Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates and to the Long-Term Care Hospital Prospective Payment System and Rate Year 2010 Rates
Federal RegisterMay 22, 2009
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, 415, and 489
[CMS-1406-P]
RIN 0938-AP39
Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates and to the Long-Term Care Hospital Prospective Payment System and Rate Year 2010 Rates
AGENCY:
Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION:
Proposed rule.
SUMMARY:
We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, Pub. L. 110-275) and the American Recovery and Reinvestment Act of 2009 (ARRA, Pub. L. 111-5). In addition, in the Addendum to this proposed rule, we describe the proposed changes to the amounts and factors used to determine the rates for Medicare acute care hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2009. We also are setting forth the proposed update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The proposed updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2009.
In addition, we are proposing to update the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). In the Addendum to this proposed rule, we also set forth the proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for rate year 2010. These proposed changes would be applicable to discharges occurring on or after October 1, 2009. In this proposed rule, we also note those provisions of the ARRA that amended provisions of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, Pub. L. 110-173) relating to payments to LTCHs and new LTCHs and LTCH satellite facilities, and increases in beds in existing LTCHs and LTCH satellite facilities under the LTCH PPS that will be implemented in the final rule issued for this proposed rule.
DATES:
To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. E.S.T. on June 30, 2009.
ADDRESSES:
When commenting on issues presented in this proposed rule, please refer to file code CMS-1406-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one of the ways listed):
1.
Electronically.
You may submit electronic comments on this regulation at
http://www.regulations.gov.
Follow the instructions for “Comment or Submission” and enter the file code CMS-1406-P to submit comments on this proposed rule.
2.
By regular mail.
You may mail written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention:
CMS-1406-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received before the close of the comment period.
3.
By express or overnight mail.
You may send written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1406-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4.
By hand or courier.
If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201
(Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.
Submission of comments on paperwork requirements.
You may submit comments on this document's paperwork requirements by following the instructions at the end of the “Collection of Information Requirements” section in this document.
For information on viewing public comments, see the beginning of the
SUPPLEMENTARY INFORMATION
section.
FOR FURTHER INFORMATION, CONTACT:
Tzvi Hefter, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education Payments, EMTALA, Hospital Emergency Services, and Hospital-Within-Hospital Issues.
Michele Hudson, (410) 786-4487, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRGs 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-Acquired Conditions.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments:
All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:
http://www.regulations.gov.
Follow the search instructions at that Web site to view public comments.
Comments received timely will also be available for public inspection, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through
Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.
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Acronyms
3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public Law 107-105
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
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 99-272
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
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
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
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
LOS Length of stay
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
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PIP Periodic interim payment
PLI Professional liability insurance
PMSAs 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
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
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
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
VAP Ventilator-associated pneumonia
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
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical Education (GME)
B. Provisions of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)
C. Provisions of the American Recovery and Reinvestment Act of 2009 (ARRA)
D. Major Contents of This Proposed Rule
1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
3. Proposed Rebasing and Revision of the Hospital Market Basket for Acute Care Hospitals
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages
7. Proposed Changes to the LTCH PPS
8. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
9. Determining Proposed Prospective Payments Rates for LTCHs
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services
12. Discussion of Medicare Payment Advisory Commission Recommendations
E. Public Comments Received on Two LTCH PPS Interim Final Rules with Comment Period Issued in 2008
II. Proposed Changes to Medicare Severity Diagnosis-Related Group (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. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90
3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90
4. Retrospective Evaluation of FY 2008 Claims Data
5. Proposed Adjustments for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act
6. Additional Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90
7. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates
8. Proposed Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2010 and Subsequent Years
9. Background on the Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
10. Proposed Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
a. Summary of the RTI Study of Charge Compression and CCR Refinement
b. Summary of the Rand Corporation Study of Alternative Relative Weight Methodologies
2. Summary of FY 2009 Changes and Discussion for FY 2010
3. Timeline for Revising the Medicare Cost Report
F. Preventable Hospital-Acquired Conditions (HACs), Including Infections
1. Statutory Authority
2. HAC Selection Process
3. Collaborative Process
4. Selected HAC Categories
5. Public Input Regarding Selected and Potential Candidate HACs
6. POA Indicator Reporting
G. Proposed Changes to Specific MS-DRG Classifications
1. MDC 5 (Diseases and Disorders of the Circulatory System): Intraoperative Fluorescence Vascular Angiography (IFVA)
2. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Infected Hip and Knee Replacements
3. Proposed Medicare Code Editor (MCE) Changes
a. Diagnoses Allowed for Males Only Edit
b. Manifestation Codes as Principal Diagnosis Edit
c. Invalid Diagnosis or Procedure Code
d. Unacceptable Principal Diagnosis
e. Proposed Creation of New Edit Titled “Wrong Surgeries”
f. Procedures Allowed for Females Only Edit
4. Surgical Hierarchies
5. Complication or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2010
6. Review of Procedure Codes in MS-DRGs 981 through 983, 984 through 986, and 987 through 989
a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 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
7. Changes to the ICD-9-CM Coding System
H. Recalibration of MS-DRG Weights
I. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments
3. FY 2010 Status of Technologies Approved for FY 2009 Add-On Payments
4. FY 2010 Applications for New Technology Add-On Payments
a. The AutoLITT
TM
System
b. CLOLAR® (clofarabine) Injection
c. LipiScan
TM
Coronary Imaging System
d. Spiration® IBV® Valve System
e. TherOx Downstream® System
5. Technical Correction
III. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
B. Requirements of Section 106 of the MIEA-TRHCA
1. Wage Index Study Required Under the MIEA-TRHCA
a. Legislative Requirement
b. Interim and Final Reports on Results of Acumen's Study
2. FY 2009 Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA
a. Reclassification Average Hourly Wage Comparison Criteria
b. Within-State Budget Neutrality Adjustment for the Rural and Imputed Floors
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Proposed Occupational Mix Adjustment to the Proposed FY 2010 Wage Index
1. Development of Data for the Proposed FY 2010 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey
2. Calculation of the Proposed Occupational Mix Adjustment for FY 2010
E. Worksheet S-3 Wage Data for the Proposed FY 2010 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
G. Method for Computing the Proposed FY 2010 Unadjusted Wage Index
H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2010 Occupational Mix Adjusted Wage Index
I. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2010 MGCRB Reclassifications
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of Public Law 108-173
J. Proposed FY 2010 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees
K. Process for Requests for Wage Index Data Corrections
IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals
A. Background
B. Rebasing and Revising the IPPS Market Basket
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
b. Other Data Sources
2. Final Cost Category Computation
3. Selection of Price Proxies
a. Wages and Salaries
b. Employment Benefits
c. Fuel, Oil, and Gasoline
d. Electricity
e. Water and Sewage
f. Professional Liability Insurance
g. Pharmaceuticals
h. Food: Direct Purchase
i. Food: Contract Services
j. Chemicals
k. Blood and Blood Products
l. Medical Instruments
m. Photographic Supplies
n. Rubber and Plastics
o. Paper and Printing Products
p. Apparel
q. Machinery and Equipment
r. Miscellaneous Products
s. Professional Fees: Labor-Related
t. Administrative and Business Support Services
