Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates ...: Final Rule

  [Federal Register: August 19, 2008 (Volume 73, Number 161)]  [Rules and Regulations]                 [Page 48433-49083]  From the Federal Register Online via GPO Access [wais.access.gpo.gov]  [DOCID:fr19au08-13]                                [[Page 48433]]    -----------------------------------------------------------------------    Part II    Book 2 of 2 Books    Pages 48433-49084            Department of Health and Human Services            -----------------------------------------------------------------------         Centers for Medicare & Medicaid Services        -----------------------------------------------------------------------        42 CFR Parts 411, 412, 413, 422, and 489         Medicare Program; Changes to the Hospital Inpatient Prospective   Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate   Medical Education in Certain Emergency Situations; Changes to   Disclosure of Physician Ownership in Hospitals and Physician Self-  Referral Rules; Updates to the Long-Term Care Prospective Payment   System; Updates to Certain IPPS-Excluded Hospitals; and Collection of   Information Regarding Financial Relationships Between Hospitals; Final   Rule      [[Page 48434]]      -----------------------------------------------------------------------    DEPARTMENT OF HEALTH AND HUMAN SERVICES    Centers for Medicare & Medicaid Services    42 CFR Parts 411, 412, 413, 422, and 489    [CMS-1390-F; CMS-1531-IFC1; CMS-1531-IFC2; CMS-1385-F4]  RIN 0938-AP15; RIN 0938-AO35; RIN 0938-AO65       Medicare Program; Changes to the Hospital Inpatient Prospective   Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate   Medical Education in Certain Emergency Situations; Changes to   Disclosure of Physician Ownership in Hospitals and Physician Self-  Referral Rules; Updates to the Long-Term Care Prospective Payment   System; Updates to Certain IPPS-Excluded Hospitals; and Collection of   Information Regarding Financial Relationships Between Hospitals    AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.    ACTION: Final rules.    -----------------------------------------------------------------------    SUMMARY: We are revising the Medicare hospital inpatient prospective   payment systems (IPPS) for operating and capital-related costs to   implement changes arising from our continuing experience with these   systems, and to implement certain provisions made by the Deficit   Reduction Act of 2005, the Medicare Improvements and Extension Act,   Division B, Title I of the Tax Relief and Health Care Act of 2006, the   TMA, Abstinence Education, and QI Programs Extension Act of 2007, and   the Medicare Improvements for Patients and Providers Act of 2008. In   addition, in the Addendum to this final rule, we describe the changes   to the amounts and factors used to determine the rates for Medicare   hospital inpatient services for operating costs and capital-related   costs. These changes are generally applicable to discharges occurring   on or after October 1, 2008. We also are setting forth the update to   the rate-of-increase limits for certain hospitals and hospital units   excluded from the IPPS that are paid on a reasonable cost basis subject   to these limits. The updated rate-of-increase limits are effective for   cost reporting periods beginning on or after October 1, 2008.      In addition to the changes for hospitals paid under the IPPS, this   document contains revisions to the patient classifications and relative   weights used under the long-term care hospital prospective payment   system (LTCH PPS). This document also contains policy changes relating   to the requirements for furnishing hospital emergency services under   the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).      In this document, we are responding to public comments and   finalizing the policies contained in two interim final rules relating   to payments for Medicare graduate medical education to affiliated   teaching hospitals in certain emergency situations.      We are revising the regulatory requirements relating to disclosure   to patients of physician ownership or investment interests in hospitals   and responding to public comments on a collection of information   regarding financial relationships between hospitals and physicians. In   addition, we are responding to public comments on proposals made in two   separate rulemakings related to policies on physician self-referrals   and finalizing these policies.    DATES: Effective Dates: This final rule is effective on October 1,   2008, with the following exceptions: Amendments to Sec. Sec.  412.230,   412.232, and 412.234 are effective on September 2, 2008. Amendments to   Sec. Sec.  411.357(a)(5)(ii), (b)(4)(ii), (1)(3)(i) and (ii), and   (p)(1)(i)(A) and (B) and the definition of entity in Sec.  411.351 are   effective on October 1, 2009.      Applicability Dates: The provisions of Sec.  412.78 relating to   payments to SCHs are applicable for cost reporting periods beginning on   or after January 1, 2009. Our process for allowing certain hospitals to   opt out of decisions made on behalf of hospitals (as discussed in   section III.I.7. of this preamble) are applicable on August 19, 2008.    FOR FURTHER INFORMATION CONTACT: Gay Burton, (410) 786-4487, Operating   Prospective Payment, MS-DRGs, Wage Index, New Medical Service and   Technology Add-On Payments, Hospital Geographic Reclassifications, and   Postacute Care Transfer Issues.      Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded   Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs,   EMTALA, Hospital Emergency Services, and Hospital-within-Hospital   Issues.      Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital   Demonstration Program Issues.      Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment   Update Issues.      Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing and   Readmissions to Hospital Issues.      Rebecca Paul, (410) 786-0852, Collection of Managed Care Encounter   Data Issues.      Jacqueline Proctor, (410) 786-8852, Disclosure of Physician   Ownership in Hospitals and Financial Relationships between Hospitals   and Physicians Issues.      Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1401,   Physician Self-Referral Issues.    SUPPLEMENTARY INFORMATION:    Electronic Access        This Federal Register document is also available from the Federal   Register online database through GPO Access, a service of the U.S.   Government Printing Office. Free public access is available on a Wide   Area Information Server (WAIS) through the Internet and via   asynchronous dial-in. Internet users can access the database by using   the World Wide Web, (the Superintendent of Documents' home page address   is http://www.gpoaccess.gov/), by using local WAIS client software, or   by telnet to swais.access.gpo.gov, then login as guest (no password   required). Dial-in users should use communications software and modem   to call (202) 512-1661; type swais, then login as guest (no password   required).    Acronyms    AARP American Association of Retired Persons  AAHKS American Association of Hip and Knee Surgeons  AAMC Association of American Medical Colleges  ACGME Accreditation Council for Graduate Medical Education  AF Artrial fibrillation  AHA American Hospital Association  AICD Automatic implantable cardioverter defibrillator  AHIMA American Health Information Management Association  AHIC American Health Information Community  AHRQ Agency for Healthcare Research and Quality  AMA American Medical Association  AMGA American Medical Group Association  AMI Acute myocardial infarction  AOA American Osteopathic Association  APR DRG All Patient Refined Diagnosis Related Group System  ASC Ambulatory surgical center  ASITN American Society of Interventional and Therapeutic   Neuroradiology  BBA Balanced Budget Act of 1997, Public Law 105-33  BBRA Medicare, Medicaid, and SCHIP [State Children's Health   Insurance Program] Balanced Budget Refinement Act of 1999, Public   Law 106-113  BIPA Medicare, Medicaid, and SCHIP [State Children's Health   Insurance Program] Benefits Improvement and Protection Act of 2000,   Public Law 106-554    [[Page 48435]]    BLS Bureau of Labor Statistics  CAH Critical access hospital  CARE [Medicare] Continuity Assessment Record & Evaluation   [Instrument]  CART CMS Abstraction & Reporting Tool  CBSAs Core-based statistical areas  CC Complication or comorbidity  CCR Cost-to-charge ratio  CDAC [Medicare] Clinical Data Abstraction Center  CDAD Clostridium difficile-associated disease  CIPI Capital input price index  CMI Case-mix index  CMS Centers for Medicare & Medicaid Services  CMSA Consolidated Metropolitan Statistical Area  COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law   99-272  CoP [Hospital] condition of participation  CPI Consumer price index  CY Calendar year  DFRR Disclosure of financial relationship report  DRA Deficit Reduction Act of 2005, Public Law 109-171  DRG Diagnosis-related group  DSH Disproportionate share hospital  DVT Deep vein thrombosis  ECI Employment cost index  EMR Electronic medical record  EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law   99-272  ESRD End-stage renal disease  FAH Federation of Hospitals  FDA Food and Drug Administration  FHA Federal Health Architecture  FIPS Federal information processing standards  FQHC Federally qualified health center  FTE Full-time equivalent  FY Fiscal year  GAAP Generally Accepted Accounting Principles  GAF Geographic Adjustment Factor  GME Graduate medical education  HACs Hospital-acquired conditions  HCAHPS Hospital Consumer Assessment of Healthcare Providers and   Systems  HCFA Health Care Financing Administration  HCRIS Hospital Cost Report Information System  HHA Home health agency  HHS Department of Health and Human Services  HIC Health insurance card  HIPAA Health Insurance Portability and Accountability Act of 1996,   Public Law 104-191  HIPC Health Information Policy Council  HIS Health information system  HIT Health information technology  HMO Health maintenance organization  HPMP Hospital Payment Monitoring Program  HSA Health savings account  HSCRC [Maryland] Health Services Cost Review Commission  HSRV Hospital-specific relative value  HSRVcc Hospital-specific relative value cost center  HQA Hospital Quality Alliance  HQI Hospital Quality Initiative  HWH Hospital-within-a hospital  ICD-9-CM International Classification of Diseases, Ninth Revision,   Clinical Modification  ICD-10-PCS International Classification of Diseases, Tenth Edition,   Procedure Coding System  ICR Information collection requirement  IHS Indian Health Service  IME Indirect medical education  IOM Institute of Medicine  IPF Inpatient psychiatric facility  IPPS [Acute care hospital] inpatient prospective payment system  IRF Inpatient rehabilitation facility  LAMCs Large area metropolitan counties  LTC-DRG Long-term care diagnosis-related group  LTCH Long-term care hospital  MA Medicare Advantage  MAC Medicare Administrative Contractor  MCC Major complication or comorbidity  MCE Medicare Code Editor  MCO Managed care organization  MCV Major cardiovascular condition  MDC Major diagnostic category  MDH Medicare-dependent, small rural hospital  MedPAC Medicare Payment Advisory Commission  MedPAR Medicare Provider Analysis and Review File  MEI Medicare Economic Index  MGCRB Medicare Geographic Classification Review Board  MIEA-TRHCA Medicare Improvements and Extension Act, Division B of   the Tax Relief and Health Care Act of 2006, Public Law 109-432  MIPPA Medicare Improvements for Patients and Providers Act of 2008,   Public Law 110-275  MMA Medicare Prescription Drug, Improvement, and Modernization Act   of 2003, Public Law 108-173  MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public   Law 110-173  MPN Medicare provider number  MRHFP Medicare Rural Hospital Flexibility Program  MRSA Methicillin-resistant Staphylococcus aureus  MSA Metropolitan Statistical Area  MS-DRG Medicare severity diagnosis-related group  MS-LTC-DRG Medicare severity long-term care diagnosis-related group  NAICS North American Industrial Classification System  NCD National coverage determination  NCHS National Center for Health Statistics  NCQA National Committee for Quality Assurance  NCVHS National Committee on Vital and Health Statistics  NECMA New England County Metropolitan Areas  NQF National Quality Forum  NTIS National Technical Information Service  NVHRI National Voluntary Hospital Reporting Initiative  OES Occupational employment statistics  OIG Office of the Inspector General  OMB Executive Office of Management and Budget  O.R. Operating room  OSCAR Online Survey Certification and Reporting [System]  PE Pulmonary embolism  PMS As Primary metropolitan statistical areas  POA Present on admission  PPI Producer price index  PPS Prospective payment system  PRM Provider Reimbursement Manual  ProPAC Prospective Payment Assessment Commission  PRRB Provider Reimbursement Review Board  PSF Provider-Specific File  PS&R Provider Statistical and Reimbursement (System)  QIG Quality Improvement Group, CMS  QIO Quality Improvement Organization  RAPS Risk Adjustment Processing System  RCE Reasonable compensation equivalent  RHC Rural health clinic  RHQDAPU Reporting hospital quality data for annual payment update  RNHCI Religious nonmedical health care institution  RRC Rural referral center  RUCAs Rural-urban commuting area codes  RY Rate year  SAF Standard Analytic File  SCH Sole community hospital  SFY State fiscal year  SIC Standard Industrial Classification  SNF Skilled nursing facility  SOCs Standard occupational classifications  SOM State Operations Manual  TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law   97-248  TMA TMA [Transitional Medical Assistance], Abstinence Education, and   QI [Qualifying Individuals] Programs Extension Act of 2007, Public   Law. 110-09  TJA Total joint arthroplasty  UHDDS Uniform hospital discharge data set  VAP Ventilator-associated pneumonia  VBP Value-based purchasing    Table of Contents    I. Background      A. Summary      1. Acute Care Hospital Inpatient Prospective Payment System   (IPPS)      2. Hospitals and Hospital Units Excluded From the IPPS      a. Inpatient Rehabilitation Facilities (IRFs)      b. Long-Term Care Hospitals (LTCHs)      c. Inpatient Psychiatric Facilities (IPFs)      3. Critical Access Hospitals (CAHs)      4. Payments for Graduate Medical Education (GME)      B. Provisions of the Deficit Reduction Act of 2005 (DRA)      C. Provisions of the Medicare Improvements and Extension Act   Under Division B, Title I of the Tax Relief and Health Care Act of   2006 (MIEA-TRHCA)      D. Provision of the TMA, Abstinence Education, and QI Programs   Extension Act of 2007      E. Issuance of a Notice of Proposed Rulemaking      1. Proposed Changes to MS-DRG Classifications and Recalibrations   of Relative Weights      2. Proposed Changes to the Hospital Wage Index    [[Page 48436]]        3. Other Decisions and Proposed Changes to the IPPS for   Operating Costs and GME Costs      4. Proposed Changes to the IPPS for Capital-Related Costs      5. Proposed Changes to the Payment Rates for Excluded Hospitals   and Hospital Units      6. Proposed Changes Relating to Disclosure of Physician   Ownership in Hospitals      7. Proposed Changes and Solicitation of Comments on Physician   Self-Referral Provisions      8. Proposed Collection of Information Regarding Financial   Relationships Between Hospitals and Physicians      9. Determining Proposed Prospective Payment Operating and   Capital Rates and Rate-of-Increase Limits      10. Impact Analysis      11. Recommendation of Update Factors for Operating Cost Rates of   Payment for Inpatient Hospital Services      12. Disclosure of Financial Relationships Report (DFRR) Form      13. Discussion of Medicare Payment Advisory Commission   Recommendations      F. Public Comments Received on the FY 2009 IPPS Proposed Rule   and Issues in Related Rules      1. Comments on the FY 2009 IPPS Proposed Rule      2. Comments on Phase-Out of the Capital Teaching Adjustment   Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment   Period      3. Comments on Policy Revisions Related to Payment to Medicare   GME Affiliated Hospitals in Certain Declared Emergency Areas   Included in Two Interim Final Rules With Comment Period      4. Comments on Proposed Policy Revisions Related to Physician   Self-Referrals Included in the CY 2008 Physician Fee Schedule   Proposed Rule      G. Provisions of the Medicare Improvements for Patients and   Providers Act of 2008  II. Changes to Medicare Severity DRG (MS-DRG) Classifications and   Relative Weights      A. Background      B. MS-DRG Reclassifications      1. General      2. Yearly Review for Making MS-DRG Changes      C. Adoption of the MS-DRGs in FY 2008      D. MS-DRG Documentation and Coding Adjustment, Including the   Applicability to the Hospital-Specific Rates and the Puerto Rico-  Specific Standardized Amount      1. MS-DRG Documentation and Coding Adjustment      2. Application of the Documentation and Coding Adjustment to the   Hospital-Specific Rates      3. Application of the Documentation and Coding Adjustment to the   Puerto Rico-Specific Standardized Amount      4. Potential Additional Payment Adjustments in FYs 2010 Through   2012      E. Refinement of the MS-DRG Relative Weight Calculation      1. Background      2. Summary of RTI's Report on Charge Compression      3. Summary of RAND's Study of Alternative Relative Weight   Methodologies      4. Refining the Medicare Cost Report      5. Timeline for Revising the Medicare Cost Report      6. Revenue Codes Used in the MedPAR File      F. Preventable Hospital-Acquired Conditions (HACs), Including   Infections      1. General Background      2. Statutory Authority      3. Public Input      4. Collaborative Process      5. Selection Criteria for HACs      6. HACs Selected During FY 2008 IPPS Rulemaking and Changes to   Certain Codes      a. Foreign Object Retained After Surgery      b. Pressure Ulcers: Changes in Code Assignments      7. Candidate HACs      a. Manifestations of Poor Glycemic Control      b. Surgical Site Infections      c. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)      d. Delirium      e. Ventilator-Associated Pneumonia (VAP)      f. Staphylococcus aureus Septicemia      g. Clostridium difficile-Associated Disease (CDAD)      h. Legionnaires' Disease      i. Iatrogenic Pneumothorax      j. Methicillin-resistant Staphylococcus aureus (MRSA)      8. Present on Admission Indicator Reporting (POA)      9. Enhancement and Future Issues      a. Risk-Adjustment of Payments Related to HACs      b. Risk-Based Measurement of HACs      c. Use of POA Information      d. Transition to ICD-10      e. Healthcare-Associated Conditions in Other Payment Settings      f. Relationship to NQF's Serious Reportable Adverse Events      g. Additional Potential Candidate HACs, Suggested Through   Comment      10. HAC Coding      a. Foreign Object Retained After Surgery      b. MRSA      c. POA      11. HACs Selected for Implementation on October 1, 2008      G. Changes to Specific MS-DRG Classifications      1. Pre-MDCs: Artificial Heart Devices      2. MDC 1 (Diseases and Disorders of the Nervous System)      a. Transferred Stroke Patients Receiving Tissue Plasminogen   Activator (tPA)      b. Intractable Epilepsy With Video Electroencephalogram (EEG)      3. MDC 5 (Diseases and Disorders of the Circulatory System)      a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead   and Generator Procedures      b. Left Atrial Appendage Device      4. MDC 8 (Diseases and Disorders of the Musculoskeletal System   and Connective Tissue): Hip and Knee Replacements and Revisions      a. Brief History of Development of Hip and Knee Replacement   Codes      b. Prior Recommendations of the AAHKS      c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008   and AAHKS' Recommendations      d. AAHKS' Recommendations for FY 2009      e. CMS' Response to AAHKS' Recommendations      f. Conclusion      5. MDC 18 (Infections and Parasitic Diseases (Systemic or   Unspecified Sites): Severe Sepsis      6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs):   Traumatic Compartment Syndrome      7. Medicare Code Editor (MCE) Changes      a. List of Unacceptable Principal Diagnoses in MCE      b. Diagnoses Allowed for Males Only Edit      c. Limited Coverage Edit      8. Surgical Hierarchies      9. CC Exclusions List      a. Background      b. CC Exclusions List for FY 2009      10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984,   985, and 986; and 987, 988, and 989      a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-  DRGs 987 Through 989 to MDCs      b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984   Through 986, and 987 Through 989      c. Adding Diagnosis or Procedure Codes to MDCs      11. Changes to the ICD-9-CM Coding System      12. Other MS-DRG Issues      a. Heart Transplants or Implants of Heart Assist System and   Liver Transplants      b. New Codes for Pressure Ulcers      c. Coronary Artery Stents      d. TherOx (Downstream(r) System)      e. Spinal Disc Devices      f. Spinal Fusion      g. Special Treatment for Hospitals With High Percentages of ESRD   Discharges      H. Recalibration of MS-DRG Weights      I. Medicare Severity Long-Term Care Diagnosis Related Group (MS-  LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY   2009      1. Background      2. Changes in the MS-LTC-DRG Classifications      a. Background      b. Patient Classifications Into MS-LTC-DRGs      3. Development of the FY 2009 MS-LTC-DRG Relative Weights      a. General Overview of Development of the MS-LTC-DRG Relative   Weights      b. Data      c. Hospital-Specific Relative Value (HSRV) Methodology      d. Treatment of Severity Levels in Developing Relative Weights      e. Low-Volume MS-LTC-DRGs      4. Steps for Determining the FY 2009 MS-LTC-DRG Relative Weights      5. Other Comments      J. Add-On Payments for New Services and Technologies      1. Background      2. Public Input Before Publication of a Notice of Proposed   Rulemaking on Add-On Payments    [[Page 48437]]        3. FY 2009 Status of Technologies Approved for FY 2008 Add-On   Payments      4. FY 2009 Applications for New Technology Add-On Payments      a. CardioWest\TM\ Temporary Total Artificial Heart System   (CardioWest\TM\ TAH-t)      b. Emphasys Medical Zephyr[supreg] Endobronchial Valve   (Zephyr[supreg] EBV)      c. Oxiplex[supreg]      d. TherOx Downstream[supreg] System      5. Regulatory Changes  III. Changes to the Hospital Wage Index      A. Background      B. Requirements of Section 106 of the MIEA-TRHCA      1. Wage Index Study Required Under the MIEA-TRHCA      a. Legislative Requirement      b. MedPAC's Recommendations      c. CMS Contract for Impact Analysis and Study of Wage Index   Reform      d. Public Comments Received on the MedPAC Recommendations and   the CMS/Acumen Wage Index Study and Analysis      e. Impact Analysis of Using MedPAC's Recommended Wage Index      2. CMS Proposals and Final Policy Changes in Response to   Requirements Under Section 106(b) of the MIEA-TRHCA      a. Proposed and Final Revision of the Reclassification Average   Hourly Wage Comparison Criteria      b. Within-State Budget Neutrality Adjustment for the Rural and   Imputed Floors      c. Within-State Budget Neutrality Adjustment for Geographic   Reclassification      C. Core-Based Statistical Areas for the Hospital Wage Index      D. Occupational Mix Adjustment to the FY 2009 Wage Index      1. Development of Data for the FY 2009 Occupational Mix   Adjustment      2. Calculation of the Occupational Mix Adjustment for FY 2009      3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index      E. Worksheet S-3 Wage Data for the FY 2009 Wage Index      1. Included Categories of Costs      2. Excluded Categories of Costs      3. Use of Wage Index Data by Providers Other Than Acute Care   Hospitals Under the IPPS      F. Verification of Worksheet S-3 Wage Data      1. Wage Data for Multicampus Hospitals      2. New Orleans' Post-Katrina Wage Index      G. Method for Computing the FY 2009 Unadjusted Wage Index      H. Analysis and Implementation of the Occupational Mix   Adjustment and the FY 2009 Occupational Mix Adjusted Wage Index      I. Revisions to the Wage Index Based on Hospital Redesignations      1. General      2. Effects of Reclassification/Redesignation      3. FY 2009 MGCRB Reclassifications      4. FY 2008 Policy Clarifications and Revisions      5. Redesignations of Hospitals Under Section 1886(d)(8)(B) of   the Act      6. Reclassifications Under Section 1886(d)(8)(B) of the Act      7. Reclassifications Under Section 508 of Public Law 108-173      J. FY 2009 Wage Index Adjustment Based on Commuting Patterns of   Hospital Employees      K. Process for Requests for Wage Index Data Corrections      L. Labor-Related Share for the Wage Index for FY 2009  IV. Other Decisions and Changes to the IPPS for Operating Costs and   GME Costs      A. Changes to the Postacute Care Transfer Policy      1. Background      2. Policy Change Relating to Transfers to Home With a Written   Plan for the Provision of Home Health Services      3. Evaluation of MS-DRGs Under Postacute Care Transfer Policy   for FY 2009      B. Reporting of Hospital Quality Data for Annual Hospital   Payment Update 1. Background      a. Overview      b. Voluntary Hospital Quality Data Reporting      c. Hospital Quality Data Reporting Under Section 501(b) of   Public Law 108-173      d. Hospital Quality Data Reporting Under Section 5001(a) of   Public Law 109-171      2. Quality Measures for the FY 2010 Payment Determination and   Subsequent Years      a. Quality Measures for the FY 2010 Payment Determination      b. Possible New Quality Measures, Measure Sets, and Program   Requirements for the FY 2011 Payment Determination and Subsequent   Years      c. Considerations in Expanding and Updating Quality Measures   Under the RHQDAPU Program      3. Form and Manner and Timing of Quality Data Submission      4. RHQDAPU Program Procedures for FY 2009 and FY 2010      a. RHQDAPU Program Procedures for FY 2009      b. RHQDAPU Program Procedures for FY 2010      5. HCAHPS Requirements for FY 2009 and FY 2010      a. FY 2009 HCAHPS Requirements      b. FY 2010 HCAHPS Requirements      6. Chart Validation Requirements for FY 2009 and FY 2010      a. Chart Validation Requirements for FY 2009      b. Chart Validation Requirements for FY 2010      c. Chart Validation Methods and Requirements Under Consideration   for FY 2011 and Subsequent Years      7. Data Attestation Requirements for FY 2009 and FY 2010      a. Data Attestation Requirements for FY 2009      b. Data Attestation Requirements for FY 2010      8. Public Display Requirements      9. Reconsideration and Appeal Procedures      10. RHQDAPU Program Withdrawal Deadlines for FY 2009 and FY 2010      11. Requirements for New Hospitals      12. Electronic Medical Records      13. RHQDAPU Data Infrastructure      C. Medicare Hospital Value-Based Purchasing (VBP) Plan      1. Medicare Hospital VBP Plan Report to Congress      2. Testing and Further Development of the Medicare Hospital VBP   Plan      D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small   Rural Hospitals (MDHs)      1. Background      2. Rebasing of Payments to SCHs      3. Volume Decrease Adjustment for SCHs and MDHs: Data Sources   for Determining Core Staff Values      E. Rural Referral Centers (RRCs)      1. Case-Mix Index      2. Discharges      F. Indirect Medical Education (IME) Adjustment      1. Background      2. IME Adjustment Factor for FY 2009      G. Payments for Direct Graduate Medical Education (GME)      1. Background      2. Medicare GME Affiliation Provisions for Teaching Hospitals in   Certain Emergency Situations      a. Legislative Authority      b. Regulatory Changes Issued in 2006 to Address Certain   Emergency Situations      c. Additional Regulatory Changes Issued in 2007 To Address   Certain Emergency Situations      d. Public Comments Received on the April 12, 2006 and November   27, 2007 Interim Final Rules With Comment Period      e. Provisions of the Final Rule      f. Technical Correction      H. Payments to Medicare Advantage Organizations: Collection of   Risk Adjustment Data      I. Hospital Emergency Services Under EMTALA      1. Background      2. EMTALA Technical Advisory Group (TAG) Recommendations      3. Changes Relating to Applicability of EMTALA Requirements to   Hospital Inpatients      4. Changes to the EMTALA Physician On-Call Requirements      a. Relocation of Regulatory Provisions      b. Shared/Community Call      5. Technical Change to Regulations      J. Application of Incentives To Reduce Avoidable Readmissions to   Hospitals      1. Overview      2. Measurement      3. Shared Accountability      4. VBP Incentives      5. Direct Payment Adjustment      6. Performance-Based Payment Adjustment      7. Public Reporting of Readmission Rates      8. Potential Unintended Consequences of VBP Incentives      K. Rural Community Hospital Demonstration Program  V. Changes to the IPPS for Capital-Related Costs      A. Background      1. Exception Payments      2. New Hospitals      3. Hospitals Located in Puerto Rico      B. Revisions to the Capital IPPS Based on Data on Hospital   Medicare Capital Margins    [[Page 48438]]        1. Elimination of the Large Add-On Payment Adjustment      2. Changes to the Capital IME Adjustment      a. Background and Changes Made for FY 2008      b. Public Comments Received on Phase Out of Capital IPPS   Teaching Adjustment Provisions Included in the FY 2008 IPPS Final   Rule With Comment Period and on the FY 2009 IPPS Proposed Rule  VI. Changes for Hospitals and Hospital Units Excluded From the IPPS      A. Payments to Excluded Hospitals and Hospital Units      B. IRF PPS      C. LTCH PPS      D. IPF PPS      E. Determining LTCH Cost-to-Charge Ratios (CCRs) Under the LTCH   PPS      F. Change to the Regulations Governing Hospitals-Within-  Hospitals      G. Report of Adjustment (Exceptions) Payments  VII. Disclosure Required of Certain Hospitals and Critical Access   Hospitals (CAHs) Regarding Physician Ownership  VIII. Physician Self-Referral Provisions      A. General Overview      1. Statutory Framework and Regulatory History      2. Physician Self-Referral Provisions Finalized in this FY 2009   IPPS Final Rule      B. ``Stand in the Shoes'' Provisions      1. Background      a. Regulatory History of the Physician ``Stand in the Shoes''   Rules      b. Summary of Proposed Revisions to the Physician ``Stand in the   Shoes'' Rules      c. Summary of Proposed DHS Entity ``Stand in the Shoes'' Rules      2. Physician ``Stand in the Shoes'' Provisions      3. DHS Entity ``Stand in the Shoes'' Provisions      4. Application of the Physician ``Stand in the Shoes'' and the   DHS Entity ``Stand in the Shoes'' Provisions (``Conventions'')      5. Definitions: ``Physician'' and ``Physician Organization''      C. Period of Disallowance      D. Alternative Method for Compliance With Signature Requirements   in Certain Exceptions      E. Percentage-Based Compensation Formulae      F. Unit of Service (Per Click) Payments in Lease Arrangements      1. General Support for Proposal      2. Authority      3. Hospitals as Risk-Averse and Access to Care      4. Evidence of Overutilization: Therapeutic Versus Diagnostic      5. Per-Click Payments as Best Measure of Fair Market Value      6. Lithotripsy as Not DHS      7. Time-Based Rental Arrangements      8. Physician Entities as Lessors      9. Physicians and Physician Entities as Lessees      G. Services Provided ``Under Arrangements'' (Services Performed   by an Entity Other Than the Entity That Submits the Claim)      1. Support for Proposal      2. MedPAC Approach      3. Authority for Proposal      4. Community Benefit and Access to Care      5. Hospitals as Risk-Averse      6. Proposal Based on Anecdotal Evidence      7. Cardiac Catheterization      8. Therapeutic Versus Diagnostic      9. Professional Fee Greater Than Incremental Return for   Technical Component      10. Existing Exceptions Are Sufficient Potection      11. Suggested Changes to Definitions      12. Cause Claim To Be Submitted      13. Physician-Owned Implant Companies      14. Procedures Must Be Done in a Hospital Setting Because the   ASC Does Not Pay Enough      15. Lithotripsy as Not DHS      16. Procedures That Are DHS Only When Furnished in a Hospital      17. Exceptions      18. Personally Performed Services      19. Outpatient Services Treated Differently Than Inpatient   Services      20. Sleep Centers      21. Dialysis      22. Effective Date      H. Exceptions for Obstetrical Malpractice Insurance Subsidies      I. Ownership or Investment Interest in Retirement Plans      J. Burden of Proof  IX. Financial Relationships Between Hospitals and Physicians  X. MedPAC Recommendations  XI. Other Required Information      A. Requests for Data From the Public      B. Collection of Information Requirements      1. Legislative Requirement for Solicitation of Comments      2. Requirements in Regulatory Text      a. ICRs Regarding Physician Reporting Requirements      b. ICRs Regarding Risk Adjustment Data      c. ICRs Regarding Basic Commitments of Providers      3. Associated Information Collections Not Specified in   Regulatory Text      a. Present on Admission (POA) Indicator Reporting      b. Add-On Payments for New Services and Technologies      c. Reporting of Hospital Quality Data for Annual Hospital   Payment Update      d. Occupational Mix Adjustment to the FY 2009 Index (Hospital   Wage Index Occupational Mix Survey)      C. Waiver of Proposed Rulemaking, Waiver of Delay in Effective   Date, and Retroactive Effective Date      1. Requirements for Waivers and Retroactive Rulemaking      2. FY 2008 Puerto Rico--Specific Rates      3. Rebasing of Payments to SCHs      4. Technical Change to Regulations Governing Payments to   Hospitals With High Percentage of ESRD Discharges    Regulation Text    Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-  of-Increase Percentages Effective With Cost Reporting Periods Beginning   on or After October 1, 2008    I. Summary and Background  II. Changes to the Prospective Payment Rates for Hospital Inpatient   Operating Costs for FY 2009      A. Calculation of the Tentative Adjusted Standardized Amount      B. Tentative Adjustments for Area Wage Levels and Cost-of-Living      C. MS-DRG Relative Weights      D. Calculation of the Prospective Payment Rates  III. Changes to Payment Rates for Acute Care Hospital Inpatient   Capital-Related Costs for FY 2009      A. Determination of Federal Hospital Inpatient Capital-Related   Prospective Payment Rate Update      B. Calculation of the Inpatient Capital-Related Prospective   Payments for FY 2009      C. Capital Input Price Index  IV. Changes to Payment Rates for Excluded Hospitals and Hospital   Units: Rate-of-Increase Percentages  V. Tables      Table 1A.--National Adjusted Operating Standardized Amounts,   Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share   If Wage Index Is Greater Than 1)      Table 1B.--National Adjusted Operating Standardized Amounts,   Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If   Wage Index Is Less Than or Equal to 1)      Table 1C.--Adjusted Operating Standardized Amounts for Puerto   Rico, Labor/Nonlabor      Table 1D.--Capital Standard Federal Payment Rate      Table 2.--Hospital Case-Mix Indexes for Discharges Occurring in   Federal Fiscal Year 2007; Hospital Average Hourly Wages for Federal   Fiscal Years 2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009   (2005 Wage Data); and 3-Year Average of Hospital Average Hourly   Wages      Table 3A.--FY 2009 and 3-Year Average Hourly Wage for Urban   Areas by CBSA      Table 3B.--FY 2009 and 3-Year Average Hourly Wage for Rural   Areas by CBSA      Table 4J.--Out-Migration Wage Adjustment--FY 2009      Table 5.--List of Medicare Severity Diagnosis-Related Groups   (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic   Mean Length of Stay      Table 6A.--New Diagnosis Codes      Table 6B.--New Procedure Codes      Table 6C.--Invalid Diagnosis Codes      Table 6D.--Invalid Procedure Codes      Table 6E.--Revised Diagnosis Code Titles      Table 6F.--Revised Procedure Code Titles      Table 6G.--Additions to the CC Exclusions List (Available   through the Internet on the CMS Web site at: http://www.cms.hhs.gov/  AcuteInpatientPPS/)    [[Page 48439]]        Table 6H.--Deletions from the CC Exclusions List (Available   through the Internet on the CMS Web site at: http://www.cms.hhs.gov/  AcuteInpatientPPS/)      Table 6I.--Complete List of Complication and Comorbidity (CC)   Exclusions (Available only through the Internet on the CMS Web site   at: http://www.cms.hhs.gov/AcuteInpatientPPS/)      Table 6J.--Major Complication and Comorbidity (MCC) List   (Available Through the Internet on the CMS Web site at:  http://  www.cms.hhs.gov/AcuteInpatientPPS/)      Table 6K.--Complication and Comorbidity (CC) List (Available   Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/  AcuteInpatientPPS/)      Table 7A.--Medicare Prospective Payment System Selected   Percentile Lengths of Stay: FY 2007 MedPAR Update--March 2008   GROUPER V25.0 MS-DRGs      Table 7B.--Medicare Prospective Payment System Selected   Percentile Lengths of Stay: FY 2007 MedPAR Update--March 2008   GROUPER V26.0 MS-DRGs      Table 8A.--Statewide Average Operating Cost-to-Charge Ratios--  July 2008      Table 8B.--Statewide Average Capital Cost-to-Charge Ratios--July   2008      Table 8C.--Statewide Average Total Cost-to-Charge Ratios for   LTCHs--July 2008      Table 9A.--Hospital Reclassifications and Redesignations--FY   2009      Table 9B.--Hospitals Redesignated as Rural Under Section   1886(d)(8)(E) of the Act--FY 2009      Table 10.--Tentative Geometric Mean Plus the Lesser of .75 of   the National Adjusted Operating Standardized Payment Amount   (Increased To Reflect the Difference Between Costs and Charges) or   .75 of One Standard Deviation of Mean Charges by Medicare Severity   Diagnosis-Related Groups (MS-DRGs)--July 2008      Table 11.--FY 2009 MS-LTC-DRGs, Relative Weights, Geometric   Average Length of Stay, and Short-Stay Outlier (SSO) Threshold  Appendix A: Regulatory Impact Analysis      I. Overall Impact      II. Objectives      III. Limitations of Our Analysis      IV. Hospitals Included in and Excluded From the IPPS      V. Effects on Excluded Hospitals and Hospital Units      VI. Quantitative Effects of the Policy Changes Under the IPPS   for Operating Costs      A. Basis and Methodology of Estimates      B. Analysis of Table I      C. Effects of the Changes to the MS-DRG Reclassifications and   Relative Cost-Based Weights (Column 2)      D. Effects of Wage Index Changes (Column 3)      E. Combined Effects of MS-DRG and Wage Index Changes (Column 4)      F. Effects of MGCRB Reclassifications (Column 5)      G. Effects of the Rural Floor and Imputed Rural Floor, Including   the Transition To Apply Budget Neutrality at the State Level (Column   6)      H. Effects of the Wage Index Adjustment for Out-Migration   (Column 7)      I. Effects of All Changes With CMI Adjustment Prior to Estimated   Growth (Column 8)      J. Effects of All Changes With CMI Adjustment and Estimated   Growth (Column 9)      K. Effects of Policy on Payment Adjustments for Low-Volume   Hospitals      L. Impact Analysis of Table II      VII. Effects of Other Policy Changes      A. Effects of Policy on HACs, Including Infections      B. Effects of MS-LTC-DRG Reclassifications and Relative Weights   for LTCHs      C. Effects of Policy Change Relating to New Medical Service and   Technology Add-On Payments      D. Effects of Requirements for Hospital Reporting of Quality   Data for Annual Hospital Payment Update      E. Effects of Policy Change to Methodology for Computing Core   Staffing Factors for Volume Decrease Adjustment for SCHs and MDHs      F. Impact of the Policy Revisions Related to Payment to   Hospitals for Direct Graduate Medical Education (GME)      G. Effects of Clarification of Policy for Collection of Risk   Adjustment Data From MA Organizations      H. Effects of Policy Changes Relating to Hospital Emergency   Services Under EMTALA      I. Effects of Implementation of Rural Community Hospital   Demonstration Program      J. Effects of Policy Changes Relating to Payments to Hospitals-  Within-Hospitals      K. Effects of Policy Changes Relating to Requirements for   Disclosure of Physician Ownership in Hospitals      L. Effects of Policy Changes Relating to Physician Self-Referral   Provisions      M. Effects of Changes Relating to Reporting of Financial   Relationships Between Hospitals and Physicians  VIII. Effects of Changes in the Capital IPPS      A. General Considerations      B. Results  IX. Alternatives Considered  X. Overall Conclusion  XI. Accounting Statement  XII. Executive Order 12866  Appendix B: Recommendation of Update Factors for Operating Cost   Rates of Payment for Inpatient Hospital Services      I. Background      II. Inpatient Hospital Update for FY 2009      III. Secretary's Final Recommendation      IV. MedPAC Recommendation for Assessing Payment Adequacy and   Updating Payments in Traditional Medicare    I. Background    A. Summary    1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)      Section 1886(d) of the Social Security Act (the Act) sets forth a   system of payment for the operating costs of acute care hospital   inpatient stays under Medicare Part A (Hospital Insurance) based on   prospectively set rates. Section 1886(g) of the Act requires the   Secretary to pay for the capital-related costs of hospital inpatient   stays under a prospective payment system (PPS). Under these PPSs,   Medicare payment for hospital inpatient operating and capital-related   costs is made at predetermined, specific rates for each hospital   discharge. Discharges are classified according to a list of diagnosis-  related groups (DRGs).      The base payment rate is comprised of a standardized amount that is   divided into a labor-related share and a nonlabor-related share. The   labor-related share is adjusted by the wage index applicable to the   area where the hospital is located. If the hospital is located in   Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-  living adjustment factor. This base payment rate is multiplied by the   DRG relative weight.      If the hospital treats a high percentage of low-income patients, it   receives a percentage add-on payment applied to the DRG-adjusted base   payment rate. This add-on payment, known as the disproportionate share   hospital (DSH) adjustment, provides for a percentage increase in   Medicare payments to hospitals that qualify under either of two   statutory formulas designed to identify hospitals that serve a   disproportionate share of low-income patients. For qualifying   hospitals, the amount of this adjustment may vary based on the outcome   of the statutory calculations.      If the hospital is an approved teaching hospital, it receives a   percentage add-on payment for each case paid under the IPPS, known as   the indirect medical education (IME) adjustment. This percentage   varies, depending on the ratio of residents to beds.      Additional payments may be made for cases that involve new   technologies or medical services that have been approved for special   add-on payments. To qualify, a new technology or medical service must   demonstrate that it is a substantial clinical improvement over   technologies or services otherwise available, and that, absent an add-  on payment, it would be inadequately paid under the regular DRG   payment.      The costs incurred by the hospital for a case are evaluated to   determine whether the hospital is eligible for an additional payment as   an outlier case. This additional payment is designed to protect the   hospital from large financial losses due to unusually expensive cases.   Any outlier payment due is added to the DRG-adjusted base payment rate,   plus    [[Page 48440]]    any DSH, IME, and new technology or medical service add-on adjustments.      Although payments to most hospitals under the IPPS are made on the   basis of the standardized amounts, some categories of hospitals are   paid in whole or in part based on their hospital-specific rate based on   their costs in a base year. For example, sole community hospitals   (SCHs) receive the higher of a hospital-specific rate based on their   costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or   the IPPS rate based on the standardized amount. (We note that, as   discussed in section IV.D.2. of this preamble, effective for cost   reporting periods beginning on or after January 1, 2009, an SCH's   hospital-specific rate will be based on their costs per discharge in FY   2006 if greater than the hospital-specific rates based on its costs in   FY 1982, FY 1987, or FY 1996, or the IPPS rate based on the   standardized amount.) Until FY 2007, a Medicare-dependent, small rural   hospital (MDH) has received the IPPS rate plus 50 percent of the   difference between the IPPS rate and its hospital-specific rate if the   hospital-specific rate based on their costs in a base year (the higher   of FY 1982, FY 1987, or FY 2002) is higher than the IPPS rate. As   discussed below, for discharges occurring on or after October 1, 2007,   but before October 1, 2011, an MDH will receive the IPPS rate plus 75   percent of the difference between the IPPS rate and its hospital-  specific rate, if the hospital-specific rate is higher than the IPPS   rate. SCHs are the sole source of care in their areas, and MDHs are a   major source of care for Medicare beneficiaries in their areas. Both of   these categories of hospitals are afforded this special payment   protection in order to maintain access to services for beneficiaries.      Section 1886(g) of the Act requires the Secretary to pay for the   capital-related costs of inpatient hospital services ``in accordance   with a prospective payment system established by the Secretary.'' The   basic methodology for determining capital prospective payments is set   forth in our regulations at 42 CFR 412.308 and 412.312. Under the   capital IPPS, payments are adjusted by the same DRG for the case as   they are under the operating IPPS. Capital IPPS payments are also   adjusted for IME and DSH, similar to the adjustments made under the   operating IPPS. However, as discussed in section V.B.2. of this   preamble, the capital IME adjustment will be reduced by 50 percent in   FY 2009 (as established in the FY 2008 IPPS final rule with comment   period). In addition, hospitals may receive outlier payments for those   cases that have unusually high costs.      The existing regulations governing payments to hospitals under the   IPPS are located in 42 CFR Part 412, subparts A through M.  2. Hospitals and Hospital Units Excluded From the IPPS      Under section 1886(d)(1)(B) of the Act, as amended, certain   specialty hospitals and hospital units are excluded from the IPPS.   These hospitals and units are: rehabilitation hospitals and units;   long-term care hospitals (LTCHs); psychiatric hospitals and units;   children's hospitals; and cancer hospitals. Religious nonmedical health   care institutions (RNHCIs) are also excluded from the IPPS. Various   sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the   Medicare, Medicaid and SCHIP [State Children's Health Insurance   Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and   the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection   Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs   for rehabilitation hospitals and units (referred to as inpatient   rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and   units (referred to as inpatient psychiatric facilities (IPFs)), as   discussed below. Children's hospitals, cancer hospitals, and RNHCIs   continue to be paid solely under a reasonable cost-based system.      The existing regulations governing payments to excluded hospitals   and hospital units are located in 42 CFR parts 412 and 413.  a. Inpatient Rehabilitation Facilities (IRFs)      Under section 1886(j) of the Act, as amended, rehabilitation   hospitals and units (IRFs) have been transitioned from payment based on   a blend of reasonable cost reimbursement subject to a hospital-specific   annual limit under section 1886(b) of the Act and the adjusted facility   Federal prospective payment rate for cost reporting periods beginning   on or after January 1, 2002 through September 30, 2002, to payment at   100 percent of the Federal rate effective for cost reporting periods   beginning on or after October 1, 2002. IRFs subject to the blend were   also permitted to elect payment based on 100 percent of the Federal   rate. The existing regulations governing payments under the IRF PPS are   located in 42 CFR Part 412, Subpart P.  b. Long-Term Care Hospitals (LTCHs)      Under the authority of sections 123(a) and (c) of Public Law 106-  113 and section 307(b)(1) of Public Law 106-554, the LTCH PPS was   effective for a LTCH's first cost reporting period beginning on or   after October 1, 2002. LTCHs that do not meet the definition of ``new''   under Sec.  412.23(e)(4) are paid, during a 5-year transition period, a   LTCH prospective payment that is comprised of an increasing proportion   of the LTCH Federal rate and a decreasing proportion based on   reasonable cost principles. Those LTCHs that did not meet the   definition of ``new'' under Sec.  412.23(e)(4) could elect to be paid   based on 100 percent of the Federal prospective payment rate instead of   a blended payment in any year during the 5-year transition. For cost   reporting periods beginning on or after October 1, 2006, all LTCHs are   paid 100 percent of the Federal rate. The existing regulations   governing payment under the LTCH PPS are located in 42 CFR part 412,   subpart O.  c. Inpatient Psychiatric Facilities (IPFs)      Under the authority of sections 124(a) and (c) of Public Law 106-  113, inpatient psychiatric facilities (IPFs) (formerly psychiatric   hospitals and psychiatric units of acute care hospitals) are paid under   the IPF PPS. For cost reporting periods beginning on or after January   1, 2008, all IPFs are paid 100 percent of the Federal per diem payment   amount established under the IPF PPS. (For cost reporting periods   beginning on or after January 1, 2005, and ending on or before December   31, 2007, some IPFs received transitioned payments for inpatient   hospital services based on a blend of reasonable cost-based payment and   a Federal per diem payment rate.) The existing regulations governing   payment under the IPF PPS are located in 42 CFR 412, Subpart N.  3. Critical Access Hospitals (CAHs)      Under sections 1814, 1820, and 1834(g) of the Act, payments are   made to critical access hospitals (CAHs) (that is, rural hospitals or   facilities that meet certain statutory requirements) for inpatient and   outpatient services are based on 101 percent of reasonable cost.   Reasonable cost is determined under the provisions of section   1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts   413 and 415.  4. Payments for Graduate Medical Education (GME)      Under section 1886(a)(4) of the Act, costs of approved educational   activities are excluded from the operating costs of inpatient hospital   services. Hospitals with approved graduate medical education (GME)   programs are paid for the direct costs of GME in accordance with   section 1886(h) of the Act. The amount of payment for direct GME costs    [[Page 48441]]    for a cost reporting period is based on the hospital's number of   residents in that period and the hospital's costs per resident in a   base year. The existing regulations governing payments to the various   types of hospitals are located in 42 CFR part 413.    B. Provisions of the Deficit Reduction Act of 2005 (DRA)        Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Public   Law 109-171, requires the Secretary to develop a plan to implement,   beginning with FY 2009, a value-based purchasing plan for section   1886(d) hospitals defined in the Act. In section IV.C. of the preamble   of this proposed rule, we discuss the report to Congress on the   Medicare value-based purchasing plan and the current testing of the   plan.    C. Provisions of the Medicare Improvements and Extension Act Under   Division B, Title I of the Tax Relief and Health Care Act of 2006   (MIEA-TRHCA)        Section 106(b)(2) of the MIEA-TRHCA instructed the Secretary of   Health and Human Services to include in the FY 2009 IPPS proposed rule   one or more proposals to revise the wage index adjustment applied under   section 1886(d)(3)(E) of the Act for purposes of the IPPS. The   Secretary was also instructed to consider MedPAC's recommendations on   the Medicare wage index classification system in developing these   proposals. In section III. of the preamble of this final rule, we   summarize Acumen's comparative and impact analysis of the MedPAC and   CMS wage indices.    D. Provision of the TMA, Abstinence Education, and QI Programs   Extension Act of 2007        Section 7 of the TMA [Transitional Medical Assistance], Abstinence   Education, and QI [Qualifying Individuals] Programs Extension Act of   2007 (Pub. L. 110-90) provides for a 0.9 percent prospective   documentation and coding adjustment in the determination of   standardized amounts under the IPPS (except for MDHs, SCHs, and Puerto   Rico hospitals) for discharges occurring during FY 2009. The   prospective documentation and coding adjustment was established in FY   2008 in response to the implementation of an MS-DRG system under the   IPPS that resulted in changes in coding and classification that did not   reflect real changes in case-mix under section 1886(d) of the Act. We   discuss our implementation of this provision in section II.D. of the   preamble of this final rule and in the Addendum and in Appendix A to   this final rule.    E. Issuance of a Notice of Proposed Rulemaking        On April 30, 2008, we issued in the Federal Register (73 FR 23528)   a notice of proposed rulemaking that set forth proposed changes to the   Medicare IPPS for operating costs and for capital-related costs in FY   2009. We also set forth proposed changes relating to payments for GME   and IME costs and payments to certain hospitals and units that continue   to be excluded from the IPPS and paid on a reasonable cost basis that   would be effective for discharges occurring on or after October 1,   2008. In addition, we presented proposed changes relating to disclosure   to patients of physician ownership and investment interests in   hospitals, proposed changes to our physician self-referral regulations,   and a solicitation of public comments on a proposed collection of   information regarding financial relationships between hospitals and   physicians.      Below is a summary of the major changes that we proposed to make:  1. Proposed Changes to MS-DRG Classifications and Recalibrations of   Relative Weights In section II. of the Preamble to the Proposed Rule,   We Included--       Proposed changes to MS-DRG reclassifications based on our   yearly review.       Proposed application of the documentation and coding   adjustment to hospital-specific rates resulting from implementation of   the MS-DRG system.       Proposed changes to address the RTI reporting   recommendations on charge compression.       Proposed recalibrations of the MS-DRG relative weights.      We also proposed to refine the hospital cost reports so that   charges for relatively inexpensive medical supplies are reported   separately from the costs and charges for more expensive medical   devices. This proposal would be applied to the determination of both   the IPPS and the OPPS relative weights as well as the calculation of   the ambulatory surgical center payment rates.      We presented a listing and discussion of additional hospital-  acquired conditions (HACs), including infections, that were proposed to   be subject to the statutorily required quality adjustment in MS-DRG   payments for FY 2009.      We presented our evaluation and analysis of the FY 2009 applicants   for add-on payments for high-cost new medical services and technologies   (including public input, as directed by Pub. L. 108-173, obtained in a   town hall meeting).      We proposed the annual update of the MS-LTC-DRG classifications and   relative weights for use under the LTCH PPS for FY 2009.  2. Proposed Changes to the Hospital Wage Index      In section III. of the preamble to the proposed rule, we proposed   revisions to the wage index and the annual update of the wage data.   Specific issues addressed include the following:       Proposed wage index reform changes in response to   recommendations made to Congress as a result of the wage index study   required under Public Law 109-432. We discussed changes related to   reclassifications criteria, application of budget neutrality in   reclassifications, and the rural floor and imputed floor budget   neutrality at the State level.       Changes to the CBSA designations.       The methodology for computing the proposed FY 2009 wage   index.       The proposed FY 2009 wage index update, using wage data   from cost reporting periods that began during FY 2005.       Analysis and implementation of the proposed FY 2009   occupational mix adjustment to the wage index.       Proposed revisions to the wage index based on hospital   redesignations and reclassifications.       The proposed adjustment to the wage index for FY 2009   based on commuting patterns of hospital employees who reside in a   county and work in a different area with a higher wage index.       The timetable for reviewing and verifying the wage data   used to compute the proposed FY 2009 wage index.       The proposed labor-related share for the FY 2009 wage   index, including the labor-related share for Puerto Rico.  3. Other Decisions and Proposed Changes to the IPPS for Operating Costs   and GME Costs      In section IV. of the preamble to the proposed rule, we discussed a   number of the provisions of the regulations in 42 CFR Parts 412, 413,   and 489, including the following:       Proposed changes to the postacute care transfer policy as   it relates to transfers to home with the provision of home health   services.       The reporting of hospital quality data as a condition for   receiving the full annual payment update increase.       Proposed changes in the collection of Medicare Advantage   (MA) encounter data that are used for computing the risk payment   adjustment made to MA organizations.       Discussion of the report to Congress on the Medicare   value-based purchasing    [[Page 48442]]    plan and current testing and further development of the plan.       Proposed changes to the methodology for determining core   staff values for the volume decrease payment adjustment for SCHs and   MDHs.       The proposed updated national and regional case-mix values   and discharges for purposes of determining RRC status.       The statutorily required IME adjustment factor for FY 2009   and technical changes to the GME payment policies.       Proposed changes to policies on hospital emergency   services under EMTALA to address EMTALA Technical Advisory Group (TAG)   recommendations.       Solicitation of public comments on Medicare policies   relating to incentives for avoidable readmissions to hospitals.       Discussion of the fifth year of implementation of the   Rural Community Hospital Demonstration Program.  4. Proposed Changes to the IPPS for Capital-Related Costs      In section V. of the preamble to the proposed rule, we discussed   the payment policy requirements for capital-related costs and capital   payments to hospitals. We acknowledged the public comments that we   received on the phase-out of the capital teaching adjustment included   in the FY 2008 IPPS final rule with comment period, and again solicited   public comments on this phase-out.  5. Proposed Changes to the Payment Rates for Excluded Hospitals and   Hospital Unit      In section VI. of the preamble to the proposed rule, we discussed   proposed changes to payments to excluded hospitals and hospital units,   proposed changes for determining LTCH CCRs under the LTCH PPS, and   proposed changes to the regulations on hospitals-within-hospitals.  6. Proposed Changes Relating to Disclosure of Physician Ownership in   Hospitals      In section VII. of the preamble of the proposed rule, we presented   proposed changes to the regulations relating to the disclosure to   patients of physician ownership or investment interests in hospitals.  7. Proposed Changes and Solicitation of Comments on Physician Self-  Referral Provisions      In section VIII. of the preamble of the proposed rule, we proposed   changes to the physician self-referral regulations relating to the   ``Stand in Shoes'' provision and the period of disallowance for claims   submitted in violation of the prohibition. In addition, we solicited   public comments regarding physician-owned implant companies and   gainsharing arrangements.  8. Proposed Collection of Information Regarding Financial Relationships   Between Hospitals and Physicians      In section IX. of the preamble of the proposed rule, we solicited   public comments on our proposed collection of information regarding   financial relationships between hospitals and physicians.  9. Determining Proposed Prospective Payment Operating and Capital Rates   and Rate-of-Increase Limits      In the Addendum to the proposed rule, we set forth proposed changes   to the amounts and factors for determining the FY 2009 prospective   payment rates for operating costs and capital-related costs. We also   established the proposed threshold amounts for outlier cases. In   addition, we addressed the proposed update factors for determining the   rate-of-increase limits for cost reporting periods beginning in FY 2009   for hospitals and hospital units excluded from the PPS.  10. Impact Analysis      In Appendix A of the proposed rule, we set forth an analysis of the   impact that the proposed changes would have on affected hospitals.  11. Recommendation of Update Factors for Operating Cost Rates of   Payment for Inpatient Hospital Services      In Appendix B of the proposed rule, as required by sections   1886(e)(4) and (e)(5) of the Act, we provided our recommendations of   the appropriate percentage changes for FY 2009 for the following:       A single average standardized amount for all areas for   hospital inpatient services paid under the IPPS for operating costs   (and hospital-specific rates applicable to SCHs and MDHs).       Target rate-of-increase limits to the allowable operating   costs of hospital inpatient services furnished by hospitals and   hospital units excluded from the IPPS.  12. Disclosure of Financial Relationships Report (DFRR) Form      In Appendix C of the proposed rule, we presented the reporting form   that we proposed to use for the proposed collection of information on   financial relationships between hospitals and physicians discussed in   section IX. of the preamble of the proposed rule.  13. Discussion of Medicare Payment Advisory Commission Recommendations      Under section 1805(b) of the Act, MedPAC is required to submit a   report to Congress, no later than March 1 of each year, in which MedPAC   reviews and makes recommendations on Medicare payment policies.   MedPAC's March 2008 recommendations concerning hospital inpatient   payment policies address the update factor for inpatient hospital   operating costs and capital-related costs under the IPPS and for   hospitals and distinct part hospital units excluded from the IPPS. We   addressed these recommendations in Appendix B of the proposed rule. For   further information relating specifically to the MedPAC March 2008   reports or to obtain a copy of the reports, contact MedPAC at (202)   220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.    F. Public Comments Received on the FY 2009 IPPS Proposed Rule and   Issues in Related Rules    1. Comments on the FY 2009 IPPS Proposed Rule      We received over 1,100 timely pieces of correspondence in response   to the FY 2009 IPPS proposed rule issued in the Federal Register on   April 30, 2008. These public comments addressed issues on multiple   topics in the proposed rule. We present a summary of the public   comments and our responses to them in the applicable subject-matter   sections of this final rule.  2. Comments on Phase-Out of the Capital Teaching Adjustment Under the   IPPS Included in the FY 2008 IPPS Final Rule With Comment Period      In the FY 2008 IPPS final rule with comment period, we solicited   public comments on our policy changes related to phase-out of the   capital teaching adjustment to the capital payment update under the   IPPS (72 FR 47401). We received approximately 90 timely pieces of   correspondence in response to our solicitation. In section V. of the   preamble of the FY 2009 IPPS proposed rule, we acknowledged receipt of   those public comments and again solicited public comments on the phase-  out. We received numerous pieces of timely correspondence in response   to the second solicitation. In section V. of this final rule, we   summarize the public comments received on both the FY 2008 IPPS final   rule with comment period and the FY 2009 IPPS proposed rule and present   our responses.    [[Page 48443]]    3. Comments on Policy Revisions Related to Payment to Medicare GME   Affiliated Hospitals in Certain Declared Emergency Areas Included in   Two Interim Final Rules With Comment Period      We have issued two interim final rules with comment periods in the   Federal Register that modified the GME regulations as they apply to   Medicare GME affiliated groups to provide for greater flexibility in   training residents in approved residency programs during times of   disasters: On April 12, 2006 (71 FR 18654) and on November 27, 2007 (72   FR 66892). We received a number of timely pieces of correspondence in   response to these interim final rules with comment period. In section   IV.G. of the preamble of this final rule, we summarize and address   these public comments.  4. Comments on Proposed Policy Revisions Related to Physician Self-  Referrals Included in the CY 2008 Physician Fee Schedule Proposed Rule      On July 12, 2007, we issued in the Federal Register proposed   revisions to physician payment policies under the CY 2008 Physician Fee   Schedule (72 FR 38121). Among these proposed changes were a number of   proposed changes relating to physician self-referral issues that we   have not finalized: Burden of proof; obstetrical malpractice insurance   subsidies; ownership or investment interest in retirement plans; units   of service (per click) payments in space and equipment leases; ``set in   advance'' percentage-based compensation arrangements; alternative   criteria for satisfying certain exceptions; and services provided under   arrangement. In section VIII. of the preamble to this final rule, we   are addressing the public comments that we received on these proposed   revisions, presenting our responses to the public comments, and   finalizing these policies.    G. Provisions of the Medicare Improvements for Patients and Providers   Act of 2008        After publication of the FY 2009 IPPS proposed rule, the Medicare   Improvements for Patients and Providers Act of 2008, Public Law 110-  275, was enacted on July 15, 2008. Public Law 110-275 contains several   provisions that impact payments under the IPPS for FY 2009, which we   discuss or are implementing in this final rule:       Section 122 of Public Law 110-275 provides that, for cost   reporting periods beginning on or after January 1, 2009, SCHs will be   paid based on an FY 2006 hospital-specific rate (that is, based on   their updated costs per discharge from their 12-month cost reporting   period beginning during Federal fiscal year 2007), if this results in   the greatest payment to the SCH. Therefore, effective with cost   reporting periods beginning January 1, 2009, SCHs will be paid based on   the rate that results in the greatest aggregate payment using either   the Federal rate or their hospital-specific rate based on their cost   per discharge for 1982, 1987, 1996, or 2006. We address this provision   under section IV.D.2. of the preamble of this final rule.       Section 124 of Public Law 110-275 extends, through FY   2009, wage index reclassifications for hospitals reclassified under   section 508 of Public Law 108-173 (the MMA) and certain special   hospital exceptions extended under the Medicare and Medicaid SCHIP   Extension Act (MMSEA) of 2007 (Pub. L. 110-173). We discuss this   provision in section III.I.7. and various other sections of this final   rule. We note that because of the timing of enactment of Public Law   110-275, we are not able to recompute the FY 2009 wage index values for   any hospital that would be reclassified under the section 508   provisions in time for inclusion in this final rule. We will issue the   final FY 2009 wage index values and other related tables, as specified   in the Addendum to this final rule, in a separate Federal Register   notice implementing this extension that will be published subsequent to   this final rule.    II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG)   Classifications and Relative Weights    A. Background        Section 1886(d) of the Act specifies that the Secretary shall   establish a classification system (referred to as DRGs) for inpatient   discharges and adjust payments under the IPPS based on appropriate   weighting factors assigned to each DRG. Therefore, under the IPPS, we   pay for inpatient hospital services on a rate per discharge basis that   varies according to the DRG to which a beneficiary's stay is assigned.   The formula used to calculate payment for a specific case multiplies an   individual hospital's payment rate per case by the weight of the DRG to   which the case is assigned. Each DRG weight represents the average   resources required to care for cases in that particular DRG, relative   to the average resources used to treat cases in all DRGs.      Congress recognized that it would be necessary to recalculate the   DRG relative weights periodically to account for changes in resource   consumption. Accordingly, section 1886(d)(4)(C) of the Act requires   that the Secretary adjust the DRG classifications and relative weights   at least annually. These adjustments are made to reflect changes in   treatment patterns, technology, and any other factors that may change   the relative use of hospital resources.    B. MS-DRG Reclassifications    1. General      As discussed in the preamble to the FY 2008 IPPS final rule with   comment period (72 FR 47138), we focused our efforts in FY 2008 on   making significant reforms to the IPPS consistent with the   recommendations made by MedPAC in its ``Report to the Congress,   Physician-Owned Specialty Hospitals'' in March 2005. MedPAC recommended   that the Secretary refine the entire DRG system by taking severity of   illness into account and applying hospital-specific relative value   (HSRV) weights to DRGs.\1\ We began this reform process by adopting   cost-based weights over a 3-year transition period beginning in FY 2007   and making interim changes to the DRG system for FY 2007 by creating 20   new CMS DRGs and modifying 32 other DRGs across 13 different clinical   areas involving nearly 1.7 million cases. As described in more detail   below, these refinements were intermediate steps towards comprehensive   reform of both the relative weights and the DRG system that is   occurring as we undertook further study. For FY 2008, we adopted 745   new Medicare Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer   readers to section II.D. of the FY 2008 IPPS final rule with comment   period for a full detailed discussion of how the MS-DRG system, based   on severity levels of illness, was established (72 FR 47141).  ---------------------------------------------------------------------------        \1\ Medicare Payment Advisory Commission: Report to the   Congress, Physician-Owned Specialty Hospitals, March 2005, page   viii.  ---------------------------------------------------------------------------        Currently, cases are classified into MS-DRGs for payment under the   IPPS based on the following information reported by the hospital: the   principal diagnosis, up to eight additional diagnoses, and up to six   procedures performed during the stay. In a small number of MS-DRGs,   classification is also based on the age, sex, and discharge status of   the patient. The diagnosis and procedure information is reported by the   hospital using codes from the International Classification of Diseases,   Ninth Revision, Clinical Modification (ICD-9-CM).      Comment: Several commenters expressed concern that only nine   diagnosis codes and six procedure codes are used by Medicare to process   each    [[Page 48444]]    claim under the IPPS. The commenters stated that the implementation of   new initiatives, such as the MS-DRG system, Present on Admission (POA)   reporting, and the hospital-acquired condition (HAC) payment provision,   depend on the capturing of all of the patient's diagnoses and   procedures in order to fully represent the patient's severity of   illness, complexity of care, and quality of care provided. In addition,   the commenters stated that the adoption of ``component'' codes, such as   the new ICD-9-CM codes for pressure ulcer stages, requires multiple   diagnosis fields to represent a single diagnosis. The commenters   recommended that CMS modify its systems so that the number of diagnoses   codes processed would increase from 9 to 25 and the number of procedure   codes processed would increase from 6 to 25. The commenters stated that   hospitals submit claims to CMS in electronic format, and that the HIPAA   compliant electronic transaction standard, HIPAA 837i, allows up to 25   diagnoses and 25 procedures. The commenters stated that CMS does not   require its fiscal intermediaries (or MAC) to process codes beyond the   first nine diagnosis codes and six procedure codes. The commenters   indicated that complex classification systems such as the proposed MS-  DRGs could use the information in these additional codes to improve   patient classification.      Response: The commenters are correct that CMS does not process   codes submitted electronically on the 837i electronic format beyond the   first nine diagnosis codes and first six procedure codes. While HIPAA   requires CMS to accept up to 25 ICD-9-CM diagnosis and procedure codes   on the HIPAA 837i electronic format, it does not require that CMS   process that number of diagnosis and procedure codes. We agree with the   commenters that there is value in retaining additional data on patient   conditions that would result from expanding Medicare's data system so   it can accommodate additional diagnosis and procedure codes. We have   been considering this issue while we contemplate refinements to our DRG   system to better recognize patient severity of illness. However,   extensive lead time is required to allow for modifications to our   internal and contractors' electronic systems in order to process and   store this additional information. We are unable to currently move   forward with this recommendation without carefully evaluating   implementation issues. However, we will continue to carefully evaluate   this request to expand the process capacity of our systems.      The process of developing the MS-DRGs was begun by dividing all   possible principal diagnoses into mutually exclusive principal   diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The   MDCs were formulated by physician panels to ensure that the DRGs would   be clinically coherent. The diagnoses in each MDC correspond to a   single organ system or etiology and, in general, are associated with a   particular medical specialty. Thus, in order to maintain the   requirement of clinical coherence, no final MS-DRG could contain   patients in different MDCs. For example, MDC 6 is Diseases and   Disorders of the Digestive System. This approach is used because   clinical care is generally organized in accordance with the organ   system affected. However, some MDCs are not constructed on this basis   because they involve multiple organ systems (for example, MDC 22   (Burns)). For FY 2008, cases are assigned to one of 745 MS-DRGs in 25   MDCs. The table below lists the 25 MDCs.    ------------------------------------------------------------------------                                    Major Diagnostic Categories (MDCs)  ------------------------------------------------------------------------  1..........................  Diseases and Disorders of the Nervous                                System.  2..........................  Diseases and Disorders of the Eye.  3..........................  Diseases and Disorders of the Ear, Nose,                                Mouth, and Throat.  4..........................  Diseases and Disorders of the Respiratory                                System.  5..........................  Diseases and Disorders of the Circulatory                                System.  6..........................  Diseases and Disorders of the Digestive                                System.  7..........................  Diseases and Disorders of the Hepatobiliary                                System and Pancreas.  8..........................  Diseases and Disorders of the                                Musculoskeletal System and Connective                                Tissue.  9..........................  Diseases and Disorders of the Skin,                                Subcutaneous Tissue and Breast.  10.........................  Endocrine, Nutritional and Metabolic                                Diseases and Disorders.  11.........................  Diseases and Disorders of the Kidney and                                Urinary Tract.  12.........................  Diseases and Disorders of the Male                                Reproductive System.  13.........................  Diseases and Disorders of the Female                                Reproductive System.  14.........................  Pregnancy, Childbirth, and the Puerperium.  15.........................  Newborns and Other Neonates with Conditions                                Originating in the Perinatal Period.  16.........................  Diseases and Disorders of the Blood and                                Blood Forming Organs and Immunological                                Disorders.  17.........................  Myeloproliferative Diseases and Disorders                                and Poorly Differentiated Neoplasms.  18.........................  Infectious and Parasitic Diseases (Systemic                                or Unspecified Sites).  19.........................  Mental Diseases and Disorders.  20.........................  Alcohol/Drug Use and Alcohol/Drug Induced                                Organic Mental Disorders.  21.........................  Injuries, Poisonings, and Toxic Effects of                                Drugs.  22.........................  Burns.  23.........................  Factors Influencing Health Status and Other                                Contacts with Health Services.  24.........................  Multiple Significant Trauma.  25.........................  Human Immunodeficiency Virus Infections.  ------------------------------------------------------------------------        In general, cases are assigned to an MDC based on the patient's   principal diagnosis before assignment to an MS-DRG. However, under the   most recent version of the Medicare GROUPER (Version 26.0), there are 9   MS-DRGs to which cases are directly assigned on the basis of ICD-9-CM   procedure codes. These MS-DRGs are for heart transplant or implant of   heart assist systems; liver and/or intestinal transplants; bone marrow   transplants; lung transplants; simultaneous pancreas/kidney   transplants; pancreas transplants; and tracheostomies. Cases are   assigned to these MS-DRGs before they are classified to an MDC. The   table below lists the nine current pre-MDCs.    [[Page 48445]]        ------------------------------------------------------------------------                                Pre-Major Diagnostic Categories (Pre-MDCs)  ------------------------------------------------------------------------  MS-DRG 103.................  Heart Transplant or Implant of Heart Assist                                System.  MS-DRG 480.................  Liver Transplant and/or Intestinal                                Transplant.  MS-DRG 481.................  Bone Marrow Transplant.  MS-DRG 482.................  Tracheostomy for Face, Mouth, and Neck                                Diagnoses.  MS-DRG 495.................  Lung Transplant.  MS-DRG 512.................  Simultaneous Pancreas/Kidney Transplant.  MS-DRG 513.................  Pancreas Transplant.  MS-DRG 541.................  ECMO or Tracheostomy with Mechanical                                Ventilation 96+ Hours or Principal                                Diagnosis Except for Face, Mouth, and Neck                                Diagnosis with Major O.R.  MS-DRG 542.................  Tracheostomy with Mechanical Ventilation                                96+ Hours or Principal Diagnosis Except                                for Face, Mouth, and Neck Diagnosis                                without Major O.R.  ------------------------------------------------------------------------        Comment: One commenter noted that the MS-DRG titles for four MS-  DRGs have changed in Table 5 (which lists all of the MS-DRGs) in the   Addendum to the proposed rule: MS-DRG 154 (Other Ear, Nose, Mouth and   Throat Diagnoses with MCC); MS-DRG 155 (Other Ear, Nose, Mouth and   Throat Diagnoses with CC); MS-DRG 156 (Other Ear, Nose, Mouth and   Throat Diagnoses without CC/MCC); MS-DRG 250 (Percutaneous   Cardiovascular Procedure without Coronary Artery Stent with MCC); and   MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary   Artery Stent without MCC). The commenter stated that the current titles   for these MS-DRGs are: MS-DRG 154 (Nasal Trauma and Deformity with   MCC); MS-DRG 155 (Nasal Trauma and Deformity with CC); MS-DRG 156   (Nasal Trauma and Deformity without CC/MCC); MS-DRG 250 (Percutaneous   Cardiovascular Procedure without Coronary Artery Stent or AMI with   MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedure without   Coronary Artery Stent or AMI without MCC). The commenter inquired if   these changes were discussed in the MS-DRGs section of the proposed   rule.      Response: The commenter is correct in that we changed these MS-DRG   titles to better reflect the modification we made when we adopted the   MS-DRGs for FY 2008. Specifically, CMS DRGs 72 (Nasal Trauma &   Deformity) and 73 and 74 (Other Ear, Nose, Mouth and Throat Diagnoses   Age > 17, Age 0-17, respectively) were consolidated to create MS-DRGs   154, 155, 156 (72 FR 47156). There are other ear, nose, mouth, and   throat diagnoses in addition to nasal trauma and deformity assigned to   these MS-DRGs so we expanded the titles for MS-DRGs 154, 155, and 156.   For MS-DRGs 250 and 251, ``or AMI'' was removed from the titles because   these descriptors that were applicable in the CMS DRGs are no longer   applicable in the MS-DRGs. We are making these corrections in this   final rule.      In addition to these changes to the MS-DRG titles, we are also   amending one other MS-DRG title. Due to the creation, after the   proposed rule was published, of 6 new ICD-9-CM diagnosis codes for   various types of fevers, we are revising the title for MS-DRG 864 from   ``Fever of Unknown Origin'' to ``Fever''.      Once the MDCs were defined, each MDC was evaluated to identify   those additional patient characteristics that would have a consistent   effect on hospital resource consumption. Because the presence of a   surgical procedure that required the use of the operating room would   have a significant effect on the type of hospital resources used by a   patient, most MDCs were initially divided into surgical DRGs and   medical DRGs. Surgical DRGs are based on a hierarchy that orders   operating room (O.R.) procedures or groups of O.R. procedures by   resource intensity. Medical DRGs generally are differentiated on the   basis of diagnosis and age (0 to 17 years of age or greater than 17   years of age). Some surgical and medical DRGs are further   differentiated based on the presence or absence of a complication or   comorbidity (CC) or a major complication or comorbidity (MCC).      Generally, nonsurgical procedures and minor surgical procedures   that are not usually performed in an operating room are not treated as   O.R. procedures. However, there are a few non-O.R. procedures that do   affect MS-DRG assignment for certain principal diagnoses. An example is   extracorporeal shock wave lithotripsy for patients with a principal   diagnosis of urinary stones. Lithotripsy procedures are not routinely   performed in an operating room. Therefore, lithotripsy codes are not   classified as O.R. procedures. However, our clinical advisors believe   that patients with urinary stones who undergo extracorporeal shock wave   lithotripsy should be considered similar to other patients who undergo   O.R. procedures. Therefore, we treat this group of patients similar to   patients undergoing O.R. procedures.      Once the medical and surgical classes for an MDC were formed, each   diagnosis class was evaluated to determine if complications or   comorbidities would consistently affect hospital resource consumption.   Each diagnosis was categorized into one of three severity levels. These   three levels include a major complication or comorbidity (MCC), a   complication or comorbidity (CC), or a non-CC. Physician panels   classified each diagnosis code based on a highly iterative process   involving a combination of statistical results from test data as well   as clinical judgment. As stated earlier, we refer readers to section   II.D. of the FY 2008 IPPS final rule with comment period for a full   detailed discussion of how the MS-DRG system was established based on   severity levels of illness (72 FR 47141).      A patient's diagnosis, procedure, discharge status, and demographic   information is entered into the Medicare claims processing systems and   subjected to a series of automated screens called the Medicare Code   Editor (MCE). The MCE screens are designed to identify cases that   require further review before classification into an MS-DRG.      After patient information is screened through the MCE and any   further development of the claim is conducted, the cases are classified   into the appropriate MS-DRG by the Medicare GROUPER software program.   The GROUPER program was developed as a means of classifying each case   into an MS-DRG on the basis of the diagnosis and procedure codes and,   for a limited number of MS-DRGs, demographic information (that is, sex,   age, and discharge status).      After cases are screened through the MCE and assigned to an MS-DRG   by the GROUPER, the PRICER software calculates a base MS-DRG payment.   The PRICER calculates the payment for each case covered by the IPPS   based on the MS-DRG relative weight and additional factors associated   with each hospital, such as IME and DSH payment adjustments. These   additional factors increase the payment amount to    [[Page 48446]]    hospitals above the base MS-DRG payment.      The records for all Medicare hospital inpatient discharges are   maintained in the Medicare Provider Analysis and Review (MedPAR) file.   The data in this file are used to evaluate possible MS-DRG   classification changes and to recalibrate the MS-DRG weights. However,   in the FY 2000 IPPS final rule (64 FR 41500), we discussed a process   for considering non-MedPAR data in the recalibration process. In order   for us to consider using particular non-MedPAR data, we must have   sufficient time to evaluate and test the data. The time necessary to do   so depends upon the nature and quality of the non-MedPAR data   submitted. Generally, however, a significant sample of the non-MedPAR   data should be submitted by mid-October for consideration in   conjunction with the next year's proposed rule. This date allows us   time to test the data and make a preliminary assessment as to the   feasibility of using the data. Subsequently, a complete database should   be submitted by early December for consideration in conjunction with   the next year's proposed rule.      As we indicated above, for FY 2008, we made significant improvement   in the DRG system to recognize severity of illness and resource usage   by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version   25.0, and were effective for discharges occurring on or after October   1, 2007. The changes we proposed for FY 2009 (and are adopting in this   final rule) will be reflected in the FY 2009 GROUPER, Version 26.0, and   will be effective for discharges occurring on or after October 1, 2008.   As noted in the FY 2009 IPPS proposed rule (73 FR 23538), our DRG   analysis for the FY 2009 proposed rule was based on data from the   September 2007 update of the FY 2007 MedPAR file, which contains   hospital bills received through September 30, 2007, for discharges   through September 30, 2007. For this final rule, our analysis is based   on more recent data from the March 2008 update of the FY 2007 MedPAR   file, which contains hospital bills received through March 31, 2008,   for discharges occurring in FY 2007.  2. Yearly Review for Making MS-DRG Changes      Many of the changes to the MS-DRG classifications we make annually   are the result of specific issues brought to our attention by   interested parties. We encourage individuals with comments about MS-DRG   classifications to submit these in a timely manner so they can be   carefully considered for possible inclusion in the annual proposed rule   and, if included, may be subjected to public review and comment.   Therefore, similar to the timetable for interested parties to submit   non-MedPAR data for consideration in the MS-DRG recalibration process,   comments about MS-DRG classification issues should be submitted no   later than early December in order to be considered and possibly   included in the next annual proposed rule updating the IPPS.      The actual process of forming the MS-DRGs was, and will likely   continue to be, highly iterative, involving a combination of   statistical results from test data combined with clinical judgment. In   the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described   in detail the process we used to develop the MS-DRGs that we adopted   for FY 2008. In addition, in deciding whether to make further   modification to the MS-DRGs for particular circumstances brought to our   attention, we considered whether the resource consumption and clinical   characteristics of the patients with a given set of conditions are   significantly different than the remaining patients in the MS-DRG. We   evaluated patient care costs using average charges and lengths of stay   as proxies for costs and relied on the judgment of our medical advisors   to decide whether patients are clinically distinct or similar to other   patients in the MS-DRG. In evaluating resource costs, we considered   both the absolute and percentage differences in average charges between   the cases we selected for review and the remainder of cases in the MS-  DRG. We also considered variation in charges within these groups; that   is, whether observed average differences were consistent across   patients or attributable to cases that were extreme in terms of charges   or length of stay, or both. Further, we considered the number of   patients who will have a given set of characteristics and generally   preferred not to create a new MS-DRG unless it would include a   substantial number of cases.    C. Adoption of the MS-DRGs in FY 2008        In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed   a number of recommendations made by MedPAC regarding revisions to the   DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881   through 47939; and 72 FR 47140 through 47189). As we noted in the FY   2006 IPPS final rule, we had insufficient time to complete a thorough   evaluation of these recommendations for full implementation in FY 2006.   However, we did adopt severity-weighted cardiac DRGs in FY 2006 to   address public comments on this issue and the specific concerns of   MedPAC regarding cardiac surgery DRGs. We also indicated that we   planned to further consider all of MedPAC's recommendations and   thoroughly analyze options and their impacts on the various types of   hospitals in the FY 2007 IPPS proposed rule.      For FY 2007, we began this process. In the FY 2007 IPPS proposed   rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY   2008 (if not earlier). However, based on public comments received on   the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs (71   FR 47906 through 47912). Rather, we decided to make interim changes to   the existing DRGs for FY 2007 by creating 20 new DRGs involving 13   different clinical areas that would significantly improve the CMS DRG   system's recognition of severity of illness. We also modified 32 DRGs   to better capture differences in severity. The new and revised DRGs   were selected from 40 existing CMS DRGs that contained 1,666,476 cases   and represented a number of body systems. In creating these 20 new   DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We   indicated that these interim steps for FY 2007 were being taken as a   prelude to more comprehensive changes to better account for severity in   the DRG system by FY 2008.      In the FY 2007 IPPS final rule (71 FR 47898), we indicated our   intent to pursue further DRG reform through two initiatives. First, we   announced that we were in the process of engaging a contractor to   assist us with evaluating alternative DRG systems that were raised as   potential alternatives to the CMS DRGs in the public comments. Second,   we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes   as part of making further refinements to the current CMS DRGs to better   recognize severity of illness based on the work that CMS (then HCFA)   did in the mid-1990s in connection with adopting severity DRGs. We   describe below the progress we have made on these two initiatives, our   actions for FY 2008, and our proposals for FY 2009 based on our   continued analysis of reform of the DRG system. We note that the   adoption of the MS-DRGs to better recognize severity of illness has   implications for the outlier threshold, the application of the   postacute care transfer policy, the measurement of real case-mix versus   apparent case-mix, and the IME and DSH payment adjustments. We discuss   these implications for FY 2009 in other sections of this preamble and   in the Addendum to this final rule.    [[Page 48447]]        In the FY 2007 IPPS proposed rule, we discussed MedPAC's   recommendations to move to a cost-based HSRV weighting methodology   using HSRVs beginning with the FY 2007 IPPS proposed rule for   determining the DRG relative weights. Although we proposed to adopt the   HSRV weighting methodology for FY 2007, we decided not to adopt the   proposed methodology in the final rule after considering the public   comments we received on the proposal. Instead, in the FY 2007 IPPS   final rule, we adopted a cost-based weighting methodology without the   HSRV portion of the proposed methodology. The cost-based weights are   being adopted over a 3-year transition period in \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 final rule for discussion of the issue of charge   compression and the HSRV cost-weighting methodology for FY 2009.      We believe that revisions to the DRG system to better recognize   severity of illness and changes to the relative weights based on costs   rather than charges are improving the accuracy of the payment rates in   the IPPS. We agree with MedPAC that these refinements should be   pursued. Although we continue to caution that any prospective payment   system based on grouping cases will always present some opportunities   for providers to specialize in cases they believe have higher margins,   we believe that the changes we have adopted and the continuing reforms   we are making in this final rule for FY 2009 will improve payment   accuracy and reduce financial incentives to create specialty hospitals.      We refer readers to section II.D. of the FY 2008 IPPS final rule   with comment period for a full discussion of how the MS-DRG system was   established based on severity levels of illness (72 FR 47141).    D. MS-DRG Documentation and Coding Adjustment, Including the   Applicability to the Hospital-Specific Rates and the Puerto Rico-  Specific Standardized Amount    1. MS-DRG Documentation and Coding Adjustment      As stated above, we adopted the new MS-DRG patient classification   system for the IPPS, effective October 1, 2007, to better recognize   severity of illness in Medicare payment rates. Adoption of the MS-DRGs   resulted in the expansion of the number of DRGs from 538 in FY 2007 to   745 in FY 2008. By increasing the number of DRGs and more fully taking   into account severity of illness in Medicare payment rates, the MS-DRGs   encourage hospitals to improve their documentation and coding of   patient diagnoses. In the FY 2008 IPPS final rule with comment period   (72 FR 47175 through 47186), which appeared in the Federal Register on   August 22, 2007, we indicated that we believe the adoption of the MS-  DRGs had the potential to lead to increases in aggregate payments   without a corresponding increase in actual patient severity of illness   due to the incentives for improved documentation and coding. In that   final rule with comment period, using the Secretary's authority under   section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by   adjusting the standardized amount to eliminate the effect of changes in   coding or classification that do not reflect real changes in case-mix,   we established prospective documentation and coding adjustments of -1.2   percent for FY 2008, -1.8 percent for FY 2009, and -1.8 percent for FY   2010.      On September 29, 2007, the TMA, Abstinence Education, and QI   Programs Extension Act of 2007, Public Law 110-90, was enacted. Section   7 of Public Law 110-90 included a provision that reduces the   documentation and coding adjustment for the MS-DRG system that we   adopted in the FY 2008 IPPS final rule with comment period to -0.6   percent for FY 2008 and -0.9 percent for FY 2009. To comply with   section 7 of Public Law 110-90, in a final rule that appeared in the   Federal Register on November 27, 2007 (72 FR 66886), we changed the   IPPS documentation and coding adjustment for FY 2008 to -0.6 percent,   and revised the FY 2008 payment rates, factors, and thresholds   accordingly, with these revisions effective October 1, 2007.      For FY 2009, Public Law 110-90 requires a documentation and coding   adjustment of -0.9 percent instead of the -1.8 percent adjustment   established in the FY 2008 IPPS final rule with comment period. As   required by statute, we are applying a documentation and coding   adjustment of -0.9 percent to the FY 2009 IPPS national standardized   amount. The documentation and coding adjustments established in the FY   2008 IPPS final rule with comment period, as amended by Public Law 110-  90, are cumulative. As a result, the -0.9 percent documentation and   coding adjustment in FY 2009 is in addition to the -0.6 percent   adjustment in FY 2008, yielding a combined effect of -1.5 percent.      Comment: A number of commenters disagreed with the need for the   documentation and coding adjustment and reiterated concerns about the   documentation and coding adjustment expressed in prior comments on the   FY 2008 IPPS proposed rule. Several of the commenters recommended that   CMS not apply the documentation and coding adjustment to the national   standardized amount in FY 2009.      Response: The FY 2008 IPPS final rule (72 FR 47175 through 47186)   established a documentation and coding adjustment for FY 2008, FY 2009,   and FY 2010. The establishment of the documentation and coding   adjustment was subject to notice and comment rulemaking. When we   established the documentation and coding adjustment in the FY 2008 IPPS   final rule with comment period, we considered concerns about the   adjustment expressed by commenters on the FY 2008 IPPS proposed rule   and provided responses to those public comments in the corresponding   rule. Subsequently,    [[Page 48448]]    Congress enacted Public Law 110-90, which mandated that the   documentation and coding adjustments established in the FY 2008 IPPS   final rule with comment period be changed to -0.6 percent for FY 2008   and -0.9 percent for FY 2009. As required by law, we are applying the   statutorily specified documentation and coding adjustment to the FY   2009 national standardized amount.      Comment: One commenter stated that Public Law 110-90 requires an   adjustment of -0.9 percent for FY 2009, not a cumulative adjustment of   -1.5 percent for FY 2009.      Response: The documentation and coding adjustments established in   the FY 2008 IPPS final rule with comment period are cumulative. That   final rule indicated that CMS believes that a -4.8 percent adjustment   for documentation and coding is necessary (72 FR 47816). Rather than   implement the full adjustment in 1 year, the final rule phased it in   over 3 years: -1.2 percent in FY 2008, -1.8 percent in FY 2009, and -  1.8 percent in FY 2010, for a total of -4.8 percent. Public Law 110-90   requires that in implementing the FY 2008 IPPS final rule with comment   period, we substitute 0.6 percent for the 1.2 percent FY 2008   documentation and coding adjustment established in that final rule and   0.9 percent for the 1.8 percent FY 2009 documentation and coding   adjustment established in that final rule. Public Law 110-90 did not   make any change to the cumulative nature of the documentation and   coding adjustments established in the FY 2008 IPPS final rule with   comment period. Therefore, consistent with Public Law 110-90, we   applied a -0.6 percent adjustment to the national standardized amount   in FY 2008, and we are applying a -0.9 percent documentation and coding   adjustment to the national standardized amount in FY 2009, which   results in a cumulative effect of -1.5 percent by FY 2009.      Comment: Several commenters suggested that the documentation and   coding adjustment is intended to address inappropriate upcoding, where   a hospital's coding is not justified by the medical record. The   commenters suggested that CMS undertake studies to identify   inappropriate coding by individual providers.      Response: As we stated in the FY 2008 IPPS final rule with comment   period, we do not believe there is anything inappropriate, unethical,   or otherwise wrong with hospitals taking full advantage of coding   opportunities to maximize Medicare payment as long as the coding is   fully and properly supported by documentation in the medical record.      The documentation and coding adjustment was developed based on the   recognition that the MS-DRGs, by better accounting for severity of   illness in Medicare payment rates, would encourage hospitals to ensure   they had fully and accurately documented and coded all patient   diagnoses and procedures consistent with the medical record in order to   garner the maximum IPPS payment available under the MS-DRG system. For   example, under the previous CMS DRGs, ``congestive heart failure,   unspecified'' (code 428.0) was a CC. Under the MS-DRGs, this   unspecified code has been made a non-CC, while more specific heart   failure codes have been made CCs or MCCs. Because of this, hospitals   have a financial incentive under the MS-DRG system, which they did not   have under the previous CMS DRG system, to ensure that they code the   type of heart failure a patient has as precisely as possible,   consistent with the medical record.      The statute requires that DRG recalibration be budget neutral. Due   to the standard 2-year lag in claims data, when we recalibrated the MS-  DRGs in FY 2008, the calculations were based on FY 2006 claims data   that reflected coding under the prior CMS DRG system. As a result, the   claims data upon which the DRG recalibrations were performed in FY 2008   did not reflect any improvements in documentation and coding encouraged   by the MS-DRG system. Thus, our actuaries determined that a separate   adjustment for documentation and coding improvements would be needed in   order to ensure that the implementation of the MS-DRG system was budget   neutral. This determination led to the establishment of the   documentation and coding adjustment established in the FY 2008 IPPS   final rule with comment period and amended by Public Law 110-90.      As with any other DRG system, there is potential under the MS-DRG   system for an individual provider to inappropriately code and bill for   services. The MS-DRG documentation and coding adjustment was not   developed to address such program integrity issues. Rather, the program   integrity safeguards in place to address inappropriate billing under   the CMS DRG system remain in place under the MS-DRG system.  2. Application of the Documentation and Coding Adjustment to the   Hospital-Specific Rates      Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on   whichever of the following rates yields the greatest aggregate payment:   The Federal national rate; the updated hospital-specific rate based on   FY 1982 costs per discharge; the updated hospital-specific rate based   on FY 1987 costs per discharge; or the updated hospital-specific rate   based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of   the Act, MDHs are paid based on the Federal national rate or, if   higher, the Federal national rate plus 75 percent of the difference   between the Federal national rate and the updated hospital-specific   rate based on the greater of either the FY 1982, 1987, or 2002 costs   per discharge. In the FY 2008 IPPS final rule with comment period, we   established a policy of applying the documentation and coding   adjustment to the hospital-specific rates. In that rule, we indicated   that because SCHs and MDHs use the same DRG system as all other   hospitals, we believe they should be equally subject to the budget   neutrality adjustment that we are applying for adoption of the MS-DRGs   to all other hospitals. In establishing this policy, section   1886(d)(3)(A)(vi) of the Act provides the authority to adjust ``the   standardized amount'' to eliminate the effect of changes in coding or   classification that do not reflect real change in case-mix. However, in   a final rule that appeared in the Federal Register on November 27, 2007   (72 FR 66886), we rescinded the application of the documentation and   coding adjustment to the hospital-specific rates retroactive to October   1, 2007. In that final rule, we indicated that, while we still believe   it would be appropriate to apply the documentation and coding   adjustment to the hospital-specific rates, upon further review, we   decided that application of the documentation and coding adjustment to   the hospital-specific rates is not consistent with the plain meaning of   section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting   ``the standardized amount'' and does not mention adjusting the   hospital-specific rates.      In the FY 2009 IPPS proposed rule, we indicated that we continue to   have concerns about this issue. Because hospitals paid based on the   hospital-specific rate use the same MS-DRG system as other hospitals,   we believe they have the potential to realize increased payments from   coding improvements that do not reflect real increases in patients'   severity of illness. In section 1886(d)(3)(A)(vi) of the Act,    [[Page 48449]]    Congress stipulated that hospitals paid based on the standardized   amount should not receive additional payments based on the effect of   documentation and coding changes that do not reflect real changes in   case-mix. Similarly, we believe that hospitals paid based on the   hospital-specific rate should not have the potential to realize   increased payments due to documentation and coding improvements that do   not reflect real increases in patients' severity of illness. While we   continue to believe that section 1886(d)(3)(A)(vi) of the Act does not   provide explicit authority for application of the documentation and   coding adjustment to the hospital-specific rates, we believe that we   have the authority to apply the documentation and coding adjustment to   the hospital-specific rates using our special exceptions and adjustment   authority under section 1886(d)(5)(I)(i) of the Act. The special   exceptions and adjustment authority authorizes us to provide ``for such   other exceptions and adjustments to [IPPS] payment amounts * * * as the   Secretary deems appropriate.'' In light of this authority, for the FY   2010 rulemaking, we plan to examine our FY 2008 claims data for   hospitals paid based on the hospital-specific rate. In the FY 2009 IPPS   proposed rule, we stated that if we find evidence of significant   increases in case-mix for patients treated in these hospitals, we would   consider proposing application of the documentation and coding   adjustments to the FY 2010 hospital-specific rates under our authority   in section 1886(d)(5)(I)(i) of the Act. As noted previously, the   documentation and coding adjustments established in the FY 2008 IPPS   final rule with comment period are cumulative. For example, the -0.9   percent documentation and coding adjustment to the national   standardized amount in FY 2009 is in addition to the -0.6 percent   adjustment made in FY 2008, yielding a combined effect of -1.5 percent   in FY 2009. Given the cumulative nature of the documentation and coding   adjustments, if we were to propose to apply the documentation and   coding adjustment to the FY 2010 hospital-specific rates, it may   involve applying the FY 2008 and FY 2009 documentation and coding   adjustments (-1.5 percent combined) plus the FY 2010 documentation and   coding adjustment, discussed in the FY 2008 IPPS final rule with   comment period, to the FY 2010 hospital-specific rates.      Comment: A number of commenters opposed application of the   documentation and coding adjustment to the hospital-specific rates.   MedPAC supported application of a documentation and coding adjustment   to the prospective payment rates and the hospital-specific rates for   all IPPS hospitals that are paid based on their reported case-mix.   Another commenter supported application of a documentation and coding   adjustment to the hospital-specific rates if analysis of FY 2008 claims   data supports a positive adjustment and recommended a transition be   considered if the data support a negative adjustment.      Response: We appreciate the comments received. We did not propose   to apply the documentation and coding adjustment to the hospital-  specific rates for FY 2009. Instead, as we indicated in the proposed   rule and reiterated above, we intend to consider whether such a   proposal is warranted for FY 2010. To gather information to evaluate   these considerations, we plan to perform analyses on FY 2008 claims   data to examine whether there has been a significant increase in case-  mix for hospitals paid based on the hospital-specific rate. If we find   that application of the documentation and coding adjustment to the   hospital-specific rates for FY 2010 is warranted, we would include a   proposal in the FY 2010 IPPS proposed rule, which would be open for   public comment at that time.  3. Application of the Documentation and Coding Adjustment to the Puerto   Rico-Specific Standardized Amount      Puerto Rico hospitals are paid based on 75 percent of the national   standardized amount and 25 percent of the Puerto Rico-specific   standardized amount. As noted previously, the documentation and coding   adjustment we adopted in the FY 2008 IPPS final rule with comment   period relied upon our authority under section 1886(d)(3)(A)(vi) of the   Act, which provides the authority to adjust ``the standardized amounts   computed under this paragraph'' to eliminate the effect of changes in   coding or classification that do not reflect real changes in case-mix.   Section 1886(d)(3)(A)(vi) of the Act applies to the national   standardized amounts computed under section 1886(d)(3) of the Act, but   does not apply to the Puerto Rico-specific standardized amount computed   under section 1886(d)(9)(C) of the Act. In calculating the FY 2008   payment rates, we made an inadvertent error and applied the FY 2008 -  0.6 percent documentation and coding adjustment to the Puerto Rico-  specific standardized amount, relying on our authority under section   1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the   Act authorizes application of a documentation and coding adjustment to   the national standardized amount and does not apply to the Puerto Rico-  specific standardized amount. In this final rule, we are correcting   this inadvertent error by removing the -0.6 percent documentation and   coding adjustment from the FY 2008 Puerto Rico-specific rates. The   revised FY 2008 Puerto Rico-specific operating standardized amounts   are: $1,471.10 for the labor share and $901.64 for the nonlabor share   for a hospital with a wage index greater than 1 and $1,392.80 for the   labor share and $979.94 for the non-labor share for a hospital with a   wage index less than or equal to 1. The revised FY 2008 Puerto Rico   capital payment rate is $202.89 (as discussed in section III.A.6.b. of   the Addendum to this final rule). These revised rates are effective   October 1, 2007, for FY 2008.      While section 1886(d)(3)(A)(vi) of the Act is not applicable to the   Puerto Rico-specific standardized amount, we believe that we have the   authority to apply the documentation and coding adjustment to the   Puerto Rico-specific standardized amount using our special exceptions   and adjustment authority under section 1886(d)(5)(I)(i) of the Act.   Similar to SCHs and MDHs that are paid based on the hospital-specific   rate, discussed in section II.D.2. of this preamble, we believe that   Puerto Rico hospitals that are paid based on the Puerto Rico-specific   standardized amount should not have the potential to realize increased   payments due to documentation and coding improvements that do not   reflect real increases in patients' severity of illness. Consistent   with the approach described for SCHs and MDHs in section II.D.2. of the   preamble of this final rule, for the FY 2010 rulemaking, we plan to   examine our FY 2008 claims data for hospitals in Puerto Rico. As we   indicated in the FY 2009 proposed rule, if we find evidence of   significant increases in case-mix for patients treated in these   hospitals, we would consider proposing application of the documentation   and coding adjustments to the FY 2010 Puerto Rico-specific standardized   amount under our authority in section 1886(d)(5)(I)(i) of the Act. As   noted previously, the documentation and coding adjustments established   in the FY 2008 IPPS final rule with comment period are cumulative.   Given the cumulative nature of the documentation and coding   adjustments, if we were to propose to apply the documentation and   coding adjustment to the FY 2010 Puerto Rico-specific standardized   amount, it may involve applying the FY 2008 and FY    [[Page 48450]]    2009 documentation and coding adjustments (-1.5 percent combined) plus   the FY 2010 documentation and coding adjustment, discussed in the FY   2008 IPPS final rule with comment period, to the FY 2010 Puerto Rico-  specific standardized amount.      Comment: Some commenters opposed application of the documentation   and coding adjustment to the Puerto Rico-specific standardized amount.   MedPAC supported application of a documentation and coding adjustment   to the prospective payment rates and the hospital-specific rates for   all IPPS hospitals that are paid based on their reported case-mix.      Response: We appreciate the comments. We did not propose to apply   the documentation and coding adjustment to the Puerto Rico-specific   standardized amount for FY 2009. Instead, as we indicated in the   proposed rule, we intend to consider whether such a proposal is   warranted for FY 2010. To gather information to evaluate these   considerations, we plan to perform analyses on FY 2008 claims data to   examine whether there has been a significant increase in case-mix for   hospitals in Puerto Rico. If we find that application of the   documentation and coding adjustment to the Puerto Rico-specific   standardized amount for FY 2010 is warranted, we would include a   proposal in the FY 2010 proposed rule, which would be open for public   comment at that time.  4. Potential Additional Payment Adjustments in FYs 2010 Through 2012      Section 7 of Public Law 110-90 also provides for payment   adjustments in FYs 2010 through 2012 based upon a retrospective   evaluation of claims data from the implementation of the MS-DRG system.   If, based on this retrospective evaluation, the Secretary finds that in   FY 2008 and FY 2009, the actual amount of change in case-mix that does   not reflect real change in underlying patient severity differs from the   statutorily mandated documentation and coding adjustments implemented   in those years, the law requires the Secretary to adjust payments for   discharges occurring in FYs 2010 through 2012 to offset the estimated   amount of increase or decrease in aggregate payments that occurred in   FY 2008 and FY 2009 as a result of that difference, in addition to   making an appropriate adjustment to the standardized amount under   section 1886(d)(3)(A)(vi) of the Act.      In order to implement these requirements of section 7 of Public Law   110-90, we are planning a thorough retrospective evaluation of our   claims data. Results of this evaluation would be used by our actuaries   to determine any necessary payment adjustments in FYs 2010 through 2012   to ensure the budget neutrality of the MS-DRG implementation for FY   2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed   rule, we described our preliminary analysis plans to provide the   opportunity for public input.      In the proposed rule, we indicated that we intend to measure and   corroborate the extent of the overall national average changes in case-  mix for FY 2008 and FY 2009. We expect part of this overall national   average change would be attributable to underlying changes in actual   patient severity and part would be attributable to documentation and   coding improvements under the MS-DRG system. In order to separate the   two effects, we plan to isolate the effect of shifts in cases among   base DRGs from the effect of shifts in the types of cases within base   DRGs. The shifts among base DRGs are the result of changes in principal   diagnoses while the shifts within base DRGs are the result of changes   in secondary diagnoses. Because we expect most of the documentation and   coding improvements under the MS-DRG system will occur in the secondary   diagnoses, we believe that the shifts among base DRGs are less likely   to be the result of the MS-DRG system and the shifts within base DRGs   are more likely to be the result of the MS-DRG system. We also   anticipate evaluating data to identify the specific MS-DRGs and   diagnoses that contributed significantly to the improved documentation   and coding payment effect and to quantify their impact. This step would   entail analysis of the secondary diagnoses driving the shifts in   severity within specific base DRGs.      In the proposed rule, we also stated that, while we believe that   the data analysis plan described previously will produce an appropriate   estimate of the extent of case-mix changes resulting from documentation   and coding improvements, we may also decide, if feasible, to use   historical data from our Hospital Payment Monitoring Program (HPMP) to   corroborate the within-base DRG shift analysis. The HPMP is supported   by the Medicare Clinical Data Abstraction Center (CDAC). From 1998 to   2007, the CDAC obtained medical records for a sample of discharges as   part of our hospital monitoring activities. These data were collected   on a random sample of between 30,000 to 50,000 hospital discharges per   year. The historical CDAC data could be used to develop an upper bound   estimate of the trend in real case-mix growth (that is, real change in   underlying patient severity) prior to implementation of the MS-DRGs.      In the FY 2009 IPPS proposed rule, we solicited public comments on   the analysis plans described above, as well as suggestions on other   possible approaches for conducting a retrospective analysis to identify   the amount of case-mix changes that occurred in FY 2008 and FY 2009   that did not reflect real increases in patients' severity of illness.      Comment: A few commenters, including MedPAC, expressed support for   the analytic approach described in the proposed rule. A number of other   commenters expressed concerns about certain aspects of the approach   and/or suggested alternate analyses or study designs. In addition, one   commenter recommended that any determination or retrospective   evaluation by the actuaries of the impact of the MS-DRGs on case-mix be   open to public scrutiny prior to the implementation of final payment   adjustments for FY 2010 through FY 2012.      Response: We thank the commenters for their comments. We will take   all of the comments into consideration as we continue development of   our analysis plans. Our analysis, findings, and any resulting proposals   to adjust payments for discharges occurring in FYs 2010 through 2012 to   offset the estimated amount of increase or decrease in aggregate   payments that occurred in FY 2008 and FY 2009 will be discussed in   future years' proposed rules, which will be open for public comment.      Comment: One commenter expressed concern about the impact that an   adjustment to the FY 2010 through FY 2012 payment rates could have on   small rural hospitals. The commenter stated that if CMS finds that   there was an increase in aggregate payments in FY 2008 or FY 2009 that   requires an offsetting adjustment to the FY 2010 through FY 2012   payment rates, CMS should consider a transition period before fully   implementing such ad adjustment.      Response: If our analysis suggests that an adjustment to the FY   2010 through FY 2012 payment rates is necessary, a proposal would be   made in a future proposed rule and the public would have an opportunity   to comment on the proposal at that time.    E. Refinement of the MS-DRG Relative Weight Calculation    1. Background      In the FY 2008 IPPS final rule with comment period (72 FR 47188),   we    [[Page 48451]]    continued to implement significant revisions to Medicare's inpatient   hospital rates by basing relative weights on hospitals' estimated costs   rather than on charges. We continued our 3-year transition from charge-  based relative weights to cost-based relative weights. Beginning in FY   2007, we implemented relative weights based on cost report data instead   of based on charge information. We had initially proposed to develop   cost-based relative weights using the hospital-specific relative value   cost center (HSRVcc) methodology as recommended by MedPAC. However,   after considering concerns raised in the public comments, we modified   MedPAC's methodology to exclude the hospital-specific relative weight   feature. Instead, we developed national CCRs based on distinct hospital   departments and engaged a contractor to evaluate the HSRVcc methodology   for future consideration. To mitigate payment instability due to the   adoption of cost-based relative weights, we decided to transition cost-  based weights over 3 years by blending them with charge-based weights   beginning in FY 2007. In FY 2008, we continued our transition by   blending the relative weights with one-third charge-based weights and   two-thirds cost-based weights.      Also, in FY 2008, we adopted severity-based MS-DRGs, which   increased the number of DRGs from 538 to 745. Many commenters raised   concerns as to how the transition from charge-based weights to cost-  based weights would continue with the introduction of new MS-DRGs. We   decided to implement a 2-year transition for the MS-DRGs to coincide   with the remainder of the transition to cost-based relative weights. In   FY 2008, 50 percent of the relative weight for each DRG was based on   the CMS DRG relative weight and 50 percent was based on the MS-DRG   relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR   47882) for more detail on our final policy for calculating the cost-  based DRG relative weights and to the FY 2008 IPPS final rule with   comment period (72 FR 47199) for information on how we blended relative   weights based on the CMS DRGs and MS-DRGs.      As we transitioned to cost-based relative weights, some commenters   raised concerns about potential bias in the weights due to ``charge   compression,'' which is the practice of applying a higher percentage   charge markup over costs to lower cost items and services, and a lower   percentage charge markup over costs to higher cost items and services.   