FR Doc E8-17914

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[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]]

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Part II

Book 2 of 2 Books

Pages 48433-49084

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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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

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 412, 413, 422, and 489

[CMS-1390-F; CMS-1531-IFC1; CMS-1531-IFC2; CMS-1385-F4]
RIN 0938-AP15; RIN 0938-AO35; RIN 0938-AO65

AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.

ACTION: Final rules.

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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

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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

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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

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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

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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,

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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.
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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:

[[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:

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.

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:

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

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