u. All Other: Labor-Related Services
v. Professional Fees: Nonlabor-Related
w. Financial Services
x. Telephone Services
y. Postage
z. All Other: Nonlabor-Related Services
4. Labor-Related Share
C. Separate Market Basket for Certain Hospitals Presently Excluded From the IPPS
D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital Payment Update
1. Background
a. Overview
b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108-173
c. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 109-171
2. Retirement of RHQDAPU Program Measures
3. Quality Measures for the FY 2011 Payment Determination and Subsequent Years
a. Considerations in Expanding and Updating Quality Measures Under the RHQDAPU Program
b. Proposed RHQDAPU Program Quality Measures for the FY 2011 Payment Determination
3. Possible New Quality Measures for the FY 2012 Payment Determination and Subsequent Years
4. Possible New Quality Measures for the FY 2012 Payment Determination and Subsequent Years
5. Form, Manner, and Timing of Quality Data Submission
a. Proposed RHQDAPU Program Procedures for the FY 2011 Payment Determination
b. RHQDAPU Program Disaster Extensions and Waivers
c. HACHPS Requirements for the FY 2011 Payment Determination
6. Proposed Chart Validation Requirements
a. Proposed Chart Validation Requirements and Methods for the FY 2011 Payment Determination
b. Proposed Chart Validation Requirements and Methods for the FY 2012 Payment Determination and Subsequent Years
c. Possible Supplements to the Chart Validation Process for the FY 2013 Payment Determination and Subsequent Years
7. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2011 Payment Determination and Subsequent Years
8. Public Display Requirements for the FY 2011 Payment Determination and Subsequent Years
9. Proposed Reconsideration and Appeal Procedures for the FY 2010 Payment Determination
10. RHQDAPU Program Withdrawal Deadlines
11. Electronic Health Records
a. Background
b. EHR Testing of Quality Measures Submission
c. HITECH Act EHR Provisions
B. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs): Budget Neutrality Adjustment Factors for FY 2002-Based Hospital-Specific Rate for MDHs
1. Background
2. FY 2002-Based Hospital-Specific Rate
C. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
D. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2010
3. IME-Related Proposed Changes in Other Sections of this Proposed Rule
E. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs)
1. Background
2. Proposed Policy Change Relating to the Inclusion of Labor and Delivery Patient Days in the Medicare DSH Calculation
a. Background
b. Proposed Policy Change
3. Proposed Policy Change Relating to Calculation of Inpatient Days in the Medicaid Fraction in the Medicare DSH Calculation
a. Background
b. Proposed Policy Change
4. Proposed Policy Change Relating to the Exclusion of Observation Beds and Patient Days From the Medicare DSH Calculation
a. Background
b. Proposed Policy Change
F. Technical Correction to Regulations on Payments for Anesthesia Services Furnished by Hospital or CAH Employed Nonphysician Anesthetists or Obtained Under Arrangements
G. Payments for Direct Graduate Medical Education (GME) Costs
1. Background
2. Clarification of Definition of New Medical Residency Training Program
3. Participation of New Teaching Hospitals in Medicare GME Affiliated Groups
4. Technical Corrections to Regulations
H. Hospital Emergency Services Under EMTALA
1. Background
2. Proposed Changes Relating to Applicability of Sanctions Under EMTALA
I. Rural Community Hospital Demonstration Program
J. Technical Correction to Regulations Relating to Calculation of the Federal Rate Under the IPPS
VI. Proposed Changes to the IPPS for Capital-Related Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Proposed Changes
1. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment
a. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009
b. Proposed Prospective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2010 and Subsequent Years
c. Proposed Documentation and Coding Adjustment to the Puerto Rico-Specific Capital Rate
2. Revision to the FY 2009 IME Adjustment Factor
3. Other Proposed Changes for FY 2010
VII. Proposed Changes for Hospitals Excluded From the IPPS
A. Excluded Hospitals
B. Criteria for Satellite Facilities of Hospitals
C. Critical Access Hospitals (CAHs)
1. Background
2. Payment for Clinical Diagnostic Laboratory Tests Furnished by CAHs
3. CAH Optional Method of Payment for Outpatient Services
D. Provider-Based Status of Facilities and Organizations: Proposed Policy Changes
1. Background
2. Proposed Changes to the Scope of the Provider-Based Status Regulations for CAHs
a. CAH-Based Clinical Diagnostic Laboratory Facilities
b. CAH-Based Ambulance Services
3. Technical Correction to Regulations
VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for RY 2010
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded from the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance
B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights
1. Background
2. Patient Classifications Into MS-LTC-DRGs
a. Background
b. Proposed Changes to the MS-LTC-DRGs for RY 2010
3. Development of the Proposed RY 2010 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative Weights
b. Data
c. Hospital-Specific Relative Value (HSRV) Methodology
d. Treatment of Severity Levels in Developing the Proposed MS-LTC-DRG Relative Weights
e. Low-Volume MS-LTC-DRGs
f. Steps for Determining the Proposed RY 2010 MS-LTC-DRG Relative Weights
C. Proposed Changes to the LTCH Payment Rates and Other Changes to the RY 2010 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. Market Basket for LTCHs Reimbursed under the LTCH PPS
a. Overview
b. Proposed Market Basket under the LTCH PPS for RY 2010
c. Proposed Market Basket Update for LTCHs for RY 2010
d. Proposed Labor-Related Share under the LTCH PPS for RY 2010
3. Proposed Adjustment for Changes in LTCHs' Case-Mix Due to Changes in Documentation and Coding Practices That Occurred in a Prior Period
a. Background
b. Evaluation of FY 2007 Claims Data
c. Evaluation of FY 2008 Claims Data
d. Proposed RY 2010 Documentation and Coding Adjustment
D. Monitoring
E. Research Conducted by the Research Triangle Institute, International (RTI)
F. Proposed Technical Corrections of LTCH PPS Regulations
IX. MedPAC Recommendations
X. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Additional Information Collection Requirements
1. Present on Admission (POA) Indicator Reporting
2. Proposed Add-On Payments for New Services and Technologies
3. Reporting of Hospital Quality Data for Annual Hospital Payment Update
4. Occupational Mix Adjustment to the FY 2010 Index (Hospital Wage Index Occupational Mix Survey)
5. Hospital Applications for Geographic Reclassifications by the MGCRB
C. Response to Public Comments
Regulation Text
Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or after October 1, 2009
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2010
A. Calculation of the Adjusted Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
C. Proposed MS-DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2010
A. Determination of Proposed Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update
B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2010
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages
V. Proposed Changes to the Payment Rates for the LTCH PPS for RY 2010
A. Proposed LTCH PPS Standard Federal Rate for RY 2010
B. Proposed Adjustment for Area Wage Levels under the LTCH PPS for RY 2010
C. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
D. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for RY 2010
VI. Tables
Table 1A.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (67.1 Percent Labor Share/32.9 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 1E.—LTCH Standard Federal Prospective Payment Rate
Table 2.—Acute Care Hospitals Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2008; Hospital Wage Indexes for Federal Fiscal Year 2010; Hospital Average Hourly Wages for Federal Fiscal Years 2008 (2004 Wage Data), 2009 (2005 Wage Data), and 2010 (2006 Wage Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A.—FY 2010 and 3-Year Average Hourly Wage for Acute Care Hospitals in Urban Areas by CBSA
Table 3B.—FY 2010 and 3-Year Average Hourly Wage for Acute Care Hospitals in Rural Areas by CBSA
Table 4A.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State—FY 2010
Table 4B.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State—FY 2010
Table 4C.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State—FY 2010
Table 4D-1.—Rural Floor Budget Neutrality Factors for Acute Care Hospitals—FY 2010
Table 4D-2.—Urban Areas with Acute Care Hospitals Receiving the Statewide Rural Floor or Imputed Floor Wage Index—FY 2010
Table 4E.—Urban CBSAs and Constituent Counties for Acute Care Hospitals—FY 2010
Table 4F.—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals by CBSA—FY 2010
Table 4J.—Out-Migration Adjustment for Acute Care Hospitals—FY 2010
Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2010
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 2008 MedPAR Update—December 2008 GROUPER V26.0 MS-DRGs
Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2008 MedPAR Update—December 2008 GROUPER V27.0 MS-DRGs
Table 8A.—Proposed Statewide Average Operating Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009
Table 8B.—Proposed Statewide Average Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009
Table 8C.—Proposed Statewide Average Total Cost-to-Charge Ratios (CCRs) for LTCHs—March 2009
Table 9A.—Hospital Reclassifications and Redesignations—FY 2010
Table 9C.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2010
Table 10.—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)—March 2009
Table 11.—Proposed MS-LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and Short-Stay Outlier Threshold for Discharges Occurring from October 1, 2009 through September 30, 2010 under the LTCH PPS
Table 12A.—LTCH PPS Wage Index for Urban Areas for Discharges Occurring from October 1, 2009 through September 30, 2010
Table 12B.—LTCH PPS Wage Index for Rural Ares for Discharges Occurring from October 1, 2009 through September 30, 2010
Appendix A—Regulatory Impact Analysis
I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded From the IPPS
