHPS Requirements
b. FY 2010 HCAHPS Requirements
6. Chart Validation Requirements for FY 2009 and FY 2010
a. Chart Validation Requirements for FY 2009
b. Chart Validation Requirements for FY 2010
c. Chart Validation Methods and Requirements Under Consideration for FY 2011 and Subsequent Years
7. Data Attestation Requirements for FY 2009 and FY 2010
a. Data Attestation Requirements for FY 2009
b. Data Attestation Requirements for FY 2010
8. Public Display Requirements
9. Reconsideration and Appeal Procedures
10. RHQDAPU Program Withdrawal Deadlines for FY 2009 and FY 2010
11. Requirements for New Hospitals
12. Electronic Medical Records
13. RHQDAPU Data Infrastructure
C. Medicare Hospital Value-Based Purchasing (VBP) Plan
1. Medicare Hospital VBP Plan Report to Congress
2. Testing and Further Development of the Medicare Hospital VBP Plan
D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs)
1. Background
2. Rebasing of Payments to SCHs
3. Volume Decrease Adjustment for SCHs and MDHs: Data Sources for Determining Core Staff Values
E. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2009
G. Payments for Direct Graduate Medical Education (GME)
1. Background
2. Medicare GME Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations
a. Legislative Authority
b. Regulatory Changes Issued in 2006 to Address Certain Emergency Situations
c. Additional Regulatory Changes Issued in 2007 To Address Certain Emergency Situations
d. Public Comments Received on the April 12, 2006 and November 27, 2007 Interim Final Rules With Comment Period
e. Provisions of the Final Rule
f. Technical Correction
H. Payments to Medicare Advantage Organizations: Collection of Risk Adjustment Data
I. Hospital Emergency Services Under EMTALA
1. Background
2. EMTALA Technical Advisory Group (TAG) Recommendations
3. Changes Relating to Applicability of EMTALA Requirements to Hospital Inpatients
4. Changes to the EMTALA Physician On-Call Requirements
a. Relocation of Regulatory Provisions
b. Shared/Community Call
5. Technical Change to Regulations
J. Application of Incentives To Reduce Avoidable Readmissions to Hospitals
1. Overview
2. Measurement
3. Shared Accountability
4. VBP Incentives
5. Direct Payment Adjustment
6. Performance-Based Payment Adjustment
7. Public Reporting of Readmission Rates
8. Potential Unintended Consequences of VBP Incentives
K. Rural Community Hospital Demonstration Program
V. Changes to the IPPS for Capital-Related Costs
A. Background
1. Exception Payments
2. New Hospitals
3. Hospitals Located in Puerto Rico
B. Revisions to the Capital IPPS Based on Data on Hospital Medicare Capital Margins
1. Elimination of the Large Add-On Payment Adjustment
2. Changes to the Capital IME Adjustment
a. Background and Changes Made for FY 2008
b. Public Comments Received on Phase Out of Capital IPPS Teaching Adjustment Provisions Included in the FY 2008 IPPS Final Rule With Comment Period and on the FY 2009 IPPS Proposed Rule
VI. Changes for Hospitals and Hospital Units Excluded From the IPPS
A. Payments to Excluded Hospitals and Hospital Units
B. IRF PPS
C. LTCH PPS
D. IPF PPS
E. Determining LTCH Cost-to-Charge Ratios (CCRs) Under the LTCH PPS
F. Change to the Regulations Governing Hospitals-Within-Hospitals
G. Report of Adjustment (Exceptions) Payments
VII. Disclosure Required of Certain Hospitals and Critical Access Hospitals (CAHs) Regarding Physician Ownership
VIII. Physician Self-Referral Provisions
A. General Overview
1. Statutory Framework and Regulatory History
2. Physician Self-Referral Provisions Finalized in this FY 2009 IPPS Final Rule
B. “Stand in the Shoes” Provisions
1. Background
a. Regulatory History of the Physician “Stand in the Shoes” Rules
b. Summary of Proposed Revisions to the Physician “Stand in the Shoes” Rules
c. Summary of Proposed DHS Entity “Stand in the Shoes” Rules
2. Physician “Stand in the Shoes” Provisions
3. DHS Entity “Stand in the Shoes” Provisions
4. Application of the Physician “Stand in the Shoes” and the DHS Entity “Stand in the Shoes” Provisions (“Conventions”)
5. Definitions: “Physician” and “Physician Organization”
C. Period of Disallowance
D. Alternative Method for Compliance With Signature Requirements in Certain Exceptions
E. Percentage-Based Compensation Formulae
F. Unit of Service (Per Click) Payments in Lease Arrangements
1. General Support for Proposal
2. Authority
3. Hospitals as Risk-Averse and Access to Care
4. Evidence of Overutilization: Therapeutic Versus Diagnostic
5. Per-Click Payments as Best Measure of Fair Market Value
6. Lithotripsy as Not DHS
7. Time-Based Rental Arrangements
8. Physician Entities as Lessors
9. Physicians and Physician Entities as Lessees
G. Services Provided “Under Arrangements” (Services Performed by an Entity Other Than the Entity That Submits the Claim)
1. Support for Proposal
2. MedPAC Approach
3. Authority for Proposal
4. Community Benefit and Access to Care
5. Hospitals as Risk-Averse
6. Proposal Based on Anecdotal Evidence
7. Cardiac Catheterization
8. Therapeutic Versus Diagnostic
9. Professional Fee Greater Than Incremental Return for Technical Component
10. Existing Exceptions Are Sufficient Potection
11. Suggested Changes to Definitions
12. Cause Claim To Be Submitted
13. Physician-Owned Implant Companies
14. Procedures Must Be Done in a Hospital Setting Because the ASC Does Not Pay Enough
15. Lithotripsy as Not DHS
16. Procedures That Are DHS Only When Furnished in a Hospital
17. Exceptions
18. Personally Performed Services
19. Outpatient Services Treated Differently Than Inpatient Services
20. Sleep Centers
21. Dialysis
22. Effective Date
H. Exceptions for Obstetrical Malpractice Insurance Subsidies
I. Ownership or Investment Interest in Retirement Plans
J. Burden of Proof
IX. Financial Relationships Between Hospitals and Physicians
X. MedPAC Recommendations
XI. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Legislative Requirement for Solicitation of Comments
2. Requirements in Regulatory Text
a. ICRs Regarding Physician Reporting Requirements
b. ICRs Regarding Risk Adjustment Data
c. ICRs Regarding Basic Commitments of Providers
3. Associated Information Collections Not Specified in Regulatory Text
a. Present on Admission (POA) Indicator Reporting
b. Add-On Payments for New Services and Technologies
c. Reporting of Hospital Quality Data for Annual Hospital Payment Update
d. Occupational Mix Adjustment to the FY 2009 Index (Hospital Wage Index Occupational Mix Survey)
C. Waiver of Proposed Rulemaking, Waiver of Delay in Effective Date, and Retroactive Effective Date
1. Requirements for Waivers and Retroactive Rulemaking
2. FY 2008 Puerto Rico—Specific Rates
3. Rebasing of Payments to SCHs
4. Technical Change to Regulations Governing Payments to Hospitals With High Percentage of ESRD Discharges
Regulation Text
Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2008
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2009
A. Calculation of the Tentative Adjusted Standardized Amount
B. Tentative Adjustments for Area Wage Levels and Cost-of-Living
C. MS-DRG Relative Weights
D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2009
A. Determination of Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update
B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2009
C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages
V. Tables
Table 1A.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Is Greater Than 1)
Table 1B.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1)
Table 1C.—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor
Table 1D.—Capital Standard Federal Payment Rate
Table 2.—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2007; Hospital Average Hourly Wages for Federal Fiscal Years 2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A.—FY 2009 and 3-Year Average Hourly Wage for Urban Areas by CBSA
Table 3B.—FY 2009 and 3-Year Average Hourly Wage for Rural Areas by CBSA
Table 4J.—Out-Migration Wage Adjustment—FY 2009
Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay
Table 6A.—New Diagnosis Codes
Table 6B.—New Procedure Codes
Table 6C.—Invalid Diagnosis Codes
Table 6D.—Invalid Procedure Codes
Table 6E.—Revised Diagnosis Code Titles
Table 6F.—Revised Procedure Code Titles
Table 6G.—Additions to the CC Exclusions List (Available through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6H.—Deletions from the CC Exclusions List (Available through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6I.—Complete List of Complication and Comorbidity (CC) Exclusions (Available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6J.—Major Complication and Comorbidity (MCC) List (Available Through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 6K.—Complication and Comorbidity (CC) List (Available Through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/
)
Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR Update—March 2008 GROUPER V25.0 MS-DRGs
Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR Update—March 2008 GROUPER V26.0 MS-DRGs
Table 8A.—Statewide Average Operating Cost-to-Charge Ratios—July 2008
Table 8B.—Statewide Average Capital Cost-to-Charge Ratios—July 2008
Table 8C.—Statewide Average Total Cost-to-Charge Ratios for LTCHs—July 2008
Table 9A.—Hospital Reclassifications and Redesignations—FY 2009
Table 9B.—Hospitals Redesignated as Rural Under Section 1886(d)(8)(E) of the Act—FY 2009
Table 10.—Tentative Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased To Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Medicare Severity Diagnosis-Related Groups (MS-DRGs)—July 2008
Table 11.—FY 2009 MS-LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and Short-Stay Outlier (SSO) Threshold
Appendix A: Regulatory Impact Analysis
I. Overall Impact
II. Objectives
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded From the IPPS
V. Effects on Excluded Hospitals and Hospital Units
VI. Quantitative Effects of the Policy Changes Under the IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Changes to the MS-DRG Reclassifications and Relative Cost-Based Weights (Column 2)
D. Effects of Wage Index Changes (Column 3)
E. Combined Effects of MS-DRG and Wage Index Changes (Column 4)
F. Effects of MGCRB Reclassifications (Column 5)
G. Effects of the Rural Floor and Imputed Rural Floor, Including the Transition To Apply Budget Neutrality at the State Level (Column 6)
H. Effects of the Wage Index Adjustment for Out-Migration (Column 7)
I. Effects of All Changes With CMI Adjustment Prior to Estimated Growth (Column 8)
J. Effects of All Changes With CMI Adjustment and Estimated Growth (Column 9)
K. Effects of Policy on Payment Adjustments for Low-Volume Hospitals
L. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of Policy on HACs, Including Infections
B. Effects of MS-LTC-DRG Reclassifications and Relative Weights for LTCHs
C. Effects of Policy Change Relating to New Medical Service and Technology Add-On Payments
D. Effects of Requirements for Hospital Reporting of Quality Data for Annual Hospital Payment Update
E. Effects of Policy Change to Methodology for Computing Core Staffing Factors for Volume Decrease Adjustment for SCHs and MDHs