As a result, the cost-based weights would undervalue high cost items   and overvalue low cost items if a single CCR is applied to items of   widely varying costs in the same cost center. To address this concern,   in August 2006, we awarded a contract to RTI to study the effects of   charge compression in calculating the relative weights and to consider   methods to reduce the variation in the CCRs across services within cost   centers. RTI issued an interim draft report in March 2007 which was   posted on the CMS Web site with its findings on charge compression. In   that report, RTI found that a number of factors contribute to charge   compression and affect the accuracy of the relative weights. RTI found   inconsistent matching of charges in the Medicare cost report and their   corresponding charges in the MedPAR claims for certain cost centers. In   addition, there was inconsistent reporting of costs and charges among   hospitals. For example, some hospitals would report costs and charges   for devices and medical supplies in the Medical Supplies Charged to   Patients cost center, while other hospitals would report those costs   and charges in their related ancillary departments such as Operating   Room or Radiology. RTI also found evidence that certain revenue codes   within the same cost center had significantly different markup rates.   For example, within the Medicare Supplies Charged to Patients cost   center, revenue codes for devices, implantables, and prosthetics had   different markup rates than the other medical supplies in that cost   center. RTI's findings demonstrated that charge compression exists in   several CCRs, most notably in the Medical Supplies and Equipment CCR.      RTI offered short-term, medium-term, and long-term recommendations   to mitigate the effects of charge compression. RTI's short-term   recommendations included expanding the distinct hospital CCRs to 19 by   disaggregating the ``Emergency Room'' and ``Blood and Blood Products''   from the Other Services cost center and by estimating regression-based   CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost   centers. RTI recommended, for the medium-term, to expand the MedPAR   file to include separate fields that disaggregate several existing   charge departments. In addition, RTI recommended improving hospital   cost reporting instructions so that hospitals can properly report costs   in the appropriate cost centers. RTI's long-term recommendations   included adding new cost centers to the Medicare cost report, such as   adding a ``Devices, Implants and Prosthetics'' line under ``Medical   Supplies Charged to Patients'' and a ``CT Scanning and MRI''   subscripted line under ``Radiology-Diagnostics''.      Among RTI's short-term recommendations, for FY 2008, we expanded   the number of distinct hospital department CCRs from 13 to 15 by   disaggregating ``Emergency Room'' and ``Blood and Blood Products'' from   the Other Services cost center as these lines already exist on the   hospital cost report. Furthermore, in an effort to improve consistency   between costs and their corresponding charges in the MedPAR file, we   moved the costs for cases involving electroencephalography (EEG) from   the Cardiology cost center to the Laboratory cost center group which   corresponds with the EEG MedPAR claims categorized under the Laboratory   charges. We also agreed with RTI's recommendations to revise the   Medicare cost report and the MedPAR file as a long-term solution for   charge compression. We stated that, in the upcoming year, we would   consider additional lines to the cost report and additional revenue   codes for the MedPAR file.      Despite receiving public comments in support of the regression-  based CCRs as a means to immediately resolve the problem of charge   compression, particularly within the Medical Supplies and Equipment   CCR, we did not adopt RTI's short-term recommendation to create four   additional regression-based CCRs for several reasons. We were concerned   that RTI's analysis was limited to charges on hospital inpatient   claims, while typically hospital cost report CCRs combine both   inpatient and outpatient services. Further, because both the IPPS and   OPPS rely on cost-based weights, we preferred to introduce any   methodological adjustments to both payment systems at the same time. We   have since expanded RTI's analysis of charge compression to incorporate   outpatient services. RTI has been evaluating the cost estimation   process for the OPPS cost-based weights, including a reassessment of   the regression-based CCR models using both outpatient and inpatient   charge data. Because the RTI report was not available until after the   conclusion of our proposed rule development process, we were unable to   include a summary of the report in the FY 2009 IPPS proposed rule. The   IPPS-related chapters of RTI's interim report were posted on the CMS   Web site on April 22, 2008, for a 60-day comment period, and we   welcomed comments on the report. In this final rule, we are providing a   summary of RTI's findings and the public comments    [[Page 48452]]    we received in section II.E.2. of the preamble of this final rule.  2. Summary of RTI's Report on Charge Compression      As stated earlier, subsequent to the release of the FY 2009 IPPS   proposed rule, we posted on April 22, 2008, an interim report   discussing RTI's research findings for the IPPS MS-DRG relative weights   to be available during the public comment period on the FY 2009 IPPS   proposed rule. This report can be found on RTI's Web site at: http://  www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_  Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were   separately displayed in the April 2008 interim report, as well as the   more recent OPPS chapters, are included in the July 2008 RTI final   report entitled, ``Refining Cost-to-Charge Ratios for Calculating APC   and DRG Relative Payment Weights,'' that became available at the time   of the development of this final rule. The RTI final report can be   found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-  2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.      RTI's final report distinguished between two types of research   findings and recommendations: Those pertaining to the accounting or   cost report data and those related to statistical regression analysis.   Because the OPPS uses a hospital-specific CCR methodology, employs   detailed cost report data, and estimates costs at the claim level, CMS   asked RTI to closely evaluate the accounting component of the OPPS   cost-based weight methodology. In reviewing the cost report data for   nonstandard cost centers used in the crosswalk, RTI discovered some   problems concerning the classification of nonstandard cost centers that   impact both the IPPS and the OPPS. RTI reclassified nonstandard cost   centers by reading providers' cost center labels. Standard cost centers   are preprinted in the CMS-approved cost report software, while   nonstandard cost centers are identified and updated periodically   through analysis of frequently used labels. Under the IPPS, the line   reassignments only slightly impact the 15 national aggregate CCRs used   in the relative weight calculation. However, improved cost report data   for CT Scanning, MRI, Nuclear Medicine, Therapeutic Radiology, and   Cardiac Catheterization through line reassignments allowed for the   reduction in aggregation bias by expanding the number of national CCRs   available to separately capture these and other services. Importantly,   RTI found that, under the IPPS and the OPPS, this improvement to the   cost reporting data reduces some of the sources of aggregation bias   without having to use regression-based adjustments.      In general, with respect to the regression-based adjustments, RTI   confirmed the findings of its March 2007 report that regression models   are a valid approach for diagnosing potential aggregation bias within   selected services for the IPPS and found that regression models are   equally valid for setting payments under the OPPS. RTI also suggested   that regression-based CCRs could provide a short-term correction until   accounting data could be refined to support more accurate CCR estimates   under both the IPPS and the OPPS. RTI again found aggregation bias in   devices, drugs, and radiology and, using combined outpatient and   inpatient claims, expanded the number of recommended regression-  adjusted CCRs to create seven regression-adjusted CCRs for Devices, IV   Solutions, Cardiac Catheterization, CT Scanning, MRI, Therapeutic   Radiology, and Nuclear Medicine.      In almost all cases, RTI observed that potential distortions from   aggregation bias and incorrect cost reporting in the OPPS relative   weights were proportionally much greater than for MS-DRGs for both   accounting-based and statistical adjustments because OPPS groups are   small and generally price a single service. HCRIS line reassignments by   themselves had little effect on most inpatient weights. However, just   as the overall impacts on MS-DRGs were more moderate because MS-DRGs   experienced offsetting effects in cost estimation among numerous   revenue codes in an episode, a given hospital outpatient visit might   include more than one service, leading to offsetting effects in cost   estimation for services provided in the outpatient episode as a whole.      Notwithstanding likely offsetting effects at the provider-level,   RTI asserted that, while some averaging is appropriate for a   prospective payment system, extreme distortions in payments for   individual services bias perceptions of service profitability and may   lead hospitals to inappropriately set their charge structure. RTI noted   that this may not be true for ``core'' hospital services, such as   oncology, but has a greater impact in evolving areas with greater   potential for provider-induced demand, such as specialized imaging   services. RTI also noted that cost-based weights are only one component   of a final prospective payment rate. There are other rate adjustments   (wage index, IME, and DSH) to payments derived from the revised cost-  based weights and the cumulative effect of these components may not   improve the ability of final payment to reflect resource cost. With   regard to APCs and MS-DRGs that contain substantial device costs, RTI   cautioned that other prospective payment system adjustments (wage   index, IME, and DSH) largely offset the effects of charge compression   among hospitals that receive these adjustments. RTI endorsed short-term   regression-based adjustments, but also concluded that more refined and   accurate accounting data are the preferred long-term solution to   mitigate charge compression and related bias in hospital cost-based   weights.      As a result of this research, RTI made 11 recommendations. The   first set of recommendations is more applicable to the OPPS because it   uses more granular HCRIS data and concentrates on short-term accounting   changes to current cost report data. This set includes a recommendation   that CMS immediately implement a review of HCRIS cost center   assignments based on text searches of providers' line descriptions and   reassign lines appropriately. The second set addresses short-term   regression-based and other statistical adjustments. The third set   focuses on clarifying existing cost report instructions to instruct   providers to use all applicable standard cost centers, adding new   standard cost centers (for Devices, CT Scans, MRIs, Cardiac   Catheterization, and Infusion Drugs), and creating new charge category   summaries in the MedPAR to match the new cost centers on the cost   report. Specifically, the new MedPAR groups would be for Intermediate   Care (revenue codes 0206 and 0214), Devices (revenue codes 0274, 0275,   0276 and 0278), IV Solutions (revenue code 0258), CT Scanning (revenue   codes 035x), Nuclear Medicine (revenue codes 034x, possibly combined   with 0404), and Therapeutic Radiology (revenue codes 033x). RTI also   recommends educating hospitals through industry-led educational   initiatives directed at methods for capital cost finding, specifically   encouraging providers to use direct assignment of equipment   depreciation and lease costs wherever possible, or at least to allocate   moveable equipment depreciation based on the dollar value of assigned   depreciation costs. Lastly, although not directly the focus of its   study, RTI mentions the problem of nursing cost compression in the   relative weights, and notes that cost compression within inpatient   nursing services is a significant source of distortion in the various   IPPS' relative    [[Page 48453]]    weights, possibly more so than any of the factors studied by RTI. RTI   suggests that it may be best for hospitals to agree to expand charge   coding conventions for inpatient nursing, which would foster increased   use of patient-specific nursing incremental charge codes in addition to   baseline unit-specific per-diem charges.      Comment: One commenter agreed with the enhancements made by RTI (in   the portion of the RTI report that was made available to the public in   the April 2008 report) to the model for disaggregating CCRs in the   Medical Supplies cost center, but was ``disappointed'' that CMS did not   post the complete report, including the impact of charge   ``decompression'' on the APC weights under the OPPS, and urged CMS to   release the full report as soon as possible to allow a comprehensive   review of the findings applicable to both the IPPS and the OPPS.      Response: Because the final RTI report was not scheduled to be   completed before July 2008, we were unable to make the complete report,   including sections focusing on the OPPS, available to the public in   April 2008. Because we wanted to give the public the benefit of a 60-  day comment period on the IPPS sections of the RTI report that would   generally coincide with the 60-day comment period on the FY 2009 IPPS   proposed rule, we chose to make available in April 2008 those sections   of the RTI report that specifically dealt with the IPPS MS-DRG relative   weights. We note that on July 3, 2008, we included on the CMS Web site   the link to the complete RTI report: http://www.rti.org/reports/cms/  HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_  Final.pdf.      Comment: One commenter recommended that, for purposes of   calculating the relative weights for FY 2009, CMS adopt RTI's   recommendation to reassign cost center lines based on the provider's   entered text description to correct errors in the assignment of costs   and charges by hospitals in nonstandard cost centers on the cost   report. The commenter also suggested that CMS adopt RTI's   recommendation that, in the MedPAR file, intermediate care charges   should be reclassified from the Intensive Care Unit cost center to the   Routine cost center to correct a mismatch between where the   intermediate care charges are assigned on the cost report (that is, in   the Routine cost center) and where the charges are grouped in MedPAR   (that is, with intensive care unit charges).      Response: The commenter's recommendations are important and are   consistent with existing Medicare policy. Currently, the MedPAR file   incorrectly groups intermediate care charges with intensive care unit   charges; intermediate care charges and costs are, in fact, to be   included in the General Routine (that is, Adults and Pediatrics) cost   center on the cost report, in accordance with section 2202.7.II.B. of   the PRM-1. However, in its July 2008 report, RTI found that HCRIS line   reassignments by themselves had little effect on most inpatient weights   (page 8). The impact of adopting these recommendations would likely be   more pronounced if we were adopting regression-based CCRs for purposes   of calculating the relative weights for FY 2009. However, because we   are not using regression-based CCRs for FY 2009, we do not believe it   is necessary to adopt the commenter's recommendations for the MS-DRG   relative weights at this time, but will consider them for future   rulemaking.      Comment: One commenter commended CMS for proposing to break out the   existing line on the cost report for Medical Supplies Charged to   Patients into two lines, one for costly devices and implants and the   other for low-cost supplies, and for undertaking a comprehensive review   of the cost report. However, the commenter observed that RTI's 2008   report demonstrates that additional lines are also needed to further   break out drugs, radiology (CT scans and MRI scans) and cardiac   catheterization because hospitals apply varying markups within these   cost centers as well.      Response: We acknowledge, as RTI has found, that charge compression   occurs in several cost centers that exist on the Medicare cost report.   However, as we stated in the proposed rule, we proposed to focus on the   CCR for Medical Supplies and Equipment because RTI found that the   largest impact on the MS-DRG relative weights could result from   correcting charge compression for devices and implants.      We note that in the CY 2009 OPPS/ASC proposed rule (73 FR 41490),   we are proposing to break the single standard Drugs Charged to Patient   cost center, Line 56, into two standard cost centers, Drugs with High   Overhead Cost Charged to Patients and Drugs with Low Overhead Cost   Charged to Patients, to reduce the reallocation of pharmacy overhead   cost from expensive to inexpensive drugs and biologicals. We use the   term ``pharmacy overhead'' here to refer to overhead and related   expenses such as pharmacy services and handling costs. This proposal is   consistent with RTI's recommendation for creating a new cost center   with a CCR that would be used to adjust charges to costs for drugs   requiring detail coding. In the CY 2009 OPPS/ASC proposed rule, we note   that comments on the proposed changes to the cost report for drugs   should address any impact on both the inpatient and outpatient payment   systems because both systems rely upon the Medicare hospital cost   report for cost estimation. Furthermore, in that proposed rule, we   specifically invited public comment on the appropriateness of creating   standard cost centers for Computed Tomography (CT) Scanning, Magnetic   Resonance Imaging (MRI), and Cardiac Catheterization, rather than   continuing the established nonstandard cost centers for these services   (73 FR 41431).  3. Summary of RAND's Study of Alternative Relative Weight Methodologies      A second reason that we did not implement regression-based CCRs at   the time of the FY 2008 IPPS final rule with comment period was our   inability to investigate how regression-based CCRs would interact with   the implementation of MS-DRGs. In the FY 2008 final rule with comment   period (72 FR 47197), we stated that we engaged RAND as the contractor   to evaluate the HSRV methodology in conjunction with regression-based   CCRs and we would consider their analysis as we prepared for the FY   2009 IPPS rulemaking process. We stated that we would analyze how the   relative weights would change if we were to adopt regression-based CCRs   and an HSRV methodology using fully-phased in MS-DRGs. We stated that   we would consider the results of the second phase of the RAND study as   we prepared for the FY 2009 IPPS rulemaking process. We had intended to   include a detailed discussion of RAND's study in the FY 2009 IPPS   proposed rule. However, due to some delays in releasing identifiable   data to the contractor under revised data security rules, the report on   this second stage of RAND's analysis was not completed in time for the   development of the proposed rule. Therefore, we continued to have the   same concerns with respect to uncertainty about how regression-based   CCRs would interact with the MS-DRGs or an HSRV methodology, and we did   not propose to adopt the regression-based CCRs or an HSRV methodology   in the FY 2009 IPPS proposed rule. Nevertheless, we welcomed public   comments on our proposals not to adopt regression-based CCRs or an HSRV   methodology at that time or in the future. The RAND report on   regression-based CCRs and the HSRV methodology was finalized at the   conclusion of our proposed rule    [[Page 48454]]    development process and was posted on the CMS Web site on April 22,   2008, for a 60-day comment period. Although we were unable to include a   discussion of the results of the RAND study in the proposed rule, we   welcomed public comment on the report. We are providing a summary of   the report and the public comments we received below.      RAND evaluated six different methods that could be used to   establish relative weights: CMS' current relative weight methodology   and five alternatives. In particular, RAND examined:       How the relative weights differ across the alternative   methodologies.       How well each relative weight methodology explained   variation in costs.       Payment accuracy under each relative weight methodology   and current facility-level adjustments.       Payment implications of alternatives to the current   methodology for establishing relative weights.      RAND examined alternative relative weight methodologies including   either our current methodology of 15 national CCRs or 19 CCRs that are   disaggregated using the regression-based methodology, or hospital-  specific CCRs for 15 cost center groupings. The expansion from 15 to 19   cost center groupings is intended to reduce charge compression in the   relative weights introduced by combining services with different rates   of charge markups into a single cost center for purposes of estimating   cost. The hospital-specific CCRs are intended to account for   differences in overall charging practices across hospitals (that is,   smaller nonteaching hospitals tend not to have as much variation in   rates of markup as larger teaching hospitals).      In addition, RAND analyzed our standardization methodologies that   account for systematic cost differences across hospitals. The purpose   of standardization is to eliminate systematic facility-specific   differences in cost so that these cost differences do not influence the   relative weights. The three standardization methodologies analyzed by   RAND include the ``hospital payment factor'' methodology currently used   by CMS, where a hospital's wage index factor, and IME and/or DSH factor   are divided out of its estimated DRG cost; the HSRV methodology that   standardizes the cost for a given discharge by the hospital's own   costliness rather than by the effect of the systematic cost differences   across groups of hospitals; and the HSRVcc methodology, which removes   hospital-level cost variation by calculating hospital-specific charge-  based relative values for each DRG at the cost center level and   standardizing them for differences in case mix. Under the HSRVcc   methodology, a national average charge-based relative weight is   calculated for each cost center.      RAND conducted two different types of analyses to evaluate 5   alternative relative weight methodologies that varied use of 19   national CCRs and 15 hospital-specific CCRs, and HSRV and HSRVcc   standardization methodologies along with components of the current   relative weight methodology using 15 national CCRs and hospital payment   factor standardization. The first type of analysis compared the five   alternative relative weight methodologies to CMS' current relative   weight methodology and compared average payment under each relative   weight methodology across different types of hospitals. The second   analysis examined the relative payment accuracy of the relative weight   methodologies. RAND used the costs under 15 hospital-specific CCRs as   its hospital cost baseline. RAND noted that the choice for its baseline   may affect the results of the analysis because relative weight   methodologies that are similar to the 15 hospital-specific CCR   methodology may be assessed more favorably because they are likely to   have similar costs, while relative weight methodologies that are   different from the 15 hospital-specific CCR methodology may not be as   favorable. The payment accuracy analysis used a regression technique to   evaluate how well the relative weight methodologies explained variation   in costs and how well the hospital payments under the relative weight   methodologies matched the costs per discharge. Finally, RAND examined   payment-to-cost ratios among different types of hospitals.      Overall, RAND found that none of the alternative methods of   calculating the relative weights represented a marked improvement in   payment accuracy over the current method, and there was little   difference across methods in their ability to predict cost at either   the discharge-level or the hospital-level. In their regression   analysis, RAND found that after controlling for hospital payment   factors, the relative weights are compressed. However, RAND also found   that the hospital payment factors increase more rapidly than cost, so   while the relative weights are compressed, these payment factors offset   the compression so that total payment increases more rapidly than cost.      RAND does not believe the regression-based charge compression   adjustments significantly improve payment accuracy. RAND found that   relative weights using the 19 national disaggregated regression-based   CCRs result in significant redistributions in payments among hospital   groupings. With regard to standardization methodologies, while RAND   found that there is no clear advantage to the HSRV method or the HSRVcc   method of standardizing cost compared to the current hospital payment   factor standardization method, its analysis did reveal significant   limitations of CMS' current hospital payment factor standardization   method. The current standardization method has a larger impact on the   relative weights and payment accuracy than any of the other   alternatives that RAND analyzed because the method ``over-  standardizes'' by removing more variability for hospitals receiving a   payment factor than can be empirically supported as being cost-related   (particularly for IME and DSH). RAND found that instead of increasing   proportionately with cost, the payment factors CMS currently uses (some   of which are statutory), increase more rapidly than cost, thereby   reducing payment accuracy. Further analysis is needed to isolate the   cost-related component of the IPPS payment adjustments (some of which   has already been done by MedPAC), use them to standardize cost, and   revise the analysis of payment accuracy to reflect only the cost-  related component. Generally, RAND believes it is premature to consider   further refinements in the relative weight methodology until data from   FY 2008 or later that reflect coding improvement and other behavioral   changes that are likely to occur as hospitals adopt the MS-DRGs can be   evaluated.      Comment: A number of commenters submitted comments on RAND's   report. Some commenters supported RAND's methodology and findings.   These commenters agreed with RAND's findings that regression-based CCRs   would not have a material impact on payment accuracy. These commenters   also agreed with RAND that CMS should wait until FY 2008 data are   available to consider further refinements to the relative weight   methodology.      Some commenters disagreed with RAND's methodology and findings that   the regression-based CCRs offer no improvement in payment accuracy.   RAND found that regression-based CCRs result in significant   redistributions in payment within hospital groups with increases in   payments concentrated to the cardiac and orthopedic surgical DRGs.   RAND's payment to cost ratio analysis, which measures payment equity   across groups of hospitals, found that adopting regression-based CCRs   led    [[Page 48455]]    to significant reductions in payment to cost ratio for rural hospitals.   Commenters also indicated their belief that the payment-to-cost   analysis is not the appropriate analysis to use because, in the   hospital prospective payment system, costs at the DRG level are not   precisely known. Furthermore, the commenters asserted RAND's analysis   was flawed because, in its payment-to-cost analysis, RAND compared   payment rates adjusted for charge compression with regression-based   CCRs to payment rates unadjusted for charge compression. The commenters   stated that when they compared payments adjusted for charge compression   with regression-based CCRs to payment rates adjusted for charge   compression, they found that regression-based CCRs improved payment   accuracy. In addition, the commenters cited that RAND acknowledged that   its choice for the baseline in comparing payment rates ``may affect the   results and conclusions of our analysis''.      Response: We appreciate the comments on the RAND report. Given the   move to the MS-DRGs and the concerns surrounding documentation and   coding and the most appropriate approach to improving payment accuracy,   we generally agree with RAND's recommendation that it would be   premature to revise the relative weights methodology until additional   data from FY 2008 are available. With respect to the comments on RAND's   analysis related to the regression-based CCRs, we understand the   commenters' reasons for disputing RAND's choice to use a relative   weight methodology that does not incorporate regression-based CCRs as   its baseline for hospital costs. In RAND's payment-to-cost analysis,   RAND used the relative weight methodology with 15 hospital-specific   CCRs to determine the hospital costs baseline. RAND noted that, while   it believes its choice of cost measure is appropriate, it recognizes   that ``the choice may affect the results of the analysis because   relative weight methods that use the hospital-specific CCRs may be   assessed more favorably than would have been the case had we used a   different cost measure. Similarly, the use of 15 rather than 19 cost   center CCRs may favor the relative weight methods that do not account   for charge compression.'' If a single method existed that clearly   yielded the best measure of cost, it seems unlikely that a study to   evaluate five alternative methods of calculating cost for the MS-DRG   relative weights would have been necessary. We believe that it was   within RAND's discretion to decide how best to conduct its payment   analyses, and while there may be benefits and drawbacks to alternative   approaches (including whether to use a baseline that adjusts for charge   compression), RAND's choice is defensible. Accordingly, RAND's finding   that regression-based CCRs do not improve payment accuracy cannot be   summarily dismissed.      Comment: Many commenters opposed the HSRV methodology for   standardization. The commenters cited RAND's findings that the HSRV   methodology inappropriately compresses the relative weights. They   believed that the methodology only improves the accuracy of the   relative weights under the unlikely situations where all hospitals have   identical mix of patients and costs structures, or if all hospitals   have identical costs across all cost centers or if all hospitals have   the same case-mix and the costs differ by a constant factor across all   DRGs and all cost centers. The commenters agreed with RAND that it   would be premature to consider further refinements to the methodology   for setting relative weights, including the HSRV method of   standardization, until data from FY 2008 or later can be evaluated.      Response: We appreciate the comments on the HSRV methodology, and   we understand that many commenters continue to oppose to the HSRV   methodology. In FY 2007, we did not adopt the HSRV methodology after   consideration of concerns raised by commenters' opposition to the   methodology. Instead, in the FY 2007 IPPS final rule (71 FR 47897), we   stated that we would undertake further analysis to study the payment   impacts of the HSRV methodology with regression-based CCRs under the   MS-DRGs. We engaged RAND as our contractor to conduct this analysis,   and in its report, RAND observed that relative weights that were based   on hospital-specific CCRs with 15 cost centers that were standardized   using the current standardization methodology would warrant further   consideration as an improvement over the current relative weights. RAND   did not find the HSRV or HSRVcc standardization methods to be   preferable to the hospital payment factor method. However, RAND also   cautioned that its results reveal some significant limitations of the   current hospital payment factor method. Specifically, current IME and   DSH payment adjustments increase more quickly than their cost, and when   used for standardization, compress the relative weights. We agree with   RAND that our current standardization process requires additional   analysis, and therefore, we are not changing our current method of   standardizing for FY 2009. We will continue to consider various options   for improving payment accuracy.      Comment: One commenter supported RAND's finding that CMS should   revise its hospital payment factor method for standardizing claims   charges to remove the effects of hospital-specific factors (that is,   wage index, IME, and DSH) that affect cost estimates. The commenter   recommended that CMS could improve its standardization process by   removing the effects of these factors by using empirical estimates   rather than using current policy adjustments. The commenter noted that   MedPAC and CMS have done empirical estimates of these factors in the   past.      Response: One of the issues that the RAND report specifically   addressed was standardization methods that account for systematic cost   differences across hospitals. These methods include what RAND called   the hospital payment factor method, which is CMS' current approach to   standardizing claims charges, the HSRV methodology, and the HSRVcc   methodology. Although RAND's results do not indicate that the HSRV or   HSRVcc standardization method is clearly preferable to the hospital   payment factor method, RAND found that the current hospital payment   factor standardization method has significant limitations.   Specifically, RAND found that the hospital payment factor method   ``over-standardizes'' by using a hospital payment factor that is larger   than can be empirically supported as being cost-related (particularly   for IME and DSH) and that has a larger impact on the relative weights   and payment accuracy than other elements of the cost-based methodology.   However, RAND cautions that ``re-estimating'' these payment factors   ``raises important policy issues that warrant additional analyses''   (page 49), particularly to ``determine the analytically justified-  levels using the MS-DRGs'' (page 110). In addition, we note that RTI,   in its July 2008 final report, also observed that the adjustment   factors under the IPPS (the wage index, IME, and DSH adjustments)   complicate the determination of cost and these factors ``within the   rate calculation may offset the effects of understated weights due to   charge compression'' (page 109). We understand that MedPAC has done   analysis of what the empirically-justified levels of the IME and DSH   adjustment should be. We cannot propose to change the IME and DSH   factors used for actual payment under the IPPS because these factors   are    [[Page 48456]]    required by statute. After further studying the issue, we may consider   proposing various options for improving payment accuracy when   standardizing charges as part of the relative weights calculation.      Comment: Many commenters continued to oppose adoption of the   regression-based CCRs, asserting that the charge compression issue is   not urgent enough to warrant the use of substitute data for real cost   and charge information. The commenters indicated that many hospitals   believe that most increases or decreases in the MS-DRG relative weights   will have a minimal dollar impact on their bottom line. They further   stated that the RAND report asserts that the regression-based CCR   adjustments would not materially impact payment accuracy. The   commenters also agreed with CMS' position at the time of the proposed   rule that there had not been sufficient time to evaluate the impact of   a regression-based approach on inpatient or outpatient services, and on   the MS-DRGs. The commenters further believed that calculating   regression-based CCRs is ``excessively complicated,'' is difficult to   validate, and may be flawed to the extent that the regressions would be   based on data in which the mismatch between MedPAR charges and cost   report costs and charges has not been corrected. The commenters   believed that more accurate and uniform reporting and improvements to   the cost report is the best approach to improving payment accuracy.      A number of commenters objected to the regression-based approach to   break out the one CCR for all radiology services that CMS is currently   using. The commenters noted that the RTI estimates suggest that   hospitals mark up CT services on average by more than 1800 percent over   cost (CCR 0.054), while routine radiology services are marked up by an   average of more than 300 percent over cost. The commenters believed   that this vast difference in the markup practices of hospitals seems   implausible and, therefore, would result in significant payment   distortions if CMS were to adopt RTI's disaggregated radiology CCRs or   some related adjustment to the radiology CCR, for Medicare ratesetting.   The commenters asserted that use of RTI's CCRs would significantly   reduce payment for imaging-intensive DRGs in the inpatient setting for   trauma services, but the impact on payments under the OPPS and the   Medicare physician fee schedule (MPFS) imaging services capped by OPPS   payments would be even more dramatic. The commenters believed that the   CCRs for advanced imaging may reflect a misallocation of capital costs   on the cost report. They further stated that this could indicate that   many hospitals are reporting CT and MRI machines as fixed equipment and   allocate the related capital costs as part of the facility's Building   and Fixtures overhead cost center instead of reporting the capital   costs directly in the Radiology cost center, resulting in RTI's   estimate of the costs and CCRs for CT and MRI equipment to be too low.   The commenters argued that, regardless of the reason for the low CCRs,   the use of RTI's CCRs could result in aberrant payments for radiology   services, where payments to a hospital for outpatient x-rays might be   higher than the payment for a similar CT scan, and where the physician   fee schedule rates for the technical component cost of the CT scan may   also be less than the cost of these scans estimated by CMS, providing a   disincentive for hospitals and physicians to provide these services. In   concluding that RTI's analysis of the CCRs for imaging services is   flawed, several commenters urged CMS to more carefully analyze CCRs for   radiology before proposing any measures to change these CCRs. The   commenters believed that if the underreported capital costs are   considered, it is likely that the CCRs for CT scanning and MRI services   would be approximately equal to the overall radiology CCR and no   adjustment would be needed.      A significant number of commenters supported applying the   regression-based CCRs as a temporary solution to address charge   compression. The commenters believed that because CMS' proposed changes   to the cost report would not have an impact on the relative weights   until FY 2012, implementation of regression-based CCRs is necessary in   the interim. The commenters cited what they believed is ample evidence,   particularly from the RTI report and from MedPAC, that regression-based   CCRs are appropriate as a short-term solution.      While several commenters agreed on the use of regression-based CCRs   as a short-term solution to charge compression, many commenters gave   varied suggestions as to how to implement these regression-based CCRs.   The commenters suggested that CMS implement a 3-year phase-in of   regression-based CCRs beginning in FY 2009 to mitigate any   distributional impacts on hospitals. The commenters asked CMS to   consider using a regression analysis for 25 percent of the estimated   cost of medical supplies in FY 2009, then 50 percent in FY 2010, and 75   percent in FY 2011. The commenters further stated that once the data   from the new cost centers for supplies and devices are available, the   regression adjustments could be phased out, or remain in use even after   FY 2012, should the data from the new cost centers still be incomplete   at that time. Furthermore, the commenters believed that this transition   would remove the need for a transition period to separate CCRs for   medical devices and medical supplies once the cost report data are   available.      Some commenters supported adoption of regression-based CCRs except   for those within the radiology category. Other commenters suggested   that CMS only implement regression-based CCRs for medical supplies and   devices because the proposed changes to the cost report focused on the   medical supplies and devices. They argued that CMS' proposed cost   report changes for medical supplies and devices signifies that CMS   believes it is most important to address charge compression in the   medical supplies group.      One commenter recommended that, based on the findings in RTI's 2008   report, CMS should implement a total of 22 regression-based CCRs. (In   its March 2007 report, RTI recommended that CMS expand the number of   CCRs from 15 to 19 with the use of statistical adjustments to   disaggregate medical devices from medical supplies, IV solutions and   other drugs from drugs and CT scanning and MRI from radiology. In the   interim RTI report posted on the CMS Web site on April 22, 2008, RTI   increased the potential regression-based CCRs from 19 to 23 national   CCRs after evaluating OPPS data with IPPS data.) The commenter believed   that CMS should expand the number of CCRs from 15 to 22 with   disaggregated CCRs for medical supplies, medical devices, IV solutions,   other drugs and detail coded drugs, CT scans, MRI, therapeutic   radiation and nuclear medicine. The commenter recommended implementing   these regression-based CCRs to ensure payment equity across these types   of services. Because of limited time to develop the final rule, the   commenter recognized that it would be difficult for CMS to implement   revised regression estimates. To account for this, the commenter   recommended what the commenter believed is a relatively simple ratio   technique, similar to RTI's methodology, to implement regression-based   CCRs for the FY 2009 IPPS final rule. The commenter believed that CMS   could use more detailed charge information from the Standard Analytic   File (SAF) and the regression-based estimates from RTI's 2008 report to    [[Page 48457]]    calculate national CCRs for the subgroups within drugs, supplies and   radiology. The commenter stated that CMS would then compare those CCRs   under RTI's regression-based estimates to the RTI-estimated national   CCR for the broader category. To further clarify its recommendation,   the commenter stated that, for example, if CMS were to disaggregate the   supplies CCR, CMS would create regression-based CCRs for medical   supplies and medical devices based on RTI's regression-based CCRs for   those subgroups. Then a ratio would be calculated comparing those CCRs   to the original RTI-estimated national CCR for the broader supplies   category. Those ratios would then be multiplied by their own national   overall CCR for the broader supplies category to obtain national CCRs   for the subgroup that reflect updated cost and charge data.      Response: In the FY 2009 IPPS proposed rule (73 FR 23543), we   stated several reasons why we did not propose to adopt any regression-  based CCRs for FY 2009. Specifically, because a number of commenters on   the FY 2008 proposed rule objected to the adoption of the regression-  based CCRs, and because, at the time the FY 2009 IPPS proposed rule was   under development, we did not yet have the results of the RTI study   analyzing the effects of charge compression on inpatient and outpatient   charges as well as the results of the RAND study analyzing how the   relative weights would change if we were to adopt regression CCRs while   simultaneously adopting the HSRV methodology using fully phased in MS-  DRGs, we did not propose to adopt regression-based CCRs in the FY 2009   IPPS proposed rule. However, we did solicit public comments on our   proposal not to adopt regression-based CCRs in the FY 2009 IPPS   proposed rule. Consequently, as was the case during the FY 2008 IPPS   proposed rule comment period, we received numerous public comments both   against and in favor of adopting regression-based CCRs. Once again, we   have considered all of the public comments we received. We have also   considered the findings of the RAND report, and note that RAND believes   that it may be premature to consider further refinements in the   relative weight methodology until data using MS-DRGs from FY 2008 or   later can be evaluated (page 108). Also noteworthy is RAND's belief   that regression-based CCRs may not 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 appreciate the recognition by one   commenter that the time in which CMS must develop the final rule is   limited, and the consideration given by this commenter in recommending   a relatively simple approach to implementing the regression-based CCRs   for FY 2009. Nevertheless, we agree with the commenters that believe   that the best approach at this time to addressing charge compression is   to focus on improving the accuracy of hospital cost reporting, coupled   with long-term changes to the cost report discussed below so that CMS   can continue to rely on hospital's reported cost and charge data. With   respect to the CCR for radiology services, we note that the 2008 RTI   report found that significant improvements and refinements to the   radiology CCR can be achieved without using regression-based CCRs,   simply by reallocating the costs and charges from nonstandard cost   centers on the cost report and using increased charge detail from the   SAF to supplement the radiology charges in the MedPAR. Therefore, as we   stated in the FY 2009 IPPS proposed rule (73 FR XXXXX), we 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 adopting regression-based CCRs for the   calculation of the FY 2009 IPPS relative weights.      We received public comments on the FY 2008 IPPS proposed rule   raising concerns on the accuracy of using regression-based CCR   estimates to determine the relative weights rather than on the Medicare   cost report. The commenters noted that regression-based CCRs would not   fix the underlying mismatch of hospital reporting of costs and charges.   Instead, the commenters suggested that the impact of charge compression   might be mitigated through an educational initiative that would   encourage hospitals to improve their cost reporting. The commenters   recommended that hospitals be educated to report costs and charges in a   way that is consistent with how charges are grouped in the MedPAR file.   In an effort to achieve this goal, hospital associations have launched   an educational campaign to encourage consistent reporting, which would   result in consistent groupings of the cost centers used to establish   the cost-based relative weights. The commenters requested that CMS   communicate to the fiscal intermediaries/MACs that such action is   appropriate. In the FY 2008 IPPS final rule with comment period, we   stated that we were supportive of the educational initiative of the   industry, and we encouraged hospitals to report costs and charges   consistently with how the data are used to determine relative weights   (72 FR 47196). We would also like to affirm that the longstanding   Medicare principles of cost apportionment in the regulations at 42 CFR   413.53 convey that, under the departmental method of apportionment, the   cost of each ancillary department is to be apportioned separately   rather than being combined with another ancillary department (for   example, combining the cost of Medical Supplies Charged to Patients   with the costs of Operating Room or any other ancillary cost center).   (We note that, effective for cost reporting periods starting on or   after January 1, 1979, the departmental method of apportionment   replaced the combination method of apportionment where all the   ancillary departments were apportioned in the aggregate (Section 2200.3   of the PRM-I).)      Furthermore, longstanding Medicare cost reporting policy has been   that hospitals must include the cost and charges of separately   ``chargeable medical supplies'' in the Medical Supplies Charged to   Patients cost center (line 55 of Worksheet A), rather than in the   Operating Room, Emergency Room, or other ancillary cost centers.   Routine services, which can include ``minor medical and surgical   supplies'' (Section 2202.6 of the PRM-1), and items for which a   separate charge is not customarily made, may be directly assigned   through the hospital's accounting system to the department in which   they were used, or they may be included in the Central Services and   Supply cost center (line 15 of Worksheet A). Conversely, the separately   chargeable medical supplies should be assigned to the Medical Supplies   Charged to Patients cost center on line 55.      We note that not only is accurate cost reporting important for IPPS   hospitals to ensure that accurate relative weights are computed, but   hospitals that are still paid on the basis of cost, such as CAHs and   cancer hospitals, and SCHs and MDHs must adhere to Medicare cost   reporting principles as well.      The CY 2008 OPPS/ASC final rule with comment period (72 FR 66600   through 66601) also discussed the issue of charge compression and   regression-based CCRs, and noted that RTI is currently evaluating the   cost estimation process underpinning the OPPS cost-based weights,   including a reassessment of the regression models using both outpatient   and inpatient charges, rather than inpatient charges only. In    [[Page 48458]]    responding to comments in the CY 2008 OPPS/ASC final rule with comment   period, we emphasized that we ``fully support'' the educational   initiatives of the industry and that we would ``examine whether the   educational activities being undertaken by the hospital community to   improve cost reporting accuracy under the IPPS would help to mitigate   charge compression under the OPPS, either as an adjunct to the   application of regression-based CCRs or in lieu of such an adjustment''   (72 FR 66601). However, as we stated in the FY 2008 IPPS final rule   with comment period, we would consider the results of the RAND study   before considering whether to adopt regression-based CCRs, and in the   CY 2008 OPPS/ASC final rule with comment period (72 FR 66601), we   stated that we would determine whether refinements should be proposed   after reviewing the results of the RTI study.      On February 29, 2008, we issued Transmittal 321, Change Request   5928, to inform the fiscal intermediaries/MACs of the hospital   associations' initiative to encourage hospitals to modify their cost   reporting practices with respect to costs and charges in a manner that   is consistent with how charges are grouped in the MedPAR file. We noted   that the hospital cost reports submitted for FY 2008 may have costs and   charges grouped differently than in prior years, which is allowable as   long as the costs and charges are properly matched and the Medicare   cost reporting instructions are followed. Furthermore, we recommended   that fiscal intermediaries/MACs remain vigilant to ensure that the   costs of items and services are not moved from one cost center to   another without moving their corresponding charges. Due to a time lag   in submittal of cost reporting data, the impact of changes in   providers' cost reporting practices occurring during FY 2008 would be   reflected in the FY 2011 IPPS relative weights.      Comment: One commenter urged CMS to audit cost reports closely to   ensure initial and ongoing compliance with the new reporting   requirements. Several commenters who, over the course of the past year,   have supported an educational initiative to encourage hospitals to   prepare their Medicare cost reports such that Medicare charges, total   charges, and total costs are aligned with each other, and with the   current categories in the MedPAR file, continued to believe that this   educational initiative is an important effort. These commenters   appreciated CMS' efforts to inform the fiscal intermediaries/MACs of   this educational initiative and to work with hospitals to ensure proper   cost reporting (in Transmittal 321, Change Request 5928, issued   February 29, 2008). However, the commenters expressed concern that this   transmittal did not address the need by some hospitals to elect a cost-  estimated approach to ensure that costs and charges for supplies are   aligned. The commenters urged CMS to instruct fiscal intermediaries/  MACs not to reverse or undo reporting that relies on estimation   approaches to achieve this alignment, provided that hospitals submit   adequate documentation of their methodology.      Response: We agree that audit and compliance measures are   important, and we will work within the audit budget to determine   whether hospitals properly follow payment policies and the cost   reporting instructions. With respect to Transmittal 321, Change Request   5928, CMS did remind fiscal intermediaries/MACs that ``providers may   submit cost reports with cost and charges grouped differently than in   prior years, as long as the cost and charges are properly matched and   Medicare cost reporting instructions are followed. Medicare contractors   shall not propose adjustments that regroup costs and charges merely to   be consistent with previous year's reporting if the costs and charges   are properly grouped on the as-filed cost report.'' However, Medicare   payment is governed by longstanding principles contained in Sec. Sec.    413.20 and 413.24 which we cannot instruct the fiscal intermediaries/  MACs to overlook. In accordance with Sec.  413.20, the principles of   cost reimbursement require that providers maintain sufficient financial   records and statistical data for proper determination of costs payable   under the program. Furthermore, Sec.  413.24(a) specifies that   providers receiving payment on the basis of reimbursable cost must   provide adequate cost data. This must be based on their financial and   statistical records which must be capable of verification by qualified   auditors. In addition, Sec.  413.24(c) states that adequate cost   information must be obtained from the provider's records to support   payments made for services furnished to beneficiaries. The requirement   of adequacy of data implies that the data be accurate and in sufficient   detail to accomplish the purpose for which the data are intended.   Adequate data capable of being audited are consistent with good   business concepts and effective and efficient management of any   organization. Furthermore, we note that these cost reimbursement   principles continue to apply even under the IPPS. Specifically, Sec.    412.53 states, ``All hospitals participating in the prospective payment   systems must meet the recordkeeping and cost reporting requirements of   Sec. Sec.  413.20 and 413.24 of this chapter.'' Therefore, CMS cannot   instruct the Medicare contractors to disregard these longstanding   policies when auditing and settling cost reports.  4. Refining the Medicare Cost Report      In developing the FY 2009 IPPS proposed rule, we considered whether   there were concrete steps we could take to mitigate the bias introduced   by charge compression in both the IPPS and OPPS relative weights in a   way that balances hospitals' desire to focus on improving the cost   reporting process through educational initiatives with device industry   interest in adopting regression-adjusted CCRs. Although RTI recommended   adopting regression-based CCRs, particularly for medical supplies and   devices, as a short-term solution to address charge compression, RTI   also recommended refinements to the cost report as a long-term   solution. RTI's draft interim March 2007 report discussed a number of   options that could improve the accuracy and precision of the CCRs   currently being derived from the Medicare cost report and also reduce   the need for statistically-based adjustments. As mentioned in the FY   2008 IPPS final rule with comment period (72 FR 47193), we believe that   RTI and many of the public commenters on the FY 2008 IPPS proposed rule   concluded that, ultimately, improved and more precise cost reporting is   the best way to minimize charge compression and improve the accuracy of   cost weights. Therefore, in the FY 2009 IPPS proposed rule (73 FR   23544), we proposed to begin making cost report changes geared to   improving the accuracy of the IPPS and OPPS relative weights. However,   we also received comments last year asking that we proceed cautiously   with changing the Medicare cost report to avoid unintended consequences   for hospitals that are paid on a cost basis (such as CAHs, cancer   hospitals, and, to some extent, SCHs and MDHs), and to consider the   administrative burden associated with adapting to new cost reporting   forms and instructions. Accordingly, we proposed to focus in the FY   2009 proposed rule on the CCR for Medical Supplies and Equipment   because RTI found that the largest impact on the relative weights could   result from correcting charge compression for devices and implants.   When examining markup differences within the Medical Supplies Charged   to Patients cost center, RTI found that its    [[Page 48459]]    ``regression results provide solid evidence that if there were distinct   cost centers for items, cost ratios for devices and implants would   average about 17 points higher than the ratios for other medical   supplies'' (January 2007 RTI report, page 59). This suggests that much   of the charge compression within the Medical Supplies CCR results from   inclusion of medical devices that have significantly different markups   than the other supplies in that CCR. Furthermore, in the FY 2007 IPPS   final rule and FY 2008 IPPS final rule with comment period, the Medical   Supplies and Equipment CCR received significant attention by the public   commenters.      Although we proposed to make improvements to mitigate the effects   of charge compression only on the Medical Supplies and Equipment CCR as   a first step, we invited public comments as to whether to make other   changes to the Medicare cost report to refine other CCRs. In addition,   we indicated that we were open to making further refinements to other   CCRs in the future. Therefore, in the FY 2009 IPPS proposed rule, we   proposed to add only one cost center to the cost report, such that, in   general, the costs and charges for relatively inexpensive medical   supplies would be reported separately from the costs and charges of   more expensive devices (such as pacemakers and other implantable   devices). We indicated that we would consider public comments submitted   on the proposed rule for purposes of both the IPPS and the OPPS   relative weights and, by extension, the calculation of the ambulatory   surgical center (ASC) payment rates (73 FR XXXXX).      Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for   chargeable medical supplies and equipment was computed based on line 55   for Medical Supplies Charged to Patients and lines 66 and 67 for DME   Rented and DME Sold, respectively. To compute the 15 national CCRs used   in developing the cost-based weights under the IPPS (explained in more   detail under section II.H. of the preamble of the proposed rule and   this final rule), we take the costs and charges for the 15 cost groups   from Worksheet C, Part I of the Medicare cost report for all hospital   patients and multiply each of these 15 CCRs by the Medicare charges on   Worksheet D-4 for those same cost centers to impute the Medicare cost   for each of the 15 cost groups. Under this proposal, the goal would be   to split the current CCR for Medical Supplies and Equipment into one   CCR for medical supplies, and another CCR for devices and DME Rented   and DME Sold.      In considering how to instruct hospitals on what to report in the   cost center for medical supplies and the cost center for devices, we   looked at the existing criteria for the type of device that qualifies   for payment as a transitional pass-through device category in the OPPS.   (There are no such existing criteria for devices under the IPPS.) The   provisions of the regulations under Sec.  419.66(b) state that for a   medical device to be eligible for pass-through payment under the OPPS,   the medical device must meet the following criteria:      a. If required by the FDA, the device must have received FDA   approval or clearance (except for a device that has received an FDA   investigational device exemption (IDE) and has been classified as a   Category B device by the FDA in accordance with Sec. Sec.  405.203   through 405.207 and 405.211 through 405.215 of the regulations) or   another appropriate FDA exemption.      b. The device is determined to be reasonable and necessary for the   diagnosis or treatment of an illness or injury or to improve the   functioning of a malformed body part (as required by section   1862(a)(1)(A) of the Act).      c. The device is an integral and subordinate part of the service   furnished, is used for one patient only, comes in contact with human   tissues, and is surgically implanted or inserted whether or not it   remains with the patient when the patient is released from the   hospital.      d. The device is not any of the following:       Equipment, an instrument, apparatus, implement, or item of   this type for which depreciation and financing expenses are recovered   as depreciable assets as defined in Chapter 1 of the Medicare Provider   Reimbursement Manual (CMS Pub. 15-1).       A material or supply furnished incident to a service (for   example, a suture, customized surgical kit, or clip, other than a   radiological site marker).       Material that may be used to replace human skin (for   example, a biological or synthetic material).      These requirements are the OPPS criteria used to define a device   for pass-through payment purposes and do not include additional   criteria that are used under the OPPS to determine if a candidate   device is new and represents a substantial clinical improvement, two   other requirements for qualifying for pass-through payment.      For purposes of applying the eligibility criteria, we interpret   ``surgical insertion or implantation'' to include devices that are   surgically inserted or implanted via a natural or surgically created   orifice as well as those devices that are inserted or implanted via a   surgically created incision (70 FR 68630).      In proposing to modify the cost report to have one cost center for   medical supplies and one cost center for devices, we proposed that   hospitals would determine what should be reported in the Medical   Supplies cost center and what should be reported in the Medical Devices   cost center using criteria consistent with those listed above that are   included under Sec.  419.66(b), with some modification. Specifically,   for purposes of the cost reporting instructions, we proposed that an   item would be reported in the device cost center if it meets the   following criteria:      a. If required by the FDA, the device must have received FDA   approval or clearance (except for a device that has received an FDA   investigational device exemption (IDE) and has been classified as a   Category B device by the FDA in accordance with Sec. Sec.  405.203   through 405.207 and 405.211 through 405.215 of the regulations) or   another appropriate FDA exemption.      b. The device is reasonable and necessary for the diagnosis or   treatment of an illness or injury or to improve the functioning of a   malformed body part (as required by section 1862(a)(1)(A) of the Act).      c. The device is an integral and subordinate part of the service   furnished, is used for one patient only, comes in contact with human   tissue, is surgically implanted or inserted through a natural or   surgically created orifice or surgical incision in the body, and   remains in the patient when the patient is discharged from the   hospital.      d. The device is not any of the following:       Equipment, an instrument, apparatus, implement, or item of   this type for which depreciation and financing expenses are recovered   as depreciable assets as defined in Chapter 1 of the Medicare Provider   Reimbursement Manual (CMS Pub. 15-1).       A material or supply furnished incident to a service (for   example, a surgical staple, a suture, customized surgical kit, or clip,   other than a radiological site marker).       Material that may be used to replace human skin (for   example, a biological or synthetic material).       A medical device that is used during a procedure or   service and does not remain in the patient when the patient is released   from the hospital.      We proposed to select the existing criteria for what type of device   qualifies    [[Page 48460]]    for payment as a transitional pass-through device under the OPPS as a   basis for instructing hospitals on what to report in the cost center   for Medical Supplies Charged to Patients or the cost center for Medical   Devices Charged to Patients because these criteria are concrete and   already familiar to the hospital community. However, the key difference   between the existing criteria for devices that are eligible for pass-  through payment under the OPPS in the regulations at Sec.  419.66(b)   and our proposed criteria stated above to be used for cost reporting   purposes is that the device that is implanted remains in the patient   when the patient is discharged from the hospital. Essentially, we   proposed to instruct hospitals to report only implantable devices that   remain in the patient at discharge in the cost center for devices. All   other devices and nonroutine supplies which are separately chargeable   would be reported in the medical supplies cost center. We believe that   defining a device for cost reporting purposes based on criteria that   specify implantation and adding that the device must remain in the   patient upon discharge would have the benefit of capturing virtually   all costly implantable devices (for example, implantable cardioverter   defibrillators (ICDs), pacemakers, and cochlear implants) for which   charge compression is a significant concern.      However, we acknowledge that a definition of device based on   whether an item is implantable and remains in the patient could, in   some cases, include items that are relatively inexpensive (for example,   urinary catheters, fiducial markers, vascular catheters, and drainage   tubes), and which many would consider to be supplies. Thus, some modest   amount of charge compression could still be present in the cost center   for devices if the hospital does not have a uniform markup policy. In   addition, requiring as a cost reporting criterion that the device is to   remain in the patient at discharge could exclude certain technologies   that are moderately expensive (for example, cryoablation probes,   angioplasty catheters, and cardiac echocardiography catheters, which do   not remain in the patient upon discharge). Therefore, some charge   compression could continue for these technologies. We believe this   limited presence of charge compression is acceptable, given that the   proposed definition of device for cost reporting purposes would isolate   virtually all of the expensive items, allowing them to be separately   reported from most inexpensive supplies.      The criteria we proposed above for instructing hospitals as to what   to report in the device cost center specify that a device is not a   material or supply furnished incident to a service (for example, a   surgical staple, a suture, customized surgical kit, or clip, other than   a radiological site marker) (emphasis added). We understand that   hospitals may sometimes receive surgical kits from device manufacturers   that consist of a high-cost primary implantable device, external   supplies required for operation of the device, and other disposable   surgical supplies required for successful device implantation. Often   the device and the attending supplies are included on a single invoice   from the manufacturer, making it difficult for the hospital to   determine the cost of each item in the kit. In addition, manufacturers   sometimes include with the primary device other free or ``bonus'' items   or supplies that are not an integral and necessary part of the device   (that is, not actually required for the safe surgical implantation and   subsequent operation of that device). (We note that arrangements   involving free or bonus items or supplies may implicate the Federal   anti-kickback statute, depending on the circumstances.) One option is   for the hospital to split the total combined charge on the invoice in a   manner that the hospital believes best identifies the cost of the   device alone. However, because it may be difficult for hospitals to   determine the respective costs of the actual device and the attending   supplies (whether they are required for the safe surgical implantation   and subsequent operation of that device or not), we solicited comments   with respect to how supplies, disposable or otherwise, that are part of   surgical kits should be reported. We are distinguishing between such   supplies that are an integral and necessary part of the primary device   (that is, required for the safe surgical implantation and subsequent   operation of that device) from other supplies that are not directly   related to the implantation of that device, but may be included by the   device manufacturer with or without charge as ``perks'' along with the   kit. If it is difficult to break out the costs and charges of these   lower cost items that are an integral and necessary part of the primary   device, we would consider allowing hospitals to report the costs and   charges of these lower cost supplies along with the costs and charges   of the more expensive primary device in the cost report cost center for   implantable devices. However, to the extent that device manufacturers   could be encouraged to refine their invoicing practices to break out   the charges and costs for the lower cost supplies and the higher cost   primary device separately, so that hospitals need not ``guesstimate''   the cost of the device, this would facilitate more accurate cost   reporting and, therefore, the calculation of more accurate cost-based   weights. Under either scenario, even for an aggregated invoice that   contains an expensive device, we believe that RTI's findings of   significant differences in supply CCRs for hospitals with a greater   percentage of charges in device revenue codes demonstrate that breaking   the Medical Supplies Charged to Patients cost center into two cost   centers and using appropriate revenue codes for devices, and   crosswalking those costs to the proposed new ``Implantable Devices   Charged to Patients'' cost center, will result in an increase in   estimated device costs.      In summary, we proposed to modify the cost report to have one cost   center for ``Medical Supplies Charged to Patients'' and one cost center   for ``Implantable Devices Charged to Patients.'' We proposed to   instruct hospitals to report only devices that meet the four criteria   listed above (specifically including that the device is implantable and   remains in the patient at discharge) in the proposed new cost center   for Implantable Devices Charged to Patients. All other devices and   nonchargeable supplies would be reported in the Medical Supplies cost   center. This would allow for two distinct CCRs, one for medical   supplies and one for implantable devices and DME rented and DME sold.      Comment: Many commenters supported the proposed cost reporting   refinements to address charge compression in the medical supplies and   devices CCR. However, most commenters stated that they preferred a more   ``comprehensive'' approach to reforming the cost report, expressing   concern that CMS is taking a ``piecemeal'' approach which does not   address the underlying problem of using an ``antiquated'' cost   reporting instrument to collect cost data that neither suits the needs   of CMS in calculating the relative weights, nor does it fit with the   current accounting practices of hospitals. One commenter stated   generally that the cost report and MedPAR data sources were never   intended to be integrated, which affects the accuracy of the DRG   recalibration. The commenter wanted CMS to improve the accuracy of the   cost report by incorporating a new schedule to ``continue the reporting   of revenue by UB revenue code by cost report line'' and to calculate a   weighted CCR by UB    [[Page 48461]]    revenue code. The commenter believed this is a ``major area of reform''   to the cost report that would ``greatly enhance the accuracy of costing   data'' not only for inpatient and outpatient PPS hospitals, but also   for CAHs and children's and cancer hospitals. Nevertheless, these   commenters supported CMS' proposal to split the ``Medical Supplies   Charged to Patients'' cost center into one cost center for ``Medical   Supplies Charged to Patients,'' and one for ``Implantable Devices   Charged to Patients'' as a short-term approach, believing that this   measure may help address charge compression in the relative weights of   MS-DRGs that include medical supplies and devices. Another commenter   encouraged CMS to complete a thorough review of charge compression and   then separately propose rules that would provide hospitals with   adequate notice to make the necessary changes, with implementation of   those changes occurring no earlier than FY 2010. One commenter   qualified its support for CMS' proposal on the contingency that CMS   commits to working with the hospital industry to address the larger   issues surrounding the cost reports as a data collection tool. Another   commenter added that it did not oppose CMS' proposal, but stated that   its ``comments should not be viewed as an endorsement to adding   additional cost centers in the future'' and that CMS should ``proceed   with extreme caution with any additional incremental changes.'' Other   commenters were disappointed in what they characterized as ``CMS'   failure to work with the hospital field from the outset on such an   important endeavor.'' Another commenter suggested that CMS may want to   use its database to run further analyses on charge compression because   the majority of hospitals submitting clinical and financial data to the   commenter have cost accounting systems. The commenters generally urged   CMS to provide adequate notice to hospitals before making any changes   to the cost report because hospitals will need to make significant   revisions to their accounting and billing systems before the start of   their fiscal years.      One commenter supported CMS' proposal for using the existing   requirements for determining which devices qualify for pass-through   payment under the OPPS, and whether a device is implantable and remains   in the patient upon discharge, as the criteria for determining what   types of implantable devices would be reported in the proposed new cost   center. The commenter believed that the proposed criteria are objective   and most accurately describe the type of medical devices that are most   impacted by charge compression. However, a large number of commenters   opposed CMS' proposed criteria for distinguishing between low-cost   supplies and high-cost devices for reporting in the proposed new cost   report cost centers. Rather than using CMS' proposed criteria which are   based on the existing requirements for determining which devices   qualify for pass-through payment under the OPPS, and whether a device   is implantable and remains in the patient upon discharge, in addition   to use of existing revenue codes, most commenters preferred that the   cost report cost centers be defined exclusively based on the use of   existing revenue codes and associated definitions. The commenters   pointed out that using existing revenue codes and definitions as they   have been currently established by the National Uniform Billing   Committee (NUBC) makes sense, as these definitions have been in place   for some time and are used across all payers, not just by CMS. The   commenters believed that introduction of exceptions by CMS to what   hospitals may include in certain revenue codes can be disruptive to   hospitals' billing and accounting systems. Furthermore, they added,   this method is consistent with the analytic approach and revenue   centers used by RTI to develop the regression-based CCRs for medical   devices. Accordingly, the commenters recommended that the proposed new   cost centers on the cost report for ``Medical Supplies Charged to   Patients'' and ``Implantable Devices Charged to Patients'' be defined   exclusively on the following revenue code criteria: Specifically,   revenue codes 0275 (Pacemaker), 0276 (Intraocular lens), 0278 (other   implants), and 0624 (FDA investigational devices) would be used in the   proposed new cost center for high-cost devices. The commenters noted   that revenue code 0624 generally consists of higher cost implants, but   indicated that this revenue code could be refined at a later point by   the NUBC to provide a revenue code that could be reported when the FDA   investigational device does not include implants. According to the   commenters, all other revenue codes in the device/supply category (in   027x and 062x) would be reported in the lower cost medical supplies   cost center on the cost report. The commenters acknowledged that   distinguishing between low-cost supplies and high-cost devices through   exclusive use of the existing revenue codes will not thoroughly   separate low and high-cost items, and therefore, some amount of charge   compression will remain in the proposed new ``Implantable Devices   Charged to Patients CCR.'' Nevertheless, the commenters believed that   use of existing revenue codes and definitions represents the most   administratively simple and least burdensome approach to addressing   charge compression; the incremental improvements of a more refined   approach do not warrant more wholesale changes. One commenter, however,   did recommend that CMS request new revenue codes from the NUBC as   needed to identify all devices that would be reported in the new   implantable devices cost center under the revised cost report   definition of implantable device so as to minimize exclusion of   innovative technologies and mitigate the impact of charge compression.      Response: In the FY 2009 IPPS proposed rule (73 FR 23546), we   stated that we have begun a comprehensive review of the Medicare   hospital cost report, and our proposal 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'' is part of that initiative to update and   revise the cost report. Under the effort to update the cost report and   eliminate outdated requirements in conjunction with the PRA, changes to   the cost report form and cost report instructions would be made   available to the public for comment. Thus, the commenters would have an   opportunity to suggest the more comprehensive reforms that they are   advocating, 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. However, we note that while the commenters on the   FY 2009 IPPS proposed rule appear to be advocating a more comprehensive   and thorough approach to reforming the cost report, the public comments   we received on the FY 2008 proposed rule urged us to proceed cautiously   with changing the Medicare cost report to avoid unintended consequences   for hospitals that are paid on a cost basis (such as CAHs, cancer   hospitals, and, to some extent, SCHs and MDHs), and to consider the   administrative burden associated with adapting to new cost report forms   and instructions (73 FR 23544 and 72 FR 47193). We explained that   because of these comments on the FY 2008 IPPS proposed rule, we    [[Page 48462]]    decided to start out slowly with modifying the cost report to improve   the data used in calculating the cost-based weights. Specifically, we   chose to focus initially on the cost center for Medical Supplies   Charged to Patients, because RTI found that the largest impact on the   DRG relative weights could result from correcting charge compression   for devices and implants. We are willing to work with and consider   comments from finance and cost report experts from the hospital   community as we work to improve and modify the hospital cost report. As   noted above, in the CY 2009 OPPS/ASC proposed rule (73 FR XXXXX), we   also are proposing to break the single standard pharmacy cost center   5600 into two standard cost centers, Drugs with High Overhead Cost   Charged to Patients and Drugs with Low Overhead Cost Charged to   Patients, and we are specifically inviting public comment on the   appropriateness of creating standard cost centers for Computed   Tomography (CT) Scanning, Magnetic Resonance Imaging (MRI), and Cardiac   Catheterization, rather than continuing the established nonstandard   cost centers for these services. Proposed changes to the cost report   will impact both IPPS and OPPS, and public comments should address both   systems.      We have considered the comments in favor of finalizing our proposal   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,'' and the   comments recommending that these cost centers be defined based solely   on existing revenue codes. Although we believed that adopting the   existing criteria for determining whether a device is eligible for   pass-through payment under the OPPS to identify devices for the   ``Implantable Devices Charged to Patients'' cost center was a   reasonable proposal because the criteria are concrete and already   familiar to the hospital community, we understand that hospitals are   already familiar with the definitions of the existing revenue codes as   well because they have been in place for some time. In addition,   identifying devices based only on the existing revenue code definitions   is more straightforward than also incorporating the criteria for   devices that qualify for OPPS pass-through payment. Therefore, we agree   with the commenters that use of the existing revenue code definitions   is the simplest and least burdensome approach for hospitals to   implement that would concretely, although not completely, address   charge compression.      Accordingly, in this final rule, we are finalizing our proposed   policy 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.'' However,   when determining what should be reported in these respective cost   centers, rather than finalize our proposed policy to use existing   criteria for determining which devices qualify for OPPS pass-through   payment, with the modification that the implantable device must remain   in the patient at discharge, we are instead adopting the commenters'   recommendation that hospitals should use revenue codes established by   the NUBC to determine what should be reported in the ``Medical Supplies   Charged to Patients'' and the ``Implantable Devices Charged to   Patients'' cost centers. We note that use of the existing revenue codes   will still generally result in implantable devices being reported in   the ``Implantable Devices Charged to Patients'' cost center because   revenue codes 0275 (Pacemaker), 0276 (Intraocular lens), 0278 (other   implants), and 0624 (FDA investigational devices) for the most part,   generally would be used for reporting higher cost implants. However,   use of the existing NUBC definitions would not require that the   implantable device remain in the patient when the patient is   discharged; therefore, in this respect, the policy we are finalizing   differs from the one we proposed.      In the FY 2009 IPPS proposed rule (73 FR 23547), in an effort to   improve the match between the costs and charges included on the cost   report and the charges in the MedPAR file, we recommended that certain   revenue codes be used for items reported in the new ``Medical Supplies   Charged to Patients'' cost center and the new ``Implantable Devices   Charged to Patients'' cost center, respectively. These recommendations   were similar to the commenters' suggested method for use of existing   revenue codes in determining whether an item should be reported in the   proposed new supply or device cost center in the cost report. In this   final rule, we are finalizing our policy to create a cost center for   implantable devices. Under this policy, charges reported with revenue   codes 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants),   and 0624 (Investigational Device (IDE)) would correspond to implantable   devices reported in the new ``Implantable Devices Charged to Patients''   cost center. Items for which a hospital may have previously used   revenue code 0270 (General Classification), but actually are an   implantable device, should instead be billed with an implantable device   revenue code. Conversely, items and supplies that are not implantable   would be reported in the new ``Medical Supplies Charged to Patients''   cost center on the cost report. We would expect these items and   supplies to be billed with revenue codes 0270 (general   classifications), 0271 (nonsterile supply), 0272 (sterile supply), and   0273 (take-home supplies). In the proposed rule, we indicated that   revenue code 0274 (Prosthetic/Orthotic Devices) and revenue code 0277   (Oxygen--Take Home) might be associated with the cost centers for   Durable Medical Equipment (DME)-Rented and DME-Sold on the cost report.   We received comments that indicated that all other (not implantable)   supply revenue codes, including 0274, 0277, 0621, and 0622, should be   associated with the new ``Medical Supplies Charged to Patients'' cost   center. For the purpose of this final policy, we are most concerned   with identifying the revenue code costs and charges that define the new   ``Implantable Devices Charged to Patients'' cost center. With the   exception of the present proposal, CMS typically does not specify a   revenue code-to-cost center crosswalk that hospitals must adopt to   prepare their cost report. Beyond the supply revenue codes we   identified above for ``Medical Supplies Charged to Patients,'' we   assume hospitals will include other appropriate supply revenue codes in   this new cost center, which may or may not include 0621, 0622, 0274,   and 0277.      Hospitals must continue to report ICD-9-CM codes and charges with   an appropriate UB revenue code consistent with NUBC requirements. When   reporting the appropriate revenue codes for services, hospitals should   choose the most precise revenue code, or subcode if appropriate. As   NUBC guidelines dictate: ``It is recommended that providers use the   more detailed subcategory when applicable/available rather than revenue   codes that end in ``0'' (General) or ``9'' (Other).'' Furthermore,   hospitals are required to follow the Medicare cost apportionment   regulations at 42 CFR 413.53(a)(1), which convey that, under the   departmental method of apportionment, the cost of each ancillary   department is to be apportioned separately rather than being combined   with another department. In order to comply with the requirements of   this regulation,    [[Page 48463]]    hospitals must follow the Medicare payment policies in section 2302.8   of the PRM-I and the PRM-II in order to ensure that their ancillary   costs and charges are reported in the appropriate cost centers on the   cost report. We rely on hospitals to fully comply with the revenue code   reporting instructions and Medicare cost apportionment policies.      In general, proper reporting would dictate that if an item is   reported as an implantable device on the cost report, it is an item for   which the NUBC would require use of revenue code 0275 (Pacemaker), 0276   (Intraocular Lens), 0278 (Other Implants), or 0624 (Investigational   Device). Likewise, items reported as Medical Supplies should receive an   appropriate revenue code indicative of supplies. We did indicate in the   proposed rule that we might consider requesting additional revenue   codes from the NUBC, but we note that because the majority of   commenters have requested that they be allowed to use existing revenue   codes to distinguish between the low cost supplies and high cost   devices, we may wait and see what the results of that approach are   before we request the creation of additional codes from the NUBC.      We would also like to caution that, as the commenters themselves   acknowledged, the use of existing revenue code definitions to crosswalk   devices and supplies to the device cost center and supplies cost   center, respectively, will not separate high and low cost items as   thoroughly as would the use of the proposed criteria for implantable   devices that remain in the patient at discharge. Therefore, some degree   of charge compression will remain in the medical devices cost center.   Furthermore, this methodology, and the accuracy of the relative   weights, is heavily dependent upon hospitals' reporting practices.   While CMS is responsible for issuing cost reporting instructions that   are clear, hospitals are responsible for ensuring that their cost   reporting and billing practices are consistent and conform to Medicare   policy.      Comment: A few commenters, who supported the proposal that only   devices that are implantable and that remain in the patient at   discharge should be reported in the new ``Implantable Devices Charged   to Patients'' cost center, also expressed concern that there are   instances where these criteria are too narrow. One commenter mentioned   various types of implantable devices that do not remain in the patient   at discharge, including atherectomy and thrombectomy catheters, laser   sheaths for removal of pacemaker and defibrillator leads, and   thrombolysis catheters. Two commenters mentioned one product, an   external fixation device that is used to treat trauma of the upper and   lower extremities and to assist in the treatment of severe fractures,   and noted that this device is commonly removed from patients prior to   discharge. The commenters believed that if this device is not assigned   to a revenue code for an ``implantable device,'' the true implant costs   for many of these discharges may not be recognized. One of the   commenters asked that CMS consider exempting external fixation devices   from the proposed ``implantable device'' standard, or provide another   appropriate mechanism to ensure accurate cost reporting for this   device. The other commenter also supported the creation of the devices   cost center based on the use of existing revenue codes and associated   definitions established by the NUBC. Another commenter stated that CMS'   proposed definition of device as one that must remain in the patient at   discharge could result in inconsistent billing and reporting because   whether a device remains in the patient could depend on the particular   patient's length of stay. The commenter used the example of an   implantable port for medication delivery, where one patient is well   enough to be discharged from the hospital but needs the port at home   for extended IV therapy. Another patient with the same implantable   medication port, however, may have additional complications and need to   stay in the hospital longer, but may ultimately improve to the extent   where he or she is discharged without the port. The commenter observed   that, as a result, there could be a device that would qualify as an   implant for some patients but not for others.      Response: In the FY 2009 IPPS proposed rule (73 FR 23545), we   acknowledged that a definition of a device based on whether it is   implantable and remains in the patient at discharge could, in some   cases, include some relatively inexpensive items, and could also   exclude some expensive items. Therefore, some charge compression could   continue for these technologies. We also acknowledge the point of one   of the commenters that depending upon a patient's severity of the   illness and length of stay, a device may or may not qualify as an   implantable device based on our proposed criteria. However, we note   that, in response to the many comments we received as summarized   previously, we have decided not to finalize our proposed definition of   a device, which was based on the existing OPPS criteria for identifying   devices that qualify for pass-through payment, with the additional   requirement that the device must remain in the patient at discharge.   Instead, as suggested by the vast majority of commenters, we are   finalizing a policy that would distinguish between supplies and devices   based on the existing revenue codes and definitions. Therefore, while   the device must still be implantable to map to the new implantable   device cost center, our final policy no longer includes the requirement   that the device remain in the patient at discharge. We expect hospitals   to follow the revenue code definitions in assigning the costs and   charges of devices.      Comment: Commenters asked CMS to provide a contingency plan if the   medical device CCR is substantially lower than the regression-based   device CCR estimate or the current supplies CCR, once the data become   available.      Response: We agree that we will need to evaluate the medical supply   and device CCRs once the data become available for FY 2012 ratesetting.   At that point and forward, we will continue to analyze the cost report   data. However, we point out that we do not believe it is appropriate to   ``pick and choose'' between CCRs; rather, the determining factor should   be payment accuracy, regardless of whether one method increases or   decreases payment for devices.      Comment: One commenter supported CMS' proposal to split the medical   supplies cost center. However, the commenter stated that CMS' proposal   could result in the relative weight for MS-DRG 001 (Heart Transplant or   Implant of Heart Assist with MCCs) being reduced because the weight for   MS-DRG 001 is not ``device-driven'' due to the presence of a large   number of hospitalizations with relatively low device costs (heart   transplant and combined heart-lung transplant), which could weaken the   effect of the proposed cost center changes with respect to the relative   weight for MS-DRG 001. To remedy this, the commenter requested, in   part, that CMS create a cost center on the cost report that would   enable CMS to capture more accurate data on LVADs. In addition, the   commenter noted that CMS should remain open to cost centers that   capture devices in the $500-$2,500 range (Class I implantable devices),   and separate cost centers for devices in the $2,500-$100,000 range   (Class II implantable devices). The commenter stated that it would   continue to monitor CMS' policy changes in the coming years and will   provide input to the CMS regarding the    [[Page 48464]]    ``impact to hospitals that provide lifesaving LVAD therapy to Medicare   beneficiaries.''      Response: We do not believe it is appropriate at this time to   create a new cost center, or further refine the device cost center   based on cost categories, so as to capture data more accurately for   LVADs. Instead, as an initial step, we believe it would be better to   finalize the broader proposal of creating one cost center for supplies,   and a cost center for implantable devices, which would include LVADs.   We are receptive to the commenter's input to CMS regarding the impact   to hospitals that provide LVAD therapy as part of our own monitoring   and analyses of the cost-based relative weights, and if appropriate, we   may consider further refining the implantable devices cost center in   the future.      Comment: A number of commenters focused on the section of the 2007   RTI report that highlighted the problem of nursing care cost   compression. The report found that nursing care represents about 41   percent of hospitals' costs, and these costs are allocated as fixed   daily room rates, despite substantial evidence that daily nursing care   hours and costs vary substantially among patients. As a result, the   current DRG relative weights do not reflect differences in nursing   care, leading to payment inaccuracy. One commenter noted that this   creates a ``perverse incentive for hospitals to cut nursing staff as   reimbursement is not matched to the average amount of nursing time and   costs within each DRG as are the ancillary services.'' Some commenters   reiterated their comments submitted on the FY 2008 IPPS proposed rule,   recommending that CMS study adoption of Nursing Intensity Weights   (NIWs), which is in use in the New York State Medicaid program. The   commenters suggested that unbundling nursing care from current routine   and intensive care daily rates and billing for nursing using the 023X   revenue code for actual daily nursing time (nursing intensity) expended   for individual patients provides a reasonable solution to the problem   of nursing cost compression. Specifically, the commenters urged CMS to   reconsider its proposal for FY 2009 and explore ways to:      (a) Implement the recommendations of the RTI report to unbundle   nursing care from current accommodation (room and board) revenue codes   using the 023X Nursing Incremental Charge UB04 revenue code.      (b) Modify the Medicare cost report to separate out nursing costs   and hours of care to allow construction of a nursing cost to charge   ratio within the existing routine and intensive care cost centers.      (c) Develop a method to evaluate nursing performance by case mix   within the new severity adjusted DRGs using the unbundled 023X nursing   hours and costs data.      (d) Incorporate the inpatient nursing performance measure into the   emerging value-based purchasing effort in the coming fiscal years to   identify low performing hospitals relative to the mean nursing   intensity within MS-DRG and high cost hospitals.      The commenters believed that accomplishing these four   recommendations will ``improve overall payment accuracy, lead to a   better understanding of how nursing care hours and costs are allocated   to individual patients and by DRG within and across hospitals, identify   hospital nursing performance, and inform policy makers on the state of   inpatient nursing care in the United States.''      Response: The commenters raised similar concerns in response to the   FY 2008 IPPS proposed rule. In response to those comments, we   acknowledged RTI's finding in its January 2007 report that ``because   intensity of nursing is likely correlated with DRG assignment, this   could be a significant source of bias in DRG weights,'' and agreed that   this issue should be studied further. We appreciate that the commenters   have also given more thought to methods of addressing nursing cost   compression, but we note that the initiation and eventual success of   much of these efforts lie within the hospital community. In its July   2008 report, RTI states that, ``the best long-term solution would be   for the industry to agree to expand charge coding conventions for   inpatient nursing, which would foster increased use of patient-specific   nursing incremental charge codes in addition to baseline unit-specific   per-diem charges. Additional detail in revenue codes would permit   inpatient charges to be converted by CCRs in the same way as charges   for ancillary service use are converted, to more accurately aggregate   costs at the level of the system payment unit.'' (page 118) Therefore,   whether the preferred method would be to separate charges for nursing   care from the accommodation revenue codes using the existing 023X   (Incremental Nursing Care) revenue codes, or some other approach, we   believe the hospital community must take the initiative to decide upon   a uniform method of reporting nursing charges in such a manner that   reflects the varying nursing intensity in caring for individual   patients.      The commenters requested that the cost report be modified to   separate nursing costs and hours of care to allow for the calculation   of CCRs for routine care and intensive care, and we believe this could   possibly be a long-term goal. We note that RTI observes that given the   inconsistent use of patient-level nursing acuity data systems, ``it is   difficult to imagine an administratively feasible way to incorporate   nursing acuity measures into standard Medicare reporting as a long-term   solution for reducing nursing cost compression'' (page 118). However,   we encourage the nursing community, the hospital industry, and others   to consider researching ideas for how nursing intensity can be   recognized in the cost weights.      Comment: Several commenters responded to our solicitation for   comments on how to report supplies that are part of surgical kits. The   commenters generally did not support our proposal to require hospitals   to separate the costs of supplies from devices within surgical kits.   Some commenters recommended using the existing revenue codes so as not   to increase the documentation burdens for hospitals. That is, the costs   and charges of the kit should be reported consistent with the use of   the revenue code, such that, for example, if the kit is billed with   revenue code 0278 (Other Implants), it would be reported in the new   ``Implantable Devices Charged to Patients'' cost center. These   commenters acknowledged that this approach will not separate all low   cost items, but will still reduce charge compression.      Another commenter stated that ``unbundling'' the device from the   surgical kit would increase administrative costs for hospitals and   vendors, and that more medical errors would likely result, which   surgical packs were designed to reduce. Another commenter noted the   terms CMS used in describing the supplies that are part of surgical   kits, such as ``integral to'' or ``unrelated to,'' and ``free'' or   ``bonus'' items. The commenter recommended that CMS consider clarifying   these terms via an issuance such as a transmittal or an MLN Matters   article rather than the Federal Register because all healthcare   providers do not read it, and that CMS' clarification provide   ``rationale that is vital to understanding underlying compliance   concerns associated with supply charge practices.'' This commenter   further recommended that as a long-term solution, CMS and the NUBC   develop a revenue code called ``Integrated Supplies'' specifically to   report supplies in customized kits, packs, and trays. This new revenue   code    [[Page 48465]]    would capture all of the routine supplies that are part of the package   in one charge, except for the charge for the implantable device, which   would be itemized separately on the invoice The commenter noted that   most hospitals' chargemaster software allows multiple charges to be   linked together as part of a ``panel master.'' Therefore, the   Integrated Supplies revenue code could be linked with the various   revenue codes used for implantable devices (0275, 0276, and 0278),   without requiring vendors and hospitals to itemize every single supply   in a kit separately on an invoice or the chargemaster.      One commenter stressed the value that packaging such items together   has for hospitals, arguing that the kits reduce labor hours associated   with the procedure, and that ``hospitals do not purchase these packages   for what CMS refers to as `bonus' items, but for the efficiencies   gained though the packaging of the items.'' The commenter did not   believe such kits should be considered a violation of the anti-kickback   statute.      Response: In the FY 2009 IPPS proposed rule (73 FR 23545), we   discussed how hospitals could accurately report the costs of an   expensive device and the costs of less expensive supplies needed to   implant that device on the cost report, given that often the device and   the supplies are included on a single invoice from the manufacturer,   making it difficult for the hospital to determine the cost of each item   in the kit. We suggested that one option is for the hospital to split   the total combined charge on the invoice in a manner that the hospital   believes best identifies the cost of the device alone. However, because   it may be difficult for hospitals to determine the respective costs of   the actual device and the attending supplies (whether they are required   for the safe surgical implantation and subsequent operation of that   device or not), we solicited comments with respect to how supplies,   disposable or otherwise, that are part of surgical kits should be   reported. We distinguished between such supplies that are an integral   and necessary part of the primary device (that is, required for the   safe surgical implantation and subsequent operation of that device)   from other supplies that are not directly related to the implantation   of that device, but may be included by the device manufacturer with or   without charge as ``perks'' along with the kit. We stated that if it is   difficult to break out the costs and charges of these lower cost items   that are an integral and necessary part of the primary device, we would   consider allowing hospitals to report the costs and charges of these   lower cost supplies along with the costs and charges of the more   expensive primary device in the cost report cost center for implantable   devices. However, we stated that to the extent that device   manufacturers could be encouraged to refine their invoicing practices   to break out the charges and costs for the lower cost supplies and the   higher cost primary device separately, so that hospitals need not   ``guesstimate'' the cost of the device, this would facilitate more   accurate cost reporting and, therefore, the calculation of more   accurate cost-based weights.      We have considered the public comments which essentially   recommended that hospitals should not attempt to break out the costs of   the expensive device from the attending supplies, but instead, that   hospitals report the entire kit based on the single revenue code used   for the device in the kit. We still believe that device manufacturers   could make a better effort at refining their invoices to separately   break out the charges and costs of the high-cost device from the low-  cost supplies because this would likely lead to more accurate cost   reporting and a further mitigation of charge compression. Certainly, if   the supplies that are included in the kit are not integral to and   necessary for the safe, surgical implementation of the device, we   believe that it would be best for hospitals to report those costs and   charges separately from the costs and charges for the implantable   device. Nevertheless, because commenters are generally satisfied with   an approach for reporting the costs and charges of the entire kit based   on the revenue code that is used for the device in that kit, we will   accept the commenters' recommendation and permit hospitals to follow   this approach in reporting the costs and charges of surgical kits. As   we noted in the proposed rule, even for an aggregated invoice that   contains an expensive device, we believe that RTI's findings of   significant differences in supply CCRs for hospitals with a greater   percentage of charges in device revenue codes demonstrate that breaking   the Medical Supplies Charged to Patients cost center into two cost   centers, using appropriate revenue codes for devices, and mapping those   costs to the new ``Implantable Devices Charged to Patients'' cost   center, will result in an increase in estimated device costs that could   lead to more accurate payment for those costs. However, we do   appreciate the acknowledgement from the commenter that it is important   for the industry to understand the rationale for compliance   requirements and the recommendation of the commenter that a new revenue   code for Integrated Supplies be created as a long-term solution for   capturing costs and charges of incidental supplies, and we may consider   this as part of other changes that may or may not require NUBC   approval.      With respect to the commenter that argued that such kits should not   be considered a violation of the anti-kickback statute, we note that we   did not state that surgical kits should necessarily be considered a   violation of the anti-kickback statute. The commenter made the point   that hospitals do not purchase the kits for the value of the ``bonus   items,'' but rather because of the increased efficiencies that result   from packaging all the items necessary for a particular surgical   procedure together. However, we point out that the IPPS proposed rule   refers specifically to ``free or `bonus' items that are not an integral   and necessary part of the device (that is, not actually required for   the safe surgical implantation and subsequent operation of that   device)'' (73 FR 23545, emphasis added). Therefore, the parenthetical   sentence in the proposed rule that follows the reference to ``free'' or   ``bonus'' items refers to those free or bonus items that are not an   integral and necessary part of the device implantation procedure and   subsequent operation of that device. Specifically, we stated that   ``arrangements involving free or bonus items or supplies may implicate   the Federal anti-kickback statute, depending on the circumstances'' (73   FR 23545, emphasis added). That is, hospitals should be aware that,   depending on the circumstances, kits that include other items that are   unrelated to the safe implantation or operation of a device could   possibly implicate the Federal anti-kickback statute.      Comment: One commenter advised that many hospitals do not report   some charges in the Medical/Surgical Supplies revenue codes when they   consider those items to be part of hospital room and board (that is,   blood transfusion administration). The commenter stated that hospitals   seek guidance from CMS to avoid discrepancies in reporting, and   recommended that CMS define what is included in ``room and board'' to   further standardize billing practices and promote consistency and   continuity across all hospitals.      Response: CMS' longstanding policy with respect to what constitutes   a routine service (sometimes called ``room and board'') as compared to   an ancillary    [[Page 48466]]    service is discussed in the regulations at Sec.  413.53(b) and in the   PRM-I under Section 2202.6 (Routine Services) and Section 2202.8   (Ancillary Services). If an item is not specifically enumerated as a   routine item or service in Section 2202.6, or an ancillary item or   service in Section 2202.8, then the rules in Section 2203 of the PRM-I   apply. This section requires that the common or established practice of   providers of the same class in the same State should be followed. If   there is no common or established classification of an item or service   as routine or ancillary among providers of the same class in the same   State, a provider's customary charging practice is recognized so long   as it is consistently followed for all patients and does not result in   an inequitable apportionment of cost to the program.      With respect to blood transfusion/administration, to which the   commenter refers, this service should not be billed under the Medical/  Surgical Supplies code, regardless of the hospital's accounting system.   ``Blood Transfusion/Administration'' is a service rather than an item,   and the blood itself is also not treated as a medical supply item. The   cost report includes a standard cost center for ``Blood Storing,   Processing, and Transfusion'' (Line 47 of Worksheet A, under the   ``Ancillary Service Cost Centers''), and there is a UB revenue code   0391 for Blood Administration, in addition to revenue codes in the 038X   category for various blood products. However, the revenue codes for   Medical/Surgical Supplies fall within another category, 027x. Because   blood transfusion and blood products are not specifically mentioned in   the definition of ``routine services'' in the PRM-1 under Section   2202.6, or in the definition of ``ancillary services'' in Section   2202.8, the commenter is asking whether it is appropriate not to bill a   separate ancillary charge for the transfusions occurring in the routine   cost centers, but to consider that the charge is encompassed in the   routine Room and Board Charge under one of the Room and Board UB   revenue codes.      In accordance with PRM-I, Section 2202.8, if the provider does not   impose a separate charge in addition to a routine service charge, the   service is considered not to be ``ancillary''. As mentioned above,   under PRM-I, Section 2203, the provider must consider the established   practice of the same class of providers in the same State as to whether   to include blood transfusion in the routine service charge (for both   Medicare and non-Medicare patients). For blood transfused in the   Operating Room, Emergency Room, or other ancillary cost centers,   providers should be billing a separate charge (just as for implantable   devices in case of Implantable Devices Charged to Patients) under UB   revenue code 0391 (Blood Administration), and the cost and charges   should be reported on Line 47 of the cost report.      Comment: A few commenters indicated that, with the changes that CMS   is proposing to the reporting of costs and charges of medical devices   on the cost report, the quality of the cost data that CMS will be   collecting will improve. Accordingly, they stated that, the CCR for the   new ``Implantable Devices Charges to Patients'' cost center will   improve to the extent that applying it to the reported charges for   devices from the cost report will generate an actual device cost and   that this actual device cost should be an accurate reflection of the   hospital's device acquisition cost. Therefore, the commenter suggested   that this cost should be determined and incorporated into the process   for calculating the relative weights, and that CMS should use the   actual cost in the relative weight calculation rather than an imputed   cost estimated by applying a national CCR to claims charge data, in   instances where the imputed cost is lower than the cost reported by the   hospital on its cost report.      Response: While we are optimistic that the addition of a new cost   report line for implantable devices should certainly allow for the   collection of more accurate cost data, we do not believe we can use   this aggregate actual cost amount for setting relative weights. The   costs and charges for all implantable devices for the hospital across   all payers are collected and aggregated on the cost report. However,   the cost of a specific device cannot be determined from this aggregated   information. We have to estimate the cost of devices for each MS-DRG in   each claim in order to estimate an average imputed cost for the entire   MS-DRG, including device costs. Different MS-DRGs will include   different kinds of devices, each with a different cost. We also do not   believe it is appropriate to use the actual cost in the relative weight   calculation rather than the imputed cost in instances where the imputed   cost is lower than the cost reported by the hospital on its cost   report, as the commenter suggested.      We also solicited comments on alternative approaches that could be   used in conjunction with or in lieu of the four proposed criteria for   distinguishing between what should be reported in the new cost centers   for Implantable Devices and Medical Supplies, respectively. Another   option we considered would distinguish between high-cost and low-cost   items based on a cost threshold. Under this methodology, we would also   have one cost center for Medical Supplies and one cost center for   Devices, but we would instruct hospitals to report items that are not   movable equipment or a capital expense but are above a certain cost   threshold in the cost center for Devices. Items costing below that   threshold would be reported in the cost center for Medical Supplies.      Establishing a cost threshold for cost reporting purposes would   directly address the problem of charge compression and would enable   hospitals to easily determine whether an item should be reported in the   supply or the device cost center. A cost threshold would also   potentially allow a broader variety of expensive, single use devices   that do not remain in the patient at discharge to be reported in the   device cost center (such as specialized catheters or ablation probes).   While we have a number of concerns with the cost threshold approach, we   nevertheless solicited public comments on whether such an approach   would be worthwhile to pursue. Specifically, we are concerned that   establishing a single cost threshold for pricing devices could possibly   be inaccurate across hospitals. Establishing a threshold would require   identifying a cost at which hospitals would begin applying reduced   markup policies. Currently, we do not have data from which to derive a   threshold. We have anecdotal reports that hospitals change their markup   thresholds between $15,000 and $20,000 in acquisition costs. Recent   research on this issue indicated that hospitals with average inpatient   discharges in DRGs with supply charges greater than $15,000, $20,000,   and $30,000 have higher supply CCRs (Advamed March 2006).      Furthermore, although a cost threshold directly addresses charge   compression, it may not eliminate all charge compression from the   device cost center because a fixed cost threshold may not accurately   capture differential markup policies for an individual hospital. At the   same time, we also are concerned that establishing a cost threshold may   interfere with the pricing practices of device manufacturers in that   the prices for certain devices or surgical kits could be inflated to   ensure that the devices met the cost threshold. We believe our proposed   approach of identifying a group of items that are relatively expensive   based on the existing criteria for OPPS device pass-through payment   status, rather than adopting a cost threshold, would not    [[Page 48467]]    influence pricing by the device industry. In addition, if a cost   threshold were adopted to distinguish between high-cost devices and   low-cost supplies on the cost report, we would need to periodically   reassess the threshold for changes in markup policies and price   inflation over time.      Comment: Several commenters addressed the use of a cost threshold   to determine whether an item should be categorized in the medical   device cost center of the cost report. Some commenters believed that   establishing a cost threshold to determine whether an item should be   reported as a device or a supply would be inappropriate because it is   difficult to ensure that charges are properly reported because there   would not be any specific revenue codes for these high-cost and low-  cost items. Further, commenters disagreed about what the threshold   should be. (In the proposed rule, we had discussed that we have   anecdotal evidence that inpatient discharges in DRGs with supply   charges greater than $15,000, $20,000 and $30,000 have higher supply   CCRs.) However, the commenters stated that if CMS used a cost   threshold, it should be set lower at a range of $1,000 to $2,000.   Another commenter recommended that CMS set a cost threshold at $4,000,   so its nonimplantable device could qualify as a device for cost   reporting purposes.      Response: In the proposed rule, we proposed to instruct hospitals   to report only devices that met our criteria (including that a device   is implantable and remains in the patient upon discharge) in the new   cost center for ``Implantable Devices Charged to Patients'' and to   report all other devices and supplies in the new ``Medical Supplies   Charged to Patients'' cost center. However, we also solicited comments   on alternative approaches that could be used in conjunction with or in   lieu of our proposed criteria to distinguish between the new cost   center for Implantable Devices and the new cost center for Medical   Supplies. One alternative could have been that hospitals report items   above a certain cost threshold in the Medical Devices cost center while   items costing below the threshold would be reported in the Medical   Supplies cost center. The few commenters on this proposal were   generally opposed to establishing a cost threshold to differentiate   between medical devices and medical supplies. As discussed in our   proposed rule (73 FR 23546), we continue to be concerned that a cost   threshold may affect pricing practices of device manufacturers where   prices of certain devices could be inflated to ensure the item met the   threshold to be classified as a device. Further, we believe it would be   difficult to establish a cost threshold because we currently have no   empirical data from which to establish one, and the commenters   disagreed with the anecdotal evidence we presented that a potential   cost threshold for devices could be between $15,000 and $20,000.   Therefore, the policy that we are finalizing in this final rule does   not include a cost threshold to determine whether items should be   reported as a medical device or a medical supply.      Another option for distinguishing between high-cost and low-cost   items for purposes of the cost report would be to divide the Medical   Supplies Charged to Patients cost center based on markup policies by   placing items with lower than average markups in a separate cost   center. This approach would center on documentation requirements for   differential charging practices that would lead hospitals to   distinguish between the reporting of supplies and devices on different   cost report lines. That is, because charge compression results from the   different markup policies that hospitals apply to the supplies and   devices they use based on the estimated costs of those supplies and   devices, isolating supplies and devices with different markup policies   mitigates aggregation in markup policies that cause charge compression   and is specific to a hospital's internal accounting and pricing   practices. If requested by the fiscal intermediaries/MACs at audit,   hospitals could be required to submit documentation of their markup   policies to justify the way they have reported relatively inexpensive   supplies on one line and more expensive devices on the other line. We   believe that it should not be too difficult for hospitals to document   their markup practices because, as was pointed out by many commenters   since the implementation of cost-based weights, the source of charge   compression is varying markup practices. Greater knowledge of the   specifics of hospital markup practices may allow ultimately for   development of standard cost reporting instructions that instruct   hospitals to report an item as a device or a supply based on the type   of markup applied to that item. This option related to markup   practices, the proposal to define devices based on four specific   criteria, and the third alternative that would establish a cost   threshold for purposes of distinguishing between high-cost and low-cost   items could be utilized separately or in some combination for purposes   of cost report modification. Again, in the proposed rule, we solicited   comments on these alternative approaches. We also expressed interest in   other recommendations for appropriate cost reporting improvements that   address charge compression.      Comment: One commenter supported the use of the markup threshold to   separate medical supplies from medical devices because, according to   the commenter, it would be the most accurate way to mitigate charge   compression as the source of charge compression is hospitals' varying   markup practices. However, the commenter noted that establishing a   markup threshold would require additional documentation from hospitals   that could be burdensome. Other commenters believed that a markup   threshold would likely separate medical devices that were very   expensive or very inexpensive, but would not address medical devices   that are moderately priced. The commenters who opposed a markup   threshold noted that because there is great variability in markup   practices among hospitals, it would be difficult to apply a national   markup threshold. The commenters also noted that urban hospitals   compared to rural hospitals would have very different charging   practices.      