V. Effects on Hospitals Excluded from the IPPS
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 Proposed Changes to the MS-DRG Reclassifications and Relative Cost-Based Weights (Column 1)
D. Effects of the Application of Recalibration Budget Neutrality (Column 2)
E. Effects of Proposed Wage Index Changes (Column 3)
F. Application of the Wage Budget Neutrality Factor (Column 4)
G. Combined Effects of Proposed MS-DRG and Wage Index Changes (Column 5)
H. Effects of MGCRB Reclassifications (Column 6)
I. Effects of the Proposed Rural Floor and Imputed Floor, Including the Transition To Apply Budget Neutrality at the State Level (Column 7)
J. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 8)
K. Effects of All Proposed Changes Prior to Documentation and Coding (or CMI) Adjustment (Column 9)
L. Effects of All Proposed Changes With Documentation and Coding (or CMI) Adjustment (Column 10)
M. Effects of Policy on Payment Adjustments for Low-Volume Hospitals
N. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on HACs, Including Infections
B. Effects of Proposed Policy Change Relating to New Medical Service and Technology Add-On Payments
C. Effects of Proposed Requirements for Hospital Reporting of Quality Data for Annual Hospital Payment Update
D. Effects of Correcting the FY 2002-Based Hospital-Specific Rates for MDHs
E. Effects of Proposed Policy Changes Relating to DSH Payment Adjustment
F. Effects of Proposed Policy Changes Related to Direct GME
G. Effects of Proposed Policy Changes Relating to Hospital Emergency Services under EMTALA
H. Effects of Proposed Policy Changes Relating to Payments to CAHs
I. Effects of Proposed Policy Changes Relating to Provider-Based Status of Facilities and Organizations
J. Effects of Proposed Policy Changes Relating to Criteria for Satellite Facilities of Hospitals
K. Effects of Implementation of Rural Community Hospital Demonstration Program
VIII. Effects of Proposed Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Effects of Proposed Payment Rate Changes and Policy Changes Under the LTCH PPS
A. Introduction and General Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of Proposed LTCH PPS Payment Rate Change and Policy Changes
D. Effect on the Medicare Program
E. Effect on Medicare Beneficiaries
X. Alternatives Considered
XI. Overall Conclusion
A. Acute Care Hospitals
B. LTCHs
XII. Accounting Statements
A. Acute Care Hospitals
B. LTCHs
XIII. 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 2010
III. Secretary's 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 eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.
Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate 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 highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has no more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). 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. We began phasing out the capital IPPS IME adjustment in FY 2008, as discussed in section VI.B.2. of this preamble. However, section 4301(b)(1) of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5), enacted on February 17, 2009, requires that the 50-percent reduction in the capital IPPS teaching adjustment for FY 2009 specified in the regulations at § 412.322(c) shall not be applied. Section 4301(b)(2) of Public Law 111-5 specifies that, for subsequent years, the change made by section 4301(b)(1) has no effect on the capital teaching adjustment. Therefore, beginning in FY 2010, there will no longer be a capital teaching adjustment under the capital IPPS. The provisions of section 4301(b) of Public Law 111-5 are discussed in sections VI.A. and E. of this preamble. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded from the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: 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 (BBA, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the proposed annual updates to the LTCH PPS are now included as part of the IPPS annual update document (for RY 2010, in this proposed rule). Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs per discharge.
The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554. During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for
cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. Beginning with RY 2010, we are issuing the annual updates to the LTCH PPS in the same documents that update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR Part 413.
B. Provisions of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)
Section 148 of the MIPPA (Pub. L. 110-275) changes the payment rules regarding outpatient clinical diagnostic laboratory tests furnished by a CAH. The statutory change applies to services furnished on or after July 1, 2009. In section VI.C.2. of the preamble of this proposed rule, we discuss our proposal to codify policies in the Medicare regulations to implement this provision.
C. Provisions of the American Recovery and Reinvestment Act of 2009 (ARRA)
Section 4301(b) of the American Recovery and Reinvestment Act of 2009 (AARA), Public Law 111-5, enacted on February 17, 2009, requires that the phase-out of the capital IPPS teaching adjustment at § 412.322(c) (that is, the 50-percent reduction for FY 2009) shall be applied, as if such paragraph had not been in effect. Section 4301(b) of Public Law 111-5 also specifies that there will be no effect on the phase-out of the capital teaching adjustment for subsequent years, such that, for discharges occurring during FY 2010 and thereafter, there will no longer be a teaching adjustment under the capital IPPS as is currently specified at § 412.322(d). We discuss the proposed implementation of these provisions in section VI.A. and E. of the preamble of this proposed rule.
Section 4302 of Public Law 111-5 included several amendments to provisions of section 114 of the MMSEA relating to (1) the 3-year delay in the application of certain provisions of the payment adjustments for short-stay outliers and revision to the RY 2008 standard Federal rate for LTCHs; and (2) the 3-year moratorium on the establishment of new LTCHs and LTCH satellite facilities and on increases in beds in existing LTCHs and LTCH satellite facilities. We discuss the proposed implementation of these provisions in sections I.E. and VIII. of the preamble of this proposed rule.
D. Major Contents of this Proposed Rule
In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2010. We also are setting forth proposed changes relating to payments for IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, we are setting forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for RY 2010.
The following is a summary of the major changes that we are proposing to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights
In section II. of the preamble of this proposed rule, we are including—
• Proposed changes to MS-DRG classifications based on our yearly review.
• Proposed application of the documentation and coding adjustment to hospital-specific rates for FY 2010 resulting from implementation of the MS-DRG system.
• A discussion of the Research Triangle International, Inc. (RTI) and RAND Corporation reports and recommendations relating to charge compression, including a solicitation of public comments on the “over” standardization of hospital charges.
• Proposed recalibrations of the MS-DRG relative weights.
We are also presenting a listing and discussion of hospital-acquired conditions (HACs), including infections, that are subject to the statutorily required quality adjustment in MS-DRG payments for FY 2010.
We are presenting our evaluation and analysis of the FY 2010 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to this proposed rule, we are proposing revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include the following:
• Second year of the 3-year transition from national to within-State budget neutrality for the rural floor and imputed floor.
• Final year of the 2-year transition for changes in the average hourly wage criterion for geographic reclassifications.
• Changes to the CBSA designations.
• The proposed FY 2010 wage index update using wage data from cost reporting periods that began during FY 2007.
• Analysis and implementation of the proposed FY 2010 occupational mix adjustment to the wage index for acute care hospitals, including the use of data from the 2007-2008 occupational mix survey.
• Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.
• The proposed adjustment to the wage index for acute care hospitals for FY 2010 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 2010 wage index for acute care hospitals.
3. Proposed Rebasing and Revision of the Hospital Market Basket for Acute Care Hospitals
In section IV. of the preamble of this proposed rule, we are proposing to rebase and revise the acute care hospital operating and capital market baskets to be used in developing the FY 2010 update factor for the operating and capital prospective payment rates and the FY 2010 update factor for the
excluded hospital rate-of-increase limits. We also are setting forth the data sources used to determine the proposed revised market basket relative weights.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs
In section V. of the preamble of this proposed rule, we discuss a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:
• The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
• Discussion of applying the correct budget neutrality adjustment for the FY 2002-based hospital-specific rates for 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 2010.
• Proposed changes to the policies governing payments to Medicare disproportionate share hospitals, including proposed policies relating to the inclusion of labor and delivery patient days in the calculation of the DSH payment adjustment, calculation of inpatient days in the Medicaid fraction for the Medicare DSH calculation, and exclusion of observation beds and patient days from the Medicare DSH calculation and from the bed count for the IME adjustment.
• Proposed changes to the policies governing payment for direct GME.
• Proposed changes to policies on hospital emergency services under EMTALA relating to the applicability of sanctions under EMTALA.
• Discussion of the implementation of the Rural Community Hospital Demonstration Program in FY 2010.