F. Impact of the Policy Revisions Related to Payment to Hospitals for Direct Graduate Medical Education (GME)
G. Effects of Clarification of Policy for Collection of Risk Adjustment Data From MA Organizations
H. Effects of Policy Changes Relating to Hospital Emergency Services Under EMTALA
I. Effects of Implementation of Rural Community Hospital Demonstration Program
J. Effects of Policy Changes Relating to Payments to Hospitals-Within-Hospitals
K. Effects of Policy Changes Relating to Requirements for Disclosure of Physician Ownership in Hospitals
L. Effects of Policy Changes Relating to Physician Self-Referral Provisions
M. Effects of Changes Relating to Reporting of Financial Relationships Between Hospitals and Physicians
VIII. Effects of Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866
Appendix B: Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2009
III. Secretary's Final Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).
The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.
If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.
The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate, plus
any DSH, IME, and new technology or medical service add-on adjustments.
Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate based on their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. (We note that, as discussed in section IV.D.2. of this preamble, effective for cost reporting periods beginning on or after January 1, 2009, an SCH's hospital-specific rate will be based on their costs per discharge in FY 2006 if greater than the hospital-specific rates based on its costs in FY 1982, FY 1987, or FY 1996, or the IPPS rate based on the standardized amount.) Until FY 2007, a Medicare-dependent, small rural hospital (MDH) has received the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospital-specific rate if the hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is higher than the IPPS rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the IPPS rate and its hospital-specific rate, if the hospital-specific rate is higher than the IPPS rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.
Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. However, as discussed in section V.B.2. of this preamble, the capital IME adjustment will be reduced by 50 percent in FY 2009 (as established in the FY 2008 IPPS final rule with comment period). In addition, hospitals may receive outlier payments for those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR Part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.
a. Inpatient Rehabilitation Facilities (IRFs)
Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P.
b. Long-Term Care Hospitals (LTCHs)
Under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of “new” under § 412.23(e)(4) are paid, during a 5-year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of “new” under § 412.23(e)(4) could elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5-year transition. For cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a) and (c) of Public Law 106-113, inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF PPS. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount established under the IPF PPS. (For cost reporting periods beginning on or after January 1, 2005, and ending on or before December 31, 2007, some IPFs received transitioned payments for inpatient hospital services based on a blend of reasonable cost-based payment and a Federal per diem payment rate.) The existing regulations governing payment under the IPF PPS are located in 42 CFR 412, Subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415.
4. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413.
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Public Law 109-171, requires the Secretary to develop a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals defined in the Act. In section IV.C. of the preamble of this proposed rule, we discuss the report to Congress on the Medicare value-based purchasing plan and the current testing of the plan.
C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)
Section 106(b)(2) of the MIEA-TRHCA instructed the Secretary of Health and Human Services to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also instructed to consider MedPAC's recommendations on the Medicare wage index classification system in developing these proposals. In section III. of the preamble of this final rule, we summarize Acumen's comparative and impact analysis of the MedPAC and CMS wage indices.
D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007
Section 7 of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90) provides for a 0.9 percent prospective documentation and coding adjustment in the determination of standardized amounts under the IPPS (except for MDHs, SCHs, and Puerto Rico hospitals) for discharges occurring during FY 2009. The prospective documentation and coding adjustment was established in FY 2008 in response to the implementation of an MS-DRG system under the IPPS that resulted in changes in coding and classification that did not reflect real changes in case-mix under section 1886(d) of the Act. We discuss our implementation of this provision in section II.D. of the preamble of this final rule and in the Addendum and in Appendix A to this final rule.
E. Issuance of a Notice of Proposed Rulemaking
On April 30, 2008, we issued in the
Federal Register
(73 FR 23528) a notice of proposed rulemaking that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2009. We also set forth proposed changes relating to payments for GME and IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis that would be effective for discharges occurring on or after October 1, 2008. In addition, we presented proposed changes relating to disclosure to patients of physician ownership and investment interests in hospitals, proposed changes to our physician self-referral regulations, and a solicitation of public comments on a proposed collection of information regarding financial relationships between hospitals and physicians.
Below is a summary of the major changes that we proposed to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights In section II. of the Preamble to the Proposed Rule, We Included—
• Proposed changes to MS-DRG reclassifications based on our yearly review.
• Proposed application of the documentation and coding adjustment to hospital-specific rates resulting from implementation of the MS-DRG system.
• Proposed changes to address the RTI reporting recommendations on charge compression.
• Proposed recalibrations of the MS-DRG relative weights.
We also proposed to refine the hospital cost reports so that charges for relatively inexpensive medical supplies are reported separately from the costs and charges for more expensive medical devices. This proposal would be applied to the determination of both the IPPS and the OPPS relative weights as well as the calculation of the ambulatory surgical center payment rates.
We presented a listing and discussion of additional hospital-acquired conditions (HACs), including infections, that were proposed to be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2009.
We presented our evaluation and analysis of the FY 2009 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).
We proposed the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2009.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to the proposed rule, we proposed revisions to the wage index and the annual update of the wage data. Specific issues addressed include the following:
• Proposed wage index reform changes in response to recommendations made to Congress as a result of the wage index study required under Public Law 109-432. We discussed changes related to reclassifications criteria, application of budget neutrality in reclassifications, and the rural floor and imputed floor budget neutrality at the State level.
• Changes to the CBSA designations.
• The methodology for computing the proposed FY 2009 wage index.
• The proposed FY 2009 wage index update, using wage data from cost reporting periods that began during FY 2005.
• Analysis and implementation of the proposed FY 2009 occupational mix adjustment to the wage index.
• Proposed revisions to the wage index based on hospital redesignations and reclassifications.
• The proposed adjustment to the wage index for FY 2009 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• The timetable for reviewing and verifying the wage data used to compute the proposed FY 2009 wage index.
• The proposed labor-related share for the FY 2009 wage index, including the labor-related share for Puerto Rico.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
In section IV. of the preamble to the proposed rule, we discussed a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:
• Proposed changes to the postacute care transfer policy as it relates to transfers to home with the provision of home health services.
• The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
• Proposed changes in the collection of Medicare Advantage (MA) encounter data that are used for computing the risk payment adjustment made to MA organizations.
• Discussion of the report to Congress on the Medicare value-based purchasing
plan and current testing and further development of the plan.
• Proposed changes to the methodology for determining core staff values for the volume decrease payment adjustment for SCHs and MDHs.
• The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
• The statutorily required IME adjustment factor for FY 2009 and technical changes to the GME payment policies.
• Proposed changes to policies on hospital emergency services under EMTALA to address EMTALA Technical Advisory Group (TAG) recommendations.
• Solicitation of public comments on Medicare policies relating to incentives for avoidable readmissions to hospitals.
• Discussion of the fifth year of implementation of the Rural Community Hospital Demonstration Program.
4. Proposed Changes to the IPPS for Capital-Related Costs
In section V. of the preamble to the proposed rule, we discussed the payment policy requirements for capital-related costs and capital payments to hospitals. We acknowledged the public comments that we received on the phase-out of the capital teaching adjustment included in the FY 2008 IPPS final rule with comment period, and again solicited public comments on this phase-out.
5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Unit
In section VI. of the preamble to the proposed rule, we discussed proposed changes to payments to excluded hospitals and hospital units, proposed changes for determining LTCH CCRs under the LTCH PPS, and proposed changes to the regulations on hospitals-within-hospitals.
6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals
In section VII. of the preamble of the proposed rule, we presented proposed changes to the regulations relating to the disclosure to patients of physician ownership or investment interests in hospitals.
7. Proposed Changes and Solicitation of Comments on Physician Self-Referral Provisions
In section VIII. of the preamble of the proposed rule, we proposed changes to the physician self-referral regulations relating to the “Stand in Shoes” provision and the period of disallowance for claims submitted in violation of the prohibition. In addition, we solicited public comments regarding physician-owned implant companies and gainsharing arrangements.
8. Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians
In section IX. of the preamble of the proposed rule, we solicited public comments on our proposed collection of information regarding financial relationships between hospitals and physicians.
9. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits
In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2009 prospective payment rates for operating costs and capital-related costs. We also established the proposed threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2009 for hospitals and hospital units excluded from the PPS.
10. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals.
11. Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services
In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2009 for the following:
• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs (and hospital-specific rates applicable to SCHs and MDHs).
• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS.
12. Disclosure of Financial Relationships Report (DFRR) Form
In Appendix C of the proposed rule, we presented the reporting form that we proposed to use for the proposed collection of information on financial relationships between hospitals and physicians discussed in section IX. of the preamble of the proposed rule.
13. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2008 recommendations concerning hospital inpatient payment policies address the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and for hospitals and distinct part hospital units excluded from the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2008 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at:
http://www.medpac.gov
.
F. Public Comments Received on the FY 2009 IPPS Proposed Rule and Issues in Related Rules
1. Comments on the FY 2009 IPPS Proposed Rule
We received over 1,100 timely pieces of correspondence in response to the FY 2009 IPPS proposed rule issued in the
Federal Register
on April 30, 2008. These public comments addressed issues on multiple topics in the proposed rule. We present a summary of the public comments and our responses to them in the applicable subject-matter sections of this final rule.
2. Comments on Phase-Out of the Capital Teaching Adjustment Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment Period
In the FY 2008 IPPS final rule with comment period, we solicited public comments on our policy changes related to phase-out of the capital teaching adjustment to the capital payment update under the IPPS (72 FR 47401). We received approximately 90 timely pieces of correspondence in response to our solicitation. In section V. of the preamble of the FY 2009 IPPS proposed rule, we acknowledged receipt of those public comments and again solicited public comments on the phase-out. We received numerous pieces of timely correspondence in response to the second solicitation. In section V. of this final rule, we summarize the public comments received on both the FY 2008 IPPS final rule with comment period and the FY 2009 IPPS proposed rule and present our responses.
3. Comments on Policy Revisions Related to Payment to Medicare GME Affiliated Hospitals in Certain Declared Emergency Areas Included in Two Interim Final Rules With Comment Period
We have issued two interim final rules with comment periods in the
Federal Register
that modified the GME regulations as they apply to Medicare GME affiliated groups to provide for greater flexibility in training residents in approved residency programs during times of disasters: On April 12, 2006 (71 FR 18654) and on November 27, 2007 (72 FR 66892). We received a number of timely pieces of correspondence in response to these interim final rules with comment period. In section IV.G. of the preamble of this final rule, we summarize and address these public comments.
4. Comments on Proposed Policy Revisions Related to Physician Self-Referrals Included in the CY 2008 Physician Fee Schedule Proposed Rule
On July 12, 2007, we issued in the
Federal Register
proposed revisions to physician payment policies under the CY 2008 Physician Fee Schedule (72 FR 38121). Among these proposed changes were a number of proposed changes relating to physician self-referral issues that we have not finalized: Burden of proof; obstetrical malpractice insurance subsidies; ownership or investment interest in retirement plans; units of service (per click) payments in space and equipment leases; “set in advance” percentage-based compensation arrangements; alternative criteria for satisfying certain exceptions; and services provided under arrangement. In section VIII. of the preamble to this final rule, we are addressing the public comments that we received on these proposed revisions, presenting our responses to the public comments, and finalizing these policies.
G. Provisions of the Medicare Improvements for Patients and Providers Act of 2008
After publication of the FY 2009 IPPS proposed rule, the Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275, was enacted on July 15, 2008. Public Law 110-275 contains several provisions that impact payments under the IPPS for FY 2009, which we discuss or are implementing in this final rule:
• Section 122 of Public Law 110-275 provides that, for cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on an FY 2006 hospital-specific rate (that is, based on their updated costs per discharge from their 12-month cost reporting period beginning during Federal fiscal year 2007), if this results in the greatest payment to the SCH. Therefore, effective with cost reporting periods beginning January 1, 2009, SCHs will be paid based on the rate that results in the greatest aggregate payment using either the Federal rate or their hospital-specific rate based on their cost per discharge for 1982, 1987, 1996, or 2006. We address this provision under section IV.D.2. of the preamble of this final rule.
• Section 124 of Public Law 110-275 extends, through FY 2009, wage index reclassifications for hospitals reclassified under section 508 of Public Law 108-173 (the MMA) and certain special hospital exceptions extended under the Medicare and Medicaid SCHIP Extension Act (MMSEA) of 2007 (Pub. L. 110-173). We discuss this provision in section III.I.7. and various other sections of this final rule. We note that because of the timing of enactment of Public Law 110-275, we are not able to recompute the FY 2009 wage index values for any hospital that would be reclassified under the section 508 provisions in time for inclusion in this final rule. We will issue the final FY 2009 wage index values and other related tables, as specified in the Addendum to this final rule, in a separate
Federal Register
notice implementing this extension that will be published subsequent to this final rule.
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.
B. MS-DRG Reclassifications
1. General
As discussed in the preamble to the FY 2008 IPPS final rule with comment period (72 FR 47138), we focused our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its “Report to the Congress, Physician-Owned Specialty Hospitals” in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking severity of illness into account and applying hospital-specific relative value (HSRV) weights to DRGs.
1
We began this reform process by adopting cost-based weights over a 3-year transition period beginning in FY 2007 and making interim changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and modifying 32 other DRGs across 13 different clinical areas involving nearly 1.7 million cases. As described in more detail below, these refinements were intermediate steps towards comprehensive reform of both the relative weights and the DRG system that is occurring as we undertook further study. For FY 2008, we adopted 745 new Medicare Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system, based on severity levels of illness, was established (72 FR 47141).
1
Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty Hospitals
, March 2005, page viii.
Currently, cases are classified into MS-DRGs for payment under the IPPS based on the following information reported by the hospital: the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. In a small number of MS-DRGs, classification is also based on the 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).
Comment:
Several commenters expressed concern that only nine diagnosis codes and six procedure codes are used by Medicare to process each
claim under the IPPS. The commenters stated that the implementation of new initiatives, such as the MS-DRG system, Present on Admission (POA) reporting, and the hospital-acquired condition (HAC) payment provision, depend on the capturing of all of the patient's diagnoses and procedures in order to fully represent the patient's severity of illness, complexity of care, and quality of care provided. In addition, the commenters stated that the adoption of “component” codes, such as the new ICD-9-CM codes for pressure ulcer stages, requires multiple diagnosis fields to represent a single diagnosis. The commenters recommended that CMS modify its systems so that the number of diagnoses codes processed would increase from 9 to 25 and the number of procedure codes processed would increase from 6 to 25. The commenters stated that hospitals submit claims to CMS in electronic format, and that the HIPAA compliant electronic transaction standard, HIPAA 837i, allows up to 25 diagnoses and 25 procedures. The commenters stated that CMS does not require its fiscal intermediaries (or MAC) to process codes beyond the first nine diagnosis codes and six procedure codes. The commenters indicated that complex classification systems such as the proposed MS-DRGs could use the information in these additional codes to improve patient classification.
Response:
The commenters are correct that CMS does not process codes submitted electronically on the 837i electronic format beyond the first nine diagnosis codes and first six procedure codes. While HIPAA requires CMS to accept up to 25 ICD-9-CM diagnosis and procedure codes on the HIPAA 837i electronic format, it does not require that CMS process that number of diagnosis and procedure codes. We agree with the commenters that there is value in retaining additional data on patient conditions that would result from expanding Medicare's data system so it can accommodate additional diagnosis and procedure codes. We have been considering this issue while we contemplate refinements to our DRG system to better recognize patient severity of illness. However, extensive lead time is required to allow for modifications to our internal and contractors' electronic systems in order to process and store this additional information. We are unable to currently move forward with this recommendation without carefully evaluating implementation issues. However, we will continue to carefully evaluate this request to expand the process capacity of our systems.
The process of developing the MS-DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The MDCs were formulated by physician panels to ensure that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final MS-DRG could contain patients in different MDCs. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2008, cases are assigned to one of 745 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.
Major Diagnostic Categories (MDCs)
1
Diseases and Disorders of the Nervous System.
2
Diseases and Disorders of the Eye.
3
Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
4
Diseases and Disorders of the Respiratory System.
5
Diseases and Disorders of the Circulatory System.
6
Diseases and Disorders of the Digestive System.
7
Diseases and Disorders of the Hepatobiliary System and Pancreas.
8
Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
9
Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
10
Endocrine, Nutritional and Metabolic Diseases and Disorders.
11
Diseases and Disorders of the Kidney and Urinary Tract.
12
Diseases and Disorders of the Male Reproductive System.
13
Diseases and Disorders of the Female Reproductive System.
14
Pregnancy, Childbirth, and the Puerperium.
15
Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
16
Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
17
Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
18
Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
19
Mental Diseases and Disorders.
20
Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
21
Injuries, Poisonings, and Toxic Effects of Drugs.
22
Burns.
23
Factors Influencing Health Status and Other Contacts with Health Services.
24
Multiple Significant Trauma.
25
Human Immunodeficiency Virus Infections.
In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 26.0), there are 9 MS-DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These MS-DRGs are for heart transplant or implant of heart assist systems; liver and/or intestinal transplants; bone marrow transplants; lung transplants; simultaneous pancreas/kidney transplants; pancreas transplants; and tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.