Response: In the FY 2009 IPPS proposed rule, we listed several   reasons why adopting a policy where high and low cost items would be   divided based on markup policy could be appropriate (73 FR 23546). We   also stated that this option would focus on documentation requirements,   although we did not believe these documentation requirements would be   too difficult. However, the commenters believed that this approach is   too burdensome, and that it would be difficult to apply a national   markup threshold given the varying markup practices among hospitals.   Therefore, because most commenters approved of a revenue code-based   approach to distinguishing between high-cost and low-cost items, we are   not adopting a policy based on markup practices at this time.  5. Timeline for Revising the Medicare Cost Report      As mentioned in the FY 2008 IPPS final rule with comment period (72   FR 47198), we have begun a comprehensive review of the Medicare   hospital cost report, and the finalized policy 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    [[Page 48468]]    report. Under an effort initiated by CMS to update the Medicare   hospital cost report to eliminate outdated requirements in conjunction   with the PRA, we plan to propose the actual changes to the cost   reporting form, the attending cost reporting software, and the cost   report instructions in Chapter 36 of the Medicare PRM, Part II. We   expect the proposed revision to the Medicare hospital cost report to be   issued sometime after publication of this final rule. Because we are   finalizing our proposal to create one cost center for ``Medical   Supplies Charged to Patients'' and one cost center for ``Implantable   Devices Charged to Patients'' in this final rule, the cost report forms   and instructions should reflect those changes. In the FY 2009 IPPS   proposed rule (73 FR 23547), we stated that we expect the revised cost   report would be available for hospitals to use when submitting cost   reports during FY 2009 (that is, for cost reporting periods beginning   on or after October 1, 2008). We now believe the revised cost report   may not be available until cost reporting periods starting after the   Spring of 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, we may be able to derive two distinct CCRs, one   for medical supplies and one for devices, for use in calculating the FY   2012 or FY 2013 IPPS relative weights and the CY 2012 or CY 2013 OPPS   relative weights.      Comment: Commenters generally expressed concern with the timeframe   in which we proposed to implement the cost report changes. One   commenter questioned hospitals' ability to quickly change their   chargemaster to ensure that revenue codes are always reported in MedPAR   consistently with the cost centers in which they are reported on the   cost report. The commenter cautioned that initial calculations of the   relative weights may not be accurate if hospitals do not have   sufficient time to adapt to the new reporting requirements. Another   commenter did not believe that the time between issuance of the final   rule and October 1, 2008, is enough time for hospitals to make the   changes to their processes and systems necessary to conform to the new   cost reporting procedures. The commenter pointed out that hospital   employees may need to be retrained, and new cost reporting technology   may need to be purchased, all of which is costly to hospitals operating   on tight margins. The commenter requested that CMS provide no less than   6 months lead time, but preferably 1 year, before implementing any   changes to the cost report, asserting that an ``overly-aggressive''   timeframe in which to implement changes to the cost report may lead to   inaccurate data, which runs counter to CMS' goal of improving the   accuracy of its CCR data.      Response: We are sympathetic to the commenter's concerns, but we   note that, thus far, we have not proposed to implement drastic changes   to the cost report and cost reporting procedures that warrant overhaul   of hospitals' current accounting systems. As we stated in the FY 2009   IPPS proposed rule (73 FR 23543), longstanding Medicare policy has been   that, under the departmental method of apportionment, the cost of each   ancillary department is to be apportioned separately rather than being   combined with another ancillary department. Hospitals must include the   cost and charges of separately ``chargeable medical supplies'' in the   Medical Supplies Charged to Patients cost center (line 55 of Worksheet   A), rather than in the Operating Room, Emergency Room, or other   ancillary cost centers. Routine services, which can include ``minor   medical and surgical supplies'' (Section 2202.6 of the PRM, Part 1),   and items for which a separate charge is not customarily made, may be   directly assigned through the hospital's accounting system to the   department in which they were used, or they may be included in the   Central Services and Supply cost center (line 15 of Worksheet A).   Conversely, the separately chargeable medical supplies should be   assigned to the Medical Supplies Charged to Patients cost center on   line 55. Our proposal to split the existing Medical Supplies Charged to   Patients cost center into two cost centers, one specifically for   ``Implantable Devices Charged to Patients,'' is simply a refinement of   what should be hospitals' existing cost reporting practices, wherein,   rather than reporting all separately chargeable supplies and devices in   one cost center, the devices would be reported in a separate, new cost   center. We do not view this as a significant shift in cost reporting   policy. Further, our adoption of the commenters' suggested method of   separating supplies and devices based on existing revenue codes and   NUBC definitions, with which all hospitals are already familiar, should   minimize the disruption to hospitals' accounting and billing systems.   Lastly, we note that, although participation in the hospital   associations' educational initiatives has been voluntary, efforts have   certainly been made by the hospital community over the past year to   increase awareness and improve the accuracy of hospitals' cost   reporting practices. Also, with respect to the commenter that   questioned hospitals' ability to quickly change their chargemaster to   ensure that revenue codes are always reported in the MedPACR file   consistently with the cost centers in which they are reported on the   cost report, as we stated in response to a previous comment, hospitals   must use the billing codes as directed by the NUBC, regardless of the   cost center in which the cost is reported on the cost report. Hospitals   must continue to report ICD-9-CM codes and charges with an appropriate   UB revenue code, consistent with NUBC requirements. When reporting the   appropriate revenue code for services, hospitals should choose the most   precise revenue code, or subcode if appropriate. As NUBC guidelines   dictate: ``It is recommended that providers use the more detailed   subcategory when applicable/available rather than revenue codes that   end in ``0'' (General) or ``9'' (Other).'' Furthermore, with respect to   the cost report, hospitals are required to follow the Medicare cost   apportionment regulations at 42 CFR 413.53(a)(1) which convey that,   under the departmental method of apportionment, the cost of each   ancillary department is to be apportioned separately rather than   combined with another department. In order to comply with the   requirements of this regulation, hospitals must follow the Medicare   payment policies in Section 2302/8 of the PRM-I and the PRM-II in order   to ensure that their ancillary costs and charges are reported in the   appropriate cost centers on the cost report. We rely on hospitals to   fully comply with the revenue code reporting instructions and Medicare   cost apportionment policies.      Therefore, we do not believe that it is necessary to significantly   delay availability of the revised cost reporting form beyond the date   that we proposed; that is, for cost reporting periods starting after   the Spring of 2009. In practice, hospitals need not have modified their   systems (to the extent necessary) by the Spring of 2009, but rather, by   the time they are completing and submitting cost reports for cost   reporting periods beginning after the Spring of 2009. Further, as we   have stated previously, no change to the actual cost reporting form   will be undertaken without first going through notice and comment   procedures in accordance with the PRA.    [[Page 48469]]    6. Revenue Codes Used in the MedPAR File      An important first step in RTI's study (as explained in its March   2007 report) was determining how well the cost report charges used to   compute CCRs matched to the charges in the MedPAR file. This match (or   lack thereof) directly affects the accuracy of the DRG cost estimates   because MedPAR charges are multiplied by CCRs to estimate cost. RTI   found inconsistent reporting between the cost reports and the claims   data for charges in several ancillary departments (Medical Supplies,   Operating Room, Cardiology, and Radiology). For example, the data   suggested that some hospitals often include costs and charges for   devices and other medical supplies within the Medicare cost report cost   centers for Operating Room, Radiology, or Cardiology, while other   hospitals include them in the Medical Supplies Charged to Patients cost   center. While the educational initiative undertaken by the national   hospital associations is encouraging hospitals to consistently report   costs and charges for devices and other medical supplies only in the   Medical Supplies Charged to Patients cost center, equal attention must   be paid to the way in which charges are grouped by hospitals in the   MedPAR file. Several commenters on the FY 2008 IPPS proposed rule   supported RTI's recommendation of including additional fields in the   MedPAR file to disaggregate certain cost centers. One commenter stated   that the assignment of revenue codes and charges to revenue centers in   the MedPAR file should be reviewed and changed to better reflect   hospital accounting practices as reflected on the cost report (72 FR   47198).      In an effort to improve the match between the costs and charges   included on the cost report and the charges in the MedPAR file, in the   FY 2009 IPPS proposed rule, we recommended that certain revenue codes   be used for items reported in the proposed Medical Supplies Charged to   Patients cost center and the proposed Implantable Devices Charged to   Patients cost center, respectively. Specifically, under the proposal to   create a cost center for implantable devices that remain in the patient   upon discharge, revenue codes 0275 (Pacemaker), 0276 (Intraocular   Lens), and 0278 (Other Implants) would correspond to implantable   devices reported in the proposed Implantable Devices Charged to   Patients cost center. Items for which a hospital may have previously   used revenue code 0270 (General Classification), but actually meet the   proposed definition of an implantable device that remains in the   patient upon discharge should instead be billed with the 0278 revenue   code. Conversely, relatively inexpensive items and supplies that are   not implantable and do not remain in the patient at discharge would be   reported in the proposed Medical Supplies Charged to Patients cost   center on the cost report, and should be billed with revenue codes 0271   (nonsterile supply), 0272 (sterile supply), and 0273 (take-home   supplies), as appropriate. Revenue code 0274 (Prosthetic/Orthotic   devices) and revenue code 0277 (Oxygen--Take Home) should be associated   with the costs reported on lines 66 and 67 for DME-Rented and DME-Sold   on the cost report. Charges associated with supplies used incident to   radiology or to other diagnostic services (revenue codes 0621 and 0622   respectively) should match those items used incident to those services   on the Medical Supplies Charged to Patients cost center of the cost   report, because, under this proposal, supplies furnished incident to a   service would be reported in the Medical Supplies Charged to Patients   cost center. (We refer readers to item b. as listed under the proposed   definition of a device in section II.E.4. of the preamble of this final   rule.) A revenue code of 0623 for surgical dressings would similarly be   associated with the costs and charges of items reported in the proposed   Medical Supplies Charged to Patients cost center, while a revenue code   of 0624 for FDA investigational device, if that device does not remain   in the patient upon discharge, could be associated with items reported   on the Medical Supplies Charged to Patients cost center as well.      In general, proper reporting would dictate that if an item is   reported as an implantable device on the cost report, it is an item for   which the NUBC would require use of revenue code 0275 (Pacemaker), 0276   (Intraocular Lens), 0278 (Other Implants), or 0624 (Investigational   Device). Likewise, items reported as Medical Supplies Charged to   Patients should receive an appropriate revenue code indicative of   supplies. We understand that many of these revenue codes have been in   existence for many years and have been added for purposes unrelated to   the goal of refining the calculation of cost-based weights.   Accordingly, in the proposed rule, we acknowledged that additional   instructions relating to the appropriate use of these revenue codes may   need to be issued. In addition, CMS or the hospital associations, or   both, may need to request new revenue codes from the NUBC. In either   case, we do not believe either action should delay use of the new   Medical Supplies and Implantable Devices CCRs in setting payment rates.   However, in light of our proposal to create two separate cost centers   for Medical Supplies Charged to Patients and Implantable Devices   Charged to Patients, respectively, we solicited comments on how the   existing revenue codes or additional revenue codes could best be used   in conjunction with the revised cost centers on the cost report.      Comment: Two commenters supported CMS' efforts to better match   costs and charges and reduce charge compression, but remained concerned   about ``three key problems'' that result from using two different data   sources (MedPAR and the cost report) to calculate relative weights:       First, the method used by CMS to group hospital charges   for the MedPAR files differs from that used by hospitals to group   Medicare charges, total charges, and overall costs on the cost report.       Second, hospitals group their Medicare charges, total   charges, and overall costs in different departments on their cost   reports for various reasons.       Third, hospitals across the country complete their cost   reports in different ways, as allowed by CMS. In addition,   interpretations of Medicare allowable costs vary from one fiscal   intermediary/MAC to another.      The commenters were concerned that CMS' proposal might require   hospitals to manually track a patient bill through several departments   of the hospital to obtain information about implantable devices used,   an effort that is difficult and inefficient. The commenters also stated   that the combined use of hospital-specific charges and a national CCR   result in a distortion of the MS-DRG relative weights and a shifting of   Medicare payments among hospitals, not based on resource utilization,   but rather on a mathematical calculation. One commenter recommended   that CMS continue to collaborate with the workgroup heading up the   educational initiative to develop a mechanism for determining the cost   of implantable devices.      Response: The commenters are correct that hospitals do have some   flexibility in how they report and group charges, but we note that   hospitals must separately apportion the costs of each ancillary   department and not combine them with other ancillary departments   (Section 2200.3 of the PRM-I). Further, hospitals must include costs   and charges of separately chargeable medical supplies in the cost   center for Medical Supplies Charged to Patients (Section 2202.6 of the   PRM-I), and effective for    [[Page 48470]]    cost reporting periods beginning after the Spring of 2009, hospitals   must include separately chargeable implantable medical devices in the   new ``Implantable Devices Charged to Patients'' cost center. Further,   because we are finalizing the policy that the existing revenue codes   and definitions are to be used to determine whether an item is reported   as a supply or an implantable device on the cost report, hospitals must   ensure that they choose the most appropriate revenue codes in the 027x   and 062x series to report supplies and implantable devices and   subsequently matched to the appropriate cost center. As evidenced in   the preceding comment summary, the vast majority of commenters believe   that this is the least administratively burdensome approach for   hospitals, and therefore, we are optimistic that the commenters'   hospitals also have the capability to adapt to more careful cost   reporting practices that are aligned with Medicare policy and the   method used by CMS to group costs and charges in the relative weight   calculation. We also do not believe that the use of hospital-specific   charges together with national average CCRs redistributes Medicare   payments among hospitals merely based on a mathematical calculation. As   we stated in the FY 2008 IPPS final rule with comment period (72 FR   47197), ``on the contrary, a system that improves payment accuracy and   moderates the influence of individual hospital reporting practices on a   national payment system is not one which haphazardly redistributes   payments. We note that, in a report issued in July 2006, the GAO found   that CMS' system of national CCRs shows promise to improve payment   accuracy because it reduces the impact that individual hospital-  reporting practices has on the DRG relative weights (GAO-06-880,   ``CMS's Proposed Approach to Set Hospital Inpatient Payments Appears   Promising'').''      Comment: One commenter recommended that CMS revise the MedPAR file   to be consistent with the 23 revenue center groups identified by the   RTI report. The commenter believed this is a feasible long-term step   because the MedPAR file is derived from a larger claims data set that   has more detailed charge information that can be matched to the 23   revenue centers analyzed by RTI.      Response: In RTI's 2008 report, RTI recommended, as a medium-term   goal, that CMS expand the MedPAR file to include separate fields that   disaggregate several existing charge departments. RTI recommended that   the new fields should include those used to compute the statistically   disaggregated CCRs. To expand MedPAR, we would have to get detailed   charge information from the Standard Analytic File. We agree that more   detailed charge information on the MedPAR file would allow us to create   more refined CCRs to mitigate charge compression. As we indicated in   the FY 2008 final rule with comment period (72 FR 47198), we will   consider suggestions for modifying the MedPAR in conjunction with other   competing priorities we have for our information systems.      Comment: One commenter recommended that CMS update its device-  dependent MS-DRG tables with a crosswalk to the specific Level II HCPCS   device codes used in the associated surgical procedures. The commenter   stated that although inpatient claims do not report HCPCS codes, most   hospital chargemasters list device charges with the associated HCPCS   codes and UB revenue center. The commenter further stated that when a   device HCPCS code is entered on an inpatient claim, the HCPCS code is   repressed but the device UB revenue code is shown on the claim along   with the corresponding charge. The commenter believed the development   of a HCPCS code to MS-DRG crosswalk would help providers validate that   device charges are being uniformly captured on patients' claims,   regardless of their inpatient or outpatient status. The commenter   believed this crosswalk could also support development of a claim edit   for both inpatient and outpatient claims based on the reporting of   specific UB revenue codes and device HCPCS codes that would result in   payment of a device-dependent MS-DRG or device-dependent APC.      Response: As the commenter noted, unlike the OPPS, payments under   the IPPS are not based on HCPCS codes. The IPPS also differs from the   OPPS in that under the IPPS, the costs of individual services, even   those using expensive devices, are components of the costs of a much   larger group of services provided to a particular patient, and   therefore, larger payment groups using more claims insure against bias   in an MS-DRG weight despite possible errors in reporting the charge for   an expensive device. Further, adoption of such a claim edit policy   could require burdensome changes in coding practices by some hospitals.   Therefore, we are not adopting the commenter's recommendation.      Comment: One commenter urged CMS to undertake an analysis of the FY   2007 fourth quarter MedPAR claims to determine whether documentation   and coding-related payment increases are evident, and whether they are   peculiar to most hospitals or only to a subset of hospitals. The   commenter asked that if CMS observes that only a subset of hospitals   are driving the documentation and coding-related increases, CMS hold   the blend of the CMS DRG and the MS-DRG relative weights at 50/50 for   FY 2009. Another commenter recommended that, in FY 2009, CMS continue   to blend the CMS DRG and MS-DRG relative weights at 50/50 because the   FY 2007 MedPAR claims that are used to calculate the FY 2009 relative   weights do not reflect the significant changes that were made to the   IPPS in FY 2008 (that is, the move to MS-DRGs and the revised CC list).   The commenter believed that delaying full implementation of the MS-DRG   weights until FY 2010 would allow use of the FY 2008 MedPAR claims   data, which would reflect a full year of services coded under the new   MS-DRGs and CC list. The commenters argued that this will, in turn,   help improve the accuracy and consistency of the cost-based MS-DRG   relative weights.      Response: Because of the limited time we had available to address   the public comments as well as analyze the FY 2007 fourth quarter   MedPAR data, we were unable to perform an indepth analysis of where   documentation and coding-related payment increases were most evident.   However, we did perform some analysis, which did not show any obvious   trends in subsets of hospitals. Furthermore, use of the FY 2007 MedPAR   claims to set the FY 2009 MS-DRG relative weights represents the most   recent and best data available from which to do so. Therefore, because   we did not propose to delay the full implementation of the MS-DRGs and   their attending relative weights in FY 2009, we are finalizing the   transition to 100 percent MS-DRGs in FY 2009.      Comment: One commenter expressed concern about the effect that a   new CCR for Medical Devices might have on its Medicaid reimbursement   because Medicaid does not pay for devices and the CCR for Medical   Supplies and Equipment would be diluted.      Response: The cost-based relative weights were developed solely   using Medicare data. We are concerned that non-Medicare payers may be   using our payment systems and rates without making refinements to   address the needs of their own populations. We encourage non-Medicare   payers to adapt the MS-DRGs and the relative weight methodology to   better serve their needs.      Comment: Numerous commenters asked that CMS make changes to the   cost report or other changes to resolve concerns with charge   compression in    [[Page 48471]]    hospital OPPS weights for pharmacy services, radiology services,   radiopharmaceuticals, drugs and biologicals, and other services paid   under the OPPS.      Response: These comments are out of the scope of this final rule   because we proposed only to change the cost report to address charge   compression for devices under both the IPPS and the OPPS. The CY 2009   OPPS/ASC proposed rule was published in the Federal Register on July   18, 2008 (73 FR 41416), and public comments on the effects of charge   compression on the OPPS weights for items and services other than   devices should be made in response to that proposed rule. The comment   period for the OPPS/ASC proposed rule closes at 5 p.m. E.S.T. on   September 2, 2008.    F. Preventable Hospital-Acquired Conditions (HACs), Including   Infections    1. General Background      In its landmark 1999 report ``To Err is Human: Building a Safer   Health System,'' the Institute of Medicine found that medical errors,   particularly hospital-acquired conditions (HACs) caused by medical   errors, are a leading cause of morbidity and mortality in the United   States. The report noted that the number of Americans who die each year   as a result of medical errors that occur in hospitals may be as high as   98,000. The cost burden of HACs is also high. Total national costs of   these errors due to lost productivity, disability, and health care   costs were estimated at $17 to $29 billion.\2\ In 2000, the CDC   estimated that hospital-acquired infections added nearly $5 billion to   U.S. health care costs every year.\3\ A 2007 study found that, in 2002,   1.7 million hospital-acquired infections were associated with 99,000   deaths.\4\ Research has also shown that hospitals are not following   recommended guidelines to avoid preventable hospital-acquired   infections. A 2007 Leapfrog Group survey of 1,256 hospitals found that   87 percent of those hospitals do not follow recommendations to prevent   many of the most common hospital-acquired infections.\5\ The costs   associated with hospital-acquired infections are particularly   burdensome for Medicare, as Medicare covers a greater portion of   patients with hospital-acquired infections than other payers. One study   found that the payer mix for patients without infections was 37 percent   Medicare, 28 percent commercial, 21 percent other, and 14 percent   Medicaid, while the payer mix for patients with hospital-acquired   infections was 57 percent Medicare, 17 percent commercial, 15 percent   other, and 11 percent Medicaid.\6\  ---------------------------------------------------------------------------        \2\ Institute of Medicine: To Err Is Human: Building a Safer   Health System, November 1999. Available at: http://www.iom.edu/  Object.File/Master/4/117/ToErr-8pager.pdf.      \3\ Centers for Disease Control and Prevention: Press Release,   March 2000. Available at: http://www.cdc.gov/od/oc/media/pressrel/  r2k0306b.htm.      \4\ Klevens et al. Estimating Health Care-Associated Infections   and Deaths in U.S. Hospitals, 2002. Public Health Reports. March-  April 2007. Volume 122.      \5\ 2007 Leapfrog Group Hospital Survey. The Leapfrog Group   2007. Available at: http://www.leapfroggroup.org/media/file/  Leapfrog_hospital_acquired_infections_release.pdf.      \6\ 1.6 Million Admission Analysis, MedMined, Inc. September   2006.  ---------------------------------------------------------------------------        As one approach to combating HACs, including infections, in 2005   Congress authorized CMS to adjust Medicare IPPS hospital payments to   encourage the prevention of these conditions. The preventable HAC   provision at section 1886(d)(4)(D) of the Act is part of an array of   Medicare value-based purchasing (VBP) tools that CMS is using to   promote increased quality and efficiency of care. Those tools include   measuring performance, using payment incentives, publicly reporting   performance results, applying national and local coverage policy   decisions, enforcing conditions of participation, and providing direct   support for providers through Quality Improvement Organization (QIO)   activities. CMS' application of VBP tools through various initiatives,   such as this HAC provision, is transforming Medicare from a passive   payer to an active purchaser of higher value health care services. We   are applying these strategies for inpatient hospital care and across   the continuum of care for Medicare beneficiaries.      Additionally, the President's FY 2009 Budget outlines another   approach for addressing serious preventable adverse events (``never   events''), including HACs (see section II.F.9. below for a discussion   regarding which HACs are included in the list of Serious Reportable   Adverse Events). The President's Budget proposal would: (1) Prohibit   hospitals from billing the Medicare program for ``never events'' and   prohibit Medicare payment for these events and (2) require hospitals to   report any occurrence of these events or receive a reduced annual   payment update.      Medicare's IPPS encourages hospitals to treat patients efficiently.   Hospitals receive the same DRG payment for stays that vary in length   and in the services provided, which gives hospitals an incentive to   avoid unnecessary costs in the delivery of care. In some cases,   complications acquired in the hospital do not generate higher payments   than the hospital would otherwise receive for uncomplicated cases paid   under the same DRG. To this extent, the IPPS encourages hospitals to   avoid complications. However, complications, such as infections   acquired in the hospital, can generate higher Medicare payments in two   ways. First, the treatment of complications can increase the cost of a   hospital stay enough to generate an outlier payment. However, the   outlier payment methodology requires that a hospital experience a large   loss on an outlier case, which serves as an incentive for hospitals to   prevent outliers. Second, under the MS-DRGs that took effect in FY   2008, there are currently 258 sets of MS-DRGs that are split into 2 or   3 subgroups based on the presence or absence of a complicating   condition (CC) or a major complicating condition (MCC). If a condition   acquired during a hospital stay is one of the conditions on the CC or   MCC list, the hospital currently receives a higher payment under the   MS-DRGs (prior to the October 1, 2008 effective date of the HAC payment   provision). Medicare will continue to assign a discharge to a higher   paying MS-DRG if the selected condition is present on admission. (We   refer readers to section II.D. of the FY 2008 IPPS final rule with   comment period for a discussion of DRG reforms (72 FR 47141).) The   following is an example of how an MS-DRG may be paid under the HAC   provision:    [[Page 48472]]        ------------------------------------------------------------------------                                              Present on   Service: MS-DRG assignment * (examples     admission    below with CC/MCC indicate a single       (status of    Median payment         secondary diagnosis only)            secondary                                              diagnosis)  ------------------------------------------------------------------------  Principal Diagnosis:       Intracranial hemorrhage or  ...............       $5,347.98       cerebral infarction (stroke)       without CC/MCC--MS-DRG 066........  ------------------------------------------------------------------------  Principal Diagnosis:       Intracranial hemorrhage or               Y         6,177.43       cerebral infarction (stroke) with       CC--MS-DRG 065....................  Example Secondary Diagnosis:       Dislocation of patella-       open due to a fall (code 836.4       (CC))  ------------------------------------------------------------------------  Principal Diagnosis:       Intracranial hemorrhage or               N         5,347.98       cerebral infarction (stroke) with       CC--MS-DRG 065....................  Example Secondary Diagnosis:       Dislocation of patella-       open due to a fall (code 836.4       (CC))  ------------------------------------------------------------------------  Principal Diagnosis:       Intracranial hemorrhage or               Y         8,030.28       cerebral infarction (stroke) with       MCC--MS-DRG 064...................  Example Secondary Diagnosis:       Stage III pressure ulcer       (code 707.23 (MCC))  ------------------------------------------------------------------------  Principal Diagnosis:       Intracranial hemorrhage or               N         5,347.98       cerebral infarction (stroke) with       MCC--MS-DRG 064...................  Example Secondary Diagnosis:       Stage III pressure ulcer       (code 707.23 (MCC))  ------------------------------------------------------------------------  * Operating amounts for a hospital whose wage index is equal to the    national average. Based on FY 2008 wage index.        This example illustrates a payment scenario in which the CC/MCC   indicates a single secondary diagnosis only. It is atypical for a   hospitalized Medicare beneficiary to have only one secondary   diagnosis.\7\  ---------------------------------------------------------------------------        \7\ Medicare Payment for Selected Adverse Events: Building the   Business Case for Investing in Patient Safety. Health Affairs. Zhan   et al. September 2006.  ---------------------------------------------------------------------------    2. Statutory Authority      Section 1886(d)(4)(D) of the Act required the Secretary to select   at least two conditions by October 1, 2007, that are: (a) High cost,   high volume, or both; (b) assigned to a higher paying MS-DRG when   present as a secondary diagnosis; and (c) could reasonably have been   prevented through the application of evidence-based guidelines.   Beginning October 1, 2008, Medicare can no longer assign an inpatient   hospital discharge to a higher paying MS-DRG if a selected HAC is not   present on admission. That is, the case will be paid as though the   secondary diagnosis were not present. Medicare will continue to assign   a discharge to a higher paying MS-DRG if the selected condition is   present on admission. However, if any nonselected CC/MCC appears on the   claim, the claim will be paid at the higher MS-DRG rate; to cause a   lower MS-DRG payment, all CCs/MCCs on the claim must be selected   conditions for the HAC payment provision. Section 1886(d)(4)(D) of the   Act provides that the list of conditions can be revised from time to   time, as long as the list contains at least two conditions. Beginning   October 1, 2007, we required hospitals to begin submitting information   on Medicare claims specifying whether diagnoses were present on   admission (POA).      The POA indicator reporting requirement and the HAC payment   provision apply to IPPS hospitals only. At this time, non-IPPS   hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals,   children's inpatient hospitals, and hospitals in Maryland operating   under waivers, are exempt from POA reporting and the HAC payment   provision. Throughout this section, ``hospital'' refers to IPPS   hospitals.  3. Public Input      In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public   input regarding conditions with evidence-based prevention guidelines   that should be selected in implementing section 1886(d)(4)(D) of the   Act. The public comments we received were summarized in the FY 2007   IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS   proposed rule (72 FR 24716), we sought formal public comment on   conditions that we proposed to select. In the FY 2008 IPPS final rule   with comment period (72 FR 47200 through 47218), we summarized the   public comments we received on the FY 2008 IPPS proposed rule,   presented our responses, selected eight conditions to which the HAC   provision will apply, and noted that we would be seeking comments on   additional HAC candidates in the FY 2009 IPPS proposed rule.      In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed   several candidate HACs in addition to proposing refinements to the   previously selected HACs. In this FY 2009 IPPS final rule, we summarize   the public comments we received on the FY 2009 IPPS proposed rule,   present our responses, select additional conditions to which the HAC   payment provision will apply, and note that we will be seeking comments   on additional HAC candidates in the FY 2010 IPPS proposed rule.  4. Collaborative Process      CMS experts worked closely with public health and infectious   disease professionals from the CDC to identify the candidate   preventable HACs, review comments, and select HACs. CMS and CDC staff   also collaborated on the process for hospitals to submit a POA   indicator for each diagnosis listed on IPPS hospital Medicare claims   and on the payment implications of the various POA reporting options.      On December 17, 2007, CMS and CDC hosted a jointly-sponsored HAC   and POA Listening Session to receive input from interested   organizations and individuals. The agenda, presentations, audio file,   and written transcript of the listening session are available on the   CMS Web site at: http://www.cms.hhs.gov/HospitalAcqCond/07_  EducationalResources.asp. CMS and CDC also received verbal comments    [[Page 48473]]    during the listening session and subsequently received numerous written   comments.      Comment: Several commenters recommended that CMS develop an   advisory panel of clinicians and scientists to provide the agency with   guidance on which conditions are appropriate for inclusion under this   policy.      Response: We are committed to working with stakeholders as we   refine and make additions to the HAC list each year. We intend to   engage the public through rulemaking as discussed in section II.F.3. of   this preamble and other mechanisms similar to those discussed above.  5. Selection Criteria for HACs      In selecting proposed candidate conditions and finalizing   conditions as HACs, CMS and CDC staff evaluated each condition against   the criteria established by section 1886(d)(4)(D)(iv) of the Act.       Cost or Volume--Medicare data \8\ must support that the   selected conditions are high cost, high volume, or both. We have not   yet analyzed Medicare claims data indicating which secondary diagnoses   were POA because POA indicator reporting began only recently;   therefore, the currently available data for candidate conditions   includes all secondary diagnoses.  ---------------------------------------------------------------------------        \8\ For the HAC section of this FY 2009 IPPS final rule, the DRG   analysis is based on data from the September 2007 update of the FY   2007 MedPAR file, which contains hospital bills received through   September 30, 2007.  ---------------------------------------------------------------------------         Complicating Condition (CC) or Major Complicating   Condition (MCC)--Selected conditions must be represented by ICD-9-CM   diagnosis codes that clearly identify the condition, are designated as   a CC or an MCC, and result in the assignment of the case to an MS-DRG   that has a higher payment when the code is reported as a secondary   diagnosis. That is, selected conditions must be a CC or an MCC that   would, in the absence of this provision, result in assignment to a   higher paying MS-DRG.       Evidence-Based Guidelines--Selected conditions must be   considered reasonably preventable through the application of evidence-  based guidelines. By reviewing guidelines from professional   organizations, academic institutions, and entities such as the   Healthcare Infection Control Practices Advisory Committee (HICPAC), we   evaluated whether guidelines are available that hospitals should follow   to prevent the condition from occurring in the hospital.       Reasonably Preventable--Selected conditions must be   considered reasonably preventable through the application of evidence-  based guidelines.  6. HACs Selected During FY 2008 IPPS Rulemaking and Changes to Certain   Codes      The conditions that were selected for the HAC payment provision   through the FY 2008 IPPS final rule with comment period are listed   below. The HAC payment provision implications for these selected HACs   will take effect on October 1, 2008. We refer readers to section   II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202   through 47218) for a detailed analysis supporting the selection of each   of these HACs.    ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY       CC/MCC  (ICD-9-CM     Selected evidence-based               Selected HAC                       2007)                    codes)                 guidelines  ----------------------------------------------------------------------------------------------------------------  Foreign Object Retained After Surgery   750 cases *...  998.4 (CC) or 998.7      NQF Serious Reportable                                          $63,631/         (CC).                    Adverse Event.                                          hospital stay.**.                                NQF's Safe Practices                                                                                            for Better Healthcare                                                                                            available at the Web                                                                                            site: http://                                                                                            www.ahrq.gov/qual/                                                                                            nqfpract.htm.  Air Embolism.........................   57 cases......  999.1 (MCC)............  NQF Serious Reportable                                          $71,636/                                  Adverse Event.                                          hospital stay..                                  NQF's Safe Practices                                                                                            for Better Healthcare                                                                                            available at the Web                                                                                            site: http://                                                                                            www.ahrq.gov/qual/                                                                                            nqfpract.htm.  Blood Incompatibility................   24 cases......  999.6 (CC).............  NQF Serious Reportable                                          $50,455/                                  Adverse Event.                                          hospital stay..                                  NQF's Safe Practices                                                                                            for Better Healthcare                                                                                            available at the Web                                                                                            site: http://                                                                                            www.ahrq.gov/qual/                                                                                            nqfpract.htm.  Pressure Ulcer Stages III & IV.......   257,412 cases   707.23 (MCC) or 707.24   NQF Serious Reportable                                          ***.                     (MCC).                   Adverse Event.                                          $43,180/                                 Available at the Web                                          hospital stay..                                   site: http://                                                                                            www.ncbi.nlm.nih.gov/                                                                                            books/                                                                                            bv.fcgi?rid=hstat2.cha                                                                                            pter.4409.  Falls and Trauma:....................   193,566 cases.  Codes within these       NQF Serious Reportable  --Fracture...........................   $33,894/         ranges on the CC/MCC     Adverse Events address  --Dislocation........................   hospital stay..          list: 800-829, 830-      falls, electric shock,  --Intracranial Injury................                            839, 850-854, 925-929,   and burns.  --Crushing Injury....................                            940-949, 991-994.       NQF's Safe Practices  --Burn...............................                                                     for Better Healthcare  --Electric Shock.....................                                                     available at the Web                                                                                            site: http://                                                                                            www.ahrq.gov/qual/                                                                                            nqfpract.htm.  Catheter-Associated Urinary Tract       12,185 cases..  996.64 (CC)............  Available at the Web   Infection (UTI).                       $44,043/        Also excludes the         site: http://                                          hospital stay..          following from acting    www.cdc.gov/ncidod/                                                                   as a CC/MCC: 112.2       dhqp/gl--catheter--                                                                   (CC), 590.10 (CC),       assoc.html.                                                                   590.11 (MCC), 590.2                                                                   (MCC), 590.3 (CC),                                                                   590.80 (CC), 590.81                                                                   (CC), 595.0 (CC),                                                                   597.0 (CC), 599.0                                                                   (CC)..  Vascular Catheter-Associated            29,536 cases..  999.31 (CC)............  Available at the Web   Infection.                             $103,027/                                 site: http://                                          hospital stay..                                   www.cdc.gov/ncidod/                                                                                            dhqp/gl_                                                                                            intravascular.html.    [[Page 48474]]      Surgical Site Infection-Mediastinitis   69 cases......  519.2 (MCC)............  Available at the Web   After Coronary Artery Bypass Graft     $299,237/       And one of the            site: http://   (CABG).                                hospital stay..          following procedure      www.cdc.gov/ncidod/                                                                   codes: 36.10-36.19..     dhqp/gl--                                                                                            surgicalsite.html.  ----------------------------------------------------------------------------------------------------------------  * A case represents a patient discharge identified from the MedPAR database that met the associated HAC    diagnosis/procedure criteria (a secondary diagnosis on the HAC list and, where appropriate, a procedure code    described in conjunction with a specific HAC).  ** Standardized charge is the total charge for a patient discharge record based on the CMS standardization file.    The average standardized charge for the HAC is the average charge for all patient discharge records that met    the associated HAC criteria.  *** The number of cases of pressure ulcers reflects CC/MCC assignments for codes 707.00 through 707.07 and    707.09, which are currently being reported. New MCC codes 707.23 and 707.24 will be implemented on October 1,    2008.        In the FY 2009 IPPS proposed rule (73 FR 23552), we sought public   comments on the following refinements to two of the previously selected   HACs:  a. Foreign Object Retained After Surgery      In the FY 2009 IPPS proposed rule (73 FR 23552), we solicited   public comments regarding the inclusion of ICD-9-CM diagnosis code   998.7 (Acute reaction to foreign substance accidentally left during a   procedure) to more accurately and completely identify foreign object   retained after surgery as an HAC.      Comment: Commenters universally supported the addition of ICD-9-CM   code 998.7 to identify foreign object retained after surgery as an HAC.   The commenters also reiterated their support for recognizing foreign   object retained after surgery as an HAC.      Response: We appreciate the commenters' support. We refer readers   to a more detailed discussion of HAC coding for foreign object retained   after surgery in section II.F.10.a. of this preamble.      After consideration of the public comments received, we are   finalizing our proposal to include diagnosis code 998.7 as an   additional code to code 998.4 selected in FY 2008 to identify foreign   object retained after surgery as an HAC under the HAC payment   provision.                      Foreign Object Retained After Surgery  ------------------------------------------------------------------------            ICD-9-CM codes                      Code descriptor  ------------------------------------------------------------------------  998.4............................  Foreign body accidentally left during                                      a procedure.  998.7............................  Acute reaction to foreign substance                                      accidentally left during a                                      procedure.  ------------------------------------------------------------------------    b. Pressure Ulcers      In the FY 2009 IPPS proposed rule (73 FR 23552), we proposed that,   beginning October 1, 2008, the codes used to make MS-DRG adjustments   for pressure ulcers under the HAC provision would include proposed MCC   codes 707.23 and 707.24 (pressure ulcer stages III and IV).      Comment: Commenters supported the creation of the new ICD-9-CM   codes 707.23 and 707.24 to capture the stage of the pressure ulcer and   supported the use of these codes to identify pressure ulcer stages III   and IV as HACs. However, some commenters expressed concern about the   proposal to classify ICD-9-CM codes 707.23 and 707.24 as MCCs and to   remove the CC/MCC classifications from the existing pressure site   codes.      Response: We appreciate the commenters support for using codes   707.23 and 707.24 to identify pressure ulcer stages III and IV as HACs.      In response to the commenters' concerns regarding the CC/MCC   classification for these codes, we refer readers to section II.G.12. of   this preamble where we address specific concerns about the creation of   new codes for identifying pressure ulcers.      After consideration of public comments received, we are adopting as   final our proposal that, beginning October 1, 2008, the codes used to   identify pressure ulcer stages III and IV as HACs include the following   MCC codes:                                 Pressure Ulcers  ------------------------------------------------------------------------            ICD-9-CM codes                      Code descriptor  ------------------------------------------------------------------------  707.23...........................  Pressure ulcer, stage III.  707.24...........................  Pressure ulcer, stage IV.  ------------------------------------------------------------------------    7. Candidate HACs      CMS and CDC have diligently worked together and with other   stakeholders to identify and select candidates for the HAC payment   provision. The additional candidate HACs selected in this FY 2009 IPPS   final rule will have payment implications beginning October 1, 2008.      As in the FY 2009 IPPS proposed rule, we present in this final rule   the statutory criteria for each HAC candidate in tabular format. Each   table contains the following:       HAC Candidate--We sought public comment on all HAC   candidates.       Medicare Data--We sought public comment on the statutory   criterion of high cost, high volume, or both as it applies to each HAC   candidate.       CC/MCC--We sought public comment on the statutory   criterion that an ICD-9-CM diagnosis code(s) clearly identifies the HAC   candidate.       Selected Evidence-Based Guidelines--We sought public   comment on whether guidelines are available that hospitals should   follow to prevent the condition from occurring in the hospital.       Reasonably Preventable--We sought public comment on   whether each condition could be considered reasonably preventable   through the application of evidence-based guidelines.      Comment: Many commenters recommended various general standards for   determining which conditions could reasonably have been prevented   through the application of evidence-based guidelines. The majority of   commenters favored a zero, or near zero, standard for those conditions   to be considered reasonably preventable when evidence-based guidelines   are followed.      Response: We did not propose and did not specifically seek public   comments on a general standard for reasonably preventable through the   application of evidence-based guidelines in the FY 2009 IPPS proposed   rule, and we are not setting a general standard in this final rule. We   further note that the statute does not require that a condition be   ``always preventable'' in order to qualify as an HAC, but rather that   it be ``reasonably preventable,'' which necessarily implies something   less than 100 percent.      After consideration of the public comments received and in light of   the three statutory criteria, we are finalizing several additional   conditions for the HAC payment provision. The additional conditions are   defined by specific codes within the broad categories of manifestations   of poor glycemic control, surgical site infections, and deep vein   thrombosis/pulmonary embolism, as discussed below.    [[Page 48475]]    a. Manifestations of Poor Glycemic Control      Hyperglycemia and hypoglycemia are extremely common laboratory   findings in hospitalized patients and can be complicating features of   underlying diseases and some therapies. However, we believe that   extreme manifestations of poor glycemic control are reasonably   preventable through the application of evidence-based guidelines and   sound medical practice while in the hospital setting; specifically, we   believe that they are preventable through the use of routine serum   glucose measurement and control which are basic elements of good   hospital care.      We originally proposed the diagnosis codes representing four   extreme manifestations of poor glycemic control as HACs, but we are not   finalizing the following codes representing diabetic coma because the   codes are nonspecific and more precise, specific codes are available to   describe the condition: (1) Diabetes with coma, type II or unspecified   type, not stated as controlled (250.30); (2) diabetes with coma, type   I, not stated as controlled (250.31); (3) diabetes with coma, type II   or unspecified type, uncontrolled (250.32); and (4) diabetes with coma,   type I, uncontrolled (250.33).      Comment: Commenters generally considered all of the manifestations   of poor glycemic control together. The majority of commenters agreed   that these extreme manifestations of poor glycemic control are   reasonably preventable through the application of evidence-based   guidelines. In support of selecting this condition, one commenter   provided additional evidence-based guidelines addressing glycemic   control.      Response: We agree with commenters that extreme manifestations of   poor glycemic control are reasonably preventable through the   application of evidence-based guidelines. We are including the   additional evidence-based guidelines submitted by a commenter in the   chart for manifestations of poor glycemic control below.      Comment: Of the proposed codes representing the manifestations of   poor glycemic control, hypoglycemic coma received the most attention   from commenters. Many commenters considered hypoglycemic coma to be a   strong candidate because it is included in the NQF's list of Serious   Reportable Adverse Events.      Response: We agree with commenters that hypoglycemic coma is   reasonably preventable through the application of evidence-based   guidelines.      Comment: Although the majority of commenters supported the   selection of diabetic ketoacidosis, nonketotic hyperosmolar coma, and   hypoglycemic coma as HACs, CMS received a small number of comments   opposing the selection of codes from the manifestations of poor   glycemic control category. Some commenters expressed that recent   studies demonstrate that tight glycemic control in septic patients   leads to poorer outcomes. One commenter identified the diabetic patient   population as high risk, citing an estimate that any person with   insulin-treated diabetes will experience 0.5 to 1.0 severe hypoglycemic   events annually, which appears to not necessarily be within the control   of caregivers.\9\  ---------------------------------------------------------------------------        \9\ The Diabetes Control and Complications Trial. New England   Journal of Medicine, 1993, Vol. 329, pp. 977-986.  ---------------------------------------------------------------------------        Response: We have addressed the commenters' concerns about tight   glycemic control and hypoglycemic events by selecting specific, narrow   codes representing extreme manifestations as HACs. For example, the   commenter's concern about the preventability of all hypoglycemic events   is addressed by selecting as an HAC only the code representing   hypoglycemic coma (251.0), an extreme manifestation. We further note   that the statute does not require that a condition be ``always   preventable'' in order to qualify as an HAC, but rather that it be   ``reasonably preventable,'' which necessarily implies something less   than 100 percent.      Comment: Commenters supported adding the following four secondary   diabetes diagnosis codes: (1) ICD-9-CM code 249.10 (Secondary diabetes   mellitus with ketoacidosis, not stated as uncontrolled, or   unspecified); (2) ICD-9-CM code 249.11 (Secondary diabetes mellitus   with ketoacidosis, uncontrolled); (3) ICD-9-CM code 249.20 (Secondary   diabetes mellitus with hyperosmolarity, not stated as uncontrolled, or   unspecified); and (4) ICD-9-CM code 249.21 (Secondary diabetes mellitus   with hyperosmolarity, uncontrolled). These new secondary diabetes codes   will be effective on October 1, 2008.      Response: We agree with commenters that the secondary diabetes   codes should be included to capture the full range of extreme   manifestations of poor glycemic control as HACs. The secondary diabetes   codes are clinically similar to the proposed codes and including these   codes more accurately captures the range of manifestations of poor   glycemic control.      We are finalizing manifestations of poor glycemic control as an HAC   because we have determined after considering the comments received that   these conditions meet the statutory criteria. The following chart   includes the codes that describe manifestations of the poor glycemic   control as an HAC:    [[Page 48476]]    [GRAPHIC] [TIFF OMITTED] TR19AU08.332      [[Page 48477]]                         Manifestations of Poor Glycemic Control  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  249.10...........................  Secondary diabetes mellitus with                                      ketoacidosis, not stated as                                      uncontrolled, or unspecified.  249.11...........................  Secondary diabetes mellitus with                                      ketoacidosis, uncontrolled.  249.20...........................  Secondary diabetes mellitus with                                      hyperosmolarity, not stated as                                      uncontrolled, or unspecified.  249.21...........................  Secondary diabetes mellitus with                                      hyperosmolarity, uncontrolled.  250.10...........................  Diabetes with ketoacidosis, type II                                      or unspecified type, not stated as                                      uncontrolled.  250.11...........................  Diabetes with ketoacidosis, type I                                      [juvenile type], not stated as                                      uncontrolled.  250.12...........................  Diabetes with ketoacidosis, type II                                      or unspecified type, uncontrolled.  250.13...........................  Diabetes with ketoacidosis, type I                                      [juvenile type], uncontrolled.  250.20...........................  Diabetes with hyperosmolarity, type                                      II or unspecified type, not stated                                      as uncontrolled.  250.21...........................  Diabetes with hyperosmolarity, type I                                      [juvenile type], not stated as                                      uncontrolled.  250.22...........................  Diabetes with hyperosmolarity, type                                      II or unspecified type,                                      uncontrolled.  250.23...........................  Diabetes with hyperosmolarity, type I                                      [juvenile type], uncontrolled.  251.0............................  Hypoglycemic coma.  ------------------------------------------------------------------------    b. Surgical Site Infections      In the FY 2009 IPPS proposed rule (73 FR 23553), we requested   public comments on the applicability of each of the statutory criteria   to surgical site infections following certain procedures. We were   particularly interested in receiving comments on the degree of   preventability of these infections. We also requested, and received,   public comment on additional surgical procedures that would qualify for   the HAC provision by meeting all of the statutory criteria.      Comment: Numerous commenters raised issues regarding the   applicability of each statutory criterion to surgical site infections   generally, especially with regard to degree of preventability.   Commenters raised concerns that patient characteristics and other   factors can put patients at risk for surgical site infections   regardless of the application of evidence-based guidelines. Commenters   asserted that elective procedures have a tendency to be short-stay   admissions or outpatient procedures, and if a surgical site infection   presents after discharge, this HAC would not be captured under the   inpatient provision.      Response: We agree that the risk of a typical patient undergoing a   procedure is a factor in determining whether these conditions are   reasonably preventable (see discussion of risk adjustment in section   II.F.9. of this preamble), but we do not agree that the average length   of stay following the procedure or the ability to perform the procedure   at an alternative site are determinative factors for selecting HACs.      Comment: Some commenters emphasized that certain procedures   typically thought of as elective by clinicians are not necessarily   elective by patients. Two commenters noted that even if total knee   replacement is considered nonemergent and therefore elective from a   clinician's perspective, a patient may consider the surgery critical   and urgent to avoid pain and immobility.      Response: We agree with the commenters that procedures typically   thought of as elective based on urgency are not necessarily viewed as   elective from the perspective of the patient's quality of life. Given   lack of consensus regarding the classification of procedures as   elective, we have discontinued referring to this broad category of   surgical site infections as ``following elective procedures.''      Comment: Many commenters asserted that surgical site infections   following total knee replacement could be considered reasonably   preventable, however those commenters questioned why CMS proposed this   HAC because the candidate codes are CCs, and total knee replacement   procedures typically map to MS-DRGs that only split to MCCs.      Response: We are unable to select this condition as an HAC because,   as commenters noted, surgical site infection is a CC that does not   trigger the higher paying MCC MS-DRG payment for total knee replacement   procedures; thus, it does not meet the second statutory criterion. If a   change to the MS-DRGs results in total knee replacement procedures   mapping to MS-DRGs that split to CCs in the future, we could reconsider   adding surgical site infections following total knee replacement as an   HAC. In addition, we will be reviewing other ICD-9-CM MCC codes   relevant to total knee replacement, and we will consider proposing   those codes as future HAC candidates.      Comment: Commenters addressed the discrepancy between the proposed   CC code (Other postoperative infection) and the MS-DRG split only to   MCC for total knee replacement and suggested that CMS review and   consider adding other procedures that map to MS-DRGs that split by CC.   One commenter referenced a 2002 meta-analysis finding that antibiotic   prophylaxis is successful in significantly reducing the rates of   postoperative spinal infections.\10\  ---------------------------------------------------------------------------        \10\ Baker, F.G.: Efficacy of prophylactic antibiotic therapy in   spinal surgery: A meta-analysis. Neurosurgery. 51(2): 391-400   (2002).  ---------------------------------------------------------------------------        Response: We agree with the commenters' recommendations and   considered additional orthopedic procedures. We identified the   following MS-DRGs that split by CC:       MS-DRGs 453, 454, and 455 (Combined Anterior/Posterior   Spinal Fusion with MCC, CC and without CC/MCC);       MS-DRGs 471, 472, and 473 (Cervical Spinal Fusion, with   MCC, CC and without CC/MCC);       MS-DRGs 507 and 508 (Major Shoulder or Elbow Joint   Procedures, with CC/MCC and without CC/MCC).      In response to commenters' suggestions, we are selecting certain   orthopedic procedures that fall within the MS-DRGs listed above in the   HAC surgical site infection category. The category of surgical site   infection following certain orthopedic surgeries includes selected   procedures that are often elective and that involve the repair,   replacement, or fusion of various joints including the shoulder, elbow,   and spine. In future rulemaking, we will work with stakeholders to   identify additional procedures, orthopedic and other types, for which   surgical site infections can be considered reasonably preventable   through the application of evidence-based guidelines.      The following chart includes the codes that describe surgical site   infection following certain orthopedic procedures as an HAC:         Surgical Site Infection Following Certain Orthopedic Procedures  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  996.67...........................  Infection and inflammatory reaction                                      due to other orthopedic device and                                      implant graft.                                                     --OR--  998.59...........................  Other postoperative infection.                                                    --AND--  81.01............................  Atlas-axis fusion.  81.02............................  Other cervical fusion anterior.  81.03............................  Other cervical fusion posterior.  81.04............................  Dorsal/dorsolum fusion anterior.    [[Page 48478]]      81.05............................  Dorsal/dorsolum fusion posterior.  81.06............................  Lumbar/lumbosac fusion anterior.  81.07............................  Lumbar/lumbosac fusion lateral.  81.08............................  Lumbar/lumbosac fusion posterior.  81.23............................  Arthrodesis of shoulder.  81.24............................  Arthrodesis of elbow.  81.31............................  Refusion of atlas-axis.  81.32............................  Refusion of other cervical spine                                      anterior.  81.33............................  Refusion of other cervical spine                                      posterior.  81.34............................  Refusion of dorsal spine anterior.  81.35............................  Refusion of dorsal spine posterior.  81.36............................  Refusion of lumbar spine anterior.  81.37............................  Refusion of lumbar spine lateral.  81.38............................  Refusion of lumbar spine posterior.  81.83............................  Shoulder arthroplast NEC.  81.85............................  Elbow arthroplast NEC.  ------------------------------------------------------------------------        We proposed surgical site infections following ligation and   stripping of varicose veins as an HAC, but we are not finalizing this   procedure because these MS-DRGs do not currently split into severity   levels based on the presence of a CC, and the surgical site infection   code is a CC. Thus, surgical site infection following ligation and   stripping of varicose veins does not currently meet the second   statutory HAC selection criterion of triggering the higher-paying MS-  DRG.      We solicited comments on each of the statutory criteria as they   apply to surgical site infections following laparoscopic bypass and   gastroenterostomy. Laparoscopic gastroenterostomy (44.38) includes   several different types of gastric bypass procedures, all of which are   done using a laparoscope to avoid surgically opening the abdomen   (laparotomy). Gastroenterostomy (44.39) is a general term that   describes surgically connecting the stomach to another area of the   intestine.      Comment: Some commenters pointed out that the 208 cases cited in   the FY 2009 IPPS proposed rule (73 FR 23553) is a relatively small   number of cases, which may not meet the statutory criterion of high   cost, high volume, or both.      Response: As noted in the FY 2009 IPPS proposed rule, the average   cost of a case with a surgical site infection following laparoscopic   gastric bypass and gastroenterostomy is $180,142 per hospital stay,   which we consider high cost. Thus, this condition meets the high cost   statutory criterion.      Comment: Many stakeholders from provider organizations, including   medical specialty societies, cited that the population undergoing   bariatric surgery for obesity is a high risk population per se; thus,   the condition may not be considered reasonably preventable through the   application of evidence-based guidelines. Commenters noted that these   patients commonly have conditions, such as diabetes and hypertension,   in addition to obesity, which are well-known risk factors for   infections and other post-operative complications.      Response: We recognize that patients undergoing this procedure may   typically be high risk; however, (1) selecting this procedure as an HAC   will have the positive effect of encouraging attention to risk   assessment prior to surgery and (2) conditions such as complicated   forms of diabetes, hypertensive heart and kidney disease, and a body   mass index of 40 or higher are CCs or MCCs under the IPPS payment   system that, when present on the claim, will continue to trigger the   higher-paying MS-DRG. Thus, the usual presence of additional CC/MCCs on   claims for these procedures serves as an ``inherent risk adjuster'' to   payment for typical bariatric surgery cases for obese patients. We   further note that the statute does not require that a condition be   ``always preventable'' in order to qualify as an HAC, but rather that   it be ``reasonably preventable,'' which necessarily implies something   less than 100 percent.      Comment: One commenter noted that gastroenterostomy is routinely   used to bypass a damaged or obstructed duodenum in high risk   populations such as cancer patients.      Response: In 2007, CMS issued Change Request (CR) 5477 regarding   the proper use of ICD-9-CM codes for bariatric surgery for morbid   obesity, available on the Web site at: http://www.cms.hhs.gov/  Transmittals/downloads/R1233CP.pdf. This CR addresses the comment above   by focusing on only those procedures with a primary diagnosis of   obesity (278.01). Further, as referenced in CR 5477, bariatric surgery   for obesity contains the following procedures: (1) Laparoscopic gastric   bypass (44.38), (2) gastroenterostomy (44.39), and (3) laparoscopic   gastric restrictive procedure (44.95). Laparoscopic gastric restrictive   procedure (44.95) refers to the laparoscopic placement of a restrictive   band around the stomach to reduce the effective size. By adopting the   coding scheme laid out in CR 5477, we are finalizing not only 44.38 and   44.39, but also 44.95, as procedures within the HAC category of   surgical site infections following bariatric surgery for obesity. The   addition of Laparoscopic gastric restrictive procedure (44.95) more   completely and accurately captures the range of surgical site infection   following bariatric surgery for obesity as an HAC.      The following chart includes the codes that describe surgical site   infection following bariatric surgery for obesity as an HAC:         Surgical Site Infection Following Bariatric Surgery for Obesity  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  278.01*..........................  Morbid obesity.                                                    --AND--  998.59...........................  Other postoperative infection.                                                    --AND--  44.38............................  Laparoscopic gastroenterostomy.                                                     --OR--  44.39............................  Other gastroenterostomy.                                                     --OR--  44.95............................  Laparoscopic gastric restrictive                                      procedure.  ------------------------------------------------------------------------  *As principal diagnosis.        In the FY 2009 IPPS proposed rule, we requested, and received,   public comment on additional surgical procedures that would meet the   statutory criteria for a surgical site infection HAC.      Comment: A commenter recommended that CMS add surgical site   infection following implantation of cardiac devices as an HAC. The   commenter noted a recent estimate of approximately 300,000 pacemaker   implants performed in 2007.\11\ In addition, the commenter referenced   that the estimated rate of infection following cardiac device   implantation is 4 percent and that the cost to treat each pacemaker   infection is approximately $25,000.\12\ Further, the commenter cited   evidence-based guidelines for preventing these infections.\13\ \14\   \15\  ---------------------------------------------------------------------------        \11\ Morgan, J.P.: Cardiac Rhythm Management, Market Model,   August 31, 2007.      \12\ Darouiche, R.O.: Treatment of Infections Associated with   Surgical Implants, New England Journal of Medicine, 350:1422-9   (2004).      \13\ Bratzler, D. et al.: Antimicrobial Prophylaxis for Surgery:   An Advisory Statement from the National Surgical Infection   Prevention Project, American Journal of Surgery, 189:395-404 (2005).      \14\ Da Costa, A et al.: Antibiotic Prophylaxis for Permanent   Pacemaker Implantation: A Meta-Analysis, Circulation; 97:1796-1801   (1998).      \15\ Klug, D. et al.: Risk Factors Related to Infection of   Implanted Pacemakers and Cardioverter-Defibrillators: Results of a   Large Prospective Study, Circulation, 116:1349-55 (2007).    ---------------------------------------------------------------------------    [[Page 48479]]        Response: We agree with the commenter that surgical site infection   following certain cardiac device procedures is a strong candidate HAC.   The condition is high cost and high volume, triggers a higher-paying   MS-DRG, and may be considered reasonably preventable through the   application of evidence-based guidelines. We did not propose this   specific condition in the FY 2009 IPPS proposed rule; however, we   expect to propose surgical site infection following certain cardiac   device procedures, as well as surgical site infections following other   types of device procedures, as future candidate HACs.      We are selecting surgical site infections following certain   orthopedic procedures, and bariatric surgery for obesity. These   procedures will join mediastinitis following coronary artery bypass   graft (CABG), which was selected in the FY 2008 IPPS final rule with   comment period, as surgical site infection HACs. We look forward to   working with stakeholders to identify additional procedures, such as   device procedures, in which surgical site infections can be considered   reasonably preventable through the application of evidence-based   guidelines.    [[Page 48480]]    [GRAPHIC] [TIFF OMITTED] TR19AU08.331    c. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)      In the FY 2009 IPPS proposed rule, we proposed DVT/PE as a   candidate HAC. We solicited comments on each of the statutory criteria,   with particular focus on the degree to which DVT can be diagnosed on   hospital admission and can be considered reasonably preventable. DVT   occurs when a blood clot forms in the deep veins of an extremity,   usually the leg, and causes pain, swelling, and inflammation. PE occurs   when a clot or piece of a clot migrates from its original site to the   lungs, causing the death of lung tissue, which can be fatal.    [[Page 48481]]        Comment: The majority of commenters emphasized the inability to   determine whether DVT was present on admission. The commenters were   concerned about the lack of a standard clinical definition and   diagnostic criteria, as well as difficulty in identifying at-risk   patients. One commenter suggested that nearly half of all DVT/PEs are   asymptomatic on admission. One commenter explained that obtaining the   most accurate results would require expensive diagnostic testing of all   patients, implying that this strategy would not be cost-effective and   would, therefore, be unreasonable.      Response: The commenters' concerns about the ability to diagnose   DVT do not preclude DVT/PE from being selected as an HAC, as the   attending physician determines whether the condition was present on   admission (``Y'' POA reporting option) or whether presence on admission   cannot be determined based on clinical judgment (``W'' POA reporting   option). Hospitals will continue to be paid the higher MS-DRG amount   for HACs coded as ``Y'' or ``W'' (we refer readers to section II.F.8.   of this preamble).      Comment: Regarding the preventability of DVT/PE, one commenter   cited reduction of DVT/PE occurrence through mentoring and onsite   consultation as a particularly effective intervention strategy.      Response: We agree that the occurrence of DVT/PE can be   significantly reduced through the use of intervention strategies,   including mentoring and onsite consultation.      Comment: A large proportion of commenters underscored the   importance of considering risk factors in weighing the degree of   preventability. Commenters noted that common risk factors, some of   which cannot be modified, include clotting disorders, obesity,   hypercoagulable state, cancer, HIV, or rheumatoid arthritis.      Response: We agree with commenters that the risk factors of a   typical patient are important to consider when weighing the degree of   preventability as it applies to DVT/PE (discussion of risk adjustment   in section II.F.9. of this preamble). Selecting DVT/PE for these   procedures as an HAC will have the positive effect of encouraging   attention to risk assessment prior to surgery. Further, conditions such   as clotting disorders, obesity, hypercoagulable state, cancer, HIV, and   rheumatoid arthritis are CCs or MCCs under the IPPS payment system   that, when present on the claim, will continue to trigger the higher-  paying MS-DRG. Thus, the usual presence of additional CC/MCCs on claims   for these procedures serves as an ``inherent risk adjuster'' to payment   for total knee replacement and hip replacement cases.      Comment: Although no commenters submitted quantitative data to   establish a rate of preventability, many commenters noted that   adherence to evidence-based pharmacologic and nonpharmacologic   interventions will not prevent all DVTs. One commenter suggested that   DVT/PE should only be considered for the HAC payment provision when a   patient did not receive proper prophylaxis.      Response: The fact that prophylaxis will not prevent every   occurrence of DVT/PE does not preclude its selection as a reasonably   preventable HAC. Further, as discussed in section IV.B. of this   preamble, the Reporting Hospital Quality Data for the Annual Payment   Update program includes a process of care measure regarding venous   thromboembolism (VTE) prophylaxis within 24 hours prior to or after   surgery. An analysis of publicly available data on Hospital Compare   indicates that the national rate for the VTE prophylaxis measure for   the third quarter of 2007 is approximately 82 percent.\16\ We have   concluded from these data that a significant number of patients are not   receiving the recommended evidence-based prophylaxis. We further note   that the statute does not require that a condition be ``always   preventable'' in order to qualify as an HAC, but rather that it be   ``reasonably preventable,'' which necessarily implies something less   than 100 percent.  ---------------------------------------------------------------------------        \16\ Hospital Compare available at the Web site: http://  www.hospitalcompare.hhs.gov. Reviewed July 8, 2008.  ---------------------------------------------------------------------------        Comment: Commenters also noted that, in some cases, anticoagulation   prophylaxis may be contraindicated based on individual patient factors,   including an increased risk of bleeding in postoperative patients.      Response: We agree with commenters that, in some cases,   anticoagulation prophylaxis may be contraindicated. However, we do not   view this as precluding the selection of DVT/PE as an HAC, as evidence-  based interventions beyond pharmacologic prophylaxis, such as   mechanical prophylaxis and early movement, should also be applied.      Comment: Some commenters supported DVT/PE as reasonably preventable   through the application of evidence-based guidelines for certain   subpopulations, specifically following certain orthopedic procedures.      Response: We agree with commenters that DVT/PE is reasonably   preventable in specific subpopulations, and we are therefore selecting   DVT/PE following certain orthopedic surgeries, specifically certain hip   and knee replacement surgeries, as HACs. Total knee replacement is a   surgery performed to replace the entire knee joint with an artificial   internal prosthesis because the native knee joint is no longer able to   function, because it is very painful, or both, usually due to advanced   osteoarthritis, and total hip replacement is the analogous operation   involving the hip joint. Our decision may be construed as only applying   to the MCC PE, rather than DVT/PE, following certain hip and knee   replacement surgeries as HACs because of coding considerations. The MS-  DRGs that these procedures typically map to do not currently split   based on CCs, and DVT is a CC.      The following chart includes the codes that describe DVT/PE   following certain orthopedic surgeries as an HAC:    ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY       CC/MCC  (ICD-9-CM     Selected evidence-based               Selected HAC                       2007)                    codes)                 guidelines  ----------------------------------------------------------------------------------------------------------------  Deep Vein Thrombosis (DVT)/Pulmonary    4,250 cases...  DVT: 453.40-453.42 (CC)  Available on the Web   Embolism (PE)                          $58,625/         OR                       site: http://  _Total Knee Replacement.............   hospital stay..         PE: 415.11 (MCC) or       www.chestjournal.org/  _Hip Replacement....................                            415.19 (MCC) AND.        cgi/reprint/126/3--                                                                  Total Knee Replacement:   suppl/172S.                                                                   (81.54) OR.             Available on the Web                                                                  Hip Replacement: (00.85-  site: http://                                                                   00.87, 81.51-81.52).     orthoinfo.aaos.org/                                                                                            topic.cfm?topic=A00219                                                                                            .  ----------------------------------------------------------------------------------------------------------------      [[Page 48482]]                 Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)  ------------------------------------------------------------------------            ICD-9-CM codes                      Code descriptors  ------------------------------------------------------------------------  00.85............................  Resurfacing hip, total, acetabulum                                      and femoral head.  00.86............................  Resurfacing hip, partial, femoral                                      head.  00.87............................  Resurfacing hip, partial, acetabulum.  81.51............................  Total hip replacement.  81.52............................  Partial hip replacement.  81.54............................  Total knee replacement.  415.11...........................  Iatrogenic pulmonary embolism and                                      infarction.  415.19...........................  Other pulmonary embolism and                                      infarction--other.  453.40...........................  Venous embolism and thrombosis of                                      unspecified deep vessels of lower                                      extremity.  453.41...........................  Venous embolism and thrombosis of                                      deep vessels of proximal lower                                      extremity.  453.42...........................  Venous embolism and thrombosis of                                      deep vessels of distal lower                                      extremity.  ------------------------------------------------------------------------    d. Delirium      Delirium is a relatively abrupt deterioration in a patient's   ability to sustain attention, learn, or reason. Delirium is strongly   associated with aging and treatment of illnesses that are associated   with hospitalizations. Delirium affects nearly half of hospital patient   days for individuals age 65 and older, and approximately three-quarters   of elderly individuals in intensive care units have delirium. About 14   to 24 percent of hospitalized elderly individuals have delirium at the   time of admission. Having delirium is a very serious risk factor, with   1-year mortality of 35 to 40 percent, a rate as high as those   associated with heart attacks and sepsis. The adverse effects of   delirium routinely last for months. Delirium is a clinical diagnosis,   commonly assisted by screening tests such as the Confusion Assessment   Method. The clinician must establish that the onset has been abrupt and   that the deficits affect the ability to maintain attention, maintain   orderly thinking, and learn from new information. Delirium is   substantially under-recognized and is regularly conflated with   dementia. Because of the high rate of mortality and incidence noted   above, we proposed delirium as a candidate HAC, and provided the   following information for consideration:    ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY                             Selected evidence-based              HAC candidate                       2007)           CC/MCC  (ICD-9-CM code)         guidelines  ----------------------------------------------------------------------------------------------------------------  Delirium.............................   480 cases.....  293.1 (CC).............  Available on the Web                                          $23,290/                                  site: http://                                          hospital stay..                                   www.ahrq.gov/clinic/                                                                                            ptsafety/chap28.htm.  ----------------------------------------------------------------------------------------------------------------        We solicited comments on each of the statutory criteria, with   particular focus on the degree to which delirium can be considered   reasonably preventable through the application of evidence-based   guidelines.      Comment: Most commenters strongly opposed placing delirium on the   HAC list. Citing a study mentioned in the FY 2009 IPPS proposed rule   (73 FR 23555), commenters emphasized that the ability to prevent only   30 to 40 percent of all delirium cases through the application of   evidence-based guidelines does not, in their opinion, meet that   statutory criterion. Many commenters stated that evidence-based   guidelines, such as reducing certain medications, reorienting patients,   assuring sleep and sensory input, and improving patient nutrition and   hydration, were more appropriately used as process rather than outcome   measures.      A number of commenters stated that it is difficult to define and   diagnose a condition that varies in degree, such as delirium. They   stated that symptoms of delirium may be intermittent. In addition, the   commenters indicated that it may be difficult to differentiate between   delirium and intensive care unit psychosis resulting from pre-admission   hypoxia. Many commenters noted that delirium may be caused by many   factors unrelated to clinical treatment. For example, commenters stated   that delirium is a common symptom in Alzheimer's patients, who are   likely to become disoriented in unfamiliar hospital surroundings. One   commenter also noted that the diagnosis is difficult to make if a   patient is intoxicated.      In addition to those commenters who expressed blanket support for   selecting all candidate HACs, a few commenters explicitly supported   inclusion of delirium as an HAC. One commenter suggested that delirium   resulting from medication error could be reasonably prevented by   implementation of computerized physician order entry systems. Another   commenter suggested that prevention based on the six factors in the   Confusion Assessment Model would improve intake assessment and health   care quality.      Response: After consideration of the public comments received, we   have decided not to select delirium as an HAC in this final rule. We   will continue to monitor the evidence-based guidelines surrounding   prevention of delirium. If evidence warrants, we may consider proposing   delirium as an HAC in the future. Although we are not selecting   delirium as an HAC, we would like to recognize two additional ICD-9-CM   codes 292.81 (CC) and 293.0 (CC) that the commenters suggested to   identify delirium and note that their input will be taken into account   in any future reconsideration.                                    Delirium  ------------------------------------------------------------------------            ICD-9-CM codes                      Code descriptors  ------------------------------------------------------------------------  292.81...........................  Drug-induced delirium.  293.0............................  Delirium due to conditions classified                                      elsewhere.  293.1............................  Subacute delirium.  ------------------------------------------------------------------------    e. Ventilator-Associated Pneumonia (VAP)      VAP is a serious hospital-acquired infection associated with high   mortality, significantly increased length of stay, and high cost. It is   typically caused by the aspiration of contaminated gastric or   oropharyngeal secretions. The presence of an endotracheal tube   facilitates both the contamination of secretions and aspiration. We   presented the following information in the FY 2009 IPPS proposed rule   for consideration:      [[Continued on page 48483]]      From the Federal Register Online via GPO Access [wais.access.gpo.gov]  ]                              [[pp. 48483-48532]] Medicare Program; Changes to the Hospital Inpatient Prospective   Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate   Medical Education in Certain Emergency Situations; Changes to   Disclosure of Physician Ownership in Hospitals and Physician Self-  Re[[Page 48483]]    [[Continued from page 48482]]    [[Page 48483]]        ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY                             Selected evidence-based              HAC candidate                       2007)           CC/MCC  (ICD-9-CM code)         guidelines  ----------------------------------------------------------------------------------------------------------------  Ventilator-Associated Pneumonia (VAP)   30,867 cases..  997.31 (CC)............  Available on the Web                                          $135,795/                                 site: http://                                          hospital stay..                                   www.rcjournal.com/cpgs/                                                                                            09.03.0869.html.  ----------------------------------------------------------------------------------------------------------------                           Ventilator-Associated Pneumonia  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  997.31...........................  Ventilator-associated pneumonia.  ------------------------------------------------------------------------        The CDC recently updated the ICD-9-CM coding guidelines for proper   use of code 997.31, which goes into effect on October 1, 2008. The ICD-  9-CM Official Coding Guidelines are available at: http://www.cdc.gov/  nchs/datawh/ftpserv/ftpICD9/ftpICD9.htm.      We solicited comments on each of the statutory criteria, with   particular focus on the degree to which evidence-based guidelines can   reasonably prevent VAP.      Comment: The majority of commenters addressed whether or not VAP   could be considered reasonably preventable through the application of   evidence-based guidelines. Citing literature mentioned in the IPPS FY   2009 proposed rule, commenters noted that VAP is only preventable 40   percent of the time, which, in their opinion, does not meet the   statutory requirement for reasonably preventable through the   application of evidence-based guidelines. (The proposed rule referenced   the American Association of Respiratory Care (AARC) Evidence-Based   Clinical Practice Guidelines as one example of an existing evidence-  based standard designed to prevent VAP.) A few commenters questioned   the narrow focus of the AARC's guidelines.      In addition to problems related to its preventability, many   commenters also argued that VAP may be difficult to diagnose based on   shortfalls associated with clinical definitions and diagnostic tests.   The commenters stated that clinical cultures are not predictive for   pneumonia, radiographic evidence of pneumonia is difficult to   standardize, and vaccines do not protect against infection during the   current hospital stay. The commenters pointed out that no standard   definition of VAP exists--the definition is constructed of nonspecific   clinical signs common to many complications; thus, because of its   imprecise definition, selection of VAP as an HAC could be especially   susceptible to unintended consequences. One commenter stated that the   flexibility inherent to VAP's imprecise definitions coupled with threat   of nonpayment created a ``perverse incentive'' to diagnose VAP as   another condition. Commenters noted that patient risk factors may also   impact the risk of developing VAP. For example, burn patients are   especially susceptible to infections.      While some commenters indicated that VAP is a serious condition and   could be a good candidate HAC in the future, the many commenters argued   that current evidence and technology are not well-enough developed at   this time to meet the statutory requirement of reasonably preventable   through the application of evidence-based guidelines. One commenter   pointed out that the Institute for Healthcare Improvement and the Joint   Commission are currently evaluating alternative standards for VAP   prevention.      Response: In light of the public comments that we received, we are   not selecting VAP as an HAC. We will work in partnership with the CDC   and closely monitor the evolving literature addressing the prevention   of VAP through the application of evidence-based guidelines. If   evidence warrants, we may consider proposing VAP as an HAC in the   future.  f. Staphylococcus aureus Septicemia      Staphylococcus aureus is a bacterium that lives on multiple   anatomic sites in most people. It usually does not cause physical   illness, but it can cause a variety of infections ranging from   superficial boils to cellulitis to pneumonia to life-threatening   bloodstream infections (septicemia). It typically becomes pathogenic by   infecting normally sterile tissue through traumatized tissue, such as   cuts or abrasions, or at the time of invasive procedures and can be   both an early and/or late complication of trauma or surgery.   Staphylococcus aureus septicemia can also be a late effect of an injury   or a surgical procedure. Risk factors for developing Staphylococcus   aureus septicemia include advanced age, debilitated state,   immunocompromised status, and history of an invasive medical procedure.      In the IPPS FY 2009 proposed rule, we presented the following   information for consideration:    ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY                             Selected evidence-based              HAC candidate                       2007)           CC/MCC (ICD-9-CM codes)         guidelines  ----------------------------------------------------------------------------------------------------------------  Staphylococcus aureus Septicemia.....   27,737 cases..  038.11(MCC) or 038.12    Available on the Web                                          $84,976/         (MCC).                   site: http://                                          hospital stay..                                   www.cdc.gov/ncidod/                                                                                            dhqp/gl_                                                                                            isolation.html.                                                                  Also excludes the        Available on the Web                                                                   following from acting    site: http://                                                                   as CC/MCC: 995.91        www.cdc.gov/ncidod/                                                                   (MCC) 995.92 (MCC)       dhqp/gl--                                                                   998.59 (CC).             intravascular.html                                                                                            (Intravascular                                                                                            catheter-associated                                                                                            Staphylococcus aureus                                                                                            Septicemia only).  ----------------------------------------------------------------------------------------------------------------                          Staphylococcus aureus Septicemia  ------------------------------------------------------------------------            ICD-9-CM codes                      Code descriptors  ------------------------------------------------------------------------  038.11...........................  Staphylococcus aureus septicemia.  038.12...........................  Methicillin-resistant Staphylococcus                                      aureus septicemia.  995.91...........................  Sepsis.  995.92...........................  Severe sepsis.  998.59...........................  Other postoperative infection.  ------------------------------------------------------------------------        We solicited comments on each of the statutory criteria, with   particular focus on the degree to which this condition can be   considered reasonably preventable through the application of evidence-  based guidelines.      Comment: Many commenters described difficulty in determining   whether an infection was present upon admission, as the development of    [[Page 48484]]    infection while in a hospital may not necessarily indicate that the   infection was hospital-acquired. The commenters suggested that   Staphylococcus aureus septicemia may also result from permanent   tunneled and nontunneled catheters used in cancer patients or through   dialysis shunts. The commenters asserted that the risk of infection may   be higher for different subpopulations of patients.      A large number of commenters suggested that the CDC's guidelines   specific to vascular catheter-associated infections do not extend to   Staphylococcus aureus septicemia generally. However, because the   majority of Staphylococcus aureus septicemia events are related to   catheters and skin lesions, commenters also argued that the previously   selected HAC, vascular catheter-associated infections, will already   capture the vast majority of preventable Staphylococcus aureus   septicemia events. According to the commenters, adopting Staphylococcus   aureus septicemia as an additional condition would yield little quality   improvement but could cause expensive and unnecessary treatments for   both hospitals and patients.      Response: In light of these public comments, we are not selecting   Staphylococcus aureus septicemia as an HAC in this final rule. If   evidence warrants, we may consider proposing Staphylococcus aureus   septicemia as an HAC in the future. We note that several commenters   recognized that Staphylococcus aureus septicemia cases are being   addressed through the vascular catheter-associated infection HAC that   was selected in the FY 2008 IPPS final rule with comment period.  g. Clostridium difficile-Associated Disease (CDAD)      Clostridium difficile is a bacterium that colonizes the   gastrointestinal (GI) tract of a certain number of healthy people as   well as being present on numerous environmental surfaces. Under   conditions where the normal flora of the gastrointestinal tract is   altered, Clostridium difficile can flourish and release large enough   amounts of a toxin to cause severe diarrhea or even life-threatening   colitis. Risk factors for CDAD include the prolonged use of broad   spectrum antibiotics, gastrointestinal surgery, prolonged nasogastric   tube insertion, and repeated enemas. CDAD can be acquired in the   hospital or in the community. Its spores can live outside of the body   for months and thus can be spread to other patients in the absence of   meticulous hand washing by care providers and others who contact the   infected patient.      In the IPPS FY 2009 proposed rule, we presented the following   information for consideration:    ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY                             Selected evidence-based              HAC candidate                       2007)            CC/MCC (ICD-9-CM code)         guidelines  ----------------------------------------------------------------------------------------------------------------  Clostridium difficile-Associated        96,336 cases..  008.45 (CC)............  Available on the Web   Disease (CDAD).                        $59,153/                                  site: http://                                          hospital stay..                                   www.cdc.gov/ncidod/                                                                                            dhqp/gl_                                                                                            isolation.html.                                                                                           Available on the Web                                                                                            site: http://                                                                                            www.cdc.gov/ncidod/                                                                                            dhqp/id_CdiffFAQ_                                                                                            HCP.html#9.  ----------------------------------------------------------------------------------------------------------------                      Clostridium difficile-Associated Disease  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  008.45...........................  Clostridium difficile.  ------------------------------------------------------------------------        We solicited comments on each of the statutory criteria, with   particular focus on the degree to which CDAD can be reasonably   prevented through the application of evidence-based guidelines.      Comment: The majority of commenters addressed preventability and   the inability to distinguish between community-acquired and hospital-  acquired infections without culturing each patient to determine strain   or type of infection. The commenters emphasized that CDAD is a known   adverse side effect of appropriate broad spectrum antibiotic use. One   commenter suggested establishing a unique ICD-9-CM code to identify   cases of CDAD that occur other than as a side effect of broad spectrum   treatment to distinguish situations of patient-to-patient transmission   of Clostridium difficile that are more likely to be considered   reasonably preventable. Commenters further asserted that the   appropriate use of proton pump inhibitors and H2 blockers is also   associated with CDAD infections and outbreaks. Many commenters stated   that no specific evidence-based prevention guidelines are currently   available, rather the CDC guidelines apply to patient-to-patient   transmissions generally and do not apply to CDAD specifically. Many   commenters addressed the difficulty of distinguishing between   community-acquired and hospital-acquired infection as a barrier to   adopting CDAD as an HAC.      Response: In light of these public comments, we are not selecting   CDAD as an HAC in this final rule. However, we continue to receive   strong support from consumers and purchasers to include CDAD as an HAC,   and we will continue to consult with the CDC regarding the evidence-  based prevention guidelines and coding for CDAD. If evidence warrants,   we may consider proposing CDAD as an HAC in the future.  h. Legionnaires' Disease      Legionnaires' Disease is a type of pneumonia caused by the   bacterium Legionella pneumophila. It is contracted by inhaling   contaminated water vapor or droplets. It is not spread person-to-  person. The bacterium thrives in warm aquatic environments and   infections have been linked to large industrial water systems,   including hospital water systems such as air conditioning cooling   towers and potable water plumbing systems.      In the FY 2009 IPPS proposed rule, we presented the following   information for consideration:    ----------------------------------------------------------------------------------------------------------------                                                                                           Selected evidence-based              HAC candidate              Medicare data (FY 2007)   CC/MCC (ICD-9-CM code)         guidelines  ----------------------------------------------------------------------------------------------------------------  Legionnaires' Disease................   351 cases.....   482.84 (MCC)..........  Available at the Web                                          $86,014/                                  site: http://                                          hospital stay.                                    www.cdc.gov/ncidod/                                                                                            dbmd/diseaseinfo/                                                                                            legionellosis_g.htm.    [[Page 48485]]                                                                                               Available at the Web                                                                                            site: http://                                                                                            www.legionella.org/.  ----------------------------------------------------------------------------------------------------------------                                Legionnaires' Disease  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  482.84...........................  Legionnaires' disease.  ------------------------------------------------------------------------        We requested public comment regarding the applicability of each of   the statutory criteria to Legionnaires' Disease, particularly   addressing the degree of preventability of this condition through the   application of evidence-based guidelines and the degree to which   hospital-acquired Legionnaires' Disease can be distinguished from   community-acquired cases. We also sought comments on additional water-  borne pathogens that would qualify for the HAC provision by meeting the   statutory criteria.      Comment: Many commenters noted that Legionnaries' Disease is not a   high volume condition and questioned whether it should be prioritized   as an HAC. In addition, the commenters emphasized that CDC's   Environmental Infection Control Guidelines recognize that the mere   presence of the bacterium Legionella in the water supply is not   necessarily associated with Legionnaires' Disease, and that without   evidence of a dose-response relationship, surveillance and treatment is   not recommended. The commenters stated that even when decontamination   efforts are pursued, there is no guarantee that treatment will ensure   Legionella can be completely eradicated from hospital water intakes   without damaging infrastructures. In addition, many commenters   expressed concern regarding the unintended consequence of increasing   the use of costly sterile water in hospitals.      When addressing the degree to which hospital-acquired Legionnaires'   Disease can be distinguished from community-acquired cases, the   commenters noted that the epidemiologic strain causing the disease is   widespread in the community.      Response: In light of these public comments, we are not selecting   Legionnaires' Disease as an HAC in this final rule. Although we are not   selecting Legionnaires' Disease as an HAC in this final rule, we will   continue to consult with the CDC about the evidence-based prevention   guidelines. If evidence warrants, we may consider Legionnaires' Disease   and other water-borne pathogens suggested by commenters and noted in   section II.F.9. of this preamble (Enhancement and Future Issues) as   HACs in the future.  i. Iatrogenic Pneumothorax      Iatrogenic pneumothorax refers to the accidental introduction of   air into the pleural space, which is the space between the lung and the   chest wall, by medical treatment or procedure. When air is introduced   into this space, it partially or completely collapses the lung.   Iatrogenic pneumothorax can occur during any procedure where there is   the possibility of air entering the pleural space, including needle   biopsy of the lung, thoracentesis, central venous catheter placement,   pleural biopsy, tracheostomy, and liver biopsy. Iatrogenic pneumothorax   can also occur secondary to positive pressure mechanical ventilation   when an air sac in the lung ruptures, allowing air into the pleural   space. In the FY 2009 IPPS proposed rule, we presented the following   information for consideration:    ----------------------------------------------------------------------------------------------------------------                                            Medicare data  (FY                             Selected evidence-based              HAC candidate                       2007)           CC/MCC  (ICD-9-CM code)         guidelines  ----------------------------------------------------------------------------------------------------------------  Iatrogenic Pneumothorax..............   22,665 cases..   512.1 (CC)............  Available at the Web                                          $75,089/                                  site: http://                                          hospital stay..                                   www.ncbi.nlm.nih.gov/                                                                                            pubmed/1485006.  ----------------------------------------------------------------------------------------------------------------                               Iatrogenic Pneumothorax  ------------------------------------------------------------------------            ICD-9-CM code                       Code descriptor  ------------------------------------------------------------------------  512.1............................  Iatrogenic pneumothorax.  ------------------------------------------------------------------------        We solicited public comment on the applicability of each of the   statutory criteria to this condition. We were particularly interested   in receiving comments on the degree to which iatrogenic pneumothorax   could be considered reasonably preventable through the application of   evidence-based guidelines.      Comment: Most commenters opposed the selection of iatrogenic   pneumothorax as an HAC. They indicated that the evidence-based   guidelines often acknowledge that iatrogenic pneumothorax is a known,   relatively common risk for certain procedures. Further, with regard to   evidence-based guidelines, many commenters opposed designation of this   condition as an HAC due to a lack of consensus within the medical   community regarding its preventability.\17\ Some commenters offered   suggestions to exclude certain procedures or situations, including   central line placement, thoracotomy, and use of a ventilator, if   iatrogenic pneumothorax were to be selected as an HAC.  ---------------------------------------------------------------------------        \17\ Accidental Iatrogenic Pneumothorax in Hospitalized   Patients. Zhan et al., Medical Care 44(2):182-6, 2006 Feb.  ---------------------------------------------------------------------------        Response: In light of these public comments, we are not selecting   iatrogenic pneumothorax as an HAC in this final rule. Although we are   not selecting iatrogenic pneumothorax as an HAC in this final rule, we   do recognize this as an adverse event that occurs frequently. We will   continue to review the development of evidence-based guidelines for the   prevention of iatrogenic pneumothorax. If evidence warrants, we may   consider iatrogenic pneumothorax as an HAC in the future.  j. Methicillin-Resistant Staphylococcus aureus (MRSA)      In October 2007, the CDC published in the Journal of the American   Medical Association an article citing high mortality rates from MRSA,   an antibiotic-resistant ``superbug.'' The article estimates 19,000   people died from MRSA infections in the United States in 2005. The   majority of invasive MRSA cases are health care-related--contracted in   hospitals or nursing homes--though community-acquired MRSA also poses a   significant public health concern. Hospitals have been focused for   years on controlling MRSA through the application of CDC's evidence-  based guidelines outlining best practices for combating the bacterium   in that setting. In the proposed FY 2009 IPPS rule, we    [[Page 48486]]    presented the following information for consideration:    ----------------------------------------------------------------------------------------------------------------                                                                                          Selected evidence-based               Condition               Medicare data (FY 2007)  CC/MCC (ICD-9-CM code)          guidelines  ----------------------------------------------------------------------------------------------------------------  Methicillin-resistant                 88,374 (V09.0)  No CC/MCC.............  Available at the Web site:   Staphylococcus aureus (MRSA) (Code   cases.                                           http://www.cdc.gov/ncidod/   V09.0 includes infections with       $32,049/                                 dhqp/gl--isolation.html.   microorganisms resistant to          hospital stay..   penicillins).  ----------------------------------------------------------------------------------------------------------------        During its March 19-20, 2008 meeting, the ICD-9-CM Coordination and   Maintenance Committee discussed several new codes to more accurately   capture MRSA. The following new codes will be implemented on October 1,   2008:                   Methicillin-Resistant Staphylococcus aureus  ------------------------------------------------------------------------            ICD-9-CM codes                      Code descriptors  ------------------------------------------------------------------------  038.12............................  Methicillin-resistant Staphylococcus                                       aureus septicemia.  041.12............................  Methicillin-resistant Staphylococcus                                       aureus in conditions classified                                       elsewhere and of unspecified site.  482.42............................  Methicillin-resistant Pneumonia due                                       to Staphylococcus aureus.  V02.53............................  Carrier or suspected carrier of                                       Methicillin-susceptible                                       Staphylococcal aureus.  V02.54............................  Carrier or suspected carrier of                                       Methicillin-resistant                                       Staphylococcal aureus.  V12.04............................  Personal history of Methicillin-                                       resistant Staphylococcal aureus.  ------------------------------------------------------------------------        Though we did not propose MRSA as a candidate HAC in the FY 2009   IPPS proposed rule, MRSA can trigger the HAC payment provision. For   every infectious condition selected as an HAC, MRSA could be the   etiology of that infection. For example, if MRSA were the cause of a   vascular catheter-associated infection (one of the eight conditions   selected in the FY 2008 IPPS final rule with comment period), the HAC   payment provision would apply to that MRSA infection. As we noted in   the FY 2008 IPPS final rule with comment period (72 FR 47212),   colonization by MRSA is not a reasonably preventable condition   according to the current evidence-based guidelines. Therefore, MRSA   does not meet the ``reasonably preventable'' statutory criterion for an   HAC.      Comment: The majority of commenters strongly supported the CMS   decision not to propose MRSA as an HAC candidate.      Response: We appreciate the support of the commenters and reiterate   that MRSA is addressed by the HAC payment provision in situations where   it triggers a condition that we have identified as an HAC. We also   direct readers to a detailed discussion regarding coding of MRSA in   section II.F.10.b. of this preamble. As we noted in the FY 2009 IPPS   proposed rule (73 FR 23559), we are pursuing collaborative efforts with   other HHS agencies to combat MRSA. The Agency for Healthcare Research   and Quality (AHRQ) has launched a new initiative in collaboration with   CDC and CMS to identify and suppress the spread of MRSA and related   infections. In support of this work, Congress appropriated $5 million   to fund research, implementation, management, and evaluation practices   that mitigate such infections.      CDC has carried out extensive research on the epidemiology of MRSA   and effective techniques that could be used to treat the infection and   reduce its spread. The following Web sites contain information that   reflect CDC's commitment: (1) http://www.cdc.gov/ncidod/dhqp/ar_  mrsa.html (health care-associated MRSA); (2) http://www.cdc.gov/ncidod/  dhqp/ar_mrsa_ca_public.html (community-acquired MRSA); (3) http://  www.cdc.gov/mmwr/preview/mmwrhtml/mm4908a1.htm; and (4) http://  www.cdc.gov/handhygiene/.      AHRQ has made previous investments in systems research to help   monitor MRSA and related infections in hospital settings, as reflected   in material on its Web sites at: http://www.guideline.gov/browse/  guideline_index.aspx and http://www.ahrq.gov/clinic/ptsafety/pdf/  ptsafety.pdf.  8. Present on Admission Indicator Reporting (POA)      Collection of present on admission (POA) indicator data is   necessary to identify which conditions were acquired during   hospitalization for the HAC payment provision and for broader public   health uses of Medicare data. Through Change Request (CR) No. 5679   (released June 20, 2007), CMS issued instructions requiring IPPS   hospitals to submit POA indicator data for all diagnosis codes on   Medicare claims. CMS also issued CR No. 6086 (released June 30, 2008)   regarding instructions for processing non-IPPS claims. Specific   instructions on how to select the correct POA indicator for each   diagnosis code are included in the ICD-9-CM Official Guidelines for   Coding and Reporting, available at the CDC Web site: http://  www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide07.pdf (POA reporting   guidelines begin on page 92). Additional information regarding POA   indicator reporting and application of the POA reporting options is   available at the CMS Web site: http://www.cms.hhs.gov/HospitalAcqCond.   CMS has historically not provided coding advice, rather we collaborate   with the American Hospital Association (AHA) through the Coding Clinic   for ICD-9-CM. CMS has been collaborating with the AHA to promote the   Coding Clinic for ICD-9-CM as the source for coding advice about the   POA indicator.      There are five POA indicator reporting options, as defined by the   ICD-9-CM Official Coding Guidelines:    ------------------------------------------------------------------------            Indicator                            Descriptor  ------------------------------------------------------------------------  Y............................  Indicates that the condition was present                                  on admission.    [[Page 48487]]      W............................  Affirms that the provider has determined                                  based on data and clinical judgment that                                  it is not possible to document when the                                  onset of the condition occurred.  N............................  Indicates that the condition was not                                  present on admission.  U............................  Indicates that the documentation is                                  insufficient to determine if the                                  condition was present at the time of                                  admission.  1............................  Signifies exemption from POA reporting.                                  CMS established this code as a                                  workaround to blank reporting on the                                  electronic 4010A1. A list of exempt ICD-                                  9-CM diagnosis codes is available in the                                  ICD-9-CM Official Coding Guidelines.  ------------------------------------------------------------------------        In the FY 2009 IPPS proposed rule for the HAC payment provision (73   FR 23559), we proposed to pay the CC/MCC MS-DRGs only for those HACs   coded with ``Y'' and ``W'' indicators.      Comment: Commenters overwhelmingly supported payment for both the   POA ``Y'' and ``W'' options.      Response: We agree with commenters and are finalizing our proposal   to pay for both the POA ``Y'' and ``W'' options. We plan to analyze   whether both the ``Y'' and ``W'' indicators are being used   appropriately. Medicare program integrity initiatives closely monitor   for inaccurate coding and coding that is inconsistent with medical   record documentation.      