• Proposed technical correction to the regulations governing the calculation of the Federal rate under the IPPS.
5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
In section VI. of the preamble to this proposed rule, we discuss the payment policy requirements for capital-related costs and capital payments to hospitals for FY 2010. We also are proposing to remove a section of the regulations relating to the phase-out of the capital IME adjustment for FY 2009 to implement the provisions of section 4301(b) of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5).
6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages
In section VII. of the preamble of this proposed rule, we discuss—
• Proposed changes to payments to excluded hospitals.
• Proposed changes to the regulations governing satellite facilities of hospitals.
• Proposed changes relating to payments to CAHs, including payment for clinical laboratory tests furnished by CAHs and payment for outpatient facility services when a CAH elects the optional payment method.
• Proposed changes to the rules governing provider-based status of facilities and a proposed technical correction to the regulations governing provider-based entities.
7. Proposed Changes to the LTCH PPS
In section VIII.A. through C. and F. of the preamble of this proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for RY 2010, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for RY 2010, the proposed use of the FY 2002-based RPL market basket for LTCHs, and proposed technical corrections to the LTCH PPS regulations.
In section VIII.D. of the preamble of this proposed rule, we discuss our ongoing monitoring protocols under the LTCH PPS. In section VIII.E., we discuss the Research Triangle Institute, International (RTI) Phase III Report on its evaluation of the feasibility of establishing facility and patient criteria for LTCHs, as recommended by MedPAC in its June 2004 Report to Congress.
8. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2010 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also establish the proposed threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2010 for hospitals excluded from the IPPS.
9. Determining Proposed Prospective Payment Rates for LTCHs
In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed RY 2010 prospective standard Federal rate. We also establish the proposed adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
10. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals and LTCHs.
11. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services
In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2010 for the following:
• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).
• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.
• The standard Federal rate for hospital inpatient services furnished by LTCHs.
12. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 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 hospital inpatient operating costs and capital-related costs under the IPPS, for hospitals and distinct part hospital units excluded from the IPPS, and for LTCHs. We address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2008 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at:
http://www.medpac.gov
.
E. Public Comments Received on Two LTCH PPS Interim Final Rules With Comment Period Issued in 2008
On May 6, 2008 and May 22, 2008, we issued in the
Federal Register
two interim final rules with comment periods relating to the LTCH PPS (73 FR 24871 and 73 FR 29699, respectively), which implement section 114 of Public Law 110-173 (MMSEA). The May 6, 2008 interim final rule with comment period implemented provisions of section 114 of Public Law 110-173 relating to a 3-year delay in the application of certain provisions of the payment adjustment for short-stay outliers and revisions to the RY 2008 standard Federal rate for LTCHs. The May 22, 2008 interim final rule with comment period implemented certain provisions of section 114 of Public Law 110-173 relating to a 3-year moratorium on the establishment of new LTCHs and LTCH satellite facilities and on increases in beds in existing LTCHs and LTCH satellite facilities. The May 22, 2008 interim final rule with comment period also implemented a 3-year delay in the application of certain payment policies that apply to payment adjustments for discharges from LTCHs and LTCH satellite facilities that were admitted from certain referring hospitals in excess of various percentage thresholds.
Section 4302 of the American Recovery and Reinvestment Act of 2009 (ARRA, Pub. L. 111-5) included several amendments to section 114 of Public Law 110-173. We have issued instructions to the fiscal intermediaries and Medicare administrative contractors (MACs) to interpret these amendments (Change Request 6444). We intend to implement the provisions of section 4302 of Public Law 111-5 by issuing an interim final rule with comment period along with the FY 2010 IPPS and RY 2010 LTCH PPS final rule that is scheduled for publication in August 2009. In the FY 2010 IPPS and RY 2010 LTCH PPS final rule, we also intend to respond to the public comments that we received on the two interim final rules with comment period noted above and finalize those provisions, as appropriate.
II. Proposed Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as 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 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).
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 2009, cases are assigned to one of 746 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 13 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 13 current pre-MDCs.
Pre-Major Diagnostic Categories (Pre-MDCs)
MS-DRG 001
Heart Transplant or Implant of Heart Assist System with MCC.
MS-DRG 002
Heart Transplant or Implant of Heart Assist System without MCC.
MS-DRG 003
ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 004
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 005
Liver Transplant with MCC or Intestinal Transplant.
MS-DRG 006
Liver Transplant without MCC.
MS-DRG 007
Lung Transplant.
MS-DRG 008
Simultaneous Pancreas/Kidney Transplant.
MS-DRG 009
Bone Marrow Transplant.
MS-DRG 010
Pancreas Transplant.
MS-DRG 011
Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
MS-DRG 012
Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
MS-DRG 013
Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.
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 improvements 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. Our MS-DRG analysis for the FY 2009 final rule was based on data from the March 2008 update of the FY 2007 MedPAR file, which contained hospital bills received through March 31, 2008, for discharges occurring through September 30, 2007. For this proposed rule, for FY 2010, our MS-DRG analysis is based on data from the September 2008 update of the FY 2008 MedPAR file, which contains hospital bills received through September 30, 2008, for discharges occurring through September 30, 2008.
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 comments no later than early December of each year 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). Based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 IPPS final rule (71 FR 47906 through 47912), we discussed several concerns raised by commenters regarding the proposal to adopt CS DRGs. We acknowledged the many comments suggesting the logic of Medicare's DRG system should continue to remain in the public domain as it has since the inception of the PPS. We also acknowledged concerns about the impact on hospitals and software vendors of moving to a proprietary system. Several commenters suggested that CMS refine the existing DRG classification system to preserve the many policy decisions that were made over the last 20 years and were already incorporated into the DRG system, such as complexity of services and new device technologies. Consistent with the concerns expressed in the public comments, this option had the advantage of using the existing DRGs as a starting point (which was already familiar to the public) and retained the benefit of many DRG decisions that were made in recent years. We stated our belief that the suggested approach of incorporating severity measures into the existing DRG system was a viable option that would be evaluated.
Therefore, 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-1990's in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives, our actions for FY 2008 and FY 2009, and our proposals for FY 2010 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 2010 in other sections of this preamble and in the Addendum to this proposed 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 were adopted over a 3-year transition period in 1/3 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 proposed rule for discussion of the issue of charge compression and the HSRV cost-weighting methodology for FY 2010.
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 proposing to make in this proposed rule for FY 2010 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. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
As we discussed earlier in this preamble, we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008 (currently, 746 DRGs, which include 1 additional MS-DRG created in FY 2009). By increasing the number of DRGs and more fully taking into account patients' severity of illness in Medicare payment rates for acute care hospitals, the use of MS-DRGs encourages hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that 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 additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We phased in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.
On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not adjust the FY 2010 −1.8 percent documentation and coding adjustment promulgated in the FY 2008 IPPS final rule with comment period. To comply with section 7(a) of Public Law 110-90, we promulgated a final rule on November 27, 2007 (72 FR 66886) that modified the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly. These revisions were effective on October 1, 2007.
For FY 2009, section 7(a) of Public Law 110-90 required 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 discussed in the FY 2009 IPPS final rule (73 FR 48447) and required by statute, we applied 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 for FY 2009 was in addition to the −0.6 percent adjustment for FY 2008, yielding a combined effect of −1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90
Section 7(b)(1)(A) of Public Law 110-90 requires that if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90
If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup (or repay) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 Claims Data
In order to implement the requirements of section 7 of Public Law 110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that we planned a thorough retrospective evaluation of our claims data. We stated that the results of this evaluation would be used by our actuaries to determine any necessary payment adjustments to the standardized amounts under section 1886(d) of the Act beginning in FY 2010 to ensure the budget neutrality of the MS-DRGs implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 23541 through 23542), we described our preliminary plan for a retrospective analysis of inpatient hospital claims data and invited public input on our proposed methodology.