Pre-Major Diagnostic Categories (Pre-MDCs)
MS-DRG 103
Heart Transplant or Implant of Heart Assist System.
MS-DRG 480
Liver Transplant and/or Intestinal Transplant.
MS-DRG 481
Bone Marrow Transplant.
MS-DRG 482
Tracheostomy for Face, Mouth, and Neck Diagnoses.
MS-DRG 495
Lung Transplant.
MS-DRG 512
Simultaneous Pancreas/Kidney Transplant.
MS-DRG 513
Pancreas Transplant.
MS-DRG 541
ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 542
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis without Major O.R.
Comment:
One commenter noted that the MS-DRG titles for four MS-DRGs have changed in Table 5 (which lists all of the MS-DRGs) in the Addendum to the proposed rule: MS-DRG 154 (Other Ear, Nose, Mouth and Throat Diagnoses with MCC); MS-DRG 155 (Other Ear, Nose, Mouth and Throat Diagnoses with CC); MS-DRG 156 (Other Ear, Nose, Mouth and Throat Diagnoses without CC/MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent without MCC). The commenter stated that the current titles for these MS-DRGs are: MS-DRG 154 (Nasal Trauma and Deformity with MCC); MS-DRG 155 (Nasal Trauma and Deformity with CC); MS-DRG 156 (Nasal Trauma and Deformity without CC/MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC). The commenter inquired if these changes were discussed in the MS-DRGs section of the proposed rule.
Response:
The commenter is correct in that we changed these MS-DRG titles to better reflect the modification we made when we adopted the MS-DRGs for FY 2008. Specifically, CMS DRGs 72 (Nasal Trauma & Deformity) and 73 and 74 (Other Ear, Nose, Mouth and Throat Diagnoses Age > 17, Age 0-17, respectively) were consolidated to create MS-DRGs 154, 155, 156 (72 FR 47156). There are other ear, nose, mouth, and throat diagnoses in addition to nasal trauma and deformity assigned to these MS-DRGs so we expanded the titles for MS-DRGs 154, 155, and 156. For MS-DRGs 250 and 251, “or AMI” was removed from the titles because these descriptors that were applicable in the CMS DRGs are no longer applicable in the MS-DRGs. We are making these corrections in this final rule.
In addition to these changes to the MS-DRG titles, we are also amending one other MS-DRG title. Due to the creation, after the proposed rule was published, of 6 new ICD-9-CM diagnosis codes for various types of fevers, we are revising the title for MS-DRG 864 from “Fever of Unknown Origin” to “Fever”.
Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC).
Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect MS-DRG assignment for certain principal diagnoses. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. Lithotripsy procedures are not routinely performed in an operating room. Therefore, lithotripsy codes are not classified as O.R. procedures. However, our clinical advisors believe that patients with urinary stones who undergo extracorporeal shock wave lithotripsy should be considered similar to other patients who undergo O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.
Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect hospital resource consumption. Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).
A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.
After patient information is screened through the MCE and any further development of the claim is conducted, the cases are classified into the appropriate MS-DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into an MS-DRG on the basis of the diagnosis and procedure codes and, for a limited number of MS-DRGs, demographic information (that is, sex, age, and discharge status).
After cases are screened through the MCE and assigned to an MS-DRG by the GROUPER, the PRICER software calculates a base MS-DRG payment. The PRICER calculates the payment for each case covered by the IPPS based on the MS-DRG relative weight and additional factors associated with each hospital, such as IME and DSH payment adjustments. These additional factors increase the payment amount to
hospitals above the base MS-DRG 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 MS-DRG classification changes and to recalibrate the MS-DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule.
As we indicated above, for FY 2008, we made significant improvement in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. The changes we proposed for FY 2009 (and are adopting in this final rule) will be reflected in the FY 2009 GROUPER, Version 26.0, and will be effective for discharges occurring on or after October 1, 2008. As noted in the FY 2009 IPPS proposed rule (73 FR 23538), our DRG analysis for the FY 2009 proposed rule was based on data from the September 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through September 30, 2007, for discharges through September 30, 2007. For this final rule, our analysis is based on more recent data from the March 2008 update of the FY 2007 MedPAR file, which contains hospital bills received through March 31, 2008, for discharges occurring in FY 2007.
2. Yearly Review for Making MS-DRG Changes
Many of the changes to the MS-DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with comments about MS-DRG classifications to submit these in a timely manner so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, comments about MS-DRG classification issues should be submitted no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.
The actual process of forming the MS-DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS-DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS-DRG. We also considered variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.
C. Adoption of the MS-DRGs in FY 2008
In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed a number of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). However, based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs (71 FR 47906 through 47912). Rather, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.
In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990s in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives, our actions for FY 2008, and our proposals for FY 2009 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2009 in other sections of this preamble and in the Addendum to this final rule.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights are being adopted over a 3-year transition period in
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increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the HSRV-based methodology as well as other issues brought to our attention related to the cost-based weighting methodology adopted in the FY 2007 final rule. There was significant concern in the public comments that our cost-based weighting methodology does not adequately account for charge compression—the practice of applying a higher percentage charge markup over costs to lower cost items and services and a lower percentage charge markup over costs to higher cost items and services. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost report to determine departmental level cost-to-charge ratios (CCRs) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International (RTI) to study both charge compression and to what extent our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this final rule for discussion of the issue of charge compression and the HSRV cost-weighting methodology for FY 2009.
We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are making in this final rule for FY 2009 will improve payment accuracy and reduce financial incentives to create specialty hospitals.
We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).
D. MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount
1. MS-DRG Documentation and Coding Adjustment
As stated above, we adopted the new MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates. Adoption of the MS-DRGs resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. By increasing the number of DRGs and more fully taking into account severity of illness in Medicare payment rates, the MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), which appeared in the
Federal Register
on August 22, 2007, we indicated that we believe the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for improved documentation and coding. In that final rule with comment period, using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by adjusting the standardized amount to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.
On September 29, 2007, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, Public Law 110-90, was enacted. Section 7 of Public Law 110-90 included a provision that reduces the documentation and coding adjustment for the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. To comply with section 7 of Public Law 110-90, in a final rule that appeared in the
Federal Register
on November 27, 2007 (72 FR 66886), we changed the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly, with these revisions effective October 1, 2007.
For FY 2009, Public Law 110-90 requires a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As required by statute, we are applying a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment in FY 2009 is in addition to the −0.6 percent adjustment in FY 2008, yielding a combined effect of −1.5 percent.
Comment:
A number of commenters disagreed with the need for the documentation and coding adjustment and reiterated concerns about the documentation and coding adjustment expressed in prior comments on the FY 2008 IPPS proposed rule. Several of the commenters recommended that CMS not apply the documentation and coding adjustment to the national standardized amount in FY 2009.
Response:
The FY 2008 IPPS final rule (72 FR 47175 through 47186) established a documentation and coding adjustment for FY 2008, FY 2009, and FY 2010. The establishment of the documentation and coding adjustment was subject to notice and comment rulemaking. When we established the documentation and coding adjustment in the FY 2008 IPPS final rule with comment period, we considered concerns about the adjustment expressed by commenters on the FY 2008 IPPS proposed rule and provided responses to those public comments in the corresponding rule. Subsequently,
Congress enacted Public Law 110-90, which mandated that the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period be changed to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. As required by law, we are applying the statutorily specified documentation and coding adjustment to the FY 2009 national standardized amount.
Comment:
One commenter stated that Public Law 110-90 requires an adjustment of −0.9 percent for FY 2009, not a cumulative adjustment of −1.5 percent for FY 2009.
Response:
The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. That final rule indicated that CMS believes that a −4.8 percent adjustment for documentation and coding is necessary (72 FR 47816). Rather than implement the full adjustment in 1 year, the final rule phased it in over 3 years: −1.2 percent in FY 2008, −1.8 percent in FY 2009, and −1.8 percent in FY 2010, for a total of −4.8 percent. Public Law 110-90 requires that in implementing the FY 2008 IPPS final rule with comment period, we substitute 0.6 percent for the 1.2 percent FY 2008 documentation and coding adjustment established in that final rule and 0.9 percent for the 1.8 percent FY 2009 documentation and coding adjustment established in that final rule. Public Law 110-90 did not make any change to the cumulative nature of the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period. Therefore, consistent with Public Law 110-90, we applied a −0.6 percent adjustment to the national standardized amount in FY 2008, and we are applying a −0.9 percent documentation and coding adjustment to the national standardized amount in FY 2009, which results in a cumulative effect of −1.5 percent by FY 2009.
Comment:
Several commenters suggested that the documentation and coding adjustment is intended to address inappropriate upcoding, where a hospital's coding is not justified by the medical record. The commenters suggested that CMS undertake studies to identify inappropriate coding by individual providers.
Response:
As we stated in the FY 2008 IPPS final rule with comment period, we do not believe there is anything inappropriate, unethical, or otherwise wrong with hospitals taking full advantage of coding opportunities to maximize Medicare payment as long as the coding is fully and properly supported by documentation in the medical record.