We proposed to not pay the CC/MCC MS-DRGs for HACs coded with the   ``N'' indicator.      Comment: Commenters were in favor of not paying for the POA ``N''   indicator option.      Response: We agree with the commenters and are finalizing our   proposal to not pay for the POA ``N'' indicator option.      Comment: The majority of commenters opposed not paying for the POA   ``U'' indicator option. Commenters expressed that the reporting of the   POA indicators is still new, and hospitals continue to learn how to   apply them, as well as educate their physicians on the required   documentation without which POA reporting is impossible.      Response: Although we recognize that POA indicator reporting is new   for some IPPS hospitals, we are finalizing the proposed policy of not   paying for the ``U'' option. We believe that this approach will   encourage better documentation and will result in more accurate public   health data.      We plan to analyze whether both the ``N'' and ``U'' POA reporting   options are being used appropriately. The American Health Information   Management Association (AHIMA) has promulgated Standards of Ethical   Coding that require accurate coding regardless of the payment   implications of the diagnoses. That is, diagnoses and POA indicators   must be reported accurately on claims regardless of the fact that   diagnoses coded with an ``N'' or ``U'' indicator may no longer trigger   a higher paying MS-DRG. Medicare program integrity initiatives closely   monitor for inaccurate coding and coding inconsistent with medical   record documentation.      Although we proposed, and are now finalizing, the policy of not   paying the CC/MCC MS-DRGs for HACs coded with the ``U'' indicator, we   recognize that there may be some exceptional circumstances under which   payment might be made. Death, elopement (leaving against medical   advice), and transfers out of a hospital may preclude making an   informed determination of whether an HAC was present on admission. We   sought public comments on the potential use of patient discharge status   codes to identify exceptional circumstances.      Comment: The majority of commenters did not address the patient   discharge status codes as an exception for payment when the ``U'' POA   indicator is used. The commenters who did address this issue were in   favor of using patient discharge status codes as an exception for   payment.      Response: We will monitor the extent to which and under what   circumstances the ``U'' POA indicator code is used. In the future, we   may consider proposing use of the patient discharge status codes to   recognize exceptions for payment.  9. Enhancement and Future Issues      In section II.F.9. of the FY 2009 IPPS proposed rule (73 FR 23560),   we encouraged the public to provide ideas and models for combating   preventable HACs through the application of VBP principles. We note   that we are not proposing Medicare policy in this discussion. However,   we believe that collaborating with stakeholders to improve the HAC   policy is another step toward fulfilling VBP's potential to provide   better health care for Medicare beneficiaries.      To stimulate reflection and creativity, we presented several   enhancement options, including: (a) Applying risk adjustment to make   the HAC payment provision more precise; (b) collecting HAC rates to   obtain a more robust longitudinal measure of a hospital's incidence of   these conditions; (c) using POA information in various ways to decrease   the incidence of preventable HACs; (d) adopting ICD-10 to facilitate   more precise identification of HACs; (e) applying the principle of the   IPPS HAC payment provision to Medicare payments in other care settings;   (f) using CMS' authority to address events on the NQF's list of Serious   Reportable Adverse Events; and (g) additional potential candidate HACs,   suggested through comment, for future consideration.  a. Risk-Adjustment of Payments Related to HACs      In the FY 2009 IPPS proposed rule, we suggested that payment   adjustments made when one of the selected HACs occurs could be made   more precise by reflecting various sources and degrees of individual   patient or patient population risk. For example, a patient's medical   history, current health status (including comorbidities), and severity   of illness can affect the expected occurrence of conditions selected as   HACs. Rather than not paying any additional amount when a selected HAC   occurs during a hospitalization, payment reductions could be related to   the expected occurrence of that condition (that is, the less likely the   complication, the greater the payment reduction).      In general, most commenters supported the idea of risk-adjusted   payments for HACs, noting that proportional payments could reduce the   risk of unintended consequences, as compared to the current HAC payment   policy, through more equitable treatment of both hospitals and   patients. Specifically, a few commenters expressed concern that all-or-  nothing payment for HACs may disproportionately impact urban, teaching,   and academic hospitals that treat under-served populations. Commenters   stated that, because these populations may be at greater risk for HACs,   risk-adjusted payments could allow all hospitals to continue treating   high-risk populations without being penalized for treating riskier   patients.      Commenters proposed addressing patient risk factors on both the   individual and population levels. The majority of commenters supported   assessing risk at the individual patient level. Although this approach   may offer    [[Page 48488]]    the most precise risk adjustment, current technology and resources   limit the ability to risk adjust at this level, as we discussed in the   FY 2009 IPPS proposed rule. Risk adjustment at the subpopulation level,   however, could capture and correct for high patient risk related to   specific medical conditions. For example, many commenters noted that   burn patients in particular are at high risk for some of the selected   HACs, including infections. Other high-risk patient populations   mentioned by commenters included trauma, immunosuppressed, and   palliative care patients.      Other commenters emphasized that for certain HACs, risk adjustment   strategies would not be appropriate. Commenters stated that payments   for ``never events,'' such as retention of a foreign object after   surgery, air embolism, and blood incompatibility, should never be   adjusted for risk because such occurrences can be considered absolutely   preventable.  b. Rate-Based Measurement of HACs      In the FY 2009 IPPS proposed rule, we suggested that a hospital's   rates of HACs could be included as a measurement domain within each   hospital's total performance score under a pay-for-performance model   like the Medicare Hospital Value-Based Purchasing Plan. (We refer   readers to section IV.C. of this preamble for a discussion of the   Plan.) We asserted that measurement of rates over time could be a more   meaningful, actionable, and fair way to adjust a hospital's MS-DRG   payments for the incidence of HACs. The consequence of a higher   incidence of measured conditions would be a lower VBP incentive   payment, while public reporting of the measured rates of HACs would   give hospitals an additional, nonfinancial incentive to prevent   occurrence of the conditions.      The majority of commenters preferred a standardized framework for   rate-based measurement and VBP payment implications for HACs, as   opposed to not being paid the higher MS-DRG amount. Many commenters   suggested determining expected rates of HACs and using those expected   rates as benchmark targets for comparison, rewarding providers who stay   at or below benchmark, while decreasing payment for those who exceed   the benchmark.      Though the majority of commenters supported rate-based measurement   of HACs, some commenters raised issues. A number of commenters noted   that the extremely low incidence of ``never events'' could preclude   meaningful rate-based measurement of the occurrence of those events.   Other commenters opposed public reporting of the rates as a   nonfinancial VBP incentive.  c. Use of POA Information      In the FY 2009 IPPS proposed rule, we asserted that POA data could   be used to better understand and prevent the occurrence of HACs.   Medicare data could be analyzed separately or in combination with   private sector or State POA data, which are currently available in   certain States. Health services researchers could use these data in a   variety of ways to assess the incidence of HACs and to identify best   practices for HAC prevention. In addition, publicly reported POA data   could also be used to support better health care decision making by   Medicare beneficiaries, as well as other health care consumers,   professionals, and caregivers.      Commenters addressed various uses of POA data, including informing   risk adjustment, making benchmark comparisons between and within   hospitals, and public reporting. Commenters noted that POA data have   important applications to risk adjustment for quality measurement. In   the absence of risk adjustment mechanisms, one commenter suggested that   CMS expand POA codes beyond those discussed in section II.F.8. of the   preamble of the proposed rule to include a code that would preclude   reduced payment if the provider attests that ``the HAC is believed to   be the result of a natural disease process/severe patient condition and   is not believed to be indicative of the level of the quality of care   provided.'' Nearly all commenters addressing the use of POA data urged   CMS to provide hospitals with timely feedback of POA information.   Specifically, many commenters wanted CMS to provide each hospital with   its POA rates and comparisons to peer hospitals.      Commenters' responses to publicly reporting POA data were mixed. A   large number of commenters opposed public reporting of POA data,   arguing that only measures endorsed by the NQF and adopted by the HQA   should be considered for public reporting. A few commenters voiced   concern that public reporting would discourage hospitals from   accurately reporting POA data. A few commenters suggested a phased-in   public reporting timeline for POA data, allowing hospital data to   remain confidential for a period while hospitals adjust to new coding   and reporting requirements. Nearly all commenters stated that, if POA   data were to be publicly reported, the data should be posted on   Hospital Compare.  d. Transition to ICD-10      In the FY 2009 IPPS proposed rule, we suggested that adopting ICD-  10 codes to replace the outdated, vague codes of ICD-9-CM would allow   CMS to capture more accurate and precise information about HACs.\18\   Noting that the current ICD-9-CM codes are over three decades old, we   proposed that ICD-10 codes more precisely capture information using   current medical terminology. For example, ICD-9-CM codes for pressure   ulcers do not provide information about the size, depth, or exact   location of the ulcer, while ICD-10 has 125 codes to capture this   information.  ---------------------------------------------------------------------------        \18\ In the FY 2009 IPPS proposed rule, there is a typographical   error such that the rule refers to ICD-10-PCS (procedure codes)   rather than ICD-10 (diagnosis codes).  ---------------------------------------------------------------------------        A number of commenters supported the adoption of ICD-10. Many of   the commenters pointed out that the adoption of ICD-10 would facilitate   more precise identification of HACs. Several commenters supported the   adoption of ICD-10 with an appropriate 2-year transition period.   Commenters stated that they have known since the 1990's that the ICD-9-  CM coding structure was reaching its limits, and it was becoming   increasingly difficult to identify new technologies that are commonly   used in today's medical practices. The commenters stated that there is   a critical need to move in a timely manner to CM and ICD-10-PCS because   hospitals would have the ability to capture data more accurately, thus   providing higher quality and more accurate data for reporting.   Commenters urged the implementation of ICD-10 to ensure the   availability of appropriate, consistent, and accurate clinical   information reflective of patients' medical conditions and care   provided. Commenters asserted that this would allow the nation to   better measure quality, implement value-based purchasing, identify   hospital-acquired conditions, and continue to refine a prospective   payment system that improves recognition of variances in severity of   illness.      One commenter expressed concern about the benefit of moving to ICD-  10 and believed that its benefit in the outpatient setting had not been   demonstrated. The commenter expressed concern about the cost of moving   to a new coding system with the need to update software and redraft   policies.    [[Page 48489]]    e. Healthcare-Associated Conditions in Other Payment Settings      In the FY 2009 IPPS proposed rule, we suggested that the broad   principle of Medicare not paying for preventable healthcare-associated   conditions could potentially be applied in Medicare payment settings   beyond IPPS hospitals, including for example, hospital outpatient   departments, SNFs, and physician practices. Although the implementation   would be different for each setting, alignment of incentives across   settings of care is an important goal for all of CMS' VBP initiatives.   To stimulate public input, we have included a discussion in several   Medicare payment regulations regarding application of the broad   principle of Medicare not paying for preventable healthcare-associated   conditions in payment settings beyond IPPS. The discussion was included   in the following regulations: FY 2009 IRF proposed rule (73 FR 22688),   the CY 2009 OPPS/ASC proposed rule (73 FR 41547), the FY 2009 SNF   proposed rule (73 FR 25932), and the FY 2009 LTCH final rule (73 FR   26829).      Commenters' reaction to the notion of applying the IPPS HAC payment   provision to other settings was mixed. A number of commenters   recognized that this use of payment incentives could promote better   continuity of care (including documentation) and a reduction in   avoidable readmissions. Commenters noted that aligned payment   incentives would force pre- and post-acute care settings to share   accountability for preventing healthcare-associated conditions. One   commenter who supported expanding the policy to nursing homes suggested   that CMS consider including dehydration measures for nonpayment in that   setting.      While many commenters recognized potential benefits, many other   commenters raised concerns or opposed implementing the IPPS HAC payment   provision in other settings. Generally, commenters who were opposed to   expanding the policy's reach believed that doing so would be premature   until CMS assesses the impacts of the policy in the IPPS setting.   Commenters also raised concerns about applying the policy in particular   settings. For example, many commenters stated that Medicare payment for   the physician setting is extremely different from that of the IPPS   setting and that attribution issues in particular would make the policy   difficult to accurately and fairly implement.      Commenters suggested that, if CMS did implement a similar policy in   the physician setting, the agency should ensure that the policy does   not create disincentives for treating high-risk patients. From the   long-term care perspective, one commenter noted that the risk of an   adverse event occurring increases with the duration of the stay and so   such a policy would be particularly concerning for LTCHs.  f. Relationship to NQF's Serious Reportable Adverse Events      In the FY 2009 IPPS proposed rule, we discussed how CMS has applied   its authority to address the events on the NQF's list of Serious   Reportable Adverse Events (also known as ``never events''). We have   adopted a number of items from the NQF's list of events as HACs.   However, we also discussed that the HAC payment provision is not   ideally suited to address every condition on the NQF's list.      Commenters unanimously asserted that CMS should not pay for never   events. However, many commenters were concerned about the widespread   misperception that HACs are never events, which can be considered   absolutely preventable. Commenters urged CMS to explicitly   differentiate its ``reasonably preventable'' HACs from the ``never   events'' on the NQF's list of Serious Reportable Adverse Events.      Commenters suggested alternatives to Medicare's existing authority   under the HAC provision to address never events. One commenter   suggested that no higher CC/MCC MS-DRG payment should be made for   claims including a selected HAC if that HAC overlaps with a never   event. This would preclude a higher MS-DRG payment regardless of   whether any other CC/MCCs that would otherwise trigger a higher MS-DRG   payment are present on the claim.  g. Additional Potential Candidate HACs, Suggested Through Comment      We received the following suggestions of potential candidates for   the HAC payment provision:       Surgical site infection following device procedures       Failure to rescue       Death or disability associated with drugs, devices, or   biologics       Events on the NQF's list of Serious Reportable Adverse   Events, not previously addressed by the HAC payment provision       Dehydration       Malnutrition       Water-borne pathogens, not previously addressed by the HAC   payment provision.      We reiterate that we are not making policy in this subsection;   rather, we are providing a summary of the comments. We would like to   thank commenters for the thoughtful comments received, and we will take   this input into consideration as we develop any future regulatory and/  or legislative proposals to refine and enhance the HAC payment   provision.  10 HAC Coding      This HAC coding section addresses additional coding issues that   were raised by commenters regarding the selected and candidate HACs.  a. Foreign Object Retained After Surgery      Comment: One commenter requested that CMS provide technical   guidance on how to address certain situations related to retained   foreign objects. According to the commenter, in certain circumstances,   it may be in the best interest of the patient not to remove the object.   For example, the commenter stated that leaving a patient under   anesthesia for a prolonged period of time and displacing internal   organs in search of a surgical object left in the body may be more   harmful than leaving the object inside the patient and completing a   surgery in an expedited fashion. The commenter suggested that CMS   clearly specify that the policy applies to an unintended retention of a   foreign object, to allow physicians to exercise clinical judgment   regarding the relative risk of leaving an object versus removing it.      Response: We believe that ICD-9-CM codes 998.4 and 998.7 clearly   describe the application of the HAC provision to a foreign body   ``inadvertently'' or ``accidentally'' left in a patient during a   procedure.  b. MRSA      Comment: Commenters raised issues regarding the MRSA coding. One   commenter stated that the recent addition of unique MRSA ICD-9-CM codes   will allow for improved tracking of MRSA infections and will complement   the surveillance efforts underway at the CDC and the AHRQ. The   commenter stated that the creation of new MRSA-specific codes will   generate better data on which to base important MRSA prevention and   management policy decisions, and will allow the health care community   to more effectively address this growing public health problem. The   commenter stated that CMS could reflect the increased utilization of   resources associated with MRSA diagnoses by making CC/MCC   classifications for the following three MRSA codes: Code 038.12   (Methicillin-resistant Staphylococcus aureus septicemia--MCC); code   482.42 (Methicillin-resistant    [[Page 48490]]    pneumonia due to Staphylococcus aureus--MCC); and code 041.12   (Methicillin-resistant Staphylococcus aureus in conditions classified   elsewhere and of unspecified site--CC).      As justification for this request, the commenter pointed out that   the predecessor codes for 038.12 and 482.42 are MCCs. The predecessor   code for 038.12 is 038.11 (Staphylococcus aureus septicemia), which is   an MCC. The predecessor code for 482.42 is 482.41 (Pneumonia due to   Staphylococcus aureus), which is also an MCC.      The commenter's justification for making 041.12 a CC is not based   on the predecessor code's CC/MCC assignment. The commenter acknowledged   the predecessor code, 041.11 (Staphylococcus aureus) is a non-CC. The   commenter reviewed data provided in the development of the original CC/  MCC classifications for the MS-DRGs and acknowledged that the data did   not clearly support making predecessor code 041.11 a CC. The commenter   also recognized that clinical judgment was also used in deciding the   non-CC/CC/MCC classification of each diagnosis code. Given CMS' use of   both data and clinical evaluation, the commenter stated that code   041.11 ``captures many minor and routine bacterial infections that are   relatively simple and inexpensive to treat--in other words, diagnoses   that do not lead to substantially increased use of hospital   resources.'' Therefore, the commenter found it understandable that the   predecessor code, 041.11, was classified as a non-CC.      However, the commenter believed that the new MRSA specific code,   041.12, will allow differentiation between MRSA and other infections   and will likely show that these MRSA infections are significantly more   difficult and expensive to treat. Therefore, the commenter requested   that code 041.12 be classified as a CC.      Response: The final CC/MCC classifications for new ICD-9-CM   diagnosis codes are shown in Table 6A of the Addendum to this final   rule. This table shows that we have classified codes 038.12   (Methicillin-resistant Staphylococcus aureus septicemia) and 482.42   (Methicillin-resistant pneumonia due to Staphylococcus aureus) as MCCs.   We agree that, based on the predecessor code and our clinical   evaluation, this MCC classification is warranted.      We disagree with classifying code 041.12 (Methicillin-resistant   Staphylococcus aureus in conditions classified elsewhere and of   unspecified site) as a CC. As is shown in Table 6A, we have classified   this code as a non-CC. We agree with the commenter that the predecessor   code was a non-CC. However, we also point out that all codes in the   041.00-041.9 category of bacterial infection in conditions classified   elsewhere and of unspecified site are non-CCs. All of the codes in this   category are used as an additional code to identify a bacterial agent   in diseases that are classified by another more precise code. For   instance, if a patient has a MRSA urinary tract infection or infected   toenail, one would assign a code for the specific type and location of   the infection (for example, urinary tract infection or infected toenail   bed) and an additional code to fully describe the bacterial agent, such   as MRSA. The CC/MCC classification would be determined by the more   precise infection code (for example, urinary tract infection or   infected toenail bed).      We do not believe it is appropriate to change the CC/MCC   classification of one of the codes in the category of bacterial   infection in conditions classified elsewhere and of unspecified site to   a CC while leaving all of the others as non-CCs. Further, we believe it   is more appropriate to assign a CC/MCC classification based on the more   precise description of the patient's infection such as pneumonia,   septicemia, or nail bed infection. Therefore, we have made code 041.12   a non-CC, as shown in Table 6A of the Addendum to this final rule.  c. POA      Comment: Commenters raised issues regarding the timing of   laboratory testing (receiving results in 48-72 hours) and the effect   this may have on the POA indicator reported for the HAC candidates   proposed, such as Staphylococcus aureus septicemia and CDAD. The   commenters expressed concern that when a lab test including cultures is   performed upon admission, the results may not be available until 48-72   hours later. The commenters were not clear on how the POA indicator   would be applied in this scenario.      Response: We acknowledge the commenter's concerns regarding correct   assignment of the POA indicator when lab tests are involved. We refer   the reader to the ICD-9-CM Official Guidelines for Coding and   Reporting, Appendix I, Present on Admission Reporting Guidelines. These   guidelines have been updated to address the issue of timeframe for POA   identification and documentation. The updated guidelines recognize that   in some clinical situations it may take a period of time after   admission before a definitive diagnosis can be made. Determination of   whether the condition was present on admission will be based on the   applicable POA guidelines or on the physician's best clinical judgment.   The guidelines address several scenarios, including those with   infections and organisms, and how to assign the POA indicator. We also   note that in this final rule we decided not to select at this time the   proposed HAC cited by the commenter, Staphylococcus aureus septicemia,   as an HAC.  11. HACs Selected for Implementation on October 1, 2008      The following table sets out a complete list of the HACs selected   for implementation on October 1, 2008 in this final rule and in the FY   2008 IPPS final rule with comment period:      ------------------------------------------------------------------------                    HAC                        CC/MCC (ICD-9-CM codes)  ------------------------------------------------------------------------  Foreign Object Retained After Surgery..  998.4 (CC)                                           998.7 (CC)  Air Embolism...........................  999.1 (MCC)  Blood Incompatibility..................  999.6 (CC)  Pressure Ulcer Stages III & IV.........  707.23 (MCC)                                           707.24 (MCC)  Falls and Trauma:......................  Codes within these ranges on                                            the CC/MCC list:      --Fracture.........................  800-829      --Dislocation......................   830-839      --Intracranial Injury..............  850-854      --Crushing Injury..................  925-929      --Burn.............................  940-949    [[Page 48491]]          --Electric Shock...................  991-994  Catheter-Associated Urinary Tract        996.64 (CC)   Infection (UTI).                                           Also excludes the following                                            from acting as a CC/MCC:                                           112.2 (CC)                                           590.10 (CC)                                           590.11 (MCC)                                           590.2 (MCC)                                           590.3 (CC)                                           590.80 (CC)                                           590.81 (CC)                                           595.0 (CC)                                           597.0 (CC)                                           599.0 (CC)  Vascular Catheter-Associated Infection.  999.31 (CC)  Manifestations of Poor Glycemic Control  250.10-250.13 (MCC)                                           250.20-250.23 (MCC)                                           251.0 (CC)                                           249.10-249.11 (MCC)                                           249.20-249.21 (MCC)  Surgical Site Infection, Mediastinitis,  519.2 (MCC)   Following Coronary Artery Bypass Graft  And one of the following   (CABG).                                  procedure codes: 36.10-36.19  Surgical Site Infection Following        996.67 (CC)   Certain Orthopedic Procedures.                                           998.59 (CC)                                           And one of the following                                            procedure codes: 81.01-81.08,                                            81.23-81.24, 81.31-81.83,                                            81.83, 81.85  Surgical Site Infection Following        Principal Diagnosis--278.01   Bariatric Surgery for Obesity.          998.59 (CC)                                           And one of the following                                            procedure codes: 44.38, 44.39,                                            or 44.95  Deep Vein Thrombosis and Pulmonary       415.11 (MCC)   Embolism Following Certain Orthopedic   415.19 (MCC)   Procedures.                                           453.40-453.42 (MCC)                                           And one of the following                                            procedure codes: 00.85-00.87,                                            81.51-81.52, or 81.54  ------------------------------------------------------------------------    G. Changes to Specific MS-DRG Classifications    1. Pre-MDCs: Artificial Heart Devices      Heart failure affects more than 5 million patients in the United   States with 550,000 new cases each year, and causes more than 55,000   deaths annually. It is a progressive disease that is medically managed   at all stages, but over time leads to continued deterioration of the   heart's ability to pump sufficient amounts of adequately oxygenated   blood throughout the body. When medical management becomes inadequate   to continue to support the patient, the patient's heart failure would   be considered to be the end stage of the disease. At this point, the   only remaining treatment options are a heart transplant or mechanical   circulatory support. A device termed an artificial heart has been used   only for severe failure of both the right and left ventricles, also   known as biventricular failure. Relatively small numbers of patients   suffer from biventricular failure, but the exact numbers are unknown.   There are about 4,000 patients approved and waiting to receive heart   transplants in the United States at any given time, but only about   2,000 hearts per year are transplanted due to a scarcity of donated   organs. There are a number of mechanical devices that may be used to   support the ventricles of a failing heart on either a temporary or   permanent basis. When it is apparent that a patient will require long-  term support, a ventricular support device is generally implanted and   may be considered either as a bridge to recovery or a bridge to   transplantation. Sometimes a patient's prognosis is uncertain, and with   device support the native heart may recover its function. However, when   recovery is not likely, the patient may qualify as a transplant   candidate and require mechanical circulatory support until a donor   heart becomes available. This type of support is commonly supplied by   ventricular assist devices (VADs), which are surgically attached to the   native ventricles but do not replace them.      Devices commonly called artificial hearts are biventricular heart   replacement systems that differ from VADs in that a substantial part of   the native heart, including both ventricles, is removed. When the heart   remains intact, it remains possible for the native heart to recover its   function after being assisted by a VAD. However, because the artificial   heart device requires the resection of the ventricles, the native heart   is no longer intact and such recovery is not possible. The designation   ``artificial heart'' is somewhat of a misnomer because some portion of   the native heart remains and there is no current mechanical device that   fully replaces all four chambers of the heart. Over time, better   descriptive language for these devices may be adopted.      In 1986, CMS made a determination that the use of artificial hearts   was not covered under the Medicare program. To conform to that   decision, we placed ICD-9-CM procedure code 37.52 (Implantation of   total replacement heart system) on the GROUPER program's MCE in the   noncovered procedure list.      On August 1, 2007, CMS began a national coverage determination   process for artificial hearts. SynCardia Systems, Inc. submitted a   request for reconsideration of the longstanding noncoverage policy when   its device, the CardioWest\TM\ Temporary Total Artificial Heart (TAH-t)   System, is used for ``bridge to transplantation'' in accordance with   the FDA-labeled indication for the device. ``Bridge to   transplantation'' is a phrase meaning    [[Page 48492]]    that a patient in end-stage heart failure may qualify as a heart   transplant candidate, but will require mechanical circulatory support   until a donor heart becomes available. The CardioWest\TM\ TAH-t System   is indicated for use as a bridge to transplantation in cardiac   transplant-eligible candidates at risk of imminent death from   biventricular failure. The system is intended for use inside the   hospital as the patient awaits a donor heart. The ultimate desired   outcome for insertion of the TAH-t is a successful heart transplant,   along with the potential that offers for cure from heart failure.      CMS determined that a broader analysis of artificial heart coverage   was deemed appropriate, as another manufacturer, Abiomed, Inc., has   developed an artificial heart device, AbioCor[supreg] Implantable   Replacement Heart Device, with different indications. SynCardia   Systems, Inc. has received approval of its device from the FDA for   humanitarian use as destination therapy for patients in end-stage   biventricular failure who cannot qualify as transplant candidates. The   AbioCor[supreg] Implantable Replacement Heart Device is indicated for   use in severe biventricular end-stage heart disease patients who are   not cardiac transplant candidates and who are less than 75 years old,   who require multiple inotropic support, who are not treatable by VAD   destination therapy, and who cannot be weaned from biventricular   support if they are on such support. The desired outcome for this   device is prolongation of life and discharge to home.      On February 1, 2008, CMS published a proposed coverage decision   memorandum for artificial hearts which stated, in part, that while the   evidence is inadequate to conclude that the use of an artificial heart   is reasonable and necessary for Medicare beneficiaries, the evidence is   promising for the uses of artificial heart devices as described above.   CMS supports additional research for these devices, and therefore   proposed that the artificial heart will be covered by Medicare when   performed under the auspices of a clinical study. The study must meet   all of the criteria listed in the proposed decision memorandum. This   proposed coverage decision memorandum may be found on the CMS Web site   at: http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?id=211.      Following consideration of the public comments received, CMS made a   final decision to cover artificial heart devices for Medicare   beneficiaries under ``Coverage with Evidence Development'' when   beneficiaries are enrolled in a clinical study that meets all of the   criteria set forth by CMS. These criteria can be found in the final   decision memorandum on the CMS Web site at: http://www.cms.hhs.gov/mcd/  viewdecisionmemo.asp?id=211. The effective date of this decision was   May 1, 2008.      The topic of coding of artificial heart devices was discussed at   the September 27-28, 2007 ICD-9-CM Coordination and Maintenance   Committee meeting held at CMS in Baltimore, MD. We note that this topic   was placed on the Committee's agenda because any proposed changes to   the ICD-9-CM coding system must be discussed at a Committee meeting,   with opportunity for comment from the public. At the September 2007   Committee meeting, the Committee accepted oral comments from   participants and encouraged attendees or anyone with an interest in the   topic to comment on proposed changes to the code, inclusion terms, or   exclusion terms. We accepted written comments until October 12, 2007.   As a result of discussion and comment from the Committee meeting, the   Committee revised the title of procedure code 37.52 for artificial   hearts to read ``Implantation of internal biventricular heart   replacement system'' with an inclusion note specifying that this is the   code for an artificial heart. This code can be found in Table 6F,   Revised Procedure Code Titles, in the Addendum to this final rule. In   addition, the Committee created new code 37.55 (Removal of internal   biventricular heart replacement system) to identify explantation of the   artificial heart prior to heart transplantation. This code can be found   in Table 6B, New Procedure Codes, in the Addendum to this final rule.      To make conforming changes to the IPPS system with regard to the   proposed revision to the coverage decision for artificial hearts, in   the FY 2009 IPPS proposed rule (73 FR 23563), we proposed to remove   procedure code 37.52 from MS-DRG 215 (Other Heart Assist System   Implant) and assign it to MS-DRG 001 (Heart Transplant or Implant of   Heart Assist System with Major Comorbidity or Complication (MCC)) and   MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without   Major Comorbidity or Complication (MCC)). In addition, we proposed to   remove procedure code 37.52 from the MCE ``Non-Covered Procedure'' edit   and assign it to the ``Limited Coverage'' edit. In addition, we   proposed to include in this edit the requirement that ICD-9-CM   diagnosis code V70.7 (Examination of participant in clinical trial)   also be present on the claim. We proposed that claims submitted without   both procedure code 37.52 and diagnosis code V70.7 would be denied   because they would not be in compliance with the proposed coverage   policy.      Comment: Commenters supported CMS' proposal to remove procedure   code 37.52 from MS-DRG 215 and reassign it to MS-DRGs 001 and 002. We   did not receive any public comments regarding the corresponding change   to the MCE.      Response: We appreciate the commenters' support.      Comment: One commenter suggested that CMS create a new MS-DRG   combining all implantable heart assist devices to ensure that the   proposed changes to cost centers reflect both LVAD device costs and   implantable artificial hearts. The commenter suggested that if CMS were   unwilling to create an MS-DRG combining all the implantable heart   assist devices, an acceptable alternative would be to assign all   ventricular assist devices identified by ICD-9-CM procedure code 37.66   (Insertion of implantable heart assist system) into MS-DRG 001,   irrespective of the absence of a secondary diagnosis code determined to   be an MCC.      Response: We believe that we have already appropriately created MS-  DRGs combining heart transplantation, heart assist devices, and other   VAD device insertion in MS-DRGs 001 and 002. As the coverage decision   for artificial hearts has only become effective May 1, 2008, CMS has no   data to suggest that the cost centers will not adequately reflect the   cost of all implantable heart devices. We also point out that change to   the structure of the MS-DRGs is most appropriately discussed in the   proposed rule, so that the public has a chance to review the proposal   and comment on it as it affects a facility or medical practice.      With regard to the alternative suggestion of assigning all VADs to   MS-DRG 001, irrespective of the presence of an MCC, we point out that   when the MS-DRGs were originally created for use beginning FY 2008, the   data suggested the appropriateness of separating the patients based on   their severity as determined by the presence of an MCC or a CC. We do   not have convincing evidence that hospitals are not being adequately   reimbursed for the VAD procedures. Therefore, we are not adopting this   suggestion.      After consideration of the public comments received, in this final   rule, we are assigning code 37.52 (now titled ``Implantation of total   internal biventricular heart replacement system'') to MS-DRGs 001 and   002, as    [[Page 48493]]    proposed. In addition, we are removing code 37.52 from the ``Non-  Covered Procedure'' edit and assign it to the ``Limited Coverage''   edit. This means that implantation of an artificial heart in a Medicare   beneficiary will be covered when the implanting facility has met the   criteria as set forth by CMS. In addition, both procedure code 37.52   and diagnosis code V07.7 must be present on the claim in order for the   claim to be considered a covered Medicare service.      To reiterate, during FY 2008, we made mid-year changes to portions   of the GROUPER program not affecting MS-DRG assignment or ICD-9-CM   coding. However, as the final coverage decision memorandum for   artificial hearts was published after the CMS contractor's testing and   release of the mid-year product, changes to the MCE included in the   proposed rule were not included in that revision of the GROUPER Version   25.0. GROUPER Version 26.0, which will be in use for FY 2009, contains   the final changes that we are adopting in this final rule. The edits in   the MCE Version 25.0 will be effective retroactive to May 1, 2008. (To   reduce confusion, we note that the version number of the MCE is one   digit lower than the current GROUPER version number; that is, Version   26.0 of the GROUPER uses Version 25.0 of the MCE.)  2. MDC 1 (Diseases and Disorders of the Nervous System)  a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator   (tPA)      In 1996, the FDA approved the use of tissue plasminogen activator   (tPA), one type of thrombolytic agent that dissolves blood clots. In   1998, the ICD-9-CM Coordination and Maintenance Committee created code   99.10 (Injection or infusion of thrombolytic agent) in order to be able   to uniquely identify the administration of these agents. Studies have   shown that tPA can be effective in reducing the amount of damage the   brain sustains during an ischemic stroke, which is caused by blood   clots that block blood flow to the brain. tPA is approved for patients   who have blood clots in the brain, but not for patients who have a   bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to   be most effective when used within the first 3 hours after the onset of   an embolic stroke, but it is contraindicated in hemorrhagic strokes.      For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial   Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and   Precerebral Occlusion without Infarction) by removing the diagnostic   ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute   Ischemic Stroke with Use of Thrombolytic Agent) which increased   reimbursement for patients who sustained an ischemic or embolic stroke   and who also had administration of tPA. The intent of this DRG was not   to award higher payment for a specific drug, but to recognize the need   for better overall care for this group of patients. Even though tPA is   indicated only for a small proportion of stroke patients, that is,   those patients experiencing ischemic strokes treated within 3 hours of   the onset of symptoms, our data suggested that there was a sufficient   quantity of patients to support the DRG change. While our goal is to   make payment relate more closely to resource use, we also note that use   of tPA in a carefully selected patient population may lead to better   outcomes and overall care and may lessen the need for postacute care.      For FY 2008, with the adoption of MS-DRGs, CMS DRG 559 became MS-  DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with   MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with   CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent   without CC/MCC). Stroke cases in which no thrombolytic agent was   administered were grouped to MS-DRGs 064 (Intracranial Hemorrhage or   Cerebral Infarction with MCC), 065 (Intracranial Hemorrhage or Cerebral   Infarction with CC), or 066 (Intracranial Hemorrhage or Cerebral   Infarction without CC/MCC). The MS-DRGs that reflect use of a   thrombolytic agent, that is, MS-DRGs 061, 062, and 063, have higher   relative weights than the hemorrhagic or cerebral infarction MS-DRGs   064, 065, and 066.      The American Society of Interventional and Therapeutic   Neuroradiology (ASITN) (now the Society of NeuroInterventional Surgery   (SNIS)) and the American Academy of Neurology Professional Association   (AANPA) have made us aware of a treatment issue that is of concern to   the stroke provider's community. In some instances, patients suffering   an embolytic or thrombolytic stroke are evaluated and given tPA in a   community hospital's emergency department, and then are transferred to   a larger facility's stroke center that is able to provide the level of   services required by the increased severity of these cases. The   facility providing the administration of tPA in its emergency   department does not realize increased reimbursement, as the patient is   often transferred as soon a possible to a stroke center. The facility   to which the patient is transferred does not realize increased   reimbursement, as the tPA was not administered there. The ASITN/SNIS   requested that CMS give permission to code the administration of tPA as   if it had been given in the receiving facility. This would result in   the receiving facility being paid the higher weighted MS-DRGs 061, 062,   or 063 instead of MS-DRGs 064, 065, or 066. The ASITN/SNIS's rationale   was that the patients who received tPA in another facility (even though   administration of tPA may have alleviated some of the worst   consequences of their strokes) are still extremely compromised and   require increased health care services that are much more resource   consumptive than patients with less severe types of stroke. We have   advised the ASITN/SNIS that hospitals may not report services that were   not performed in their facility.      We recognize that the ASITN/SNIS's concerns potentially have merit   but the quantification of the increased resource consumption of these   patients is not currently possible in the existing ICD-9-CM coding   system. Without specific length of stay and average charges data, we   are unable to determine an appropriate MS-DRG for these cases.   Therefore, we advised the ASITN/SNIS and AANAP to present a request at   the diagnostic portion of the ICD-9-CM Coordination and Maintenance   Committee meeting on March 20, 2008, for creation of a code that would   recognize the fact that the patient had received a thrombolytic agent   for treatment of the current stroke. In the proposed rule, we indicated   that if this request was presented at the March 20, 2008 meeting, it   could not be approved in time to be published as a new code in Table 6A   in the proposed rule. However, we indicated that if a diagnosis code   was created by the National Centers for Health Statistics as a result   of that meeting, it would be added to the list of codes published in   the FY 2009 IPPS final rule effective on October 1, 2008. With such   information appearing on subsequent claims, we will have a better idea   of how to classify these cases within the MS-DRGs. Therefore, because   we did not have data to identify these patients at the time we issued   the FY 2009 IPPS proposed rule, we did not propose an MS-DRG   modification for the stroke patients receiving tPA in one facility   prior to being transferred to another facility.      The AANPA did make such a request at the Coordination and   Maintenance Committee Meeting on March 20, 2008, which resulted in the   creation of code V45.88 (Status post administration of tPA (rtPA) in a   different facility within the last 24 hours prior to admission to   current facility). This code can be found    [[Page 48494]]    on Table 6A in the Addendum to this final rule.      Comment: All of the commenters approved the creation of a V-code to   identify patients who had tPA administered at another hospital but were   then transferred to a tertiary facility with the specialized stroke   center resources to provide optimal patient care throughout the   patient's entire hospital stay. According to two of the commenters, the   description of patients who receive intravenous tPA administration at   one facility but are then transferred to a tertiary hospital's stroke   center are commonly referred to in the health care industry as ``drip   and ship''.      The commenters agreed with CMS' suggestion to recognize these   patients by specific diagnostic coding, and suggested that CMS gather   data in order to appropriately categorize these patients in the MS-DRG   system. One commenter specifically suggested that data be collected via   the new diagnostic code in FY 2009 with a view toward establishing a   new MS-DRG or set of MS-DRGs in FY 2010.      Response: We appreciate the support from the industry regarding   creation of a unique code and subsequent data gathering. We believe   that the transferred patients who have received tPA are a unique   category of patients, but without precise and evidentiary data, we are   not able yet to evaluate whether a modification of the structure of the   MS-DRG system concerning these stroke patients is warranted. We will   continue to examine these cases and the broad category of stroke DRGs   in our upcoming reviews of revisions to the MS-DRG classifications that   may be warranted.      Comment: One commenter disagreed with CMS' suggestion that a new   diagnostic code be approved and used to identify ``drip and ship''   cases. The commenter believed that CMS may not be able to identify this   patient population based on the restriction of the CMS claims   processing system. The commenter encouraged CMS to update the claims   processing systems to accept the reporting of more than eight secondary   diagnosis codes per claim.      Response: We believe that the commenter has misunderstood our   statement in the proposed rule (73 FR 23563 and 23564). We stated: ``*   * * the quantification of the increased resource consumption of these   patients is not currently possible in the existing ICD-9-CM coding   system. Without specific length of stay and average charge data, we are   unable to determine an appropriate MS-DRG for these cases.'' This   statement was made in the context of describing the need for a specific   code describing patients to whom tPA had been administered in another   setting and who then were transferred to a tertiary care hospital. We   did not intend to open the CMS claims processing system for discussion   of possible changes.      There are currently six stroke MS-DRGs as described above, with MS-  DRGs 061, 062, and 063 identifying cases of acute ischemic stroke with   use of thrombolytic agents, by severity, and MS-DRGs 064, 065, and 066   identifying cases of intracranial hemorrhage or cerebral infarction,   again divided by severity as determined by the presence of an MCC, a   CC, or neither a CC or an MCC. We believe to arbitrarily assign the   ``drip and ship'' cases to any one of these six DRGs is capricious and   lacks objectivity. Further, in the interest of longitudinal data, we   point out that epidemiologists will be able to gather their statistics   more logically if we ultimately assign the cases to the most   appropriate MS-DRG(s) after it has been proven that the patients   consume a certain level of resources during their inpatient hospital   course of treatment.      Comment: One commenter encouraged CMS to assign all patients   receiving tPA in a transferring hospital to the categorization of those   patients in MS-DRGs 061, 062, and 063 at the receiving hospital as   ``the payment rate for these transferred patients should be the same as   for patients treated with tPA in the admitting hospital because the   remainder of the care is the same. The commenter believed that   establishment of a separate code should not be a prerequisite to   including these cases in MS-DRGs 061, 062, and 063 if CMS would allow   hospitals to code the administration of tPA as if it had occurred at   the receiving hospital until such time as a new code is established.      Response: The new diagnostic code V45.88 (Status post   administration of tPA (rtPA) in a different facility within the last 24   hours prior to admission to current facility) has been established, and   will be implemented for FY 2009 for those patients who are discharged   on or after October 1, 2008. This will allow CMS sufficient time to   collect accurate data on the most appropriate assignment of these   patients in the MS-DRG system. We point out that other commenters have   supported this position by urging CMS to gather data in order to create   a new DRG for these patients. As we do not yet have comprehensive   information on this category of patients regarding frequency,   distribution, length of stay, or charge data, we do not believe it is   appropriate to assign these cases to a potentially inappropriate MS-  DRG. We point out the MS-DRGs system is a system of averages. If we   assign cases to an MS-DRG based on what the industry believes to be   warranted, but if later data for the cases reflect that the cases are   less costly than assumed, the result would be that, in subsequent   annual recalibrations, the relative weight(s) for those MS-DRGs would   decrease. This would ultimately result in a lower payment for precisely   those cases that should be receiving higher payment due to their   complexity.      In addition, we reiterate our position regarding the submission of   an ICD-9-CM code for a service that was not specifically performed at a   facility receiving the transferred patient. Hospitals are not permitted   to report services that were not performed in their facilities.      Comment: Two commenters suggested that, if a new code describing   the administration of tPA at another facility is created, the new code   be assigned to the list of major comorbidities and complications. The   commenter suggested that this action would allow cases to be assigned   to MS-DRG 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC)   or MS-DRG 067 (Nonspecific Cerebrovascular Accident and Precerebral   Occlusion without Infarction with MCC).      The commenters also suggested that, if a new code describing the   administration of tPA at another facility was not created, a proxy code   that is already in the list of MCCs could be assigned to the ``drip and   ship'' cases that would then allow hospitals to be compensated for this   category of more severe patients. The commenters suggested code 286.5   (Hemorrhagic disorder due to intrinsic circulating anticoagulants) as a   proxy code.      Response: We believe the types of action suggested by the   commenters would result in a dilution of the principles upon which the   MS-DRGs are structured. When we created the MS-DRGs for implementation   beginning with FY 2008, we did so based on data and statistics. As we   stated in the FY 2008 IPPS final rule: ``The purpose of the MS-DRGs is   to more accurately stratify groups of Medicare patients with varying   levels of severity'' (72 FR 47155). Therefore, we would not assign the   new diagnostic code V45.88 that we have created (discussed earlier) to   the list of MCCs or CCs without understanding the ramifications of such   an action on the rest of the MS-DRGs and thus compromise our own need   for accuracy. We refer the readers to the FY 2008 IPPS final rule that   identifies the criteria we used to create the lists of MCCs and CCs (72   FR 47153). In the    [[Page 48495]]    same vein, we would not randomly choose a code that is already assigned   to the list of MCCs and suggest that hospitals include this code on   their claims submission to insure placement of the case in a higher-  weighted MS-DRG. We believe that this violate the intent of the   construction of the CCs and MCCs. We also believe that the hospital   personnel responsible for entering these codes on the claim would be   reluctant to do so, given that the patient may not actually have this   condition.      After consideration of the public comments received, we are   specifying that, for FY 2009 and absent any other conditions or   procedures that would result in an alternative MS-DRG assignment,   stroke cases involving patients who receive intravenous tPA   administration at one facility but are then transferred to a tertiary   hospital's stroke center will continue to be assigned to MS-DRGs 064,   065, and 066. We will continue to monitor the cases of patients   suffering an embolytic or thrombolytic stroke who are evaluated and   given tPA in a community hospital's emergency department and then are   transferred to another facility. In the future, we will evaluate our   data for potential MS-DRG reassignment based on the use of the new   diagnostic code V45.88, and we are strongly encouraging receiving   hospitals to include this code on appropriate claims.  b. Intractable Epilepsy With Video Electroencephalogram (EEG)      As we did for FY 2008, we received a request from an individual   representing the National Association of Epilepsy Centers to consider   further refinements to the MS-DRGs describing seizures. Specifically,   the representative recommended that a new MS-DRG be established for   patients with intractable epilepsy who receive an electroencephalogram   with video monitoring (vEEG) during their hospital stay. Similar to the   initial recommendation, the representative stated that patients who   suffer from uncontrolled seizures or intractable epilepsy are admitted   to an epilepsy center for a comprehensive evaluation to identify the   epilepsy seizure type, the cause of the seizure, and the location of   the seizure. These patients are admitted to the hospital for 4 to 6   days with 24-hour monitoring that includes the use of EEG video   monitoring along with cognitive testing and brain imaging procedures.      Effective October 1, 2007, MS-DRG 100 (Seizures with MCC) and MS-  DRG 101 (Seizures without MCC) were implemented as a result of   refinements to the DRG system to better recognize severity of illness   and resource utilization. Once again, the representative applauded CMS   for making changes in the DRG structure to better recognize differences   in patient severity. However, the representative stated that a subset   of patients in MS-DRG 101 who have a primary diagnosis of intractable   epilepsy and are treated with vEEG are substantially more costly to   treat than other patients in this MS-DRG and represent the majority of   patients being evaluated by specialized epilepsy centers.   Alternatively, the representative stated that he was not requesting any   change in the structure of MS-DRG 100. According to the representative,   the number of cases that would fall into this category is not   significant. The representative further noted that this is a change   from last year's request.      Epilepsy is currently identified by ICD-9-CM diagnosis codes 345.0x   through 345.9x. There are two fifth digits that may be assigned to a   subset of the epilepsy codes depending on the physician documentation:       ``0'' for without mention of intractable epilepsy       ``1'' for with intractable epilepsy      With the assistance of an outside reviewer, the representative   analyzed cost data for MS-DRGs 100 and 101, which focused on three   subsets of patients identified with a primary diagnosis of epilepsy or   convulsions who also received vEEG (procedure code 89.19):       Patients with a primary diagnosis of epilepsy with   intractability specified (codes 345.01 through 345.91)       Patients with a primary diagnosis of epilepsy without   intractability specified (codes 345.00 through 345.90)       Patients with a primary diagnosis of convulsions (codes   780.39)      The representative acknowledged that the association did not   include any secondary diagnoses in its analyses. Based on its results,   the representative recommended that CMS further refine MS-DRG 101 by   subdividing cases with a primary diagnosis of intractable epilepsy   (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed   into a separate MS-DRG that would be defined as ``MS-DRG XXX''   (Epilepsy Evaluation without MCC).      According to the representative, these cases are substantially more   costly than the other cases within MS-DRG 101 and are consistent with   the criteria for dividing MS-DRGs on the basis of CCs and MCCs. In   addition, the representative stated that the request would have a   minimal impact on most hospitals but would substantially improve the   accuracy of payment to hospitals specializing in epilepsy care.      In the FY 2009 IPPS proposed rule, we discussed our performance of   an analysis using FY 2007 MedPAR data. As shown in the table below, we   found a total of 54,060 cases in MS-DRG 101 with average charges of   $14,508 and an average length of stay of 3.69 days. There were 879   cases with intractable epilepsy and vEEG with average charges of   $19,227 and an average length of stay of 5 days.    ----------------------------------------------------------------------------------------------------------------                                                                       Number of    Average length      Average                               MS-DRG                                    cases          of stay         charges  ----------------------------------------------------------------------------------------------------------------  MS-DRG 100--All Cases...........................................          16,142            6.34         $27,623  MS-DRG 100--Cases with Intractable Epilepsy with vEEG (Codes                  69            6.6           26,990   345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91)  MS-DRG 100--Cases with Intractable Epilepsy without vEEG........             328            7.81          32,539  MS-DRG 101--All cases...........................................          54,060            3.69          14,508  MS-DRG 101--Cases with Intractable Epilepsy with vEEG (Codes                 879            5.0           19,227   345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91)  MS-DRG 101--Cases with Intractable Epilepsy without vEEG........           1,351            4.25          14,913  ----------------------------------------------------------------------------------------------------------------        In applying the criteria to establish subgroups, the data do not   support the creation of a new subdivision for MS-DRG 101 for cases with   intractable epilepsy and vEEG, nor does the data support moving the 879   cases from MS-DRG 101 to MS-DRG 100. Moving the 879 cases to MS-DRG 100   would mean moving cases with average charges of approximately $19,000   into an MS-DRG with average charges of $28,000. Therefore, we did not   propose to refine    [[Page 48496]]    MS-DRG 101 by subdividing cases with a primary diagnosis of intractable   epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also   performed into a separate MS-DRG.      Comment: One commenter supported the National Association of   Epilepsy Centers in recommending that MS-DRG 101 be subdivided for a   subset of patients with a primary diagnosis of intractable epilepsy   (codes 345.01 through 345.91) when EEG with video monitoring is   reported. Similar to the Association's comments, the commenter stated   that this subgroup of patients is most often admitted to hospitals with   specialized epilepsy centers for a comprehensive evaluation to   determine epilepsy seizure type, cause and location for consideration   of surgery or to alter medications, and that the hospitalization is   longer than the other cases in MS-DRG 101, resulting in higher costs   (due to continuous 24-hour EEG with video monitoring (vEEG) and   additional expensive diagnostic tests such as MRI, ictal SPECT, PET,   and neuropsychological testing).      The commenter acknowledged that CMS has set specific criteria for   the establishment of a new MS-DRG. According to the commenter, the FY   2007 data analyzed by the Association reported that the intractable   epilepsy with vEEG cases exceed the average charge criteria as well as   the minimum number of cases needed to establish a separate DRG.   However, the total number of cases in the subgroup represents less than   2 percent of the cases in MS-DRG 101, while the criterion calls for a   threshold of 5 percent. The commenter stated that the number of cases   is small because most patients with intractable epilepsy admitted to   the hospital for vEEG are younger than 65 years of age and are eligible   for Medicare due to their disability. In addition, the commenter   indicated that the population is typically covered by private insurance   or Medicaid. The commenter asserted that the Medicare intractable   epilepsy with vEEG cases will remain small, but asked that CMS   establish the separate MS-DRG as it has done for pediatric and other   small subgroups of patients.      Lastly, like the Association, the commenter noted that most of the   admissions of the epilepsy subgroup occur in a relatively small number   of hospitals with specialized epilepsy centers. The commenter believed   that the establishment of a separate MS-DRG for the epilepsy subgroup   would have a minimal impact on most hospitals, but would substantially   improve the accuracy of payment to hospitals that specialize in   epilepsy care.      Response: We appreciate the commenter's comments. As we indicated   in the proposed rule and in this final rule, we performed an analysis   of the FY 2007 MedPAR data. In applying the criteria to establish   subgroups, the data did not support the creation of a new subdivision   for MS-DRG 101 for cases with intractable epilepsy and vEEG.      As mentioned elsewhere in this final rule, we received several   comments acknowledging CMS' discussion of the FY 2008 implementation of   MS-DRGs and lack of data to support major MS-DRG changes for FY 2009.   The commenters accepted CMS' proposal of not making significant   revisions to the MS-DRGs until claims data under the new MS-DRG system   are available. Therefore, as final policy for FY 2009, we are not   modifying MS-DRG 101.  3. MDC 5 (Diseases and Disorders of the Circulatory System)  a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and   Generator Procedures      In the FY 2008 IPPS final rule with comment period (72 FR 47257),   we created a separate, stand alone DRG for automatic implantable   cardioverter-defibrillator (AICD) generator replacements and   defibrillator lead replacements. The new MS-DRG 245 (AICD lead and   generator procedures) contains the following codes:       00.52, Implantation or replacement of transvenous lead   [electrode] into left ventricular coronary venous system       00.54, Implantation or replacement of cardiac   resynchronization defibrillator pulse generator device only [CRT-D]       37.95, Implantation of automatic cardioverter/  defibrillator lead(s) only       37.96, Implantation of automatic cardioverter/  defibrillator pulse generator only       37.97, Replacement of automatic cardioverter/defibrillator   lead(s) only       37.98, Replacement of automatic cardioverter/defibrillator   pulse generator only      Commenters on the FY 2008 IPPS proposed rule supported this MS-DRG,   which recognizes the distinct differences in resource utilization   between pacemaker and defibrillator generators and leads. One commenter   suggested that CMS consider additional refinements for the   defibrillator generator and leads. In reviewing the standardized   charges for the AICD leads, the commenter believed that the leads may   be more appropriately assigned to another DRG such as MS-DRG 243   (Permanent Cardiac Pacemaker Implant with CC) or MS-DRG 258 (Cardiac   Pacemaker Device Replacement with MCC). The commenter recommended that   CMS consider moving the defibrillator leads back into a pacemaker DRG,   either MS-DRG 243 or MS-DRG 258.      In response to the commenter, we indicated that the data supported   separate MS-DRGs for these very different devices (72 FR 47257). We   indicated that moving the defibrillator leads back into a pacemaker MS-  DRG defeated the purpose of creating separate MS-DRGs for   defibrillators and pacemakers. Therefore, we finalized MS-DRG 245 as   proposed with the leads and generator codes listed above.      After publication of the FY 2008 IPPS final rule with comment   period, we received a request from a manufacturer that recommended a   subdivision for MS-DRG 245 (AICD Lead and Generator Procedures). The   requestor suggested creating a new MS-DRG to separate the implantation   or replacement of the AICD leads from the implantation or replacement   of the AICD pulse generators to better recognize the differences in   resource utilization for these distinct procedures.      The requestor applauded CMS' decision to create separate MS-DRGs   for the pacemaker device procedures from the AICD procedures in the FY   2008 IPPS final rule (72 FR 47257). The requestor further acknowledged   its support of the clinically distinct MS-DRGs for pacemaker devices.   Currently, MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement   with MCC and without MCC, respectively) describe the implantation or   replacement of pacemaker generators, while MS-DRGs 260, 261, and 262   (Cardiac Pacemaker Revision Except Device Replacement with MCC, with   CC, without CC/MCC, respectively) describe the insertion or replacement   of pacemaker leads.      The requestor believed that the IPPS ``needs to continue to evolve   to accurately reflect clinical differences and costs of services.'' As   such, the requestor recommended that CMS follow the same structure as   it did with the pacemaker MS-DRGs for MS-DRG 245 to separately identify   the implantation or replacement of the defibrillator leads (codes   37.95, 37.97, and 00.52) from the implantation or replacement of the   pulse generators (codes 37.96, 37.98 and 00.54).      In the FY 2009 IPPS proposed rule, we discussed our analysis of the   FY 2007 MedPAR data, in which we found a total of 5,546 cases in MS-DRG   245 with average charges of $62,631 and an average length of stay of   3.3 days. We    [[Page 48497]]    found 1,894 cases with implantation or replacement of the defibrillator   leads (codes 37.95, 37.97, and 00.52) with average charges of $42,896   and an average length of stay of 3.4 days. We also found a total of   3,652 cases with implantation or replacement of the pulse generator   (codes 37.96, 37.98, 00.54) with average charges of $72,866 and an   average length of stay of 3.2 days.      We agree with the requestor that the IPPS should accurately   recognize differences in resource utilization for clinically distinct   procedures. As the data demonstrate, average charges for the   implantation or replacement of the AICD pulse generators are   significantly higher than for the implantation or replacement of the   AICD leads. Therefore, we proposed to create a new MS-DRG 265 to   separately identify these distinct procedures.      Comment: Several commenters expressed their appreciation and   applauded CMS for acting on the proposal to subdivide MS-DRG 245 and   create a new MS-DRG to recognize the differences in resource   utilization for the implantation or replacement of leads from the   implantation or replacement of pulse generators. The commenters   supported these refinements to the MS-DRG classification system and   stated that this proposed modification would ``reflect appropriate   allocation and use of resources.''      Response: We appreciate the commenters' support. We proposed that   the title for this new MS-DRG 265 would be ``AICD Lead Procedures'' and   would include procedure codes that identify the AICD leads (codes   37.95, 37.97 and 00.52). We also proposed that the title for MS-DRG 245   would be revised to ``AICD Generator Procedures'' and include procedure   codes 37.96, 37.98, and 00.54. We believe these changes will better   reflect the clinical differences and resources utilized for these   distinct procedures.      Therefore, in this final rule, we are finalizing our proposals to   revise the title of MS-DRG 245 to read ``AICD Generator Procedures'',   which includes procedure codes 37.96, 37.98, 00.54 and to create a new   MS-DRG 265 (AICD Lead Procedures) to include procedure codes 37.95,   37.97 and 00.52, effective October 1, 2009.  b. Left Atrial Appendage Device      Atrial fibrillation (AF) is the primary cardiac abnormality   associated with ischemic or embolytic stroke. Most ischemic strokes   associated with AF are possibly due to an embolism or thrombus that has   formed in the left atrial appendage. Evidence from studies such as   transesophageal echocardiography shows left atrial thrombi to be more   frequent in AF patients with ischemic stroke as compared to AF patients   without stroke. While anticoagulation medication can be efficient in   ischemic stroke prevention, there can be problems of safety and   tolerability in many patients, especially those older than 75 years.   Chronic warfarin therapy has been proven to reduce the risk of embolism   but there can be difficulties concerning its administration. Frequent   blood tests to monitor warfarin INR are required at some cost and   patient inconvenience. In addition, because warfarin INR is affected by   a large number of drug and dietary interactions, it can be   unpredictable in some patients and difficult to manage. The efficacy of   aspirin for stroke prevention in AF patients is less clear and remains   controversial. With the known disutility of warfarin and the   questionable effectiveness of aspirin, a device-based solution may   provide added protection against thromboembolism in certain patients   with AF.      At the April 1, 2004 ICD-9-CM Coordination and Maintenance   Committee meeting, a proposal was presented for the creation of a   unique procedure code describing insertion of the left atrial appendage   filter system. Subsequently, ICD-9-CM code 37.90 (Insertion of left   atrial appendage device) was created for use beginning October 1, 2004.   This code was designated as a non-operating room (non-O.R.) procedure,   and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous   Cardiovascular Procedure without Coronary Artery Stent or Acute   Myocardial Infarction). With the adoption of MS-DRGs in FY 2008, CMS   DRG 518 was divided into MS-DRGs 250 (Percutaneous Cardiovascular   Procedure without Coronary Artery Stent or AMI with MCC) and 251   (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or   AMI without MCC).      We have reviewed the data concerning this procedure code annually.   Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases   were reported, and the average charges ($27,620) closely mimicked the   average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As   the charges were comparable, we made no recommendations to change the   CMS DRG assignment for FY 2007.      Using FY 2006 MedPAR data for the FY 2008 IPPS final rule, we   divided CMS DRG 518 into the cases that would be reflected in the MS-  DRG configuration; that is, we divided the cases based on the presence   or absence of an MCC. There were 35 cases without an MCC with average   charges of $24,436, again mimicking the 38,002 cases with average   charges of $32,546. There were 3 cases with an MCC with average charges   of $62,337, compared to the 5,458 cases also with an MCC with average   charges of $53,864. Again, it was deemed that cases with code 37.90   were comparable to the rest of the cases in CMS DRG 518, and the   decision was made not to make any changes in the DRG assignment for   this procedure code. As noted above, CMS DRG 518 became MS-DRGs 250 and   251 in FY 2008.      We have received a request regarding code 37.90 and its placement   within the MS-DRG system for FY 2009. The requestor, a manufacturer's   representative, asked for either the reassignment of code 37.90 to an   MS-DRG that would adequately cover the costs associated with the   complete procedure or the creation of a new MS-DRG that would reimburse   hospitals adequately for the cost of the device. The requestor reported   that the device's IDE clinical trial is nearing completion, with the   conclusion of study enrollment in May 2008. The requestor will continue   to enroll patients in a Continued Use Registry following completion of   the trial. The requestor reported that it did not charge hospitals for   the atrial appendage device, estimated to cost $6,000, during the trial   period, but it will begin to charge hospitals upon the completion of   the trial in May. The requestor provided us with its data showing what   it believed to be a differential of $107 more per case than the payment   average for MS-DRG 250, and a shortfall of $3,808 per case than the   payment average for MS-DRG 251.      The requestor pointed out that code 37.90 is assigned to both MS-  DRGs 250 and 251, but stated that the final MS-DRG assignment would be   MS-DRG 251 when the patient has a principal diagnosis of atrial   fibrillation (code 427.31) because AF is not presently listed as a CC   or an MCC. We note that it is the principal diagnosis that is used to   determine assignment of a case to the correct MDC and subsequently the   MS-DRG. Secondary or additional diagnosis codes are the only codes that   can be used to determine the presence of a CC or an MCC.      With regard to the request to create a specific MS-DRG for the   insertion of this device titled ``Percutaneous Cardiovascular   Procedures with Implantation of a Left Atrial Appendage Device without   CC/MCC'', we point out that the payments under a prospective    [[Page 48498]]    payment system are predicated on averages. The device is already   assigned to MS-DRGs containing other percutaneous cardiovascular   devices; to create a new MS-DRG specific to this device would be to   remove all other percutaneously inserted devices and base the MS-DRG   assignment solely on the presence of code 37.90. This approach negates   our longstanding method of grouping like procedures, and removes the   concept of averaging. Further, to ignore the structure of the MS-DRG   system solely for the purpose of increasing payment for one device   would set an unwelcome precedent for defining all of the other MS-DRGs   in the system. We also point out that the final rule establishing the   MS-DRGs set forth five criteria, all five of which are required to be   met, in order to warrant creation of a CC or an MCC subgroup within a   base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule   with comment period (72 FR 47169). One of the criteria specifies that   there will be at least 500 cases in the CC or MCC subgroup. To date,   there are not enough cases assigned to code 37.90 that are reported   within the MedPAR data.      Using FY 2007 MedPAR data, for the FY 2009 IPPS proposed rule, we   reviewed MS-DRGs 250 and 251 for the presence of the left atrial   appendage device. The following table displays our results:    ----------------------------------------------------------------------------------------------------------------                                                                       Number of    Average length      Average                               MS-DRG                                    cases          of stay         charges  ----------------------------------------------------------------------------------------------------------------  250--All Cases..................................................           6,424            7.72      $60,597.58  250--Cases with code 37.90......................................               4            6.50       65,829.51  250--Cases without code 37.90...................................           6,420            7.72       60,594.32  251--All Cases..................................................          39,456            2.84       35,719.81  251--Cases with code 37.90......................................             101            1.30       20,846.09  251--Cases without code 37.90...................................          39,335            2.85       35,757.98  ----------------------------------------------------------------------------------------------------------------        There were a total of 105 cases assigned code 37.90 that were   reported for Medicare beneficiaries in the 2007 MedPAR data. There are   4 cases with an atrial appendage device in MS-DRG 250 that have higher   average charges than the other 6,420 cases in the MS-DRG, and that have   slightly shorter lengths of stay by 1.25 days. However, the more   telling data are located in MS-DRG 251, which shows that the 101 cases   in which an atrial appendage device was implanted have much lower   average charges ($20,846.09) than the other 39,355 cases in the MS-DRG   with average charges of $35,758.98. The difference in the average   charges is approximately $14,912, so even when the manufacturer begins   charging the hospitals the estimated $6,000 for the device, there is   still a difference of approximately $8,912 in average charges based on   the comparison within the total MS-DRG 251. Interestingly, the 101   cases also have an average length of stay of less than half of the   average length of stay compared to the other cases assigned to that MS-  DRG.      Because the data did not support either the creation of a unique   MS-DRG or the assignment of procedure code 37.90 to another higher-  weighted MS-DRG, we did not propose any change to MS-DRGs 250 and 251,   or to code 37.90 for FY 2009. We believe, based on the past 3 years'   comparisons, that this code is appropriately located within the MS-DRG   structure.      We did not receive any comments on our proposal to make no changes   to MS-DRGs 250 or 251, or on the assignment of code 37.90 (Insertion of   left atrial appendage device) within the MS-DRG structure. Therefore,   in the absence of comment to the contrary, and in the presence of what   we believe to be compelling evidence concerning the accuracy of the   placement of code 37.90 in the current MS-DRG structure, we are not   modifying MS-DRG 250 or 251 or procedure code 37.90 for FY 2009.      As an additional note, we point out that the titles of MS-DRGs 250   and 251 have been changed for FY 2009. We have removed the reference to   AMI, as that portion of the title was a holdover from the CMS DRGs last   used in FY 2007. The correct titles are: MS-DRG 250 (Percutaneous   Cardiovascular Procedure without Coronary Artery Stent with MCC) and   MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary   Artery Stent without MCC). The entire list of MS-DRGs can be found in   Table 5 of the Addendum to this final rule.  4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and   Connective Tissue): Hip and Knee Replacements and Revisions      For FY 2009, we again received a request from the American   Association of Hip and Knee Surgeons (AAHKS), a specialty group within   the American Academy of Orthopedic Surgeons (AAOS), concerning   modifications of the lower joint procedure MS-DRGs. The request is   similar, in some respects, to the AAHKS' request in FY 2008,   particularly as it relates to separating routine and complex   procedures. For the benefit of the reader, we are republishing a   history of the development of DRGs for hip and knee replacements and a   summary of the AAHKS FY 2008 request that were included in the FY 2008   IPPS final rule with comment period (72 FR 47222 through 47224) before   we discuss the AAHKA's more recent request.  a. Brief History of Development of Hip and Knee Replacement Codes      In the FY 2006 IPPS final rule (70 FR 47303), we deleted CMS DRG   209 (Major Joint and Limb Reattachment Procedures of Lower Extremity)   and created two new CMS DRGs: 544 (Major Joint Replacement or   Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee   Replacement). The two new CMS DRGs were created because revisions of   joint replacement procedures are significantly more resource intensive   than original hip and knee replacements procedures. CMS DRG 544   included the following procedure code assignments:       81.51, Total hip replacement       81.52, Partial hip replacement       81.54, Total knee replacement       81.56, Total ankle replacement       84.26, Foot reattachment       84.27, Lower leg or ankle reattachment       84.28, Thigh reattachment      CMS DRG 545 included the following procedure code assignments:       00.70, Revision of hip replacement, both acetabular and   femoral components       00.71, Revision of hip replacement, acetabular component       00.72, Revision of hip replacement, femoral component       00.73, Revision of hip replacement, acetabular liner and/  or femoral head only       00.80, Revision of knee replacement, total (all   components)       00.81, Revision of knee replacement, tibial component    [[Page 48499]]         00.82, Revision of knee replacement, femoral component       00.83, Revision of knee replacement, patellar component       00.84, Revision of knee replacement, tibial insert (liner)       81.53, Revision of hip replacement, not otherwise   specified       81.55, Revision of knee replacement, not otherwise   specified      Further, we created a number of new ICD-9-CM procedure codes   effective October 1, 2005, that better distinguish the many different   types of joint replacement procedures that are being performed. In the   FY 2006 IPPS final rule (70 FR 47305), we indicated a commenter had   requested that, once we receive claims data using the new procedure   codes, we closely examine data from the use of the codes under the two   new CMS DRGs to determine if future additional DRG modifications are   needed.  b. Prior Recommendations of the AAHKS      Prior to this year, the AAHKS had recommended that we make further   refinements to the CMS DRGs for knee and hip arthroplasty procedures.   The AAHKS previously presented data to CMS on the important differences   in clinical characteristics and resource utilization between primary   and revision total joint arthroplasty procedures. The AAHKS stated that   CMS' decision to create a separate DRG for revision of total joint   arthroplasty (TJA) in October 2005 resulted in more equitable   reimbursement for hospitals that perform a disproportionate share of   complex revision of TJA procedures, recognizing the higher resource   utilization associated with these cases. The AAHKS stated that this   important payment policy change led to increased access to care for   patients with failed total joint arthroplasties, and ensured that high   volume TJA centers could continue to provide a high standard of care   for these challenging patients.      The AAHKS further stated that the addition of new, more descriptive   ICD-9-CM diagnosis and procedure codes for TJA in October 2005 gave it   the opportunity to further analyze differences in clinical   characteristics and resource intensity among TJA patients and   procedures. Inclusive of the preparatory work to submit its   recommendations, the AAHKS compiled, analyzed, and reviewed detailed   clinical and resource utilization data from over 6,000 primary and   revision TJA procedure codes from 4 high volume joint arthroplasty   centers located within different geographic regions of the United   States: University of California, San Francisco, CA; Mayo Clinic,   Rochester, MN; Massachusetts General Hospital, Boston, MA; and the   Hospital for Special Surgery, New York, NY. Based on its analysis, the   AAHKS recommended that CMS examine Medicare claims data and consider   the creation of separate DRGs for total hip and total knee arthroplasty   procedures. The AAHKS stated that based on the differences between   patient characteristics, procedure characteristics, resource   utilization, and procedure code payment rates between total hip and   total knee replacements, separate DRGs were warranted. Furthermore, the   AAHKS recommended that CMS create separate base DRGs for routine versus   complex joint revision or replacement procedures as shown below.    Routine Hip Replacements         00.73, Revision of hip replacement, acetabular liner and/  or femoral head only       00.85, Resurfacing hip, total, acetabulum and femoral head       00.86, Resurfacing hip, partial, femoral head       00.87, Resurfacing hip, partial, acetabulum       81.51, Total hip replacement       81.52, Partial hip replacement       81.53, Revision of hip replacement, not otherwise   specified    Complex Hip Replacements         00.70, Revision of hip replacement, both acetabular and   femoral components       00.71, Revision of hip replacement, acetabular component       00.72, Revision of hip replacement, femoral component    Routine Knee Replacements and Ankle Procedures         00.83, Revision of knee replacement, patellar component       00.84, Revision of knee replacement, tibial insert (liner)       81.54, Revision of knee replacement, not otherwise   specified       81.55, Revision of knee replacement, not otherwise   specified       81.56, Total ankle replacement    Complex Knee Replacements and Other Reattachments         00.80, Revision of knee replacement, total (all   components)       00.81, Revision of knee replacement, tibial component       00.82, Revision of knee replacement, femoral component       84.26, Foot reattachment       84.27, Lower leg or ankle reattachment       84.28, Thigh reattachment      The AAHKS also recommended the continuation of CMS DRG 471   (Bilateral or Multiple Major Joint Procedures of Lower Extremity)   without modifications. CMS DRG 471 included any combination of two or   more of the following procedure codes:       00.70, Revision of hip replacement, both acetabular and   femoral components       00.80, Revision of knee replacement, total (all   components)       00.85, Resurfacing hip, total, acetabulum and femoral head       00.86, Resurfacing hip, partial, femoral head       00.87, Resurfacing hip, partial, acetabulum       81.51, Total hip replacement       81.52, Partial hip replacement       81.54, Total knee replacement       81.56, Total ankle replacement  c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and   AAHKS' Recommendations      In the FY 2008 IPPS final rule with comment period (72 FR 47222   through 47226), we adopted MS-DRGs to better recognize severity of   illness for FY 2008. The MS-DRGs include two new severity of illness   levels under the then current base DRG 544. We also added three new   severity of illness levels to the base DRG for Revision of Hip or Knee   Replacement. The new MS-DRGs are as follows:       MS-DRG 466 (Revision of Hip or Knee Replacement with MCC)       MS-DRG 467 (Revision of Hip or Knee Replacement with CC)       MS-DRG 468 (Revision of Hip or Knee Replacement without   CC/MCC)       MS-DRG 469 (Major Joint Replacement or Reattachment of   Lower Extremity with MCC)       MS-DRG 470 (Major Joint Replacement or Reattachment of   Lower Extremity without MCC)      We found that the MS-DRGs greatly improved our ability to identify   joint procedures with higher resource costs. In the final rule, we   presented data indicating the average charges for each new MS-DRG for   the joint procedures.      In the FY 2008 IPPS final rule with comment period, we acknowledged   the valuable assistance the AAHKS had provided to CMS in creating the   new joint replacement procedure codes and modifying the joint   replacement DRGs beginning in FY 2006. These efforts greatly improved   our ability to categorize significantly different groups of patients   according to severity of illness. Commenters on the FY 2008 proposed   rule had encouraged CMS to continue working with the orthopedic    [[Page 48500]]    community, including the AAHKS, to monitor the need for additional new   DRGs. The commenters stated that MS-DRGs 466 through 470 are a good   first step. However, they stated that CMS should continue to evaluate   the data for these procedures and consider additional refinements to   the MS-DRGs, including the need for additional severity levels. AAHKS   stated that its data suggest that all three base DRGs (primary   replacement, revision of major joint replacement, and bilateral joint   replacement) should be separated into three severity levels (that is,   MCC, CC, and non-CC). (We had proposed three severity levels for   revision of hip and knee replacement (MS-DRGs 466, 467, and 468), and   AAHKS agreed with this 3-level subdivision.)      The AAHKS recommended that the base DRG for the proposed two   severity subdivision MS-DRGs for major joint replacement or   reattachment of lower extremity with and without CC/MCC (MS-DRGs 483   and 484) be subdivided into three severity levels, as was the case for   the revision of hip and knee replacement MS-DRGs. AAHKS also   recommended that the two severity subdivision MS-DRGs for bilateral or   multiple major joint procedures of lower extremity with and without MCC   (MS-DRGs 461 and 462) be subdivided three ways for this base DRG. AAHKS   acknowledged that the three way split would not meet all five of the   criteria for establishing a subgroup, and stated that these criteria   were too restrictive, lack face validity, and create perverse admission   selection incentives for hospitals by significantly overpaying for   cases without a CC and underpaying for cases with a CC. It recommended   that the existing five criteria be modified for low volume subgroups to   assure materiality. For higher volume MS-DRG subgroups, the AAHKS   recommended that two other criteria be considered, particularly for   nonemergency, elective admissions:       Is the per-case underpayment amount significant enough to   affect admission vs. referral decisions on a case-by-case basis?       Is the total level of underpayments sufficient to   encourage systematic admission vs. referral policies, procedures, and   marketing strategies?      The AAHKS also recommended refining the five existing criteria for   MCC/CC/without subgroups as follows:       Create subgroups if they meet the five existing criteria,   with cost difference between subgroups ($1,350) substituted for charge   difference between subgroups ($4,000);       If a proposed subgroup meets criteria number 2 and 3 (at   least 5 percent and at least 500 cases) but fails one of the others,   then create the subgroup if either of the following criteria are met:       At least $1,000 cost difference per case between   subgroups; or       At least $1 million overall cost should be shifted to   cases with a CC (or MCC) within the base DRG for payment weight   calculations.      In response, we indicated that we did not believe it was   appropriate to modify our five criteria for creating severity   subgroups. Our data did not support creating additional subdivisions   based on the criteria. At that time, we believed the criteria we   established to create subdivisions within a base DRG were reasonable   and establish the appropriate balance between better recognition of   severity of illness, sufficient differences between the groups, and a   reasonable number of cases in each subgroup. However, we indicated that   we may consider further modifications to the criteria at a later date   once we have had some experience with MS-DRGs created using the   proposed criteria.      The AAHKS indicated in its response to the FY 2008 proposed rule   that it continued to support the separation of routine and complex   joint procedures. It believed that certain joint replacement procedures   have significantly lower average charges than do other joint   replacements. The AAKHS' data suggest that more routine joint   replacements are associated with substantially less resource   utilization than other more complex revision procedures. The AAHKS   stated that leaving these procedures in the revision MS-DRGs results in   substantial overpayment for these relatively simple, less costly   revision procedures, which in turn results in a relative underpayment   for the more complex revision procedures.      In response, we examined data on this issue and identified two   procedure codes for partial knee revisions that had significantly lower   average charges than did other joint revisions. The two codes are as   follows:       00.83 Revision of knee replacement, patellar component       00.84 Revision of total knee replacement, tibial insert   (liner)      The data suggest that these less complex partial knee revisions are   less resource intensive than other cases assigned to MS-DRGs 466, 467,   or 468. We examined other orthopedic DRGs to which these two codes   could be assigned. We found that these cases have very similar average   charges to those in MS-DRG 485 (Knee Procedures with Principal   Diagnosis of Infection with MCC), MS-DRG 486 (Knee Procedures with   Principal Diagnosis of Infection with CC), MS-DRG 487 (Knee Procedures   with Principal Diagnosis of Infection without CC), MS-DRG 488 (Knee   Procedures without Principal Diagnosis of Infection with CC or MCC),   and MS-DRG 489 (Knee Procedures without Principal Diagnosis of   Infection without CC).      Given the very similar resource requirements of MS-DRG 485 and the   fact that these DRGs also contain knee procedures, we moved codes 00.83   and 00.84 out of MS-DRGs 466, 467, and 468 and into MS-DRGs 485, 486,   487, 488, and 489. We also indicated that we would continue to monitor   the revision MS-DRGs to determine if additional modifications are   needed.  d. AAHKS' Recommendations for FY 2009      The AAHKS' current request involves the following recommendations:       That CMS consolidate and reassign certain joint procedures   that have a diagnosis of an infection or malignancy into MS-DRGs that   are similar in terms of clinical characteristics and resource   utilization. The AAKHS further identifies groups called Stage 1 and 2   procedures that it believes require significant differences in resource   utilization.       That CMS reclassify certain specific joint procedures,   which AAHKS refers to as ``routine,'' out of their current MS-DRG   assignments. The three joint procedures that AAHKS classifies as   ``routine'' are codes 00.73 (Revision of hip replacement, acetabular   liner and/or femoral head only), 00.83 (Revision of knee replacement,   patellar component), and 00.84 (Revision of total knee replacement,   tibial insert (liner)). The AAHKS advocated removing these three   ``routine'' procedures from the following DRGs: MS-DRGs 466, 467, and   468, MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489. The AAHKS   refers to MS-DRGs 466, 467, and 468 as ``complex'' revision MS-DRGs,   and recommended that the three ``routine'' procedures be moved out of   MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 489 and into MS-  DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower   Extremity with and without MCC, respectively). The AAHKS contended that   the three ``routine'' procedures have similar clinical characteristics   and resource utilization to those in MS-DRGs 469.      The recommendations suggested by AAHKS are quite complex and   involve a number of specific code lists and MS-DRG assignment changes.   We discuss each of these requests in detail below.      (1) AAHKS Recommendation 1: Consolidate and reassign patients with    [[Page 48501]]    hip and knee prosthesis related infections or malignancies.      The AAHKS pointed out that deep infection is one of the most   devastating complications associated with hip and knee replacements.   These infections have been reported to occur in approximately 0.5   percent to 3 percent of primary and 4 percent to 6 percent of revision   total joint replacement procedures. These infections often result in   the need for multiple reoperations, prolonged use of intravenous and   oral antibiotics, extended inpatient and outpatient rehabilitation, and   frequent followup visits. Furthermore, clinical outcomes following   single- and two-stage revision total joint arthroplasty procedures have   been less favorable than revision for other causes of failure not   associated with infection.      In addition to the clinical impact, the AAHKS stated that infected   total joint replacement procedures also have substantial economic   implications for patients, payers, hospitals, physicians, and society   in terms of direct medical costs, resource utilization, and the   indirect costs associated with lost wages and productivity. The AAHKS   stated that the considerable resources required to care for these   patients have resulted in a strong financial disincentive for   physicians and hospitals to provide care for patients with infected   total joint replacements, an increased economic burden on the high   volume tertiary care referral centers where patients with infected hip   replacement procedures are frequently referred for definitive   management. The AAHKS further stated that, in some cases, there are   compromised patient outcomes due to treatment delays as patients with   infected joint replacements seek providers who are willing to care for   them.      Once a deep infection of a total joint prosthesis is identified,   the first stage of treatment involves a hospital admission for removal   of the infected prosthesis and debridement of the involved bone and   surrounding tissue. During the same procedure, an antibiotic-  impregnated cement spacer is typically inserted to maintain alignment   of the limb during the course of antibiotic therapy. The patient is   then discharged to a rehabilitation facility/nursing home (or to home   if intravenous therapy can be safely arranged for the patient) for a 6-  week course of IV antibiotic treatment until the infection has cleared.      After the completion of antibiotic therapy, the hip or knee may be   reaspirated to look for evidence of persistent infection or eradication   of infection. A second stage procedure is then undertaken, where the   patient is readmitted, the hip or knee is reexplored, and the cement   spacer removed. If there are no signs of persistent infection, a hip or   knee prosthesis is reimplanted, often using bone graft and costly   revision implants in order to address extensive bone loss and distorted   anatomy. Thus, the entire course of treatment for patients with   infected joint replacements is 4 to 6 months, with an additional 6 to   12 months of rehabilitation. Furthermore, clinical outcomes following   revision for infection are poor relative to outcomes following revision   for other aseptic causes. The AAHKS noted that patients with bone   malignancy have a similar treatment focus--surgery to remove diseased   tissue, chemotherapy to treat the malignancy, and implantation of the   new prosthesis. They also have similar resource use. For simplicity,   the AAHKS' discussion focused on infected joint prostheses, but it   suggested that the issues it raises would apply to patients with a   malignancy as well.      The AAHKS stated that these patients are currently grouped in   multiple MS-DRGs, and the cases are often ``outliers'' in each one.   AAHKS proposed to consolidate these patients with similar clinical   characteristics and treatment into MS-DRGs reflective of their resource   utilization.      The AAHKS states that these more severe patients are currently   classified into the following MS-DRGs:       MS-DRGs 463, 463, and 465 (Wound Debridement and Skin   Graft Excluding Hand, for Musculoskeletal-Connective Tissue Disease   with MCC, with CC, without CC/MCC, respectively)       MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except   Major Joint with MCC, with CC, without CC/MCC, respectively)       MS-DRGs 485, 486, and 487 (Knee Procedures with Principal   Diagnosis of Infection and with MCC, with CC, and without CC/MCC,   respectively)       MS-DRGs 488 and 489 (Knee Procedures without Principal   Diagnosis of Infection and with CC/MCC and without CC/MCC,   respectively)       MS-DRGs 495, 496, and 497 (Local Excision and Removal of   Internal Fixation Devices Except Hip and Femur with MCC, with CC, and   without CC/MCC, respectively)       Other MS-DRGs (The AAHKS did not specify what these other   MS-DRGs were.)      The AAHKS indicated that cases with the severe diagnoses of   infections, neoplasms, and structural defects have similarities. These   similarities are due to an overlap of a severe diagnosis (including a   principal diagnosis of code 996.66 (Infected joint prosthesis) and the   resulting need for more extensive surgical procedures. The AAHKS stated   that currently these patients are grouped into MS-DRGs by major   procedure alone. AAHKS recommended that these cases be grouped into   what it refers to as Stages 1 and 2 as follows:       Stage 1 would include the removal of an infected   prosthesis and includes cases in MS-DRGs 463, 464, and 465, 480, 481,   and 482, 485 through 489, and 495, 496, and 497. Stage 1 joint   procedure codes would include codes 80.05 (Arthrotomy for removal of   prosthesis, hip), 80.06 (Arthrotomy for removal of prosthesis, knee),   00.73 (Revision of hip replacement, acetabular liner and/or femoral   head only), and 00.84 (Revision of knee replacement, tibial insert   (liner)).       Stage 2 would include the implant of a new prosthesis and   includes cases in MS-DRGs 461 and 462, 463, 464, and 465, 466, 467, and   468, and 469 and 470. Stage 2 joint procedure codes would include codes   00.70 (Revision of hip replacement, both acetabular and femoral   components), 00.71 (Revision of hip replacement, acetabular component),   00.72 (Revision of hip replacement, femoral component), 00.80 (Revision   of knee replacement, total (all components)), 00.81 (Revision of knee   replacement, tibial component), 00.82 (Revision of knee replacement,   femoral component), 00.85 (Resurfacing hip, total, acetabulum and   femoral head), 00.86 (Resurfacing hip, partial, femoral head), 00.87   (Resurfacing hip, partial, acetabulum), 81.51 (Total hip replacement),   81.52 (Partial hip replacement), 81.53 (Revise hip replacement), 81.54   (Total knee replacement), 81.55 (Revise knee replacement), and 81.56   (Total ankle replacement).      As stated earlier, the AAHKS recommended patients with certain more   severe diagnoses be grouped into a higher severity level. While most of   AAHKS' comments focused on joint replacement patients with infections,   the AAHKS also believed that patients with certain neoplasms require   greater resources. To this group of infections and neoplasms, the AAHKS   recommended the addition of four codes that capture acquired   deformities. The AAHKS believed that these codes would capture   admissions for the second stage of the treatment for an infected joint.   The AAHKS stated that the significance of these diagnoses when they are   reported as the principal code position was significant in predicting   resource utilization. However, the impact was not as significant when   the diagnosis was reported as a secondary diagnosis.    [[Page 48502]]    The AAHKS recommended that patients with one of the following   infection/neoplasm/defect principal diagnosis codes be segregated into   a higher severity level.    Stage 1 Infection/Neoplasm/Defect Principal Diagnosis Codes         170.7 (Malignant neoplasm of long bones of lower limb)       171.3 (Malignant neoplasm of soft tissue, lower limb,   including hip)       711.05 (Pyogenic arthritis, pelvic region and thigh)       711.06 (Pyogenic arthritis, lower leg)       730.05 (Acute osteomyelitis, pelvic region and thigh)       730.06 (Acute osteomyelitis, lower leg)       730.15 (Chronic osteomyelitis, pelvic region and thigh)       730.16 (Chronic osteomyelitis, lower leg)       730.25 (Unspecified osteomyelitis, pelvic region and   thigh)       730.26 (Unspecified osteomyelitis, lower leg)       996.66 (Infection and inflammatory reaction due to   internal joint prosthesis)       996.67 (Infection and inflammatory reaction due to other   internal orthopedic device, implant, and graft)    Stage 2 Infection/Neoplasm/Defect Principal Diagnosis Codes (an   Asterisk * Shows the Diagnoses Included in Stage 2 That Were Not Listed   in Stage 1)         170.7 (Malignant neoplasm of long bones of lower limb)       171.3 (Malignant neoplasm of soft tissue, lower limb,   including hip)       198.5 (Secondary malignant neoplasm of bone and bone   marrow) *       711.05 (Pyogenic arthritis, pelvic region and thigh)       711.06 (Pyogenic arthritis, lower leg)       730.05 (Acute osteomyelitis, pelvic region and thigh)       730.06 (Acute osteomyelitis, lower leg)       730.15 (Chronic osteomyelitis, pelvic region and thigh)       730.16 (Chronic osteomyelitis, lower leg)       730.25 (Unspecified osteomyelitis, pelvic region and   thigh)       730.26 (Unspecified osteomyelitis, lower leg)       736.30 (Acquired deformities of hip, unspecified   deformity)       736.39 (Other acquired deformities of hip) *       736.6 (Other acquired deformities of knee) *       736.89 (Other acquired deformities of other parts of   limbs) *       996.66 (Infection and inflammatory reaction due to   internal joint prosthesis) *       996.67 (Infection and inflammatory reaction due to other   internal orthopedic device, implant, and graft) *      For the Stage 2 procedures, AAHKS also suggested the use of the   following secondary diagnosis codes to assign the cases to a higher   severity level. These conditions would not be the reason the patient   was admitted to the hospital. They would instead represent secondary   conditions that were also present on admission or conditions that were   diagnosed after admission.    Stage 2 Infection/Neoplasm/Defect Secondary Diagnosis Codes         170.7 (Malignant neoplasm of long bones of lower limb)       171.3 (Malignant neoplasm of soft tissue, lower limb,   including hip)       711.05 (Pyogenic arthritis, pelvic region and thigh)       711.06 (Pyogenic arthritis, lower leg)       730.05 (Acute osteomyelitis, pelvic region and thigh)       730.06 (Acute osteomyelitis, lower leg)       730.15 (Chronic osteomyelitis, pelvic region and thigh)       730.16 (Chronic osteomyelitis, lower leg)       730.25 (Unspecified osteomyelitis, pelvic region and   thigh)       730.26 (Unspecified osteomyelitis, lower leg)       996.66 (Infection and inflammatory reaction due to   internal joint prosthesis)       996.67 (Infection and inflammatory reaction due to other   internal orthopedic device, implant, and graft)      (2) AAHKS Recommendation 2: Reclassify certain specific joint   procedures.      The AAHKS suggested that cases with the infection/neoplasm/defect   diagnoses listed above be segregated according to the Stage 1 and 2   groups listed above. The AAHKS made one final recommendation concerning   joint procedure cases with infections. It identified a subset of   patients who had a principal diagnosis of code 996.66 (Infection and   inflammatory reaction due to internal joint prosthesis) and who also   had a secondary diagnosis of sepsis or septicemia. The AAHKS believed   that these patients are for the most part admitted with both the joint   infection and sepsis/septicemia present at the time of admission. The   codes for sepsis/septicemia are classified as MCCs under MS-DRGs. The   AAHKS believed it is inappropriate to count the secondary diagnosis of   sepsis/septicemia as an MCC when it is reported with code 996.66. The   AAHKS believed that counting sepsis and septicemia as an MCC results in   double counting the infections. It believed that the joint infection   and septicemia are the same infection. The AAHKS recommended that the   following sepsis and septicemia codes not count as an MCC when reported   with code 996.66:       038.0 (Streptococcal septicemia)       038.10 (Staphylococcal septicemia, unspecified)       038.11 (Staphylococcal aureus septicemia)       038.19 (Other staphylococcal septicemia)       038.2 (Pneumococcal septicemia [streptococcus pneumonia   septicemia])       038.3 (Septicemia due anaerobes)       038.40 (Septicemia due to gram-negative organisms)       038.41 (Hemophilus influenzae [H. Influenzae])       038.42 (Escherichia coli [E. Coli])       038.43 (Pseudomonas)       038.44 (Serratia)       038.49 (Other septicemia due to gram-negative organisms)       038.8 (Other specified septicemias)       038.9 (Unspecified septicemia)       995.91 (Sepsis)       995.92 (Severe sepsis)  e. CMS' Response to AAHKS' Recommendations      The MS-DRG modifications proposed by the AAHKS are quite complex   and have many separate parts. We made changes to the MS-DRGs in FY 2008   as a result of a request by the AAHKS as discussed above, to recognize   two types of partial knee replacements as less complex procedures. We   have no data on how effective the new MS-DRGs for joint procedures are   in differentiating patients with varying degrees of severity.   Therefore, as we indicated in the proposed rule, we analyzed data   reported prior to the adoption of MS-DRGs to analyze each of the   recommendations made. We begin our analysis by focusing first on the   more simple aspects of the recommendations made by the AAHKS.      (1) Changing the MS-DRG assignment for codes 00.73, 00.83, and   00.84.      As discussed previously, in FY 2008, the AAHKS recommended that CMS   classify certain joint procedures as either routine or complex. We   examined the data for these cases and found that the following two   codes had significantly lower charges than the other joint revisions:   00.83 (Revision of knee replacement, patellar component) and 00.84   (Revision of knee replacement, tibial insert (liner)). Therefore, we   moved these two codes to MS-DRGs 485, 486, and 487, and MS-DRGs 488 and   489.      As a result of AAHKS' most recent recommendations, we once again    [[Page 48503]]    examined claims data for these two knee procedures (codes 00.83 and   00.84) as well as its request that we move code 00.73 (Revision of hip   replacement, acetabular liner and/or femoral head only). Code 00.73 is   assigned to MS-DRGs 466, 467, and 468. The following tables show our   findings.    ----------------------------------------------------------------------------------------------------------------                                                                       Number of    Average length      Average                               MS-DRG                                    cases          of stay         charges  ----------------------------------------------------------------------------------------------------------------  485--All Cases..................................................           1,122           12.20      $64,672.47  485--Cases with Code 00.83 or 00.84.............................             179           11.83       64,446.68  485--Cases without Code 00.83 or 00.84..........................             943           12.27       64,715.33  486--All Cases..................................................           2,061            8.03       40,758.55  486--Cases with Code 00.83 or 00.84.............................             464            7.34       39,864.39  486--Cases without Code 00.83 or 00.84..........................           1,597            8.23       41,018.34  487--All Cases..................................................           1,236            5.67       29,180.88  487--Cases with Code 00.83 or 00.84.............................             284            5.61       31,231.79  487--Cases without Code 00.83 or 00.84..........................             952            5.68       28,569.06  488--All Cases..................................................           2,374            5.17       30,180.80  488--Cases with Code 00.83 or 00.84.............................             754            4.09       28,432.06  488--Cases without Code 00.83 or 00.84..........................           1,620            5.67       30,994.73  489--All Cases..................................................           5,493            3.04       21,385.67  489--Cases with Code 00.83 or 00.84.............................           2,154            3.07       23,122.18  489--Cases without Code 00.83 or 00.84..........................           3,339            3.03       20,265.44  469--All Cases..................................................          29,030            8.17       56,681.64  470--All Cases..................................................         385,123            3.93       36,126.23  466--All Cases..................................................           3,888            9.18       76,015.66  466--Cases with Code 00.73......................................             273           10.02       71,293.33  466--Cases without Code 00.73...................................           3,616            9.12       76,372.06  467--All Cases..................................................          13,551            5.50       53,431.63  467--Cases with Code 00.73......................................           1,078            5.94       43,635.63  467--Cases without Code 00.73...................................          12,484            5.47       54,284.13  468--All Cases..................................................          19,917            3.94       44,055.62  468--Cases with Code 00.73......................................           1,688            3.93       33,449.22  468--Cases without Code 00.73...................................          18,232            3.94       45,037.09  469--All Cases..................................................          29,030            8.17       56,681.64  470--All Cases..................................................         385,123            3.93       36,126.23  ----------------------------------------------------------------------------------------------------------------        The tables show that codes 00.73, 00.83, and 00.84 are   appropriately assigned to their current MS-DRGs. The data do not   support moving these three codes to MS-DRGs 469 and 470. Therefore, we   did not propose a change of MS-DRG assignment for codes 00.73, 00.83,   and 00.84 for FY 2009.      (2) Excluding sepsis and septicemia from being an MCC with code   996.66.      There are cases where a patient may be admitted with an infection   of a joint prosthesis (code 996.66) and also have sepsis. In these   cases, it may be possible to perform joint procedures as suggested by   AAHKS. However, in other cases, a patient may be admitted with an   infection of a joint prosthesis and then develop sepsis during the   stay. Because our current data do not indicate whether a condition is   present on admission, we could not determine whether or not the sepsis   occurred after admission. Our data have consistently shown that cases   of sepsis and septicemia require significant resources. Therefore, we   classified the sepsis and septicemia codes as MCCs. Our clinical   advisors do not believe it is appropriate to exclude all cases of   sepsis and septicemia that are reported as a secondary diagnosis with   code 996.66 from being classified as a MCC. We discuss septicemia as   part of the HAC provision under section II.F. of the preamble of the   proposed rule and this final rule. For the purposes of classifying   sepsis and septicemia as non-CCs when reported with code 996.66, we do   not support this recommendation. Therefore, in the proposed rule, we   did not propose that the sepsis and septicemia codes be added to the CC   exclusion list for code 996.66.      (3) Differences between Stage 1 and 2 cases with severe diagnoses.      As indicated in the proposed rule, we next examined data on AAHKS'   suggestion that there are significant differences in resource   utilization for cases they refer to as Stage 1 and 2. AAHKS stated that   this is particularly true for those with infections, neoplasms, or   structural defects. We used the list of procedure codes listed above   that AAHKS describes as Stage 1 and 2 procedures. We also used AAHKS'   designated lists of Stage 1 and 2 principal diagnosis codes to examine   this proposal. This proposal entails moving cases with a Stage 1 or 2   principal diagnosis and procedure out of their current MS-DRG   assignment in the following 19 MS-DRGs and into a newly consolidated   set of MS-DRGs: MS-DRGs 463, 464, and 465, 480, 481, and 482, 485   through 489, and 495, 496, and 497.      As can be seen from the information below, there was not a   significant difference in average charges between these Stage 1 and   Stage 2 cases that have an MCC.    ----------------------------------------------------------------------------------------------------------------                                                                                    Average length      Average                               Stage 1                                Total cases       of stay         charges  ----------------------------------------------------------------------------------------------------------------                            Stage 1 Cases With Infection, Neoplasm, or Structural Defect  ----------------------------------------------------------------------------------------------------------------  With MCC........................................................           1,306            14.1         $79,232  Without MCC.....................................................           4,115             7.6         $44,716  ----------------------------------------------------------------------------------------------------------------    [[Page 48504]]                                Stage 2 Cases With Infection, Neoplasm, or Structural Defect  ----------------------------------------------------------------------------------------------------------------  With MCC........................................................           1,072            10.9         $80,781  Without MCC.....................................................           5,413             6.0         $57,355  ----------------------------------------------------------------------------------------------------------------        Average charges for Stage 1 cases with an MCC was $79,232 compared   to $80,781 for Stage 2. Stage 1 cases without an MCC had average   charges of $44,716 compared to $57,355. These data do not support   reconfiguring the current MS-DRGs based on this new subdivision.      (4) Moving joint procedure cases to new MS-DRGs based on secondary   diagnoses of infection.      We examined AAHKS' recommendation that Stage 2 joint cases with   specific secondary diagnoses of infection or neoplasm be moved out of   their current MS-DRG assignments and into a newly constructed MS-DRG.   We indicated in the proposed rule that we are reluctant to make this   type of significant DRG change to the joint MS-DRGs based on the   presence of a secondary diagnosis. This results in the movement of   cases out of MS-DRGs which were configured based on the reason for the   admission (for example, principal diagnosis) and surgery. The cases   would instead be assigned based on conditions that are reported as   secondary diagnoses. In some cases, the infection may have developed or   be diagnosed during the admission. This would be a significant logic   change to the MS-DRGs for joint procedures. This logic change would   involve setting a new precedent of reassigning cases to a different MS-  DRG if an infection is reported as a secondary diagnosis. The secondary   diagnosis of infection could be present on admission or develop after   the admission. Currently, secondary diagnoses are evaluated to   determine if they are an MCC or CC, and then they can lead to the case   being assigned to a higher severity level. The secondary diagnoses do   not currently lead to the removal of the case from the MS-DRG and   reassignment to a new MS-DRG. We have not had an opportunity to examine   claims data based on hospital discharges under the MS-DRGs which began   October 1, 2008. Our clinical advisors believe it would be more   appropriate to wait for data under the new MS-DRG system to determine   how well the new severity levels are addressing accurate payment for   these cases before considering this approach to assigning cases to a   MS-DRG.      (5) Moving cases with infection, neoplasms, or structural defects   out of 19 MS-DRGs and into two newly developed MS-DRGs.      The last recommended by AAHKS that we considered was moving cases   with a principal diagnosis of infection, neoplasm, or structural defect   from their list of Stage 1 and 2 diagnoses and consolidating them into   newly constructed and modified MS-DRGs. AAHKS could not identify an   existing set of MS-DRGs with similar resource utilizations into which   the Stage 1 cases could be assigned. Therefore, the AAHKS recommended   that CMS create three new MS-DRGs for Stage 1 cases with infections,   neoplasms and structural defects which would be titled ``Arthrotomy/  Removal/Component exchange of Infected Hip or Knee Prosthesis with MCC,   with CC, and without CC/MCC'', respectively.      The AAHKS recommended moving Stage 2 cases out of MS-DRGs 466, 467,   and 468, and 469 and 470 and into MS-DRGs 461 and 462. AAHKS   recommended that MS-DRGs 461 and 462 be renamed ``Major Joint   Procedures of Lower Extremity--Bilateral/Multiple/Infection/  Malignancy''.      