In that proposed rule, we indicated that we intended to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expected that the two largest parts of this overall national average change would be attributable to underlying changes in actual patient severity and to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we planned 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 MS-DRGs divide the base DRGs into three severity levels (with MCC, with CC and without CC); the previously used CMS DRGs had only two severity levels (with CC and without CC). Under the CMS DRG system, the majority of hospital discharges had a secondary diagnosis which was on the CC list, which led to the higher severity level. The MS-DRGs significantly changed the code lists of what was classified as an MCC or a CC. Many codes that were previously classified as a CC are no longer included on the MS-DRG CC list because the data and clinical review showed these conditions did not lead to a significant increase in resource use. The addition of a new level of high severity conditions, the MCC list, also provided a new incentive to code more precisely in order to increase the severity level. We anticipated that hospitals would examine the MS-DRG MCC and CC code lists and then work with physicians and coders on documentation and coding practices so that coders could appropriately assign codes from the highest possible severity level. We note that there have been numerous seminars and training sessions on this particular coding issue. The topic of improving documentation practices in order to code conditions on the MCC list was also discussed extensively by participants at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Participants discussed their hospitals' efforts to encourage physicians to provide more precise documentation so that coders could appropriately assign codes that would lead to a higher severity level. Because we expected most of the documentation and coding changes under the MS-DRG system would occur in the secondary diagnoses, we believed that the shifts among base DRGs were less likely to be the result of the MS-DRG system and the shifts within base DRGs were more likely to be the result of the MS-DRG system. We also anticipated evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the documentation and coding payment effect and to quantify their impact. This step entailed analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.
In that same 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 changes, we might 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).
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 performing 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.
A few commenters, including MedPAC, expressed support for the
analytic approach described in the FY 2009 IPPS 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 the payment adjustments beginning in FY 2010.
We took these comments into consideration as we developed our proposed analysis plan (described in greater detail below) and in this proposed rule are seeking comment on our methodology. We performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries have determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008.
In performing this analysis, we first divided the case-mix index (CMI) obtained by grouping the FY 2008 claims data through the FY 2008 GROUPER (Version 25.0) by the CMI obtained by grouping these same FY 2008 claims through the FY 2007 GROUPER (Version 24.0). This resulted in a value of 1.028. Because these cases are the same FY 2008 cases grouped using the Versions 24.0 and 25.0 of the GROUPER, we attribute this increase primarily to two factors: (1) The effect of changes in documentation and coding under the MS-DRG system; and (2) the measurement effect from the calibration of the GROUPER. We estimated the measurement effect from the calibration of the GROUPER by dividing the CMI obtained by grouping cases in the FY 2007 claims data through the FY 2008 GROUPER by the CMI obtained by grouping cases in these same claims through the FY 2007 GROUPER. This resulted in a value of 1.003. In order to isolate the documentation and coding effect, we then divided the combined effect of the changes in documentation and coding and measurement (1.028) by the measurement effect (1.003) to yield 1.025. Therefore, our estimate of the documentation and coding increase is 2.5 percent.
We then sought to corroborate this 2.5 percent estimate by examining the increases in the within-base DRGs as compared to the increases in the across base DRGs as described earlier in our analysis plan. In other words, we looked for improvements in code selection that would lead to a secondary diagnosis increasing the severity level to either a CC or an MCC level.
We found that the within-base DRG increases were almost entirely responsible for the case-mix change, supporting our conclusion that the 2.5 percent estimate was an accurate reflection of the FY 2008 effect of changes in documentation and coding under the MS-DRG system. In fact, almost every base DRG that was split into different severity levels under the MS-DRG system experienced increases in the within-base DRGs. In Figure 1 below, we show that, between FY 2007 and FY 2008, there was a 5 percentage point increase in the discharges with an MCC from 21 percent to 26 percent and a corresponding decrease of 5 percentage points from 56 percent to 51 percent in discharges without a CC or an MCC.
EP22MY09.000
We then further analyzed the changes in the within-base DRGs to determine which MS-DRGs had the highest contributions to this increase. Consistent with the expectations of our medical coding experts concerning areas with potential for documentation and coding improvements, the top contributors were heart failure, chronic obstructive pulmonary disease, and simple pneumonia and pleurisy. In fact, the coding of heart failure was discussed extensively at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Heart failure is a very common secondary diagnosis among Medicare hospital admissions. The heart failure codes are assigned to all three severity levels. Some are classified as non-CCs, while others are on the CC and MCC lists. By changing physician documentation to more precisely identify the type of heart failure, coders are able to appropriately change the severity level of cases from the lowest level (non-CC) to a higher severity level (CC or MCC). This point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting as coders discussed their work with physicians on this coding issue. Many of the participants indicated that
additional work was still needed with their physicians in order to document conditions in the medical record more precisely.
The results of this analysis provides additional support for our conclusion that the 2.5 percent estimate accurately reflects the FY 2008 increases in documentation and coding under the MS-DRG system.
While we attempted to use the CDAC data to distinguish real increase in case-mix growth from documentation and coding in the overall case-mix number, we found aberrant data and significant variation across the FY 1999-FY 2007 analysis period. It was not possible to distinguish changes in documentation and coding from changes in real case-mix in the CDAC data. Therefore, we concluded that the CDAC data would not support analysis of real case-mix growth that could be used in our retrospective evaluation of the FY 2008 claims data.
Although we could not use the CDAC data, we did examine the overall growth in case-mix using the FY 2007 claims data in which we grouped cases using the FY 2007 GROUPER and the FY 2008 data in which we grouped cases using the FY 2008 GROUPER. We found the overall growth in case-mix was 1.9 percent. The implication of overall FY 2008 case-mix growth of 1.9 percent relative to our estimate of the FY 2008 documentation and coding effect and the GROUPER measurement effect is that real case-mix declined between FY 2007 and FY 2008. After additional data analysis, our actuaries determined that the 1.9 percent growth in overall case-mix was consistent with our 2.5 percent estimate of the FY 2008 documentation and coding effect for reasons that included: (1) Our mathematical model for determining the 2.5 percent documentation and coding effect was corroborated by the amount of case-mix growth attributed to within-DRG improvements in secondary coding of MCCs and CCs; (2) our data analysis confirmed the substitution of specified diagnosis for unspecified diagnoses for such common conditions as heart failure and chronic obstructive pulmonary disease; and (3) there was a relative decline in above average cost short-stay surgical cases that can be performed on an outpatient basis, such as certain high volume pacemaker procedures.
We also examined the differences in case-mix between the FY 2008 claims data in which cases were grouped through the FY 2008 GROUPER (Version 25.0) and the FY 2009 GROUPER (Version 26.0). This was to help inform analysis of the potential for increase in the documentation and coding effect in FY 2009. In FY 2008, we were transitioning to the fully implemented MS-DRG relative weights and the fully implemented cost-based weights. We found that the use of the transition weights mitigated the FY 2008 documentation and coding effect on expenditures. Using the FY 2009 relative weights, the documentation and coding effect would have been an estimated 3.2 percent in FY 2008 instead of our estimated 2.5 percent. Even assuming no continued improvement in documentation and coding in FY 2009, we estimate that the use of the FY 2009 relative weights will result in an additional 0.7 percent documentation and coding effect in FY 2009. After taking into account the results of our FY 2008 analysis and the expertise of our coding staff, our actuaries continue to estimate that the cumulative overall effect of documentation and coding improvements under the MS-DRG system will be 4.8 percent. However, our actuaries estimate that these improvements will be substantially complete by the end of FY 2009. Therefore, our current estimate of the FY 2009 MS-DRG documentation and coding effect is 2.3 percent.
As in prior years, the FY 2008 MedPAR files are available to the public to allow independent analysis of the FY 2008 documentation and coding effect. Interested individuals may order these files by going to the Web site at
http://www.cms.hhs.gov/LimitedDataSets/
and clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web page will describe the file and provide directions and further detailed instructions for how to order.
Persons placing an order must send the following: a Letter of Request, the LDS Data Use Agreement and Research Protocol (refer to the Web site for further instructions), the LDS Form, and a check for $3,655 to: Mailing address if using the U.S. Postal Service: Centers for Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520. Mailing address if using express mail: Centers for Medicare & Medicaid Services, OFM/Division of Accounting—RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.