The documentation and coding adjustment was developed based on the recognition that the MS-DRGs, by better accounting for severity of illness in Medicare payment rates, would encourage hospitals to ensure they had fully and accurately documented and coded all patient diagnoses and procedures consistent with the medical record in order to garner the maximum IPPS payment available under the MS-DRG system. For example, under the previous CMS DRGs, “congestive heart failure, unspecified” (code 428.0) was a CC. Under the MS-DRGs, this unspecified code has been made a non-CC, while more specific heart failure codes have been made CCs or MCCs. Because of this, hospitals have a financial incentive under the MS-DRG system, which they did not have under the previous CMS DRG system, to ensure that they code the type of heart failure a patient has as precisely as possible, consistent with the medical record.
The statute requires that DRG recalibration be budget neutral. Due to the standard 2-year lag in claims data, when we recalibrated the MS-DRGs in FY 2008, the calculations were based on FY 2006 claims data that reflected coding under the prior CMS DRG system. As a result, the claims data upon which the DRG recalibrations were performed in FY 2008 did not reflect any improvements in documentation and coding encouraged by the MS-DRG system. Thus, our actuaries determined that a separate adjustment for documentation and coding improvements would be needed in order to ensure that the implementation of the MS-DRG system was budget neutral. This determination led to the establishment of the documentation and coding adjustment established in the FY 2008 IPPS final rule with comment period and amended by Public Law 110-90.
As with any other DRG system, there is potential under the MS-DRG system for an individual provider to inappropriately code and bill for services. The MS-DRG documentation and coding adjustment was not developed to address such program integrity issues. Rather, the program integrity safeguards in place to address inappropriate billing under the CMS DRG system remain in place under the MS-DRG system.
2. Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: The Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greater of either the FY 1982, 1987, or 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period, we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that rule, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, section 1886(d)(3)(A)(vi) of the Act provides the authority to adjust “the standardized amount” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix. However, in a final rule that appeared in the
Federal Register
on November 27, 2007 (72 FR 66886), we rescinded the application of the documentation and coding adjustment to the hospital-specific rates retroactive to October 1, 2007. In that final rule, we indicated that, while we still believe it would be appropriate to apply the documentation and coding adjustment to the hospital-specific rates, upon further review, we decided that application of the documentation and coding adjustment to the hospital-specific rates is not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting “the standardized amount” and does not mention adjusting the hospital-specific rates.
In the FY 2009 IPPS proposed rule, we indicated that we continue to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from coding improvements that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act,
Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rate should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment authority authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In light of this authority, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. In the FY 2009 IPPS proposed rule, we stated that if we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. For example, the −0.9 percent documentation and coding adjustment to the national standardized amount in FY 2009 is in addition to the −0.6 percent adjustment made in FY 2008, yielding a combined effect of −1.5 percent in FY 2009. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 hospital-specific rates, it may involve applying the FY 2008 and FY 2009 documentation and coding adjustments (−1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 hospital-specific rates.
Comment:
A number of commenters opposed application of the documentation and coding adjustment to the hospital-specific rates. MedPAC supported application of a documentation and coding adjustment to the prospective payment rates and the hospital-specific rates for all IPPS hospitals that are paid based on their reported case-mix. Another commenter supported application of a documentation and coding adjustment to the hospital-specific rates if analysis of FY 2008 claims data supports a positive adjustment and recommended a transition be considered if the data support a negative adjustment.
Response:
We appreciate the comments received. We did not propose to apply the documentation and coding adjustment to the hospital-specific rates for FY 2009. Instead, as we indicated in the proposed rule and reiterated above, we intend to consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we plan to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we find that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 is warranted, we would include a proposal in the FY 2010 IPPS proposed rule, which would be open for public comment at that time.
3. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico-specific standardized amount. In this final rule, we are correcting this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates. The revised FY 2008 Puerto Rico-specific operating standardized amounts are: $1,471.10 for the labor share and $901.64 for the nonlabor share for a hospital with a wage index greater than 1 and $1,392.80 for the labor share and $979.94 for the non-labor share for a hospital with a wage index less than or equal to 1. The revised FY 2008 Puerto Rico capital payment rate is $202.89 (as discussed in section III.A.6.b. of the Addendum to this final rule). These revised rates are effective October 1, 2007, for FY 2008.
While section 1886(d)(3)(A)(vi) of the Act is not applicable to the Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid based on the hospital-specific rate, discussed in section II.D.2. of this preamble, we believe that Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs in section II.D.2. of the preamble of this final rule, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals in Puerto Rico. As we indicated in the FY 2009 proposed rule, if we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico-specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 Puerto Rico-specific standardized amount, it may involve applying the FY 2008 and FY
2009 documentation and coding adjustments (−1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 Puerto Rico-specific standardized amount.
Comment:
Some commenters opposed application of the documentation and coding adjustment to the Puerto Rico-specific standardized amount. MedPAC supported application of a documentation and coding adjustment to the prospective payment rates and the hospital-specific rates for all IPPS hospitals that are paid based on their reported case-mix.
Response:
We appreciate the comments. We did not propose to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount for FY 2009. Instead, as we indicated in the proposed rule, we intend to consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we plan to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals in Puerto Rico. If we find that application of the documentation and coding adjustment to the Puerto Rico-specific standardized amount for FY 2010 is warranted, we would include a proposal in the FY 2010 proposed rule, which would be open for public comment at that time.
4. Potential Additional Payment Adjustments in FYs 2010 Through 2012
Section 7 of Public Law 110-90 also provides for payment adjustments in FYs 2010 through 2012 based upon a retrospective evaluation of claims data from the implementation of the MS-DRG system. If, based on this retrospective evaluation, the Secretary finds that in FY 2008 and FY 2009, the actual amount of change in case-mix that does not reflect real change in underlying patient severity differs from the statutorily mandated documentation and coding adjustments implemented in those years, the law requires the Secretary to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 as a result of that difference, in addition to making an appropriate adjustment to the standardized amount under section 1886(d)(3)(A)(vi) of the Act.
In order to implement these requirements of section 7 of Public Law 110-90, we are planning a thorough retrospective evaluation of our claims data. Results of this evaluation would be used by our actuaries to determine any necessary payment adjustments in FYs 2010 through 2012 to ensure the budget neutrality of the MS-DRG implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule, we described our preliminary analysis plans to provide the opportunity for public input.
In the proposed rule, we indicated that we intend to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expect part of this overall national average change would be attributable to underlying changes in actual patient severity and part would be attributable to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we plan to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within base DRGs. The shifts among base DRGs are the result of changes in principal diagnoses while the shifts within base DRGs are the result of changes in secondary diagnoses. Because we expect most of the documentation and coding improvements under the MS-DRG system will occur in the secondary diagnoses, we believe that the shifts among base DRGs are less likely to be the result of the MS-DRG system and the shifts within base DRGs are more likely to be the result of the MS-DRG system. We also anticipate evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the improved documentation and coding payment effect and to quantify their impact. This step would entail analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.
In the proposed rule, we also stated that, while we believe that the data analysis plan described previously will produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding improvements, we may also decide, if feasible, to use historical data from our Hospital Payment Monitoring Program (HPMP) to corroborate the within-base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC). From 1998 to 2007, the CDAC obtained medical records for a sample of discharges as part of our hospital monitoring activities. These data were collected on a random sample of between 30,000 to 50,000 hospital discharges per year. The historical CDAC data could be used to develop an upper bound estimate of the trend in real case-mix growth (that is, real change in underlying patient severity) prior to implementation of the MS-DRGs.
In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for conducting a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patients' severity of illness.
Comment:
A few commenters, including MedPAC, expressed support for the analytic approach described in the proposed rule. A number of other commenters expressed concerns about certain aspects of the approach and/or suggested alternate analyses or study designs. In addition, one commenter recommended that any determination or retrospective evaluation by the actuaries of the impact of the MS-DRGs on case-mix be open to public scrutiny prior to the implementation of final payment adjustments for FY 2010 through FY 2012.
Response:
We thank the commenters for their comments. We will take all of the comments into consideration as we continue development of our analysis plans. Our analysis, findings, and any resulting proposals to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 will be discussed in future years' proposed rules, which will be open for public comment.
Comment:
One commenter expressed concern about the impact that an adjustment to the FY 2010 through FY 2012 payment rates could have on small rural hospitals. The commenter stated that if CMS finds that there was an increase in aggregate payments in FY 2008 or FY 2009 that requires an offsetting adjustment to the FY 2010 through FY 2012 payment rates, CMS should consider a transition period before fully implementing such ad adjustment.
Response:
If our analysis suggests that an adjustment to the FY 2010 through FY 2012 payment rates is necessary, a proposal would be made in a future proposed rule and the public would have an opportunity to comment on the proposal at that time.
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47188), we
continued to implement significant revisions to Medicare's inpatient hospital rates by basing relative weights on hospitals' estimated costs rather than on charges. We continued our 3-year transition from charge-based relative weights to cost-based relative weights. Beginning in FY 2007, we implemented relative weights based on cost report data instead of based on charge information. We had initially proposed to develop cost-based relative weights using the hospital-specific relative value cost center (HSRVcc) methodology as recommended by MedPAC. However, after considering concerns raised in the public comments, we modified MedPAC's methodology to exclude the hospital-specific relative weight feature. Instead, we developed national CCRs based on distinct hospital departments and engaged a contractor to evaluate the HSRVcc methodology for future consideration. To mitigate payment instability due to the adoption of cost-based relative weights, we decided to transition cost-based weights over 3 years by blending them with charge-based weights beginning in FY 2007. In FY 2008, we continued our transition by blending the relative weights with one-third charge-based weights and two-thirds cost-based weights.