As we indicated in the proposed rule, in reviewing these proposed   changes, we had a number of concerns. The first concern was that these   proposed changes would result in the removal of cases with varying   average charges from 19 current MS-DRGs and consolidating them into two   separate sets of MS-DRGs. As the data below indicate, the average   charges vary from as low as $29,181 in MS-DRG 487 to $81,089 in MS-DRG   463. Furthermore, the average charges for these infection/neoplasm/  structural defect cases are very similar to other cases in their   respective MS-DRG assignments for many of these MS-DRGs. There are   cases where the average charges are higher. In MS-DRG 469 and 470, the   infection/neoplasm/structural defect cases are significantly higher.   However, there are only 136 cases in MS-DRG 469 out of a total of   29,030 cases with these diagnoses. There are only 673 cases in MS-DRG   470 out of a total of 385,123 cases with one of these diagnoses. The   table below clearly demonstrates the wide variety of charges for cases   with these diagnoses.    ----------------------------------------------------------------------------------------------------------------                                                                       Number of    Average length      Average                               MS-DRGs                                   cases          of stay         charges  ----------------------------------------------------------------------------------------------------------------  463--All Cases..................................................           4,747           16.25      $73,405.46  463--Cases with PDX of Infection/Malignancy/React...............           1,009           17.79       81,089.07  464--All Cases..................................................           5,499           10.21       44,387.73  464--Cases with PDX of Infection/Malignancy/React...............           1,420           10.59       46,800.60  465--All Cases..................................................           2,271            5.95       26,631.57  465--Cases with PDX of Infection/Malignancy/React...............             557           10.59       29,816.40  466--All Cases..................................................           3,888            9.18       76,015.66  466--Cases with PDX of Infection/Malignancy/React...............             890           10.67       79,334.69  467--All Cases..................................................          13,551            5.50       53,431.63  467--Cases with PDX of Infection/Malignancy/React...............           2,401            6.71       58,506.86  468--All Cases..................................................          19,917            3.94       44,055.62  468--Cases with PDX of Infection/Malignancy/React...............           1,994            4.76       54,322.03  469--All Cases..................................................          29,030            8.17       56,681.64  469--Cases with PDX of Infection/Malignancy/React...............             136           11.74       85,256.07  470--All Cases..................................................         385,123            3.93       36,126.23  470--Cases with PDX of Infection/Malignancy/React...............             673            6.44       59,676.31  480--All Cases..................................................          25,391            9.32       52,281.65  480--Cases with PDX of Infection/Malignancy/React...............             880           14.53       76,355.15  481--All Cases..................................................          68,655            5.94       32,963.64    [[Page 48505]]      481--Cases with PDX of Infection/Malignancy/React...............             878            8.78       48,655.30  482--All Cases..................................................          45,832            4.86       27,266.20  482--Cases with PDX of Infection/Malignancy/React...............             577            6.19       37,572.38  485--All Cases..................................................           1,122           12.20       64,672.47  485--Cases with PDX of Infection/Malignancy/React...............           1,122           12.20       64,672.47  486--All Cases..................................................           2,061            8.03       40,758.55  486--Cases with PDX of Infection/Malignancy/React...............           2,061            8.03       40,758.55  487--All Cases..................................................           1,236            5.67       29,180.88  487--Cases with PDX of Infection/Malignancy/React...............           1,236            5.67       29,180.88  488--All Cases..................................................           2,374            5.17       30,180.80  488--Cases with PDX of Infection/Malignancy/React...............              31            7.13       50,155.42  489--All Cases..................................................           5,493            3.04       21,385.67  489--Cases with PDX of Infection/Malignancy/React...............              36            3.72       35,313.84  495--All Cases..................................................           1,860           10.94       55,103.91  495--Cases with PDX of Infection/Malignancy/React...............           1,025           11.74       59,453.69  496--All Cases..................................................           5,203            5.95       32,177.29  496--Cases with PDX of Infection/Malignancy/React...............           2,759            6.98       36,940.99  497--All Cases..................................................           6,259            3.01       21,445.60  497--Cases with PDX of Infection/Malignancy/React...............           1,500            5.18       29,966.98  ----------------------------------------------------------------------------------------------------------------        Given the wide variety of charges and the small number of cases   where there are differences in charges, we do not believe the data   support the AAKHS' recommendations. The data do not support removing   these cases from the 19 MS-DRGs above and consolidating them into a new   set of MS-DRGs, either newly created, or by adding them to MS-DRG 461   or 462, which have average charges of $80,718 and $57,355,   respectively.      A second major concern involves redefining MS-DRGs 461 and 462 is   that these MS-DRGs currently capture bilateral and multiple joint   procedures. These MS-DRGs were specifically created to capture a unique   set of patients who undergo procedures on more than one lower joint.   Redefining these MS-DRGs to include both single and multiple joints   undermines the clinical coherence of this MS-DRG. It would create a   widely diverse group of patients based on either a list of specific   diagnoses or the fact that the patient had multiple lower joint   procedures.      Comment: While we did not receive any public comments specifically   supporting the reassignment of codes 00.73, 00.83, and 00.84 to MS-DRGs   469 and 470, several commenters acknowledged CMS' discussion of the FY   2008 implementation of MS-DRGs and lack of data to support major MS-DRG   changes for FY 2009. The commenters accepted CMS' proposal of not   making significant revisions to the MS-DRGs until claims data under the   new MS-DRG system are available.      Several commenters suggested an alternative way of capturing the   more resource intensive joint procedure cases, particularly those   involving an infected joint. The commenters recommended moving codes   80.05 (Arthrotomy for removal of hip prosthesis) and 80.06 (Arthrotomy   for removal of knee prosthesis) into MS-DRGs 463 through 465 (Wound   Debridement and Skin Graft Except Hand, for Musculoskeletal-Connective   Tissue Disease with MCC, with CC, and without CC/MCC, respectively).   (We note that code 80.05 is currently assigned to MS-DRGs 480 through   482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, and   without CC/MCC, respectively). Code 80.06 is currently assigned to MS-  DRGs 495 through 497 (Local Excision and Removal Internal Fixation   Devices Except Hip and Femur with MCC, with CC, and without CC/MCC,   respectively).)      The commenters stated that a deep infection is one of the most   devastating complications associated with hip and knee joint   replacements, and that these cases require increased costs and resource   utilization. The commenters believed that there is a strong financial   disincentive for physicians and hospitals to provide care for patients   with infected joint replacements. They indicated that this leads to an   increased economic burden on tertiary care referral centers where   patients with infected joint replacements are frequently referred for   definitive management.      The commenters believed that codes 80.05 and 80.06 were a good   proxy for cases of infected joints containing a previously implanted   joint prosthesis. The commenters suggested that moving these two codes   was considerably less complex than the previously discussed revisions   to the joint DRGs. They also believed these two codes clearly captured   cases with infected joint prostheses. The commenters believed that   these codes would only be reported in cases of an infected joint where   the previous infected prosthesis was removed and no new prosthesis was   inserted. The commenters stated that when a previously implanted joint   prosthesis is removed and replaced with a new prosthesis, coders assign   only the code for the insertion of the new prosthesis. They added that   they do not routinely assign an additional code for the removal of the   joint prosthesis (code 80.05 or 80.06). The commenters also stated that   when there is an infected joint, the joint prosthesis may be removed   and extensive debridement may be provided involving bone and   surrounding tissue. The commenters further stated that an antibiotic-  impregnated cement spacer may be inserted to maintain alignment of the   limb during the course of antibiotic therapy. According to the   commenters, the new prosthesis will not be inserted until such time as   the infection is fully resolved. In this case, the commenter stated   that code 80.05 or 80.06 would be reported.      The commenters believed that when codes 80.05 or 80.06 are reported   to capture the removal of a joint prosthesis, one can assume that the   patient had a joint infection. Therefore, the commenters requested that   codes 80.05 and 80.06 be reassigned to MS-DRGs 463, 464, and 465   because wound debridement is a treatment for infected joints.      Response: We agree with the commenters that we should not move   codes 00.73, 00.83, and 00.84 to MS-DRGs 469 and 470. Our data do not   support this change. Therefore, in this final rule for FY 2009, we are   not moving codes 00.73, 00.83, and 00.84 to MS-DRGs 469 and 470.    [[Page 48506]]        We evaluated the alternative suggestion of moving codes 80.05 and   80.06 into MS-DRGs 463, 464, and 465. We disagree with the suggestion   that the use of codes 80.05 and 80.06 serves as a good proxy for cases   of infected joint prostheses. These two codes are used to capture the   fact that a previously inserted joint prosthesis is now being removed.   These prostheses can be removed for a variety of reason including   wearing, breakage, and infection. Assuming that these cases are   infections and then moving the cases to the debridement DRGs, MS-DRGs   463, 464, and 465, is inappropriate. We acknowledge that when a patient   has an infected joint prosthesis, the prosthesis may be removed and   treatment for the infection instituted, such as debridement. However,   the most specific way of identifying these cases would be to examine   the diagnosis code for the presence of an infection and to look for a   debridement procedure code.      Furthermore, the current codes for removal of joint prostheses do   not have specific instructions indicating that a coder must not report   codes 80.05 and 80.06 when also reporting one of the joint revision   codes. While the coding index implies that one does not need to report   a code for the removal of the prosthesis when it is being replaced, it   is not precluded under the codes. If a code is reported for the removal   of the previous joint prosthesis along with a code for the joint   revision, the proposed logic change would result in the case being   assigned to MS-DRGs 463, 464, and 465 even though the patient did not   have an infection or a debridement performed. This DRG assignment would   be a result of the surgical hierarchy which places the debridement DRGs   (MS-DRGs 463, 464, and 465) higher than the joint revision DRGs (MS-  DRGs 466, 467, and 468). The proposed MS-DRG logic change could lead to   the misclassification of many joint revision cases that did not have an   infection or a debridement into the debridement DRGs.      We plan to discuss the need to provide more definitive coding notes   under codes 80.05 and 80.06 at the September 24-25, 2008 ICD-9-CM   Coordination and Maintenance Committee meeting to better clarify that   one would not assign a code for the removal of a joint prosthesis if a   new prosthesis is inserted. This clarification may be useful when   considering future refinements to the joint procedure DRGs. However, at   this time, we believe that codes 80.05 and 80.06 cannot be used as a   definitive means of capturing cases of an infected joint prosthesis. We   believe it is more appropriate to utilize diagnosis codes to clearly   identify joint infections and debridement codes to indicate   debridement. We will continue to examine means to better classify joint   infections under the MS-DRGs. However, we are not moving codes 80.05   and 80.06 into MS-DRGs 463, 464, and 465 at this time. In addition, as   stated previously, we also are not moving codes 00.73, 00.83, and 00.84   to MS-DRGs 469 and 470. We are making no changes to the joint procedure   MS-DRGs for FY 2009.      Comment: One commenter provided additional recommendations to those   discussed in the previous comment. The commenter stated that, after   submission of his first comment, he had discovered a technical anomaly   in the treatment of patients with hip and knee revision who also have a   debridement that relates to the surgical hierarchy in MDC 8. The   commenter pointed out that the wound debridement and skin graft MS-DRGs   (MS-DRGs 463, 464, and 465) are currently sequenced before the revision   of hip or knee replacement MS-DRGs (MS-DRGs 466, 467, and 468).   Therefore, the commenter added, if codes are reported for revision of   hip or knee replacement as well as for debridement of an infection, the   case will be assigned to MS-DRGs 463, 467, or 465. The commenter   believed that cases with both a debridement and a total revision   prosthesis are more clinically similar to the revision cases than the   debridement cases. Therefore, the commenter requested that the order of   the wound debridement and skin graft MS-DRGs and the revision of the   hip and knee MS-DRGs be reversed.      Response: We agree that the current logic for wound debridement of   infections results in cases being assigned to MS-DRGs 463, 467, and   465. We also agree that joint revisions without debridements of   infections are currently assigned to MS-DRGs 466, 467, and 468. We   point out that this logic results in patients with infections being   assigned to the exact MS-DRGs requested by the commenters in the prior   discussion. We believe this current logic results in the appropriate   assignment of joint revisions with and without debridements.      MS-DRGs 466, 467, and 468 contain revisions for both total and   partial joint revisions. For instance, MS-DRGs 466, 467, and 468   includes revisions of the total hip joint as well as a partial hip   revision of only the femoral component. The commenter believed that a   subset of the revision cases, those with a total revision, are more   clinically similar to the revision cases than to the debridement cases.   For this reason, the commenter recommended that the surgical hierarchy   be changed so that revision of a hip and knee prosthesis in MS-DRGs   466, 467, and 468 should be placed above the debridement MS-DRGs (MS-  DRGs 463, 464, and 465). We point out that the surgical hierarchy is   based on all cases within each DRG, not a subset. Furthermore, we have   no MS-DRG claims data on which to evaluate the need to change the   surgical hierarchy based on this recommendation. We note that this   discussion reinforces the point that the current codes for debridement   of an infection and joint revisions seem to correctly assign cases to   the most appropriate MS-DRG. Therefore, in this final rule, we are not   making any changes to the joint procedure MS-DRGs for FY 2009. We are   deferring the examination of infections of joint replacements until   such time as we have MS-DRG claims data.      Comment: Several commenters expressed their concern about the joint   procedure MS-DRGs. The commenters supported CMS' efforts in the FY 2008   IPPS final rule to better reflect the clinical needs of patients and   the resources used by hospitals. The commenters particularly   appreciated CMS' adoption of the FY 2008 refined joint replacement MS-  DRGs that better recognize patient acuity. However, the commenters   believed that further refinements and additional MS-DRGs are needed for   joint procedures. The commenters stated that the joint procedure MS-  DRGs could be improved by making changes in FY 2009 to the MCC/CC   classifications of specific codes that represent conditions impacting   joint procedure patients. In particular, the commenters recommended the   following changes:       Changing the following codes from non-CCs to CCs: 731.3   (Major osseous defects); 278.0 (Overweight and obesity); V85.35 (Body   Mass index 35.0-35.9, adult); V85.36 (Body Mass index 36.0-36.9,   adult); and V85.37 (Body Mass index 37.0-37.9, adult).       Changing the following codes from non-CCs to MCCs: 278.01   (Morbid obesity); V85.38 (Body Mass index 38.0-38.9, adult); and V85.39   (Body Mass index 39.0-39.9, adult).       Changing code V85.40 (Body Mass index 40 and over, adult)   from a CC to an MCC.      The commenters also recommended that CMS continue to evaluate the   MS-DRG assignments for codes 00.73 (Revision of hip replacement,   acetabular liner and/or femoral head only) and 00.84 (Revision of total   knee replacement, tibial insert (liner)). The commenters stated that   once CMS receives MS-DRG data, these data may    [[Page 48507]]    support reassigning these codes to other MS-DRGs.      Response: While we acknowledge that the commenters were concerned   about the effect that the obesity may have on joint patients, we point   out that specific codes are classified as CCs or MCCs based on how they   affect a wide range of patients. In the creation of the MS-DRGs,   clinical evaluation and claims data did support the current MCC/CC   classifications for these codes. However, as we gain experience and   data under the MS-DRG system, we will continue to examine ways to   improve the joint procedure MS-DRGs. We do not have MS-DRG data to   evaluate these MCC/CC reclassifications or the possible reassignment of   codes 00.73 or 00.84 at this time.      Therefore, in this final rule, we are not changing the MCC/CC   classifications or the MS-DRG reassignments for codes 00.73, 00.83, or   00.84 for FY 2009. We also are not making changes to the joint   procedure MS-DRGs for FY 2009.  f. Conclusion      The AAHKS recommended a number of complicated, interrelated MS-DRG   changes to the joint procedure MS-DRGs. We have not yet had the   opportunity to review data for these cases under the new MS-DRGs. We   did analyze the impact of these recommendations using cases prior to   the implementation of MS-DRGs. The recommendations were difficult to   analyze because there were so many separate logic changes that impacted   a number of MS-DRGs. We did examine each major suggestion separately,   and found that our data and clinical analysis did not support making   these changes. Therefore, in the FY 2009 IPPS proposed rule, we did not   propose any revisions to the joint procedure MS-DRGs for FY 2009, nor   are we making any revisions in this final rule. We look forward to   examining these issues once we receive data under the MS-DRG system. As   we indicated in the proposed rule, we also welcome additional   recommendations from the AAHKS and others on a more incremental   approach to resolving its concerns about the ability of the current MS-  DRGs to adequately capture differences in severity levels for joint   procedure patients.  5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified   Sites): Severe Sepsis      We received a request from a manufacturer to modify the titles for   three MS-DRGs with the most significant concentration of severe sepsis   patients. The manufacturer stated that modification of the titles will   assist in quality improvement efforts and provide a better reflection   on the types of patients included in these MS-DRGs. Specifically, the   manufacturer urged CMS to incorporate the term ``severe sepsis'' into   the titles of the following MS-DRGs that became effective October 1,   2007 (FY 2008)       MS-DRG 870 (Septicemia with Mechanical Ventilation 96+   Hours)       MS-DRG 871 (Septicemia without Mechanical Ventilation 96+   Hours with MCC)       MS-DRG 872 (Septicemia without Mechanical Ventilation 96+   Hours without MCC)      These MS-DRGs were created to better recognize severity of illness   among patients diagnosed with conditions including septicemia, severe   sepsis, septic shock, and systemic inflammatory response syndrome   (SIRS) who are also treated with mechanical ventilation for a specified   duration of time.      According to the manufacturer, ``severe sepsis is a common, deadly   and costly disease, yet the number of patients impacted and the   outcomes associated with their care remain largely hidden within the   administrative data set.'' The manufacturer further noted that,   although improvements have been made in the ICD-9-CM coding of severe   sepsis (diagnosis code 995.92) and septic shock (diagnosis code   785.52), results of an analysis demonstrated an unacceptably high   mortality rate for patients reported to have those conditions. The   manufacturer believed that revising the titles to incorporate ``severe   sepsis'' will provide various clinicians and researchers the   opportunity to improve outcomes for these patients. Therefore, the   manufacturer recommended revising the current MS-DRG titles as follows:       Proposed Revised MS-DRG 870 (Septicemia or Severe Sepsis   with Mechanical Ventilation 96+ Hours)       Proposed Revised MS-DRG 871 (Septicemia or Severe Sepsis   without Mechanical Ventilation 96+ Hours with MCC)       Proposed Revised MS-DRG 872 (Septicemia or Severe Sepsis   without Mechanical Ventilation 96+ Hours without MCC)      Comment: Many commenters applauded CMS for helping to promote   quality improvement efforts for patients with severe sepsis. The   commenters expressed their support for revising the titles of MS-DRGs   870, 871, and 872 to include the term ``Severe Sepsis''. The commenters   agreed that MS-DRGs 870, 871, and 872 already include a significant   concentration of patients with severe sepsis and the change would   increase awareness as well as facilitate research to improve care and   patient outcomes.      Response: As we indicated in the proposed rule, we agree that   revising the current MS-DRG titles to include the term ``Severe   Sepsis'' would better assist in the recognition and identification of   this disease, which could lead to better clinical outcomes and quality   improvement efforts. In addition, both severe sepsis (diagnosis code   995.92) and septic shock (diagnosis code 785.52) are currently already   assigned to these three MS-DRGs. Therefore, as we proposed, in this   final rule we are revising the titles of MS-DRGs 870, 871, and 872 to   reflect severe sepsis in the titles for FY 2009, as suggested and   listed above.      Comment: One commenter thanked CMS for the proposal to modify the   titles for MS-DRGs 870, 871, and 872 by including the term ``severe   sepsis'' and suggested that the title for MS-DRG 853 (Infectious and   Parasitic Diseases with O.R. Procedure with MCC) be modified to include   the term ``severe sepsis and other'' as well. The commenter stated   that, based on an analysis the commenter conducted using Medicare   discharge data, the concentration of patients with severe sepsis (code   995.92) and septic shock (code 785.52) in surgical MS-DRG 853 is   comparable to the concentration of patients in medical MS-DRGs 870,   871, and 872.      According to the commenter's study, 43.1 percent of cases in MS-DRG   853 represent patients with severe sepsis. As a result of these   findings, the commenter stated that revising the title for MS-DRG 853   to include the term ``severe sepsis and other'' would be consistent   with the rationale for proposing to modify the titles to MS-DRGs 870,   871, and 872. The commenter asserted that this additional MS-DRG   modification would also better assist in the recognition and   identification of severe sepsis, leading to better clinical outcomes   and quality improvement efforts.      Response: We appreciate the commenter's support for the proposal to   modify the titles to MS-DRGs 870, 871, and 872 to include the term   ``Severe Sepsis''. As stated above, we agree and are finalizing the   proposed revisions to the titles for MS-DRGs 870, 871, and 872 for FY   2009.      With regard to modifying the title to MS-DRG 853, we point out that   the MS-DRG titles generally do not reflect all of the diagnoses or   conditions that may have a significant concentration of patients within   that particular MS-DRG.    [[Page 48508]]    In other words, the foundation of the MS-DRG titles represents   ``Diagnostic-Related Groups'' [emphasis added].      We have also received several comments acknowledging CMS'   discussion of the FY 2008 implementation of MS-DRGs and the lack of   data to support major MS-DRG changes at this time. Overall, the   commenters accepted CMS' proposal of not making significant revisions   to the MS-DRGs until claims data under this new system are available.   Therefore, as final policy for FY 2009, we are not making any change to   the title for MS-DRG 853.      Comment: One commenter agreed with CMS' proposal to revise the   descriptions for MS-DRGs 870, 871, and 872 by including the term   ``Severe Sepsis'' in the titles. However, the commenter also suggested   that CMS continue to study technological advances that may provide   earlier identification of sepsis and clinical findings that indicate   endotoxemia as a ``driver of morbidity and mortality in sepsis.''      The commenter believed that it would be essential to continue   making modifications to the MS-DRG classification system to recognize   newer technologies and treatments. Specifically, this commenter asked   that CMS consider endotoxemia as an MCC, stating this would be   consistent with the current MS-DRG system's designation of sepsis and   septicemia as MCCs.      Response: We acknowledge the commenter's suggestion and appreciate   the support for modifying the titles for MS-DRGs 870, 871, and 872 to   include the term ``Severe Sepsis''. As mentioned earlier, we are   finalizing the proposed revisions to the titles for these MS-DRGs for   FY 2009.      In response to the commenter's recommendation that the MS-DRG   classification system continue to be modified for purposes of   recognizing new technologies or treatments, we do have a process in   place under which we annually evaluate data and specific issues brought   to our attention to determine if revisions are warranted. We refer the   reader to section II.B.2 of the preamble in this final rule for a   discussion on this process, as well as section II.J. of the preamble of   this final rule for a discussion on the new technology add-on payment   policy.      The term ``endotoxemia'' is defined as the presence of endotoxins   in the blood. This condition (or finding) is established on the basis   of a laboratory test. The ICD-9-CM coding system currently indexes the   term ``endotoxemia'' with the instructional note to ``code to   condition''. This instruction refers the coder to seek the underlying,   definitive condition that is established and documented as a result of   the laboratory finding of endotoxemia. Therefore, an ICD-9-CM code for   endotoxemia does not exist and consideration cannot be given as to a   severity level assignment such as MCC, as the commenter requested.   However, as the commenter pointed out, the diagnoses of sepsis and   septicemia are currently designated as MCCs and, as such; patients with   these diagnoses are already appropriately identified in the   classification system, despite the presence or absence of endotoxemia.  6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic   Compartment Syndrome      Traumatic compartment syndrome is a condition in which increased   pressure within a confined anatomical space that contains blood   vessels, muscles, nerves, and bones causes a decrease in blood flow and   may lead to tissue necrosis.      There are five ICD-9-CM diagnosis codes that were created effective   October 1, 2006, to identify traumatic compartment syndrome of various   sites.       958.90 (Compartment syndrome, unspecified)       958.91 (Traumatic compartment syndrome of upper extremity)       958.92 (Traumatic compartment syndrome of lower extremity)       958.93 (Traumatic compartment syndrome of abdomen)       958.99 (Traumatic compartment syndrome of other sites)      Cases with one of the diagnosis codes listed above reported as the   principal diagnosis and no operating room procedure are assigned to   either MS-DRG 922 (Other Injury, Poisoning and Toxic Effect Diagnosis   with MCC) or MS-DRG 923 (Other Injury, Poisoning and Toxic Effect   Diagnosis without MCC) in MDC 21.      In the FY 2008 IPPS final rule with comment period when we adopted   the MS-DRGs, we inadvertently omitted the addition of these traumatic   compartment syndrome codes 958.90 through 958.99 to the multiple trauma   MS-DRGs 963 (Other Multiple Significant Trauma with MCC), MS-DRG 964   (Other Multiple Significant Trauma with CC), and MS-DRG 965 (Other   Multiple Significant Trauma without CC/MCC) in MDC 24 (Multiple   Significant Trauma). Cases are assigned to MDC 24 based on the   principal diagnosis of trauma and at least two significant trauma   diagnosis codes (either as principal or secondary diagnoses) from   different body site categories. There are eight different body site   categories as follows:       Significant head trauma       Significant chest trauma       Significant abdominal trauma       Significant kidney trauma       Significant trauma of the urinary system       Significant trauma of the pelvis or spine       Significant trauma of the upper limb       Significant trauma of the lower limb      Therefore, in the FY 2009 IPPS proposed rule, we proposed to add   traumatic compartment syndrome codes 958.90 through 958.99 to MS-DRGs   963 and MS-DRG 965 in MDC 24. Under this proposal, codes 958.90 through   958.99 would be added to the list of principal diagnosis of significant   trauma. In addition, code 958.91 would be added to the list of   significant trauma of upper limb, code 958.92 would be added to the   list of significant trauma of lower limb, and code 958.93 would be   added to the list of significant abdominal trauma.      We did not address the consolidation of heart transplant MS-DRGs or   liver transplant MS-DRGs in the FY 2009 IPPS proposed rule. However, we   received a comment on these issues.      Comment: One commenter representing a national association of   health information professionals expressed appreciation to CMS for   proposing to add the traumatic compartment syndrome codes to the   multiple trauma MS-DRGs in order to correct a previous omission.      Response: We appreciate the commenter's support.      In this final rule, we are adopting as final our proposal to add   traumatic compartment syndrome codes 958.90 through 958.99 to MS-DRGs   963 and MS-DRG 965 in MDC 24. Codes 958.90 through 958.99 are added to   the list of principal diagnosis of significant trauma. In addition,   code 958.91 is added to the list of significant trauma of upper limb,   code 958.92 is added to the list of significant trauma of lower limb,   and code 958.93 is added to the list of significant abdominal trauma.  7. Medicare Code Editor (MCE) Changes      As explained under section II.B.1. of the preamble of this final   rule, the Medicare Code Editor (MCE) is a software program that detects   and reports errors in the coding of Medicare claims data. Patient   diagnoses, procedure(s), and demographic information are entered into   the Medicare claims processing systems and are subjected to a series of   automated screens. The MCE screens are designed to identify cases that   require further review before classification into a DRG.    [[Page 48509]]    For FY 2009, we proposed to make the following changes to the MCE   edits:  a. List of Unacceptable Principal Diagnoses in MCE      Diagnosis code V62.84 (Suicidal ideation) was created for use   beginning October 1, 2005. At the time the diagnosis code was created,   it was not clear that the creation of this code was requested in order   to describe the principal reason for admission to a facility or the   principal reason for treatment. The NCHS Official ICD-9-CM Coding   Guidelines therefore categorized the group of codes in V62.X for use   only as additional or secondary diagnoses. It has been brought to the   government's attention that the use of this code is hampered by its   designation as an additional-only diagnosis. NCHS has therefore   modified the Official Coding Guidelines for FY 2009 by making this code   acceptable as a principal diagnosis as well as an additional diagnosis.   In order to conform to this change by NCHS, we proposed to remove code   V62.84 from the MCE list of ``Unacceptable Principal Diagnoses'' for FY   2009.      We did not receive any public comments on this proposal. Therefore,   in this final rule, we are adopting as final our proposal to remove   code V62.84 from the MCE list of ``Unacceptable Principal Diagnoses''   for FY 2009.  b. Diagnoses Allowed for Males Only Edit      There are four diagnosis codes that were inadvertently left off of   the MCE edit titled ``Diagnoses Allowed for Males Only.'' These codes   are located in the chapter of the ICD-9-CM diagnosis codes entitled   ``Diseases of Male Genital Organs.'' We are proposing to add the   following four codes to this MCE edit: 603.0 (Encysted hydrocele),   603.1 (Infected hydrocele), 603.8 (Other specified types of hydrocele),   and 603.9 (Hydrocele, unspecified). We have had no reported problems or   confusion with the omission of these codes from this section of the   MCE, but in order to have an accurate product, we proposed that these   codes be added for FY 2009.      We did not receive any public comments on these proposed MCE   revisions. Therefore, for FY 2009, we are implementing the proposed   changes as final by adding codes 603.0, 603.1, 603.8, and 603.9 to the   MCE edit of diagnosis allowed for males only.  c. Limited Coverage Edit      As explained in section II.G.1. of the preamble of the proposed   rule, we proposed to remove procedure code 37.52 (Implantation of   internal biventricular heart replacement system) from the MCE ``Non-  Covered Procedure'' edit and to assign it to the ``Limited Coverage''   edit. We proposed to include in this proposed edit the requirement that   ICD-9-CM diagnosis code V70.7 (Examination of participant in clinical   trial) also be present on the claim. We proposed that claims submitted   without both procedure code 37.52 and diagnosis code V70.7 would be   denied because they would not be in compliance with the coverage policy   explained in section II.G.1. of this preamble.      We did not receive any public comments on this proposed MCE   revision. Therefore, for FY 2009, we are implementing the proposed   changes as final by removing code 37.52 from the ``Non-Covered   Procedures'' edit and assigning it to the ``Limited Coverage'' edit. In   addition, included in this edit is the requirement that ICD-9-CM   diagnosis code V70.7 also be present on the claim. Claims submitted on   behalf of Medicare beneficiaries that do not have both procedure code   37.52 and diagnosis code V70.7 will be denied, retroactive to May 1,   2008 (the date of the coverage decision memorandum described in section   II.G.1. of the preamble of this final rule).  8. Surgical Hierarchies      Some inpatient stays entail multiple surgical procedures, each one   of which, occurring by itself, could result in assignment of the case   to a different MS-DRG within the MDC to which the principal diagnosis   is assigned. Therefore, it is necessary to have a decision rule within   the GROUPER by which these cases are assigned to a single MS-DRG. The   surgical hierarchy, an ordering of surgical classes from most resource-  intensive to least resource-intensive, performs that function.   Application of this hierarchy ensures that cases involving multiple   surgical procedures are assigned to the MS-DRG associated with the most   resource-intensive surgical class.      Because the relative resource intensity of surgical classes can   shift as a function of MS-DRG reclassification and recalibrations, we   reviewed the surgical hierarchy of each MDC, as we have for previous   reclassifications and recalibrations, to determine if the ordering of   classes coincides with the intensity of resource utilization.      A surgical class can be composed of one or more MS-DRGs. For   example, in MDC 11, the surgical class ``kidney transplant'' consists   of a single MS-DRG (MS-DRG 652) and the class ``kidney, ureter and   major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654,   and 655). Consequently, in many cases, the surgical hierarchy has an   impact on more than one MS-DRG. The methodology for determining the   most resource-intensive surgical class involves weighting the average   resources for each MS-DRG by frequency to determine the weighted   average resources for each surgical class. For example, assume surgical   class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs   3, 4, and 5. Assume also that the average charge of MS-DRG 1 is higher   than that of MS-DRG 3, but the average charges of MS-DRGs 4 and 5 are   higher than the average charge of MS-DRG 2. To determine whether   surgical class A should be higher or lower than surgical class B in the   surgical hierarchy, we would weight the average charge of each MS-DRG   in the class by frequency (that is, by the number of cases in the MS-  DRG) to determine average resource consumption for the surgical class.   The surgical classes would then be ordered from the class with the   highest average resource utilization to that with the lowest, with the   exception of ``other O.R. procedures'' as discussed below.      This methodology may occasionally result in assignment of a case   involving multiple procedures to the lower-weighted MS-DRG (in the   highest, most resource-intensive surgical class) of the available   alternatives. However, given that the logic underlying the surgical   hierarchy provides that the GROUPER search for the procedure in the   most resource-intensive surgical class, in cases involving multiple   procedures, this result is sometimes unavoidable.      We note that, notwithstanding the foregoing discussion, there are a   few instances when a surgical class with a lower average charge is   ordered above a surgical class with a higher average charge. For   example, the ``other O.R. procedures'' surgical class is uniformly   ordered last in the surgical hierarchy of each MDC in which it occurs,   regardless of the fact that the average charge for the MS-DRG or MS-  DRGs in that surgical class may be higher than that for other surgical   classes in the MDC. The ``other O.R. procedures'' class is a group of   procedures that are only infrequently related to the diagnoses in the   MDC, but are still occasionally performed on patients in the MDC with   these diagnoses. Therefore, assignment to these surgical classes should   only occur if no other surgical class more closely related to the   diagnoses in the MDC is appropriate.      A second example occurs when the difference between the average   charges for two surgical classes is very small.    [[Page 48510]]    We have found that small differences generally do not warrant   reordering of the hierarchy because, as a result of reassigning cases   on the basis of the hierarchy change, the average charges are likely to   shift such that the higher-ordered surgical class has a lower average   charge than the class ordered below it.      For FY 2009, we proposed to revise the surgical hierarchy for MDC 5   (Diseases and Disorders of the Circulatory System) by reordering MS-DRG   245 (AICD Generator Procedures) above new MS-DRG 265 (AICD Lead   Procedures).      We did not receive any public comments on the proposed change to   the surgical hierarchy described above. Based on the test of the   proposed revision using the March 2008 update of the FY 2007 MedPAR   file and the revised GROUPER software, we found that the revision is   still supported by the data. Therefore, we are incorporating the   proposed revision to the surgical hierarchy as final for FY 2009.  9. CC Exclusions List  a. Background      As indicated earlier in the preamble of this final rule, under the   IPPS DRG classification system, we have developed a standard list of   diagnoses that are considered CCs. Historically, we developed this list   using physician panels that classified each diagnosis code based on   whether the diagnosis, when present as a secondary condition, would be   considered a substantial complication or comorbidity. A substantial   complication or comorbidity was defined as a condition that, because of   its presence with a specific principal diagnosis, would cause an   increase in the length of stay by at least 1 day in at least 75 percent   of the patients. We refer readers to section II.D.2. and 3. of the   preamble of the FY 2008 IPPS final rule with comment period for a   discussion of the refinement of CCs in relation to the MS-DRGs we   adopted for FY 2008 (72 FR 47152 through 47121).  b. CC Exclusions List for FY 2009      In the September 1, 1987 final notice (52 FR 33143) concerning   changes to the DRG classification system, we modified the GROUPER logic   so that certain diagnoses included on the standard list of CCs would   not be considered valid CCs in combination with a particular principal   diagnosis. We created the CC Exclusions List for the following reasons:   (1) To preclude coding of CCs for closely related conditions; (2) to   preclude duplicative or inconsistent coding from being treated as CCs;   and (3) to ensure that cases are appropriately classified between the   complicated and uncomplicated DRGs in a pair. As we indicated above, we   developed a list of diagnoses, using physician panels, to include those   diagnoses that, when present as a secondary condition, would be   considered a substantial complication or comorbidity. In previous   years, we have made changes to the list of CCs, either by adding new   CCs or deleting CCs already on the list.      In the May 19, 1987 proposed notice (52 FR 18877) and the September   1, 1987 final notice (52 FR 33154), we explained that the excluded   secondary diagnoses were established using the following five   principles:       Chronic and acute manifestations of the same condition   should not be considered CCs for one another.       Specific and nonspecific (that is, not otherwise specified   (NOS)) diagnosis codes for the same condition should not be considered   CCs for one another.       Codes for the same condition that cannot coexist, such as   partial/total, unilateral/bilateral, obstructed/unobstructed, and   benign/malignant, should not be considered CCs for one another.       Codes for the same condition in anatomically proximal   sites should not be considered CCs for one another.       Closely related conditions should not be considered CCs   for one another.      The creation of the CC Exclusions List was a major project   involving hundreds of codes. We have continued to review the remaining   CCs to identify additional exclusions and to remove diagnoses from the   master list that have been shown not to meet the definition of a   CC.\19\  ---------------------------------------------------------------------------        \19\ See the FY 1989 final rule (53 FR 38485, September 30,   1988), for the revision made for the discharges occurring in FY   1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for   the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September   4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR   43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final   rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the   FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994   revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994),   for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,   September 1, 1995), for the FY 1996 revisions; the FY 1997 final   rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the   FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998   revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for   the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August   1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR   39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final   rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the   FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004   revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004),   for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,   August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule   (71 FR 47870) for the FY 2007 revisions; and the FY 2008 final rule   (72 FR 47130) for the FY 2008 revisions. In the FY 2000 final rule   (64 FR 41490, July 30, 1999, we did not modify the CC Exclusions   List because we did not make any changes to the ICD-9-CM codes for   FY 2000.  ---------------------------------------------------------------------------        For FY 2009, as we proposed, in this final rule we are making   limited revisions to the CC Exclusions List to take into account the   changes that will be made in the ICD-9-CM diagnosis coding system   effective October 1, 2008. (See section II.G.11. of the preamble of   this final rule for a discussion of ICD-9-CM changes.) We are making   these changes in accordance with the principles established when we   created the CC Exclusions List in 1987. In addition, as discussed in   section II.D.3. of the preamble of this final rule, we are indicating   on the CC exclusion list some updates to reflect the exclusion of a few   codes from being an MCC under the MS-DRG system that we adopted for FY   2008.      Tables 6G and 6H, Additions to and Deletions from the CC Exclusion   List, respectively, which will be effective for discharges occurring on   or after October 1, 2008, are not being published in this final rule   because of the length of the two tables. Instead, we are making them   available through the Internet on the CMS Web site at: http://  www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses   for which there is a CC exclusion is shown in Tables 6G and 6H with an   asterisk, and the conditions that will not count as a CC, are provided   in an indented column immediately following the affected principal   diagnosis.      A complete updated MCC, CC, and Non-CC Exclusions List is also   available through the Internet on the CMS Web site at: http:/  www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or   after October 1, 2008, the indented diagnoses will not be recognized by   the GROUPER as valid CCs for the asterisked principal diagnosis.      To assist readers in the review of changes to the MCC and CC lists   that occurred as a result of updates to the ICD-9-CM codes, as   described in Tables 6A, 6C, and 6E, we are providing the following   summaries of those MCC and CC changes.      In the summary tables, the diagnosis codes with an asterisk (*)   were discussed at the March 19-20, 2008 ICD-9-CM Coordination and   Maintenance Committee meeting and were not finalized in time to include   in the proposed rule. Code 998.33 in Table 6J1, marked with two   asterisks (**), had a change in code title subsequent to the    [[Page 48511]]    proposed rule. The new codes will be implemented on October 1, 2008.             Summary of Additions to the MS-DRG MCC List--Table 6I.1  ------------------------------------------------------------------------               Code                              Description  ------------------------------------------------------------------------  038.12*.......................  Methicillin resistant Staphylococcus                                   aureus septicemia.  249.10........................  Secondary diabetes mellitus with                                   ketoacidosis, not stated as                                   uncontrolled, or unspecified.  249.11........................  Secondary diabetes mellitus with                                   ketoacidosis, uncontrolled.  249.20........................  Secondary diabetes mellitus with                                   hyperosmolarity, not stated as                                   uncontrolled, or unspecified.  249.21........................  Secondary diabetes mellitus with                                   hyperosmolarity, uncontrolled.  249.30........................  Secondary diabetes mellitus with other                                   coma, not stated as uncontrolled, or                                   unspecified.  249.31........................  Secondary diabetes mellitus with other                                   coma, uncontrolled.  482.42*.......................  Methicillin resistant pneumonia due to                                   Staphylococcus aureus.  535.71*.......................  Eosinophilic gastritis, with hemorrhage.  707.23........................  Pressure ulcer, stage III.  707.24........................  Pressure ulcer, stage IV.  777.50........................  Necrotizing enterocolitis in newborn,                                   unspecified.  777.51........................  Stage I necrotizing enterocolitis in                                   newborn.  777.52........................  Stage II necrotizing enterocolitis in                                   newborn.  777.53........................  Stage III necrotizing enterocolitis in                                   newborn.  780.72........................  Functional quadriplegia.  ------------------------------------------------------------------------              Summary of Deletions From the MS-DRG MCC List--Table 6I.2  ------------------------------------------------------------------------               Code                              Description  ------------------------------------------------------------------------  136.2.........................  Specific infections by free-living                                   amebae.  511.8.........................  Other specified forms of pleural                                   effusion, except tuberculous.  707.02........................  Pressure ulcer, upper back.  707.03........................  Pressure ulcer, lower back.  707.04........................  Pressure ulcer, hip.  707.05........................  Pressure ulcer, buttock.  707.06........................  Pressure ulcer, ankle.  707.07........................  Pressure ulcer, heel.  777.5.........................  Necrotizing enterocolitis in fetus or                                   newborn.  ------------------------------------------------------------------------               Summary of Additions to the MS-DRG CC List--Table 6J.1  ------------------------------------------------------------------------               Code                              Description  ------------------------------------------------------------------------  046.11........................  Variant Creutzfeldt-Jakob disease.  046.19........................  Other and unspecified Creutzfeldt-Jakob                                   disease.  046.71........................  Gerstmann-Str[auml]ussler-Scheinker                                   syndrome.  046.72........................  Fatal familial insomnia.  046.79........................  Other and unspecified prion disease of                                   central nervous system.  059.01........................  Monkeypox.  059.21........................  Tanapox.  136.29........................  Other specific infections by free-living                                   amebae.  199.2.........................  Malignant neoplasm associated with                                   transplant organ.  203.02........................  Multiple myeloma, in relapse.  203.12........................  Plasma cell leukemia, in relapse.  203.82........................  Other immunoproliferative neoplasms, in                                   relapse.  204.02........................  Acute lymphoid leukemia, in relapse.  204.12........................  Chronic lymphoid leukemia, in relapse.  204.22........................  Subacute lymphoid leukemia, in relapse.  204.82........................  Other lymphoid leukemia, in relapse.  204.92........................  Unspecified lymphoid leukemia, in                                   relapse.  205.02........................  Acute myeloid leukemia, in relapse.  205.12........................  Chronic myeloid leukemia, in relapse.  205.22........................  Subacute myeloid leukemia, in relapse.  205.32........................  Myeloid sarcoma, in relapse.  205.82........................  Other myeloid leukemia, in relapse.  205.92........................  Unspecified myeloid leukemia, in                                   relapse.  206.02........................  Acute monocytic leukemia, in relapse.  206.12........................  Chronic monocytic leukemia, in relapse.  206.22........................  Subacute monocytic leukemia, in relapse.  206.82........................  Other monocytic leukemia, in relapse.  206.92........................  Unspecified monocytic leukemia, in                                   relapse.  207.02........................  Acute erythremia and erythroleukemia, in                                   relapse.  207.12........................  Chronic erythremia, in relapse.  207.22........................  Megakaryocytic leukemia, in relapse.  207.82........................  Other specified leukemia, in relapse.    [[Page 48512]]      208.02........................  Acute leukemia of unspecified cell type,                                   in relapse.  208.12........................  Chronic leukemia of unspecified cell                                   type, in relapse.  208.22........................  Subacute leukemia of unspecified cell                                   type, in relapse.  208.82........................  Other leukemia of unspecified cell type,                                   in relapse.  208.92........................  Unspecified leukemia, in relapse.  209.00........................  Malignant carcinoid tumor of the small                                   intestine, unspecified portion.  209.01........................  Malignant carcinoid tumor of the                                   duodenum.  209.02........................  Malignant carcinoid tumor of the                                   jejunum.  209.03........................  Malignant carcinoid tumor of the ileum.  209.10........................  Malignant carcinoid tumor of the large                                   intestine, unspecified portion.  209.11........................  Malignant carcinoid tumor of the                                   appendix.  209.12........................  Malignant carcinoid tumor of the cecum.  209.13........................  Malignant carcinoid tumor of the                                   ascending colon.  209.14........................  Malignant carcinoid tumor of the                                   transverse colon.  209.15........................  Malignant carcinoid tumor of the                                   descending colon.  209.16........................  Malignant carcinoid tumor of the sigmoid                                   colon.  209.17........................  Malignant carcinoid tumor of the rectum.  209.20........................  Malignant carcinoid tumor of unknown                                   primary site.  209.21........................  Malignant carcinoid tumor of the                                   bronchus and lung.  209.22........................  Malignant carcinoid tumor of the thymus.  209.23........................  Malignant carcinoid tumor of the                                   stomach.  209.24........................  Malignant carcinoid tumor of the kidney.  209.25........................  Malignant carcinoid tumor of foregut,                                   not otherwise specified.  209.26........................  Malignant carcinoid tumor of midgut, not                                   otherwise specified.  209.27........................  Malignant carcinoid tumor of hindgut,                                   not otherwise specified.  209.29........................  Malignant carcinoid tumor of other                                   sites.  209.30........................  Malignant poorly differentiated                                   neuroendocrine carcinoma, any site.  238.77........................  Post-transplant lymphoproliferative                                   disorder (PTLD).  279.50........................  Graft-versus-host disease, unspecified.  279.51........................  Acute graft-versus-host disease.  279.52........................  Chronic graft-versus-host disease.  279.53........................  Acute on chronic graft-versus-host                                   disease.  346.60........................  Persistent migraine aura with cerebral                                   infarction, without mention of                                   intractable migraine without mention of                                   status migrainosus.  346.61........................  Persistent migraine aura with cerebral                                   infarction, with intractable migraine,                                   so stated, without mention of status                                   migrainosus.  346.62........................  Persistent migraine aura with cerebral                                   infarction, without mention of                                   intractable migraine with status                                   migrainosus.  346.63........................  Persistent migraine aura with cerebral                                   infarction, with intractable migraine,                                   so stated, with status migrainosus.  349.31*.......................  Accidental puncture or laceration of                                   dura during a procedure.  349.39*.......................  Other dural tear.  511.81........................  Malignant pleural effusion.  511.89........................  Other specified forms of effusion,                                   except tuberculous.  649.70........................  Cervical shortening, unspecified as to                                   episode of care or not applicable.  649.71........................  Cervical shortening, delivered, with or                                   without mention of antepartum                                   condition.  649.73........................  Cervical shortening, antepartum                                   condition or complication.  695.12........................  Erythema multiforme major.  695.13........................  Stevens-Johnson syndrome.  695.14........................  Stevens-Johnson syndrome-toxic epidermal                                   necrolysis overlap syndrome.  695.15........................  Toxic epidermal necrolysis.  695.53........................  Exfoliation due to erythematous                                   condition involving 30-39 percent of                                   body surface.  695.54........................  Exfoliation due to erythematous                                   condition involving 40-49 percent of                                   body surface.  695.55........................  Exfoliation due to erythematous                                   condition involving 50-59 percent of                                   body surface.  695.56........................  Exfoliation due to erythematous                                   condition involving 60-69 percent of                                   body surface.  695.57........................  Exfoliation due to erythematous                                   condition involving 70-79 percent of                                   body surface.  695.58........................  Exfoliation due to erythematous                                   condition involving 80-89 percent of                                   body surface.  695.59........................  Exfoliation due to erythematous                                   condition involving 90 percent or more                                   of body surface.  997.31........................  Ventilator associated pneumonia.  997.39........................  Other respiratory complications.  998.30........................  Disruption of wound, unspecified.  998.33**......................  Disruption of traumatic injury wound                                   repair.  999.81........................  Extravasation of vesicant chemotherapy.  999.82........................  Extravasation of other vesicant agent  ------------------------------------------------------------------------               Summary of Deletions to the MS-DRG CC List--Table 6J.2  ------------------------------------------------------------------------               Code                              Description  ------------------------------------------------------------------------  046.1.........................  Jakob-Creutzfeldt disease.  337.0.........................  Idiopathic peripheral autonomic                                   neuropathy.  695.1.........................  Erythema multiforme.  707.00........................  Pressure ulcer, unspecified site.  707.01........................  Pressure ulcer, elbow.    [[Page 48513]]      707.09........................  Pressure ulcer, other site.  997.3.........................  Respiratory complications.  999.8.........................  Other transfusion reaction.  ------------------------------------------------------------------------        Alternatively, the complete documentation of the GROUPER logic,   including the current CC Exclusions List, is available from 3M/Health   Information Systems (HIS), which, under contract with CMS, is   responsible for updating and maintaining the GROUPER program. The   current DRG Definitions Manual, Version 25.0, is available for $225.00,   which includes $15.00 for shipping and handling. Version 26.0 of this   manual, which includes the final FY 2009 DRG changes, is available in   hard copy for $250.00. Version 26.0 of the manual is also available on   a CD for $200.00; a combination hard copy and CD is available for   $400.00. These manuals may be obtained by writing 3M/HIS at the   following address: 100 Barnes Road, Wallingford, CT 06492; or by   calling (203) 949-0303. Please specify the revision or revisions   requested.  10. Review of Procedure Codes in MS DRGs 981, 982, and 983; 984, 985,   and 986; and 987, 988, and 989.      Each year, we review cases assigned to former CMS DRG 468   (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG   476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and   CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal   Diagnosis) to determine whether it would be appropriate to change the   procedures assigned among these CMS DRGs. Under the MS-DRGs that we   adopted for FY 2008, CMS DRG 468 was split three ways and became MS-  DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal   Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 476 became   MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to   Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 477   became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated   to Principal Diagnosis with MCC, with CC, and without CC/MCC).      MS-DRGs 981 through 983, 984 through 986, and 987 through 989   (formerly CMS DRGs 468, 476, and 477, respectively) are reserved for   those cases in which none of the O.R. procedures performed are related   to the principal diagnosis. These DRGs are intended to capture atypical   cases, that is, those cases not occurring with sufficient frequency to   represent a distinct, recognizable clinical group. MS-DRGs 984 through   986 (previously CMS DRG 476) are assigned to those discharges in which   one or more of the following prostatic procedures are performed and are   unrelated to the principal diagnosis:       60.0, Incision of prostate       60.12, Open biopsy of prostate       60.15, Biopsy of periprostatic tissue       60.18, Other diagnostic procedures on prostate and   periprostatic tissue       60.21, Transurethral prostatectomy       60.29, Other transurethral prostatectomy       60.61, Local excision of lesion of prostate       60.69, Prostatectomy, not elsewhere classified       60.81, Incision of periprostatic tissue       60.82, Excision of periprostatic tissue       60.93, Repair of prostate       60.94, Control of (postoperative) hemorrhage of prostate       60.95, Transurethral balloon dilation of the prostatic   urethra       60.96, Transurethral destruction of prostate tissue by   microwave thermotherapy       60.97, Other transurethral destruction of prostate tissue   by other thermotherapy       60.99, Other operations on prostate      All remaining O.R. procedures are assigned to MS-DRGs 981 through   983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those   discharges in which the only procedures performed are nonextensive   procedures that are unrelated to the principal diagnosis.\20\  ---------------------------------------------------------------------------        \20\ The original list of the ICD-9-CM procedure codes for the   procedures we consider nonextensive procedures, if performed with an   unrelated principal diagnosis, was published in Table 6C in section   IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part   of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56   FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final   rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY   1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173),   and the FY 1998 final rule (62 FR 45981), we moved several other   procedures from DRG 468 to DRG 477, and some procedures from DRG 477   to DRG 468. No procedures were moved in FY 1999, as noted in the   final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65   FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule   (67 FR 49999) we did not move any procedures from DRG 477. However,   we did move procedure codes from DRG 468 and placed them in more   clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365),   we moved several procedures from DRG 468 to DRGs 476 and 477 because   the procedures are nonextensive. In the FY 2005 final rule (69 FR   48950), we moved one procedure from DRG 468 to 477. In addition, we   added several existing procedures to DRGs 476 and 477. In the FY   2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned   it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and   assigned it to DRGs 479, 553, and 554. In FY 2008, no procedures   were moved, as noted in the final rule with comment period (72 FR   46241).  ---------------------------------------------------------------------------        For FY 2009, we did not propose to change the procedures assigned   among these DRGs. We did not receive any public comments on our   proposal and, therefore, are adopting it as final for FY 2009 in this   final rule.  a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987   Through 989 to MDCs      We annually conduct a review of procedures producing assignment to   MS-DRGs 981 through 983 (formerly CMS DRG 468) or MS-DRGs 987 through   989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see   if it would be appropriate to move procedure codes out of these DRGs   into one of the surgical DRGs for the MDC into which the principal   diagnosis falls. The data are arrayed in two ways for comparison   purposes. We look at a frequency count of each major operative   procedure code. We also compare procedures across MDCs by volume of   procedure codes within each MDC.      We identify those procedures occurring in conjunction with certain   principal diagnoses with sufficient frequency to justify adding them to   one of the surgical DRGs for the MDC in which the diagnosis falls. For   FY 2009, we did not propose to remove any procedures from MS-DRGs 981   through 983 or MS-DRGs 987 through 989. We did not receive any public   comments on our proposal and, therefore, we are adopting it as final   for FY 2009 in this final rule.  b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984   Through 986, and 987 Through 989      We also annually review the list of ICD-9-CM procedures that, when   in combination with their principal    [[Page 48514]]    diagnosis code, result in assignment to MS-DRGs 981 through 983, 984   through 986, and 987 through 989 (formerly, CMS DRGs 468, 476, and 477,   respectively), to ascertain whether any of those procedures should be   reassigned from one of these three DRGs to another of the three DRGs   based on average charges and the length of stay. We look at the data   for trends such as shifts in treatment practice or reporting practice   that would make the resulting DRG assignment illogical. If we find   these shifts, we would propose to move cases to keep the DRGs   clinically similar or to provide payment for the cases in a similar   manner. Generally, we move only those procedures for which we have an   adequate number of discharges to analyze the data.      For FY 2009, we did not propose to move any procedure codes among   these DRGs. We did not receive any public comments on our proposal and,   therefore, we are adopting it as final for FY 2009 in this final rule.  c. Adding Diagnosis or Procedure Codes to MDCs      Based on our review this year, as we proposed, we are not adding   any diagnosis codes to MDCs for FY 2009. We did not receive any public   comments on this subject.  11. Changes to the ICD-9-CM Coding System      As described in section II.B.1. of the preamble of this final rule,   the ICD-9-CM is a coding system used for the reporting of diagnoses and   procedures performed on a patient. In September 1985, the ICD-9-CM   Coordination and Maintenance Committee was formed. This is a Federal   interdepartmental committee, co-chaired by the National Center for   Health Statistics (NCHS), the Centers for Disease Control and   Prevention, and CMS, charged with maintaining and updating the ICD-9-CM   system. The Committee is jointly responsible for approving coding   changes, and developing errata, addenda, and other modifications to the   ICD-9-CM to reflect newly developed procedures and technologies and   newly identified diseases. The Committee is also responsible for   promoting the use of Federal and non-Federal educational programs and   other communication techniques with a view toward standardizing coding   applications and upgrading the quality of the classification system.      The Official Version of the ICD-9-CM contains the list of valid   diagnosis and procedure codes. (The Official Version of the ICD-9-CM is   available from the Government Printing Office on CD-ROM for $27.00 by   calling (202) 512-1800.) Complete information on ordering the CD-ROM is   also available at: http://www.cdc.gov/nchs/products/_prods/subject/  icd96ed.htm. The Official Version of the ICD-9-CM is no longer   available in printed manual form from the Federal Government; it is   only available on CD-ROM. Users who need a paper version are referred   to one of the many products available from publishing houses.      The NCHS has lead responsibility for the ICD-9-CM diagnosis codes   included in the Tabular List and Alphabetic Index for Diseases, while   CMS has lead responsibility for the ICD-9-CM procedure codes included   in the Tabular List and Alphabetic Index for Procedures.      The Committee encourages participation in the above process by   health-related organizations. In this regard, the Committee holds   public meetings for discussion of educational issues and proposed   coding changes. These meetings provide an opportunity for   representatives of recognized organizations in the coding field, such   as the American Health Information Management Association (AHIMA), the   American Hospital Association (AHA), and various physician specialty   groups, as well as individual physicians, health information management   professionals, and other members of the public, to contribute ideas on   coding matters. After considering the opinions expressed at the public   meetings and in writing, the Committee formulates recommendations,   which then must be approved by the agencies.      The Committee presented proposals for coding changes for   implementation in FY 2009 at a public meeting held on September 27-28,   2007 and finalized the coding changes after consideration of comments   received at the meetings and in writing by December 3, 2007. Those   coding changes are announced in Tables 6A through 6F in the Addendum to   this final rule. The Committee held its 2008 meeting on March 19-20,   2008. New codes for which there was a consensus of public support and   for which complete tabular and indexing changes were made by May 2008   will be included in the October 1, 2008 update to ICD-9-CM. Code   revisions that were discussed at the March 19-20, 2008 Committee   meeting but that could not be finalized in time to include them in the   Addendum to the proposed rule are included in Tables 6A through 6F of   this final rule and are marked with an asterisk (*).      Copies of the minutes of the procedure codes discussions at the   Committee's September 27-28, 2007 meeting and March 19-20, 2008 meeting   can be obtained from the CMS Web site at: http://cms.hhs.gov/  ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the   diagnosis codes discussions at the September 27-28, 2007 meeting and   March 19-20, 2008 meeting are found at: http://www.cdc.gov/nchs/  icd9.htm. Paper copies of these minutes are no longer available and the   mailing list has been discontinued. These Web sites also provide   detailed information about the Committee, including information on   requesting a new code, attending a Committee meeting, and timeline   requirements and meeting dates.      We encourage commenters to address suggestions on coding issues   involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM   Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo   Road, Hyattsville, MD 20782. Comments may be sent by E-mail to:   dfp4@cdc.gov.      Questions and comments concerning the procedure codes should be   addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination   and Maintenance Committee, CMS, Center for Medicare Management,   Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06,   7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent   by E-mail to: patricia.brooks2@cms.hhs.gov.      The ICD-9-CM code changes that have been approved will become   effective October 1, 2008. The new ICD-9-CM codes are listed, along   with their DRG classifications, in Tables 6A and 6B (New Diagnosis   Codes and New Procedure Codes, respectively) in the Addendum to this   final rule. As we stated above, the code numbers and their titles were   presented for public comment at the ICD-9-CM Coordination and   Maintenance Committee meetings. Both oral and written comments were   considered before the codes were approved. In the FY 2009 IPPS proposed   rule, we only solicited comments on the proposed classification of   these new codes.      For codes that have been replaced by new or expanded codes, and the   corresponding new or expanded diagnosis codes are included in Table 6A.   New procedure codes are shown in Table 6B. Diagnosis codes that have   been replaced by expanded codes or other codes or have been deleted are   in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes   will not be recognized by the GROUPER beginning with discharges   occurring on or after October 1, 2008. Table 6D contains invalid   procedure codes. These    [[Page 48515]]    invalid procedure codes will not be recognized by the GROUPER beginning   with discharges occurring on or after October 1, 2008. Revisions to   diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles),   which also includes the MS-DRG assignments for these revised codes.   Table 6F includes revised procedure code titles for FY 2009.      In the September 7, 2001 final rule implementing the IPPS new   technology add-on payments (66 FR 46906), we indicated we would attempt   to include proposals for procedure codes that would describe new   technology discussed and approved at the Spring meeting as part of the   code revisions effective the following October. As stated previously,   ICD-9-CM codes discussed at the March 19-20, 2008 Committee meeting   that received consensus and that were finalized by May 2008, are   included in Tables 6A through 6F of the Addendum to this final rule.      Comment: One commenter was encouraged that CMS and the CDC have   acted favorably on the commenter's proposal to create a new ICD-9-CM   diagnosis code for heparin-induced thrombocytopenia (HIT).      According to the commenter, a specific code dedicated to this   disease will provide more information regarding the prevalence of the   condition and the cost associated with treating the disease. The   increased focus on this condition can in turn promote proper screening   to avoid its occurrence and improve patient safety. Accurate diagnosis   and coding will also ensure that proper protocols are put in place and   HIT specific treatment is rendered, thereby reducing adverse events   when HIT does arise.      Response: We appreciate the comment. Effective October 1, 2008, an   ICD-9-CM diagnosis code 289.84 (Heparin-induced thrombocytopenia (HIT))   is created.      Section 503(a) of Public Law 108-173 included a requirement for   updating ICD-9-CM codes twice a year instead of a single update on   October 1 of each year. This requirement was included as part of the   amendments to the Act relating to recognition of new technology under   the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by   adding a clause (vii) which states that the ``Secretary shall provide   for the addition of new diagnosis and procedure codes on April 1 of   each year, but the addition of such codes shall not require the   Secretary to adjust the payment (or diagnosis-related group   classification) * * * until the fiscal year that begins after such   date.'' This requirement improves the recognition of new technologies   under the IPPS system by providing information on these new   technologies at an earlier date. Data will be available 6 months   earlier than would be possible with updates occurring only once a year   on October 1.      While section 1886(d)(5)(K)(vii) of the Act states that the   addition of new diagnosis and procedure codes on April 1 of each year   shall not require the Secretary to adjust the payment, or DRG   classification, under section 1886(d) of the Act until the fiscal year   that begins after such date, we have to update the DRG software and   other systems in order to recognize and accept the new codes. We also   publicize the code changes and the need for a mid-year systems update   by providers to identify the new codes. Hospitals also have to obtain   the new code books and encoder updates, and make other system changes   in order to identify and report the new codes.      The ICD-9-CM Coordination and Maintenance Committee holds its   meetings in the spring and fall in order to update the codes and the   applicable payment and reporting systems by October 1 of each year.   Items are placed on the agenda for the ICD-9-CM Coordination and   Maintenance Committee meeting if the request is received at least 2   months prior to the meeting. This requirement allows time for staff to   review and research the coding issues and prepare material for   discussion at the meeting. It also allows time for the topic to be   publicized in meeting announcements in the Federal Register as well as   on the CMS Web site. The public decides whether or not to attend the   meeting based on the topics listed on the agenda. Final decisions on   code title revisions are currently made by March 1 so that these titles   can be included in the IPPS proposed rule. A complete addendum   describing details of all changes to ICD-9-CM, both tabular and index,   is published on the CMS and NCHS Web sites in May of each year.   Publishers of coding books and software use this information to modify   their products that are used by health care providers. This 5-month   time period has proved to be necessary for hospitals and other   providers to update their systems.      A discussion of this timeline and the need for changes are included   in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance   Committee minutes. The public agreed that there was a need to hold the   fall meetings earlier, in September or October, in order to meet the   new implementation dates. The public provided comment that additional   time would be needed to update hospital systems and obtain new code   books and coding software. There was considerable concern expressed   about the impact this new April update would have on providers.      In the FY 2005 IPPS final rule, we implemented section   1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law   108-173, by developing a mechanism for approving, in time for the April   update, diagnosis and procedure code revisions needed to describe new   technologies and medical services for purposes of the new technology   add-on payment process. We also established the following process for   making these determinations. Topics considered during the Fall ICD-9-CM   Coordination and Maintenance Committee meeting are considered for an   April 1 update if a strong and convincing case is made by the requester   at the Committee's public meeting. The request must identify the reason   why a new code is needed in April for purposes of the new technology   process. The participants at the meeting and those reviewing the   Committee meeting summary report are provided the opportunity to   comment on this expedited request. All other topics are considered for   the October 1 update. Participants at the Committee meeting are   encouraged to comment on all such requests. There were no requests   approved for an expedited April l, 2008 implementation of an ICD-9-CM   code at the September 27-28, 2007 Committee meeting. Therefore, there   were no new ICD-9-CM codes implemented on April 1, 2008.      We believe that this process captures the intent of section   1886(d)(5)(K)(vii) of the Act. This requirement was included in the   provision revising the standards and process for recognizing new   technology under the IPPS. In addition, the need for approval of new   codes outside the existing cycle (October 1) arises most frequently and   most acutely where the new codes will identify new technologies that   are (or will be) under consideration for new technology add-on   payments. Thus, we believe this provision was intended to expedite data   collection through the assignment of new ICD-9-CM codes for new   technologies seeking higher payments.      Current addendum and code title information is published on the CMS   Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_  overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along   with the Official ICD-9-CM Coding Guidelines, can be found on the Web   site at: http://www.cdc.gov/    [[Page 48516]]    nchs/icd9.htm. Information on new, revised, and deleted ICD-9-CM codes   is also provided to the AHA for publication in the Coding Clinic for   ICD-9-CM. AHA also distributes information to publishers and software   vendors.      CMS also sends copies of all ICD-9-CM coding changes to its   contractors for use in updating their systems and providing education   to providers.      These same means of disseminating information on new, revised, and   deleted ICD-9-CM codes will be used to notify providers, publishers,   software vendors, contractors, and others of any changes to the ICD-9-  CM codes that are implemented in April. The code titles are adopted as   part of the ICD-9-CM Coordination and Maintenance Committee process.   Thus, although we publish the code titles in the IPPS proposed and   final rules, they are not subject to comment in the proposed or final   rules. We will continue to publish the October code updates in this   manner within the IPPS proposed and final rules. For codes that are   implemented in April, we will assign the new procedure code to the same   DRG in which its predecessor code was assigned so there will be no DRG   impact as far as DRG assignment. Any midyear coding updates will be   available through the Web sites indicated above and through the Coding   Clinic for ICD-9-CM. Publishers and software vendors currently obtain   code changes through these sources in order to update their code books   and software systems. We will strive to have the April 1 updates   available through these Web sites 5 months prior to implementation   (that is, early November of the previous year), as is the case for the   October 1 updates.  12. Other MS-DRG Issues  a. Heart Transplants or Implants of Heart Assist System and Liver   Transplants      Comment: One commenter representing transplant surgeons was   concerned about the proposed reductions in the MS-DRG relative weights   for MS-DRG 002 (Heart Transplant or Implant of Heart Assist System   without MCC) and MS-DRG 006 (Liver Transplant without MCC). According   to the commenter, the relative weight for MS-DRG 006 would decrease by   approximately 33 percent and the relative weight for MS-DRG 002 would   be reduced by 20 percent. The commenter also reported that only 30   percent of the heart transplant cases were assigned to MS-DRG 002 and   26 percent of the liver transplant cases were assigned to MS-DRG 006.   The commenter questioned the statistical reliability of the data and   recommended that CMS establish a single MS-DRG for heart transplants   and a single MS-DRG for liver transplants.      The commenter stated that one factor that influences hospital costs   and lengths of stay is the characteristics of the donor organ. The   commenter stated that the donor risk index (DRI) and the model for end-  stage liver disease (MELD) system which prioritizes patients waiting   for liver transplants by severity of illness are two important factors   for any severity index for transplant DRGs. This information is not   identified in the MedPAR data. The commenter acknowledged that it is in   the process of developing a proposal for NCHS to incorporate this   information into potential ICD-9-CM diagnosis codes. The commenter   stated that, until these factors can be incorporated into the data, it   is not appropriate to have severity-based DRGs for heart and liver   transplant procedures based on CC or MCC that have not been validated   as predictors in the transplant population.      The commenter also requested that CMS create a new MS-DRG for   combined liver/kidney transplants. These cases are currently assigned   to the liver transplant DRGs 005-006 (Liver Transplant with MCC or   Intestinal Transplant and Liver Transplant without MCC). While the   commenter acknowledged that most of these cases would be assigned to   MS-DRG 005, the MCC group, the commenter contended that a separate DRG   is needed to address the significantly higher costs and length of stay   associated with combined liver/kidney transplants.      Response: As we stated in the FY 2008 IPPS final rule (72 FR   47251), clinical evaluation and claims data supported the current MCC   split for heart and liver transplants. Several commenters accepted   CMS's proposal of not making significant revisions to the MS-DRGs until   claims data under the new MS-DRG system are available. At this time, we   do not have MS-DRG data to evaluate these significant changes.   Therefore, we are not implementing any changes to the transplant MS-  DRGs for FY 2009.  b. New Codes for Pressure Ulcers      As discussed in the FY 2008 IPPS final rule with comment period (72   FR 47205-47206), we referred the need for more detailed ICD-9-CM   pressure ulcer codes to the CDC. The topic of expanding pressure ulcer   codes to capture the stage of the ulcer was addressed at the September   27-28, 2007, meeting of the ICD-9-CM Coordination and Maintenance   Committee. A summary report of that meeting is available on the Web   site at: http://www.cdc.gov/nchs/about/otheract/icd9/maint/maint.htm.      At the September 2007 meeting of the ICD-9-CM Coordination and   Maintenance Committee, numerous wound care professionals supported   modifying the pressure ulcer codes to capture staging information. The   stage of the pressure ulcer is a powerful predictor of severity and   resource utilization. At the meeting, the ICD-9-CM Coordination and   Maintenance Committee discussed the creation of pressure ulcer codes to   capture staging information. The new codes, along with their CC/MCC   classifications, are shown in Table 6A of the Addendum to the proposed   rule and this final rule. The new codes are as follows:       707.20 (Pressure ulcer, unspecified stage)       707.21 (Pressure ulcer stage I)       707.22 (Pressure ulcer stage II)       707.23 (Pressure ulcer stage III)       707.24 (Pressure ulcer stage IV)       707.25 (Pressure ulcer unstageable)      Comment: Several commenters supported the ICD-9-CM diagnosis codes   for pressure ulcer stages. The commenters also supported the revised   terminology for the existing decubitus ulcer codes (707.00 through   707.09), stating that changing these code titles from decubitus ulcer   to pressure ulcer is a more accurate and appropriate nomenclature.   Further, the commenters asked for additional pressure ulcer stage codes   beyond what was created for FY 2009, as shown in Table 6A of the   Addendum to this final rule (codes 707.20 through 707.25). Instead of a   single code for pressure ulcer, unstageable (707.25), the commenters   requested the following:       Recommended new code: 707.25 (Deep tissue injury)       Recommended new code: 707.26 (Unstageable pressure ulcers)      The commenters asked that both of these proposed new codes be   classified as MCCs because either condition can progress to a stage III   or stage IV pressure ulcer. In addition, the commenters stated that   unstageable pressure ulcers will be a stage III or stage IV if   debridement takes place. However, the commenters added, debridement is   not always indicated in unstageable pressure ulcers, so the wound may   remain unstageable throughout the entire stay. The commenters further   stated that deep tissue injury can deteriorate rapidly into a stage III   or stage IV pressure ulcer, even with optimal treatment.      Response: As stated earlier, the creation of new codes for pressure    [[Page 48517]]    ulcers was discussed at the ICD-9-CM Coordination and Maintenance   Committee on September 28, 2007. CDC received formal comments on the   proposed new codes through December 3, 2007. CDC considered a wide   range of comments, including those mentioned above. CDC finalized the   pressure ulcer stage codes, which included new codes 707.20 through   707.25. As mentioned above, CDC created a new ICD-9-CM code, 707.25   (Pressure ulcer, unstageable) to include pressure ulcers described as   unstageable as well as pressure ulcers documented as deep tissue   injury. The ICD-9-CM index specifically assigns pressure ulcers that   are described as deep tissue injuries to code 707.25. These new codes   will go into effect on October 1, 2008. After experience is gained   using these new codes, the public can request that the ICD-9-CM   Coordination and Maintenance Committee reconsider the issue of pressure   ulcer coding.      We do not support the request to make ICD-9-CM code 707.25   (Pressure ulcer, unstageable) an MCC. Unstageable indicates that the   stage of the pressure ulcer cannot be determined because it is covered   by a dressing or because it is covered by a black eschar. If the ulcer   does deteriorate and is determined to be a stage III or stage IV   pressure ulcer, then stage III or IV codes will be reported. To   classify an unstageable pressure ulcer as the same severity as a stage   III or stage IV because it may become a stage III or stage IV is   inappropriate. Therefore, we are not changing the MCC/CC classification   of code 707.25 (Pressure ulcer, unstageable), and it will remain a non-  CC.      The CDC has recently updated the ICD-9-CM coding guidance for   pressure ulcers. Code assignments for pressure ulcer stages may be   based on medical record documentation from clinicians who are not the   patient's provider. The coding guidelines are available at: http://  www.cdc.gov/nchs/datawh/ftpserv/ftpICD9/ftpICD9.htm.  c. Coronary Artery Stents      This topic was not raised by CMS in the proposed rule. However,   four commenters have taken this opportunity to comment on the content   of MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting   Stent with MCC or 4+ Vessels/Stents), and 248 (Percutaneous   Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+   Vessels/Stents) in MDC 5 (Diseases and Disorders of the Circulatory   System).      For a comprehensive review of the most recent discussion concerning   coronary stents, both drug-eluting and non-drug-eluting, we refer   readers to FY 2006 IPPS final rule (70 FR 47929 through 47295). In   Table 6B of that rule, we published the new ICD-9-CM procedure codes   describing newly created adjunct codes 00.40 through 00.43 (codes   describing the number of blood vessels upon which a procedure had been   performed) and 00.45 through 00.48 (codes describing the number of   vascular stents which had been inserted). These codes were available   for use beginning October 1, 2006, for FY 2007. We note that under the   former CMS DRG structure, the DRGs containing either drug-eluting or   non-drug-eluting stents were located in CMS DRG 556 (Percutaneous   Cardiovascular Procedure with Non-Drug-Eluting Stent without Major   Cardiovascular Diagnosis), CMS DRG 557 (Percutaneous Cardiovascular   Procedure with Drug-Eluting Stent with Major Cardiovascular Diagnosis),   or CMS DRG 558 (Percutaneous Cardiovascular Procedure with Drug-Eluting   Stent without Major Cardiovascular Diagnosis).      In response to a late comment during the last update cycle   regarding insertion of four or more stents, CMS had reviewed, but did   not publish, FY 2007 MedPAR data containing some statistics included in   MS-DRGs 246 and 248. The ICD-9-CM procedure codes we reviewed were:       00.66 (Percutaneous transluminal coronary angioplasty   [PTCA] or coronary atherectomy)       00.40 (Procedure on single vessel)       00.41 (Procedure on two vessels)       00.42 (Procedure on three vessels)       00.43 (Procedure on four or more vessels)       00.44 (Procedure on vessel bifurcation)       00.45 (Insertion of one vascular stent)       00.46 (Insertion of two vascular stents)       00.47 (Insertion of three vascular stents)       00.48 (Insertion of four or more vascular stents)      We arrayed the data several ways, looking at PTCA cases with 4+   vessels without 4+ stents (codes 00.66 with 00.43), with 4+ stents   without 4+ vessels (codes 00.66 with 00.48), and the balance of the   contents of MS-DRGs 246 and 248 eliminating PTCA plus 4+ vessels and 4+   stents (codes 00.66 plus 00.43) and (codes 00.66 plus 00.48). In   addition, we reviewed the data on cases involving 1-3 vessels with 4+   stents (codes 00.40 through 00.42 with 00.48) and 1-3 stents with 4+   vessels (codes 00.45 through 00.47 with 00.43). We also reviewed MS-  DRGs 246, 247, 248, and 249 containing the code for vessel bifurcation   (code 00.44). The data we reviewed are represented in the tables below.    ----------------------------------------------------------------------------------------------------------------                                                                       Number of    Average length      Average                               MS-DRGs                                   cases          of stay         charges  ----------------------------------------------------------------------------------------------------------------  246--All Cases..................................................          27,591            5.36      $65,423.34  246--Cases with PTCA with 4+ vessels without 4+ stents (Codes                311            2.56       50,986.31   00.66 with 00.43)..............................................  246--Cases with PTCA with 4+ stents without 4+ vessels (Codes              5,697            2.73       66,275.14   00.66 with 00.48)..............................................  246--Cases without Codes 00.66 with 00.43 or 00.66 with 00.48...          21,289            6.13       65,329.96  247--All Cases..................................................         180,307            2.17       42,084.09  248--All Cases..................................................          12,979            6.03       59,016.01  248--Cases with PTCA with 4+ vessels without 4+ stents (Codes                 59            2.44       44,454.05   00.66 with 00.48)..............................................  248--Cases with PTCA with 4+ stents withouth 4+ vessels (Codes             1,474            3.57       57,210.58   00.66 with 00.48)..............................................  248--Cases without Codes 00.66 with 00.43 or 00.66 with 00.48...          11,396            6.38       59,318.54  249--All Cases..................................................          65,858            2.50       36,958.18  246--All Cases..................................................          27,591            5.36       65,423.34  246--Cases with 1-3 vessels with 4+ stents (Codes 00.40-00.42              3,901            2.67       64,363.82   with 00.48)....................................................  246--Cases with 1-3 stents with 4+ vessels (Codes 00.45-00.47                214            2.45       50,425.73   with 00.43)....................................................  246--Cases with procedure on vessel bifurcation (Code 00.44)....             387            3.56       62,338.01  247--All Cases..................................................         180,307            2.17       42,084.09  247--Cases with procedure on vessel bifurcation (Code 00.44)....           1,742            1.97       42,212.23  248--All Cases..................................................          12,979            6.03       59,016.01  248--Cases with 1-3 vessels with 4+ stents (Codes 00.40-00.42                961            3.60       55,721.11   with 00.48)....................................................  248--Cases with 1-3 stents with 4+ vessels (Codes 00.45-00.47                 45            2.36       45,491.68   with 00.43)....................................................    [[Page 48518]]      248--Cases with procedure on vessel bifurcation (Code 00.44)....              92            5.22       65,756.27  249--All Cases..................................................          65,858            2.50       36,958.18  249--Cases with procedure on vessels bifurcation (Code 00.44)...             422            2.31       38,507.05  ----------------------------------------------------------------------------------------------------------------        The results of our review do not suggest to us that there should be   any proposal for change to MS-DRGs 246 or 248 for FY 2009 because there   was no compelling evidence that the cases involving either 4+ vessels   or 4+ stents were inappropriately placed in the MS-DRGs.      Comment: Three commenters urged CMS to revise the GROUPER logic to   include ICD-9-CM procedure codes 00.42 and 00.47 in MS-DRG 246. In   addition, the commenters suggested the CMS revise the GROUPER logic for   the bare metal stents in MS-DRG 248 by assigning codes 00.42 and 00.47   there as well. One commenter stated that assigning these codes to the   ``with MCC'' MS-DRGs increases payment accuracy.      Response: We agree that reassigning these codes to MS-DRG 246 and   248 would increase payment. However, at this time we are not convinced   that a change of this nature would increase payment accuracy. As   previously stated, we reviewed the data for cases involving 4+ vessels   and 4+ stents as shown above in the tables, but did not specifically   review the data for cases involving 3 vessels and/or 3 stents inserted   at one operative episode. However, we note that while all three   commenters submitted data based on the MedPAR files of FY 2007, their   conclusions regarding the numbers of cases and the charges were not   consistent among themselves, nor did their data match our figures, even   to the number of cases under review.      We note that evaluation of CMS's data comparing insertion of 1-3   stents with 4+ vessels shows an average length of stay almost 3 days   lower than the average length of stay for the entire MS-DRG 246, as   well as average charges $15,000 lower than the average for the entire   DRG. Another evaluation of CMS's data comparing insertion in 1-3   vessels with 4+ stents shows an average length of stay of 2.7 days   lower than the average length of stay for the entire MS-DRG 246, as   well as average charges more than $1,000 lower than the average for the   entire DRG. We believe that these data do not support an MS-DRG change.      Comment: One commenter, a device manufacturer, believed that MS-  DRGs 246 through 251 (percutaneous cardiovascular procedures with and   without drug-eluting and non-drug-eluting stents and with and without   MCCs) contain appropriate procedure code assignments. The commenter   indicated its intent to continue to monitoring the data in these MS-  DRGs in an effort to improve coding accuracy and appropriate hospital   resource allocation, but, at this time, recommended no changes to this   group of MS-DRGs.      Response: We appreciate the commenter's feedback and look forward   to working with the industry to assure appropriate payment to hospitals   under all MS-DRGs.      As stated above, the topic of reassigning certain procedure codes   for numbers of cardiac stents in cardiac vessels was not discussed in   the FY 2009 IPPS proposed rule; therefore, no proposals had been made   by CMS. We believe it is inappropriate to make these MS-DRG   modifications without claims data under the MS-DRG system. Therefore,   we will continue to monitor MDC 5 and the stent MS-DRGs. Should there   be evidence-based justification for reassignment of codes within these   MS-DRGs, we will be open to proposing to make changes to the structure   of the MS-DRG in the future.  d. TherOx (Downstream[supreg] System)      This topic was not discussed in the FY 2009 IPPS proposed rule.   However, one commenter addressed this subject.      TherOx, manufacturer of the Downstream[supreg] System, also known   as SuperSaturated Oxygen Therapy (SSO2) or Aqueous Oxygen   (AO) System, is a new technology involving the creation and delivery of   superoxygenated arterial blood directly to reperfused areas of   myocardial tissue. The concept is that this will reduce infarct size by   minimizing microvascular damage in heart attack patients following   percutaneous coronary intervention. The Downstream[supreg] System is   the console portion of a disposable cartridge-based system that   withdraws a small amount of the patient's arterial blood, mixes it with   a small amount of saline, and supersaturates it with oxygen to create   highly oxygen-enriched blood, which is delivered directly to the   infarct-related artery via the TherOx infusion catheter. An additional   100 minutes of catheterization laboratory time is required for this   procedure. According to the proposed package insert, the   Downstream[supreg] System will be used for patients undergoing a   percutaneous cardiovascular procedure in which a stent is implanted.   According to the manufacturer, factoring in the average charges for   supplies ($2,333), procedure time ($8,727) and device cost ($10,560),   the additional charges unique to the Downstream[reg] System are   estimated to be $21,620.      At the September 27, 2007, a request was made before the ICD-9-CM   Coordination and Maintenance Committee to consider establishing a new   code to describe this intervention. A new code, 00.49 (SuperSaturated   oxygen therapy) was created for use beginning October 1, 2008, for FY   2009. This code can be found in Table 6B of the Addendum to this final   rule.      Comment: One commenter, the manufacturer of the Downstream[supreg]   System, expressed concern about the assignment of code 00.49 as a non-  O.R. procedure in the proposed rule. This is indicated by an ``N'' in   the O.R. column of Table 6B, and indicates that the GROUPER program   will not take this code into account when reviewing Medicare claims   data for MS-DRG assignment. The manufacturer encouraged CMS to assign   code 00.49 to MS-DRG 246 (Percutaneous Cardiovascular Procedures with   Drug-Eluting Stent with MCC or 4+ Vessels/Stents), irrespective of the   actual presence of a drug-eluting stent or an MCC.      The manufacturer also encouraged CMS to help ensure that hospitals   adopt this unique and beneficial treatment option in a timely manner   after its FDA approval by assigning cases using the technology to MS-  DRG 246, stating that: ``This action will provide appropriate   reimbursement [to hospitals] for its use''. The manufacturer further   noted that in 2002, CMS established DRG assignments for drug-eluting   stents, a technology that had not yet been approved by the FDA. The   manufacturer requested that CMS take similar action [to the precedent   set for drug-eluting stents] for cases involving patients that have had   an anterior ST-elevated myocardial infarction (STEMI) and have received   a stent and the Downstream[supreg] System.      The manufacturer further noted that assigning all cases using the   Downstream[supreg] System to MS-DRG 246 is    [[Page 48519]]    consistent with CMS' past MS-DRG reclassifications, pointing out that,   in the FY 2008 final rule, CMS reorganized several MS-DRGs to better   recognize the costs of particular technologies. The example was given   concerning the reassignment of all cases utilizing the Gliadel[supreg]   Wafer to MS-DRG 023 after CMS found that the average charges for   Gliadel[supreg] cases in MS-DRG 024 were 27 percent greater than the   average charges for non-Gliadel[supreg] cases. The manufacturer   encourages CMS to follow this example ``by assigning all cases using   the Downstream[supreg] System to MS-DRG 246 where the average charges   of these cases will be more closely aligned with the overall average of   charges in the MS-DRG.''      Response: We note that procedure code 00.49 is so new that it has   not yet had a chance to be reflected in the MedPAR database. Therefore,   we do not have data on the impact of the Downstream[supreg] System   procedure, which is an adjunct therapy to PTCA. Without claims data, we   cannot evaluate the commenter's suggestion that the use of the   Downstream[supreg] System is equivalent to cases in MS-DRG 246 which   include the insertion of drug-eluting stents with MCC or 4+ vessels/  stent. We also believe that the Downstream[supreg] System is not a   stand-alone procedure (that is, it is only performed after a PTCA has   been done, and while the patient is still in the catheterization   laboratory). Therefore, it is most appropriately described as non-O.R.   in its GROUPER designation. This would continue to allow the MS-DRG   assignment to be based on the definitive procedures performed such as a   PTCA or the insertions of stents, and not on adjunctive procedures.      When we created the severity-based MS-DRGs for use beginning in FY   2008, we thoroughly reviewed over 13,000 diagnosis codes in order to   establish realistic severity measures. We had two major goals: To   create DRGs that would more accurately reflect the severity of the   cases assigned to them; and to create groups that would have sufficient   volume so that meaningful and stable payment weights could be   developed. We developed a set of five criteria to determine whether an   MS-DRG should be subdivided into subgroups based on the presence of a   CC or an MCC, and determined that a subgroup had to meet all five   criteria in order to be so subdivided. These criteria can be reviewed   in the FY 2008 final rule with comment period (72 FR 47169). There was   no criteria suggesting that device-based procedures be assigned to the   MS-DRG with an MCC designation in order for additional reimbursement to   be made available to hospitals.      The commenter used the example of our review of the Gliadel[supreg]   Wafer and subsequent MS-DRG reassignment to bolster the argument that   these Downstream[supreg] System cases should be assigned to MS-DRG 246.   We point out that the commenter himself noted that this reassignment   took place after CMS had reviewed the MedPAR data and was able to   determine that the average charges for Gliadel[supreg] cases in MS-DRG   024 were 27 percent greater than the average charges for non-  Gliadel[supreg] cases, thereby warranting such a change.      Without evidence-based data, we are reluctant to subjectively   assign a technology to an MS-DRG based on assumption. Further, to   ignore the structure of the MS-DRG system solely for the purpose of   increasing payment for one device would set an unwelcome precedent for   defining all of the other MS-DRGs in the system, as previously stated   in the FY 2007 IPPS final rule (71 FR 47943). We believe that the MS-  DRG structure for the percutaneous procedures with stent insertion (MS-  DRGs 246, 247, 248, and 249, with and without volume of vessels and/or   stents, and with or without CC/MCC) are appropriate MS-DRG assignments   for the Downstream[supreg] System, and the cases will be assigned based   on the presence of either a drug-eluting or a non-drug eluting stent,   and the presence or absence of an MCC. Therefore, for FY 2009, because   there is no data to support the assignment of procedure code 00.49 to   MS-DRG 246, we are not making the change requested by the commenter.   Should there be evidence-based justification for assignment of code   00.49 in the future, we will be open to making a proposal to change the   structure of these MS-DRGs.  e. Spinal Disc Devices      This topic was not discussed in the FY 2009 IPPS proposed rule.   However, one commenter addressed this subject.      Comment: One commenter representing a manufacturer of artificial   disc devices recommended that CMS create a new MS-DRG for disc device   procedures in MDC 8 (Diseases and Disorders of the Musculoskeletal   System and Connective Tissue). Specifically, the commenter suggested   that ICD-9-CM codes 84.58 (Implantation of interspinous process   decompression device), 84.59 (Insertion of other spinal devices), 84.62   (Insertion of total spinal disc prosthesis, cervical), and 84.65   (Insertion of total spinal disc prosthesis, lumbosacral) be moved into   a separate MS-DRG that combines procedures that utilize expensive   implantable devices. According to the commenter, by creating this new   MS-DRG, CMS would avoid classifying these procedures with procedures   that do not utilize devices.      Response: We point out that ICD-9-CM code 84.58 was deleted   effective October 1, 2007 (FY 2008). The procedure previously assigned   to that code was reassigned to new ICD-9-CM code 84.80 (Insertion or   replacement of interspinous process device(s)).      With regards to the creation of a new MS-DRG for the procedure   codes 84.59, 84.62, and 84.65, we refer the reader to the FY 2008 IPPS   proposed rule (72 FR 24733 through 24735) and the FY 2008 IPPS final   rule with comment period (72 FR 47226 through 47232) for a discussion   on the comprehensive evaluation of all the spinal DRGs in the   development of the MS-DRG classification system. Effective October 1,   2007, all the aforementioned procedures were grouped together in MS-DRG   490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc   Device/Neurostimulator). The modifications made to the spinal DRGs for   FY 2008 recognized the similar utilization of resources, differences in   levels of severity and the complexity of the services being performed   on patients undergoing those types of procedures.      In response to the suggested creation of a new, separate MS-DRG to   combine spinal procedures that utilize expensive implantable devices,   we note that the MS-DRG classification system (and more importantly,   the IPPS), is not based solely on the cost of devices; it is not a   device classification system. We refer the reader to section II.B.2. of   the preamble to this final rule for a summary of the process and   criteria utilized in determining whether specific MS-DRG modifications   are warranted in a given year.      We note that several commenters acknowledged CMS' discussion of the   FY 2008 implementation of the MS-DRGs and the lack of data to support   major MS-DRG changes for FY 2009. In addition, several commenters   accepted CMS' proposal of not making significant revisions to the MS-  DRGs until claims data under the new MS-DRG system are available.   Therefore, because we do not have claims data at this time to evaluate   the need for revisions to MS-DRGs, we are not making any revisions to   the MS-DRGs involving implantable spinal devices for FY 2009.  f. Spinal Fusion      This topic was not discussed in the FY 2009 IPPS proposed rule.   However, one commenter addressed this subject.    [[Page 48520]]        Comment: Similar to last year, a manufacturer again requested that   CMS reassign procedure code 84.82 (Insertion or replacement of pedicle-  based dynamic stabilization device(s)), which was effective October 1,   2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion   with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460 (Spinal   Fusion Except Cervical without MCC).      As a result of CMS' final policy for FY 2008 that assigned   procedure code 84.82 to MS-DRG 490, the commenter reported that it   conducted a number of analyses that included: (1) A clinical comparison   of the implant procedure of dynamic stabilization and instrumented   spinal fusion; (2) a comparison of average charge data in MS-DRGs 460   and 490 utilizing FY 2007 MedPAR data; and (3) a cost comparison of   claims including the implant of the Dynesys[supreg] system compared to   those of spinal fusion.      Due to the fact that claims data on procedure code 84.82 was   unavailable in the MedPAR file, the commenter stated it utilized   procedure code 84.59 (Insertion of other spinal devices) and conducted   the same analysis CMS had done for FY 2008. Results of the commenter's   analysis showed a large increase in the volume of cases with procedure   code 84.59 assigned, which, according to the commenter, provided a more   reliable number of cases to compare average charges.      Response: We appreciate the commenter's analysis and acknowledge   the commenter's request. In response to the commenter's analyses of the   charge data for procedure code 84.59, the Dynesys[supreg] system is not   the only technology that was assigned to code 84.59 in the years that   the commenter examined. During that time, there were a number of other   spinal technologies that were under development or in clinical trials   that were also assigned procedure code 84.59 because a unique code for   their specific technology did not yet exist.      As stated in the FY 2008 final rule with comment period (72 FR   47228), we conducted a comprehensive review of the entire group of   spine DRGs in the development of the MS-DRG system. In the analysis   that we conducted, the data demonstrated that procedures assigned to   MS-DRG 490 were not the same in terms of resource utilization, severity   of illness, and complexity of care, as those assigned to MS-DRG 460   (Spinal Fusion Except Cervical without MCC). As we stated earlier, we   received several comments acknowledging CMS' discussion of the recent   implementation of MS-DRGs and lack of data to support major MS-DRG   changes for FY 2009. The commenters accepted CMS' proposal of not   making significant revisions to the MS-DRGs until claims data under the   new MS-DRG system are available. Therefore, as final policy for FY   2009, we are not reassigning procedure code 84.82 from MS-DRG 490 to   MS-DRG 460.  g. Special Treatment for Hospitals With High Percentages of ESRD   Discharges      In our existing regulations under 42 CFR 412.104, we provide that   CMS will make an additional payment to a hospital for inpatient   services furnished to a beneficiary with end-stage renal disease (ESRD)   who is discharged and who receives a dialysis treatment during a   hospital stay, if the hospital has established that ESRD beneficiary   discharges constitute 10 percent or more of its total Medicare   discharges. However, as specified in the regulations, in determining a   hospital's eligibility for this additional payment, we excluded from   the hospital's ESRD beneficiary discharge count discharges classified   into the following CMS DRGs: DRG 302 (Kidney Transplant); DRG 316   (Renal Failure); or DRG 317 (Admit for Renal Dialysis). As discussed in   section II.C. of the preamble of this final rule, we adopted the MS-DRG   classification system for FY 2008 to better recognize severity of   illness. Under the MS-DRG system, these three DRGs have been changed.   Therefore, we are revising Sec.  412.104 to make the three DRG numbers   and titles consistent with their replacement MS-DRGs. DRG 302 (Kidney   Transplant) became MS-DRG 652; DRG 316 (Renal Failure) became MS-DRG   682 (Renal Failure with MCC), MS-DRG 683 (Renal Failure with CC), and   MS-DRG 684 (Renal Failure without CC/MCC); and DRG 317 (Admit for Renal   Dialysis) became MS-DRG 685 (Admit for Renal Dialysis).    H. Recalibration of MS-DRG Weights        In section II.E. of the preamble of this final rule, we state that   we are fully implementing the cost-based DRG relative weights for FY   2009, which is the third year in the 3-year transition period to   calculate the relative weights at 100 percent based on costs. In the FY   2008 IPPS final rule with comment period (72 FR 47267), as recommended   by RTI, for FY 2008, we added two new CCRs for a total of 15 CCRs: One   for ``Emergency Room'' and one for ``Blood and Blood Products,'' both   of which can be derived directly from the Medicare cost report.      As we proposed, in developing the FY 2009 system of weights, we   used two data sources: Claims data and cost report data. As in previous   years, the claims data source is the MedPAR file. This file is based on   fully coded diagnostic and procedure data for all Medicare inpatient   hospital bills. The FY 2007 MedPAR data used in this final rule include   discharges occurring on October 1, 2006, through September 30, 2007,   based on bills received by CMS through March 2008, from all hospitals   subject to the IPPS and short-term, acute care hospitals in Maryland   (which are under a waiver from the IPPS under section 1814(b)(3) of the   Act). The FY 2007 MedPAR file used in calculating the relative weights   includes data for approximately 11,554,993 Medicare discharges from   IPPS providers. Discharges for Medicare beneficiaries enrolled in a   Medicare Advantage managed care plan are excluded from this analysis.   The data exclude CAHs, including hospitals that subsequently became   CAHs after the period from which the data were taken. The second data   source used in the cost-based relative weighting methodology is the FY   2006 Medicare cost report data files from HCRIS (that is, cost reports   beginning on or after October 1, 2005, and before October 1, 2006),   which represents the most recent full set of cost report data   available. We used the March 31, 2008 update of the HCRIS cost report   files for FY 2006 in setting the relative cost-based weights.      The methodology we used to calculate the DRG cost-based relative   weights from the FY 2007 MedPAR claims data and FY 2006 Medicare cost   report data is as follows:       To the extent possible, all the claims were regrouped   using the FY 2009 MS-DRG classifications discussed in sections II.B.   and G. of the preamble of this final rule.       The transplant cases that were used to establish the   relative weights for heart and heart-lung, liver and/or intestinal, and   lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)   were limited to those Medicare-approved transplant centers that have   cases in the FY 2007 MedPAR file. (Medicare coverage for heart, heart-  lung, liver and/or intestinal, and lung transplants is limited to those   facilities that have received approval from CMS as transplant centers.)       Organ acquisition costs for kidney, heart, heart-lung,   liver, lung, pancreas, and intestinal (or multivisceral organs)   transplants continue to be paid on a reasonable cost basis. Because   these acquisition costs are paid separately from the prospective   payment rate, it is necessary to subtract the acquisition charges from   the total charges on each transplant bill that showed acquisition    [[Page 48521]]    charges before computing the average cost for each DRG and before   eliminating statistical outliers.       Claims with total charges or total length of stay less   than or equal to zero were deleted. Claims that had an amount in the   total charge field that differed by more than $10.00 from the sum of   the routine day charges, intensive care charges, pharmacy charges,   special equipment charges, therapy services charges, operating room   charges, cardiology charges, laboratory charges, radiology charges,   other service charges, labor and delivery charges, inhalation therapy   charges, emergency room charges, blood charges, and anesthesia charges   were also deleted.       At least 95.9 percent of the providers in the MedPAR file   had charges for 10 of the 15 cost centers. Claims for providers that   did not have charges greater than zero for at least 10 of the 15 cost   centers were deleted.       Statistical outliers were eliminated by removing all cases   that were beyond 3.0 standard deviations from the mean of the log   distribution of both the total charges per case and the total charges   per day for each DRG.      Once the MedPAR data were trimmed and the statistical outliers were   removed, the charges for each of the 15 cost groups for each claim were   standardized to remove the effects of differences in area wage levels,   IME and DSH payments, and for hospitals in Alaska and Hawaii, the   applicable cost-of-living adjustment. Because hospital charges include   charges for both operating and capital costs, we standardized total   charges to remove the effects of differences in geographic adjustment   factors, cost-of-living adjustments, DSH payments, and IME adjustments   under the capital IPPS as well. Charges were then summed by DRG for   each of the 15 cost groups so that each DRG had 15 standardized charge   totals. These charges were then adjusted to cost by applying the   national average CCRs developed from the FY 2006 cost report data.      The 15 cost centers that we used in the relative weight calculation   are shown in the following table. The table shows the lines on the cost   report and the corresponding revenue codes that we used to create the   15 national cost center CCRs.  [GRAPHIC] [TIFF OMITTED] TR19AU08.312      [[Page 48522]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.313      [[Page 48523]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.314      [[Page 48524]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.315      [[Page 48525]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.316      [[Page 48526]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.317      [[Page 48527]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.318        We developed the national average CCRs as follows:      Taking the FY 2006 cost report data, we removed CAHs, Indian Health   Service hospitals, all-inclusive rate hospitals, and cost reports that   represented time periods of less than 1 year (365 days). We included   hospitals located in Maryland as we are including their charges in our   claims database. We then created CCRs for each provider for each cost   center (see prior table for line items used in the calculations) and   removed any CCRs that were greater than 10 or less than 0.01. We   normalized the departmental CCRs by dividing the CCR for each   department by the total CCR for the hospital for the purpose of   trimming the data. We then took the logs of the normalized cost center   CCRs and removed any cost center CCRs where the log of the cost center   CCR was greater or less than the mean log plus/minus 3 times the   standard deviation for the log of that cost center CCR. Once the cost   report data were trimmed, we calculated a Medicare-specific CCR. The   Medicare-specific CCR was determined by taking the Medicare charges for   each line item from Worksheet D-4 and deriving the Medicare-specific   costs by applying the hospital-specific departmental CCRs to the   Medicare-specific charges for each line item from Worksheet D-4. Once   each hospital's Medicare-specific costs were established, we summed the   total Medicare-specific costs and divided by the sum of the total   Medicare-specific charges to produce national average, charge-weighted   CCRs.      After we multiplied the total charges for each DRG in each of the   15 cost centers by the corresponding national average CCR, we summed   the 15 ``costs'' across each DRG to produce a total standardized cost   for the DRG. The average standardized cost for each DRG was then   computed as the total standardized cost for the DRG divided by the   transfer-adjusted case count for the DRG. The average cost for each DRG   was then divided by the national average standardized cost per case to   determine the relative weight.      The new cost-based relative weights were then normalized by an   adjustment factor of 1.50598 so that the average case weight after   recalibration was equal to the average case weight before   recalibration. The normalization adjustment is intended to ensure that   recalibration by itself neither increases nor decreases total payments   under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.      The 15 national average CCRs for FY 2009 are as follows:    ------------------------------------------------------------------------                            Group                                 CCR  ------------------------------------------------------------------------  Routine Days............................................           0.546  Intensive Days..........................................           0.486  Drugs...................................................           0.205  Supplies & Equipment....................................           0.345  Therapy Services........................................           0.423  Laboratory..............................................           0.169  Operating Room..........................................           0.295  Cardiology..............................................           0.190  Radiology...............................................           0.171  Emergency Room..........................................           0.292  Blood and Blood Products................................           0.444  Other Services..........................................           0.432  Labor & Delivery........................................           0.476  Inhalation Therapy......................................           0.199  Anesthesia..............................................           0.149  ------------------------------------------------------------------------        As we explained in section II.E. of the preamble of this final   rule, we are completing our 2-year transition to the MS-DRGs. For FY   2008, the first year of the transition, 50 percent of the relative   weight for an MS-DRG was based on the two-thirds cost-based weight/one-  third charge-based weight calculated using FY 2006 MedPAR data grouped   to the Version 24.0 (FY 2007) DRGs. The remaining 50 percent of the FY   2008 relative weight for an MS-DRG was based on the two-thirds cost-  based weight/one-third charge-based weight calculated using FY 2006   MedPAR grouped to the Version 25.0 (FY 2008) MS-DRGs. In FY 2009, the   relative weights are based on 100 percent cost    [[Page 48528]]    weights computed using the Version 26.0 (FY 2009) MS-DRGs.      When we recalibrated the DRG weights for previous years, we set a   threshold of 10 cases as the minimum number of cases required to   compute a reasonable weight. We are using that same case threshold in   recalibrating the MS-DRG weights for FY 2009. Using the FY 2007 MedPAR   data set, there are 8 MS-DRGs that contain fewer than 10 cases. Under   the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs   because we no longer have separate DRGs for patients age 0 to 17 years.   With the exception of newborns, we previously separated some DRGs based   on whether the patient was age 0 to 17 years or age 17 years and older.   Other than the age split, cases grouping to these DRGs are identical.   The DRGs for patients age 0 to 17 years generally have very low volumes   because children are typically ineligible for Medicare. In the past, we   have found that the low volume of cases for the pediatric DRGs could   lead to significant year-to-year instability in their relative weights.   Although we have always encouraged non-Medicare payers to develop   weights applicable to their own patient populations, we have heard   frequent complaints from providers about the use of the Medicare   relative weights in the pediatric population. We believe that   eliminating this age split in the MS-DRGs will provide more stable   payment for pediatric cases by determining their payment using adult   cases that are much higher in total volume. All of the low-volume MS-  DRGs listed below are for newborns. Newborns are unique and require   separate DRGs that are not mirrored in the adult population. Therefore,   it remains necessary to retain separate DRGs for newborns. In FY 2009,   because we do not have sufficient MedPAR data to set accurate and   stable cost weights for these low-volume MS-DRGs, we are computing   weights for the low-volume MS-DRGs by adjusting their FY 2008 weights   by the percentage change in the average weight of the cases in other   MS-DRGs. The crosswalk table is shown below:    ------------------------------------------------------------------------                                                         Crosswalk to MS-          Low-volume MS-DRG            MS-DRG title             DRG  ------------------------------------------------------------------------  768.............................  Vaginal Delivery    FY 2008 FR weight                                     with O.R.           (adjusted by                                     Procedure Except    percent change in                                     Sterilization and/  average weight of                                     or D&C.             the cases in                                                         other MS-DRGs).  789.............................  Neonates, Died or   FY 2008 FR weight                                     Transferred to      (adjusted by                                     Another Acute       percent change in                                     Care Facility.      average weight of                                                         the cases in                                                         other MS-DRGs).  790.............................  Extreme Immaturity  FY 2008 FR weight                                     or Respiratory      (adjusted by                                     Distress            percent change in                                     Syndrome, Neonate.  average weight of                                                         the cases in                                                         other MS-DRGs).  791.............................  Prematurity with    FY 2008 FR weight                                     Major Problems.     (adjusted by                                                         percent change in                                                         average weight of                                                         the cases in                                                         other MS-DRGs).  792.............................  Prematurity         FY 2008 FR weight                                     without Major       (adjusted by                                     Problems.           percent change in                                                         average weight of                                                         the cases in                                                         other MS-DRGs).  793.............................  Full-Term Neonate   FY 2008 FR weight                                     with Major          (adjusted by                                     Problems.           percent change in                                                         average weight of                                                         the cases in                                                         other MS-DRGs).  794.............................  Neonate with Other  FY 2008 FR weight                                     Significant         (adjusted by                                     Problems.           percent change in                                                         average weight of                                                         the cases in                                                         other MS-DRGs).  795.............................  Normal Newborn....  FY 2008 FR weight                                                         (adjusted by                                                         percent change in                                                         average weight of                                                         the cases in                                                         other MS-DRGs).  ------------------------------------------------------------------------        We did not receive any public comments on this section. Therefore,   we are adopting the national average CCRs as proposed, with the MS-DRG   weights recalibrated based on these CCRs.    I. Medicare Severity Long-Term Care (MS-LTC-DRG) Reclassifications and   Relative Weights for LTCHs for FY 2009    1. Background      Section 123 of the BBRA requires that the Secretary implement a PPS   for LTCHs (that is, a per discharge system with a diagnosis-related   group (DRG)-based patient classification system reflecting the   differences in patient resources and costs). Section 307(b)(1) of the   BIPA modified the requirements of section 123 of the BBRA by requiring   that the Secretary examine ``the feasibility and the impact of basing   payment under such a system [the long-term care hospital (LTCH) PPS] on   the use of existing (or refined) hospital DRGs that have been modified   to account for different resource use of LTCH patients, as well as the   use of the most recently available hospital discharge data.''      When the LTCH PPS was implemented for cost reporting periods   beginning on or after October 1, 2002, we adopted the same DRG patient   classification system (that is, the CMS DRGs) that was utilized at that   time under the IPPS. As a component of the LTCH PPS, we refer to the   patient classification system as the ``long-term care diagnosis-related   groups (LTC-DRGs).'' As discussed in greater detail below, although the   patient classification system used under both the LTCH PPS and the IPPS   are the same, the relative weights are different. The established   relative weight methodology and data used under the LTCH PPS result in   LTC-DRG relative weights that reflect ``the differences in patient   resource use * * *'' of LTCH patients (section 123(a)(1) of the BBRA   (Pub. L. 106-113). As part of our efforts to better recognize severity   of illness among patients, in the FY 2008 IPPS final rule with comment   period (72 FR 47130), the MS-DRGs and the Medicare severity long-term   care diagnosis-related groups (MS-LTC-DRGs) were adopted for the IPPS   and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008).   For a full description of the development and implementation of the MS-  DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule   with comment period (72 FR 47141 through 47175 and 47277 through   47299). (We note that, in that same final rule, we revised the   regulations at Sec.  412.503 to specify that for LTCH discharges   occurring on or after October 1, 2007, when applying the provisions of   42 CFR Part 412, Subpart O applicable to LTCHs for policy descriptions   and payment calculations, all references to LTC-DRGs would be   considered a reference to MS-LTC-DRGs. For the remainder of this   section, we present the discussion in terms of the current MS-LTC-DRG   patient classification system unless specifically referring to the   previous LTC-DRG patient classification system that was in effect   before October 1, 2007.) We believe the MS-DRGs (and by extension, the   MS-LTC-DRGs) represent a substantial improvement over the previous CMS   DRGs in their ability to differentiate cases based on severity of   illness and resource consumption.    [[Page 48529]]        The MS-DRGs represent an increase in the number of DRGs by 207   (that is, from 538 to 745) (72 FR 47171). In addition to improving the   DRG system's recognition of severity of illness, we believe the MS-DRGs   are responsive to the public comments that were made on the FY 2007   IPPS proposed rule with respect to how we should undertake further DRG   reform. The MS-DRGs use the CMS DRGs as the starting point for revising   the DRG system to better recognize resource complexity and severity of   illness. We have generally retained all of the refinements and   improvements that have been made to the base DRGs over the years that   recognize the significant advancements in medical technology and   changes to medical practice.      Consistent with section 123 of the BBRA, as amended by section   307(b)(1) of the BIPA, and Sec.  412.515, we use information derived   from LTCH PPS patient records to classify LTCH discharges into distinct   MS-LTC-DRGs based on clinical characteristics and estimated resource   needs. We then assign an appropriate weight to the MS-LTC-DRGs to   account for the difference in resource use by patients exhibiting the   case complexity and multiple medical problems characteristic of LTCHs.      Generally, under the LTCH PPS, a Medicare payment is made at a   predetermined specific rate for each discharge; and that payment varies   by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are   classified into MS-LTC-DRGs for payment based on the following six data   elements:       Principal diagnosis.       Up to eight additional diagnoses.       Up to six procedures performed.       Age.       Sex.       Discharge status of the patient.      Upon the discharge of the patient from a LTCH, the LTCH must assign   appropriate diagnosis and procedure codes from the most current version   of the International Classification of Diseases, Ninth Revision,   Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets   Standards regulations at 45 CFR parts 160 and 162 require that no later   than October 16, 2003, all covered entities must comply with the   applicable requirements of Subparts A and I through R of Part 162.   Among other requirements, those provisions direct covered entities to   use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2,   Version 4010, and the applicable standard medical data code sets for   the institutional health care claim or equivalent encounter information   transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional   information on the ICD-9-CM Coding System, we refer readers to the FY   2008 IPPS final rule with comment period (72 FR 47241 through 47243 and   47277 through 47281). We also refer readers to the detailed discussion   on correct coding practices in the August 30, 2002 LTCH PPS final rule   (67 FR 55981 through 55983). Additional coding instructions and   examples are published in the Coding Clinic for ICD-9-CM, a product of   the American Hospital Association.      Medicare contractors (that is, fiscal intermediaries or MACs) enter   the clinical and demographic information into their claims processing   systems and subject this information to a series of automated screening   processes called the Medicare Code Editor (MCE). These screens are   designed to identify cases that require further review before   assignment into a MS-LTC-DRG can be made. During this process, the   following types of cases are selected for further development:       Cases that are improperly coded. (For example, diagnoses   are shown that are inappropriate, given the sex of the patient. Code   68.69 (Other and unspecified radical abdominal hysterectomy) would be   an inappropriate code for a male.)       Cases including surgical procedures not covered under   Medicare. (For example, organ transplant in a nonapproved transplant   center.)       Cases requiring more information. (For example, ICD-9-CM   codes are required to be entered at their highest level of specificity.   There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262   (Other severe protein-calorie malnutrition) contains all appropriate   digits, but if it is reported with either fewer or more than 3 digits,   the claim will be rejected by the MCE as invalid.)      After screening through the MCE, each claim is classified into the   appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software. The   Medicare GROUPER software, which is used under the LTCH PPS, is   specialized computer software, and is the same GROUPER software program   used under the IPPS. The GROUPER software was developed as a means of   classifying each case into a MS-LTC-DRG on the basis of diagnosis and   procedure codes and other demographic information (age, sex, and   discharge status). Following the MS-LTC-DRG assignment, the Medicare   contractor determines the prospective payment amount by using the   Medicare PRICER program, which accounts for hospital-specific   adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH   to review the MS-LTC-DRG assignments made by the Medicare contractor   and to submit additional information within a specified timeframe as   provided in Sec.  412.513(c).      The GROUPER software is used both to classify past cases to measure   relative hospital resource consumption to establish the MS-LTC-DRG   weights and to classify current cases for purposes of determining   payment. The records for all Medicare hospital inpatient discharges are   maintained in the MedPAR file. The data in this file are used to   evaluate possible MS-DRG and MS-LTC-DRG classification changes and to   recalibrate the MS-DRG and MS-LTC-DRG relative weights during our   annual update under both the IPPS (Sec.  412.60(e)) and the LTCH PPS   (Sec.  412.517), respectively.      In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed   the LTCH PPS annual payment rate update cycle to be effective July 1   through June 30 instead of October 1 through September 30. In addition,   because the patient classification system utilized under the LTCH PPS   uses the same DRGs as those used under the IPPS for acute care   hospitals, in that same final rule, we explained that the annual update   of the LTC-DRG classifications and relative weights will continue to   remain linked to the annual reclassification and recalibration of the   DRGs used under the IPPS. Therefore, we specified that we will continue   to update the LTC-DRG classifications and relative weights to be   effective for discharges occurring on or after October 1 through   September 30 each year. We further stated that we will publish the   annual proposed and final update of the LTC-DRGs in the same notice as   the proposed and final update for the IPPS (69 FR 34125).      In the RY 2009 LTCH PPS final rule (73 FR 26798), due to   administrative considerations as well as in response to numerous   comments urging CMS to establish one rulemaking cycle that would   encompass the update of the LTCH PPS payment rates, which has been   updated on a rate year basis, effective July 1 as well as the   development of the MS-LTC-DRG weights, which are updated on a fiscal   year basis, effective October 1, we amended the regulations at Sec.    412.503 and Sec.  412.535 in order to consolidate the rate year and   fiscal year rulemaking cycles. Specifically, the annual update of the   LTCH PPS payment rates (and description of the methodology and data   used to calculate these payment rates) and the annual update of the MS-  LTC-    [[Page 48530]]    DRG classifications and associated weighting factors for LTCHs will be   effective on October 1 of each Federal fiscal year beginning October 1,   2009. In order to revise the payment rate update from July 1 through   June 30 to an October 1 through September 30 cycle, we extended the   2009 rate period to September 30, 2009, so that RY 2009 is 15 months.   This 15-month rate year period is July 1, 2008, through September 30,   2009. We believe that extending RY 2009 by 3 months (to include July,   August, and September) provides for a smooth transition to a   consolidated annual update for both the LTCH PPS payment rates and the   LTCH PPS MS-LTC-DRG classifications and weighting factors.   Consequently, under the extension of RY 2009 to a 15-month rate period,   after September 30, 2009, when the RY 2009 cycle ends, the LTCH PPS   payment rates and other policy changes will subsequently be updated on   an October 1 through September 30 cycle in conjunction with the annual   update to the MS-LTC-DRG classifications and relative weights.   Accordingly, the next update to the LTCH PPS payment rates, after the   15-month RY 2009, will begin October 1, 2009, coinciding with the 2010   Federal fiscal year.      In the past, the annual update to the DRGs used under the IPPS has   been based on the annual revisions to the ICD-9-CM codes and was   effective each October 1. As discussed in the FY 2009 IPPS proposed   rule (73 FR 23591 through 23592), with the implementation of section   503(a) of Public Law 108-173, there is the possibility that one feature   of the GROUPER software program may be updated twice during a Federal   fiscal year (October 1 and April 1) as required by the statute for the   IPPS. Section 503(a) of Public Law 108-173 amended section   1886(d)(5)(K) of the Act by adding a new clause (vii) which states that   ``the Secretary shall provide for the addition of new diagnosis and   procedure codes in [sic] April 1 of each year, but the addition of such   codes shall not require the Secretary to adjust the payment (or   diagnosis-related group classification) * * * until the fiscal year   that begins after such date.'' This requirement improves the   recognition of new technologies under the IPPS by accounting for those   ICD-9-CM codes in the MedPAR claims data earlier than the agency had   accounted for new technology in the past. In implementing the statutory   change, the agency has provided that ICD-9-CM diagnosis and procedure   codes for new medical technology may be created and assigned to   existing DRGs in the middle of the Federal fiscal year, on April 1.   However, this policy change does not impact the DRG relative weights in   effect for that year, which will continue to be updated only once a   year (October 1). The use of the ICD-9-CM code set is also compliant   with the current requirements of the Transactions and Code Sets   Standards regulations at 45 CFR parts 160 and 162, promulgated in   accordance with HIPAA.      As noted above, the patient classification system used under the   LTCH PPS is the same patient classification system that is used under   the IPPS. Therefore, the ICD-9-CM codes currently used under both the   IPPS and the LTCH PPS have the potential of being updated twice a year.   This requirement is included as part of the amendments to the Act   relating to recognition of new medical technology under the IPPS.      Because we do not publish a midyear IPPS rule, any April 1 ICD-9-CM   coding update will not be published in the Federal Register. Rather, we   will assign any new diagnosis or procedure codes to the same DRG in   which its predecessor code was assigned, so that there will be no   impact on the DRG assignments (as also discussed in section II.G.11. of   the preamble of this final rule). Any coding updates will be available   through the Web sites provided in section II.G.11. of the preamble of   this final rule and through the Coding Clinic for ICD-9-CM. Publishers   and software vendors currently obtain code changes through these   sources in order to update their code books and software system. If new   codes are implemented on April 1, revised code books and software   systems, including the GROUPER software program, will be necessary   because the most current ICD-9-CM codes must be reported. Therefore,   for purposes of the LTCH PPS, because each ICD-9-CM code must be   included in the GROUPER algorithm to classify each case under the   correct LTCH PPS, the GROUPER software program used under the LTCH PPS   would need to be revised to accommodate any new codes.      In implementing section 503(a) of Public Law 108-173, there will   only be an April 1 update if new technology diagnosis and procedure   code revisions are requested and approved. We note that any new codes   created for April 1 implementation will be limited to those primarily   needed to describe new technologies and medical services. However, we   reiterate that the process of discussing updates to the ICD-9-CM is an   open process through the ICD-9-CM Coordination and Maintenance   Committee. Requestors will be given the opportunity to present the   merits for a new code and to make a clear and convincing case for the   need to update ICD-9-CM codes for purposes of the IPPS new technology   add-on payment process through an April 1 update (as also discussed in   section II.G.11. of the preamble of this final rule).      At the September 27, 2007 ICD-9-CM Coordination and Maintenance   Committee meeting, there were no requests for an April 1, 2008   implementation of ICD-9-CM codes. Therefore, the next update to the   ICD-9-CM coding system will occur on October 1, 2008 (FY 2009). Because   there were no coding changes suggested for an April 1, 2008 update, the   ICD-9-CM coding set implemented on October 1, 2008, will continue   through September 30, 2009 (FY 2009). The update to the ICD-9-CM coding   system for FY 2009 is discussed in section II.G.11. of the preamble of   this final rule.      Accordingly, in this final rule, as discussed in greater detail   below and as we proposed, we are modifying and revising the MS-LTC-DRG   classifications and relative weights to be effective October 1, 2008   through September 30, 2009 (FY 2009). As discussed in greater detail   below, the MS-LTC-DRGs for FY 2009 in this final rule are the same as   the MS-DRGs for the IPPS for FY 2009 (GROUPER Version 26.0) discussed   in section II.B. of the preamble to this final rule.  2. Changes in the MS-LTC-DRG Classifications  a. Background      As discussed earlier, section 123 of Public Law 106-113   specifically requires that the agency implement a PPS for LTCHs that is   a per discharge system with a DRG-based patient classification system   reflecting the differences in patient resources and costs in LTCHs.   Section 307(b)(1) of Public Law 106-554 modified the requirements of   section 123 of Public Law 106-113 by specifically requiring that the   Secretary examine ``the feasibility and the impact of basing payment   under such a system [the LTCH PPS] on the use of existing (or refined)   hospital diagnosis-related groups (DRGs) that have been modified to   account for different resource use of long-term care hospital patients   as well as the use of the most recently available hospital discharge   data.''      Consistent with section 123 of Public Law 106-113 as amended by   section 307(b)(1) of Public Law 106-554 and Sec.  412.515 of our   existing regulations, the    [[Page 48531]]    LTCH PPS uses information from LTCH patient records to classify patient   cases into distinct LTC-DRGs based on clinical characteristics and   expected resource needs. As described in section II.D. of the preamble   of this final rule, for FY 2008, we adopted MS-DRGs under the IPPS   because we believe that this system results in a significant   improvement in the DRG system's recognition of severity of illness and   resource usage. We stated that we believe these improvements in the DRG   system are equally applicable to the LTCH PPS. The changes we are   making in this FY 2009 IPPS final rule are reflected in the FY 2009   GROUPER, Version 26.0, that will be effective for discharges occurring   on or after October 1, 2008, through September 30, 2009.      Consistent with our historical practice of having LTC-DRGs   correspond to the DRGs applicable under the IPPS, under the broad   authority of section 123(a) of Public Law 106-113, as modified by   section 307(b) of Public Law 106-554, under the LTCH PPS for FY 2008,   we adopted the use of MS-LTC-DRGs, which correspond to the MS-DRGs we   adopted under the IPPS. In addition, as stated above, we are using the   final FY 2009 GROUPER Version 26.0, established in section II.B. of   this final rule, to classify cases effective for LTCH discharges   occurring on or after October 1, 2008, and through September 30, 2009.   The changes to the MS-DRG classification system that we are using under   the IPPS for FY 2009 (GROUPER Version 26.0) are discussed in section   II.B. of the preamble to this final rule.      Under the LTCH PPS, as described in greater detail below, we   determine relative weights for each of the MS-LTC-DRGs to account for   the difference in resource use by patients exhibiting the case   complexity and multiple medical problems characteristic of LTCH   patients. (Unless otherwise noted in this final rule, our MS-LTC-DRG   analysis is based on LTCH data from the March 2008 update of the FY   2007 MedPAR file, which contains hospital bills received through March   31, 2008, for discharges occurring in FY 2007.)      LTCHs do not typically treat the full range of diagnoses as do   acute care hospitals. Therefore, as we discussed in the August 30, 2002   LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and   the FY 2008 IPPS final rule with comment period (72 FR 47283), we use   low-volume quintiles in determining the DRG relative weights for DRGs   with less than 25 LTCH cases (low-volume MS-LTC-DRGs). Specifically, we   group those low-volume DRGs into 5 quintiles based on average charges   per discharge. (A listing of the composition of low-volume quintiles   for the FY 2008 MS-LTC-DRGs (based on FY 2006 MedPAR data) appears in   section II.I.3. of the FY 2008 IPPS final rule with comment period (72   FR 47281 through 47288).) We also adjust for cases in which the stay at   the LTCH is less than or equal to five-sixths of the geometric average   length of stay; that is, short-stay outlier (SSO) cases, as discussed   below in section II.I.4. of the preamble of this final rule.  b. Patient Classifications Into MS-LTC-DRGs      Generally, under the LTCH PPS, Medicare payment is made at a   predetermined specific rate for each discharge; that is, payment varies   by the DRG to which a beneficiary's stay is assigned. Just as cases   have been classified into the MS-DRGs for acute care hospitals under   the IPPS (discussed in section II.B. of the preamble of this final   rule), cases have been classified into MS-LTC-DRGs for payment under   the LTCH PPS based on the principal diagnosis, up to eight additional   diagnoses, and up to six procedures performed during the stay, as well   as demographic information about the patient. The diagnosis and   procedure information is reported by the hospital using the ICD-9-CM   coding system. Under the MS-DRGs for the IPPS and the MS-LTC-DRGs for   the LTCH PPS, these factors will not change.      Section II.B. of the preamble of this final rule discusses the   organization of the existing MS-DRGs, which we are maintaining under   the MS-LTC-DRG system. As noted above, the patient classification   system for the LTCH PPS is derived from the IPPS DRGs and is similarly   organized into 25 major diagnostic categories (MDCs). Most of these   MDCs are based on a particular organ system of the body and the   remainder involves multiple organ systems (such as MDC 22, Burns).   Accordingly, the principal diagnosis determines MDC assignment. Within   most MDCs, cases are then divided into surgical DRGs and medical DRGs.   Under the MS-DRGs, some surgical and medical DRGs are further defined   for severity purposes based on the presence or absence of MCCs or CCs.   The existing MS-LTC-DRGs are similarly categorized. (We refer readers   to section II.B. of the preamble of this final rule for further   discussion of surgical DRGs and medical DRGs.)      Therefore, consistent with the MS-DRGs, a base MS-LTC-DRG may be   subdivided according to three alternatives. The first alternative   includes division of the DRG into one, two, or three severity levels.   The most severe level has cases with at least one code that is a major   CC, referred to as ``with MCC''. The next lower severity level contains   cases with at least one CC, referred to as ``with CC''. Those DRGs   without an MCC or a CC are referred to as ``without CC/MCC''. When data   do not support the creation of three severity levels, the base DRG is   divided into either two levels or the base is not subdivided.      The two-level subdivisions consist of one of the following   subdivisions: ``with CC/MCC'' or ``without CC/MCC.'' In this type of   subdivision, cases with at least one code that is on the CC or MCC list   are assigned to the ``with CC/MCC'' DRG. Cases without a CC or an MCC   are assigned to the ``without CC/MCC'' DRG.      The other type of two-level subdivision is as follows: ``with MCC''   and without MCC.'' In this type of subdivision, cases with at least one   code that is on the MCC list are assigned to the ``with MCC'' DRG.   Cases that do not have an MCC are assigned to the ``without MCC' DRG.   This type of subdivision could include cases with a CC code, but no   MCC.  3. Development of the FY 2009 MS-LTC-DRG Relative Weights  a. General Overview of Development of the MS-LTC-DRG Relative Weights      As we stated in the August 30, 2002 LTCH PPS final rule (67 FR   55981), one of the primary goals for the implementation of the LTCH PPS   is to pay each LTCH an appropriate amount for the efficient delivery of   medical care to Medicare patients. The system must be able to account   adequately for each LTCH's case-mix in order to ensure both fair   distribution of Medicare payments and access to adequate care for those   Medicare patients whose care is more costly. To accomplish these goals,   we have annually adjusted the LTCH PPS standard Federal prospective   payment system rate by the applicable relative weight in determining   payment to LTCHs for each case. (As we have noted above, we adopted the   MS-LTC-DRGs for the LTCH PPS beginning in FY 2008. However, this change   in the patient classification system does not affect the basic   principles of the development of relative weights under a DRG-based   prospective payment system.)      Although the adoption of the MS-LTC-DRGs resulted in some   modifications of existing procedures for assigning weights in cases of   zero volume and/or nonmonotonicity, as discussed in the FY 2008 IPPS   final rule with comment period (72 FR 47289 through 47295) and the FY   2009 IPPS    [[Page 48532]]    proposed rule and as detailed in the following sections, the basic   methodology for developing the FY 2009 MS-LTC-DRG relative weights in   this final rule continue to be determined in accordance with the   general methodology established in the August 30, 2002 LTCH PPS final   rule (67 FR 55989 through 55991). Under the LTCH PPS, relative weights   for each MS-LTC-DRG are a primary element used to account for the   variations in cost per discharge and resource utilization among the   payment groups (Sec.  412.515). To ensure that Medicare patients   classified to each MS-LTC-DRG have access to an appropriate level of   services and to encourage efficiency, we calculate a relative weight   for each MS-LTC-DRG that represents the resources needed by an average   inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-  LTC-DRG with a relative weight of 2 will, on average, cost twice as   much to treat as cases in an MS-LTC-DRG with a weight of 1.  b. Data      In the FY 2009 IPPS proposed rule (73 FR 23593), to calculate the   proposed MS-LTC-DRG relative weights for FY 2009, we obtained total   Medicare allowable charges from FY 2007 Medicare LTCH bill data from   the December 2007 update of the MedPAR file, which were the best   available data at that time, and we used the proposed Version 26.0 of   the CMS GROUPER that was also proposed for use under the IPPS to   classify LTCH cases for FY 2009. We also proposed that if more recent   data became available, we would use those data and the finalized   Version 26.0 of the CMS GROUPER in establishing the FY 2009 MS-LTC-DRG   relative weights in the final rule. Consistent with that proposal, to   calculate the MS-LTC-DRG relative weights for FY 2009, in this final   rule, we obtained total Medicare allowable charges from FY 2007   Medicare LTCH bill data from the March 2008 update of the FY 2007   MedPAR file, which are the best available data at this time, and we   used the Version 26.0 of the CMS GROUPER that will be used under the   IPPS (as discussed in section III.B. of the preamble of this final   rule).      Consistent with our historical methodology, as proposed, we have   excluded the data from LTCHs that are all-inclusive rate providers and   LTCHs that are reimbursed in accordance with demonstration projects   authorized under section 402(a) of Public Law 90-248 or section 222(a)   of Public Law 92-603. (We refer readers to the FY 2008 IPPS final rule   with comment period (72 FR 47282).) Therefore, in the development of   the FY 2009 MS-LTC-DRG relative weights in this final rule, we have   excluded the data of the 17 all-inclusive rate providers and the 2   LTCHs that are paid in accordance with demonstration projects that had   claims in the FY 2007 MedPAR file.  c. Hospital-Specific Relative Value (HSRV) Methodology      By nature, LTCHs often specialize in certain areas, such as   ventilator-dependent patients and rehabilitation and wound care. Some   case types (DRGs) may be treated, to a large extent, in hospitals that   have, from a perspective of charges, relatively high (or low) charges.   This nonarbitrary distribution of cases with relatively high (or low)   charges in specific MS-LTC-DRGs has the potential to inappropriately   distort the measure of average charges. To account for the fact that   cases may not be randomly distributed across LTCHs, as we proposed, in   this final rule, we used a hospital-specific relative value (HSRV)   methodology to calculate the MS-LTC-DRG relative weights instead of the   methodology used to determine the MS-DRG relative weights under the   IPPS described in section II.H. of the preamble of this final rule. We   believe this method will remove this hospital-specific source of bias   in measuring LTCH average charges. Specifically, we are reducing the   impact of the variation in charges across providers on any particular   MS-LTC-DRG relative weight by converting each LTCH's charge for a case   to a relative value based on that LTCH's average charge.      Under the HSRV methodology, we standardize charges for each LTCH by   converting its charges for each case to hospital-specific relative   charge values and then adjusting those values for the LTCH's case-mix.   The adjustment for case-mix is needed to rescale the hospital-specific   relative charge values (which, by definition, average 1.0 for each   LTCH). The average relative weight for a LTCH is its case-mix, so it is   reasonable to scale each LTCH's average relative charge value by its   case-mix. In this way, each LTCH's relative charge value is adjusted by   its case-mix to an average that reflects the complexity of the cases it   treats relative to the complexity of the cases treated by all other   LTCHs (the average case-mix of all LTCHs).      In accordance with the methodology established in the August 30,   2002 LTCH PPS final rule (67 FR 55989 through 55991), we continue to   standardize charges for each case by first dividing the adjusted charge   for the case (adjusted for SSOs under Sec.  412.529 as described in   section II.I.4. (step 3) of the preamble of this final rule) by the   average adjusted charge for all cases at the LTCH in which the case was   treated. SSO cases are cases with a length of stay that is less than or   equal to five-sixths the average length of stay of the MS-LTC-DRG   (Sec.  412.529 and Sec.  412.503). The average adjusted charge reflects   the average intensity of the health care services delivered by a   particular LTCH and the average cost level of that LTCH. The resulting   ratio is multiplied by that LTCH's case-mix index to determine the   standardized charge for the case.      Multiplying by the LTCH's case-mix index accounts for the fact that   the same relative charges are given greater weight at a LTCH with   higher average costs than they would at a LTCH with low average costs,   which is needed to adjust each LTCH's relative charge value to reflect   its case-mix relative to the average case-mix for all LTCHs. Because we   standardize charges in this manner, we count charges for a Medicare   patient at a LTCH with high average charges as less resource intensive   than they would be at a LTCH with low average charges. For example, a   $10,000 charge for a case at a LTCH with an average adjusted charge of   $17,500 reflects a higher level of relative resource use than a $10,000   charge for a case at a LTCH with the same case-mix, but an average   adjusted charge of $35,000. We believe that the adjusted charge of an   individual case more accurately reflects actual resource use for an   individual LTCH because the variation in charges due to systematic   differences in the markup of charges among LTCHs is taken into account.  d. Treatment of Severity Levels in Developing Relative Weights      Under the MS-LTC-DRGs, for purposes of the setting of the relative   weights, as we discussed in the FY 2009 IPPS proposed rule (73 FR   23594), there would be three different categories of DRGs based on   volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs with at least   25 cases are each assigned a unique relative weight; low-volume MS-LTC-  DRGs (that is, MS-LTC-DRGs that contain between one and 24 cases   annually) are grouped into quintiles (described below) and assigned the   weight of the quintile. No-volume MS-LTC-DRGs (that is, no cases in the   database were assigned to those MS-LTC-DRGs) are crosswalked to other   MS-LTC-DRGs based on the clinical similarities and assigned the   relative weight of the crosswalked MS-LTC-DRG. (We provide in-depth   discussions of our policy regarding weight setting for low-volume MS-  LTC-      [[Continued on page 48533]]      From the Federal Register Online via GPO Access [wais.access.gpo.gov]  ]                              [[pp. 48533-48582]] Medicare Program; Changes to the Hospital Inpatient Prospective   Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate   Medical Education in Certain Emergency Situations; Changes to   Disclosure of Physician Ownership in Hospitals and Physician Self-  Re[[Page 48533]]    [[Continued from page 48532]]    [[Page 48533]]    DRGs in section II.I.3.e. of the preamble of this final rule and for   no-volume MS-LTC-DRGs, under Step 5 in section II.I.4. of the preamble   of this final rule.)      As described above, in response to the need to account for severity   and pay appropriately for cases, we developed a severity-adjusted   patient classification system which we adopted for both the IPPS and   the LTCH PPS in FY 2008. As described in greater detail above, the MS-  LTC-DRG system can accommodate three severity levels: ``with MCC''   (most severe); ``with CC,'' and ``without CC/MCC'' (the least severe)   with each level assigned an individual MS-LTC-DRG number. In cases with   two subdivisions, the levels are either ``with CC/MCC'' and ``without   CC/MCC'' or ``with MCC'' and ``without MCC''. For example, under the   MS-LTC-DRG system, multiple sclerosis and cerebellar ataxia with MCC is   MS-LTC-DRG 58; multiple sclerosis and cerebellar ataxia with CC is MS-  LTC-DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC   is MS-LTC-DRG 60. For purposes of discussion in this section, the term   ``base DRG'' is used to refer to the DRG category that encompasses all   levels of severity for that DRG. For example, when referring to the   entire DRG category for multiple sclerosis and cerebellar ataxia, which   includes the above three severity levels, we would use the term ``base-  DRG.''      As noted above, while the LTCH PPS and the IPPS use the same   patient classification system, the methodology that is used to set the   DRG weights for use in each payment system differs because the overall   volume of cases in the LTCH PPS is much less than in the IPPS. As a   general rule, consistent with the methodology we used when we adopted   the MS-LTC-DRGs in the FY 2008 IPPS final rule with comment period (72   FR 47278 through 47281), as we proposed, we determined the FY 2009   relative weights for the MS-LTC-DRGs using the following steps: (1) If   an MS-LTC-DRG has at least 25 cases, it is assigned its own relative   weight; (2) if an MS-LTC-DRG has between 1 and 24 cases, it is assigned   to a quintile for which we compute a relative weight for all of the MS-  LTC-DRGS assigned to that quintile; and (3) if an MS-LTC-DRG has no   cases, it is crosswalked to another MS-LTC-DRG based upon clinical   similarities to assign an appropriate relative weight (as described   below in detail in Step 5 of the Steps for Determining the FY 2009 MS-  LTC-DRG Relative Weights). Furthermore, in determining the FY 2009 MS-  LTC-DRG relative weights, when necessary, as we proposed, we are making   adjustments to account for nonmonotonicity, as explained below.      Theoretically, cases under the MS-LTC-DRG system that are more   severe require greater expenditure of medical care resources and will   result in higher average charges. Therefore, in the three severity   levels, weights should increase with severity, from lowest to highest.   If the weights do not increase (that is, if based on the relative   weight methodology outlined above, the MS-LTC-DRG with MCC would have a   lower relative weight than one with CC, or the MS-LTC-DRG without CC/  MCC would have a higher relative weight than either of the others),   there is a problem with monotonicity. Since the start of the LTCH PPS   for FY 2003 (67 FR 55990), in determining the LTC-DRG relative weights,   we have made adjustments in order to maintain monotonicity by grouping   both sets of cases together and establishing a new relative weight for   both LTC-DRGs. We continue to believe that utilizing nonmonotonic   relative weights to adjust Medicare payments would result in   inappropriate payments because, in a nonmonotonic system, cases that   are more severe and require greater expenditure of medical care   resources would be paid based on a lower relative weight than cases   that are less severe and require lower resource use. The procedure for   dealing with nonmonotonicity under the MS-LTC-DRG classification system   is discussed in greater detail below in section II.I.4. (Step 6) of the   preamble of this final rule.  e. Low-Volume MS-LTC-DRGs      In order to account for MS-LTC-DRGs with low volume (that is, with   fewer than 25 LTCH cases), consistent with the methodology we   established when we implemented the LTCH PPS (August 30, 2002; 67 FR   55984 through 55995), we group those ``low-volume MS-LTC-DRGs'' (that   is, MS-LTC-DRGs that contained between 1 and 24 cases annually) into   one of five categories (quintiles) based on average charges, for the   purposes of determining relative weights (72 FR 47283 through 47288).   In determining the FY 2009 MS-LTC-DRG relative weights in this final   rule, as we proposed, we continue to employ this quintile methodology   for low-volume MS-LTC-DRGs. In addition, in cases where the initial   assignment of a low-volume MS-LTC-DRG to quintiles results in   nonmonotonicity within a base-DRG, in order to ensure appropriate   Medicare payments, consistent with our historical methodology, we are   making adjustments to the treatment of low-volume MS-LTC-DRGs to   preserve monotonicity, as discussed in detail below in section II.I.4   (Step 6 of the methodology for determining the FY 2009 MS-LTC-DRG   relative weights). In this final rule, using LTCH cases from the March   2008 update of the FY 2007 MedPAR file, we identified 290 MS-LTC-DRGs   that contained between 1 and 24 cases. This list of MS-LTC-DRGs was   then divided into one of the 5 low-volume quintiles, each containing 58   MS-LTC-DRGs (290/5 = 58). As proposed, we assigned a low-volume MS-LTC-  DRG to a specific low-volume quintile by sorting the low-volume MS-LTC-  DRGs in ascending order by average charge in accordance with our   established methodology. Specifically, for this final rule, the 290   low-volume MS-LTC-DRGs were sorted by ascending order by average charge   and assigned to a specific low-volume quintile (as described below).   After sorting the 290 low-volume MS-LTC-DRGs by average charge in   ascending order, we grouped the first fifth (1st through 58th) of low-  volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1.   This process was repeated through the remaining low-volume MS-LTC-DRGs   so that each of the 5 low-volume quintiles contains 58 MS-LTC-DRGs. The   highest average charge cases are grouped into Quintile 5. (We note   that, consistent with our historical methodology, if the number of low-  volume MS-LTC-DRGs had not been evenly divisible by 5, we would have   used the average charge of the low-volume MS-LTC-DRG to determine which   low-volume quintile would have received the additional low-volume MS-  LTC-DRG.)      Accordingly, in order to determine the relative weights for the MS-  LTC-DRGs with low-volume for FY 2009, as proposed, we used the five   low-volume quintiles described above. The composition of each of the   five low-volume quintiles shown in the chart below was used in   determining the MS-LTC-DRG relative weights for FY 2009 (Table 11 of   the Addendum to this final rule). We determined a relative weight and   (geometric) average length of stay for each of the five low-volume   quintiles using the methodology that we applied to the regular MS-LTC-  DRGs (25 or more cases), as described in section II.I.4. of the   preamble of this final rule. As we proposed, we assigned the same   relative weight and average length of stay to each of the low-volume   MS-LTC-DRGs that make up an individual low-volume quintile. We note   that, as this system is dynamic, it is possible that the number and   specific type of    [[Page 48534]]    MS-LTC-DRGs with a low volume of LTCH cases will vary in the future. We   use the best available claims data in the MedPAR file to identify low-  volume MS-LTC-DRGs and to calculate the relative weights based on our   methodology.  [GRAPHIC] [TIFF OMITTED] TR19AU08.319      [[Page 48535]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.320      [[Page 48536]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.321      [[Page 48537]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.322      [[Page 48538]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.323      [[Page 48539]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.324      [[Page 48540]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.325        We note that we will continue to monitor the volume (that is, the   number of LTCH cases) in the low-volume quintiles to ensure that our   quintile assignments result in appropriate payment for such cases and   do not result in an unintended financial incentive for LTCHs to   inappropriately admit these types of cases.  4. Steps for Determining the FY 2009 MS-LTC-DRG Relative Weights      In general, as we proposed, the FY 2009 MS-LTC-DRG relative weights   in this final rule were determined based on the methodology established   in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991).   In summary, for FY 2009, we grouped LTCH cases to the appropriate MS-  LTC-DRG, while taking into account the low-volume MS-LTC-DRGs (as   described above), before the FY 2009 MS-LTC-DRG relative weights were   determined. After grouping the cases to the appropriate MS-LTC-DRG (or   low-volume quintile), we calculated the relative weights for FY 2009 by   first removing statistical outliers and cases with a length of stay of   7 days or less (as discussed in greater detail below). Next, we   adjusted the number of cases in each MS-LTC-DRG (or low-volume   quintile) for the effect of SSO cases (as also discussed in greater   detail below). The SSO adjusted discharges and corresponding charges   were used to calculate ``relative adjusted weights'' in each MS-LTC-DRG   (or low-volume quintile) using the HSRV method (described above). In   general, to determine the FY 2009 MS-LTC-DRG relative weights in this   final rule, as we proposed, we used the same methodology we used in   determining the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS   final rule with comment period (72 FR 47281 through 47299). However, as   we proposed, we made a modification to our methodology for determining   relative weights for MS-LTC-DRGs with no LTCH cases (as discussed in   greater detail in Step 5 below). Also, we note that, although we are   generally using the same methodology in this final rule (with the   exception noted above) as the    [[Page 48541]]    methodology used in the FY 2008 IPPS final rule with comment, the   discussion presented below of the steps for determining the FY 2009 MS-  LTC-DRG relative weights varies slightly from the discussion of the   steps for determining the FY 2008 MS-LTC-DRG relative weights   (presented in the FY 2008 IPPS final rule with comment) because we took   this opportunity to refine our description to more precisely explain   our methodology for determining the MS-LTC-DRG relative weights.      As discussed in the FY 2008 IPPS final rule with comment when we   adopted the MS-LTC-DRGs, the adoption of the MS-LTC-DRGs with either   two or three severity levels resulted in some slight modifications of   procedures for assigning relative weights in cases of zero volume and/  or nonmonotonicity (described in detail below) from the methodology we   established when we implemented the LTCH PPS in the August 30, 2002   LTCH PPS final rule. As also discussed in the FY 2008 IPPS final rule   with comment when we adopted the MS-LTC-DRGs, we implemented the MS-  LTC-DRGs with a 2-year transition beginning in FY 2008. For FY 2008,   the first year of the transition, 50 percent of the relative weight for   a MS-LTC-DRG was based on the average LTC-DRG relative weight under   Version 24.0 of the LTC-DRG GROUPER. The remaining 50 percent of the   relative weight was based on the MS-LTC-DRG relative weight under   Version 25.0 of the MS-LTC-DRG GROUPER. In FY 2009, the MS-LTC-DRG   relative weights are based on 100 percent of the MS-LTC-DRG relative   weights. Accordingly, in determining the FY 2009 MS-LTC-DRG relative   weights in this final rule, there was no longer a need to include a   step to calculate MS-LTC-DRG transition blended relative weights (see   Step 7 in the FY 2008 IPPS final rule with comment period (72 FR   47295). Therefore, as we proposed, in this final rule, we determined   the FY 2009 MS-LTC-DRG relative weights based solely on the MS-LTC-DRG   relative weight under Version 26.0 of the MS-LTC-DRG GROUPER, which is   discussed in section II.B. of the preamble of this final rule.   Furthermore, as we proposed, we determined the final FY 2009 MS-LTC-DRG   relative weights in this final rule based on the final Version 26.0 of   the MS-LTC-DRG GROUPER that is presented in this final rule.      Below we discuss in detail the steps for calculating the FY 2009   MS-LTC-DRG relative weights. We note that, as we stated above in   section II.I.3.b. of the preamble of this final rule, we have excluded   the data of all-inclusive rate LTCHs and LTCHs that are paid in   accordance with demonstration projects that had claims in the FY 2007   MedPAR file.      Step 1--Remove statistical outliers.      As we proposed, the first step in the calculation of the FY 2009   MS-LTC-DRG relative weights is to remove statistical outlier cases.   Consistent with our historical relative weight methodology, we continue   to define statistical outliers as cases that are outside of 3.0   standard deviations from the mean of the log distribution of both   charges per case and the charges per day for each MS-LTC-DRG. These   statistical outliers are removed prior to calculating the relative   weights because we believe that they may represent aberrations in the   data that distort the measure of average resource use. Including those   LTCH cases in the calculation of the relative weights could result in   an inaccurate relative weight that does not truly reflect relative   resource use among the MS-LTC-DRGs.      Step 2--Remove cases with a length of stay of 7 days or less.      The MS-LTC-DRG relative weights reflect the average of resources   used on representative cases of a specific type. Generally, cases with   a length of stay of 7 days or less do not belong in a LTCH because   these stays do not fully receive or benefit from treatment that is   typical in a LTCH stay, and full resources are often not used in the   earlier stages of admission to a LTCH. If we were to include stays of 7   days or less in the computation of the FY 2009 MS-LTC-DRG relative   weights, the value of many relative weights would decrease and,   therefore, payments would decrease to a level that may no longer be   appropriate. We do not believe that it would be appropriate to   compromise the integrity of the payment determination for those LTCH   cases that actually benefit from and receive a full course of treatment   at a LTCH, by including data from these very short-stays. Therefore,   consistent with our historical relative weight methodology, in   determining the FY 2009 MS-LTC-DRG relative weights, as we proposed, we   removed LTCH cases with a length of stay of 7 days or less.      Step 3--Adjust charges for the effects of SSOs.      After removing cases with a length of stay of 7 days or less, we   are left with cases that have a length of stay of greater than or equal   to 8 days. As we proposed, as the next step in the calculation of the   FY 2009 MS-LTC-DRG relative weights, consistent with our historical   relative weight methodology, we adjusted each LTCH's charges per   discharge for those remaining cases for the effects of SSOs (as defined   in Sec.  412.529(a) in conjunction with Sec.  412.503 for LTCH   discharges occurring on or after October 1, 2008). (We note that even   if a case was removed in Step 2 (that is, cases with a length of stay   of 7 days or less), it was paid as an SSO if its length of stay was   less than or equal to five-sixths of the average length of stay of the   MS-LTC-DRG.)      We made this adjustment by counting an SSO case as a fraction of a   discharge based on the ratio of the length of stay of the case to the   average length of stay for the MS-LTC-DRG for non-SSO cases. This has   the effect of proportionately reducing the impact of the lower charges   for the SSO cases in calculating the average charge for the MS-LTC-DRG.   This process produces the same result as if the actual charges per   discharge of an SSO case were adjusted to what they would have been had   the patient's length of stay been equal to the average length of stay   of the MS-LTC-DRG.      Counting SSO cases as full discharges with no adjustment in   determining the FY 2009 MS-LTC-DRG relative weights would lower the FY   2009 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the   relatively lower charges of the SSO cases would bring down the average   charge for all cases within an MS-LTC-DRG. This would result in an   ``underpayment'' for non-SSO cases and an ``overpayment'' for SSO   cases. Therefore, as we proposed, we adjusted for SSO cases under Sec.    412.529 in this manner because it results in more appropriate payments   for all LTCH cases.      Step 4--Calculate the FY 2009 MS-LTC-DRG relative weights on an   iterative basis.      Consistent with our historical relative weight methodology, as we   proposed, we calculated the MS-LTC-DRG relative weights using the HSRV   methodology, which is an iterative process. First, for each LTCH case,   we calculate a hospital-specific relative charge value by dividing the   SSO adjusted charge per discharge (see step 3) of the LTCH case (after   removing the statistical outliers (see step 1)) and LTCH cases with a   length of stay of 7 days or less (see step 2) by the average charge per   discharge for the LTCH in which the case occurred. The resulting ratio   was then multiplied by the LTCH's case-mix index to produce an adjusted   hospital-specific relative charge value for the case. An initial case-  mix index value of 1.0 is used for each LTCH.      For each MS-LTC-DRG, the FY 2009 relative weight was calculated by   dividing the average of the adjusted hospital-specific relative charge   values (from above) for the MS-LTC-DRG by    [[Page 48542]]    the overall average hospital-specific relative charge value across all   cases for all LTCHs. Using these recalculated MS-LTC-DRG relative   weights, each LTCH's average relative weight for all of its cases (that   is, its case-mix) were calculated by dividing the sum of all the LTCH's   MS-LTC-DRG relative weights by its total number of cases. The LTCHs'   hospital-specific relative charge values above were multiplied by these   hospital-specific case-mix indexes. These hospital-specific case-mix   adjusted relative charge values were then used to calculate a new set   of MS-LTC-DRG relative weights across all LTCHs. This iterative process   was continued until there was convergence between the weights produced   at adjacent steps, for example, when the maximum difference is less   than 0.0001.      Step 5--Determine an FY 2009 relative weight for MS-LTC-DRGs with   no LTCH cases.      As we stated above, we determined the FY 2009 relative weight for   each MS-LTC-DRG using total Medicare allowable charges reported in the   best available LTCH claims data (that is, the March 2008 update of the   FY 2007 MedPAR file for this final rule). Of the FY 2009 MS-LTC-DRGs,   we identified a number of MS-LTC-DRGs for which there were no LTCH   cases in the database. That is, based on data from the FY 2007 MedPAR   file used for this final rule, no patients who would have been   classified to those MS-LTC-DRGs were treated in LTCHs during FY 2007   and, therefore, no charge data were available for those MS-LTC-DRGs.   Thus, in the process of determining the MS-LTC-DRG relative weights, we   were unable to calculate relative weights for these MS-LTC-DRGs with no   LTCH cases using the methodology described in Steps 1 through 4 above.   However, because patients with a number of the diagnoses under these   MS-LTC-DRGs may be treated at LTCHs, consistent with our historical   methodology, as we proposed, we assigned relative weights to each of   the no-volume MS-LTC-DRGs based on clinical similarity and relative   costliness (with the exception of ``transplant'' MS-LTC-DRGs and   ``error'' MS-LTC-DRGs as discussed below). In general, we determined FY   2009 relative weights for the MS-LTC-DRGs with no LTCH cases in the FY   2007 MedPAR file used in this final rule (that is, ``no-volume MS-LTC-  DRGs) by crosswalking each no-volume MS-LTC-DRG to another MS-LTC-DRG   with a calculated relative weight (determined in accordance with the   methodology described above). Then, the ``no-volume'' MS-LTC-DRG was   assigned the same relative weight of the MS-LTC-DRG to which it was   crosswalked (as described in greater detail below). As noted above, as   proposed, we made a modification to our methodology for determining   relative weights for MS-LTC-DRGs with no LTCH cases in this final rule,   which is discussed in greater detail below. As also noted above, even   where we are not changing our existing methodology, as we did in the FY   2009 IPPS proposed rule, we took this opportunity to refine our   description to more precisely explain our proposed methodology for   determining the MS-LTC-DRG relative weights in this final rule.      Specifically, in this final rule, as we proposed, we determined the   relative weight for each MS-LTC-DRG using total Medicare allowable   charges reported in the March 2008 update of the FY 2007 MedPAR file.   Of the 746 MS-LTC-DRGs for FY 2009, we identified 203 MS-LTC-DRGs for   which there were no LTCH cases in the database (including the 8   ``transplant'' MS-LTC-DRGs and 2 ``error'' MS-LTC-DRGs). For this final   rule, as noted above and as we proposed, we assigned relative weights   for each of the 203 no-volume MS-LTC-DRGs (with the exception of the 8   ``transplant'' MS-LTC-DRGs and the 2 ``error'' MS-LTC-DRGs, which are   discussed below) based on clinical similarity and relative costliness   to one of the remaining 543 (746-203= 543) MS-LTC-DRGs for which we   were able to determine relative weights, based on FY 2007 LTCH claims   data. (For the remainder of this discussion, we refer to one of the 543   MS-LTC-DRGs for which we were able to determine relative weight as the   ``crosswalked'' MS-LTC-DRG.) Then, as we proposed, we assigned the no-  volume MS-LTC-DRG the relative weight of the crosswalked MS-LTC-DRG. As   discussed in the FY 2009 IPPS proposed rule (73 FR 23602), this   approach differs from the one we used to determine the FY 2008 MS-LTC-  DRG relative weights when there were no LTCH cases (72 FR 47290).   Specifically, in determining the FY 2008 MS-LTC-DRG relative weights in   the FY 2008 IPPS final rule with comment period, if the no volume MS-  LTC-DRG was crosswalked to a MS-LTC-DRG that had 25 or more cases and,   therefore, was not in a low-volume quintile, we assigned the relative   weight of a quintile to a no-volume MS-LTC-DRG (rather than assigning   the relative weight of the crosswalked MS-LTC-DRG). While we believe   this approach would result in appropriate LTCH PPS payments (because it   is consistent with our methodology for determining relative weights for   MS-LTC-DRGs that have a low volume of LTCH cases (which is discussed   above in section II.I.3.e. of this preamble)), upon further review   during the development of the FY 2009 MS-LTC-DRG relative weights in   this final rule, we now believe that assigning the relative weight of   the crosswalked MS-LTC-DRG to the no-volume MS-LTC-DRG would result in   more appropriate LTCH PPS payments because those cases generally   require equivalent relative resource (and therefore should generally   have the same LTCH PPS payment). The relative weight of each MS-LTC-DRG   should reflect relative resource of the LTCH cases grouped to that MS-  LTC-DRG. Because the no-volume MS-LTC-DRGs are crosswalked to other MS-  LTC-DRGs based on clinical similarity and relative costliness, which   usually require equivalent relative resource use, we believe that   assigning the no-volume MS-LTC-DRG the relative weight of the   crosswalked MS-LTC-DRG would result in appropriate LTCH PPS payments.   (As explained below in Step 6, when necessary, we made adjustments to   account for nonmonotonicity.)      Comment: Although we did not receive any comments on any of the   specific proposed MS-LTC-DRG no-volume crosswalks presented in the   table in the proposed rule, we received one general comment on our   description of the proposed methodology to determine the proposed no-  volume MS-LTC-DRGs crosswalks for FY 2009. Specifically, the commenter   stated that, although it generally supported the proposed methodology   for determining relative weights for the no-volume MS-LTC-DRGs, it was   not clear how CMS was able to compare the ``relative costliness'' of   the no-volume MS-LTC-DRGs to other MS-LTC-DRGs because, by definition,   the no-volume MS-LTC-DRGs do not have costs associated with them (since   there are no LTCH cases in the data). The commenter questioned whether   CMS may have evaluated the relative costliness of the proposed no-  volume FY 2009 MS-LTC-DRGs using prior years' LTCH data or if relative   costliness was assessed based on the cost experience of those MS-DRGs   under the IPPS. The commenter requested that, in the final rule, CMS   provide additional detail on the ``relative costliness'' aspect of the   proposed no-volume crosswalk methodology.      Response: We appreciate the commenter's support of our proposed   methodology for determining relative weight for the no-volume MS-LTC-  DRGs for FY 2009. As requested by the commenter, we are taking this    [[Page 48543]]    opportunity to provide additional information on how we evaluated the   relative costliness in determining the applicable MS-LTC-DRG to which a   no-volume MS-LTC-DRG was cross-walked in order to assign an appropriate   relative weight for the no-volume MS-LTC-DRGs in FY 2009. In general,   most of the no-volume MS-LTC-DRGs historically have not had any cases   in the LTCH data. Therefore, we typically are unable to evaluate   relative costliness based on prior years' LTCH claims data. In   evaluating the relative costliness for most of the no-volume MS-LTC-  DRGs, a group of CMS Medical Officers, who have extensive knowledge and   familiarity with both the IPPS and LTCH DRG-based payment systems, used   their DRG experience to evaluate the relative costliness of the no-  volume MS-LTC-DRGs. Specifically, the relative costliness of each of   the no-volume MS-LTC-DRGs was assessed by taking into consideration   factors such as relative resource use, clinical cohesiveness, and the   comparableness of services provided, based on the collective IPPS and   LTCH PPS experience of those Medical Officers. We also note, as   discussed above, the no-volume MS-LTC-DRG crosswalks are based on both   clinical similarity and relative costliness, including such factors as   care provided during the period of time surrounding surgery, surgical   approach (if applicable), length of time of surgical procedure,   postoperative care, and length of stay. We believe in the rare event   that there would be a few LTCH cases grouped to one of the no-volume   MS-LTC-DRGs in the future, the relative weights assigned based on the   crosswalked MS-LTC-DRGs will result in an appropriate LTCH PPS payment   because the crosswalks, which are based on similar clinical similarity   and relative costliness, generally require equivalent relative resource   use.      In this final rule, we are adopting the methodology we proposed for   determining the relative weights for the no-volume MS-LTC-DRGs. Our   methodology for determining the relative weights for the no-volume MS-  LTC-DRGs is as follows: We crosswalk the no-volume MS-LTC-DRG to an MS-  LTC-DRG for which there are LTCH cases in the FY 2007 MedPAR file and   to which it is similar clinically in intensity of use of resources and   relative costliness as determined by criteria such as care provided   during the period of time surrounding surgery, surgical approach (if   applicable), length of time of surgical procedure, postoperative care,   and length of stay. We then assign the relative weight of the   crosswalked MS-LTC-DRG as the relative weight for the no-volume MS-LTC-  DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-  DRG and the crosswalked MS-LTC-DRG) would have the same relative   weight. We note that if the crosswalked MS-LTC-DRG has 25 cases or   more, its relative weight, which is calculated using the methodology   described in steps 1 through 4 above, is assigned to the no-volume MS-  LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the no-volume   MS-LTC-DRG is crosswalked has 24 or less cases, and therefore is   designated to one of the low-volume quintiles for purposes of   determining the relative weights, we assign the relative weight of the   applicable low-volume quintile to the no-volume MS-LTC-DRG such that   both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the   crosswalked MS-LTC-DRG) have the same relative weight. (As we noted   above, in the infrequent case where nonmonotonicity involving a no-  volume MS-LTC-DRG results, additional measures as described in Step 6   are required in order to maintain monotonically increasing relative   weights.)      For this final rule, a list of the no-volume FY 2009 MS-LTC-DRGs   and the FY 2009 MS-LTC-DRG to which it is crosswalked (that is, the   crosswalked MS-LTC-DRG) is shown in the chart below.  BILLING CODE 4120-01-P    [[Page 48544]]    [GRAPHIC] [TIFF OMITTED] TR19AU08.000      [[Page 48545]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.001      [[Page 48546]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.002      [[Page 48547]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.003      [[Page 48548]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.004    BILLING CODE 4120-01-C      To illustrate this methodology for determining the relative weights   for the MS-LTC-DRGs with no LTCH cases, we are providing the following   example, which refers to the no-volume MS-LTC-DRGs crosswalk   information for FY 2009 provided in the chart above.        Example: There were no cases in the FY 2007 MedPAR file used for   this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of   Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70   (Nonspecific Cerebrovascular Disorders with MCC) was similar   clinically and based on resource use to MS-LTC-DRG 61. Therefore, we   assigned the same relative weight of MS-LTC-DRG 70 of 0.8718 for FY   2009 to MS-LTC-DRG 61 (Table 11 of the Addendum to this final rule).        Furthermore, for FY 2009, consistent with our historical relative   weight methodology, as we proposed, we are establishing MS-LTC-DRG   relative weights of 0.0000 for the following transplant MS-LTC-DRGs:   Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG   1); Heart Transplant or Implant of Heart Assist System without MCC (MS-  LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-  DRG 5); Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant   (MS-LTC-DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8);   Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG   652). This is because Medicare will only cover these procedures if they   are performed at a hospital that has been certified for the specific   procedures by Medicare and presently no LTCH has been so certified.   Based on our research, we found that most LTCHs only perform minor   surgeries, such as minor small and large bowel procedures, to the   extent any surgeries are performed at all. Given the extensive criteria   that must be met to become certified as a transplant center for   Medicare, we believe it is unlikely that any LTCHs will become   certified as a transplant center. In fact, in the more than 20 years   since the implementation of the IPPS, there has never been a LTCH that   even expressed an interest in becoming a transplant center.      If in the future a LTCH applies for certification as a Medicare-  approved transplant center, we believe that the application and   approval procedure would allow sufficient time for us to determine   appropriate weights for the    [[Page 48549]]    MS-LTC-DRGs affected. At the present time, we only include these eight   transplant MS-LTC-DRGs in the GROUPER program for administrative   purposes only. Because we use the same GROUPER program for LTCHs as is   used under the IPPS, removing these MS-LTC-DRGs would be   administratively burdensome.      Again, we note that, as this system is dynamic, it is entirely   possible that the number of MS-LTC-DRGs with no volume of LTCH cases   based on the system will vary in the future. We used the most recent   available claims data in the MedPAR file to identify no-volume MS-LTC-  DRGs and to determine the relative weights in this final rule.      Step 6--Adjust the FY 2009 MS-LTC-DRG relative weights to account   for nonmonotonically increasing relative weights.      As discussed in section II.B. of the preamble of this final rule,   the MS-DRGs (used under the IPPS) on which the MS-LTC-DRGs are based   provide a significant improvement in the DRG system's recognition of   severity of illness and resource usage. The MS-DRGs contain base DRGs   that have been subdivided into one, two, or three severity levels.   Where there are three severity levels, the most severe level has at   least one code that is referred to as an MCC. The next lower severity   level contains cases with at least one code that is a CC. Those cases   without an MCC or a CC are referred to as without CC/MCC. When data did   not support the creation of three severity levels, the base was divided   into either two levels or the base was not subdivided. The two-level   subdivisions could consist of the CC/MCC and the without CC/MCC.   Alternatively, the other type of two level subdivision could consist of   the MCC and without MCC.      In those base MS-LTC-DRGs that are split into either two or three   severity levels, cases classified into the ``without CC/MCC'' MS-LTC-  DRG are expected to have a lower resource use (and lower costs) than   the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or   the ``with CC'' and ``with MCC'' MS-LTC-DRGs (in the case of a three-  level split). That is, theoretically, cases that are more severe   typically require greater expenditure of medical care resources and   will result in higher average charges. Therefore, in the three severity   levels, relative weights should increase by severity, from lowest to   highest. If the relative weights do not increase (that is, if within a   base MS-LTC-DRG, an MS-LTC-DRG with MCC has a lower relative weight   than one with CC, or the MS-LTC-DRG without CC/MCC has a higher   relative weight than either of the others, they are nonmonotonic). We   continue to believe that utilizing nonmonotonic relative weights to   adjust Medicare payments would result in inappropriate payments.   Consequently, in general, as we proposed, we combined MS-LTC-DRG   severity levels within a base MS-LTC-DRG for the purpose of computing a   relative weight when necessary to ensure that monotonicity is   maintained. In determining the FY 2009 MS-LTC-DRG relative weights in   this final rule, in general, we are using the same methodology to   adjust for nonmonotonicity that we used to determine the FY 2008 MS-  LTC-DRG relative weights in the FY 2008 IPPS final rule with comment   (72 FR 47293 through 47295). However, as noted above and as we did in   the proposed rule, we are taking this opportunity to refine our   description to more precisely explain our methodology for determining   the MS-LTC-DRG relative weights in this final rule. We note that we did   not receive any comments on our refinement to the description of our   methodology for adjusting for nonmonotonicity in determining the   relative weights for FY 2009 that was presented in the FY 2009 IPPS   proposed rule. In determining the FY 2009 MS-LTC-DRG relative weights   in this final rule, under each of the example scenarios provided below,   we combined severity levels within a base MS-LTC-DRG as follows:      The first example of nonmonotonically increasing relative weights   for a MS-LTC-DRG pertains to a base MS-LTC-DRG with a three-level split   and each of the three levels has 25 or more LTCH cases and, therefore,   none of those MS-LTC-DRGs is assigned to one of the five low-volume   quintiles. In this final rule, if nonmonotonicity was detected in the   relative weights of the MS-LTC-DRGs in adjacent severity levels (for   example, the relative weight of the ``with MCC'' (the highest severity   level) is less than the ``with CC'' (the middle level), or the ``with   CC'' is less than the ``without CC/MCC''), we combined the nonmonotonic   adjacent MS-LTC-DRGs and redetermined a relative weight based on the   case-weighted average of the combined LTCH cases of the nonmonotonic   MS-LTC-DRGs. The case-weighted average charge is calculated by dividing   the total charges for all LTCH cases in both severity levels by the   total number of LTCH cases for both MS-LTC-DRGs. The same relative   weight is assigned to both affected levels of the base MS-LTC-DRG. If   nonmonotonicity remains an issue because the above process resulted in   a relative weight that was still nonmonotonic to the remaining MS-LTC-  DRG relative weight within the base MS-LTC-DRG, we combined all three   of the severity levels to redetermine the relative weights based on the   case-weighted average charge of the combined severity levels. This same   relative weight was then assigned to each of the MS-LTC-DRGs in that   base MS-LTC-DRG.      A second example of nonmonotonically increasing relative weights   for a base MS-LTC-DRG pertains to the situation where there are three   severity levels and one or more of the severity levels within a base   MS-LTC-DRG has less than 25 LTCH cases (that is, low volume). In this   final rule, if nonmonotonicity occurs in the case where either the   highest or lowest severity level (``with MCC'' or ``without CC/MCC'')   has 25 LTCH cases or more and the other two severity levels are low   volume (and therefore the other two severity levels are otherwise   assigned the relative weight of the applicable low-volume quintile(s)),   we combined the data for the cases in the two adjacent low-volume MS-  LTC-DRGs for the purpose of determining a relative weight. If the   combination resulted in at least 25 cases, we redetermined one relative   weight based on the case-weighted average charge of the combined   severity levels and assigned this same relative weight to each of the   severity levels. If the combination resulted in less than 25 cases,   based on the case-weighted average charge of the combined low-volume   MS-LTC-DRGs, both MS-LTC-DRGs were assigned to the appropriate low-  volume quintile (discussed above in section II.I.3.e. of this preamble)   based on the case-weighted average charge of the combined low-volume   MS-LTC-DRGs. Then the relative weight of the affected low-volume   quintile was redetermined and that relative weight was assigned to each   of the affected severity levels (and all of the MS-LTC-DRGs in the   affected low-volume quintile). If nonmonotonicity persisted, we   combined all three severity levels and redetermined one relative weight   based on the case-weighted average charge of the combined severity   levels and this same relative weight was assigned to each of the three   levels.      Similarly, in nonmonotonic cases where the middle level has 25   cases or more but either or both of the lowest or highest severity   level has less than 25 cases (that is, low volume), we combined the   nonmonotonic low-volume MS-LTC-DRG with the middle level MS-LTC-DRG of   the base MS-    [[Page 48550]]    LTC-DRG. We redetermined one relative weight based on the case-weighted   average charge of the combined severity levels and assigned this same   relative weight to each of the affected MS-LTC-DRGs. If nonmonotonicity   persisted, we combined all three levels for the purpose of   redetermining a relative weight based on the case-weighted average   charge of the combined severity levels, and assigned that relative   weight to each of the three severity levels.      In the case where all three severity levels in the base MS-LTC-DRGs   were low-volume MS-LTC-DRGs and two of the severity levels were   nonmonotonic in relation to each other, we combined the two adjacent   nonmonotonic severity levels. If that combination resulted in less than   25 cases, both low-volume MS-LTC-DRGs were assigned to the appropriate   low-volume quintile (discussed above in section II.I.3.e. of this   preamble) based on the case-weighted average charge of the combined   low-volume MS-LTC-DRGs. Then the relative weight of the affected low-  volume quintile was redetermined and that relative weight was assigned   to each of the affected severity levels (and all of the MS-LTC-DRGs in   the affected low-volume quintile). If the nonmonotonicity persisted, we   combined all three levels of that base MS-LTC-DRG for the purpose of   redetermining a relative weight based on the case-weighted average   charge of the combined severity levels, and assigned that relative   weight to each of the three severity levels. If that combination of all   three severity levels resulted in less than 25 cases, we assigned that   ``combined'' base MS-LTC-DRG to the appropriate low-volume quintile   based on the case-weighted average charge of the combined low-volume   MS-LTC-DRGs. Then the relative weight of the affected low-volume   quintile was redetermined and that relative weight was assigned to each   of the affected severity levels (and all of the MS-LTC-DRGs in the   affected low-volume quintile).      Another example of nonmonotonicity involves a base MS-LTC-DRG with   three severity levels where at least one of the severity levels has no   cases. As discussed above in greater detail in Step 5, based on   resource use intensity and clinical similarity, as we proposed, we   crosswalked a no-volume MS-LTC-DRG to an MS-LTC-DRG that had at least   one case. Under our methodology for the treatment of no-volume MS-LTC-  DRGs, the no-volume MS-LTC-DRG was assigned the same relative weight as   the MS-LTC-DRG to which the no-volume MS-LTC-DRG was crosswalked. For   many no-volume MS-LTC-DRGs, as shown in the chart above in Step 5, the   application of our methodology resulted in a crosswalked MS-LTC-DRG   that is the adjacent severity level in the same base MS-LTC-DRG.   Consequently, in most instances, the no-volume MS-LTC-DRG and the   adjacent MS-LTC-DRG to which it was crosswalked did not result in   nonmonotonicity because both of these severity levels would have the   same relative weight. (In this final rule, under our methodology for   the treatment of no-volume MS-LTC-DRGs, in the case where the no-volume   MS-LTC-DRG was either the highest or lowest severity level, the   crosswalked MS-LTC-DRG would be the middle level (``with CC'') within   the same base MS-LTC-DRG, and therefore the no-volume MS-LTC-DRG   (either the ``with MCC'' or the ``without CC/MCC'') and the crosswalked   MS-LTC-DRG (the ``with CC'') would have the same relative weight.   Consequently, no adjustment for monotonicity was necessary.) However,   if our methodology for determining relative weights for no-volume MS-  LTC-DRGs resulted in nonmonotonicity with the third severity level in   the base MS-LTC-DRG, all three severity levels were combined for the   purpose of redetermining one relative weight based on the case-weighted   average charge of the combined severity levels. This same relative   weight was assigned to each of the three severity levels in the base   MS-LTC-DRG.      Thus far in the discussion, we have presented examples of   nonmonotonicity in a base MS-LTC-DRG that has three severity levels. We   apply the same process where the base MS-LTC-DRG contains only two   severity levels. For example, if nonmonotonicity occurs in a base MS-  LTC-DRG with two severity levels (that is, the relative weight of the   higher severity level is less than the lower severity level), where   both of the MS-LTC-DRGs have at least 25 cases or where one or both of   the MS-LTC-DRGs is low volume (that is, less than 25 cases), we combine   the two MS-LTC-DRGs of that base MS-LTC-DRG for the purpose of   redetermining a relative weight based on the combined case-weighted   average charge for both severity levels. This same relative weight is   assigned to each of the two severity levels in the base MS-LTC-DRG.   Specifically, if the combination of the two severity levels results in   at least 25 cases, we redetermine one relative weight based on the   case-weighted average charge and assign that relative weight to each of   the two MS-LTC-DRGs. If the combination results in less than 25 cases,   we assign both MS-LTC-DRGs to the appropriate low-volume quintile   (discussed above in section II.I.3.e. of this preamble) based on their   combined case-weighted average charge. Then the relative weight of the   affected low-volume quintile is redetermined and that relative weight   is assigned to each of the affected severity levels.      Step 7-- Calculate the FY 2009 budget neutrality factor.      As we established in the RY 2008 LTCH PPS final rule (72 FR 26882),   under the broad authority conferred upon the Secretary under section   123 of Public Law 106-113 as amended by section 307(b) of Public Law   106-554 to develop the LTCH PPS, beginning with the MS-LTC-DRG update   for FY 2008, the annual update to the MS-LTC-DRG classifications and   relative weights is done in a budget neutral manner such that estimated   aggregate LTCH PPS payments would be unaffected, that is, would be   neither greater than nor less than the estimated aggregate LTCH PPS   payments that would have been made without the MS-LTC-DRG   classification and relative weight changes. Specifically, in that same   final rule, we established under Sec.  412.517(b) that the annual   update to the MS-LTC-DRG classifications and relative weights be done   in a budget neutral manner. For a detailed discussion on the   establishment of the requirement to update the MS-LTC-DRG   classifications and relative weights in a budget neutral manner, we   refer readers to the RY 2008 LTCH PPS final rule (72 FR 26880 through   26884). Updating the MS-LTC-DRGs in a budget neutral manner results in   an annual update to the individual MS-LTC-DRG classifications and   relative weights based on the most recent available data to reflect   changes in relative LTCH resource use. To accomplish this, for each   annual update, the MS-LTC-DRG relative weights are uniformly adjusted   to ensure that estimated aggregate payments under the LTCH PPS would   not be affected (that is, decreased or increased). Consistent with that   provision, as we proposed, we updated the MS-LTC-DRG classifications   and relative weights for FY 2009 based on the most recent available   data and included a budget neutrality adjustment that was applied in   determining the MS-LTC-DRG relative weights.      To ensure budget neutrality in updating the MS-LTC-DRG   classifications and relative weights under Sec.  412.517(b), consistent   with the budget neutrality methodology we established in the FY 2008   IPPS final rule with comment period (72 FR 47295    [[Page 48551]]    through 47296), in determining the budget neutrality adjustment for FY   2009 in this final rule, as we proposed, we used a method that is   similar to the methodology used under the IPPS. Specifically, for FY   2009, after recalibrating the MS-LTC-DRG relative weights as we do   under the methodology as described in detail in Steps 1 through 6   above, we calculated and applied a normalization factor to those   relative weights to ensure that estimated payments were not influenced   by changes in the composition of case types or the changes to the   classification system. That is, the normalization adjustment is   intended to ensure that the recalibration of the MS-LTC-DRG relative   weights (that is, the process itself) neither increases nor decreases   total estimated payments.      To calculate the normalization factor for FY 2009, as we proposed,   we used the following steps: (1) We use the most recent available   claims data (FY 2007) and the MS-LTC-DRG relative weights (determined   above in Steps 1 through 6 above) to calculate the average CMI; (2) we   group the same claims data (FY 2007) using the FY 2008 GROUPER (Version   25.0) and FY 2008 relative weights (established in the FY 2008 IPPS   final rule with comment period (72 FR 47295 through 47296)) and   calculate the average CMI: and (3), we compute the ratio of these   average CMIs by dividing the average CMI determined in step (2) by the   average CMI determined in step (1). In determining the MS-LTC-DRG   relative weights for FY 2009, based on the latest available LTCH claims   data, the normalization factor is estimated as 1.03887, which is   applied in determining each MS-LTC-DRG relative weight. That is, each   MS-LTC-DRG relative weight is multiplied by 1.03887 in the first step   of the budget neutrality process. Accordingly, the relative weights in   Table 11 in the Addendum of this final rule reflect this normalization   factor. We also ensured that estimated aggregate LTCH PPS payments   (based on the most recent available LTCH claims data) after   reclassification and recalibration (the new FY 2009 MS-LTC-DRG   classifications and relative weights) are equal to estimated aggregate   LTCH PPS payments (for the same most recent available LTCH claims data)   before reclassification and recalibration (the existing FY 2008 MS-LTC-  DRG classifications and relative weights). Therefore, we calculated the   budget neutrality adjustment factor by simulating estimated total   payments under both sets of GROUPERs and relative weights using current   LTCH PPS payment policies (RY 2009) and the most recent available LTCH   claims data (FY 2007). As we discussed in the FY 2009 IPPS proposed   rule (73 FR 23608), we have established payments rates and policies for   RY 2009 prior to the development of the FY 2009 IPPS final rule (73 FR   26788 through 26874). Therefore, for purposes of determining the FY   2009 budget neutrality factor in this final rule, as we proposed, we   simulated estimated total payments using the most recent LTCH PPS   payment policies and LTCH claims data that are available at this time.   As noted above, the most recent available LTCH claims data are from the   March 2008 update of the FY 2007 MedPAR file.      Accordingly, we used RY 2009 LTCH PPS rates and policies in   determining the FY 2009 budget neutrality adjustment in this final   rule, using the following steps: (1) We simulated estimated total   payments using the normalized relative weights under GROUPER Version   26.0 (as described above); (2) we simulated estimated total payments   using the FY 2008 GROUPER (Version 25.0) and FY 2008 MS-LTC-DRG   relative weights (as established in the FY 2008 IPPS final rule (72 FR   47295 through 47296)); and (3) we calculated the ratio of these   estimated total payments by dividing the estimated total payments   determined in step (2) by the estimated total payments determined in   step (1). Then, each of the normalized relative weights was multiplied   by the budget neutrality factor to determine the budget neutral   relative weight for each MS-LTC-DRG.      Accordingly, in determining the MS-LTC-DRG relative weights for FY   2009 in this final rule, based on the most recent available LTCH claims   data, we are establishing a budget neutrality factor of 1.04186, which   was applied to the normalized relative weights (described above). The   FY 2009 MS-LTC-DRG relative weights in Table 11 in the Addendum of this   final rule reflect this budget neutrality factor.      Table 11 in the Addendum to this final rule lists the MS-LTC-DRGs   and their respective budget neutral relative weights, geometric mean   length of stay, and five-sixths of the geometric mean length of stay   (used in the determination of SSO payments under Sec.  412.529) for FY   2009.  5. Other Comments      Comment: While CMS did not propose for FY 2009 an adjustment for   improved coding practices resulting from the transition to the MS-LTC-  DRG system, one commenter urged CMS to wait until sufficient claims   data under the MS-LTC-DRG system are available to provide CMS with a   solid benchmark on coding behavior for the comparison between the   previous LTC-DRG and current MS-LTC-DRG systems. The commenter believed   that any evaluation of the need for an adjustment for improved coding   practices should take into account all of the previous case-mix   adjustments to the market basket and the self-correcting nature of the   current policy of the budget neutral reweighting of the MS-LTC-DRG   relative weights. Furthermore, the commenter believed that it would not   be appropriate to apply a coding adjustment to the MS-LTC-DRGs where   coding changes would not be expected to change as a result of the   transitioning from LTC-DRGs to MS-LTC-DRGs (for example, in ventilator   DRGs where there have been no changes from the LTC-DRG system to the   MS-LTC-DRG system).      Response: At this time, we have not proposed any adjustment for FY   2009 to account for improved coding practices resulting from the   transition to the MS-LTC-DRG system. In the FY 2008 IPPS final rule   with comment period (72 FR 47297 through 47299), we indicated that we   believe that the adoption of the MS-LTC-DRGs would create a risk of   increased aggregate levels of payment as a result of increased   documentation and coding. However, we acknowledged, at the time, that   because we had not been able to determine an appropriate adjustment   factor for LTCHs and because we have an established mechanism to adjust   LTCH PPS payments to account for the effects of changes in   documentation and coding practices, we believed that it was appropriate   to continue to use this established process. We note that, in the FY   2008 IPPS final rule with comment period, we responded to comments   similar to the one summarized above. In section II.D.4. of this final   rule, we discuss the intended future evaluation of claims data and   resulting case-mix growth from the implementation of the MS-DRG system.   A similar retrospective evaluation will be conducted for MS-LTC-DRGs.   The analysis, findings, and any resulting proposals to adjust payments   to offset the estimated amount of increase or decrease in aggregate   payments that occurred in FY 2008 and FY 2009 for LTCHs as a result of   coding improvements, will be discussed in future years' proposed rules,   which would be open for public comment.      Comment: One commenter addressed our discussion in the RY 2009 LTCH   final rule on the possible application to LTCHs of the broad principle   articulated in the HACs payment provision that    [[Page 48552]]    goes into effect for acute care hospitals paid under the IPPS for FY   2009.      Response: We appreciate the commenter's support and remarks   concerning the possible application of a HACs payment provision to   LTCHs. Although we did not propose a HAC provision under the LTCH PPS   nor did we discuss the possible application of one in the FY 2009 IPPS   proposed rule, we will take into account the commenter's concerns and   recommendations in our ongoing consideration of the applicability of a   possible HACs policy for LTCHs.    J. Add-On Payments for New Services and Technologies    1. Background      Sections 1886(d)(5)(K) and (L) of the Act establish a process of   identifying and ensuring adequate payment for new medical services and   technologies (sometimes collectively referred to in this section as   ``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the   Act specifies that a medical service or technology will be considered   new if it meets criteria established by the Secretary after notice and   opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act   specifies that the process must apply to a new medical service or   technology if, ``based on the estimated costs incurred with respect to   discharges involving such service or technology, the DRG prospective   payment rate otherwise applicable to such discharges under this   subsection is inadequate.''      The regulations implementing this provision establish three   criteria for new medical services and technologies to receive an   additional payment. First, 42 CFR 412.87(b)(2) states that a specific   medical service or technology will be considered new for purposes of   new medical service or technology add-on payments until such time as   Medicare data are available to fully reflect the cost of the technology   in the DRG weights through recalibration. Typically, there is a lag of   2 to 3 years from the point a new medical service or technology is   first introduced on the market (generally on the date that the   technology receives FDA approval/clearance) and when data reflecting   the use of the medical service or technology are used to calculate the   DRG weights. For example, data from discharges occurring during FY 2007   are used to calculate the FY 2009 DRG weights in this final rule.   Section 412.87(b)(2) of our existing regulations provides that ``a   medical service or technology may be considered new within 2 or 3 years   after the point at which data begin to become available reflecting the   ICD-9-CM code assigned to the new medical service or technology   (depending on when a new code is assigned and data on the new medical   service or technology become available for DRG recalibration). After   CMS has recalibrated the DRGs based on available data to reflect the   costs of an otherwise new medical service or technology, the medical   service or technology will no longer be considered `new' under the   criterion for this section.''      The 2-year to 3-year period during which a medical service or   technology can be considered new would ordinarily begin on the date on   which the medical service or technology received FDA approval or   clearance. (We note that, for purposes of this section of the final   rule, we refer to both FDA approval and FDA clearance as FDA   ``approval.'') However, in some cases, initially there may be no   Medicare data available for the new service or technology following FDA   approval. For example, the newness period could extend beyond the 2-  year to 3-year period after FDA approval is received in cases where the   product initially was generally unavailable to Medicare patients   following FDA approval, such as in cases of a national noncoverage   determination or a documented delay in bringing the product onto the   market after that approval (for instance, component production or drug   production has been postponed following FDA approval due to shelf life   concerns or manufacturing issues). After the DRGs have been   recalibrated to reflect the costs of an otherwise new medical service   or technology, the medical service or technology is no longer eligible   for special add-on payment for new medical services or technologies   (Sec.  412.87(b)(2)). For example, an approved new technology that   received FDA approval in October 2007 and entered the market at that   time may be eligible to receive add-on payments as a new technology for   discharges occurring before October 1, 2010 (the start of FY 2011).   Because the FY 2011 DRG weights would be calculated using FY 2009   MedPAR data, the costs of such a new technology would be fully   reflected in the FY 2011 DRG weights. Therefore, the new technology   would no longer be eligible to receive add-on payments as a new   technology for discharges occurring in FY 2011 and thereafter.      Section 412.87(b)(3) further provides that, to be eligible for the   add-on payment for new medical services or technologies, the DRG   prospective payment rate otherwise applicable to the discharge   involving the new medical services or technologies must be assessed for   adequacy. Under the cost criterion, to assess the adequacy of payment   for a new technology paid under the applicable DRG-prospective payment   rate, we evaluate whether the charges for cases involving the new   technology exceed certain threshold amounts. In the FY 2004 IPPS final   rule (68 FR 45385), we established the threshold at the geometric mean   standardized charge for all cases in the DRG plus 75 percent of 1   standard deviation above the geometric mean standardized charge (based   on the logarithmic values of the charges and converted back to charges)   for all cases in the DRG to which the new medical service or technology   is assigned (or the case-weighted average of all relevant DRGs, if the   new medical service or technology occurs in more than one DRG).      However, section 503(b)(1) of Public Law 108-173 amended section   1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005,   CMS will apply ``a threshold * * * that is the lesser of 75 percent of   the standardized amount (increased to reflect the difference between   cost and charges) or 75 percent of one standard deviation for the   diagnosis-related group involved.'' (We refer readers to section IV.D.   of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a   discussion of the revision of the regulations to incorporate the change   made by section 503(b)(1) of Pub. L. 108-173.) Table 10 in section XIX.   of the interim final rule with comment period published in the Federal   Register on November 27, 2007, contained the final thresholds that are   being used to evaluate applications for new technology add-on payments   for FY 2009 (72 FR 66888 through 66892). An applicant must demonstrate   that the cost threshold is met using information from inpatient   hospital claims.      We note that section 124 of Public Law 110-275 extends, through FY   2009, wage index reclassifications under section 508 of Public Law 108-  173 (the MMA) and special exceptions contained in the final rule   promulgated in the Federal Register on August 11, 2004 (69 FR 49105,   49107) and extended under section 117 of the MMSEA of 2007 (Pub. L.   110-173). The wage data affects the standardized amounts (as well as   the outlier offset and budget neutrality factors that are applied to   the standardized amounts), which we use to compute the cost criterion   thresholds in Table 10 of this final rule. Therefore, the thresholds   reflected in Table 10 of this final rule are tentative. A new Table 10   with revised thresholds will be published when section 124 of Public   Law 110-275 is implemented and the    [[Page 48553]]    wage index rates for FY 2009 are finalized. Subsequent to the   publication of this final rule, we will publish a Federal Register   document listing the final version of Table 10 that will be used to   determine if an applicant for new technology add-on payments in FY 2010   meets the cost threshold for new technology add-on payments for FY   2010. The final thresholds also will be published on the CMS Web site.      In the September 7, 2001 final rule that established the new   technology add-on payment regulations (66 FR 46917), we discussed the   issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164   applies to claims information that providers submit with applications   for new technology add-on payments. Specifically, we explained that   health plans, including Medicare, and providers that conduct certain   transactions electronically, including the hospitals that would be   receiving payment under the FY 2001 IPPS final rule, are required to   comply with the HIPAA Privacy Rule. We further explained how such   entities could meet the applicable HIPAA requirements by discussing how   the HIPAA Privacy Rule permitted providers to share with health plans   information needed to ensure correct payment, if they had obtained   consent from the patient to use that patient's data for treatment,   payment, or health care operations. We also explained that, because the   information to be provided within applications for new technology add-  on payment would be needed to ensure correct payment, no additional   consent would be required. The HHS Office of Civil Rights has since   amended the HIPAA Privacy Rule, but the results remain. The HIPAA   Privacy Rule no longer requires covered entities to obtain consent from   patients to use or disclose protected health information for treatment,   payment, or health care operations, and expressly permits such entities   to use or to disclose protected health information for any of these   purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and   164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually   Identifiable Health Information published in the Federal Register on   August 14, 2002, for a full discussion of changes in consent   requirements.)      Section 412.87(b)(1) of our existing regulations provides that a   new technology is an appropriate candidate for an additional payment   when it represents ``an advance that substantially improves, relative   to technologies previously available, the diagnosis or treatment of   Medicare beneficiaries.'' For example, a new technology represents a   substantial clinical improvement when it reduces mortality, decreases   the number of hospitalizations or physician visits, or reduces recovery   time compared to the technologies previously available. (We refer   readers to the September 7, 2001 final rule for a complete discussion   of this criterion (66 FR 46902).)      The new medical service or technology add-on payment policy under   the IPPS provides additional payments for cases with relatively high   costs involving eligible new medical services or technologies while   preserving some of the incentives inherent under an average-based   prospective payment system. The payment mechanism is based on the cost   to hospitals for the new medical service or technology. Under Sec.    412.88, if the costs of the discharge (determined by applying CCRs as   described in Sec.  412.84(h)) exceed the full DRG payment (including   payments for IME and DSH, but excluding outlier payments), Medicare   will make an add-on payment equal to the lesser of: (1) 50 percent of   the estimated costs of the new technology (if the estimated costs for   the case including the new technology exceed Medicare's payment) or (2)   50 percent of the difference between the full DRG payment and the   hospital's estimated cost for the case. Unless the discharge qualifies   for an outlier payment, Medicare payment is limited to the full DRG   payment plus 50 percent of the estimated costs of the new technology.      Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments   to annual DRG classifications and relative weights must be made in a   manner that ensures that aggregate payments to hospitals are not   affected. Therefore, in the past, we accounted for projected payments   under the new medical service and technology provision during the   upcoming fiscal year, while at the same time estimating the payment   effect of changes to the DRG classifications and recalibration. The   impact of additional payments under this provision was then included in   the budget neutrality factor, which was applied to the standardized   amounts and the hospital-specific amounts. However, section 503(d)(2)   of Public Law 108-173 provides that there shall be no reduction or   adjustment in aggregate payments under the IPPS due to add-on payments   for new medical services and technologies. Therefore, following section   503(d)(2) of Public Law 108-173, add-on payments for new medical   services or technologies for FY 2005 and later years have not been   subjected to budget neutrality.      Applicants for add-on payments for new medical services or   technologies for FY 2010 must submit a formal request, including a full   description of the clinical applications of the medical service or   technology and the results of any clinical evaluations demonstrating   that the new medical service or technology represents a substantial   clinical improvement, along with a significant sample of data to   demonstrate the medical service or technology meets the high-cost   threshold. Complete application information, along with final deadlines   for submitting a full application, will be posted as it becomes   available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/  08_newtech.asp#TopOfPage. To allow interested parties to identify the   new medical services or technologies under review before the   publication of the proposed rule for FY 2010, the Web site will also   list the tracking forms completed by each applicant.      The Council on Technology and Innovation (CTI) at CMS oversees the   agency's cross-cutting priority on coordinating coverage, coding and   payment processes for Medicare with respect to new technologies and   procedures, including new drug therapies, as well as promoting the   exchange of information on new technologies between CMS and other   entities. The CTI, composed of senior CMS staff and clinicians, was   established under section 942(a) of Public Law 108-173. The Council is   co-chaired by the Director of the Office of Clinical Standards and   Quality (OCSQ) and the Director of the Center for Medicare Management   (CMM), who is also designated as the CTI's Executive Coordinator.      The specific processes for coverage, coding, and payment are   implemented by CMM, OCSQ, and the local claims-payment contractors (in   the case of local coverage and payment decisions). The CTI supplements   rather than replaces these processes by working to assure that all of   these activities reflect the agency-wide priority to promote high-  quality, innovative care, and at the same time to streamline,   accelerate, and improve coordination of these processes to ensure that   they remain up to date as new issues arise. To achieve its goals, the   CTI works to streamline and create a more transparent coding and   payment process, improve the quality of medical decisions, and speed   patient access to effective new treatments. It is also dedicated to   supporting better decisions by patients and doctors in using Medicare-  covered services through the promotion of better evidence development,   which is critical for    [[Page 48554]]    improving the quality of care for Medicare beneficiaries.      CMS plans to continue its Open Door forums with stakeholders who   are interested in CTI's initiatives. In addition, to improve the   understanding of CMS' processes for coverage, coding, and payment and   how to access them, the CTI is developing an ``innovator's guide'' to   these processes. This guide will, for example, outline regulation   cycles and application deadlines. The intent is to consolidate this   information, much of which is already available in a variety of CMS   documents and in various places on the CMS Web site, in a user-friendly   format.      In the meantime, we invite any product developers with specific   issues involving the agency to contact us early in the process of   product development if they have questions or concerns about the   evidence that would be needed later in the development process for the   agency's coverage decisions for Medicare.      The CTI aims to provide useful information on its activities and   initiatives to stakeholders, including Medicare beneficiaries,   advocates, medical product manufacturers, providers, and health policy   experts. Stakeholders with further questions about Medicare's coverage,   coding, and payment processes, or who want further guidance about how   they can navigate these processes, can contact the CTI at   CTI@cms.hhs.gov or from the ``Contact Us'' section of the CTI home page   (http://www.cms.hhs.gov/CouncilonTechInnov/).      Comment: One commenter supported CMS' emphasis on the role of the   CTI. The commenter also urged CMS to remain vigilant in ensuring that   CTI's activities do not inadvertently layer new processes and   requirements onto those already applicable to innovative medical   technology.      Response: We appreciate the support from the commenter. As   discussed in the proposed rule, we intend to continue to use the CTI to   promote high quality, innovative care while working to streamline,   accelerate and improve coordination of the coverage, coding, and   payment processes.  2. Public Input Before Publication of a Notice of Proposed Rulemaking   on Add-On Payments      Section 1886(d)(5)(K)(viii) of the Act, as amended by section   503(b)(2) of Public Law 108-173, provides for a mechanism for public   input before publication of a notice of proposed rulemaking regarding   whether a medical service or technology represents a substantial   clinical improvement or advancement. The process for evaluating new   medical service and technology applications requires the Secretary to--       Provide, before publication of a proposed rule, for public   input regarding whether a new service or technology represents an   advance in medical technology that substantially improves the diagnosis   or treatment of Medicare beneficiaries;       Make public and periodically update a list of the services   and technologies for which applications for add-on payments are   pending;       Accept comments, recommendations, and data from the public   regarding whether a service or technology represents a substantial   clinical improvement; and       Provide, before publication of a proposed rule, for a   meeting at which organizations representing hospitals, physicians,   manufacturers, and any other interested party may present comments,   recommendations, and data regarding whether a new medical service or   technology represents a substantial clinical improvement to the   clinical staff of CMS.      In order to provide an opportunity for public input regarding add-  on payments for new medical services and technologies for FY 2009 prior   to publication of the FY 2009 IPPS proposed rule, we published a notice   in the Federal Register on December 28, 2007 (72 FR 73845 through   73847), and held a town hall meeting at the CMS Headquarters Office in   Baltimore, MD, on February 21, 2008. In the announcement notice for the   meeting, we stated that the opinions and alternatives provided during   the meeting would assist us in our evaluations of applications by   allowing public discussion of the substantial clinical improvement   criterion for each of the FY 2009 new medical service and technology   add-on payment applications before the publication of the FY 2009 IPPS   proposed rule.      Approximately 70 individuals attended the town hall meeting in   person, while approximately 20 additional participants listened over an   open telephone line. Each of the four FY 2009 applicants presented   information on its technology, including a focused discussion of data   reflecting the substantial clinical improvement aspect of the   technology. We considered each applicant's presentation made at the   town hall meeting, as well as written comments submitted on each   applicant's application, in our evaluation of the new technology add-on   applications for FY 2009 in the FY 2009 proposed rule and in this final   rule. We received two comments during the town hall meeting. In the   proposed rule, we summarized the comments we received at the town hall   meeting or, if applicable, indicated at the end of the discussion of   each application that no comments were received on that new technology.   We refer readers to the FY 2009 IPPS proposed rule at 73 FR 23611 for   those comments and responses.      In addition to the comment summaries and our responses presented in   the proposed rule, we received additional comments as summarized below.      Comment: A number of commenters addressed topics relating to the   marginal cost factor for the new technology add-on payment, the   potential implementation of ICD-10-CM, the use of external data in   determining the cost threshold, and the use of the date that a ICD-9-CM   code is assigned to a technology or the FDA approval date (whichever is   later) as the start of the newness period.      Response: We did not request public comments nor propose to make   any changes to any of the issues addressed above. Because these   comments are out of the scope of the provisions in the proposed rule,   we are not providing a complete summary of the comments or responding   to them in this final rule.  3. FY 2009 Status of Technologies Approved for FY 2008 Add-On Payments      We did not approve any applications for new technology add-on   payments for FY 2008. For additional information, we refer readers to   the FY 2008 IPPS final rule with comment period (72 FR 47305 through   47307).  4. FY 2009 Applications for New Technology Add-On Payments      We received four applications to be considered for new technology   add-on payment for FY 2009. A discussion of each of these applications   is presented below. We note that, in the past, we have considered   applications during the rulemaking process that had not yet received   FDA approval, but were anticipating FDA approval prior to publication   of the IPPS final rule. In such cases, we generally provide a more   limited discussion of those technologies in the proposed rule because   it is not known if these technologies will meet the newness criterion   in time for us to conduct a complete analysis in the final rule. This   year, three out of four applicants had not yet received FDA approval of   their technologies (Emphasys Medical Zephyr[supreg] Endobronchial   Valve, Oxiplex[supreg], and the TherOx Downstream[supreg] System) prior   to    [[Page 48555]]    issuance of the proposed rule. Consequently, we presented a limited   analysis of them in the proposed rule. At the time of the development   of this final rule, FDA approval was still pending for all three of the   applicants. Therefore, those three applications are not eligible for   consideration for FY 2009 new technology add-on payments because they   do not meet the newness criterion (because, by definition, a technology   that has not received FDA approval cannot be considered ``new'' for   purposes of new technology add-on payments). Because those applications   do not meet the newness criterion, the cost threshold criterion and the   substantial clinical improvement criterion applicable to those   applications are not discussed in this final rule. If FDA approval is   received in time for consideration for the FY 2010 new technology add-  on payment application process, we encourage those applicants to submit   new technology add-on payments applications for consideration during   the FY 2010 IPPS rulemaking process.  a. CardioWestTM Temporary Total Artificial Heart System   (CardioWestTM TAH-t)      SynCardia Systems, Inc. submitted an application for approval of   the CardioWestTM temporary Total Artificial Heart system   (TAH-t) for new technology add-on payments for FY 2009. The TAH-t is a   technology that is used as a bridge to heart transplant device for   heart transplant-eligible patients with end-stage biventricular   failure. The TAH-t pumps up to 9.5 liters of blood per minute. This   high level of perfusion helps improve hemodynamic function in patients,   thus making them better heart transplant candidates.      The TAH-t was approved by the FDA on October 15, 2004, for use as a   bridge to transplant device in cardiac transplant-eligible candidates   at risk of imminent death from biventricular failure. The TAH-t is   intended to be used in hospital inpatients. One of the FDA's post-  approval requirements is that the manufacturer agrees to provide a   post-approval study demonstrating success of the device at one center   can be reproduced at other centers. The study was to include at least   50 patients who would be followed up to 1 year, including (but not   limited to) the following endpoints; survival to transplant, adverse   events, and device malfunction.      In the past, Medicare did not cover artificial heart devices,   including the TAH-t. However, on February 1, 2008, CMS proposed to   reverse a national noncoverage determination that would extend coverage   to this technology within the confines of an approved clinical study.   (To view the proposed national coverage determination (NCD), we refer   readers to the CMS Web site at http://www.cms.hhs.gov/mcd/  viewdraftdecisionmemo.asp?from2=viewdraftdecisionmemo.asp&id=211&). On   May 1, 2008, CMS issued a final NCD expanding Medicare coverage of   artificial hearts when they are implanted as part of a study that is   approved by the FDA and is determined by CMS to meet CMS' Coverage with   Evidence Development (CED) clinical research criteria. (The final NCD   is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/  viewdecisionmemo.asp?id=211.)      