We are seeking public comment on our methodology and analysis. We intend to update our analysis with FY 2008 data on claims paid through March 2008 in the FY 2010 IPPS final rule.
5. Proposed Adjustments for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act
The estimated 2.5 percent change in FY 2008 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. Under section 7(B)(1)(a) of Public Law 119-90, the Secretary is required to make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act to the average standardized amounts for subsequent fiscal years in order to eliminate the full effect of the documentation and coding changes. In addition, we note that the Secretary has the authority to make this prospective adjustment in FY 2010 under section 1886(d)(3)(A)(vi) of the Act. As we have consistently stated since the initial implementation of the MS-DRG system, we do not believe it is appropriate for expenditures to increase due to MS-DRG-related changes in documentation and coding that do not reflect real changes in case-mix.
Therefore, we are proposing to change the average standardized amounts under section 1886(d) of the Act in FY 2010 by −1.9 percent, the difference between the changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2008 and the prospective adjustment applied under section 7 of Public Law 110-90. We are proposing to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments not reflective of an increase in real case-mix.
We also estimate that the change in case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009 will be 2.3 percent, which would exceed by 1.4 percentage points the −0.9 percent prospective documentation and coding adjustment for FY 2009 applied under section 7(a) of Public Law 100-90. We have the statutory authority to adjust the FY 2010 rates for this estimated 1.4 percentage point increase. However, given that Public Law 100-90 requires a retrospective claims evaluation for the additional adjustments described in section II.D.6. of this preamble, we believe our
evaluation of the extent of the overall national average changes in case-mix for FY 2009 should also be based on a retrospective evaluation of all FY 2009 claims data. Because we will not receive all FY 2009 claims data prior to publication of the final rule, we will address any difference between the increase in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.
We are seeking public comment on the proposed −1.9 percent prospective adjustment to the standardized amounts under section 1886(d) of the Act to address the effects of documentation and coding changes unrelated to changes in real case-mix in FY 2008. In addition, we are seeking public comments on addressing in the FY 2011 rulemaking cycle any differences between the increase in FY 2009 case-mix due to changes in documentation and coding changes that do not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90.
6. Additional Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90
As indicated above, the 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. Our actuaries currently estimate that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion. As described earlier, section 7(b)(1)(B) of Public Law 110-90 requires an additional adjustment for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of this increase in aggregate payments (including interest).
Although section 7(b)(1)(B) of Public Law 110-90 requires us to make this adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to when during this 3 year period we will apply the adjustment. For example, we could make adjustments to the standardized amounts under section 1886(d) of the Act in FY 2010, 2011, and 2012. Alternatively, we could delay offsetting the increase in FY 2008 aggregate payments by applying the adjustment required under section 7(b)(1)(B) of Public Law 110-90 only to FYs 2011 and 2012.
We are not proposing to make an adjustment to FY 2010 to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but intend to address this issue in future rulemaking for FYs 2011 and 2012. That is, we will address recouping the additional expenditures that occurred in FY 2008 as a result of the 1.9 percentage point difference between the actual changes in documentation and coding that do not reflect real changes in case-mix, or 2.5 percent, and the −0.6 percent adjustment applied under Public Law 110-90 in FY 2011 and/or FY 2012, as required by law. While we have the statutory authority to make this −1.9 percent recoupment adjustment entirely in FY 2010, we are proposing to delay the adjustment until FY 2011 and FY 2012 because we do not have any data yet on the magnitude of the documentation and coding effect in FY 2009. If the documentation and coding effect were less in FY 2009 than our current estimates, it could lessen the anticipated recoupment adjustment that we currently estimate we would have to make for FY 2008 and FY 2009 combined. As we have the authority to recoup the aggregate effect of this 1.9 percentage point difference in FY 2008 IPPS payments in FY 2011 or FY 2012 (with interest), delaying this adjustment would have no effect on Federal budget outlays. For this reason, we are proposing to wait until we have a complete year of data on the FY 2009 documentation and coding effect before applying a recoupment adjustment for IPPS spending that occurred in FY 2008 or we estimate will occur in FY 2009.
As discussed above, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data. Because we will not receive all FY 2009 claims data prior to publication of the final rule, we intend to address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we perform a retrospective evaluation of the FY 2009 claims data. Our actuaries currently estimate that this adjustment will be approximately −3.3 percent. This reflects the difference between the estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3 percent for FY 2009) and the cumulative −1.5 percent documentation and coding adjustments applied under section 7(a) of Public Law 110-90 (−0.6 percent in FY 2008 and −0.9 percent in FY 2009). We note that the actual adjustments are multiplicative and not additive. This estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 includes the impact of the changes in documentation and coping first occurring in FY 2008 because we believe hospitals will continue these changes in documentation and coding in subsequent fiscal years. Consequently, these documentation and coding changes will continue to impact payments under the IPPS absent a prospective adjustment to account for the effect of these changes.
We note that unlike the proposed −1.9 adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, any adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 would not be cumulative, but would be removed for subsequent fiscal years once we have offset the increase in aggregate payments for discharges occurring in FY 2008 expenditures and FY 2009 expenditures, if any.
We are seeking public comment on our proposal not to offset the 1.9 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 resulting from the adoption of the MS-DRGs, but to instead address this issue in future rulemaking for FYs 2011 and 2012.
To assist the public in commenting on this issue, the following table shows our estimate of the adjustments required under section 7(b)(1) of Public Law 110-90. Column (A) and Column (C) show the prospective adjustments discussed above in section II.D.5. of this preamble. Column (B) and Column (D) show the retrospective adjustments discussed above in section II.D.6. of this preamble. Column (E) shows the −1.9 percent adjustment from Column (A) that we are proposing for FY 2010. The estimated −6.6 percent adjustment in Column (F) reflects the cumulative effect of the remaining −1.9 adjustment from Column (B), the remaining −1.4 percent adjustment from Column (C), and the remaining −3.3 adjustment from
Column (D) that are required by statute, but that we are not proposing for FY 2010. Column (G) shows the combined effect of the −1.9 percent adjustment in Column (E) that we are proposing for FY 2010 and the −6.6 percent adjustment in Column (F) that we currently estimate we will need to propose in future years. As noted above, we are unable to provide our final estimate of the documentation and coding changes in FY 2009 that do not reflect real changes in case-mix, as we do not have all FY 2009 claims data. The table instead reflects our current estimate of the difference between changes in documentation and coding in FY 2009 that do not reflect real changes in case-mix and the prospective adjustment applied in FY 2009 under section 7(a) of Public Law 110-90. If documentation and coding increases were to exceed current projections for FY 2009, future adjustments would be greater than those shown here. If documentation and coding adjustments were to be less than current projections for FY 2009, future adjustments would be less than those shown here.
FY 2010 MS-DRG Documentation and Coding Adjustment Range
Prospective adjustment for FY 2008
Recoupment
adjustment for
FY 2008
Prospective
adjustment for
FY 2009 *
Recoupment
adjustment for
FY 2009 *
Adjustment proposed for FY 2010
Estimated remaining adjustment *
Total
adjustment
FY 2010-
FY 2012 *
(A)
(B)
(C)
(D)
(E)
(F)
(G)
FY 2010 Proposal
Proposed for FY 2010
Not Proposed for FY 2010
Not Proposed for FY 2010
Not Proposed for FY 2010
Amount of Adjustment
−1.9
−1.9
−1.4
−3.3
−1.9
−6.6
−8.5
* Estimated. The actual percentage adjustment to the national standardized amounts for the purpose of offsetting the estimated $2.2 billion in increased payments under IPPS in FY 2008 will depend on when we apply the adjustment. However, we believe this adjustment will be approximately −1.9 percent, or the difference between the actual changes in documentation and coding that do not reflect real changes in case-mix in FY 2008 and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. Similarly, we based our estimate of the percentage adjustment to the national standardized amounts for the purpose of offsetting the expected increase in payments in FY 2009 on the estimated difference between the cumulative actual changes in documentation and coding that do not reflect real changes in case-mix in FY 2009 and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90, or 3.3 percent. As discussed earlier, we are not permitted to apply a retroactive FY 2009 adjustment until we have performed an analysis of the FY 2009 data.