Also, in FY 2008, we adopted severity-based MS-DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS-DRGs. We decided to implement a 2-year transition for the MS-DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for more detail on our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.
As we transitioned to cost-based relative weights, some commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high cost items and overvalue low cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in March 2007 which was posted on the CMS Web site with its findings on charge compression. In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI found inconsistent matching of charges in the Medicare cost report and their corresponding charges in the MedPAR claims for certain cost centers. In addition, there was inconsistent reporting of costs and charges among hospitals. For example, some hospitals would report costs and charges for devices and medical supplies in the Medical Supplies Charged to Patients cost center, while other hospitals would report those costs and charges in their related ancillary departments such as Operating Room or Radiology. RTI also found evidence that certain revenue codes within the same cost center had significantly different markup rates. For example, within the Medicare Supplies Charged to Patients cost center, revenue codes for devices, implantables, and prosthetics had different markup rates than the other medical supplies in that cost center. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.
RTI offered short-term, medium-term, and long-term recommendations to mitigate the effects of charge compression. RTI's short-term recommendations included expanding the distinct hospital CCRs to 19 by disaggregating the “Emergency Room” and “Blood and Blood Products” from the Other Services cost center and by estimating regression-based CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost centers. RTI recommended, for the medium-term, to expand the MedPAR file to include separate fields that disaggregate several existing charge departments. In addition, RTI recommended improving hospital cost reporting instructions so that hospitals can properly report costs in the appropriate cost centers. RTI's long-term recommendations included adding new cost centers to the Medicare cost report, such as adding a “Devices, Implants and Prosthetics” line under “Medical Supplies Charged to Patients” and a “CT Scanning and MRI” subscripted line under “Radiology-Diagnostics”.
Among RTI's short-term recommendations, for FY 2008, we expanded the number of distinct hospital department CCRs from 13 to 15 by disaggregating “Emergency Room” and “Blood and Blood Products” from the Other Services cost center as these lines already exist on the hospital cost report. Furthermore, in an effort to improve consistency between costs and their corresponding charges in the MedPAR file, we moved the costs for cases involving electroencephalography (EEG) from the Cardiology cost center to the Laboratory cost center group which corresponds with the EEG MedPAR claims categorized under the Laboratory charges. We also agreed with RTI's recommendations to revise the Medicare cost report and the MedPAR file as a long-term solution for charge compression. We stated that, in the upcoming year, we would consider additional lines to the cost report and additional revenue codes for the MedPAR file.
Despite receiving public comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR, we did not adopt RTI's short-term recommendation to create four additional regression-based CCRs for several reasons. We were concerned that RTI's analysis was limited to charges on hospital inpatient claims, while typically hospital cost report CCRs combine both inpatient and outpatient services. Further, because both the IPPS and OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. We have since expanded RTI's analysis of charge compression to incorporate outpatient services. RTI has been evaluating the cost estimation process for the OPPS cost-based weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. Because the RTI report was not available until after the conclusion of our proposed rule development process, we were unable to include a summary of the report in the FY 2009 IPPS proposed rule. The IPPS-related chapters of RTI's interim report were posted on the CMS Web site on April 22, 2008, for a 60-day comment period, and we welcomed comments on the report. In this final rule, we are providing a summary of RTI's findings and the public comments
we received in section II.E.2. of the preamble of this final rule.
2. Summary of RTI's Report on Charge Compression
As stated earlier, subsequent to the release of the FY 2009 IPPS proposed rule, we posted on April 22, 2008, an interim report discussing RTI's research findings for the IPPS MS-DRG relative weights to be available during the public comment period on the FY 2009 IPPS proposed rule. This report can be found on RTI's Web site at:
http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf
. The IPPS-specific chapters, which were separately displayed in the April 2008 interim report, as well as the more recent OPPS chapters, are included in the July 2008 RTI final report entitled, “Refining Cost-to-Charge Ratios for Calculating APC and DRG Relative Payment Weights,” that became available at the time of the development of this final rule. The RTI final report can be found on RTI's Web site at:
http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf
.
RTI's final report distinguished between two types of research findings and recommendations: Those pertaining to the accounting or cost report data and those related to statistical regression analysis. Because the OPPS uses a hospital-specific CCR methodology, employs detailed cost report data, and estimates costs at the claim level, CMS asked RTI to closely evaluate the accounting component of the OPPS cost-based weight methodology. In reviewing the cost report data for nonstandard cost centers used in the crosswalk, RTI discovered some problems concerning the classification of nonstandard cost centers that impact both the IPPS and the OPPS. RTI reclassified nonstandard cost centers by reading providers' cost center labels. Standard cost centers are preprinted in the CMS-approved cost report software, while nonstandard cost centers are identified and updated periodically through analysis of frequently used labels. Under the IPPS, the line reassignments only slightly impact the 15 national aggregate CCRs used in the relative weight calculation. However, improved cost report data for CT Scanning, MRI, Nuclear Medicine, Therapeutic Radiology, and Cardiac Catheterization through line reassignments allowed for the reduction in aggregation bias by expanding the number of national CCRs available to separately capture these and other services. Importantly, RTI found that, under the IPPS and the OPPS, this improvement to the cost reporting data reduces some of the sources of aggregation bias without having to use regression-based adjustments.
In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the OPPS. RTI also suggested that regression-based CCRs could provide a short-term correction until accounting data could be refined to support more accurate CCR estimates under both the IPPS and the OPPS. RTI again found aggregation bias in devices, drugs, and radiology and, using combined outpatient and inpatient claims, expanded the number of recommended regression-adjusted CCRs to create seven regression-adjusted CCRs for Devices, IV Solutions, Cardiac Catheterization, CT Scanning, MRI, Therapeutic Radiology, and Nuclear Medicine.
In almost all cases, RTI observed that potential distortions from aggregation bias and incorrect cost reporting in the OPPS relative weights were proportionally much greater than for MS-DRGs for both accounting-based and statistical adjustments because OPPS groups are small and generally price a single service. HCRIS line reassignments by themselves had little effect on most inpatient weights. However, just as the overall impacts on MS-DRGs were more moderate because MS-DRGs experienced offsetting effects in cost estimation among numerous revenue codes in an episode, a given hospital outpatient visit might include more than one service, leading to offsetting effects in cost estimation for services provided in the outpatient episode as a whole.
Notwithstanding likely offsetting effects at the provider-level, RTI asserted that, while some averaging is appropriate for a prospective payment system, extreme distortions in payments for individual services bias perceptions of service profitability and may lead hospitals to inappropriately set their charge structure. RTI noted that this may not be true for “core” hospital services, such as oncology, but has a greater impact in evolving areas with greater potential for provider-induced demand, such as specialized imaging services. RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. With regard to APCs and MS-DRGs that contain substantial device costs, RTI cautioned that other prospective payment system adjustments (wage index, IME, and DSH) largely offset the effects of charge compression among hospitals that receive these adjustments. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights.
As a result of this research, RTI made 11 recommendations. The first set of recommendations is more applicable to the OPPS because it uses more granular HCRIS data and concentrates on short-term accounting changes to current cost report data. This set includes a recommendation that CMS immediately implement a review of HCRIS cost center assignments based on text searches of providers' line descriptions and reassign lines appropriately. The second set addresses short-term regression-based and other statistical adjustments. The third set focuses on clarifying existing cost report instructions to instruct providers to use all applicable standard cost centers, adding new standard cost centers (for Devices, CT Scans, MRIs, Cardiac Catheterization, and Infusion Drugs), and creating new charge category summaries in the MedPAR to match the new cost centers on the cost report. Specifically, the new MedPAR groups would be for Intermediate Care (revenue codes 0206 and 0214), Devices (revenue codes 0274, 0275, 0276 and 0278), IV Solutions (revenue code 0258), CT Scanning (revenue codes 035x), Nuclear Medicine (revenue codes 034x, possibly combined with 0404), and Therapeutic Radiology (revenue codes 033x). RTI also recommends educating hospitals through industry-led educational initiatives directed at methods for capital cost finding, specifically encouraging providers to use direct assignment of equipment depreciation and lease costs wherever possible, or at least to allocate moveable equipment depreciation based on the dollar value of assigned depreciation costs. Lastly, although not directly the focus of its study, RTI mentions the problem of nursing cost compression in the relative weights, and notes that cost compression within inpatient nursing services is a significant source of distortion in the various IPPS' relative
weights, possibly more so than any of the factors studied by RTI. RTI suggests that it may be best for hospitals to agree to expand charge coding conventions for inpatient nursing, which would foster increased use of patient-specific nursing incremental charge codes in addition to baseline unit-specific per-diem charges.
Comment:
One commenter agreed with the enhancements made by RTI (in the portion of the RTI report that was made available to the public in the April 2008 report) to the model for disaggregating CCRs in the Medical Supplies cost center, but was “disappointed” that CMS did not post the complete report, including the impact of charge “decompression” on the APC weights under the OPPS, and urged CMS to release the full report as soon as possible to allow a comprehensive review of the findings applicable to both the IPPS and the OPPS.
Response:
Because the final RTI report was not scheduled to be completed before July 2008, we were unable to make the complete report, including sections focusing on the OPPS, available to the public in April 2008. Because we wanted to give the public the benefit of a 60-day comment period on the IPPS sections of the RTI report that would generally coincide with the 60-day comment period on the FY 2009 IPPS proposed rule, we chose to make available in April 2008 those sections of the RTI report that specifically dealt with the IPPS MS-DRG relative weights. We note that on July 3, 2008, we included on the CMS Web site the link to the complete RTI report:
http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf
.