Because Medicare's previous coverage policy with respect to this   device has precluded payment from Medicare, we do not expect the costs   associated with this technology to be currently reflected in the data   used to determine MS-DRGs relative weights. As we have indicated in the   past, and as we discussed in the proposed rule, although we generally   believe that the newness period would begin on the date that FDA   approval was granted, in cases where the applicant can demonstrate a   documented delay in market availability subsequent to FDA approval, we   would consider delaying the start of the newness period. This   technology's situation represents such a case. We also note that   section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for   the collection of cost data for a new medical service or technology for   a period of at least 2 years and no more than 3 years ``beginning on   the date on which an inpatient hospital code is issued with respect to   the service or technology.'' Furthermore, the statute specifies that   the term ``inpatient hospital code'' means any code that is used with   respect to inpatient hospital services for which payment may be made   under the IPPS and includes ICD-9-CM codes and any subsequent   revisions. Although the TAH-t has been described by the ICD-9-CM   code(s) (described below in the cost threshold discussion) since the   time of its FDA approval, because the TAH-t has not been covered under   the Medicare program (and, therefore, no Medicare payment has been made   for this technology), this code is not ``used with respect to inpatient   hospital services for which payment'' is made under the IPPS, and thus   we assume that none of the costs associated with this technology would   be reflected in the Medicare claims data used to recalibrate the MS-DRG   weights for FY 2009. For this reason, as discussed in the proposed   rule, despite its FDA approval date, it appeared that this technology   would still be eligible to be considered ``new'' for purposes of the   new technology add-on payment if and when the proposal to reverse the   national noncoverage determination concerning this technology was   finalized. Therefore, based on this information, we stated that we   believed that the TAH-t would meet the newness criterion on the date   that Medicare coverage began, consistent with issuance of the final   NCD. Because the final NCD was issued and became effective on May 1,   2008, we believe that the TAH-t meets the newness criterion as of May   1, 2008.      Comment: One commenter, the manufacturer, agreed with CMS'   statement in the proposed rule that the TAH-t appeared to meet the   newness criterion even though it received FDA approval more than 3   years ago. The commenter stated that because the TAH-t had not been   covered by Medicare in any setting until the coverage decision issued   on May 1, 2008, the costs associated with the TAH-t are not yet   reflected in the Medicare claims data used to recalibrate the FY 2009   MS-DRG relative weights.      Response: We agree with the commenter and, as we discussed in the   proposed rule, we continue to believe that the TAH-t meets the newness   criterion despite having received FDA approval more than 3 years ago   because it was not covered by Medicare until May 1, 2008. Therefore, as   stated above, we believe that the TAH-t meets the newness criterion as   of May 1, 2008.      In an effort to demonstrate that TAH-t would meet the cost   criterion, as presented in the proposed rule, the applicant submitted   data based on 28 actual cases of the TAH-t. The data included 6 cases   (or 21.4 percent of cases) from 2005, 13 cases (or 46.5 percent of   cases) from 2006, 7 cases (or 25 percent of cases) from 2007, and 2   cases (or 7.1 percent of cases) from 2008. Currently, cases involving   the TAH-t are assigned to MS-DRG 215 (Other Heart Assist System   Implant). As discussed below in this section, we are proposing to   remove the TAH-t from MS-DRG 215 and reassign the TAH-t to MS-DRGs 001   (Heart Transplant or Implant of Heart Assist System with MCC) and 002   (Heart Transplant or Implant of Heart Assist System without MCC).   Therefore, to determine if the technology meets the cost criterion, it   is appropriate to compare the average standardized charge per case to   the thresholds for MS-DRGs 001, 002, and 215 included in Table 10 of   the    [[Page 48556]]    November 27, 2007 interim final rule (72 FR 66888 through 66889). The   thresholds for MS-DRGs 001, 002, and 215 included in Table 10 are   $345,031, $178,142, and $151,824, respectively. Based on the 28 cases   the applicant submitted, the average standardized charge per case was   $731,632. Because the average standardized charge per case is much   greater than the thresholds cited above for MS-DRG 215 (and MS-DRGs 001   and 002, should the proposal to reassign the TAH-t be finalized), the   applicant asserted that the TAH-t meets the cost criterion whether or   not the costs were analyzed by using either a case-weighted threshold   or case-weighted standardized charge per case.      In addition to analyzing the costs of actual cases involving the   TAH-t, the applicant searched the FY 2006 MedPAR file to identify cases   involving patients who would have potentially been eligible to receive   the TAH-t. The applicant submitted three different MedPAR analyses. The   first MedPAR analysis involved a search for cases using ICD-9-CM   diagnosis code 428.0 (Congestive heart failure) in combination with   ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist   system), and an inpatient hospital length of stay greater than or equal   to 60 days. The applicant found two cases that met this criterion,   which had an average standardized charge per case of $821,522. The   second MedPAR analysis searched for cases with ICD-9-CM diagnosis code   428.0 (Congestive heart failure) and one or more of the following ICD-  9-CM procedure codes: 37.51 (Heart transplant), 37.52 (Implantation of   total heart replacement system), 37.64 (Removal of heart assist   system), 37.66 (Insertion of implantable heart assist system), or 37.68   (Insertion of percutaneous external heart assist device), and a length   of stay greater than or equal to 60 days. The applicant found 144 cases   that met this criterion, which had an average standardized charge per   case of $841,827. The final MedPAR analysis searched for cases with   ICD-9-CM procedure code 37.51 (Heart transplant) in combination with   one of the following ICD-9-CM procedure codes: 37.52 (Implantation of   total heart replacement system), 37.65 (Implantation of external heart   system), or 37.66 (Insertion of implantable heart assist system). The   applicant found 37 cases that met this criterion, which had an average   standardized charge per case of $896,601. Because only two cases met   the criterion for the first analysis, consistent with historical   practice, we would not consider it to be of statistical significance   and, therefore, would not rely upon it to demonstrate whether the TAH-t   would meet the cost threshold. However, both of the additional analyses   seem to provide an adequate number of cases to demonstrate whether the   TAH-t would meet the cost threshold. We assume that none of the costs   associated with this technology would be reflected in the MedPAR   analyses that the applicant used to demonstrate that the technology   would meet the cost criterion. We note that, under all three of the   analyses the applicant performed, it identified cases that would have   been eligible for the TAH-t, but did not remove charges that were   unrelated to the TAH-t, nor did the applicant insert a proxy of charges   related to the TAH-t. However, as stated above, the average   standardized charge per case is much greater than any of the thresholds   for MS-DRGs 001, 002, and 215. Therefore, even if the applicant were to   approximate what the costs of cases eligible to receive the TAH-t would   have been by removing non-TAH-t associated charges and inserting   charges related to the TAH-t, it appears that the average standardized   charges per case for cases eligible for the TAH-t would exceed the   relevant thresholds included in Table 10 (as discussed above) and would   therefore appear to meet the cost criterion. In the FY 2009 IPPS   proposed rule, we invited public comment on whether TAH-t met the cost   criterion.      Comment: One commenter, the manufacturer, asserted that it believed   that the TAH-t satisfied the cost criterion by exceeding the cost   threshold and agreed with CMS' discussion in the proposed rule that the   TAH-t appeared to meet the cost threshold.      Response: Based on data submitted by the applicant and discussed in   the proposed rule, we noted that the TAH-t appeared to meet the cost   threshold criterion. Using the March update of the FY 2007 MedPAR file,   we searched for cases that matched the manufacturer's second and third   MedPAR analyses described above. (As previously noted, because the   first analysis only returned two cases, we did not simulate it for the   final rule.) When we simulated the second and third analyses, we found   a total of 75 cases and 79 cases, respectively (that mapped to CMS DRG   103 (Heart Transplant or Implant of Heart Assist System) which   crosswalks to MS-DRGs 001 and 002), with an average standardized charge   per case of $883,301 and $830,200, respectively. Therefore, because the   average standardized charge exceeds the thresholds of MS-DRGs 001 and   002 ($345,031 and $178,142, respectively) based on data submitted by   the applicant and on our analyses of MedPAR data, we believe that the   TAH-t meets the cost threshold criterion.      As noted in section II.G.1. of the preamble to the FY 2009 IPPS   proposed rule, we proposed to remove the TAH-t from MS-DRG 215 and   reassign the TAH-t to MS-DRGs 001 and 002. As stated earlier, on May 1,   2008, CMS issued an NCD that extends coverage to artificial heart   devices within the confines of an FDA-approved clinical study.   Therefore, as of May 1, 2008, the MCE will require both procedure code   37.52 (Implantation of total replacement heart system) and diagnosis   code reflecting clinical trial--V70.7 (Examination of participant in   clinical trial). As we stated in the proposed rule, the TAH-t appeared   to meet the cost thresholds for MS-DRGs 001, 002, and 215. Therefore,   we noted, its proposed reassignment from MS-DRG 215 to MS-DRGs 001 and   002 would not appear to have a material effect on meeting the cost   thresholds in MS-DRGs 001 and 002 should the reassignment proposal be   finalized. In section II.G.1. of the preamble of this final rule, we   finalized the proposal to reassign cases involving the TAH-t from MS-  DRG 215 to MS-DRGs 001 and 002. We refer readers to that section for   additional information.      The manufacturer stated that the TAH-t is the only mechanical   circulatory support device intended as a bridge-to-transplant for   patients with irreversible biventricular failure. It also asserted that   the TAH-t improves clinical outcomes because it has been shown to   reduce mortality in patients who are otherwise in end-stage heart   failure. In addition, the manufacturer claimed that the TAH-t provides   greater hemodynamic stability and end-organ perfusion, thus making   patients who receive it better candidates for eventual heart   transplant.      We did not receive any written comments or public comments at the   town hall meeting regarding whether this technology represents a   substantial clinical improvement in the treatment of inpatients with   end-stage biventricular heart failure relative to previous technology   available to the Medicare population. However, in the FY 2009 IPPS   proposed rule, we welcomed comments from the public regarding whether   the TAH-t represents a substantial clinical improvement.      Comment: One commenter, the manufacturer, stated that, with regard   to whether the TAH-t meet the substantial clinical improvement   criterion, the TAH-t ``fulfills a role that no other mechanical   circulatory support device can for patients in irreversible    [[Page 48557]]    biventricular failure * * *'' With respect to the coverage decision   that was issued on May 1, 2008, the commenter stated that ``the   agency's reversal of such a longstanding noncoverage policy alone   demonstrates that the TAH-t is a substantial clinical improvement.''      Response: We disagree with the commenter's assertion that CMS'   recent change to the coverage decision alone demonstrates that the TAH-  t is a substantial clinical improvement. Rather the coverage decision   signifies that the TAH-t device is ``reasonable and necessary'' within   the parameters of approved clinical trial studies. In our view,   demonstration of substantial clinical improvement requires that a   higher threshold be met. That is, not only is the device safe and   effective (as indicated by FDA approval) and reasonable and necessary   (as indicated by CMS coverage), but the device offers such clinical   improvement over previously available technologies to the Medicare   population that Medicare will lessen barriers inhibiting physicians and   hospitals from utilizing the costly new technology so as not to hinder   Medicare beneficiaries' access to the technology before its costs are   adequately reflected in the MS-DRG payment system.      However, we agree with the commenter's assertion that the TAH-t   ``fulfills a role that no other mechanical circulatory support device   can for patients in irreversible biventricular failure.'' We note that   the TAH-t is the only available FDA-approved temporary total artificial   heart device. Clinical evidence submitted by the applicant supports the   manufacturer's assertion that the TAH-t provides a treatment option for   patients suffering from biventricular failure who may be unresponsive   to, or ineligible for, currently available treatments (including other   mechanical circulatory devices). Specifically, the applicant referred   to the FDA approved multicenter IDE clinical trial in which 81 patients   at risk of imminent death from biventricular heart failure received the   device. At 30 days, 69.1 percent of those patients met the treatment   success criteria for the study, which included: Having an improvement   in heart failure from New York Heart Association Class IV to Class I or   II, not being bedridden, not being ventilator dependent and not being   on dialysis. Therefore, the TAH-t appears to provide a viable treatment   option to patients who might otherwise be at risk for imminent death,   and who, by virtue of successful bridge to transplant, may ultimately   benefit from the extended survival that is possible with heart   transplant. We acknowledge that there were some patients who did not   survive despite receiving the TAH-t, but we believe at this time that   the benefit provided by the device to patients who might otherwise be   at risk for imminent death outweighs the risks associated with the   device. Therefore, we believe that this device has demonstrated that it   is a substantial clinical improvement over existing technology for   those patients who meet the specific criteria for inclusion in an   approved clinical trial for purposes of FY 2009 new technology add-on   payments.      After evaluation of the three new technology add-on criteria   (newness, costs, and substantial clinical improvement) and   consideration of the public comments received, we are approving the   TAH-t for FY 2009 new technology add-on payment. As discussed above, we   believe that the TAH-t offers a new treatment option that previously   did not exist for patients with end-stage biventricular failure.   However, we recognize that the TAH-t's Medicare coverage is limited to   approved clinical trial settings. The new technology add-on payment   status does not negate the restrictions under the NCD nor does it   obviate the need for continued monitoring of clinical evidence for the   TAH-t, and we remain interested in seeing whether the clinical evidence   from the CED parameters demonstrates that the TAH-t continues to be   effective. If evidence is found that the TAH-t may no longer offer a   substantial clinical improvement, we reserve the right to discontinue   new technology add-on payments, even within the 2 to 3 year period that   the device may still be considered to be new. The new technology add-on   payment for FY 2009 will be triggered by the presence of ICD-9-CM   procedure code 37.52 (Implantation of total heart replacement system),   condition code 30, and diagnosis code reflecting clinical trial--V70.7   (Examination of participant in clinical trial). As noted in the   proposed rule, the manufacturer submitted data to support its estimated   operating cost per case involving the TAH-t procedure of $106,000.   Accordingly, we are finalizing a maximum add-on payment of $53,000   (that is, 50 percent of the estimated operating costs of the device)   for cases that involve this technology.  b. Emphasys Medical Zephyr[supreg] Endobronchial Valve (Zephyr[supreg]   EBV)      Emphasys Medical submitted an application for new technology add-on   payments for FY 2009 for the Emphasys Medical Zephyr[supreg]   Endobronchial Valve (Zephyr[supreg] EBV). The Zephyr[supreg] EBV is   intended to treat patients with emphysema by reducing volume in the   diseased, hyperinflated portion of the emphysematous lung with fewer   risks and complications than with more invasive surgical alternatives.   Zephyr[supreg] EBV therapy involves placing small, one-way valves in   the patients' airways to allow air to flow out of, but not into, the   diseased portions of the lung thus reducing the hyperinflation. A   typical procedure involves placing three to four valves in the target   lobe using a bronchoscope, and the procedure takes approximately 20 to   40 minutes to complete. The Zephyr[supreg] EBVs are designed to be   relatively easy to place, and are intended to be removable so that,   unlike more risky surgical alternatives such as Lung Volume Reduction   Surgery (LVRS) or Lung Transplant, the procedure has the potential to   be fully reversible.      In the proposed rule, we noted that the Zephyr[supreg] EBV had yet   to receive approval from the FDA, but the manufacturer indicated to CMS   that it expected to receive its FDA approval in the second or third   quarter of 2008. Because the technology had not yet been approved by   the FDA, we limited our discussion of this technology in the proposed   rule to data that the applicant submitted, rather than make specific   proposals with respect to whether the device would meet the new   technology add-on criteria.      In an effort to demonstrate that the Zephyr[supreg] EBV would meet   the cost criterion, as discussed in the proposed rule, the applicant   searched the FY 2006 MedPAR file for cases with one of the following   ICD-9-CM diagnosis codes: 492.0 (Emphysematous bleb), 492.8 (Other   emphysema, NEC), or 496 (Chronic airway obstruction, NEC). Based on the   diagnosis codes searched by the applicant, cases of the Zephyr[supreg]   EBV would be most prevalent in MS- DRGs 190 (Chronic Obstructive   Pulmonary Disease with MCC), 191 (Chronic Obstructive Pulmonary Disease   with CC), and 192 (Chronic Obstructive Pulmonary Disease without CC/  MCC). The applicant found 1,869 cases (or 12.8 percent of cases) in MS-  DRG 190, 5,789 cases (or 39.5 percent of cases) in MS-DRG 191, and   6,995 cases (or 47.7 percent of cases) in MS-DRG 192 (which equals a   total of 14,653 cases). The average standardized charge per case was   $21,567 for MS-DRG 190, $15,494 for MS-DRG 191, and $11,826 for MS-DRG   192. The average standardized charge per case does not include charges   related to the Zephyr[supreg] EBV; therefore, it is necessary to add   the charges related to the device to the average standardized charge   per case in    [[Page 48558]]    evaluating the cost threshold criteria. Although the applicant   submitted data related to the estimated cost of the Zephyr[supreg] EBV   per case, the applicant noted that the cost of the device was   proprietary information because the device is not yet available on the   open market. The applicant estimated $23,920 in charges related to the   Zephyr[supreg] EBV (based on a 100 percent charge markup of the cost of   the device). In addition to case-weighting the data based on the amount   of cases that the applicant found in the FY 2006 MedPAR file, the   applicant case-weighted the data based on its own projections of how   many Medicare cases it would expect to map to MS-DRGs 190, 191, and 192   in FY 2009. The applicant projected that, 5 percent of the cases would   map to MS-DRG 190, 15 percent of the cases would map to MS-DRG 191, and   80 percent of the cases would map to MS-DRG 192. Adding the charges   related to the device to the average standardized charge per case   (based on the applicant's projected case distribution) resulted in a   case-weighted average standardized charge per case of $36,782 ($12,862   plus $23,920). Using the thresholds published in Table 10 (72 FR   66889), the case-weighted threshold for MS-DRGs 190, 191, and 192 was   $18,394. Because the case-weighted average standardized charge per case   for the applicable MS-DRGs exceed the case-weighted threshold amount,   the applicant maintained that the Zephyr[supreg] EBV would meet the   cost criterion. As noted above, the applicant also performed a case-  weighted analysis of the data based on the 14,653 cases the applicant   found in the FY 2006 MedPAR file. Based on this analysis, the applicant   found that the case-weighted average standardized charge per case   ($38,441 based on the 14,653 cases) exceeded the case-weighted   threshold ($20,606 based on the 14,653 cases). Based on both analyses   described above, we stated in the proposed rule that it appeared that   the applicant would meet the cost criterion.      In the FY 2009 IPPS proposed rule, we invited public comment on   whether Zephyr[supreg] EBV met the cost criterion.      Comment: One commenter, the manufacturer, addressed issues   regarding whether the Zephyr[supreg] EBV met the cost criterion.      Response: Because the Zephyr[supreg] EBV has not yet received FDA   approval, and therefore, does not meet the newness criterion, as   discussed above, it is not eligible for the IPPS new technology add-on   payments for FY 2009. Therefore, we are not summarizing the details of   this comment nor responding to them in this final rule.      As discussed in the proposed rule, the applicant also asserted that   the Zephyr[supreg] EBV is a substantial clinical improvement because it   provides a new therapy along the continuum of care for patients with   emphysema that offers improvement in lung function over standard   medical therapy while incurring significantly less risk than more   invasive treatments such as LVRS and lung transplant. Specifically, the   applicant submitted data from the ongoing pivotal Endobronchial Valve   for Emphysema Palliation (VENT) trial,\21\ which compared 220 patients   who received EBV treatment to 101 patients who received standard   medical therapy, including bronchodilators, steroids, mucolytics, and   supplemental oxygen. At 6 months, patients who received the   Zephyr[supreg] EBV had an average of 7.2 percent and 5.8 percent   improvement (compared to standard medical therapy) in the primary   effectiveness endpoints of the Forced Expiratory Volume in 1 second   test (FEV1), and the 6 Minute Walk Test (6MWT), respectively. Both   results were determined by the applicant to be statistically   significant. The FEV1 results were determined using the t-test   parametric confidence intervals (the p value determined using the one-  side t-test adjusted for unequal variance) and the 6MWT results were   determined using the Mann-Whitney nonparametric confidence intervals   (the p value was calculated using the one-sided Wilcoxon rank sum   test). However, the data also showed that patients who received the   Zephyr[supreg] EBV experienced a number of adverse events, including   hemoptyis, pneumonia, respiratory failure, pneumothorax, and COPD   exacerbations, as well as valve migrations and expectorations that, in   some cases, required repeat bronchoscopy. The manufacturer also   submitted the VENT pivotal trial 1-year followup data, but requested   that the data not be disclosed in the proposed rule because it had not   yet been presented publicly nor published in a peer-reviewed journal.  ---------------------------------------------------------------------------        \21\ Strange, Charlie., et al., Design of the Endobronchial   Valve for Emphysema Palliation trial (VENT): A Nonsurgical Method of   Lung Volume Reduction, BMC Pulmonary Medicine. 2007; 7:10.  ---------------------------------------------------------------------------        While CMS recognizes that the Zephyr[supreg] EBV therapy is   significantly less risky than LVRS and lung transplant, we are   concerned that the benefits as shown in the VENT pivotal trial may not   outweigh the risks when compared with medical therapy alone. Further,   we note that, according to the applicant, the Zephyr[supreg] EBV is   intended for use in many patients who are ineligible for LVRS and/or   lung transplant (including those too sick to undergo more invasive   surgery and those with lower lobe predominant disease distribution),   but that certain patients (that is, those with upper lobe predominant   disease distribution) could be eligible for either surgery or the   Zephyr[supreg] EBV.      In the FY 2009 IPPS proposed rule, we welcomed comments from the   public on both the patient population who would be eligible for the   technology, and whether the Zephyr[supreg] EBV represented a   substantial clinical improvement in the treatment of patients with   emphysema.      Comment: Commenters representing the manufacturer and physicians,   outlined various reasons why they believed that the Zephyr[supreg] EBV   represented a substantial clinical improvement over technologies   currently available to Medicare beneficiaries.      Response: Because the Zephyr[supreg] EBV has not yet received FDA   approval, and therefore does not meet the newness criterion, as   discussed above, it is not eligible for the IPPS new technology add-on   payments for FY 2009. Therefore, we are not summarizing the details of   these comments received nor responding to them in this final rule.      As noted in the proposed rule, we also received written comments   from the manufacturer and its presenters at the town hall meeting   clarifying some questions that were raised at the town hall meeting.   Specifically, these commenters explained that, in general, the target   population for the Zephyr[supreg] EBV device was the same population   that could benefit from LVRS, and also includes some patients who were   too sick to undergo surgery. The commenters also explained that   patients with emphysema with more heterogeneous lung damage were more   likely to benefit from the device.      In the FY 2009 IPPS proposed rule, we welcomed public comments   regarding where exactly this technology falls in the continuum of care   of patients with emphysema, and for whom the risk/benefit ratio is most   favorable.      Comment: Commenters representing the manufacturer and individual   physicians addressed issues regarding where the Zephyr[supreg] EBV fell   in the continuum of care of patients with emphysema and for whom the   risk/benefit ratio was most favorable.      Response: Because the Zephyr[supreg] EBV has not yet received FDA   approval, and therefore does not meet the newness criterion, it is not   eligible for the IPPS new technology add-on payments for FY 2009.   Therefore, we are not summarizing the details of these public    [[Page 48559]]    comments nor responding to them in this final rule.      As we previously stated, because the Zephyr[supreg] EBV has not yet   received FDA approval, it does not meet the newness criterion.   Therefore, it cannot be approved for FY 2009 IPPS new technology add-on   payments.  c. Oxiplex[supreg]      FzioMed, Inc. submitted an application for new technology add-on   payments for FY 2009 for Oxiplex[supreg]. Oxiplex[supreg] is an   absorbable, viscoelastic gel made of carboxymethylcellulose (CMC) and   polyethylene oxide (PEO) that is intended to be surgically implanted   during a posterior discectomy, laminotomy, or laminectomy. The   manufacturer asserted that the gel reduces the potential for   inflammatory mediators that injure, tether, or antagonize the nerve   root in the epidural space by creating an acquiescent, semi-permeable   environment to protect against localized debris. These proinflammatory   mediators (phospholipase A and nitric oxide), induced or extruded by   intervertebral discs, may be responsible for increased pain during   these procedures. The manufacturer also asserted that Oxiplex[supreg]   is a unique material in that it coats tissue, such as the nerve root in   the epidural space, to protect the nerve root from the effects of   inflammatory mediators originating from either the nucleus pulposus,   from blood derived inflammatory cells, or cytokines during the healing   process.      Oxiplex[supreg] indicated to CMS that it was expecting to receive   premarket approval from the FDA by June 2008. As discussed earlier in   this section, Oxiplex[supreg] had not received FDA approval prior to   the development of this final rule. Because the technology had not yet   received FDA approval at the time the proposed rule was developed, we   indicated in the proposed rule that we were limiting our discussion of   this technology to data that the applicant submitted, rather than make   specific proposals with respect to whether the device would meet the   new technology add-on payment criteria.      In the proposed rule, we noted that we were concerned that   Oxiplex[supreg] may be substantially similar to adhesion barriers that   have been on the market for several years. We also noted that   Oxiplex[supreg] has been marketed as an adhesion barrier in other   countries outside of the United States. The manufacturer maintained   that Oxiplex[supreg] is different from adhesion barriers in several   ways, including chemical composition, method of action, surgical   application (that is, it is applied liberally to the nerve root and   surrounding neural tissues as opposed to minimally only to nerve   elements), and tissue response (noninflammatory as opposed to   inflammatory).      In the FY 2009 IPPS proposed rule, we welcomed comments from the   public on this issue.      Comment: One commenter, the manufacturer, addressed the issue of   whether Oxiplex[supreg] met the newness criterion. The commenter   explained that there are no products approved for this indication in   the spine in the United States. The commenter further explained that   the indication for use for Oxiplex[supreg] outside the United States   includes the descriptor ``for the reduction of pain, radiculopathy,   lower extreme weakness'' and the United State IDE study was designed to   show that Oxiplex[supreg] reduces back and leg pain and associated   neurological symptoms following discectomy or laminectomy, in a   controlled, randomized study. The commenter asserted that this is a new   and different indication for use in the United States, designated by   the FDA as a product that fulfills an ``Unmet Medical Need.'' The   commenter submitted clinical studies to demonstrate that   Oxiplex[supreg] is substantially different than other adhesion barriers   in the mode of action, dural healing, wound healing, and local tissue   response.      Response: We thank the commenter for its comments on the newness   criteria. However, because Oxiplex[supreg] has not yet received FDA   approval, and therefore does not meet the newness criterion, it is not   eligible for the IPPS new technology add-on payments for FY 2009.   Therefore, we are responding to these comments in this final rule.      In an effort to demonstrate that the technology meets the cost   criterion, as discussed in the proposed rule, the applicant searched   the FY 2006 MedPAR file for cases with ICD-9-CM procedure codes 03.09   (Other exploration and decompression of spinal canal) or 80.51   (Excision of interveterbral disc) that mapped to CMS DRGs 499 and 500   (CMS DRGs 499 and 500 are crosswalked to MS-DRGs 490 and 491 (Back and   Neck Procedures except Spinal Fusion with or without CC)). Because   these cases do not include charges associated with the technology, the   applicant determined it was necessary to add an additional $7,143 in   charges to the average standardized charge per case of cases that map   to MS-DRGs 490 and 491. (To do this, the applicant used a methodology   of inflating the costs of the technology by the average CCR computed by   using the average costs and charges for supplies for cases with ICD-9-  CM procedure codes 03.09 and 80.51 that map to MS-DRGs 490 and 491). Of   the 221,505 cases the applicant found, 95,340 cases (or 43 percent of   cases) would map to MS-DRG 490, which has an average standardized   charge of $60,301, and 126,165 cases (or 57 percent of cases) would map   to MS-DRG 491, which has an average standardized charge per case of   $43,888. This resulted in a case-weighted average standardized charge   per case of $50,952. The case-weighted threshold for MS-DRGs 490 and   491 was $27,481. Because the case-weighted average standardized charge   per case exceeds the case-weighted threshold in MS-DRGs 490 and 491,   the applicant maintained that Oxiplex[supreg] would meet the cost   criterion.      In the FY 2009 IPPS proposed rule, we invited public comment on   whether Oxiplex[supreg] met the cost criterion.      Comment: One commenter, the manufacturer, addressed the issue of   whether Oxiplex[supreg] met the cost criterion.      Response: Because Oxiplex[supreg] has not yet received FDA   approval, and therefore does not meet the newness criterion, we are not   summarizing this public comment nor responding to it in this final   rule.      As discussed in the proposed rule, the manufacturer maintained that   Oxiplex[supreg] is a substantial clinical improvement because it   ``creates a protective environment around the neural tissue that limits   nerve root exposure to post-surgical irritants and damage and thus   reduces adverse outcomes associated with Failed Back Surgery Syndrome   (FBSS) following surgery.'' The manufacturer also claimed that the   Oxiplex[supreg] gel reduces leg and back pain after discetomy,   laminectomy, and laminotomy. The manufacturer also asserted that the   use of Oxiplex[supreg] is consistent with fewer revision surgeries.   (During the FDA Investigational Device Exemption (IDE) trial, one   Oxiplex[supreg] patient required revision surgery compared to six   control patients.) However, as we noted in the proposed rule, we had   concerns that Oxiplex[supreg] may be substantially similar to adhesion   barriers that have been on the market for several years. We also stated   that we were concerned that even if we were to determine that   Oxiplex[supreg] is not substantially similar to existing adhesion   barriers, there may still be insufficient evidence to support the   manufacturer's claims that Oxiplex[supreg] reduces pain associated with   spinal surgery. In addition, as discussed in the proposed rule, we have   found no evidence to support the manufacturer's claims regarding mode   of action, degree of dural healing, degree of wound    [[Page 48560]]    healing, and local tissue response such as might be shown in animal   studies.      We did not receive any written comments or public comments at the   town hall meeting regarding the substantial clinical improvement   aspects of this technology. However, in the FY 2009 IPPS proposed rule,   we welcomed comments from the public regarding whether Oxiplex[supreg]   represented a substantial clinical improvement.      Comment: One commenter, the manufacturer, claimed that   Oxiplex[supreg] represents a substantial clinical improvement over   technology currently available to Medicare beneficiaries. Other   commenters representing trade associations and physicians, stated that   there was not enough evidence to determine whether Oxiplex[supreg]   represented a substantial clinical improvement because it had not yet   received FDA approval and there was insufficient peer-reviewed   published literature to make such a determination.      Response: Because Oxiplex[supreg] has not yet received FDA   approval, and therefore does not meet the newness criterion, we are not   summarizing these public comments nor responding to them in this final   rule.      As we previously stated, Oxiplex[supreg] does not meet the newness   criterion and, therefore, cannot be approved for FY 2009 IPPS new   technology add-on payments.  d. TherOx Downstream[supreg] System      TherOx, Inc. submitted an application for new technology add-on   payments for FY 2009 for the TherOx Downstream[supreg] System   (Downstream[supreg] System). The TherOx Downstream[supreg] System uses   SuperSaturatedOxygen Therapy (SSO2) that is designed to limit   myocardial necrosis by minimizing microvascular damage in acute   myocardial infarction (AMI) patients following intervention with   Percutaneous Transluminal Coronary Angioplasty (PTCA), and coronary   stent placement by perfusing the affected myocardium with blood that   has been supersaturated with oxygen. SSO2 therapy refers to the   delivery of superoxygenated arterial blood directly to areas of   myocardial tissue that have been reperfused using PTCA and stent   placement, but which may still be at risk. The desired effect of SSO2   therapy is to reduce infarct size and thus preserve heart muscle and   function. The TherOx DownStream[supreg] System is the console portion   of a disposable cartridge-based system that withdraws a small amount of   the patient's arterial blood, mixes it with a small amount of saline,   and supersaturates it with oxygen to create highly oxygen-enriched   blood. The superoxygenated blood is delivered directly to the infarct-  related artery via the TherOx infusion catheter. SSO2 therapy is a   catheter laboratory-based procedure. Additional time in the catheter   lab area is an average of 100 minutes. The manufacturer claimed that   the SSO2 therapy duration lasts 90 minutes and requires an additional   10 minutes post-procedure preparation for transfer time. The TherOx   Downstream[supreg] System was not FDA approved at the time that the   proposed rule was published; however, the manufacturer indicated to CMS   that it expected to receive FDA approval in the second quarter of 2008.   Because the technology was not approved by the FDA during the   development of the proposed rule, we limited our discussion of this   technology to data that the applicant submitted, rather than make   specific proposals with respect to whether the device would meet the   new technology add-on criteria in the proposed rule. At the time of the   development of this final rule, the TherOx Downstream[supreg] System   had not yet received FDA approval.      In an effort to demonstrate that it would meet the cost criterion   as we discussed in the proposed rule, the applicant submitted two   analyses. The applicant stated that it believed that cases that would   be eligible for the Downstream[supreg] System would most frequently   group to MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-  Eluting Stent with MCC or 4+ Vessels/Stents), 247 (Percutaneous   Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248   (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with   MCC or 4+ Vessels/Stents), and 249 (Percutaneous Cardiovascular   Procedure with Non-Drug-Eluting Stent without MCC). The first analysis   used data based on 83 clinical trial patients from 10 clinical sites.   Of the 83 cases, 78 were assigned to MS-DRGs 246, 247, 248, or 249. The   data showed that 32 of these patients were 65 years old or older. There   were 12 cases (or 15.4 percent of cases) in MS-DRG 246, 56 cases (or   71.8 percent cases) in MS-DRG 247, 2 cases (or 2.6 percent of cases) in   MS-DRG 248, and 8 cases (or 10.3 percent of cases) in MS-DRG 249. (The   remaining five cases grouped to MS-DRGs that the technology would not   frequently group to and therefore are not included in this analysis.)   The average standardized charge per case for MS-DRGs 246, 247, 248, and   249 was $66,730, $53,963, $54,977, and $41,594, respectively. The case-  weighted average standardized charge per case for the four MS-DRGs   listed above is $54,665. Based on the threshold from Table 10 (72 FR   66890), the case-weighted threshold for the four MS-DRGs listed above   was $49,303. The applicant also searched the FY 2006 MedPAR file to   identify cases that would be eligible for the Downstream[supreg]   System. The applicant specifically searched for cases with primary ICD-  9-CM diagnosis code 410.00 (Acute myocardial infarction of   anterolateral wall with episode of care unspecified), 410.01 (Acute   myocardial infarction of anterolateral wall with initial episode of   care), 410.10 (Acute myocardial infarction of other anterior wall with   episode of care unspecified), or 410.11 (Acute myocardial infarction of   other anterior wall with initial episode of care) in combination with   ICD-9-CM procedure code of 36.06 (Insertion of non-drug-eluting   coronary artery stent(s)) or 36.07 (Insertion of drug-eluting coronary   artery stent(s)). The applicant's search found 13,527 cases within MS-  DRGs 246, 247, 248, and 249 distributed as follows: 2,287 cases (or   16.9 percent of cases) in MS-DRG 246; 9,691 cases (or 71.6 percent of   cases) in MS-DRG 247; 402 cases (or 3 percent of cases) in MS-DRG 248;   and 1,147 cases (or 8.5 percent of cases) in MS-DRG 249. Not including   the charges associated with the technology, the geometric mean   standardized charge per case for MS-DRGs 246, 247, 248, and 249 was   $59,631, $42,357, $49,718 and $37,446, respectively. Therefore, based   on this analysis, the total case-weighted geometric mean standardized   charge per case across these MS-DRGs was $45,080. The applicant   estimated that it was necessary to add an additional $21,620 in charges   to the total case-weighted geometric mean standardized charge per case.   In the additional charge amount, the applicant included charges for   supplies and tests related to the technology, charges for 100 minutes   of additional procedure time in the catheter laboratory and charges for   the technology itself. The inclusion of these charges would result in a   total case-weighted geometric mean standardized charge per case of   $66,700. The case-weighted threshold for MS-DRGs 246, 247, 248, and 249   (from Table 10 (72 FR 66889)) was $49,714. Because the total case-  weighted average standardized charge per case from the first analysis   and the case-weighted geometric mean standardized charge per case from   the second analysis exceeds the applicable case-weighted threshold, the   applicant maintained the Downstream[supreg] System would meet the cost   criterion.      In the FY 2009 IPPS proposed rule, we invited public comment on   whether    [[Page 48561]]    Downstream[supreg] System met the cost criterion.      Comment: One commenter, the manufacturer, addressed the issue of   whether the TherOx Downstream[supreg] System met the cost criterion.   Another comment addressed the 100 minutes of additional catheter lab   time that is required for the therapy and the preparation for transfer   time.      Response: Because the TherOx Downstream[supreg] System has not yet   received FDA approval, and therefore does not meet the newness   criterion, it is not eligible for the IPPS new technology add-on   payments for FY 2009. Therefore, we are not summarizing the details of   these comments nor responding to them in this final rule.      As discussed in the proposed rule, the applicant asserted that the   Downstream[supreg] System is a substantial clinical improvement because   it reduces infarct size in acute AMI where PTCA and stent placement   have also been performed. Data was submitted from the Acute Myocardial   Infarction Hyperbaric Oxygen Treatment (AMIHOT) II trial which was   presented at the October 2007 Transcatheter Cardiovascular Therapeutics   conference, but has not been published in peer reviewed literature,   that showed an average of 6.5 percent reduction in infarct size as   measured with Tc-99m Sestamibi imaging in patients who received   supersaturated oxygen therapy. We note that those patients also showed   a significantly higher incidence of bleeding complications. While we   recognize that a reduction of infarct size may correlate with improved   clinical outcomes, we question whether the degree of infarct size   reduction found in the trial represents a substantial clinical   improvement, particularly in light of the apparent increase in bleeding   complications.      As noted in the proposed rule, we received one written comment from   the manufacturer clarifying questions that were raised at the town hall   meeting. Specifically, the commenter explained the methodology of Tc-  99m sestamibi scanning and interpretation in the AMIHOT II trial. In   addition, the commenter explained that the AMIHOT \22\ and AMIHOT II   trials did not attempt to measure differences in heart failure outcomes   nor mortality outcomes.  ---------------------------------------------------------------------------        \22\ Oneill, W.W., et al.: Acute Myocardial Infarction with   Hyperoxemic Therapy (AMIHOT): A Prospective Randomized Trial of   Intracoronary Hyperoxemic Reperfusion after Percutaneous Coronary   Intervention. Journal of the American College of Cardiology, Vol.   50, No. 5, 2007, pp. 397-405.  ---------------------------------------------------------------------------        In the FY 2009 IPPS proposed rule, we welcomed comments from the   public on this matter.      Comment: Commenters representing the manufacturer and physicians   addressed the issue of whether the TherOx Downstream[supreg] System   meets the substantial clinical improvement criterion.      Response: Because the TherOx Downstream[supreg] System has not yet   received FDA approval, and therefore does not meet the newness   criterion, it is not eligible for the IPPS new technology add-on   payments for FY 2009. Therefore, we are not summarizing the details of   this comment nor responding to it in this final rule.      As we previously stated, because the Downstream[supreg] System does   not meet the newness criterion, it cannot be approved for FY 2009 IPPS   new technology add-on payments.  5. Regulatory Changes      Section 1886(d)(5)(K)(i) of the Act directs us to establish a   mechanism to recognize the cost of new medical services and   technologies under the IPPS, with such mechanism established after   notice and opportunity for public comment. In accordance with this   authority, we established at Sec.  412.87(b) of our regulations   criteria that a medical service or technology must meet in order to   qualify for the additional payment for new medical services and   technologies. Specifically, we evaluate applications for new medical   service or technology add-on payment by determining whether they meet   the criteria of newness, adequacy of payment, and substantial clinical   improvement.      As stated in section III.J.1. of the preamble of this final rule,   Sec.  412.87(b)(2) of our existing regulations provides that a specific   medical service or technology will be considered new for purposes of   new medical service or technology add-on payments after the point at   which data begin to become available reflecting the ICD-9-CM code   assigned to the new service or technology. The point at which these   data become available typically begins when the new medical service or   technology is first introduced on the market, generally on the date   that the medical service or technology receives FDA approval.   Accordingly, for purposes of the new medical service or technology add-  on payment, a medical service or technology cannot be considered new   prior to the date on which FDA approval is granted.      In addition, as stated in section III.J.1. of the preamble of this   final rule, Sec.  412.87(b)(3) of our existing regulations provides   that, to be eligible for the add-on payment for new medical services or   technologies, the DRG prospective payment rate otherwise applicable to   the discharge involving the new medical service or technology must be   assessed for adequacy. Under the cost criterion, to assess the adequacy   of payment for a new medical service or technology paid under the   applicable DRG prospective payment rate, we evaluate whether the   charges for cases involving the new medical service or technology   exceed certain threshold amounts.      Section 412.87(b)(1) of our existing regulations provides that, to   be eligible for the add-on payment for new medical services or   technologies, the new medical service or technology must represent an   advance that substantially improves, relative to technologies   previously available, the diagnosis or treatment of Medicare   beneficiaries. In addition, Sec.  412.87(b)(1) states that CMS will   announce its determination as to whether a new medical service or   technology meets the substantial clinical improvement criteria in the   Federal Register as part of the annual updates and changes to the IPPS.      Since the implementation of the policy on add-on payments for new   medical services and technologies, we accept applications for add-on   payments for new medical services and technologies on an annual basis   by a specified deadline. For example, applications for FY 2009 were   submitted in November 2007. After accepting applications, CMS then   evaluates them in the annual IPPS proposed and final rules to determine   whether the medical service or technology is eligible for the new   medical service or technology add-on payment. If an application meets   each of the eligibility criteria, the medical service or technology is   eligible for new medical service or technology add-on payments   beginning on the first day of the new fiscal year (that is, October 1).      We have advised prior and potential applicants that we evaluate   whether a medical service or technology is eligible for the new medical   service or technology add-on payments prior to publication of the final   rule setting forth the annual updates and changes to the IPPS, with the   results of our determination announced in the final rule. We announce   our results in the final rule for each fiscal year because we believe   predictability is an important aspect of the IPPS and that it is   important to apply a consistent payment methodology for new medical   services    [[Page 48562]]    or technologies throughout the entire fiscal year. For example,   hospitals must train their billing and other staff after publication of   the final rule to properly implement the coding and payment changes for   the upcoming fiscal year set forth in the final rule. In addition,   hospitals' budgetary process and clinical decisions regarding whether   to utilize new technologies are based in part on the applicable payment   rates under the IPPS for the upcoming fiscal year, including whether   the new medical services or technologies qualify for the new medical   service or technology add-on payment. If CMS were to make multiple   payment changes under the IPPS during a fiscal year, these changes   could adversely affect the decisions hospitals implement at the   beginning of the fiscal year. As we stated in the proposed rule, for   these reasons, we believe applications for new medical service or   technology add-on payments should be evaluated prior to publication of   the final IPPS rule for each fiscal year. Therefore, if an application   does not meet the new medical service or technology add-on payment   criteria prior to publication of the final rule, it will not be   eligible for the new medical service or technology add-on payments for   the fiscal year for which it applied for the add-on payments.      Because we make our determination regarding whether a medical   service or technology meets the eligibility criteria for the new   medical service or technology add-on payments prior to publication of   the final rule, we have advised both past and potential applicants that   their medical service or technology must receive FDA approval early   enough in the IPPS rulemaking cycle to allow CMS enough time to fully   evaluate the application prior to the publication of the IPPS final   rule. Moreover, because new medical services or technologies that have   not received FDA approval do not meet the newness criterion, it would   not be necessary or prudent for us to make a final determination   regarding whether a new medical service or technology meets the cost   threshold and substantial clinical improvement criteria prior to the   medical service or technology receiving FDA approval. In addition, we   do not believe it is appropriate for CMS to determine whether a medical   service or technology represents a substantial clinical improvement   over existing technologies before the FDA makes a determination as to   whether the medical service or technology is safe and effective. For   these reasons, we first determine whether a medical service or   technology meets the newness criteria, and only if so, do we then make   a determination as to whether the technology meets the cost threshold   and represents a substantial clinical improvement over existing medical   services or technologies. For example, even if an application has FDA   approval, if the medical service or technology is beyond the timeline   of 2-3 years to be considered new, in the past we have not made a   determination on the cost threshold and substantial clinical   improvement. Further, as we have discussed in prior final rules (69 FR   49018-49019 and 70 FR 47344), it is our past and present practice to   analyze the new medical service or technology add-on payment criteria   in the following sequence: Newness, cost threshold, and finally   substantial clinical improvement.      In the FY 2009 IPPS proposed rule (73 FR 23616) we proposed to   continue this practice of analyzing the eligibility criteria in this   sequence and announce in the annual Federal Register as part of the   annual updates and changes to the IPPS our determination on whether a   medical service or technology meets the eligibility criteria in Sec.    412.87(b). However, in the interest of more clearly defining the   parameters under which CMS can fully and completely evaluate new   medical service or technology add-on payment applications, we proposed   to amend the regulations at Sec.  412.87 by adding a new paragraph (c)   to codify our current policy and specify that CMS will consider whether   a new medical service or technology meets the eligibility criteria in   Sec.  412.87(b) and announce the results in the Federal Register as   part of the annual updates and changes to the IPPS. As a result, we   proposed to remove the duplicative text in Sec.  412.87(b)(1) that   specifies that CMS will determine whether a new medical service or   technology meets the substantial clinical improvement criteria and   announce the results of its determination in the Federal Register as   part of the annual updates and changes to the IPPS. We noted that this   proposal was not a change to our current policy, as we have always   given consideration to whether an application meets the new medical   service or technology eligibility criteria in the annual IPPS proposed   and final rules. Rather, the proposal was to simply codify our current   practice of fully evaluating new medical service or technology add-on   payment applications prior to publication of the final rule in order to   maintain predictability within the IPPS for the upcoming fiscal year.      We did not receive any public comments on this proposal. Therefore,   in this final rule, we are adopting as final our proposal to Sec.    412.87(b)(1) to remove the duplicative text.      We also proposed in new paragraph (c) of Sec.  412.87 to set July 1   of each year as the deadline by which IPPS new medical service or   technology add-on payment applications must receive FDA approval. This   deadline would provide us with enough time to fully consider all of the   new medical service or technology add-on payment criteria for each   application and maintain predictability in the IPPS for the coming   fiscal year.      Finally, under our proposal, applications that have not received   FDA approval by July 1 would not be considered in the final rule, even   if they were summarized in the corresponding IPPS proposed rule.   However, applications that receive FDA approval of the medical service   or technology after July 1 would be able to reapply for the new medical   service or technology add-on payment the following year (at which time   they would be given full consideration in both the IPPS proposed and   final rules).      Comment: A few commenters opposed the proposed policy.   Specifically, the commenters expressed concern that the imposition of   such a deadline would decrease flexibility in the new technology add-on   payment approval process because applicants who received FDA approval   shortly after the deadline would not be able to be considered for new   technology add-on payments for the corresponding fiscal year and would   instead have to wait until a subsequent year to apply. One commenter   suggested that CMS use July 1 as a general guideline for when FDA   approval would have to be received, but that technologies that received   FDA approval a day or two after the deadline should also be considered.   One commenter suggested that the deadline be announced at the annual   new technology town hall meeting instead of through regulation.      Response: While we acknowledge that the deadline may decrease   flexibility in the new technology add-on payment approval process by a   very marginal degree, we remind the commenters that we have been   committed to working with applicants very closely throughout the new   technology application review process and that we have afforded   applicants an opportunity to supplement their original applications   with information that we believed might better support their ability to   demonstrate that they meet the eligibility criteria for the new   technology add-on payments. Furthermore, we have provided    [[Page 48563]]    flexibility in the new technology add-on application process by   accepting applications for technologies prior to their approval by the   FDA, despite the fact that we are unable to approve a technology that   has not been proven to be ``safe and effective'' for marketing in the   United States as FDA approval signifies. We note that it is difficult   to determine whether a technology is a substantial clinical improvement   over existing (FDA-approved) technologies because there is usually only   limited clinical data available and because it requires subjective   judgment, but we have made efforts to analyze data available to us even   prior to FDA approval. While we prefer that technologies have FDA   approval at the time that an application for new technology add-on   payment is submitted, we acknowledge that it is not always feasible for   a new technology to receive FDA approval prior to the submission   deadline for new technology add-on payment applications. We believe   that July 1 of each year provides an appropriate balance between the   necessity for adequate time to fully evaluate the applications, the   requirement to publish the IPPS final rule by August 1 of each year,   and the commenters' concerns that potential new technology applicants   have some flexibility with respect to when their technology receives   FDA approval. Finally, we believe that announcing the deadline at the   annual new technology town hall meeting does not provide a standard as   predictable as a regulatory standard. In addition, not all interested   parties are able to attend the town hall meeting and, therefore, may   not be aware of a deadline that is announced at that meeting.      Comment: Two commenters supported the proposal. The commenters   stated that setting a deadline would increase transparency and   predictability in the IPPS new technology add-on application process.   One of the commenters noted that setting such a deadline would save   manufacturers the cost and effort of submitting an application for   technologies that were not likely to make the deadline and that the   deadline would also save CMS time from reviewing these applications.   The commenter also stated that the deadline would bring clarity to the   new technology application process by helping applicants coordinate the   timing of their applications with FDA approval.      Response: We appreciate the commenters' support and agree that both   transparency and predictability in the new technology add-on payment   application process will be improved as a result of this regulatory   change. We also continue to believe that this policy will provide us   with enough time to fully consider all of the new medical service or   technology add-on payment criteria for each application without   imposing additional burden on future applicants that are unable to meet   this deadline.      After consideration of the public comments received, we are   adopting as final our proposal to revise Sec.  412.87 to remove the   second sentence of (b)(1), thereby codifying our current practice of   how CMS evaluates new medical service or technology add-on payment   applications. We are also finalizing our proposal in paragraph (c) of   Sec.  412.87 which establishes a date of July 1 of each year as the   deadline by which IPPS new medical service or technology add-on payment   applications must receive FDA approval in order to be fully evaluated   in the applicable IPPS final rule each year.    III. Changes to the Hospital Wage Index    A. Background        Section 1886(d)(3)(E) of the Act requires that, as part of the   methodology for determining prospective payments to hospitals, the   Secretary must adjust the standardized amounts ``for area differences   in hospital wage levels by a factor (established by the Secretary)   reflecting the relative hospital wage level in the geographic area of   the hospital compared to the national average hospital wage level.'' In   accordance with the broad discretion conferred under the Act, we   currently define hospital labor market areas based on the definitions   of statistical areas established by the Office of Management and Budget   (OMB). A discussion of the FY 2009 hospital wage index based on the   statistical areas, including OMB's revised definitions of Metropolitan   Areas, appears under section III.C. of this preamble.      Beginning October 1, 1993, section 1886(d)(3)(E) of the Act   requires that we update the wage index annually. Furthermore, this   section provides that the Secretary base the update on a survey of   wages and wage-related costs of short-term, acute care hospitals. The   survey must exclude the wages and wage-related costs incurred in   furnishing skilled nursing services. This provision also requires us to   make any updates or adjustments to the wage index in a manner that   ensures that aggregate payments to hospitals are not affected by the   change in the wage index. The adjustment for FY 2009 is discussed in   section II.B. of the Addendum to this final rule.      As discussed below in section III.I. of this preamble, we also take   into account the geographic reclassification of hospitals in accordance   with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating   IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the   Secretary is required to adjust the standardized amounts so as to   ensure that aggregate payments under the IPPS after implementation of   the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the   Act are equal to the aggregate prospective payments that would have   been made absent these provisions. The budget neutrality adjustment for   FY 2009 is discussed in section II.A.4.b. of the Addendum to this final   rule.      Section 1886(d)(3)(E) of the Act also provides for the collection   of data every 3 years on the occupational mix of employees for short-  term, acute care hospitals participating in the Medicare program, in   order to construct an occupational mix adjustment to the wage index. A   discussion of the occupational mix adjustment that we are applying   beginning October 1, 2008 (the FY 2009 wage index) appears under   section III.D. of this preamble.      After the issuance of the FY 2009 IPPS proposed rule, a new law,   the Medicare Improvements for Patients and Providers Act of 2008 (Pub.   L. 110-275) was enacted on July 15, 2008. Section 124 of Public Law   110-275 extended certain hospital wage index reclassifications   originally provided for under section 508 of Public Law 108-173, as   well as certain special exceptions, through September 30, 2009 (FY   2009). A discussion of the provisions of section 124 and its   implementation in a separate Federal Register notice to be published   subsequent to this final rule are discussed in section III.I.7. of this   preamble.    B. Requirements of Section 106 of the MIEA-TRHCA    1. Wage Index Study Required Under the MIEA-TRHCA  a. Legislative Requirement      Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required   MedPAC to submit to Congress, not later than June 30, 2007, a report on   the Medicare wage index classification system applied under the   Medicare IPPS. Section 106(b) of MIEA-TRHCA required the report to   include any alternatives that MedPAC recommends to the method to   compute the wage    [[Page 48564]]    index under section 1886(d)(3)(E) of the Act.      In addition, section 106(b)(2) of the MIEA-TRHCA instructed the   Secretary of Health and Human Services, taking into account MedPAC's   recommendations on the Medicare wage index classification system, to   include in the FY 2009 IPPS proposed rule one or more proposals to   revise the wage index adjustment applied under section 1886(d)(3)(E) of   the Act for purposes of the IPPS. The Secretary was also to consider   each of the following:       Problems associated with the definition of labor markets   for the wage index adjustment.       The modification or elimination of geographic   reclassifications and other adjustments.       The use of Bureau of Labor of Statistics (BLS) data or   other data or methodologies to calculate relative wages for each   geographic area.       Minimizing variations in wage index adjustments between   and within MSAs and statewide rural areas.       The feasibility of applying all components of CMS'   proposal to other settings.       Methods to minimize the volatility of wage index   adjustments while maintaining the principle of budget neutrality.       The effect that the implementation of the proposal would   have on health care providers on each region of the country.       Methods for implementing the proposal(s), including   methods to phase in such implementations.       Issues relating to occupational mix such as staffing   practices and any evidence on quality of care and patient safety   including any recommendation for alternative calculations to the   occupational mix.  b. MedPAC's Recommendations      In its June 2007 Report to Congress, ``Report to the Congress:   Promoting Greater Efficiency in Medicare'' (Chapter 6 with Appendix),   MedPAC made three broad recommendations regarding the wage index:      (1) Congress should repeal the existing hospital wage index   statute, including reclassifications and exceptions, and give the   Secretary authority to establish a new wage index system;      (2) The Secretary should establish a hospital compensation index   that--       Uses wage data from all employers and industry-specific   occupational weights;       Is adjusted for geographic differences in the ratio of   benefits to wages;       Is adjusted at the county level and smoothes large   differences between counties; and       Is implemented so that large changes in wage index values   are phased in over a transition period; and      (3) The Secretary should use the hospital compensation index for   the home health and skilled nursing facility prospective payment   systems and evaluate its use in the other Medicare fee-for-service   prospective payment systems.      The full June 2007 Report to Congress is available at the Web site:   http://www.medpac.gov/documents/Jun07_EntireReport.pdf).      In the presentation and analysis of its alternative wage index   system, MedPAC addressed almost all of the nine points for   consideration under section 106(b)(2) of Public Law 109-432. Following   are the highlights of the alternative wage index system recommended by   MedPAC:       Although the MedPAC recommended wage index generally   retains the current labor market definitions, it supplements the   metropolitan areas with county-level adjustments and eliminates single   wage index values for rural areas.       In the MedPAC recommended wage index, the county-level   adjustments, together with a smoothing process that constrains the   magnitude of differences between and within contiguous wage areas,   serve as a replacement for geographical reclassifications.       The MedPAC recommended wage index uses BLS data instead of   the CMS hospital wage data collected on the Medicare cost report.   MedPAC adjusts the BLS data for geographic differences in the ratio of   benefits to wages using Medicare cost report data.       The BLS data are collected from a sample of all types of   employers, not just hospitals. The MedPAC recommended wage index could   be adapted to other providers such as HHAs and SNFs by replacing   hospital occupational weights with occupational weights appropriate for   other types of providers.       In the MedPAC recommended wage index, volatility over time   is addressed by the use of BLS data, which is based on a 3-year rolling   sample design.       MedPAC recommended a phased implementation for its   recommended wage index in order to cushion the effect of large wage   index changes on individual hospitals.       MedPAC suggested that using BLS data automatically   addresses occupational mix differences, because the BLS data are   specific to health care occupations, and national industry-wide   occupational weights are applied to all geographic areas.       The MedPAC report does not provide any evidence of the   impact of its wage index on staffing practices or the quality of care   and patient safety.  c. CMS Contract for Impact Analysis and Study of Wage Index Reform      To assist CMS in meeting the requirements of section 106(b)(2) of   Public Law 109-432, in February 2008, CMS awarded a Task Order to   Acumen, LLC. The two general responsibilities of the Task Order are to   (1) conduct a detailed impact analysis that compares the effects of   MedPAC's recommended wage and hospital compensation indices with the   CMS wage index and (2) provide analysis and research that assist CMS in   developing a proposal (or proposals) that addresses the nine points for   consideration under section 106(b)(2) of Public Law 109-432.   Specifically, the tasks under the Task Order include, but are not   limited to, an evaluation of whether differences between the two types   of wage data (that is, CMS cost report and occupational mix data and   BLS data) produce significant differences in wage index values among   labor market areas, a consideration of alternative methods of   incorporating benefit costs into the construction of the wage index, a   review of past and current research on alternative labor market area   definitions, and a consideration of how aspects of the MedPAC   recommended wage index can be applied to the CMS wage data in   constructing a new methodology for the wage index. Acumen has completed   the first phase of its study (that is, a comparative and impact   analysis of the CMS wage index and the MedPAC recommended wage   indices). A summary of Acumen's findings is included in section   III.B.1.e. of the preamble to this final rule. Acumen will post on its   Web site, subsequent to the publication of this final rule, an interim   report that includes the full set of findings from this analysis.   Acumen's Web site is: http://www.acumenllc.com/reports/cms.  d. Public Comments Received on the MedPAC Recommendations and the CMS/  Acumen Wage Index Study and Analysis      We received many public comments regarding the MedPAC's   recommendations for reforming the wage index, as well as on CMS' and   Acumen's study and analysis. The public comments vary greatly, and at   this time, we are not proposing or finalizing the specific   recommendations made by MedPAC discussed above. For    [[Page 48565]]    this reason, we are briefly highlighting the public comments according   to the issues they address. A complete set of the public comments on   the FY 2009 IPPS proposed rule (CMS-1390-P) is available on the   Internet at: www.regulations.gov. In developing proposals for   additional wage index reform (anticipated to be included in the FY 2010   IPPS proposed rule), we plan to consider all of the public comments on   the MedPAC recommendations that we received in this rulemaking cycle,   along with the interim and final reports to be submitted to us by   Acumen.      MedPAC Recommendation: Congress should repeal the existing hospital   wage index statute, including reclassifications and exceptions.      Public Comment Summaries:       Wage index reclassifications and exceptions process should   not be eliminated. Exceptions are necessary for hospitals with labor   costs that are atypical for their local area but comparable to other   areas.       Reclassifications and other wage index exceptions should   be modified or eliminated. As the MedPAC noted, 40 percent of hospitals   receive a wage index exception, thereby indicating that the current   system is broken.      MedPAC Recommendation: Use BLS data instead of the CMS hospital   wage data collected on the Medicare cost report to calculate the wage   index.      Public Comment Summaries:       CMS should adopt the MedPAC's recommendations to use BLS   data. A wage index based on a 3-year average, instead of a single year   of 4-year-old data, would better reflect hospitals' average hourly   wages.       BLS data may be inappropriate to use for the hospital wage   index because it includes data from all employers, not just short term   acute hospitals.       Wages for contract or temporary employees are included in   BLS data, but they reflect the lower salary paid by the agency to the   employee and not the higher salary of what the hospital paid the   agency.       Unlike CMS's public process for reviewing and correcting   wage index data at the hospital level, BLS has a strict confidentiality   policy. Hospitals would be unable to verify any inaccuracies in the BLS   data. Complete transparency is needed for the entire wage index   process.       Every 6 months, BLS surveys 200,000 establishments and   builds the database to include 1.2 million unique establishments over a   3-year period. The data are then inflated to a certain month and year   using a ``single national estimate'' of wage growth for broad   occupational divisions. This approach fails to account for any   differences in wage growth between markets over the 3-year period.       To determine average hourly wages, CMS collects data over   a 12-month period, while the BLS collects data from 2 payroll periods,   with each period capturing data from one-sixth of the total number of   sampled establishments. Integrity in the wage index may be compromised   using data from only two payroll periods rather than from 12 months of   data.       BLS data exclude overtime pay, jury duty pay, and shift   differentials. Excluding these costs, which are often associated with   tight labor market areas, could understate areas that have higher   utilization of these items.       BLS data do not include employee fringe benefits costs.   The MedPAC relied on benefit data from the CMS hospital, home health   agency, and SNF cost reports, which negates the potential benefit of   eliminating the collection of hospital-specific wage data. There are   also concerns about mixing data from two sources.       Full-time and part-time employees are equally weighted in   the BLS data.       Estimates from using a sampling methodology like the BLS   uses are subject to sampling errors and will be less reliable than CMS'   current methodology of using data from all PPS hospitals.       CMS data are mandatory while BLS data are voluntary. Data   that are voluntarily submitted may have less integrity than mandatory   data.       BLS imputes data for nonresponsive employers. The use of   imputed data is inappropriate.       BLS data do not reflect premiums that hospitals must pay   for certain workers; for example, premiums for registered nurses with   additional training and certification in specialties such as critical   care. Payment premiums for these workers would not be adequately   reflected in the BLS data because the BLS survey does not capture   information on nurse specialty areas.       On the BLS survey, hospitals simply report data for   occupational categories by average hourly wage ranges. Hospitals do not   report actual hours worked. BLS' method for weighting the data in   computing hourly rates is confusing because it does not have hours as a   basis for the weighting.      MedPAC Recommendation: Use county-level adjustments, together with   a smoothing process, to constrain the magnitude of differences between   and within contiguous wage areas.      Public Comment Summaries:       The MedPAC used 2000 census data to establish the   relationship between counties within a MSA. Using old data may create   differences in wage indices that are inconsistent with actual   geographic differences in wages.       Using counties as the units of analysis may not be   optimal. Some counties tend to be quite large and topographically   diverse, while other counties are small and relatively homogeneous.       CMS' current methodology, with the exception of commuting   pattern adjustments, assumes there is no interrelationship between   areas. More refined areas, such as resulting from the MedPAC's   smoothing methodology, may be more realistic and less arbitrary.       Smoothing may mask actual variation between labor market   areas.       The 10-percent cliffs used in the MedPAC's smoothing   process are set subjectively and, as the MedPAC noted, a percentage of   8 or 12 percent could alternatively be used. Depending on the area,   changing the percentage could cause swings of millions of dollars.      MedPAC Recommendation: Adopt methods (such as a 3-year rolling   average) to minimize the volatility of wage index adjustments while   maintaining the principle of budget neutrality.      Public Comment Summaries:       Volatility in hospital wage indices from one year to the   next makes it difficult for hospitals to estimate Medicare payments for   budgeting purposes. While the 3-year rolling average used by BLS may   reduce volatility, alternative approaches should be examined, including   those that do not rely on BLS data.       While a rolling average may make the wage data look better   from a statistical point, it may not result in a fair wage distribution   tool. As hospitals make adjustments for current market conditions, an   average will mask the change.      CMS/Acumen Study and Analysis Plan: As stated earlier, CMS   contracted with Acumen to conduct an impact analysis and compare the   effects of MedPAC's recommended wage and hospital compensation indexes   with the CMS wage index and to provide analysis that assists CMS in   developing a proposal(s) that address the nine points under section   106(b)(2) of the MIEA-TRHCA.      Public Comment Summaries:       Comments were favorable and supportive of CMS' contract   with Acumen. One commenter found Acumen's analysis plan ``very   thorough'' and was pleased with the ``wide variety of options and   issues    [[Page 48566]]    relating to the wage index'' that were included in the analysis plan.   (Acumen discussed the plan at CMS' May 20, 2008 special open door forum   on wage index reform. The full transcript of the forum discussions is   available at the Web site: http://www.cms.hhs.gov/OpendoorForums/05_  ODF_SpecialODF.asp. Acumen's analysis plan will be posted on Acumen's   Web site subsequent to the publication of this final rule at: http://  www.acumenllc.com/reports/cms.) Another commenter expressed   appreciation for the breadth and complexity of fulfilling CMS'   statutory obligation under MIEA-TRHCA as well as the ``political   challenges of this task,'' and commended CMS' engagement of an outside,   independent contractor to assist CMS in this endeavor.       The majority of commenters suggested that comprehensive   wage index reform was necessary as opposed to incremental, interim   changes. To that end, the commenters strongly urged that CMS make no   changes to the wage index system until the Acumen study has been   completed. The commenters also stated that the process to consider   changes to the existing wage index should be very thorough and include   a wide range of options beyond MedPAC's recommendations. In addition,   the commenters recommended that CMS' review include the reasons that   CMS replaced the BLS data with cost report data in the 1980s.       Commenters commended CMS for the open door forum on the   wage index held in May 2008 and believed that, given the importance the   wage index has on hospital payment and the need for reform, the   industry and interested stakeholders be given every opportunity for   input through such open door forums. The commenters recommended   transparency in the process and that CMS provide ample time for public   review and comment on the study and any proposals stemming from CMS'   and Acumen's study results.       Several commenters suggested alternatives to the MedPAC   recommendations and CMS proposals. For example, some commenters   recommended that CMS implement a stop-loss to reduce wage index   decreases from one year to the next. The commenters explained that a   stop-loss would reduce volatility and increase predictability within   the hospital wage index. In addition, many commenters expressed the   need for a transition period for any changes to the wage index to   ensure less volatility in the wage index and prevent significant   reallocation of Medicare funds.      Response: We appreciate the many comments we received regarding   MedPAC's recommendations and the CMS/Acumen study and analysis of   reforming the wage index. At this time, because Acumen has not yet   completed all of its research and analysis and because we have not   fully analyzed the MedPAC recommendations, we are neither proposing nor   finalizing any changes in response to the specific MedPAC   recommendations. As stated above, as we study wage index reform in   further depth, we plan to consider all of the public comments on the   recommendations received during the rulemaking cycle. We plan to   include our assessment of the MedPAC recommendations, along with any   additional recommendations for further reforming the wage index, in the   FY 2010 IPPS proposed rule.  e. Impact Analysis of Using MedPAC's Recommended Wage Index      Acumen conducted an analysis comparing use of the MedPAC   recommended wage indices to the current CMS wage index. In the   following discussion, we use a variety of terminology to refer to the   wage indices recommended by MedPAC, as well as the wage indices   currently used by CMS.       When we refer to MedPAC's ``hospital compensation index''   or ``compensation index'', we are discussing the wage index that MedPAC   developed that includes an adjustment to account for differences in the   ratio of benefits to wages in different labor market areas. MedPAC   developed this ratio of benefits using Medicare cost report data.       When we refer to MedPAC's recommended ``wage index'', we   are discussing the MedPAC-developed index without any adjustment for   nonwage benefits. This wage index was developed using BLS data.       When we refer to CMS' ``pre-reclassification wage index''   or ``pre-reclassification, pre-floor wage index'', we are discussing   the wage index developed by CMS but without any adjustments for   geographic reclassifications or the rural floor. This wage index also   does not include any adjustments for outmigration, section 508   reclassifications, Lugar redesignations, section 401 urban-to-rural   reclassifications, or for any special exceptions.       When we refer to CMS' ``final wage index'', we are   discussing the wage index developed by CMS that is the final wage index   received by or to be received by a hospital. Thus, this wage index does   account for all geographic reclassifications as well as the rural   floor. This final wage index also includes any adjustments as a result   of outmigration, section 508 reclassifications, Lugar redesignations,   section 401 urban-to-rural reclassifications, or any other special   exceptions.      Acumen analyzed and compared all four of the wage indices discussed   above. In other words, Acumen compared (A) CMS' pre-reclassification,   pre-floor wage index for FY 2008 (which was provided by CMS and is   based on hospital cost reports from FY 2004) and CMS' final wage index   for FY 2008 with (B) both the MedPAC recommended hospital compensation   index and wage index for FY 2007. Acumen's comparisons of the CMS wage   index to the MedPAC recommended indices indicate the effects of various   components of the alternative wage indices. All of the comparisons   reflect differences between the CMS and BLS wage data. The comparison   of the CMS pre-reclassification index to the MedPAC compensation index   reflects the additional impact of MedPAC's method of using county level   adjustors to smooth differences in index values among the CMS wage   areas. The comparison of the CMS pre-reclassification index to the   MedPAC recommended wage index includes the effect of county-level   smoothing and indicates the incremental effect of removing the MedPAC   adjustment for benefits. The comparison of the CMS final wage index to   the MedPAC recommended wage index adds the incremental effect of   geographic reclassifications and other wage index exceptions (for   example, the rural and imputed floors) to the preceding comparison.   Finally, the comparison of the CMS final wage index to the MedPAC   recommended compensation index yields the combined effects of all the   differences between the two indices.      First, Acumen analyzed the overall impacts of the MedPAC   recommended indices. Acumen conducted the analysis at two levels: the   hospital level and the county level. At the hospital level, Acumen   analyzed all four comparisons described above. However, at the county   level, Acumen did not include comparisons using the CMS final wage   index because it includes reclassifications and other changes which are   granted to hospitals, not counties. As a result, hospitals in the same   county or wage area can have different final index values. Acumen's   analysis was based on 3,426 hospitals, for which all four wage index   values were available (the CMS pre-reclassification wage index, the CMS    [[Page 48567]]    final wage index, the MedPAC recommended hospital wage index, and the   MedPAC recommended hospital compensation index), and on the 1,595   counties in which these hospitals are located.      Second, Acumen estimated the impact for several subgroups of   hospitals and counties. At the hospital level, Acumen assessed the   impact by geographic area (for example, urban hospitals and rural   hospitals), hospital size (number of beds), geographic region, teaching   status, DSH status, SCH status, RRC status, MDH status, type of   ownership (government, proprietary, voluntary), and reclassification   status. At the county level, Acumen presented results for metropolitan   area counties and rural counties.      Third, Acumen calculated the change in the wage index that each   hospital (or county) could expect to experience from adopting the   MedPAC recommendations and reported statistics on these expected   differences (mean, median, standard deviation, minimum and maximum).   Acumen did not model changes in Medicare payments that would result   from using different wage indices. Instead, Acumen normalized all four   wage indices by setting their discharge weighted means equal to 1.00.   Normalization puts all four wage indices on the same scale so that   differences in wage index values between one index and another index   are directly comparable. As a result, the wage index differences   reported by Acumen imply payment differences, but do not precisely   measure the magnitude of those payment differences.      The main findings of Acumen's impact analysis are summarized as   follows:       Adopting the MedPAC recommendations would reduce the   differentials between wage index values across geographic areas. Both   the MedPAC wage and compensation indices are less dispersed than either   the CMS pre-reclassification wage index or the final wage index.       Under either of the MedPAC recommended indices,   differences between the highest and lowest wage index hospitals would   be reduced. For example, the range or difference that exists from the   highest wage index hospital to the lowest wage index hospital (the   ``high-low range'') under the MedPAC compensation index (0.752 versus   1.499, or a difference of 0.747) is roughly 11 percent smaller than the   high-low range in the CMS final wage index (0.732 versus 1.569, or a   difference of 0.837). Using the CMS pre-reclassification wage index as   a comparison (with a high-low range of 0.716 versus 1.600), the MedPAC   recommended compensation index is roughly 16 percent smaller. The   minimum value of the MedPAC recommended compensation index (0.752) is   roughly 5 percent larger than the minimum value of the CMS pre-  reclassification wage index (0.716), and the maximum value of the   MedPAC recommended compensation index (1.499) is roughly 6 percent less   than the maximum value of the CMS pre-reclassification index (1.600).       Adopting the MedPAC recommendations would also lower the   wage dispersion among both rural and urban hospitals (whether   classified by geography or payment), among hospitals of all sizes, and   among all hospitals categorized by teaching status, DSH status,   ownership status, and Medicare utilization status. These findings are   generally consistent, regardless of whether the MedPAC recommended   compensation index is compared to the CMS final wage index or to the   CMS pre-reclassification wage index.       Adopting the MedPAC recommendations would have a   differential impact on urban hospitals across geographic regions of the   country. In moving from the CMS final wage index to the MedPAC   compensation index, the largest reduction in standard deviations would   occur for urban hospitals in the New England region (-19.0 percent),   the Middle Atlantic region (-27.8 percent), and the Pacific region (-  19.0 percent). However, for urban hospitals in the West North Central   region, the standard deviation of wage index values would increase by   11.7 percent.       Adopting the MedPAC recommendations would decrease the   standard deviation among hospitals with most types of   reclassifications. For example, compared to the CMS final wage index,   the MedPAC compensation index would reduce the standard deviation by   11.6 percent.       The adoption of the MedPAC recommended indices would lead   a substantial number of hospitals to experience a large change in their   index values in the transition. If the MedPAC compensation index is   compared to the CMS final wage index, 37 percent of all hospitals would   see either increases or decreases of more than 5 percent. For   approximately 34 percent of the reclassified hospitals (or 278   hospitals), wage index values would decrease by more than 5 percent.   Reclassified hospitals comprise more than one-half of all hospitals   that would likely experience wage index decreases greater than 5   percent in moving from the CMS final wage index to the MedPAC   compensation index.       Under a move from the CMS pre-reclassification wage index   to the MedPAC recommended compensation index, counties in rural areas   would experience fewer decreases and more increases in their wage index   compared to counties in urban areas. (As noted above, county level   comparisons were not performed using the CMS final wage index.)      The above findings are discussed in more detail in Acumen's interim   report, which will be available after the publication of this final   rule, at the Web site: http://www.acumenllc.com/reports/cms.  2. CMS Proposals and Final Policy Changes in Response to Requirements   Under Section 106(b) of the MIEA-TRHCA      As discussed in section III.A. of this preamble, the purpose of the   hospital wage index is to adjust the IPPS standardized payment to   reflect labor market area differences in wage levels. The geographic   reclassification system exists in order to assist ``hospitals which are   disadvantaged by their current geographic classification because they   compete with hospitals that are located in the geographic area to which   they seek to be reclassified'' (56 FR 25469). Geographic   reclassification is established under section 1886(d)(10) of the Act   and is implemented through 42 CFR part 412, subpart L. (We refer   readers to section III.I. of this preamble for a detailed discussion of   the geographic reclassification system and other area wage index   exceptions.)      In its June 2007 Report to Congress, MedPAC discussed its findings   that geographic reclassification, and numerous other area wage index   exceptions added to the system over the years, have created major   complexities and ``troubling anomalies'' in the hospital wage index. A   review of the IPPS final rules reveals a long history of legislative   changes that have permitted certain hospitals, that otherwise would not   be able to reclassify under section 1886(d)(10) of the Act, to receive   a higher wage index than calculated for their geographic area. MedPAC   reports that more than one-third of hospitals now receive a higher wage   index due to geographic reclassification or other wage index   exceptions. We are concerned about the integrity of the current system,   and agree with MedPAC that the process has become burdensome.      As noted above, MedPAC recommended the elimination of geographic   reclassification and other    [[Page 48568]]    wage index exceptions. In addition, the President's FY 2009 Budget   included a proposal to apply the geographic reclassification budget   neutrality requirement at the State level rather than by adjusting the   standardized rate for hospitals nationwide. Given the language in   section 1886(d)(10) of the Act establishing the MGCRB, we believe a   statutory change would be required to make these changes. However, we   do have the authority to make some regulatory changes to the   reclassification system. These regulatory changes are discussed below.   We note that these changes do not preclude future consideration of the   MedPAC recommendations discussed in section III.B.1. of this preamble,   when the recommendations could be implemented administratively.  a. Proposed and Final Revision of the Reclassification Average Hourly   Wage Comparison Criteria      Regulations at 42 CFR 413.230(d)(1) set forth the average hourly   wage comparison criteria that an individual hospital must meet in order   for the MGCRB to approve a geographic reclassification application. Our   current criteria (requiring an urban hospital to demonstrate that its   average hourly wage is at least 108 percent of the average hourly wage   of hospitals in the area in which the hospital is located and at least   84 percent of the average hourly wage of hospitals in the area to which   it seeks redesignation) were adopted in the FY 1993 IPPS final rule (57   FR 39825). In that final rule, we explained that the 108 percent   threshold ``is based on the national average hospital wage as a   percentage of its area wage (96 percent) plus one standard deviation   (12 percent).'' We also explained that we would use the 84-percent   threshold to reflect the average hospital wage of the hospital as a   percentage of its area wage less one standard deviation. We stated that   ``to qualify for a wage index reclassification, a hospital must have an   average hourly wage that is more than one national standard deviation   above its original labor market area and not less than one national   standard deviation below its new labor market area'' (57 FR 39770). In   response to numerous public comments we received, we expressed our   policy and legal justifications for adopting the specific thresholds.   Among other things, we stated that geographic reclassifications must be   viewed not just in terms of those hospitals that are reclassifying, but   also in terms of the nonreclassifying hospitals that, through a budget   neutrality adjustment, are required to bear a financial burden   associated with the higher wage indices received by those hospitals   that reclassify. We also indicated that the Secretary has ample legal   authority under section 1886(d)(10) of the Act to set the wage   comparison thresholds and to revise such thresholds upon further   review. We refer readers to that final rule for a full discussion of   our justifications for the standards.      In the FY 2000 IPPS final rule (65 FR 47089 through 47090), the   wage comparison criteria for rural hospitals seeking individual   hospital reclassifications were reduced to 82 percent and 106 percent   to compensate for the historic economic underperformance of rural   hospitals. The 2-percent drop in both thresholds was determined to   allow a significant benefit to some hospitals that were close to   meeting the existing criteria but would not make the reclassification   standards overly liberal for rural hospitals.      CMS had not evaluated or recalibrated the average hourly wage   criteria for geographic reclassification since they were established in   FY 1993. In consideration of the MIEA-TRHCA requirements and MedPAC's   finding that over one-third of hospitals are receiving a reclassified   wage index or other wage index adjustment, we decided to reevaluate the   average hourly wage criteria for geographic reclassification. We ran   simulations with more recent wage data to determine what would be the   appropriate average hourly wage criteria. We found that the average   hospital average hourly wage as a percentage of its area's wage has   increased from approximately 96 percent in FY 1993 to closer to 98   percent over FYs 2006, 2007, and 2008 (97.8, 98.1, and 98.1 percent,   respectively). We also determined that the standard deviation has been   reduced from approximately 12 percent in FY 1993 to closer to 10   percent over the same 3-year period (10.7, 10.3, and 10.1 percent,   respectively); that is, assuming normal distributions, approximately 68   percent of all hospitals would have an average hourly wage that   deviates less than 10 percentage points above or below the mean. This   assessment indicates that the new baseline criteria for   reclassification should be set to 88/108 percent. While the 108   criterion does not require adjustment, the current 84 percent standard   is too low a threshold to serve the purpose of establishing wage   comparability with a proximate labor market area.      To assess the impact that these changes would have had on hospitals   that reclassified in FY 2008, we ran models that set urban individual   reclassification standards to 88/108 percent and the county group   reclassification standard to 88 percent. We retained the 2-percent   benefit for rural hospitals by setting an 86/106 percent standard. We   used 3-year average hourly wage figures from the 2005, 2006, and 2007   wage surveys and compared them to 3-year average hourly wage figures   for CBSAs over the same 3-year period.      Of the 295 hospitals that applied for and received individual   reclassifications in FY 2008, 45 of them (15.3 percent) would not meet   the proposed 88/86 percent threshold. Of the 66 hospitals that applied   for and received county group reclassification in FY 2008, 6 hospitals   (9.1 percent) in 3 groups would not have qualified with the new   standards. We also ran comparisons for hospitals that reclassified in   FY 2006 and FY 2007 to determine if they would have been able to   reclassify in FY 2008, using 3-year averages available in FY 2008. We   found that, of all hospitals that were reclassified in FY 2008 (that   is, applications approved for FYs 2006 through 2008), 14.7 percent of   individual reclassifications and 8.5 percent of county group   reclassification would not have qualified to reclassify in FY 2008.      Section 106 of MIEA-TRHCA requires us to propose revisions to the   hospital wage index system after considering the recommendations of   MedPAC. To address this requirement, in the FY 2009 IPPS proposed rule   (73 FR 23620), we proposed that the 84/108 criteria for urban hospital   reclassifications and the 82/106 criteria for rural hospital   reclassifications be recalibrated using the methodology published in   the FY 1993 final rule and more recent wage data (that is, data used in   computing the FYs 2006, 2007, 2008 wage indices). As we stated in the   proposed rule, we believe that hospitals that are seeking to reclassify   to another area should be required to demonstrate more similarity to   the area than the current criteria permit, and our recent analysis   demonstrates that those criteria are no longer appropriate. Therefore,   we proposed to change the criterion for the comparison of a hospital's   average hourly wage to that of the area to which the hospital seeks   reclassification to 88 percent for urban hospitals and 86 percent for   rural hospitals for new reclassifications beginning with the FY 2010   wage index and, accordingly, revise our regulations at 42 CFR 412.230   to reflect these changes. The criterion for the comparison of a   hospital's average hourly wage to that of its geographic area would be   unchanged    [[Page 48569]]    (108 percent for urban hospitals and 106 percent for rural hospitals).   We also proposed that, when there are significant changes in labor   market area definitions, such as CMS' adoption of new OMB CBSA   definitions based upon the decennial census (69 FR 49027), we would   again reevaluate and, if warranted, recalibrate these criteria. This   would allow CMS to consider the effects of periodic changes in labor   market boundaries and provide a regular timeline for updating and   validating the reclassification criteria. Finally, we proposed to   adjust the 85 percent criterion for both urban and rural county group   reclassifications to be equal to the proposed 88 percent standard for   urban reclassifications, and to revise the regulations at 42 CFR   412.232 and 412.234 to reflect the change. The urban and rural county   group average hourly wage standard has always been equivalent for both   urban and rural county groups and has always been 1 percent higher than   the 84 percent urban area individual reclassification standard. We   proposed to continue the policy of having an equivalent wage comparison   criterion for both urban and rural county groups, as these groups have   always used the same wage comparison criteria. We also proposed to use   the individual urban hospital reclassification standard of 88 percent   because this threshold would ensure that the hospitals in the county   group are at least as comparable to the proximate area as are   individual hospitals within their own areas. In addition, we indicated   that we do not believe it would be appropriate to have a group   reclassification standard lower than the individual reclassification   standards, thus potentially creating a situation where all of the   hospitals in a county could reclassify, even though no single hospital   within such county would be able to meet any average hourly wage-  related comparisons for an individual reclassification.      We considered raising the group reclassification criterion to 89   percent in order to preserve the historical policy of the standard   being set at 1 percent higher than the individual reclassification   standard. However, we determined that making the group standard equal   to the individual standard would adequately address our stated   concerns.      The proposed changes in the reclassification criteria would apply   only to new reclassifications beginning with the FY 2010 wage index.   Any hospital or county group that is in the midst of a 3-year   reclassification in FY 2010 would not be affected by the proposed   criteria change until they reapply for a geographic reclassification.   Therefore, we proposed that the effective date for these changes would   be September 1, 2008, the deadline for hospitals to submit applications   for reclassification for the FY 2010 wage index.      Comment: The majority of commenters did not support CMS' proposal   to revise the average hourly wage criteria because of concern that the   policy would make achieving geographic reclassification more difficult   for some providers. Most commenters stated that such proposals should   be delayed and incorporated into a more comprehensive reform framework.   The commenters also expressed concerns that such a proposal would   further destabilize an already highly variable wage index system, and   would make provider operations and planning more onerous and result in   detrimental impacts on quality of care. Although some commenters   supported CMS using more recent data to analyze the reclassification   criteria, they questioned whether CMS performed appropriate statistical   analysis. The commenters requested additional study and impact analyses   to assure that provider-to-CBSA average hourly wage ratios (the basis   for the reclassification average hourly wage criteria) were indeed   normally distributed, as was assumed by the original methodology.      Response: We do not believe that our commitment to examine further   broad-based reform requires us to postpone specific reclassification   criteria changes that would enhance labor market integrity under the   current system. It is not our intention to destabilize the wage index   system, but to instead implement consistent and meaningful criteria to   standardize a reclassification process that analysis proves no longer   accomplishes its stated purpose. The MedPAC report on the Medicare   hospital wage index reform specifically cited the fact that a large   percentage of the wage index variation between its proposed   methodologies and the current system occurred relative to   reclassifications and other wage index exceptions. This suggests that   the current reclassification system has a strong causal connection to   the large variations and inconsistencies that are often observed in the   Medicare hospital wage index system. Although some hospitals will   likely no longer be able to reclassify with the new standards, revising   the reclassification average hourly wage comparison criteria is not   only well within the authority of CMS under section 1886(d)(10)(D) of   the Act, but it also reflects what we believe to be a more reasonable   reclassification threshold based on the most recent data.      In response to concerns expressed about the assumptions and   validity of our methodology, we refer to the chart at the end of this   response. We agree that, in using standard deviations from the mean to   establish threshold criteria, it is important for the data to be   normally distributed (for example, a bell-shaped curve). While some   commenters stated that a mean of 98 percent (versus a mean of 100   percent or 1.00) shows that the distribution was necessarily skewed,   using FY 2008 data, we found that the analyzed ratios formed a   consistent bell-curve and demonstrated only a minor negative skew which   tested well within the bounds of statistical significance of a normal   distribution. Rural hospitals show a greater variability and less   central tendency than urban providers. However, even if the original   methodology was applied to urban and rural providers separately, the   mean and standard deviation would support a comparison criterion still   more restrictive than the proposed 86-percent standard for rural   providers. Furthermore, additional statistical analysis would suggest   that the 106-percent standard is not restrictive enough for rural   providers. Certain outliers are removed from the chart at the end of   this response to provide a clearer visual representation. Inclusion or   exclusion of these outliers did not greatly affect the statistical   significance of the analysis. With the nearly perfectly distributed   nature of the comparison data, and the additional 2 percent benefit   that rural providers receive, we are not convinced that an alternative   methodology would yield a truer representation of typical variations in   any given labor market area.    [[Page 48570]]    [GRAPHIC] [TIFF OMITTED] TR19AU08.005        Comment: Some commenters requested CMS to specifically address the   impact on rural providers and RRCs.      Response: Rural providers would be more likely to fail to meet   reclassification standards. More than half of the hospitals currently   receiving geographic reclassification are located in rural areas, while   less than one-third of all IPPS hospitals are located in rural CBSAs.   Therefore, it is to be expected that the proposed criteria change would   affect a higher proportion of rural providers. However, we cannot fully   analyze such a specific impact on rural providers because the 35-mile   reclassification proximity requirement makes it quite possible that   many rural providers would have additional reclassification   opportunities, perhaps to more wage appropriate CBSAs. We also note   that our proposal did not affect benefits currently afforded to RRCs,   such as waiver of the 106/108 percent standards and limited waiver of   normal proximity requirements.      Comment: Other comments cited specific circumstances where   providers would encounter significant negative impacts not considered   by CMS when the average hourly wage criteria proposal is implemented in   conjunction with other wage index proposals. One commenter requested   that any criteria changes be phased in over the course of multiple   fiscal years.      Response: We believe that the overall benefits of maintaining   appropriate reclassification standards will improve the overall wage   index payment system. If some hospitals have been benefiting from   reclassifying to labor market areas which are not statistically   appropriate on the basis of their average hourly wage data, such   reclassifications have been at the expense of all other providers   because of the geographic reclassification budget neutrality   adjustment.      After consideration of the public comments we received, we are   adopting in this final rule the policy to adjust the reclassification   average hourly wage standard, comparing a reclassifying hospital's (or   county hospital group's) average hourly wage relative to the average   hourly wage of the area to which it seeks reclassification. However, we   will be phasing in the adjustment over two years. For the first   transitional year, FY 2010, the average hourly wage standards will be   changed to 86 percent for urban and group reclassifications and to 84   percent for rural hospitals. In the second year, FY 2011, the average   hourly wage standards will be changed to 88 percent for urban and group   reclassifications and to 86 percent for rural hospitals (revised   Sec. Sec.  412.230, 412.232, and 412.234). The purpose of the wage   index is to provide, as accurate as possible, a measure of geographic   labor cost variations. The reclassification process was intended to   provide hospitals that, due to imperfections in the labor market   boundaries and/or definitions, compete with hospitals in higher waged   labor market areas. It is a fundamental flaw in the reclassification   system if payments are inappropriately redistributed because hospitals   without statistically comparable labor costs are reclassified to areas   with higher wage index values. Therefore, for reclassifications   beginning in FY 2010 (for which the application deadline is September   2, 2008), the transitional average hourly wage comparison criteria will   be in effect. For reclassifications beginning in FY 2011, the new   average hourly wage comparison criteria will be fully in effect.  b. Within-State Budget Neutrality Adjustment for the Rural and Imputed   Floors      Section 4410 of the Balanced Budget Act of 1997 (BBA) established   the rural floor by requiring that the wage index for a hospital in an   urban area of a State cannot be less than the area wage index received   by rural hospitals in that State. Section 4410(b) of the BBA imposed   the budget neutrality requirement and stated that the Secretary shall   ``adjust the area wage index referred to in subsection (a) for   hospitals not described in such subsection.'' Therefore, in order to   compensate for the increased wage indices of urban hospitals receiving   the rural floor, a nationwide budget neutrality adjustment is applied   to the wage index to account for the additional payment to these   hospitals. As a result, urban hospitals that qualify for their State's   rural floor wage index receive enhanced payments at the expense of all   rural hospitals nationwide and all other urban hospitals that do not   receive their State's rural floor. Tentatively, for the final wage   index, we find that 277 hospitals in 28 States would receive the rural   floor. (Due to the intervening requirements of section 124 of Pub. L.   110-275, these numbers could change in the final FY 2009 wage index to   be published in a separate Federal Register notice subsequent to this   final rule.) The first chart below lists the percentage of total   payments each State could either    [[Page 48571]]    receive or contribute to fund the current rural floor and imputed floor   provisions with national budget neutrality adjustments (as indicated in   the discussion of the imputed floor below in this section III.B.2.b.).   The second chart below provides a graphical depiction of the tentative   FY 2009 impacts.     FY 2009 IPPS Estimated Payments With Transition to Within-State Rural Floor and Imputed Floor Budget Neutrality  ----------------------------------------------------------------------------------------------------------------                                                                                  New policy                                                                                application of                                                                               rural floor and                                                             Former policy      imputed rural                                                             application of    floor with blend                                                             national rural    of 80% national   Net effect of the                           State                           floor and imputed    and 20% state-    change in policy                                                              floor budget     specific budget      for FY 2009                                                               neutrality         neutrality                                                                                compared to no                                                                               rural or imputed                                                                                 rural floor  ----------------------------------------------------------------------------------------------------------------  Alabama................................................               -0.2               -0.2                  0  Alaska.................................................                  0                  0                  0  Arizona................................................               -0.2               -0.2                  0  Arkansas...............................................               -0.2               -0.2                  0  California.............................................                0.8                0.7               -0.2  Colorado...............................................                  0                  0                  0  Connecticut............................................                2.1                1.7               -0.4  Delaware...............................................               -0.2               -0.2                  0  Washington, DC.........................................               -0.2               -0.2                  0  Florida................................................               -0.1               -0.1                  0  Georgia................................................               -0.2               -0.2                  0  Hawaii.................................................               -0.2               -0.1                  0  Idaho..................................................               -0.2               -0.1                  0  Illinois...............................................               -0.2               -0.2                  0  Indiana................................................               -0.2               -0.1                  0  Iowa...................................................                  0                  0                  0  Kansas.................................................               -0.2               -0.1                  0  Kentucky...............................................               -0.2               -0.1                  0  Louisiana..............................................               -0.2               -0.1                  0  Maine..................................................               -0.2               -0.1                  0  Massachusetts..........................................               -0.2               -0.2                  0  Michigan...............................................               -0.2               -0.2                  0  Minnesota..............................................               -0.2               -0.2                  0  Mississippi............................................               -0.2               -0.2                  0  Missouri...............................................               -0.2               -0.1                  0  Montana................................................               -0.1               -0.1                  0  Nebraska...............................................               -0.2               -0.1                  0  Nevada.................................................               -0.2               -0.2                  0  New Hampshire..........................................                0.8                0.7               -0.2  New Jersey.............................................                0.7                0.5               -0.2  New Mexico.............................................               -0.1               -0.1                  0  New York...............................................               -0.2               -0.2                  0  North Carolina.........................................               -0.2               -0.2                  0  North Dakota...........................................                0.1                0.1                  0  Ohio...................................................               -0.2               -0.1                  0  Oklahoma...............................................               -0.2               -0.1                  0  Oregon.................................................               -0.2               -0.2                  0  Pennsylvania...........................................               -0.2               -0.1                  0  Puerto Rico............................................               -0.1               -0.1                  0  Rhode Island...........................................               -0.2               -0.2                  0  South Carolina.........................................               -0.1               -0.1                  0  South Dakota...........................................               -0.2               -0.1                  0  Tennessee..............................................               -0.1                  0                  0  Texas..................................................               -0.2               -0.1                  0  Utah...................................................               -0.2               -0.2                  0  Vermont................................................                3.4                2.7               -0.7  Virginia...............................................               -0.2               -0.2                  0  Washington.............................................               -0.1               -0.1                  0  West Virginia..........................................               -0.1               -0.1                  0  Wisconsin..............................................               -0.1               -0.1                  0  Wyoming................................................                  0                  0                  0  ----------------------------------------------------------------------------------------------------------------    BILLING CODE 4120-01-P    [[Page 48572]]    [GRAPHIC] [TIFF OMITTED] TR19AU08.006    BILLING CODE 4120-01-C      The above charts demonstrate how, at a State-by-State level, the   rural floor is creating a benefit for a minority of States that is then   funded by a majority of States, including States that are   overwhelmingly rural in character. The rural floor was established to   address anomalous occurrences where certain urban areas in a State have   unusually depressed wages when compared to the State's rural areas.   However, as we indicated in the proposed rule, because these   comparisons occur at the State level, we believe it also would be sound   policy to make the budget neutrality adjustment specific to the State,   redistributing payments among hospitals within the State, rather than   adjusting payments to hospitals in other States.      In addition, we stated in the proposed rule that we believed a   statewide budget neutrality adjustment would address the situation we   discussed in the FY 2008 IPPS final rule with comment period (72 FR   47324) in which rural CAHs were converting to IPPS status, apparently   to raise the State's rural wage index to a level whereby all urban   hospitals in the State would receive the rural floor. Medicare payments   to CAHs are based    [[Page 48573]]    on 101 percent of reasonable costs, while the IPPS pays hospitals a   fixed rate per discharge. In addition, as a CAH, a hospital is   guaranteed to recover its costs, while an IPPS hospital is provided   with incentives to increase efficiency to cover its costs. Thus, we   stated that the identified CAHs were converting back to IPPS, even   though the conversion would not directly benefit them. Because these   hospitals' wage levels are higher than most, if not all, of the urban   hospitals in the State, the wage indices for most, if not all, of the   State's urban hospitals would increase as a result of the rural floor   provision if the CAHs convert to IPPS status. In simulating the effect   of the hospitals setting the State's rural floor, we estimated that   payment to hospitals in the State would increase in excess of $220   million in a single year. The MedPAC, in its June 2007 Report to the   Congress stated, ``The fact that the movement of one or two CAHs in or   out of the [I]PPS system can increase (or decrease) Medicare payments   by $220 million suggests there is a flaw in the design of the wage   index system.'' (We refer readers to page 131 of the report.)      For the above reasons, in the FY 2009 IPPS proposed rule (73 FR   23622), we proposed to apply a State level rural floor budget   neutrality adjustment to the wage index beginning in FY 2009. We   proposed that States that have no hospitals receiving a rural floor   wage index would no longer have a negative budget neutrality adjustment   applied to their wage indices. Conversely, hospitals in States with   hospitals receiving a rural floor would have their wage indices   downwardly adjusted to achieve budget neutrality within the State. We   proposed that all hospitals within each State would, in effect, be   responsible for funding the rural floor adjustment applicable within   that specific State.      In the FY 2005 IPPS final rule and the FY 2008 IPPS final rule with   comment period (69 FR 49109 and 72 FR 47321, respectively), we   temporarily adopted an ``imputed'' floor measure to address a concern   by some individuals that hospitals in all-urban States were   disadvantaged by the absence of rural hospitals. Because no rural wage   index could be calculated, no rural floor could be applied within such   States. We originally limited application of the policy to FYs 2005   through 2007 and then extended it one additional year, through FY 2008.   