7. Background on the 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 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; the updated hospital-specific rate based on FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 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 greatest of the FY 1982, FY 1987, or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period (72 FR 47152 through 47188), we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that final rule with comment period, 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, we relied on section 1886(d)(3)(A)(vi) of the Act, which provides us with 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 the 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 the 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” under section 1886(d) of the Act and does not mention adjusting the hospital-specific rates.
In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued 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 documentation and coding changes 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 rates should not have the potential to realize increased payments due to documentation and coding changes 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 provision authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In the FY 2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, for the FY 2010 rulemaking, we planned to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. We further indicated that if we found evidence of significant increases in case-mix for patients treated in these hospitals that do not reflect real changes in case-mix, 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.
In response to public comments received on the FY 2009 IPPS proposed rule, we stated in the FY 2009 IPPS final rule that we would consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we indicated that we planned 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 found that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 is warranted, we indicated that we would include a proposal to do so in the FY 2010 IPPS proposed rule.
8. Proposed Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2010 and Subsequent Fiscal Years
We performed a retrospective evaluation of the FY 2008 claims data for SCHs and MDHs using the same methodology described earlier for other IPPS hospitals. We found that, independently for both SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 slightly exceeded the 2.5 percent result discussed earlier, but did not significantly differ from that result.
Again, we found that the within-base DRG increases were almost entirely responsible for the case-mix change. In Figure 2 below, we show that, for SCHs, there was a 5 percentage point increase in the discharges with an MCC from 17 percent to 22 percent and a corresponding decrease of 5 percentage points from 59 percent to 54 percent in discharges without a CC or an MCC. In Figure 3 below, we show that, for MDHs, there was a 5 percentage point increase in the discharges with an MCC from 15 percent to 20 percent and a decrease of 6 percentage points from 60 percent to 54 percent in discharges without a CC or an MCC.
BILLING CODE 4120-01-P
EP22MY09.001
EP22MY09.002
BILLING CODE 4120-01-C
The largest within-base DRG contributors for both types of hospitals are heart failure and shock, chronic obstructive pulmonary disease, and simple pneumonia and pleurisy. For each of these conditions, a significant decrease in the percentage of discharges without a CC or an MCC was observed.
Therefore, consistent with our statements in prior IPPS rules, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act to prospectively adjust the hospital-specific rates by −2.5 percent in FY 2010 to account for our estimated documentation and coding effect in FY 2008 that does not reflect real changes in case-mix. We are proposing to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments for SCHs and MDHs not reflective of an increase in real case-mix. This proposed −2.5 percent adjustment to the hospital-specific rates exceeds the proposed −1.9 percent adjustment to the national standardized amount under section 7(b)(1)(A) of Public Law 110-90 because, unlike the national standardized rates, the FY 2008 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.
Consistent with our proposed approach for IPPS hospitals discussed earlier, we will address in the FY 2011 rulemaking cycle any changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We note that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.
We are seeking public comment on the proposed −2.5 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We intend to update our analysis with FY 2008 data on claims paid through March 2008 for the FY 2010 IPPS final rule.
9. Background on the 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 Secretary 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 the FY 2009 IPPS final rule (73 FR 48449), we corrected this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates.
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, 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 changes that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs, in the FY 2009 IPPS final rule (73 FR 48449), we indicated that we planned to examine our FY 2008 claims data for hospitals in Puerto Rico. We indicated in the FY 2009 IPPS proposed rule (73 FR 23541), that if we found 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.
10. Proposed Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
We performed a retrospective evaluation of the FY 2008 claims data for Puerto Rico hospitals using the same methodology described earlier for IPPS hospitals paid under the national standardized amounts under section 1886(d) of the Act. We found that, for Puerto Rico hospitals, the increase in payments for discharges occurring during FY 2008 due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 was approximately 1.1 percent. When we calculate the within-base DRG changes and the across-base DRG changes for Puerto Rico hospitals, we find that responsibility for the case-mix change between FY 2007 and FY 2008 is much more evenly shared. Across-base DRG shifts account for 44 percent of the changes, and within-base DRG shifts account for 56 percent. Thus, the change in the percentage of discharges with an MCC is not as large as that for other IPPS hospitals. In Figure 4 below, we show that, for Puerto Rico hospitals, there was a 3 percentage point increase in the discharges with an MCC from 22 percent to 25 percent and a corresponding decrease of 3 percentage points from 58 percent to 55 percent in discharges without a CC or an MCC.
EP22MY09.003
The top contributing base DRGs to the case-mix change due to the within-base DRG changes differ partially from those of other hospitals. The top three are acute myocardial infarction, major small and large bowel procedures, and chronic obstructive pulmonary disease.
Given these documentation and coding increases, consistent with our statements in prior IPPS rules, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-specific standardized amount by −1.1 percent in FY 2010 to account for the FY 2008 documentation and coding increase not due to changes in real case-mix and to leave that adjustment in place for subsequent fiscal years. The proposed −1.1 percent adjustment will be applied to the Puerto Rico-specific rate that accounts for 25 percent of payments to Puerto Rico hospitals, with the remaining 75 percent based on the national standardized amount, which we are proposing to adjust as described above. Consequently, the overall reduction to the payment rates for Puerto Rico hospitals to account for documentation and coding changes will be slightly less than the reduction for IPPS hospitals paid based on 100 percent of the national standardized amount. We note that, as with the hospital-specific rates, the Puerto Rico-specific standardized amount had not previously been reduced based on estimated changes in documentation and coding associated with the adoption of the MS-DRGs.
Consistent with our proposed approach for IPPS hospitals discussed above, we will address in the FY 2011 rulemaking cycle any change in FY 2009 case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We note that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.
We are seeking public comment on the proposed −1.1 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We intend to update our analysis with FY 2008 data on claims paid through March 2008 for the FY 2010 IPPS final rule.
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
In the FY 2009 IPPS final rule (73 FR 48450), we continued to implement significant revisions to Medicare's inpatient hospital rates by completing 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 expressed in the public comments we received on the proposal, 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. (We refer readers to the FY 2007 IPPS final rule for details on the HSRVcc methodology and the 3-year transition blend from charge-based relative weights to cost-based relative weights (71 FR 47882 through 47898).)
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.
In FY 2009, the third and final year of the transition from charge-based weights to cost-based weights, we calculated the MS-DRG relative weights based on 100 percent of hospital costs. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a more
detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.
a. Summary of the RTI Study of Charge Compression and CCR Refinement
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 January 2007 with its findings on charge compression (which was posted on the CMS Web site at:
http://www.cms.hhs.gov/reports/downloads/Dalton.pdf
). In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.
In its interim draft report, RTI offered a number of recommendations to mitigate the effects of charge compression, including estimating regression-based CCRs to disaggregate the Medical Supplies Charged to Patients, Drugs Charged to Patients, and Radiology cost centers, and 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”. (For more details on RTI's findings and recommendations, we refer readers to the FY 2009 IPPS final rule (73 FR 48452).) 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 recommendation to create 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 the OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. RTI's analysis of charge compression has since been expanded to incorporate outpatient services. RTI evaluated the cost estimation process for the OPPS cost-based relative weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. This interim report was made available in April 2008 during the public comment period on the FY 2009 IPPS proposed rule and 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, were included in the July 3, 2008 RTI final report entitled, “Refining Cost-to-Charge Ratios for Calculating APC [Ambulatory Payment Classification] and DRG Relative Payment Weights,” that became available at the time of the development of the FY 2009 IPPS 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. Importantly, RTI found that, under the IPPS and the OPPS, accounting improvements to the cost reporting data reduce 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 sufficiently refined to support more accurate CCR estimates under both the IPPS and the OPPS.