Comment:
One commenter recommended that, for purposes of calculating the relative weights for FY 2009, CMS adopt RTI's recommendation to reassign cost center lines based on the provider's entered text description to correct errors in the assignment of costs and charges by hospitals in nonstandard cost centers on the cost report. The commenter also suggested that CMS adopt RTI's recommendation that, in the MedPAR file, intermediate care charges should be reclassified from the Intensive Care Unit cost center to the Routine cost center to correct a mismatch between where the intermediate care charges are assigned on the cost report (that is, in the Routine cost center) and where the charges are grouped in MedPAR (that is, with intensive care unit charges).
Response:
The commenter's recommendations are important and are consistent with existing Medicare policy. Currently, the MedPAR file incorrectly groups intermediate care charges with intensive care unit charges; intermediate care charges and costs are, in fact, to be included in the General Routine (that is, Adults and Pediatrics) cost center on the cost report, in accordance with section 2202.7.II.B. of the PRM-1. However, in its July 2008 report, RTI found that HCRIS line reassignments by themselves had little effect on most inpatient weights (page 8). The impact of adopting these recommendations would likely be more pronounced if we were adopting regression-based CCRs for purposes of calculating the relative weights for FY 2009. However, because we are not using regression-based CCRs for FY 2009, we do not believe it is necessary to adopt the commenter's recommendations for the MS-DRG relative weights at this time, but will consider them for future rulemaking.
Comment:
One commenter commended CMS for proposing to break out the existing line on the cost report for Medical Supplies Charged to Patients into two lines, one for costly devices and implants and the other for low-cost supplies, and for undertaking a comprehensive review of the cost report. However, the commenter observed that RTI's 2008 report demonstrates that additional lines are also needed to further break out drugs, radiology (CT scans and MRI scans) and cardiac catheterization because hospitals apply varying markups within these cost centers as well.
Response:
We acknowledge, as RTI has found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the proposed rule, we proposed to focus on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants.
We note that in the CY 2009 OPPS/ASC proposed rule (73 FR 41490), we are proposing to break the single standard Drugs Charged to Patient cost center, Line 56, into two standard cost centers, Drugs with High Overhead Cost Charged to Patients and Drugs with Low Overhead Cost Charged to Patients, to reduce the reallocation of pharmacy overhead cost from expensive to inexpensive drugs and biologicals. We use the term “pharmacy overhead” here to refer to overhead and related expenses such as pharmacy services and handling costs. This proposal is consistent with RTI's recommendation for creating a new cost center with a CCR that would be used to adjust charges to costs for drugs requiring detail coding. In the CY 2009 OPPS/ASC proposed rule, we note that comments on the proposed changes to the cost report for drugs should address any impact on both the inpatient and outpatient payment systems because both systems rely upon the Medicare hospital cost report for cost estimation. Furthermore, in that proposed rule, we specifically invited public comment on the appropriateness of creating standard cost centers for Computed Tomography (CT) Scanning, Magnetic Resonance Imaging (MRI), and Cardiac Catheterization, rather than continuing the established nonstandard cost centers for these services (73 FR 41431).
3. Summary of RAND's Study of Alternative Relative Weight Methodologies
A second reason that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS-DRGs. In the FY 2008 final rule with comment period (72 FR 47197), we stated that we engaged RAND as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs and we would consider their analysis as we prepared for the FY 2009 IPPS rulemaking process. We stated that we would analyze how the relative weights would change if we were to adopt regression-based CCRs and an HSRV methodology using fully-phased in MS-DRGs. We stated that we would consider the results of the second phase of the RAND study as we prepared for the FY 2009 IPPS rulemaking process. We had intended to include a detailed discussion of RAND's study in the FY 2009 IPPS proposed rule. However, due to some delays in releasing identifiable data to the contractor under revised data security rules, the report on this second stage of RAND's analysis was not completed in time for the development of the proposed rule. Therefore, we continued to have the same concerns with respect to uncertainty about how regression-based CCRs would interact with the MS-DRGs or an HSRV methodology, and we did not propose to adopt the regression-based CCRs or an HSRV methodology in the FY 2009 IPPS proposed rule. Nevertheless, we welcomed public comments on our proposals not to adopt regression-based CCRs or an HSRV methodology at that time or in the future. The RAND report on regression-based CCRs and the HSRV methodology was finalized at the conclusion of our proposed rule
development process and was posted on the CMS Web site on April 22, 2008, for a 60-day comment period. Although we were unable to include a discussion of the results of the RAND study in the proposed rule, we welcomed public comment on the report. We are providing a summary of the report and the public comments we received below.
RAND evaluated six different methods that could be used to establish relative weights: CMS' current relative weight methodology and five alternatives. In particular, RAND examined:
• How the relative weights differ across the alternative methodologies.
• How well each relative weight methodology explained variation in costs.
• Payment accuracy under each relative weight methodology and current facility-level adjustments.
• Payment implications of alternatives to the current methodology for establishing relative weights.
RAND examined alternative relative weight methodologies including either our current methodology of 15 national CCRs or 19 CCRs that are disaggregated using the regression-based methodology, or hospital-specific CCRs for 15 cost center groupings. The expansion from 15 to 19 cost center groupings is intended to reduce charge compression in the relative weights introduced by combining services with different rates of charge markups into a single cost center for purposes of estimating cost. The hospital-specific CCRs are intended to account for differences in overall charging practices across hospitals (that is, smaller nonteaching hospitals tend not to have as much variation in rates of markup as larger teaching hospitals).
In addition, RAND analyzed our standardization methodologies that account for systematic cost differences across hospitals. The purpose of standardization is to eliminate systematic facility-specific differences in cost so that these cost differences do not influence the relative weights. The three standardization methodologies analyzed by RAND include the “hospital payment factor” methodology currently used by CMS, where a hospital's wage index factor, and IME and/or DSH factor are divided out of its estimated DRG cost; the HSRV methodology that standardizes the cost for a given discharge by the hospital's own costliness rather than by the effect of the systematic cost differences across groups of hospitals; and the HSRVcc methodology, which removes hospital-level cost variation by calculating hospital-specific charge-based relative values for each DRG at the cost center level and standardizing them for differences in case mix. Under the HSRVcc methodology, a national average charge-based relative weight is calculated for each cost center.
RAND conducted two different types of analyses to evaluate 5 alternative relative weight methodologies that varied use of 19 national CCRs and 15 hospital-specific CCRs, and HSRV and HSRVcc standardization methodologies along with components of the current relative weight methodology using 15 national CCRs and hospital payment factor standardization. The first type of analysis compared the five alternative relative weight methodologies to CMS' current relative weight methodology and compared average payment under each relative weight methodology across different types of hospitals. The second analysis examined the relative payment accuracy of the relative weight methodologies. RAND used the costs under 15 hospital-specific CCRs as its hospital cost baseline. RAND noted that the choice for its baseline may affect the results of the analysis because relative weight methodologies that are similar to the 15 hospital-specific CCR methodology may be assessed more favorably because they are likely to have similar costs, while relative weight methodologies that are different from the 15 hospital-specific CCR methodology may not be as favorable. The payment accuracy analysis used a regression technique to evaluate how well the relative weight methodologies explained variation in costs and how well the hospital payments under the relative weight methodologies matched the costs per discharge. Finally, RAND examined payment-to-cost ratios among different types of hospitals.
Overall, RAND found that none of the alternative methods of calculating the relative weights represented a marked improvement in payment accuracy over the current method, and there was little difference across methods in their ability to predict cost at either the discharge-level or the hospital-level. In their regression analysis, RAND found that after controlling for hospital payment factors, the relative weights are compressed. However, RAND also found that the hospital payment factors increase more rapidly than cost, so while the relative weights are compressed, these payment factors offset the compression so that total payment increases more rapidly than cost.
RAND does not believe the regression-based charge compression adjustments significantly improve payment accuracy. RAND found that relative weights using the 19 national disaggregated regression-based CCRs result in significant redistributions in payments among hospital groupings. With regard to standardization methodologies, while RAND found that there is no clear advantage to the HSRV method or the HSRVcc method of standardizing cost compared to the current hospital payment factor standardization method, its analysis did reveal significant limitations of CMS' current hospital payment factor standardization method. The current standardization method has a larger impact on the relative weights and payment accuracy than any of the other alternatives that RAND analyzed because the method “over-standardizes” by removing more variability for hospitals receiving a payment factor than can be empirically supported as being cost-related (particularly for IME and DSH). RAND found that instead of increasing proportionately with cost, the payment factors CMS currently uses (some of which are statutory), increase more rapidly than cost, thereby reducing payment accuracy. Further analysis is needed to isolate the cost-related component of the IPPS payment adjustments (some of which has already been done by MedPAC), use them to standardize cost, and revise the analysis of payment accuracy to reflect only the cost-related component. Generally, RAND believes it is premature to consider further refinements in the relative weight methodology until data from FY 2008 or later that reflect coding improvement and other behavioral changes that are likely to occur as hospitals adopt the MS-DRGs can be evaluated.