In the FY 2009 IPPS proposed rule (73 FR 23623), we proposed to extend   the imputed floor for 3 additional years, through FY 2011, and to   revise the introductory text of Sec.  412.64(h)(4) of our regulations   to reflect this extension. For FY 2009, 26 hospitals in New Jersey   (33.8 percent) would receive the imputed floor. Rhode Island, the only   other all-urban State, has no hospitals that would receive the imputed   floor. In past years, we applied a national budget neutrality   adjustment to the standardized amount to ensure that payments remained   constant to payments that would have occurred in the absence of the   imputed floor policy. As a result, payments to all other hospitals in   the Nation were adjusted downward to subsidize the higher payments to   New Jersey hospitals receiving the imputed floor. As the intent of the   imputed floor is to create a protection to all-urban States similar to   the protection offered to urban-rural mixed States by the rural floor,   and the effect of the measure is also State-specific like the rural   floor, we indicated that we believe that the budget neutrality   adjustments for the imputed floor and the rural floor should be applied   in the same manner. Therefore, beginning with FY 2009, we also proposed   to apply the imputed floor budget neutrality adjustment to the wage   index and at the State level.      In the proposed rule, we specifically requested public comments   from national and State hospital associations regarding the proposals,   particularly the national associations, as they represent member   hospitals that are both positively and negatively affected by the   proposed policies, and were, therefore, in the best position to comment   on the policy merits of the proposals. We indicated that we would view   the absence of any comments from the national hospital associations as   a sign that they do not object to our proposed policies.      Comment: Some commenters supported the proposal to apply the rural   floor and imputed floor budget neutrality adjustment on a State basis,   as opposed to making a national adjustment. A few commenters stated   that it was not appropriate and competitively unfair for a provider   receiving a wage index lower than the lowest urban providers in another   State to have its wage index reduced by CMS to increase payments to the   other higher paid providers. Other commenters supported CMS's efforts   to protect hospitals from unwarranted reductions in their wage index   values due to the current rural floor policy. MedPAC expressed its   support for CMS's proposed statewide budget neutrality adjustments for   the rural and imputed floors as an interim step in reforming the wage   index. MedPAC noted that the rural floor policy itself is troubling   because it is ``built on a false assumption that hospital wage rates in   all urban labor markets in a (S)tate are always higher than the average   hospital wage rate in rural areas of the (S)tate.'' MedPAC agreed with   CMS that the proposed State level budget neutrality adjustment ``would   improve fairness and reduce opportunities to game the wage index   system.''      However, the majority of commenters, including most national and   State hospital associations, did not support the proposal to apply a   State level budget neutrality adjustment for the rural and imputed   floors. Many commenters stated that a major policy initiative should be   postponed and included in discussions and planning for more broad-based   wage index reform. They suggested that such a policy decision by CMS   only makes the Medicare wage index system more variable and unstable,   creating onerous difficulties for hospital administrators to plan   operations and potentially harming the quality of care provided. Many   of the commenters, particularly in States that benefit most from the   current national budget neutrality adjustment for the rural and imputed   floors, cited the financial losses that would result from our proposal.      Some commenters stated that it is inconsistent with prior CMS   policy to apply any wage index adjustment on a State-by-State basis.   They suggested that, because the intent of Congress for the rural floor   was to address ``anomalous'' situations where urban areas may have   lower wages than nearby rural areas, the adjustment should be shared by   all hospitals to maximize the benefit of the floor, while minimizing   the individual costs to fund it. Similarly, the commenters contended   that, ``budget neutrality must remain a national policy in accordance   with current practice in order to retain balance and symmetry within a   complex wage index environment.''      Response: We continue to believe that, while the majority of wage   index budget neutrality adjustments have been applied on a nationwide   basis, the particular nature of the rural and imputed floors, for which   applicability is determined on a State level basis, is better addressed   by a within-State adjustment. The current system requires hospitals   nationwide to fund an adjustment to the Medicare payment system to   address unrelated situations in a minority of States. The variances   between urban and rural wage indices within a State have no relevant   causal connection to the wage indices of another State, and it does not   follow that such variances should be adjusted    [[Page 48574]]    through a national budget neutrality adjustment.      Therefore, we have decided to adopt our proposal for State level   budget neutrality for the rural and imputed floors as final in this   final rule, to be effective beginning with the FY 2009 wage index.   However, in response to the public's concerns and taking into account   the potentially drastic payment cuts that may occur to hospitals in   some States, we have decided to phase in, over a 3-year period, the   transition from the national budget neutrality adjustment to the State   level budget neutrality adjustment. In FY 2009, hospitals will receive   a blended wage index that is 20 percent of a wage index with the State   level rural and imputed floor budget neutrality adjustment and 80   percent of a wage index with the national budget neutrality adjustment.   In FY 2010, the blended wage index will reflect 50 percent of the State   level adjustment and 50 percent of the national adjustment. In FY 2011,   the adjustment will be completely transitioned to the State level   methodology.      We are incorporating this final policy in our regulation text at   new Sec.  412.64(e)(4). Specifically, we are providing that CMS makes   an adjustment to the wage index to ensure that aggregate payments after   implementation of the rural floor under section 4410 of the Balanced   Budget Act of 1997 (Pub. L. 105-33) and the imputed rural floor under   Sec.  412.64(h)(4) are made in a manner that ensures that aggregate   payments to hospitals are not affected. Beginning October 1, 2008, such   adjustments will transition from a nationwide to a statewide   adjustment, with a statewide adjustment fully in place by October 1,   2011.      Comment: While some commenters supported CMS's efforts to address   the issue of potential gaming of the rural floor, many commenters   indicated that it should not be the sole impetus for within-State rural   floor budget neutrality because it would unfairly penalize nongaming   providers.      Response: As discussed above, as well as in the FY 2008 final and   FY 2009 proposed rules (72 FR 47321 and 73 FR 23620, respectively),   while the gaming issue was an important concern that we sought to   address, it was neither the only nor the primary justification for   proposing the within-State budget neutrality adjustment. We believe   that, for all providers, the within-State budget neutrality policy is   more equitable than the national adjustment because it concentrates the   budget neutrality at the State level for a statutory provision that   applies benefits at the State level. We note that the statute requires   that total payments with a rural floor do not exceed payments that   would have been made in the absence of a floor, but does not mandate a   national adjustment.      Comment: One commenter stated that adoption of a within-State   application of budget neutrality will further complicate the   methodology for calculating the wage index, particularly for hospitals   in CBSAs that cross State lines, or that reclassify to a CBSA in   another State. The commenter expressed concern that the proposal will   lead to less transparency in the wage index calculation and make it   more difficult for hospitals to evaluate their most beneficial options   in regard to reclassification and other wage index exceptions.      Response: Application of the rural floor already requires that, for   CBSAs that cross State lines, two or more wage indices may need to be   calculated in order to reflect the reality of a rural floor applying in   one or more of the States. (We refer readers to Table 4A, to be   published in a separate Federal Register notice subsequent this final   rule, to see how State location may affect the wage index within a   single CBSA.) A State's rural or imputed floor budget neutrality   adjustment applies to any hospital that is geographically located in   the State, even when a hospital is reclassified or redesignated to a   CBSA in another State. We explain in section II.A. of the Addendum to   this final rule how within-State budget neutrality adjustments for the   rural and imputed floors are calculated and how the transitional   blended adjustment will be implemented.      Comment: Some commenters disagreed with CMS' decision to further   extend the imputed floor policy through FY 2011. The commenters   contended that the imputed floor is unnecessary and should never have   been implemented without Congressional mandate. Other commenters   supported CMS' proposal to extend the imputed floor policy, but some   supported the extension only on the condition that CMS applies the   imputed floor budget neutrality adjustment in the same manner that it   applies the rural floor adjustment.      Response: As proposed, we are extending the imputed floor for 3   additional years, through FY 2011. Beginning with the FY 2009 wage   index in this final rule, we are also applying budget neutrality for   the imputed floor in the same manner that we apply budget neutrality   for the rural floor. (We refer readers to the discussion in section   III.B.2.b. of this preamble.)      In the proposed rule, we indicated that based on our impact   analysis of these proposals for FY 2009, of the 49 States (Maryland is   excluded because it is under a State waiver), the District of Columbia,   and Puerto Rico, 39 would see either no change or an increase in total   Medicare payments as a result of applying a budget neutrality   adjustment to the wage index for the rural and imputed floors at the   State level rather than the national level. The total payments of the   remaining 12 States would decrease 0.1 percent to 3.4 percent compared   to continuing our prior national adjustment policy. For this final   rule, the full impact analysis of the final policy is reflected in the   two charts presented in section III.B.2.b. of the preamble of this   final rule. Table 4D-1, which will be included in a separate Federal   Register notice subsequent to this final rule reflects the final FY   2009 State level budget neutrality adjustments for the rural and   imputed floors for the first year of the 3-year transition of the   budget neutrality adjustments for these floors from the national level   to the State level, as discussed above.  c. Within-State Budget Neutrality Adjustment for Geographic   Reclassification      As discussed in the FY 2009 IPPS proposed rule (73 FR 23623), the   FY 2009 President's Budget includes a legislative proposal to apply   geographic reclassification budget neutrality at the State level   (available at the Web site: http://www.hhs.gov/budget/09budget/  2009BudgetInBrief.pdf under FY 2009 Medicare Proposals, page 54).      Comment: A number of commenters objected to the legislative   proposal we discussed in the proposed rule that would apply budget   neutrality for geographic reclassification at the State level.      Response: Our discussion of within-State budget neutrality for   geographic reclassifications related to a legislative proposal included   in the FY 2009 President's Budget, and not a new proposed   administrative policy. If such a measure were enacted by the Congress,   CMS would comply with the law.    C. Core-Based Statistical Areas for the Hospital Wage Index        The wage index is calculated and assigned to hospitals on the basis   of the labor market area in which the hospital is located. In   accordance with the broad discretion under section 1886(d)(3)(E) of the   Act, beginning with FY 2005, we define hospital labor market areas   based on the Core-Based Statistical Areas    [[Page 48575]]    (CBSAs) established by OMB and announced in December 2003 (69 FR   49027). For a discussion of OMB's revised definitions of CBSAs and our   implementation of the CBSA definitions, we refer readers to the   preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).      As with the FY 2008 final rule, in the FY 2009 IPPS proposed rule   (73 FR 23623), we proposed to provide that hospitals receive 100   percent of their wage index based upon the CBSA configurations.   Specifically, for each hospital, we proposed to determine a wage index   for FY 2009 employing wage index data from hospital cost reports for   cost reporting periods beginning during FY 2005 and using the CBSA   labor market definitions. We consider CBSAs that are MSAs to be urban,   and CBSAs that are Micropolitan Statistical Areas as well as areas   outside of CBSAs to be rural. In addition, it has been our longstanding   policy that where an MSA has been divided into Metropolitan Divisions,   we consider the Metropolitan Division to comprise the labor market   areas for purposes of calculating the wage index (69 FR 49029). We   proposed to codify this longstanding policy into our regulations at   Sec.  412.64(b)(1)(ii)(A).      Comment: One commenter supported the CMS proposal to codify its   longstanding policy that a Metropolitan Division of an MSA is treated   as a labor market area for purposes of calculating the wage index.      Response: We appreciate the commenter's support of our proposal to   codify this policy in our regulations. In this final rule, we are   adopting the proposed change under Sec.  412.64(b)(1)(ii)(A) as final.      On November 20, 2007, OMB announced the revision of titles for   eight urban areas (OMB Bulletin No. 08-01). The revised titles are as   follows:       Hammonton, New Jersey qualifies as a new principal city of   the Atlantic City, New Jersey CBSA. The new title is Atlantic City-  Hammonton, New Jersey CBSA;       New Brunswick, New Jersey, located in the Edison, New   Jersey Metropolitan Division, qualifies as a new principal city of the   New York-Northern New Jersey-Long Island, New York, New Jersey,   Pennsylvania CBSA. The new title for the Metropolitan Division is   Edison-New Brunswick, New Jersey CBSA;       Summerville, South Carolina qualifies as a new principal   city of the Charleston-North Charleston, South Carolina CBSA. The new   title is Charleston-North Charleston-Summerville, South Carolina;       Winter Haven, Florida qualifies as a new principal city of   the Lakeland, Florida CBSA. The new title is Lakeland-Winter Haven,   Florida;       Bradenton, Florida replaces Sarasota, Florida as the most   populous principal city of the Sarasota-Bradenton-Venice, Florida CBSA.   The new title is Bradenton-Sarasota-Venice, Florida. The new CBSA code   is 14600;       Frederick, Maryland replaces Gaithersburg, Maryland as the   second most populous principal city in the Bethesda-Gaithersburg-  Frederick, Maryland CBSA. The new title is Bethesda-Frederick-  Gaithersburg, Maryland;       North Myrtle Beach, South Carolina replaces Conway, South   Carolina as the second most populous principal city of the Myrtle   Beach-Conway-North Myrtle Beach, South Carolina CBSA. The new title is   Myrtle Beach-North Myrtle Beach-Conway, South Carolina;       Pasco, Washington replaces Richland, Washington as the   second most populous principal city of the Kennewick-Richland-Pasco,   Washington CBSA. The new title is Kennewick-Pasco-Richland, Washington.      The OMB bulletin is available on the OMB Web site at https://  www.whitehouse.gov/OMB_go to ``Bulletins'' or ``Statistical Programs   and Standards.'' CMS will apply these changes to the IPPS beginning   October 1, 2008.    D. Occupational Mix Adjustment to the FY 2009 Wage Index        As stated earlier, section 1886(d)(3)(E) of the Act provides for   the collection of data every 3 years on the occupational mix of   employees for each short-term, acute care hospital participating in the   Medicare program, in order to construct an occupational mix adjustment   to the wage index, for application beginning October 1, 2004 (the FY   2005 wage index). The purpose of the occupational mix adjustment is to   control for the effect of hospitals' employment choices on the wage   index. For example, hospitals may choose to employ different   combinations of registered nurses, licensed practical nurses, nursing   aides, and medical assistants for the purpose of providing nursing care   to their patients. The varying labor costs associated with these   choices reflect hospital management decisions rather than geographic   differences in the costs of labor.  1. Development of Data for the FY 2009 Occupational Mix Adjustment      On October 14, 2005, we published a notice in the Federal Register   (70 FR 60092) proposing to use a new survey, the 2006 Medicare Wage   Index Occupational Mix Survey (the 2006 survey) to apply an   occupational mix adjustment to the FY 2008 wage index. In the proposed   2006 survey, we included several modifications based on the comments   and recommendations we received on the 2003 survey, including (1)   allowing hospitals to report their own average hourly wage rather than   using BLS data; (2) extending the prospective survey period; and (3)   reducing the number of occupational categories but refining the   subcategories for registered nurses.      We made the changes to the occupational categories in response to   MedPAC comments to the FY 2005 IPPS final rule (69 FR 49036).   Specifically, MedPAC recommended that CMS assess whether including   subcategories of registered nurses would result in a more accurate   occupational mix adjustment. MedPAC believed that including all   registered nurses in a single category may obscure significant wage   differences among the subcategories of registered nurses, for example,   the wages of surgical registered nurses and floor registered nurses may   differ. Also, to offset additional reporting burden for hospitals,   MedPAC recommended that CMS should combine the general service   categories that account for only a small percentage of a hospital's   total hours with the ``all other occupations'' category because most of   the occupational mix adjustment is correlated with the nursing general   service category.      In addition, in response to the public comments on the October 14,   2005 notice, we modified the 2006 survey. On February 10, 2006, we   published a Federal Register notice (71 FR 7047) that solicited   comments and announced our intent to seek OMB approval on the revised   occupational mix survey (Form CMS-10079 (2006)). OMB approved the   survey on April 25, 2006.      The 2006 survey provided for the collection of hospital-specific   wages and hours data, a 6-month prospective reporting period (that is,   January 1, 2006, through June 30, 2006), the transfer of each general   service category that comprised less than 4 percent of total hospital   employees in the 2003 survey to the ``all other occupations'' category   (the revised survey focused only on the mix of nursing occupations),   additional clarification of the definitions for the occupational   categories, an expansion of the registered nurse category to include   functional subcategories, and the exclusion of average hourly rate data   associated with advance practice nurses.    [[Page 48576]]        The 2006 survey included only two general occupational categories:   nursing and ``all other occupations.'' The nursing category has four   subcategories: Registered nurses, licensed practical nurses, aides,   orderlies, attendants, and medical assistants. The registered nurse   subcategory includes two functional subcategories: Management personnel   and staff nurses or clinicians. As indicated above, the 2006 survey   provided for a 6-month data collection period, from January 1, 2006   through June 30, 2006. However, we allowed flexibility for the   reporting period beginning and ending dates to accommodate some   hospitals' biweekly payroll and reporting systems. That is, the 6-month   reporting period had to begin on or after December 25, 2005, and end   before July 9, 2006.      As we proposed in the FY 2009 IPPS proposed rule (73 FR 23624), we   are using the entire 6-month 2006 survey data to calculate the   occupational mix adjustment for the FY 2009 wage index. The original   timelines for the collection, review, and correction of the 2006   occupational mix data were discussed in detail in the FY 2007 IPPS   final rule (71 FR 48008). The revision and correction process for all   of the data, including the 2006 occupational mix survey data to be used   for computing the FY 2009 wage index, is discussed in detail in section   III.K. of the preamble of this final rule.  2. Calculation of the Occupational Mix Adjustment for FY 2009      For FY 2009 (as we did for FY 2008), we are calculating the   occupational mix adjustment factor using the following steps:      Step 1--For each hospital, determine the percentage of the total   nursing category attributable to a nursing subcategory by dividing the   nursing subcategory hours by the total nursing category's hours   (registered nurse management personnel and registered nurse staff   nurses or clinicians are treated as separate nursing subcategories).   Repeat this computation for each of the five nursing subcategories:   registered nurse management personnel; registered nurse staff nurses or   clinicians; licensed practical nurses; nursing aides, orderlies, and   attendants; and medical assistants.      Step 2--Determine a national average hourly rate for each nursing   subcategory by dividing a subcategory's total salaries for all   hospitals in the occupational mix survey database by the subcategory's   total hours for all hospitals in the occupational mix survey database.      Step 3--For each hospital, determine an adjusted average hourly   rate for each nursing subcategory by multiplying the percentage of the   total nursing category (from Step 1) by the national average hourly   rate for that nursing subcategory (from Step 2). Repeat this   calculation for each of the five nursing subcategories.      Step 4--For each hospital, determine the adjusted average hourly   rate for the total nursing category by summing the adjusted average   hourly rate (from Step 3) for each of the nursing subcategories.      Step 5--Determine the national average hourly rate for the total   nursing category by dividing total nursing category salaries for all   hospitals in the occupational mix survey database by total nursing   category hours for all hospitals in the occupational mix survey   database.      Step 6--For each hospital, compute the occupational mix adjustment   factor for the total nursing category by dividing the national average   hourly rate for the total nursing category (from Step 5) by the   hospital's adjusted average hourly rate for the total nursing category   (from Step 4).      If the hospital's adjusted average hourly rate is less than the   national average hourly rate (indicating the hospital employs a less   costly mix of nursing employees), the occupational mix adjustment   factor is greater than 1.0000. If the hospital's adjusted average   hourly rate is greater than the national average hourly rate, the   occupational mix adjustment factor is less than 1.0000.      Step 7--For each hospital, calculate the occupational mix adjusted   salaries and wage-related costs for the total nursing category by   multiplying the hospital's total salaries and wage-related costs (from   Step 5 of the unadjusted wage index calculation in section III.G. of   this preamble) by the percentage of the hospital's total workers   attributable to the total nursing category (using the occupational mix   survey data, this percentage is determined by dividing the hospital's   total nursing category salaries by the hospital's total salaries for   ``nursing and all other'') and by the total nursing category's   occupational mix adjustment factor (from Step 6 above).      The remaining portion of the hospital's total salaries and wage-  related costs that is attributable to all other employees of the   hospital is not adjusted by the occupational mix. A hospital's all   other portion is determined by subtracting the hospital's nursing   category percentage from 100 percent.      Step 8--For each hospital, calculate the total occupational mix   adjusted salaries and wage-related costs for a hospital by summing the   occupational mix adjusted salaries and wage-related costs for the total   nursing category (from Step 7) and the portion of the hospital's   salaries and wage-related costs for all other employees (from Step 7).      To compute a hospital's occupational mix adjusted average hourly   wage, divide the hospital's total occupational mix adjusted salaries   and wage-related costs by the hospital's total hours (from Step 4 of   the unadjusted wage index calculation in section III.G. of this   preamble).      Step 9--To compute the occupational mix adjusted average hourly   wage for an urban or rural area, sum the total occupational mix   adjusted salaries and wage-related costs for all hospitals in the area,   then sum the total hours for all hospitals in the area. Next, divide   the area's occupational mix adjusted salaries and wage-related costs by   the area's hours.      Step 10--To compute the national occupational mix adjusted average   hourly wage, sum the total occupational mix adjusted salaries and wage-  related costs for all hospitals in the Nation, then sum the total hours   for all hospitals in the Nation. Next, divide the national occupational   mix adjusted salaries and wage-related costs by the national hours. The   FY 2009 occupational mix adjusted national average hourly wage is   $32.2449.      Step 11--To compute the occupational mix adjusted wage index,   divide each area's occupational mix adjusted average hourly wage (Step   9) by the national occupational mix adjusted average hourly wage (Step   10).      Step 12--To compute the Puerto Rico specific occupational mix   adjusted wage index, follow Steps 1 through 11 above. The FY 2009   occupational mix adjusted Puerto Rico specific average hourly wage is   $13.7851.      The table below is an illustrative example of the occupational mix   adjustment.  BILLING CODE 4120-01-P    [[Page 48577]]    [GRAPHIC] [TIFF OMITTED] TR19AU08.007      [[Page 48578]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.008      [[Page 48579]]      [GRAPHIC] [TIFF OMITTED] TR19AU08.009    BILLING CODE 4120-01-C    [[Page 48580]]        Because the occupational mix adjustment is required by statute, all   hospitals that are subject to payments under the IPPS, or any hospital   that would be subject to the IPPS if not granted a waiver, must   complete the occupational mix survey, unless the hospital has no   associated cost report wage data that are included in the FY 2009 wage   index.      For the FY 2008 wage index, if a hospital did not respond to the   occupational mix survey, or if we determined that a hospital's   submitted data were too erroneous to include in the wage index, we   assigned the hospital the average occupational mix adjustment for the   labor market area (72 FR 47314). We believed this method had the least   impact on the wage index for other hospitals in the area. For areas   where no hospital submitted data for purposes of calculating the   occupational mix adjustment, we applied the national occupational mix   factor of 1.0000 in calculating the area's FY 2008 occupational mix   adjusted wage index. We indicated in the FY 2008 IPPS final rule that   we reserve the right to apply a different approach in future years,   including potentially penalizing nonresponsive hospitals (72 FR 47314).      For the FY 2009 wage index, as we proposed, we are handling the   data for hospitals that did not respond to the occupational mix survey   (neither the 1st quarter nor 2nd quarter data) in the same manner as   discussed above for the FY 2008 wage index. In addition, if a hospital   submitted survey data for either the 1st quarter or 2nd quarter, but   not for both quarters, we are using the data the hospital submitted for   one quarter to calculate the hospital's FY 2009 occupational mix   adjustment factor. Lastly, if a hospital submitted a survey(s), but   that survey data can not be used because we determine it to be   aberrant, we also assigned the hospital the average occupational mix   adjustment for its labor market area. For example, if a hospital's   individual nurse category average hourly wages were out of range (that   is, unusually high or low), and the hospital did not provide sufficient   documentation to explain the aberrancy, or the hospital did not submit   any registered nurse staff salaries or hours data, we assigned the   hospital the average occupational mix adjustment for the labor market   area in which it is located.      In calculating the average occupational mix adjustment factor for a   labor market area, we replicated Steps 1 through 6 of the calculation   for the occupational mix adjustment. However, instead of performing   these steps at the hospital level, we aggregated the data at the labor   market area level. In following these steps, for example, for CBSAs   that contain providers that did not submit occupational mix survey   data, the occupational mix adjustment factor ranged from a low of   0.9060 (CBSA 12020, Athens-Clarke County, GA), to a high of 1.0805   (CBSA 22500, Florence, SC). Also, in computing a hospital's   occupational mix adjusted salaries and wage-related costs for nursing   employees (Step 7 of the calculation), in the absence of occupational   mix survey data, we multiplied the hospital's total salaries and wage-  related costs by the percentage of the area's total workers   attributable to the area's total nursing category. For FY 2009, there   are no CBSAs for which we did not have occupational mix data for any of   its providers.      In the FY 2007 IPPS final rule, we also indicated that we would   give serious consideration to applying a hospital-specific penalty if a   hospital does not comply with regulations requiring submission of   occupational mix survey data in future years. We stated that we believe   that section 1886(d)(5)(I)(i) of the Act provides us with the authority   to penalize hospitals that do not submit occupational mix survey data.   That section authorizes us to provide for exceptions and adjustments to   the payment amounts under IPPS as the Secretary deems appropriate. We   also indicated that we would address this issue in the FY 2008 IPPS   proposed rule.      In the FY 2008 IPPS proposed rule, we solicited comments and   suggestions for a hospital-specific penalty for hospitals that do not   submit occupational mix survey data. In response to the FY 2008 IPPS   proposed rule, some commenters suggested a 1-percent to 2-percent   reduction in the hospital's wage index value or a set percentage of the   standardized amount. We noted that any penalty that we would determine   for nonresponsive hospitals would apply to a future wage index, not the   FY 2008 wage index.      In the FY 2008 final rule with comment period, we assigned   nonresponsive hospitals the average occupational mix adjustment for the   labor market area. For areas where no hospital submitted survey data,   we applied the national occupational mix adjustment factor of 1.0000 in   calculating the area's FY 2008 occupational mix adjusted wage index. We   appreciate the suggestions we received regarding future penalties for   hospitals that do not submit occupational mix survey data. We stated in   the FY 2008 final rule with comment period that we may consider   proposing a policy to penalize hospitals that do not submit   occupational mix survey data for FY 2010, the first year of the   application of the new 2007-2008 occupational mix survey, and that we   expected that any such penalty would be proposed in the FY 2009 IPPS   proposed rule so hospitals would be aware of the policy before the   deadline for submitting the data to the fiscal intermediaries/MAC.   However, in the FY 2009 IPPS proposed rule, we did not propose a   penalty for FY 2010. Rather, we reserved the right to propose a penalty   in the FY 2010 IPPS proposed rule, once we collect and analyze the FY   2007-2008 occupational mix survey data. Hospitals are still on notice   that any failure to submit occupational mix data for the FY 2007-2008   survey year may result in a penalty in FY 2010, thus achieving our   policy goal of ensuring that hospitals are aware of the consequences of   failure to submit data in response to the most recent survey.      Comment: Several commenters reiterated the comment they had   submitted previously with respect to the FY 2008 wage index (72 FR   47314) that full participation in the occupational mix survey is   critical, and urged CMS to develop a methodology that encourages   hospitals to report occupational mix survey data but does not unfairly   penalize neighboring hospitals. The commenters also suggested that, if   CMS decides to adopt a penalty for nonresponsive hospitals, CMS should   establish an appeal process for hospitals with extenuating   circumstances.      Response: We appreciate the commenters' continuous support for a   policy to penalize hospitals that do not submit occupational mix survey   data. As discussed above, we will consider proposing a penalty for the   FY 2010 wage index after we analyze the results of the new 2007-2008   occupational mix survey, for which the data are due to CMS in the fall   of 2008. (We refer readers to section III.D.3. of this preamble for a   discussion of the 2007-2008 survey).      Comment: One commenter suggested that CMS' methodology for   computing the occupational mix adjustment skews the results. The   commenter stated that if CMS had selected a different use of the same   data, a different and perhaps better adjustment could have resulted.   However, the commenter offered no alternative methodology for computing   the adjustment.      Response: We welcome the commenter to submit to us its   recommendations for computing the occupational mix adjustment, or to   identify specific components of our    [[Page 48581]]    methodology that it believes are problematic.  3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index      As stated earlier, section 304(c) of Public Law 106-554 amended   section 1886(d)(3)(E) of the Act to require CMS to collect data every 3   years on the occupational mix of employees for each short-term, acute   care hospital participating in the Medicare program. We used   occupational mix data collected on the 2006 survey to compute the   occupational mix adjustment for FY 2009. In the FY 2008 IPPS final rule   with comment period (72 FR 47315), we discussed how we modified the   occupational mix survey. The revised 2007-2008 occupational mix survey   provides for the collection of hospital-specific wages and hours data   for the 1-year period of July 1, 2007, through June 30, 2008,   additional clarifications to the survey instructions, the elimination   of the registered nurse subcategories, some refinements to the   definitions of the occupational categories, and the inclusion of   additional cost centers that typically provide nursing services. The   revised 2007-2008 occupational mix survey will be applied beginning   with the FY 2010 wage index.      On February 2, 2007, we published in the Federal Register a notice   soliciting comments on the proposed revisions to the occupational mix   survey (72 FR 5055). The comment period for the notice ended on April   3, 2007. After considering the comments we received, we made a few   minor editorial changes and published the final 2007-2008 occupational   mix survey on September 14, 2007 (72 FR 52568). OMB approved the survey   without change on February 1, 2008 (OMB Control Number 0938-0907). The   2007-2008 Medicare occupational mix survey (Form CMS-10079 (2008)) is   available on the CMS Web site at: http://www.cms.hhs.gov/  AcuteInpatientPPS/WIFN/list.asp#TopOfPage, and through the fiscal   intermediaries/MAC. Hospitals must submit their completed surveys to   their fiscal intermediaries/MAC by September 2, 2008. The preliminary,   unaudited 2007-2008 occupational mix survey data will be released in   early October 2008, along with the FY 2006 Worksheet S-3 wage data, for   the FY 2010 wage index review and correction process.    E. Worksheet S-3 Wage Data for the FY 2009 Wage Index        The FY 2009 wage index values (effective for hospital discharges   occurring on or after October 1, 2008, and before October 1, 2009, and   to be published in a separate Federal Register notice subsequent to   this final rule) will be based on the data collected from the Medicare   cost reports submitted by hospitals for cost reporting periods   beginning in FY 2005 (the FY 2008 wage index was based on FY 2004 wage   data).  1. Included Categories of Costs      The FY 2009 wage index includes the following categories of data   associated with costs paid under the IPPS (as well as outpatient   costs):       Salaries and hours from short-term, acute care hospitals   (including paid lunch hours and hours associated with military leave   and jury duty)       Home office costs and hours       Certain contract labor costs and hours (which includes   direct patient care, certain top management, pharmacy, laboratory, and   nonteaching physician Part A services, and certain contract indirect   patient care services (as discussed in the FY 2008 final rule with   comment period (72 FR 47315))       Wage-related costs, including pensions and other deferred   compensation costs. We note that, on March 28, 2008, CMS published a   technical clarification to the cost reporting instructions for pension   and deferred compensation costs (sections 2140 through 2142.7 of the   Provider Reimbursement Manual, Part I). These instructions are used for   developing pension and deferred compensation costs for purposes of the   wage index, as discussed in the instructions for Worksheet S-3, Part   II, Lines 13 through 20 and in the FY 2006 final rule (70 FR 47369).  2. Excluded Categories of Costs      Consistent with the wage index methodology for FY 2008, the wage   index for FY 2009 also excludes the direct and overhead salaries and   hours for services not subject to IPPS payment, such as SNF services,   home health services, costs related to GME (teaching physicians and   residents) and certified registered nurse anesthetists (CRNAs), and   other subprovider components that are not paid under the IPPS. The FY   2009 wage index also excludes the salaries, hours, and wage-related   costs of hospital-based rural health clinics (RHCs), and Federally   qualified health centers (FQHCs) because Medicare pays for these costs   outside of the IPPS (68 FR 45395). In addition, salaries, hours, and   wage-related costs of CAHs are excluded from the wage index, for the   reasons explained in the FY 2004 IPPS final rule (68 FR 45397).  3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals   under the IPPS      Data collected for the IPPS wage index are also currently used to   calculate wage indices applicable to other providers, such as SNFs,   home health agencies, and hospices. In addition, they are used for   prospective payments to IRFs, IPFs, and LTCHs, and for hospital   outpatient services. We note that, in the IPPS rules, we do not address   comments pertaining to the wage indices for non-IPPS providers. Such   comments should be made in response to separate proposed rules for   those providers.    F. Verification of Worksheet S-3 Wage Data        The wage data for the FY 2009 wage index were obtained from   Worksheet S-3, Parts II and III of the FY 2005 Medicare cost reports.   Instructions for completing Worksheet S-3, Parts II and III are in the   Provider Reimbursement Manual (PRM), Part II, sections 3605.2 and   3605.3. The data file used to construct the wage index includes FY 2005   data submitted to us as of February 29, 2008. As in past years, we   performed an intensive review of the wage data, mostly through the use   of edits designed to identify aberrant data.      We asked our fiscal intermediaries/MAC to revise or verify data   elements that resulted in specific edit failures. For the proposed FY   2009 wage index, we identified and excluded 37 providers with data that   was too aberrant to include in the proposed wage index, although we   stated that if data elements for some of these providers were   corrected, we intended to include some of these providers in the FY   2009 final wage index. However, because some unresolved data elements   were included in the proposed FY 2009 wage index, we instructed fiscal   intermediaries/MACs to complete their data verification of questionable   data elements and to transmit any changes to the wage data no later   than April 14, 2008. While the data for four hospitals were resolved,   the data for two other hospitals were identified as too aberrant to   include in the final wage index. Therefore, we determined that the data   for 35 hospitals should not be included in the FY 2009 final wage   index.      In constructing the FY 2009 wage index, we included the wage data   for facilities that were IPPS hospitals in FY 2005; inclusive of those   facilities that have since terminated their participation in the   program as hospitals, as long as those data did not fail any of our   edits for reasonableness.    [[Page 48582]]    We believe that including the wage data for these hospitals is, in   general, appropriate to reflect the economic conditions in the various   labor market areas during the relevant past period and to ensure that   the current wage index represents the labor market area's current wages   as compared to the national average of wages. However, we excluded the   wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR   45397). For this final rule, we removed 22 hospitals that converted to   CAH status between February 16, 2007, the cut-off date for CAH   exclusion from the FY 2008 wage index, and February 18, 2008, the cut-  off date for CAH exclusion from the FY 2009 wage index. After removing   hospitals with aberrant data and hospitals that converted to CAH   status, the FY 2009 wage index is calculated based on 3,534 hospitals.  1. Wage Data for Multicampus Hospitals      In the FY 2008 final rule with comment period (72 FR 47317), we   discussed our policy for allocating a multicampus hospital's wages and   hours data, by full-time equivalent (FTE) staff, among the different   labor market areas where its campuses are located. During the FY 2009   wage index desk review process, we requested fiscal intermediaries/MACs   to contact multicampus hospitals that had campuses in different labor   market areas to collect the data for the allocation. The FY 2009 wage   index in this final rule includes separate wage data for campuses of   three multicampus hospitals.      For FY 2009, we are again allowing hospitals to use FTE or   discharge data for the allocation of a multicampus hospital's wage data   among the different labor market areas where its campuses are located.   The Medicare cost report was updated in May 2008 to provide for the   reporting of FTE data by campus for multicampus hospitals. Because the   data from cost reporting periods that begin in FY 2008 will not be used   in calculating the wage index until FY 2012, a multicampus hospital   will still have the option, through the FY 2011 wage index, to use   either FTE or discharge data for allocating wage data among its   campuses by providing the information from the applicable cost   reporting period to CMS through its fiscal intermediary/MAC. Two of the   three multicampus hospitals chose to have their wage data allocated by   their Medicare discharge data for the FY 2009 wage index. One of the   hospitals provided FTE staff data for the allocation. The average   hourly wage associated with each geographical location of a multicampus   hospital is reflected in Table 2 of the Addendum to this final rule.  2. New Orleans' Post-Katrina Wage Index      Since 2005 when Hurricane Katrina devastated the Gulf States, we   have received numerous comments suggesting that current Medicare   payments to hospitals in New Orleans, Louisiana are inadequate, and the   wage index does not accurately reflect the increase in labor costs   experienced by the city after the storm. The post-Katrina effects on   the New Orleans wage index will not be realized in the wage index until   FY 2010, when the wage index will be based on cost reporting periods   beginning during FY 2006 (that is, beginning on or after October 1,   2005 and before October 1, 2006).      In responding to the health-related needs of people affected by the   hurricane, the Federal Government, through the Deficit Reduction Act of   2005 (DRA), appropriated $2 billion in FY 2006. These funds allowed the   Secretary to make available $160 million in February 2007 to Louisiana,   Mississippi, and Alabama for payments to hospitals and skilled nursing   facilities facing financial stress because of changing wage rates not   yet reflected in Medicare payment methodologies. In March and May 2007,   the Department provided two additional DRA grants of $15 million and   $35 million, respectively, to Louisiana for professional health care   workforce recruitment and sustainability in the greater New Orleans   area, namely the Orleans, Jefferson, St. Bernard, and Plaquemines   Parishes. In addition, the Department issued a supplemental award of   $60 million in provider stabilization grant funding to Louisiana,   Mississippi, and Alabama to continue to help health care providers meet   changing wage rates not yet reflected by Medicare's payment policies.   On July 23, 2007, HHS awarded to Louisiana a new $100 million Primary   Care Grant to help increase access to primary care in the Greater New   Orleans area. The resulting stabilization and expansion of the   community based primary care infrastructure, post Katrina, helps   provide a viable alternative to local hospital emergency rooms for all   citizens of New Orleans, especially those who are poor and uninsured.   In other Department efforts, the OIG has performed an in-depth review   of the post-Katrina infrastructure of five New Orleans hospitals,   including the hospitals' staffing levels and wage costs. The OIG's   final reports and recommendations, which were published in the Spring   of 2008, are available on the following Web site: http://oig.hhs.gov/  oas/cms.html.    G. Method for Computing the FY 2009 Unadjusted Wage Index        The method used to compute the FY 2009 wage index without an   occupational mix adjustment follows:      Step 1--As noted above, we are basing the FY 2009 wage index on   wage data reported on the FY 2005 Medicare cost reports. We gathered   data from each of the non-Federal, short-term, acute care hospitals for   which data were reported on the Worksheet S-3, Parts II and III of the   Medicare cost report for the hospital's cost reporting period beginning   on or after October 1, 2004, and before October 1, 2005. In addition,   we included data from some hospitals that had cost reporting periods   beginning before October 2004 and reported a cost reporting period   covering all of FY 2004. These data are included because no other data   from these hospitals would be available for the cost reporting period   described above, and because particular labor market areas might be   affected due to the omission of these hospitals. However, we generally   describe these wage data as FY 2005 data. We note that, if a hospital   had more than one cost reporting period beginning during FY 2005 (for   example, a hospital had two short cost reporting periods beginning on   or after October 1, 2004, and before October 1, 2005), we included wage   data from only one of the cost reporting periods, the longer, in the   wage index calculation. If there was more than one cost reporting   period and the periods were equal in length, we included the wage data   from the later period in the wage index calculation.      Step 2--Salaries--The method used to compute a hospital's average   hourly wage excludes certain costs that are not paid under the IPPS.   (We note that, beginning with FY 2008 (72 FR 47315), we include lines   22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services   in the wage index. However, we note that the wages and hours on these   lines are not incorporated into line 101, column 1 of Worksheet A,   which, through the electronic cost reporting software, flows directly   to line 1 of Worksheet S-3, Part II. Therefore, the first step in the   wage index calculation for FY 2009 is to compute a ``revised'' Line 1,   by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours   respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In   calculating a hospital's average salaries plus wage-related costs, we   subtract from Line 1 (total salaries) the GME and CRNA costs reported   on Lines 2, 4.01,      [[Continued on page 48583]]      From the Federal Register Online via GPO Access [wais.access.gpo.gov]  ]                              [[pp. 48583-48632]] Medicare Program; Changes to the Hospital Inpatient Prospective   Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate   Medical Education in Certain Emergency Situations; Changes to   Disclosure of Physician Ownership in Hospitals and Physician Self-  Re[[Page 48583]]    [[Continued from page 48582]]    [[Page 48583]]    6, and 6.01, the Part B salaries reported on Lines 3, 5 and 5.01, home   office salaries reported on Line 7, and exclude salaries reported on   Lines 8 and 8.01 (that is, direct salaries attributable to SNF   services, home health services, and other subprovider components not   subject to the IPPS). We also subtract from Line 1 the salaries for   which no hours were reported. To determine total salaries plus wage-  related costs, we add to the net hospital salaries the costs of   contract labor for direct patient care, certain top management,   pharmacy, laboratory, and nonteaching physician Part A services (Lines   9 and 10), home office salaries and wage-related costs reported by the   hospital on Lines 11 and 12, and nonexcluded area wage-related costs   (Lines 13, 14, and 18).      We note that contract labor and home office salaries for which no   corresponding hours are reported are not included. In addition, wage-  related costs for nonteaching physician Part A employees (Line 18) are   excluded if no corresponding salaries are reported for those employees   on Line 4.      Step 3--Hours--With the exception of wage-related costs, for which   there are no associated hours, we compute total hours using the same   methods as described for salaries in Step 2.      Step 4--For each hospital reporting both total overhead salaries   and total overhead hours greater than zero, we then allocate overhead   costs to areas of the hospital excluded from the wage index   calculation. First, we determine the ratio of excluded area hours (sum   of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours   (Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01,   7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts   of overhead salaries and hours to be allocated to excluded areas by   multiplying the above ratio by the total overhead salaries and hours   reported on Line 13 of Worksheet S-3, Part III. Next, we compute the   amounts of overhead wage-related costs to be allocated to excluded   areas using three steps: (1) We determine the ratio of overhead hours   (Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to   revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line   1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01,   22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent   wage index calculations, we are excluding the sum of lines 22.01,   26.01, and 27.01 from the determination of the ratio of overhead hours   to revised hours because hospitals typically do not provide fringe   benefits (wage-related costs) to contract personnel. Therefore, it is   not necessary for the wage index calculation to exclude overhead wage-  related costs for contract personnel. Further, if a hospital does   contribute to wage-related costs for contracted personnel, the   instructions for lines 22.01, 26.01, and 27.01 require that associated   wage-related costs be combined with wages on the respective contract   labor lines.); (2) we compute overhead wage-related costs by   multiplying the overhead hours ratio by wage-related costs reported on   Part II, Lines 13, 14, and 18; and (3) we multiply the computed   overhead wage-related costs by the above excluded area hours ratio.   Finally, we subtract the computed overhead salaries, wage-related   costs, and hours associated with excluded areas from the total salaries   (plus wage-related costs) and hours derived in Steps 2 and 3.      Step 5--For each hospital, we adjust the total salaries plus wage-  related costs to a common period to determine total adjusted salaries   plus wage-related costs. To make the wage adjustment, we estimate the   percentage change in the employment cost index (ECI) for compensation   for each 30-day increment from October 14, 2003, through April 15,   2005, for private industry hospital workers from the BLS' Compensation   and Working Conditions. We use the ECI because it reflects the price   increase associated with total compensation (salaries plus fringes)   rather than just the increase in salaries. In addition, the ECI   includes managers as well as other hospital workers. This methodology   to compute the monthly update factors uses actual quarterly ECI data   and assures that the update factors match the actual quarterly and   annual percent changes. We also note that, since April 2006 with the   publication of March 2006 data, the BLS' ECI uses a different   classification system, the North American Industrial Classification   System (NAICS), instead of the Standard Industrial Codes (SICs), which   no longer exist. We have consistently used the ECI as the data source   for our wages and salaries and other price proxies in the IPPS market   basket and did not propos to make any changes to the usage for FY 2009.   The factors used to adjust the hospital's data were based on the   midpoint of the cost reporting period, as indicated below.                        Midpoint of Cost Reporting Period  ------------------------------------------------------------------------                                                                Adjustment                       After                         Before       factor  ------------------------------------------------------------------------  10/14/2004....................................   11/15/2004      1.05390  11/14/2004....................................   12/15/2004      1.05035  12/14/2004....................................   01/15/2005      1.04690  01/14/2005....................................   02/15/2005      1.04342  02/14/2005....................................   03/15/2005      1.03992  03/14/2005....................................   04/15/2005      1.03641  04/14/2005....................................   05/15/2005      1.03291  05/14/2005....................................   06/15/2005      1.02940  06/14/2005....................................   07/15/2005      1.02596  07/14/2005....................................   08/15/2005      1.02264  08/14/2005....................................   09/15/2005      1.01943  09/14/2005....................................   10/15/2005      1.01627  10/14/2005....................................   11/15/2005      1.01308  11/14/2005....................................   12/15/2005      1.00987  12/14/2005....................................   01/15/2006      1.00661  01/14/2006....................................   02/15/2006      1.00333  02/14/2006....................................   03/15/2006      1.00000  03/14/2006....................................   04/15/2006      0.99670  ------------------------------------------------------------------------        For example, the midpoint of a cost reporting period beginning   January 1, 2005, and ending December 31, 2005, is June 30, 2005. An   adjustment factor of 1.02596 would be applied to the wages of a   hospital with such a cost reporting period. In addition, for the data   for any cost reporting period that began in FY 2005 and covered a   period of less than 360 days or more than 370 days, we annualize the   data to reflect a 1-year cost report. Dividing the data by the number   of days in the cost report and then multiplying the results by 365   accomplishes annualization.      Step 6--Each hospital is assigned to its appropriate urban or rural   labor market area before any reclassifications under section   1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the   Act. Within each urban or rural labor market area, we add the total   adjusted salaries plus wage-related costs obtained in Step 5 for all   hospitals in that area to determine the total adjusted salaries plus   wage-related costs for the labor market area.      Step 7--We divide the total adjusted salaries plus wage-related   costs obtained under both methods in Step 6 by the sum of the   corresponding total hours (from Step 4) for all hospitals in each labor   market area to determine an average hourly wage for the area.      Step 8--We add the total adjusted salaries plus wage-related costs   obtained in Step 5 for all hospitals in the Nation and then divide the   sum by the national sum of total hours from Step 4 to arrive at a   national average hourly wage. Using the data as described above, the   national average hourly wage (unadjusted for occupational mix) is   $32.2696.      Step 9--For each urban or rural labor market area, we calculate the   hospital wage index value, unadjusted for occupational mix, by dividing   the area average hourly wage obtained in Step 7    [[Page 48584]]    by the national average hourly wage computed in Step 8.      Step 10--Following the process set forth above, we develop a   separate Puerto Rico-specific wage index for purposes of adjusting the   Puerto Rico standardized amounts. (The national Puerto Rico   standardized amount is adjusted by a wage index calculated for all   Puerto Rico labor market areas based on the national average hourly   wage as described above.) We add the total adjusted salaries plus wage-  related costs (as calculated in Step 5) for all hospitals in Puerto   Rico and divide the sum by the total hours for Puerto Rico (as   calculated in Step 4) to arrive at an overall average hourly wage   (unadjusted for occupational mix) of $13.7956 for Puerto Rico. For each   labor market area in Puerto Rico, we calculate the Puerto Rico-specific   wage index value by dividing the area average hourly wage (as   calculated in Step 7) by the overall Puerto Rico average hourly wage.      Step 11--Section 4410 of Public Law 105-33 provides that, for   discharges on or after October 1, 1997, the area wage index applicable   to any hospital that is located in an urban area of a State may not be   less than the area wage index applicable to hospitals located in rural   areas in that State. The areas affected by this provision will be   identified in Table 4D-2 that is to be published in a separate Federal   Register subsequent to this final rule.      In the FY 2005 IPPS final rule (69 FR 49109), we adopted the   ``imputed'' floor as a temporary 3-year measure to address a concern by   some individuals that hospitals in all-urban States were disadvantaged   by the absence of rural hospitals to set a wage index floor in those   States. The imputed floor was originally set to expire in FY 2007, but   we are extending it an additional year in the FY 2008 IPPS final rule   with comment period (72 FR 47321). As explained in section III.B.2.b.   of the preamble of this final rule, we are extending the imputed floor   for an additional 3 years, through FY 2011.    H. Analysis and Implementation of the Occupational Mix Adjustment and   the FY 2009 Occupational Mix Adjusted Wage Index        As discussed in section III.D. of this preamble, for FY 2009, we   apply the occupational mix adjustment to 100 percent of the FY 2009   wage index. We calculated the occupational mix adjustment using data   from the 2006 occupational mix survey data, using the methodology   described in section III.D.3. of this preamble.      Using the first and second quarter occupational mix survey data and   applying the occupational mix adjustment to 100 percent of the FY 2009   wage index results in a national average hourly wage of $32.2449 and a   Puerto-Rico specific average hourly wage of $13.7851. After excluding   data of hospitals that either submitted aberrant data that failed   critical edits, or that do not have FY 2005 Worksheet S-3 cost report   data for use in calculating the FY 2009 wage index, we calculated the   FY 2009 wage index using the occupational mix survey data from 3,365   hospitals. Using the Worksheet S-3 cost report data of 3,534 hospitals   and occupational mix first and/or second quarter survey data from 3,365   hospitals represents a 95.2 percent survey response rate. The FY 2009   national average hourly wages for each occupational mix nursing   subcategory as calculated in Step 2 of the occupational mix calculation   are as follows:    ------------------------------------------------------------------------                                                            Average hourly            Occupational mix nursing subcategory                 wage  ------------------------------------------------------------------------  National RN Management..................................        $38.6364  National RN Staff.......................................         33.4698  National LPN............................................         19.2364  National Nurse Aides, Orderlies, and Attendants.........         13.6892  National Medical Assistants.............................         15.7714  National Nurse Category.................................         28.7265  ------------------------------------------------------------------------        The national average hourly wage for the entire nurse category as   computed in Step 5 of the occupational mix calculation is $28.7265.   Hospitals with a nurse category average hourly wage (as calculated in   Step 4) of greater than the national nurse category average hourly wage   receive an occupational mix adjustment factor (as calculated in Step 6)   of less than 1.0. Hospitals with a nurse category average hourly wage   (as calculated in Step 4) of less than the national nurse category   average hourly wage receive an occupational mix adjustment factor (as   calculated in Step 6) of greater than 1.0.      Based on the January through June 2006 occupational mix survey   data, we determined (in Step 7 of the occupational mix calculation)   that the national percentage of hospital employees in the Nurse   category is 42.97 percent, and the national percentage of hospital   employees in the All Other Occupations category is 57.03 percent. At   the CBSA level, the percentage of hospital employees in the Nurse   category ranged from a low of 27.26 percent in one CBSA, to a high of   85.30 percent in another CBSA.      The final wage index values for FY 2009 (except those for hospitals   receiving wage index adjustments under section 1886(d)(13) of the Act)   will be shown in Tables 4A, 4B, 4C, and 4F that are to be published in   a separate Federal Register notice subsequent to this final rule.      Tables 3A and 3B in the Addendum to this final rule list the 3-year   average hourly wage for each labor market area before the redesignation   of hospitals based on FYs 2007, 2008, and 2009 cost reporting periods.   Table 3A lists these data for urban areas and Table 3B lists these data   for rural areas. In addition, Table 2 in the Addendum to this final   rule includes the adjusted average hourly wage for each hospital from   the FY 2003 and FY 2004 cost reporting periods, as well as the FY 2005   period used to calculate the FY 2009 wage index. The 3-year averages   are calculated by dividing the sum of the dollars (adjusted to a common   reporting period using the method described previously) across all 3   years, by the sum of the hours. If a hospital is missing data for any   of the previous years, its average hourly wage for the 3-year period is   calculated based on the data available during that period.      The wage index values in Tables 4A, 4B, 4C, and 4F (to be published   in a subsequent Federal Register notice) will include the occupational   mix adjustment. The average hourly wages in Tables 2, 3A, and 3B in the   Addendum to this final rule include the occupational mix adjustment.   The wage index values in Tables 4A, 4B, and 4C in the separate issuance   also will include the State-specific rural floor and imputed floor   budget neutrality adjustments that are discussed in section III.B.2. of   this preamble. The State budget neutrality adjustments for the rural   and imputed floors will be included in Table 4D-1 in a separate Federal   Register notice to be published subsequent to this final rule.    I. Revisions to the Wage Index Based on Hospital Redesignations    1. General      Under section 1886(d)(10) of the Act, the MGCRB considers   applications by hospitals for geographic reclassification for purposes   of payment under the IPPS. Hospitals must apply to the MGCRB to   reclassify 13 months prior to the start of the fiscal year for which   reclassification is sought (generally by September 1). Generally,   hospitals must be proximate to the labor market area to which they are   seeking reclassification and must demonstrate characteristics similar   to hospitals located in that area. The MGCRB issues its decisions by   the end of February for reclassifications that become effective for the   following fiscal year (beginning October 1). The    [[Page 48585]]    regulations applicable to reclassifications by the MGCRB are located in   42 CFR 412.230 through 412.280.      Section 1886(d)(10)(D)(v) of the Act provides that, beginning with   FY 2001, a MGCRB decision on a hospital reclassification for purposes   of the wage index is effective for 3 fiscal years, unless the hospital   elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of   the Act provides that the MGCRB must use average hourly wage data from   the 3 most recently published hospital wage surveys in evaluating a   hospital's reclassification application for FY 2003 and any succeeding   fiscal year.      Section 304(b) of Public Law 106-554 provides that the Secretary   must establish a mechanism under which a statewide entity may apply to   have all of the geographic areas in the State treated as a single   geographic area for purposes of computing and applying a single wage   index, for reclassifications beginning in FY 2003. The implementing   regulations for this provision are located at 42 CFR 412.235.      Section 1886(d)(8)(B) of the Act requires the Secretary to treat a   hospital located in a rural county adjacent to one or more urban areas   as being located in the MSA to which the greatest number of workers in   the county commute, if the rural county would otherwise be considered   part of an urban area under the standards for designating MSAs and if   the commuting rates used in determining outlying counties were   determined on the basis of the aggregate number of resident workers who   commute to (and, if applicable under the standards, from) the central   county or counties of all contiguous MSAs. In light of the CBSA   definitions and the Census 2000 data that we implemented for FY 2005   (69 FR 49027), we undertook to identify those counties meeting these   criteria. Eligible counties are discussed and identified under section   III.I.5. of this preamble.  2. Effects of Reclassification/Redesignation      Section 1886(d)(8)(C) of the Act provides that the application of   the wage index to redesignated hospitals is dependent on the   hypothetical impact that the wage data from these hospitals would have   on the wage index value for the area to which they have been   redesignated. These requirements for determining the wage index values   for redesignated hospitals are applicable both to the hospitals deemed   urban under section 1886(d)(8)(B) of the Act and hospitals that were   reclassified as a result of the MGCRB decisions under section   1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C)   of the Act, the wage index values were determined by considering the   following:       If including the wage data for the redesignated hospitals   would reduce the wage index value for the area to which the hospitals   are redesignated by 1 percentage point or less, the area wage index   value determined exclusive of the wage data for the redesignated   hospitals applies to the redesignated hospitals.       If including the wage data for the redesignated hospitals   reduces the wage index value for the area to which the hospitals are   redesignated by more than 1 percentage point, the area wage index   determined inclusive of the wage data for the redesignated hospitals   (the combined wage index value) applies to the redesignated hospitals.       If including the wage data for the redesignated hospitals   increases the wage index value for the urban area to which the   hospitals are redesignated, both the area and the redesignated   hospitals receive the combined wage index value. Otherwise, the   hospitals located in the urban area receive a wage index excluding the   wage data of hospitals redesignated into the area.      Rural areas whose wage index values would be reduced by excluding   the wage data for hospitals that have been redesignated to another area   continue to have their wage index values calculated as if no   redesignation had occurred (otherwise, redesignated rural hospitals are   excluded from the calculation of the rural wage index). The wage index   value for a redesignated rural hospital cannot be reduced below the   wage index value for the rural areas of the State in which the hospital   is located.      CMS has also adopted the following policies:       The wage data for a reclassified urban hospital is   included in both the wage index calculation of the area to which the   hospital is reclassified (subject to the rules described above) and the   wage index calculation of the urban area where the hospital is   physically located.       In cases where urban hospitals have reclassified to rural   areas under 42 CFR 412.103, the urban hospital wage data are: (a)   Included in the rural wage index calculation, unless doing so would   reduce the rural wage index; and (b) included in the urban area where   the hospital is physically located.  3. FY 2009 MGCRB Reclassifications      Under section 1886(d)(10) of the Act, the MGCRB considers   applications by hospitals for geographic reclassification for purposes   of payment under the IPPS. The specific procedures and rules that apply   to the geographic reclassification process are outlined in 42 CFR   412.230 through 412.280.      At the time this final rule was constructed, the MGCRB had   completed its review of FY 2009 reclassification requests. Based on   such reviews, there were 314 hospitals approved for wage index   reclassifications by the MGCRB for FY 2009. Because MGCRB wage index   reclassifications are effective for 3 years, for FY 2009, hospitals   reclassified during FY 2007 or FY 2008 are eligible to continue to be   reclassified to a particular labor market area based on such prior   reclassifications. There were 175 hospitals approved for wage index   reclassifications in FY 2007 and 324 hospitals approved for wage index   reclassifications in FY 2008. Of all of the hospitals approved for   reclassification for FY 2007, FY 2008, and FY 2009, based upon the   review at the time of the final rule, 813 hospitals are in a   reclassification status for FY 2009.      Under 42 CFR 412.273, hospitals that have been reclassified by the   MGCRB were permitted to withdraw their applications within 45 days of   the publication of the proposed rule. Generally stated, the request for   withdrawal of an application for reclassification or termination of an   existing 3-year reclassification that would be effective in FY 2009 had   to be received by the MGCRB within 45 days of the publication of the   proposed rule. (We note that special rules for areas affected by   section 124 of Pub. L. 110-275 are discussed in section III.I.7. of   this preamble.) Hospitals may also cancel prior reclassification   withdrawals or terminations in certain circumstances. For further   information about withdrawing, terminating, or canceling a previous   withdrawal or termination of a 3-year reclassification for wage index   purposes, we refer the reader to 42 CFR 412.273, as well as the August   1, 2002, IPPS final rule (67 FR 50065), and the August 1, 2001, IPPS   final rule (66 FR 39887).      Changes to the wage index that result from withdrawals of requests   for reclassification, wage index corrections, appeals, and the   Administrator's review process will be incorporated into the wage index   values published in a separate Federal Register notice, in response to   section 124 of Public Law 110-275 (see section III.I.7. of this   preamble). These changes affect not only the wage index value for   specific geographic areas, but also the wage index value redesignated   hospitals receive; that is, whether they receive the wage index that   includes the data for    [[Page 48586]]    both the hospitals already in the area and the redesignated hospitals.   Further, the wage index value for the area from which the hospitals are   redesignated may have been affected.      Applications for FY 2010 reclassifications are due to the MGCRB by   September 2, 2008 (the first working day of September 2008). We note   that this is also the deadline for canceling a previous wage index   reclassification withdrawal or termination under 42 CFR 412.273(d).   Applications and other information about MGCRB reclassifications may be   obtained, beginning in mid-July 2008, via the CMS Internet Web site at:   http://cms.hhs.gov/providers/prrb/mgcinfo.asp, or by calling the MGCRB   at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord   Baltimore Drive, Suite L, Baltimore, MD 21244-2670.  4. FY 2008 Policy Clarifications and Revisions      We note below several policies related to geographic   reclassification that were clarified or revised in the FY 2008 IPPS   final rule with comment period (72 FR 47333):       Reinstating Reclassifications--As provided for in 42 CFR   412.273(b)(2), once a hospital (or hospital group) accepts a newly   approved reclassification, any previous reclassification is permanently   terminated.       Geographic Reclassification for Multicampus Hospitals--  Because campuses of a multicampus hospital can now have their wages and   hours data allocated by FTEs or discharge data, a hospital campus   located in a geographic area distinct from the geographic area   associated with the provider number of the multicampus hospital will   have official wage data to supplement an individual or group   reclassification application (Sec.  412.230(d)(2)(v)).       New England Deemed Counties--Hospitals in New England   deemed counties are treated the same as Lugar hospitals in calculating   the wage index. That is, the area is considered rural, but the   hospitals within the area are deemed to be urban (Sec.    412.64(b)(3)(ii)).       ``Fallback'' Reclassifications--A hospital will   automatically be given its most recently approved reclassification   (thereby permanently terminating any previously approved   reclassifications) unless it provides written notice to the MGCRB   within 45 days of publication of the notice of proposed rulemaking that   it wishes to withdraw its most recently approved reclassification and   ``fall back'' to either its prior reclassification or its home area   wage index for the following fiscal year.  5. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act      Section 1886(d)(8)(B) of the Act requires us to treat a hospital   located in a rural county adjacent to one or more urban areas as being   located in the MSA if certain criteria are met. Effective beginning FY   2005, we use OMB's 2000 CBSA standards and the Census 2000 data to   identify counties in which hospitals qualify under section   1886(d)(8)(B) of the Act to receive the wage index of the urban area.   Hospitals located in these counties have been known as ``Lugar''   hospitals and the counties themselves are often referred to as   ``Lugar'' counties. We provide the FY 2009 chart below with the listing   of the rural counties containing the hospitals designated as urban   under section 1886(d)(8)(B) of the Act. For discharges occurring on or   after October 1, 2008, hospitals located in the rural county in the   first column of this chart will be redesignated for purposes of using   the wage index of the urban area listed in the second column.     Rural Counties Containing Hospitals Redesignated as Urban under Section                          1886(d)(8)(B) of the Act                    [Based on CBSAs and census 2000 data]  ------------------------------------------------------------------------                Rural county                             CBSA  ------------------------------------------------------------------------  Cherokee, AL...........................  Rome, GA.  Macon, AL..............................  Auburn-Opelika, AL.  Talladega, AL..........................  Anniston-Oxford, AL.  Hot Springs, AR........................  Hot Springs, AR.  Windham, CT............................  Hartford-West Hartford-East                                            Hartford, CT.  Bradford, FL...........................  Gainesville, FL.  Hendry, FL.............................  West Palm Beach-Boca Raton-                                            Boynton, FL.  Levy, FL...............................  Gainesville, FL.  Walton, FL.............................  Fort Walton Beach-Crestview-                                            Destin, FL.  Banks, GA..............................  Gainesville, GA.  Chattooga, GA..........................  Chattanooga, TN-GA.  Jackson, GA............................  Atlanta-Sandy Springs-Marietta,                                            GA.  Lumpkin, GA............................  Atlanta-Sandy Springs-Marietta,                                            GA.  Morgan, GA.............................  Atlanta-Sandy Springs-Marietta,                                            GA.  Peach, GA..............................  Macon, GA.  Polk, GA...............................  Atlanta-Sandy Springs-Marietta,                                            GA.  Talbot, GA.............................  Columbus, GA-AL.  Bingham, ID............................  Idaho Falls, ID.  Christian, IL..........................  Springfield, IL.  DeWitt, IL.............................  Bloomington-Normal, IL.  Iroquois, IL...........................  Kankakee-Bradley, IL.  Logan, IL..............................  Springfield, IL.  Mason, IL..............................  Peoria, IL.  Ogle, IL...............................  Rockford, IL.  Clinton, IN............................  Lafayette, IN.  Henry, IN..............................  Indianapolis-Carmel, IN.  Spencer, IN............................  Evansville, IN-KY.  Starke, IN.............................  Gary, IN.  Warren, IN.............................  Lafayette, IN.  Boone, IA..............................  Ames, IA.  Buchanan, IA...........................  Waterloo-Cedar Falls, IA.  Cedar, IA..............................  Iowa City, IA.  Allen, KY..............................  Bowling Green, KY.    [[Page 48587]]      Assumption Parish, LA..................  Baton Rouge, LA.  St. James Parish, LA...................  Baton Rouge, LA.  Allegan, MI............................  Holland-Grand Haven, MI.  Montcalm, MI...........................  Grand Rapids-Wyoming, MI.  Oceana, MI.............................  Muskegon-Norton Shores, MI.  Shiawassee, MI.........................  Lansing-East Lansing, MI.  Tuscola, MI............................  Saginaw-Saginaw Township North,                                            MI.  Fillmore, MN...........................  Rochester, MN.  Dade, MO...............................  Springfield, MO.  Pearl River, MS........................  Gulfport-Biloxi, MS.  Caswell, NC............................  Burlington, NC.  Davidson, NC...........................  Greensboro-High Point, NC.  Granville, NC..........................  Durham, NC.  Harnett, NC............................  Raleigh-Cary, NC.  Lincoln, NC............................  Charlotte-Gastonia-Concord, NC-                                            SC.  Polk, NC...............................  Spartanburg, SC.  Los Alamos, NM.........................  Santa Fe, NM.  Lyon, NV...............................  Carson City, NV.  Cayuga, NY.............................  Syracuse, NY.  Columbia, NY...........................  Albany-Schenectady-Troy, NY.  Genesee, NY............................  Rochester, NY.  Greene, NY.............................  Albany-Schenectady-Troy, NY.  Schuyler, NY...........................  Ithaca, NY.  Sullivan, NY...........................  Poughkeepsie-Newburgh-                                            Middletown, NY.  Wyoming, NY............................  Buffalo-Niagara Falls, NY.  Ashtabula, OH..........................  Cleveland-Elyria-Mentor, OH.  Champaign, OH..........................  Springfield, OH.  Columbiana, OH.........................  Youngstown-Warren-Boardman, OH-                                            PA.  Cotton, OK.............................  Lawton, OK.  Linn, OR...............................  Corvallis, OR.  Adams, PA..............................  York-Hanover, PA.  Clinton, PA............................  Williamsport, PA.  Greene, PA.............................  Pittsburgh, PA.  Monroe, PA.............................  Allentown-Bethlehem-Easton, PA-                                            NJ.  Schuylkill, PA.........................  Reading, PA.  Susquehanna, PA........................  Binghamton, NY.  Clarendon, SC..........................  Sumter, SC.  Lee, SC................................  Sumter, SC.  Oconee, SC.............................  Greenville, SC.  Union, SC..............................  Spartanburg, SC.  Meigs, TN..............................  Cleveland, TN.  Bosque, TX.............................  Waco, TX.  Falls, TX..............................  Waco, TX.  Fannin, TX.............................  Dallas-Plano-Irving, TX.  Grimes, TX.............................  College Station-Bryan, TX.  Harrison, TX...........................  Longview, TX.  Henderson, TX..........................  Dallas-Plano-Irving, TX.  Milam, TX..............................  Austin-Round Rock, TX.  Van Zandt, TX..........................  Dallas-Plano-Irving, TX.  Willacy, TX............................  Brownsville-Harlingen, TX.  Buckingham, VA.........................  Charlottesville, VA.  Floyd, VA..............................  Blacksburg-Christiansburg-                                            Radford, VA.  Middlesex, VA..........................  Virginia Beach-Norfolk-Newport                                            News, VA.  Page, VA...............................  Harrisonburg, VA.  Shenandoah, VA.........................  Winchester, VA-WV.  Island, WA.............................  Seattle-Bellevue-Everett, WA.  Mason, WA..............................  Olympia, WA.  Wahkiakum, WA..........................  Longview, WA.  Jackson, WV............................  Charleston, WV.  Roane, WV..............................  Charleston, WV.  Green, WI..............................  Madison, WI.  Green Lake, WI.........................  Fond du Lac, WI.  Jefferson, WI..........................  Milwaukee-Waukesha-West Allis,                                            WI.  Walworth, WI...........................  Milwaukee-Waukesha-West Allis,                                            WI.  ------------------------------------------------------------------------        As in the past, hospitals redesignated under section 1886(d)(8)(B)   of the Act are also eligible to be reclassified to a different area by   the MGCRB. Affected hospitals are permitted to compare the reclassified   wage index for the labor    [[Page 48588]]    market area in Table 4C in the Addendum to the proposed rule into which   they have been reclassified by the MGCRB to the wage index for the area   to which they are redesignated under section 1886(d)(8)(B) of the Act.   Hospitals could have withdrawn from an MCGRB reclassification within 45   days of the publication of the proposed rule. (We refer readers also to   section III.I.7. of the preamble of this final rule for special   withdrawal and termination rules that apply to areas affected by   section 124 of Pub. L. 110-275.)  6. Reclassifications Under Section 1886(d)(8)(B) of the Act      As discussed in last year's FY 2008 IPPS final rule with comment   period (72 FR 47336-47337), Lugar hospitals are treated like   reclassified hospitals for purposes of determining their applicable   wage index and receive the reclassified wage index (Table 4C in a   separate notice to be published in the Federal Register subsequent to   this final rule) for the urban area to which they have been   redesignated. Because Lugar hospitals are treated like reclassified   hospitals, when they are seeking reclassification by the MCGRB, they   are subject to the rural reclassification rules set forth at 42 CFR   412.230. The procedural rules set forth at Sec.  412.230 list the   criteria that a hospital must meet in order to reclassify as a rural   hospital. Lugar hospitals are subject to the proximity criteria and   payment thresholds that apply to rural hospitals. Specifically, the   hospital must be no more than 35 miles from the area to which it seeks   reclassification (Sec.  412.230(b)(1)); and the hospital must show that   its average hourly wage is at least 106 percent of the average hourly   wage of all other hospitals in the area in which the hospital is   located (Sec.  412.230(d)(1)(iii)(C)). As discussed in section   III.B.2.a. of the preamble of this final rule, beginning with the FY   2010 wage index we will be phasing in regulatory changes, so that the   hospital must also demonstrate that its average hourly wage is equal to   at least 84 percent (in FY 2010) and 86 percent (beginning in FY 2011)   of the average hourly wage of hospitals in the area to which it seeks   redesignation (Sec.  412.230(d)(1)(iv)(C)).      Hospitals not located in a Lugar county seeking reclassification to   the urban area where the Lugar hospitals have been redesignated are not   permitted to measure to the Lugar county to demonstrate proximity (no   more than 15 miles for an urban hospital, and no more than 35 miles for   a rural hospital or the closest urban or rural area for RRCs or SCHs)   in order to be reclassified to such urban area. These hospitals must   measure to the urban area exclusive of the Lugar County to meet the   proximity or nearest urban or rural area requirement. As discussed in   the FY 2008 final rule with comment period, we treat New England deemed   counties in a manner consistent with how we treat Lugar counties. (We   refer readers to 72 FR 47337 for a discussion of this policy.)  7. Reclassifications Under Section 508 of Public Law 108-173      On July 15, 2008, the Medicare Improvements for Patients and   Providers Act of 2008, Public Law 110-275 was enacted. Section 124 of   Public Law 110-275 extends through FY 2009 wage index reclassifications   under section 508 of Public Law 108-173 and certain special exceptions   (for example, those special exceptions contained in the final rule   promulgated in the Federal Register on August 11, 2004 (69 FR 49105,   49107)) and extended under section 117 of the MMSEA of 2007 (Pub. L.   110-173).      Under section 508 of Public Law 108-173, a qualifying hospital   could appeal the wage index classification otherwise applicable to the   hospital and apply for reclassification to another area of the State in   which the hospital is located (or, at the discretion of the Secretary),   to an area within a contiguous State. We implemented this process   through notices published in the Federal Register on January 6, 2004   (69 FR 661), and February 13, 2004 (69 FR 7340). Such reclassifications   were applicable to discharges occurring during the 3-year period   beginning April 1, 2004, and ending March 31, 2007. Section 106(a) of   the MIEA-TRHCA extended any geographic reclassifications of hospitals   that were made under section 508 and that would expire on March 31,   2007. On March 23, 2007, we published a notice in the Federal Register   (72 FR 13799) that indicated how we were implementing section 106(a) of   the MIEA-TRHCA through September 30, 2007. Section 117 of the MMSEA   further extended section 508 reclassifications and special exceptions   through September 30, 2008. On February 22, 2008, we published a notice   in the Federal Register (73 FR 9807) regarding our implementation of   section 117 of the MMSEA.      Section 124 of Public Law 110-275 has now extended the hospital   reclassifications provisions of section 508 and certain special   exceptions through September 30, 2009 (FY 2009). Because of the timing   of enactment of Public Law 110-275, we are not able to recompute the FY   2009 wage index values for any hospital that would be reclassified   under the section 508 and special exceptions provisions in time for   inclusion in this final rule. Instead, we will issue the final FY 2009   wage index values and other related tables, as specified in the   Addendum to this final rule, in a separate Federal Register notice   implementing this extension that will be published subsequent to this   final rule. We will analyze the data of hospitals in labor market areas   affected by this extension, including hospitals with Lugar   redesignations, and make our best efforts to give those hospitals a   wage index value that we believe results in the highest FY 2009 wage   index for which they are eligible. The intervening legislation   potentially affects only those areas that include the hospitals whose   reclassifications or special exceptions were extended, as well as areas   to which such hospitals were reclassified for FY 2009. Therefore, we   want to make clear that we will not be choosing wage index values for   hospitals that are reclassified to or located in areas containing no   hospitals whose reclassifications or exceptions were extended by   section 124 of Public Law 110-275.      Hospitals will have 15 days from the date of publication of the   separate notice to notify us if they wish to revise the decision that   CMS makes on their behalf. Members of a group reclassification must   ensure that all members of the group (except hospitals whose   reclassifications were extended by section 124 of Pub. L. 110-275) have   signed the revision request. Written requests to revise CMS' wage index   decision must be received at the following address by no later than 5   p.m. EST 15 days from the date of publication of the separate notice in   the Federal Register: Division of Acute Care, Center for Medicare   Management, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244,   Attn: Brian Slater.      If we do not receive notice from the hospital within this 15-day   timeframe, the determination made by CMS on behalf of the hospital in   the separate notice will be deemed final for FY 2009. We will not   further recalculate the wage indices or standardized amounts based on   hospitals' decisions that further revise decisions made by CMS on the   hospitals' behalf. If CMS makes a decision on a hospital's behalf to   terminate or withdraw a reclassification so that a hospital will   receive a higher qualifying wage index for FY 2009, and the hospital   does not reverse or modify CMS' decision within the 15-day timeframe,   we will deem the hospital's reclassification is withdrawn or terminated   for FY 2009 only, as section 508 reclassifications and special    [[Page 48589]]    exceptions are only extended through FY 2009. Such hospitals, if there   is at least one remaining year in their 3-year reclassification, will   automatically have their MGCRB reclassification reinstated for FY 2010.   Thus, for example, if we assign a hospital a section 508   reclassification wage index for FY 2009 and the hospital had been   previously granted a reclassification by the MGCRB for FY 2008 through   2010, the hospital's previous reclassification would be automatically   reinstated for the remaining year, FY 2010. By the same token, if the   omission of a section 508 or special exception hospital from the   calculation of the reclassification wage index in Table 4C of the   separate issuance results in the reclassification wage index decreasing   to the point that a hospital should have terminated its MGCRB   reclassification for FYs 2008 through 2010 and accepted its home wage   index, we will withdraw or terminate the reclassification on the   hospital's behalf. However, such reclassification will then be   automatically reinstated for FY 2010. In the case that a hospital had a   choice for FY 2009 of two overlapping possible MGCRB 3-year   reclassifications, and one such MGCRB reclassification is assigned to   the hospital via the process discussed above, then the reclassification   not accepted would be permanently terminated. Likewise, if the hospital   with the choice of two overlapping MGCRB reclassifications is a section   508 or special exception hospital that receives the section 508 or   special exception wage index for FY 2009, then only the   reclassification that the hospital had originally chosen for FY 2009   will be reinstated, and the other reclassification will be permanently   terminated. In other words, in accordance with our current rules with   regard to overlapping MGCRB reclassifications, a hospital will not be   permitted to hold in reserve two possible MGCRB reclassifications   through these procedures. In addition, if CMS believes that waiving a   hospital's Lugar redesignation in order for the hospital to receive its   home area wage index plus its out-migration adjustment results in the   highest possible wage index for the hospital, and the hospital does not   notify CMS within the 15-day timeframe to revise CMS' decision, such   waiver will only apply to the FY 2009 wage index.      Our special procedural rules for FY 2009 are authorized under   section 1886(d)(10)(D)(v) of the Act, which requires the Secretary to   ``establish procedures under which a subsection (d) hospital may elect   to terminate'' a reclassification. While the section authorizes the   Secretary to establish procedures, it does not dictate the specifics of   such procedures. Given the intervening legislation for FY 2009, and the   need to expeditiously engage in a series of recalculations for FY 2009,   we believe the most reasonable course at this point is for us to make   our best efforts to give affected hospitals their highest wage index   values, and then allow hospitals to opt out of such selections.      The special procedural rules will be effective upon publication and   supersede conflicting procedures included in 42 CFR 412.273. Because   these rules are effective only for FY 2009, we are not revising the   general rules included in the regulation at Sec.  412.273.    J. FY 2009 Wage Index Adjustment Based on Commuting Patterns of   Hospital Employees        In accordance with the broad discretion under section 1886(d)(13)   of the Act, as added by section 505 of Public Law 108-173, beginning   with FY 2005, we established a process to make adjustments to the   hospital wage index based on commuting patterns of hospital employees   (the ``out-migration'' adjustment). The process, outlined in the FY   2005 IPPS final rule (69 FR 49061), provides for an increase in the   wage index for hospitals located in certain counties that have a   relatively high percentage of hospital employees who reside in the   county but work in a different county (or counties) with a higher wage   index. Such adjustments to the wage index are effective for 3 years,   unless a hospital requests to waive the application of the adjustment.   A county will not lose its status as a qualifying county due to wage   index changes during the 3-year period, and counties will receive the   same wage index increase for those 3 years. However, a county that   qualifies in any given year may no longer qualify after the 3-year   period, or it may qualify but receive a different adjustment to the   wage index level. Hospitals that receive this adjustment to their wage   index are not eligible for reclassification under section 1886(d)(8) or   section 1886(d)(10) of the Act. Adjustments under this provision are   not subject to the budget neutrality requirements under section   1886(d)(3)(E) of the Act.      Hospitals located in counties that qualify for the wage index   adjustment are to receive an increase in the wage index that is equal   to the average of the differences between the wage indices of the labor   market area(s) with higher wage indices and the wage index of the   resident county, weighted by the overall percentage of hospital workers   residing in the qualifying county who are employed in any labor market   area with a higher wage index. Beginning with the FY 2008 wage index,   we use post-reclassified wage indices when determining the out-  migration adjustment (72 FR 47339).      For the FY 2009 wage index, we will calculate the out-migration   adjustment using the same formula described in the FY 2005 IPPS final   rule (69 FR 49064), with the addition of using the post-reclassified   wage indices, to calculate the out-migration adjustment. This   adjustment is calculated as follows:      Step 1. Subtract the wage index for the qualifying county from the   wage index of each of the higher wage area(s) to which hospital workers   commute.      Step 2. Divide the number of hospital employees residing in the   qualifying county who are employed in such higher wage index area by   the total number of hospital employees residing in the qualifying   county who are employed in any higher wage index area. For each of the   higher wage index areas, multiply this result by the result obtained in   Step 1.      Step 3. Sum the products resulting from Step 2 (if the qualifying   county has workers commuting to more than one higher wage index area).      Step 4. Multiply the result from Step 3 by the percentage of   hospital employees who are residing in the qualifying county and who   are employed in any higher wage index area.      These adjustments will be effective for each county for a period of   3 fiscal years. For example, hospitals that received the adjustment for   the first time in FY 2008 will be eligible to retain the adjustment for   FY 2009. For hospitals in newly qualified counties, adjustments to the   wage index are effective for 3 years, beginning with discharges   occurring on or after October 1, 2008.      Hospitals receiving the wage index adjustment under section   1886(d)(13)(F) of the Act are not eligible for reclassification under   sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-  migration adjustment. Consistent with our FY 2005, 2006, 2007, and 2008   IPPS final rules, we are specifying that hospitals redesignated under   section 1886(d)(8) of the Act or reclassified under section 1886(d)(10)   of the Act will be deemed to have chosen to retain their redesignation   or reclassification. Section 1886(d)(10) hospitals that wish to receive   the out-migration adjustment, rather than their reclassification, had   to    [[Page 48590]]    follow the termination/withdrawal procedures specified in 42 CFR   412.273 and section III.I.3. of the preamble of the proposed rule.   Otherwise, they were deemed to have waived the out-migration   adjustment. Hospitals redesignated under section 1886(d)(8) of the Act   were deemed to have waived the out-migration adjustment, unless they   explicitly notified CMS within 45 days from the publication of the   proposed rule that they elected to receive the out-migration adjustment   instead. (However, we refer readers to section III.I.7. of the preamble   of this final rule for special rules for hospitals in areas affected by   section 124 of Pub. L. 110-275.)      Table 4J in the Addendum to this final rule lists the out-migration   wage index adjustments for FY 2009. A revised table 4J will be   published in a separate Federal Register notice, as explained in   section III.I.7. of this preamble. Hospitals that are not otherwise   reclassified or redesignated under section 1886(d)(8) or section   1886(d)(10) of the Act (or who receive certain special   reclassifications or exceptions under section 124 of Pub. L. 110-275)   will automatically receive the listed adjustment. In accordance with   the procedures discussed above, except as discussed in section III.I.7.   of the preamble of this final rule, redesignated/reclassified hospitals   are deemed to have waived the out-migration adjustment unless CMS was   otherwise notified within the necessary timeframe. In addition,   hospitals eligible to receive the out-migration wage index adjustment   and that withdrew their application for reclassification should receive   the wage index adjustment listed in the final Table 4J (a tentative   Table 4J is included in the Addendum to this final rule but will be   updated in the separate Federal Register notice discussed in section   III.I.7. of this preamble).    K. Process for Requests for Wage Index Data Corrections        The preliminary, unaudited Worksheet S-3 wage data and occupational   mix survey data files for the FY 2009 wage index were made available on   October 5, 2007, through the Internet on the CMS Web site at: http://  www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.      In the interest of meeting the data needs of the public, beginning   with the proposed FY 2009 wage index, we posted an additional public   use file on our Web site that reflects the actual data that are used in   computing the proposed wage index. The release of this new file did not   alter the current wage index process or schedule. We notified the   hospital community of the availability of these data as we do with the   current public use wage data files through our Hospital Open Door   forum. We encouraged hospitals to sign up for automatic notifications   of information about hospital issues and the scheduling of the Hospital   Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.      In a memorandum dated October 5, 2007, we instructed all fiscal   intermediaries/MACs to inform the IPPS hospitals they service of the   availability of the wage index data files and the process and timeframe   for requesting revisions (including the specific deadlines listed   below). We also instructed the fiscal intermediaries/MACs to advise   hospitals that these data were also made available directly through   their representative hospital organizations.      If a hospital wished to request a change to its data as shown in   the October 5, 2007 wage and occupational mix data files, the hospital   was to submit corrections along with complete, detailed supporting   documentation to its fiscal intermediary/MAC by December 7, 2007.   Hospitals were notified of this deadline and of all other possible   deadlines and requirements, including the requirement to review and   verify their data as posted on the preliminary wage index data files on   the Internet, through the October 5, 2007 memorandum referenced above.      In the October 5, 2007 memorandum, we also specified that a   hospital requesting revisions to its first and/or second quarter   occupational mix survey data was to copy its record(s) from the CY 2006   occupational mix preliminary files posted to our Web site in October,   highlight the revised cells on its spreadsheet, and submit its   spreadsheet(s) and complete documentation to its fiscal intermediary/  MAC no later than December 7, 2007.      The fiscal intermediaries (or, if applicable, the MACs) notified   the hospitals by mid-February 2008 of any changes to the wage index   data as a result of the desk reviews and the resolution of the   hospitals' early-December revision requests. The fiscal intermediaries/  MACs also submitted the revised data to CMS by mid-February 2008. CMS   published the proposed wage index public use files that included   hospitals' revised wage index data on February 25, 2008. In a   memorandum also dated February 25, 2008, we instructed fiscal   intermediaries/MACs to notify all hospitals regarding the availability   of the proposed wage index public use files and the criteria and   process for requesting corrections and revisions to the wage index   data. Hospitals had until March 11, 2008, to submit requests to the   fiscal intermediaries/MACs for reconsideration of adjustments made by   the fiscal intermediaries/MACs as a result of the desk review, and to   correct errors due to CMS's or the fiscal intermediary's (or, if   applicable, the MAC's) mishandling of the wage index data. Hospitals   were also required to submit sufficient documentation to support their   requests.      After reviewing requested changes submitted by hospitals, fiscal   intermediaries/MACs were required to transmit any additional revisions   resulting from the hospitals' reconsideration requests by April 14,   2008. The deadline for a hospital to request CMS intervention in cases   where the hospital disagreed with the fiscal intermediary's (or, if   applicable, the MAC's) policy interpretations was April 21, 2008.      Hospitals were given the opportunity to examine Table 2 in the   Addendum to the proposed rule. Table 2 in the Addendum to the proposed   rule contained each hospital's adjusted average hourly wage used to   construct the wage index values for the past 3 years, including the FY   2005 data used to construct the proposed FY 2009 wage index. We noted   that the hospital average hourly wages shown in Table 2 only reflected   changes made to a hospital's data and transmitted to CMS by February   29, 2008.      We released the final wage index data public use files in early May   2008 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/  list.asp#TopOfPage. The May 2008 public use files were made available   solely for the limited purpose of identifying any potential errors made   by CMS or the fiscal intermediary/MAC in the entry of the final wage   index data that resulted from the correction process described above   (revisions submitted to CMS by the fiscal intermediaries/MACs by April   14, 2008). If, after reviewing the May 2008 final files, a hospital   believed that its wage or occupational mix data were incorrect due to a   fiscal intermediary/MAC or CMS error in the entry or tabulation of the   final data, the hospital had to send a letter to both its fiscal   intermediary/MAC and CMS that outlined why the hospital believed an   error existed and to provide all supporting information, including   relevant dates (for example, when it first became aware of the error).   CMS and the fiscal intermediaries (or, if applicable,    [[Page 48591]]    the MACs) had to receive these requests no later than June 9, 2008.      Each request also had to be sent to the fiscal intermediary/MAC.   The fiscal intermediary/MAC reviewed requests upon receipt and   contacted CMS immediately to discuss any findings.      At this point in the process, that is, after the release of the May   2008 wage index data files, changes to the wage and occupational mix   data were only made only in those very limited situations involving an   error by the fiscal intermediary/MAC or CMS that the hospital could not   have known about before its review of the final wage index data files.   Specifically, neither the fiscal intermediary/MAC nor CMS approved the   following types of requests:       Requests for wage index data corrections that were   submitted too late to be included in the data transmitted to CMS by   fiscal intermediaries or the MACs on or before April 21, 2008.       Requests for correction of errors that were not, but could   have been, identified during the hospital's review of the February 25,   2008 wage index public use files.       Requests to revisit factual determinations or policy   interpretations made by the fiscal intermediary or the MAC or CMS   during the wage index data correction process.      Verified corrections to the wage index data received timely by CMS   and the fiscal intermediaries or the MACs (that is, by June 9, 2008)   were incorporated into the final wage index in this FY 2009 IPPS final   rule, which will be effective October 1, 2008.      We created the processes described above to resolve all substantive   wage index data correction disputes before we finalize the wage and   occupational mix data for the FY 2009 payment rates. Accordingly,   hospitals that did not meet the procedural deadlines set forth above   will not be afforded a later opportunity to submit wage index data   corrections or to dispute the fiscal intermediary's (or, if applicable   the MAC's) decision with respect to requested changes. Specifically,   our policy is that hospitals that do not meet the procedural deadlines   set forth above will not be permitted to challenge later, before the   Provider Reimbursement Review Board, the failure of CMS to make a   requested data revision. (See W. A. Foote Memorial Hospital v. Shalala,   No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v.   Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY   2000 final rule (64 FR 41513) for a discussion of the parameters for   appealing to the PRRB for wage index data corrections.      Again, we believe the wage index data correction process described   above provides hospitals with sufficient opportunity to bring errors in   their wage and occupational mix data to the fiscal intermediary's (or,   if applicable, the MAC's) attention. Moreover, because hospitals had   access to the final wage index data by early May 2008, they had the   opportunity to detect any data entry or tabulation errors made by the   fiscal intermediary or the MAC or CMS before the development and   publication of the final FY 2009 wage index by August 1, 2008, and the   implementation of the FY 2009 wage index on October 1, 2008. If   hospitals availed themselves of the opportunities afforded to provide   and make corrections to the wage and occupational mix data, the wage   index implemented on October 1 should be accurate. Nevertheless, in the   event that errors are identified by hospitals and brought to our   attention after June 9, 2008, we retain the right to make midyear   changes to the wage index under very limited circumstances.      Specifically, in accordance with 42 CFR 412.64(k)(1) of our   existing regulations, we make midyear corrections to the wage index for   an area only if a hospital can show that: (1) The fiscal intermediary   or the MAC or CMS made an error in tabulating its data; and (2) the   requesting hospital could not have known about the error or did not   have an opportunity to correct the error, before the beginning of the   fiscal year. For purposes of this provision, ``before the beginning of   the fiscal year'' means by the June 9th deadline for making corrections   to the wage data for the following fiscal year's wage index. This   provision is not available to a hospital seeking to revise another   hospital's data that may be affecting the requesting hospital's wage   index for the labor market area. As indicated earlier, because CMS   makes the wage index data available to hospitals on the CMS Web site   prior to publishing both the proposed and final IPPS rules, and the   fiscal intermediaries or the MAC notify hospitals directly of any wage   index data changes after completing their desk reviews, we do not   expect that midyear corrections will be necessary. However, under our   current policy, if the correction of a data error changes the wage   index value for an area, the revised wage index value will be effective   prospectively from the date the correction is made.      In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR   412.64(k)(2) to specify that, effective on October 1, 2005, that is   beginning with the FY 2006 wage index, a change to the wage index can   be made retroactive to the beginning of the Federal fiscal year only   when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS   made an error in tabulating data used for the wage index calculation;   (2) the hospital knew about the error and requested that the fiscal   intermediary (or if applicable the MAC) and CMS correct the error using   the established process and within the established schedule for   requesting corrections to the wage index data, before the beginning of   the fiscal year for the applicable IPPS update (that is, by the June 9,   2008 deadline for the FY 2009 wage index); and (3) CMS agreed that the   fiscal intermediary (or if applicable, the MAC) or CMS made an error in   tabulating the hospital's wage index data and the wage index should be   corrected.      In those circumstances where a hospital requested a correction to   its wage index data before CMS calculates the final wage index (that   is, by the June 9th deadline), and CMS acknowledges that the error in   the hospital's wage index data was caused by CMS' or the fiscal   intermediary's (or, if applicable, the MAC's) mishandling of the data,   we believe that the hospital should not be penalized by our delay in   publishing or implementing the correction. As with our current policy,   we indicated that the provision is not available to a hospital seeking   to revise another hospital's data. In addition, the provision cannot be   used to correct prior years' wage index data; and it can only be used   for the current Federal fiscal year. In other situations where our   policies would allow midyear corrections, we continue to believe that   it is appropriate to make prospective-only corrections to the wage   index.      We note that, as with prospective changes to the wage index, the   final retroactive correction will be made irrespective of whether the   change increases or decreases a hospital's payment rate. In addition,   we note that the policy of retroactive adjustment will still apply in   those instances where a judicial decision reverses a CMS denial of a   hospital's wage index data revision request.    L. Labor-Related Share for the Wage Index for FY 2009        Section 1886(d)(3)(E) of the Act directs the Secretary to adjust   the proportion of the national prospective payment system base payment   rates that are attributable to wages and wage-related costs by a factor   that reflects the relative differences in labor costs among geographic   areas. It also directs the Secretary to estimate from time to time the   proportion of hospital costs that are labor-related: ``The Secretary   shall    [[Page 48592]]    adjust the proportion (as estimated by the Secretary from time to time)   of hospitals' costs which are attributable to wages and wage-related   costs of the DRG prospective payment rates * * *''. We refer to the   portion of hospital costs attributable to wages and wage-related costs   as the labor-related share. The labor-related share of the prospective   payment rate is adjusted by an index of relative labor costs, which is   referred to as the wage index.      Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of   the Act to provide that the Secretary must employ 62 percent as the   labor-related share unless this ``would result in lower payments to a   hospital than would otherwise be made.'' However, this provision of   Public Law 108-173 did not change the legal requirement that the   Secretary estimate ``from time to time'' the proportion of hospitals'   costs that are ``attributable to wages and wage-related costs.'' We   interpret this to mean that hospitals receive payment based on either a   62-percent labor-related share, or the labor-related share estimated   from time to time by the Secretary, depending on which labor-related   share resulted in a higher payment.      We have continued our research into the assumptions employed in   calculating the labor-related share. Our research involves analyzing   the compensation share separately for urban and rural hospitals, using   regression analysis to determine the proportion of costs influenced by   the area wage index, and exploring alternative methodologies to   determine whether all or only a portion of professional fees and   nonlabor intensive services should be considered labor-related.      In the FY 2006 IPPS final rule (70 FR 47392), we presented our   analysis and conclusions regarding the methodology for updating the   labor-related share for FY 2006. We also recalculated a labor-related   share of 69.731 percent, using the FY 2002-based PPS market basket for   discharges occurring on or after October 1, 2005. In addition, we   implemented this revised and rebased labor-related share in a budget   neutral manner, but consistent with section 1886(d)(3)(E) of the Act,   we did not take into account the additional payments that would be made   as a result of hospitals with a wage index less than or equal to 1.0   being paid using a labor-related share lower than the labor-related   share of hospitals with a wage index greater than 1.0.      The labor-related share is used to determine the proportion of the   national PPS base payment rate to which the area wage index is applied.   In this final rule, as we proposed, we are not making any changes to   the national average proportion of operating costs that are   attributable to wages and salaries, fringe benefits, professional fees,   contract labor, and labor intensive services. Therefore, we are   continuing to use a labor-related share of 69.731 percent for   discharges occurring on or after October 1, 2008. Tables 1A and 1B in   the Addendum to this final rule reflect this labor-related share.   However, as noted in the Addendum, these figures are tentative only and   will be revised as a result of section 124 of Public Law 110-275 in a   separate Federal Register notice to be published subsequent to this   final rule. We note that section 403 of Public Law 108-173 amended   sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that   the Secretary must employ 62 percent as the labor-related share unless   this employment ``would result in lower payments to a hospital than   would otherwise be made.''      As we proposed, we also are continuing to use a labor-related share   for the Puerto Rico-specific standardized amounts of 58.7 percent for   discharges occurring on or after October 1, 2008. Consistent with our   methodology for determining the national labor-related share, we added   the Puerto Rico-specific relative weights for wages and salaries,   fringe benefits, contract labor, nonmedical professional fees, and   other labor-intensive services to determine the labor-related share.   Puerto Rico hospitals are paid based on 75 percent of the national   standardized amounts and 25 percent of the Puerto Rico-specific   standardized amounts. For Puerto Rico hospitals, the national labor-  related share will always be 62 percent because the wage index for all   Puerto Rico hospitals is less than 1.0. A Puerto Rico-specific wage   index is applied to the Puerto Rico-specific portion of payments to the   hospitals. The labor-related share of a hospital's Puerto Rico-specific   rate will be either 62 percent or the Puerto Rico-specific labor-  related share depending on which results in higher payments to the   hospital. If the hospital has a Puerto Rico-specific wage index of   greater than 1.0, we will set the hospital's rates using a labor-  related share of 62 percent for the 25 percent portion of the   hospital's payment determined by the Puerto Rico standardized amounts   because this amount will result in higher payments. Conversely, a   hospital with a Puerto Rico-specific wage index of less than 1.0 will   be paid using the Puerto Rico-specific labor-related share of 58.7   percent of the Puerto Rico-specific rates because the lower labor-  related share will result in higher payments. The Puerto Rico labor-  related share of 58.7 percent for FY 2008 is reflected in the tentative   Table 1C of the Addendum to this final rule. (As explained in this   preamble and the Addendum to this final rule, section 124 of Pub. L.   119-275 will require us to recalculate the final rates and publish such   rates in a separate Federal Register notice.)    IV. Other Decisions and Changes to the IPPS for Operating Costs and GME   Costs    A. Changes to the Postacute Care Transfer Policy (Sec.  412.4)    1. Background      Existing regulations at Sec.  412.4(a) define discharges under the   IPPS as situations in which a patient is formally released from an   acute care hospital or dies in the hospital. Section 412.4(b) defines   transfers from one acute care hospital to another. Section 412.4(c)   establishes the conditions under which we consider a discharge to be a   transfer for purposes of our postacute care transfer policy. In   accordance with Sec.  412.4(f), in transfer situations, the   transferring hospital is paid based on a per diem rate for each day of   the stay, not to exceed the full MS-DRG payment that would have been   made if the patient had been discharged without being transferred.      The per diem rate paid to a transferring hospital is calculated by   dividing the full MS-DRG payment by the geometric mean length of stay   for the MS-DRG. Based on an analysis that showed that the first day of   hospitalization is the most expensive (60 FR 5804), our policy   generally provides for payment that is double the per diem amount for   the first day, with each subsequent day paid at the per diem amount up   to the full DRG payment (Sec.  412.4(f)(1)). Transfer cases are also   eligible for outlier payments. The outlier threshold for transfer cases   is equal to the fixed-loss outlier threshold for nontransfer cases   (adjusted for geographic variations in costs), divided by the geometric   mean length of stay for the MS-DRG, multiplied by the length of stay   for the case plus one day. The purpose of the IPPS postacute care   transfer payment policy is to avoid providing an incentive for a   hospital to transfer patients to another hospital, a SNF, or home under   a written plan of care for home health services early in the patients'   stay in order to minimize costs while still receiving the full MS-DRG   payment. The transfer policy adjusts the payments to approximate the   reduced costs of transfer cases.    [[Page 48593]]        Beginning with the FY 2006 IPPS, the regulations at Sec.  412.4   specified that, effective October 1, 2005, a DRG would be subject to   the postacute care transfer policy if, based on Version 23.0 of the DRG   Definitions Manual (FY 2006), using data from the March 2005 update of   FY 2004 MedPAR file, the DRG meets the following criteria:       The DRG had a geometric mean length of stay of at least 3   days;       The DRG had at least 2,050 postacute care transfer cases;   and       At least 5.5 percent of the cases in the DRG were   discharged to postacute care prior to the geometric mean length of stay   for the DRG.      In addition, if the DRG was one of a paired set of DRGs based on   the presence or absence of a CC or major cardiovascular condition   (MCV), both paired DRGs would be included if either one met the three   criteria above.      If a DRG met the above criteria based on the Version 23.0 DRG   Definitions Manual and FY 2004 MedPAR data, we made the DRG subject to   the postacute care transfer policy. We noted in the FY 2006 final rule   that we would not revise the list of DRGs subject to the postacute care   transfer policy annually unless we made a change to a specific CMS DRG.   We established this policy to promote certainty and stability in the   postacute care transfer payment policy. Annual reviews of the list of   CMS DRGs subject to the policy would likely lead to great volatility in   the payment methodology with certain DRGs qualifying for the policy in   one year, deleted the next year, only to be reinstated the following   year. However, we noted that, over time, as treatment practices change,   it was possible that some CMS DRGs that qualified for the policy will   no longer be discharged with great frequency to postacute care.   Similarly, we explained that there may be other CMS DRGs that at that   time had a low rate of discharges to postacute care, but which might   have very high rates in the future.      The regulations at Sec.  412.4 further specify that if a DRG did   not exist in Version 23.0 of the DRG Definitions Manual or a DRG   included in Version 23.0 of the DRG Definitions Manual is revised, the   DRG will be a qualifying DRG if it meets the following criteria based   on the version of the DRG Definitions Manual in use wh