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 the other rate adjustments 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. For a more detailed summary of RTI's findings, recommendations, and public comments we received on the report, we refer readers to the FY 2009 IPPS final rule (73 FR 48452 through 48453).
b. Summary of the RAND Corporation Study of Alternative Relative Weight Methodologies
One of the reasons 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 the RAND Corporation as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs, and that we would consider its analysis as we prepared for the FY 2009 IPPS rulemaking process. In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we provided a summary of the RAND report and the public comments we received in response to the FY 2009 IPPS proposed rule. The report may be found on RAND's Web site at:
http://www.rand.org/pubs/working_papers/WR560/
.
RAND evaluated six different methods that could be used to establish relative weights, CMS' current relative weight methodology of 15 national CCRs and 5 alternatives, including a method in which the 15 national CCRs are disaggregated using the regression-based methodology, and a method using hospital-specific CCRs for the 15 cost center groupings. 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, under which a hospital's wage index factor, and IME and/or DSH factor, are divided out of its estimated DRG cost; the HSRV methodology, which 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.
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 (that is, understated). However, RAND also found that the hospital payment factors are overstated and increase more rapidly than cost. Therefore, while the relative weights are compressed, these payment factors offset the compression such that total payments to hospitals increase more rapidly than hospitals' costs.
RAND found that relative weights using the 19 national disaggregated regression-based CCRs result in significant redistributions in payments among hospital groupings. However, RAND did not believe the regression-based charge compression adjustments significantly improve payment accuracy. 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. RAND concluded that 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.
2. Summary of FY 2009 Changes and Discussion for FY 2010
In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, and because of RAND's finding that regression-based adjustments to the CCRs do not significantly improve payment accuracy, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining what should be reported in these respective cost centers, we adopted the commenters' recommendation that hospitals should use revenue codes established by AHA's National Uniform Billing Committee to determine what should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers.
When we developed the FY 2009 IPPS final rule, we considered all of the public comments we received both for and against adopting regression-based CCRs. Also noteworthy is RAND's belief that regression-based CCRs may not significantly improve payment accuracy, and that it is equally, if not more, important to consider revisions to the current IPPS hospital payment factor standardization method in order to improve payment accuracy. We continue to believe that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of the cost weights. Accordingly, we are not proposing to adopt regression-based CCRs for the calculation of the FY 2010 IPPS relative weights.
However, we are concerned about RAND's finding that there are significant limitations of CMS' current hospital payment factor standardization method. As summarized above, RAND found that the current standardization 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, use them to standardize cost, and revise the analysis of payment accuracy to reflect only the cost-related component. However, RAND cautions that “re-estimating” these payment factors “raises important policy issues that warrant additional analyses” (page 49 of RAND's report, which is available on the Web site at:
http://www.rand.org/pubs/working_papers/WR560/
), particularly to “determine the analytically justified-levels using the MS-DRGs” (page 86 of the RAND report). 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 of RTI's final report, which is available at the Web site at:
http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf
). While it may be more accurate to standardize using the empirically justified levels of the IME and DSH adjustments, consideration needs to be given to the extent to which these payment factors offset the compression of the relative weights.
We understand that MedPAC has performed an analysis to identify empirically justifiable formulas for determining appropriate IME and DSH adjustments. For example, in its March 2007 report (and reiterated in its March 2009 report), MedPAC asserts that the current level of the IME adjustment factor, 5.5 percent for every 10 percent increase in resident-to-bed ratio, overstates IME payments by more than
twice the empirically justified level, resulting in approximately $3 billion in overpayments. The empirical level of the IME adjustment is estimated to be 2.2 percent for every 10 percent increase in the resident-to-bed ratio. We cannot propose to change the IME and DSH factors used for actual payment under the IPPS because these factors are mandated by law. However, under section 1886(d)(4) of the Act, we have the authority to determine the appropriate weighting factor for each MS-DRG (including which factors or method we will employ in making annual adjustments to the MS-DRGs so as to reflect changes in the relative use of hospital resources). In addition, section 1886(d)(7)(B) of the Act precludes judicial review of our methodology for determining the appropriate weighting factors. Therefore, we do have some flexibility in what factors may be used for standardization purposes. For purposes of standardization only, one option may be for CMS to use the empirically justified IME adjustment of 2.2 percent, such that only the cost-related component of teaching hospitals is removed from the claim charges prior to calculating the relative weights. Similarly, for the DSH adjustment, in its March 2007 report, MedPAC found that costs per case increase about 0.4 percent for each 10 percent increase in the low income patient percentage. This is significantly less than the percentage increase expressed by the current factors used in the DSH payment formulas. (According to MedPAC, in FY 2004, about $5.5 billion in DSH payments were made above the empirically justified level.) In looking only at urban hospitals with greater than 100 beds, which manifest the strongest positive correlation between cost and low income patient share, MedPAC found that costs increase about 1.4 percent for every 10 percent increment of the low-income patient percentage. MedPAC did not find a positive cost relationship between low-income patient percentage and costs per case for urban hospitals with less than 100 beds and/or for rural hospitals. Therefore, for purposes of standardizing for the DSH adjustment, an option we may consider is to incorporate an adjustment factor of 1.4 percent for urban hospitals with greater than 100 beds, and to remove the DSH payment adjustment altogether for other hospitals that otherwise currently qualify for DSH payment. While we cannot predict the effect of using the empirical factors for IME and DSH in the standardized methodology on the relative weights without further analysis, dividing out (that is, excluding) reduced IME and DSH payment factors from a hospital's total payment would result in a greater share of teaching and DSH hospitals' costs used in calculating the relative weights. With respect to the wage index, because there are multiple wage index factors, one for each geographic area, determining the true cost associated with geographic location and standardizing for those costs is much more challenging. While we are not proposing changes for FY 2010, in light of the previous discussion of the current IME and DSH adjustments in the standardization process, we are interested in receiving public comments as to how the standardization process can be improved to more precisely remove cost differences across hospitals, thereby improving the accuracy of the relative weights in subsequent fiscal years.
3. Timeline for Revising the Medicare Cost Report
As mentioned in the FY 2009 IPPS final rule (73 FR 48467), we are currently in the process of comprehensively reviewing the Medicare hospital cost report, and the finalized policy from the FY 2009 IPPS final rule to split the current cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients,” as part of our initiative to update and revise the hospital cost report. Under an effort initiated by CMS to update the Medicare hospital cost report to eliminate outdated requirements in conjunction with provisions of the Paperwork Reduction Act (PRA), we have been planning to propose the actual changes to the cost reporting form, the attending cost reporting software, and the cost reporting instructions in Chapter 40 of the Medicare Provider Reimbursement Manual (PRM), Part II. Under the effort to update the cost report and eliminate outdated requirements in conjunction with the provisions of the PRA, changes to the cost reporting form and cost reporting instructions would be made available to the public for comment. Thus, the public would have an opportunity to suggest comprehensive reforms (which they had advocated in the FY 2009 IPPS final rule in response to our proposals), and would similarly be able to make suggestions for ensuring that these reforms are made in a manner that is not disruptive to hospitals' billing and accounting systems, and are within the guidelines of GAAP, Medicare principles of reimbursement, and sound accounting practices.
In the FY 2009 IPPS final rule (73 FR 48468), we stated that we expect the revised cost reporting forms that reflect one cost center for “Medical Supplies Charged to Patients” and one cost center for “Implantable Devices Charged to Patients” would not be available until cost reporting periods beginning after the Spring of 2009. At this time, we anticipate that the transmittal to create this new cost center will be issued in June 2009. Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS ratesetting purposes in a given fiscal year or calendar year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2013 IPPS relative weights and the CY 2013 OPPS relative weights. Until the revised cost reporting forms are published, hospitals must include costs and charges of separately chargeable medical supplies and implantable medical devices in the cost center for “Medical Supplies Charged to Patients” (section 2202.8 of the PRM-I), and effective for cost reporting periods specified in the revised cost reporting forms, hospitals must include costs and charges of separately chargeable medical supplies in the cost center for “Medical Supplies Charged to Patients” and of separately chargeable implantable medical devices in the new “Implantable Devices Charged to Patients” cost center.
F. Preventable Hospital-Acquired Conditions (HACs), Including Infections
1. Statutory Authority
Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. By October 1, 2007, the Secretary was required to select, in consultation with CDC, at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonab
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