Comment:
A number of commenters submitted comments on RAND's report. Some commenters supported RAND's methodology and findings. These commenters agreed with RAND's findings that regression-based CCRs would not have a material impact on payment accuracy. These commenters also agreed with RAND that CMS should wait until FY 2008 data are available to consider further refinements to the relative weight methodology.
Some commenters disagreed with RAND's methodology and findings that the regression-based CCRs offer no improvement in payment accuracy. RAND found that regression-based CCRs result in significant redistributions in payment within hospital groups with increases in payments concentrated to the cardiac and orthopedic surgical DRGs. RAND's payment to cost ratio analysis, which measures payment equity across groups of hospitals, found that adopting regression-based CCRs led
to significant reductions in payment to cost ratio for rural hospitals. Commenters also indicated their belief that the payment-to-cost analysis is not the appropriate analysis to use because, in the hospital prospective payment system, costs at the DRG level are not precisely known. Furthermore, the commenters asserted RAND's analysis was flawed because, in its payment-to-cost analysis, RAND compared payment rates adjusted for charge compression with regression-based CCRs to payment rates unadjusted for charge compression. The commenters stated that when they compared payments adjusted for charge compression with regression-based CCRs to payment rates adjusted for charge compression, they found that regression-based CCRs improved payment accuracy. In addition, the commenters cited that RAND acknowledged that its choice for the baseline in comparing payment rates “may affect the results and conclusions of our analysis”.
Response:
We appreciate the comments on the RAND report. Given the move to the MS-DRGs and the concerns surrounding documentation and coding and the most appropriate approach to improving payment accuracy, we generally agree with RAND's recommendation that it would be premature to revise the relative weights methodology until additional data from FY 2008 are available. With respect to the comments on RAND's analysis related to the regression-based CCRs, we understand the commenters' reasons for disputing RAND's choice to use a relative weight methodology that does not incorporate regression-based CCRs as its baseline for hospital costs. In RAND's payment-to-cost analysis, RAND used the relative weight methodology with 15 hospital-specific CCRs to determine the hospital costs baseline. RAND noted that, while it believes its choice of cost measure is appropriate, it recognizes that “the choice may affect the results of the analysis because relative weight methods that use the hospital-specific CCRs may be assessed more favorably than would have been the case had we used a different cost measure. Similarly, the use of 15 rather than 19 cost center CCRs may favor the relative weight methods that do not account for charge compression.” If a single method existed that clearly yielded the best measure of cost, it seems unlikely that a study to evaluate five alternative methods of calculating cost for the MS-DRG relative weights would have been necessary. We believe that it was within RAND's discretion to decide how best to conduct its payment analyses, and while there may be benefits and drawbacks to alternative approaches (including whether to use a baseline that adjusts for charge compression), RAND's choice is defensible. Accordingly, RAND's finding that regression-based CCRs do not improve payment accuracy cannot be summarily dismissed.
Comment:
Many commenters opposed the HSRV methodology for standardization. The commenters cited RAND's findings that the HSRV methodology inappropriately compresses the relative weights. They believed that the methodology only improves the accuracy of the relative weights under the unlikely situations where all hospitals have identical mix of patients and costs structures, or if all hospitals have identical costs across all cost centers or if all hospitals have the same case-mix and the costs differ by a constant factor across all DRGs and all cost centers. The commenters agreed with RAND that it would be premature to consider further refinements to the methodology for setting relative weights, including the HSRV method of standardization, until data from FY 2008 or later can be evaluated.
Response:
We appreciate the comments on the HSRV methodology, and we understand that many commenters continue to oppose to the HSRV methodology. In FY 2007, we did not adopt the HSRV methodology after consideration of concerns raised by commenters' opposition to the methodology. Instead, in the FY 2007 IPPS final rule (71 FR 47897), we stated that we would undertake further analysis to study the payment impacts of the HSRV methodology with regression-based CCRs under the MS-DRGs. We engaged RAND as our contractor to conduct this analysis, and in its report, RAND observed that relative weights that were based on hospital-specific CCRs with 15 cost centers that were standardized using the current standardization methodology would warrant further consideration as an improvement over the current relative weights. RAND did not find the HSRV or HSRVcc standardization methods to be preferable to the hospital payment factor method. However, RAND also cautioned that its results reveal some significant limitations of the current hospital payment factor method. Specifically, current IME and DSH payment adjustments increase more quickly than their cost, and when used for standardization, compress the relative weights. We agree with RAND that our current standardization process requires additional analysis, and therefore, we are not changing our current method of standardizing for FY 2009. We will continue to consider various options for improving payment accuracy.
Comment:
One commenter supported RAND's finding that CMS should revise its hospital payment factor method for standardizing claims charges to remove the effects of hospital-specific factors (that is, wage index, IME, and DSH) that affect cost estimates. The commenter recommended that CMS could improve its standardization process by removing the effects of these factors by using empirical estimates rather than using current policy adjustments. The commenter noted that MedPAC and CMS have done empirical estimates of these factors in the past.
Response:
One of the issues that the RAND report specifically addressed was standardization methods that account for systematic cost differences across hospitals. These methods include what RAND called the hospital payment factor method, which is CMS' current approach to standardizing claims charges, the HSRV methodology, and the HSRVcc methodology. Although RAND's results do not indicate that the HSRV or HSRVcc standardization method is clearly preferable to the hospital payment factor method, RAND found that the current hospital payment factor standardization method has significant limitations. Specifically, RAND found that the hospital payment factor method “over-standardizes” by using a hospital payment factor that is larger than can be empirically supported as being cost-related (particularly for IME and DSH) and that has a larger impact on the relative weights and payment accuracy than other elements of the cost-based methodology. However, RAND cautions that “re-estimating” these payment factors “raises important policy issues that warrant additional analyses” (page 49), particularly to “determine the analytically justified-levels using the MS-DRGs” (page 110). In addition, we note that RTI, in its July 2008 final report, also observed that the adjustment factors under the IPPS (the wage index, IME, and DSH adjustments) complicate the determination of cost and these factors “within the rate calculation may offset the effects of understated weights due to charge compression” (page 109). We understand that MedPAC has done analysis of what the empirically-justified levels of the IME and DSH adjustment should be. We cannot propose to change the IME and DSH factors used for actual payment under the IPPS because these factors are
required by statute. After further studying the issue, we may consider proposing various options for improving payment accuracy when standardizing charges as part of the relative weights calculation.
Comment:
Many commenters continued to oppose adoption of the regression-based CCRs, asserting that the charge compression issue is not urgent enough to warrant the use of substitute data for real cost and charge information. The commenters indicated that many hospitals believe that most increases or decreases in the MS-DRG relative weights will have a minimal dollar impact on their bottom line. They further stated that the RAND report asserts that the regression-based CCR adjustments would not materially impact payment accuracy. The commenters also agreed with CMS' position at the time of the proposed rule that there had not been sufficient time to evaluate the impact of a regression-based approach on inpatient or outpatient services, and on the MS-DRGs. The commenters further believed that calculating regression-based CCRs is “excessively complicated,” is difficult to validate, and may be flawed to the extent that the regressions would be based on data in which the mismatch between MedPAR charges and cost report costs and charges has not been corrected. The commenters believed that more accurate and uniform reporting and improvements to the cost report is the best approach to improving payment accuracy.
A number of commenters objected to the regression-based approach to break out the one CCR for all radiology services that CMS is currently using. The commenters noted that the RTI estimates suggest that hospitals mark up CT services on average by more than 1800 percent over cost (CCR 0.054), while routine radiology services are marked up by an average of more than 300 percent over cost. The commenters believed that this vast difference in the markup practices of hospitals seems implausible and, therefore, would result in significant payment distortions if CMS were to adopt RTI's disaggregated radiology CCRs or some related adjustment to the radiology CCR, for Medicare ratesetting. The commenters asserted that use of RTI's CCRs would significantly reduce payment for imaging-intensive DRGs in the inpatient setting for trauma services, but the impact on payments under the OPPS and the Medicare physician fee schedule (MPFS) imaging services capped by OPPS payments would be even more dramatic. The commenters believed that the CCRs for advanced imaging may reflect a misallocation of capital costs on the cost report. They further stated that this could indicate that many hospitals are reporting CT and MRI machines as fixed equipment and allocate the related capital costs as part of the facility's Building and Fixtures overhead cost center instead of reporting the capital costs directly in the Radiology cost center, resulting in RTI's estimate of the costs and CCRs for CT and MRI equipment to be too low. The commenters argued that, regardless of the reason for the low CCRs, the use of RTI's CCRs could result in aberrant payments for radiology services, where payments to a hospital for outpatient x-rays might be higher than the payment for a similar CT scan, and where the physician fee schedule rates for the technical component cost of the CT scan may also be less than the cost of these scans estimated by CMS, providing a disincentive for hospitals and physicians to provide these services. In concluding that RTI's analysis of the CCRs for imaging services is flawed, several commenters urged CMS to more carefully analyze CCRs for radiology before proposing any measures to change these CCRs. The commenters believed that if the underreported capital costs are considered, it is likely that the CCRs for CT scanning and MRI services would be approximately equal to the overall radiology CCR and no adjustment would be needed.
A significant number of commenters supported applying the regression-based CCRs as a temporary solution to address charge compression. The commenters believed that because CMS' proposed changes to the cost report would not have an impact on the relative weights until FY 2012, implementation of regression-based CCRs is necessary in the interim. The commenters cited what they believed is ample evidence, particularly from the RTI report and from MedPAC, that regression-based CCR
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