81 FR 24946 - Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; Quality Reporting Requirements for Specific Providers; Graduate Medical Education; Hospital Notification Procedures Applicable to Beneficiaries Receiving Observation Services; and Technical Changes Relating to Costs to Organizations and Medicare Cost Reports

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services

Federal Register Volume 81, Issue 81 (April 27, 2016)

Page Range		24946-25322
FR Document		2016-09120

We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems for FY 2017. Some of the proposed changes would implement certain statutory provisions contained in the Pathway for Sustainable Growth (SGR) Reform Act of 2013, the Improving Medicare Post-Acute Care Transformation Act of 2014, the Notice of Observation Treatment and Implications for Care Eligibility Act of 2015, and other legislation. We also are providing the estimated market basket update to apply to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits for FY 2017. We are proposing to update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) for FY 2017. In addition, we are proposing to make changes relating to direct graduate medical education (GME) and indirect medical education (IME) payments to hospitals with rural track training programs. We are proposing to establish new requirements or revise requirements for quality reporting by specific providers (acute care hospitals, PPS- exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities) that are participating in Medicare, including related provisions for eligible hospitals and critical care hospitals (CAHs) participating in the Electronic Health Record (EHR) Incentive Program. We are proposing to update policies relating to the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction Program. We also are proposing to: Implement statutory provisions that require hospitals and CAHs to furnish notification to Medicare beneficiaries, including Medicare Advantage enrollees, when the beneficiaries receive outpatient observation services for more than 24 hours; announce the implementation of the Frontier Community Health Integration Project Demonstration; and make technical corrections and changes to regulations relating to costs to organizations and Medicare cost reports.

Federal Register, Volume 81 Issue 81 (Wednesday, April 27, 2016)

[Federal Register Volume 81, Number 81 (Wednesday, April 27, 2016)]
[Proposed Rules]
[Pages 24946-25322]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-09120]

[[Page 24945]]

Vol. 81

Wednesday,

No. 81

April 27, 2016

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 405, 412, 413, et al.

Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates;
Quality Reporting Requirements for Specific Providers; Graduate Medical
Education; Hospital Notification Procedures Applicable to Beneficiaries
Receiving Observation Services; and Technical Changes Relating to Costs
to Organizations and Medicare Cost Reports; Proposed Rule

Federal Register / Vol. 81 , No. 81 / Wednesday, April 27, 2016 /
Proposed Rules

[[Page 24946]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, and 485

[CMS-1655-P]
RIN 0938-AS77

Medicare Program; Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates;
Quality Reporting Requirements for Specific Providers; Graduate Medical
Education; Hospital Notification Procedures Applicable to Beneficiaries
Receiving Observation Services; and Technical Changes Relating to Costs
to Organizations and Medicare Cost Reports

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs of acute care hospitals to implement changes arising from our
continuing experience with these systems for FY 2017. Some of the
proposed changes would implement certain statutory provisions contained
in the Pathway for Sustainable Growth (SGR) Reform Act of 2013, the
Improving Medicare Post-Acute Care Transformation Act of 2014, the
Notice of Observation Treatment and Implications for Care Eligibility
Act of 2015, and other legislation. We also are providing the estimated
market basket update to apply to the rate-of-increase limits for
certain hospitals excluded from the IPPS that are paid on a reasonable
cost basis subject to these limits for FY 2017.
We are proposing to update the payment policies and the annual
payment rates for the Medicare prospective payment system (PPS) for
inpatient hospital services provided by long-term care hospitals
(LTCHs) for FY 2017.
In addition, we are proposing to make changes relating to direct
graduate medical education (GME) and indirect medical education (IME)
payments to hospitals with rural track training programs. We are
proposing to establish new requirements or revise requirements for
quality reporting by specific providers (acute care hospitals, PPS-
exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities)
that are participating in Medicare, including related provisions for
eligible hospitals and critical care hospitals (CAHs) participating in
the Electronic Health Record (EHR) Incentive Program. We are proposing
to update policies relating to the Hospital Value-Based Purchasing
(VBP) Program, the Hospital Readmissions Reduction Program, and the
Hospital-Acquired Condition (HAC) Reduction Program. We also are
proposing to: Implement statutory provisions that require hospitals and
CAHs to furnish notification to Medicare beneficiaries, including
Medicare Advantage enrollees, when the beneficiaries receive outpatient
observation services for more than 24 hours; announce the
implementation of the Frontier Community Health Integration Project
Demonstration; and make technical corrections and changes to
regulations relating to costs to organizations and Medicare cost
reports.

DATES: To be assured consideration, comments must be received at one of
the addresses provided in the ADDRESSES section, no later than 5 p.m.
EDT on June 17, 2016.

ADDRESSES: In commenting, please refer to file code CMS-1655-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (no duplicates,
please):
1. Electronically. You may (and we encourage you to) submit
electronic comments on this regulation to http://www.regulations.gov.
Follow the instructions under the ``submit a comment'' tab.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1655-P, P.O. Box 8011,
Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments via
express or overnight mail to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1655-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal Government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call the telephone number (410) 786-7195 in advance to schedule
your arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, we refer readers to the
beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Ing Jye Cheng, (410) 786-4548, and
Donald Thompson, (410) 786-4487, Operating Prospective Payment, MS-
DRGs, Wage Index, New Medical Service and Technology Add-On Payments,
Hospital Geographic Reclassifications, Graduate Medical Education,
Capital Prospective Payment, Excluded Hospitals, Medicare
Disproportionate Share Hospital (DSH) Issues, Medicare-Dependent Small
Rural Hospital (MDH) Program, and Low-Volume Hospital Payment
Adjustment Issues.
Michele Hudson, (410) 786-4487, and Emily Lipkin, (410) 786-3633,
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG
Relative Weights Issues.
Mollie Knight (410) 786-7948, and Bridget Dickensheets, (410) 786-
8670, Rebasing and Revising the LTCH Market Basket Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
Jason Pteroski, (410) 786-4681, and Siddhartha Mazumdar, (410) 786-
6673, Frontier Community Health Integration Project Demonstration
Issues.
Kathryn McCann Smith, (410) 786-7623, Hospital Notification
Procedures for Beneficiaries Receiving Outpatient Observation Services
Issues; or

[[Page 24947]]

Stephanie Simons, (206) 615-2420, only for Related Medicare Health
Plans Issues.
Lein Han, (617) 879-0129, Hospital Readmissions Reduction Program--
Readmission Measures for Hospitals Issues.
Delia Houseal, (410) 786-2724, Hospital-Acquired Condition
Reduction Program and Hospital Readmissions Reduction Program--Program
Administration Issues.
Joseph Clift, (410) 786-4165, Hospital-Acquired Condition Reduction
Program--Measures Issues.
James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting
and Hospital Value-Based Purchasing--Program Administration,
Validation, and Reconsideration Issues.
Cindy Tourison, (410) 786-1093, Hospital Inpatient Quality
Reporting--Measures Issues Except Hospital Consumer Assessment of
Healthcare Providers and Systems Issues; and Readmission Measures for
Hospitals Issues.
Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing
Efficiency Measures Issues.
Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality
Reporting--Hospital Consumer Assessment of Healthcare Providers and
Systems Measures Issues.
James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality
Reporting Issues.
Mary Pratt, (410) 786-6867, Long-Term Care Hospital Quality Data
Reporting Issues.
Jeffrey Buck, (410) 786-0407 and Cindy Tourison (410) 786-1093,
Inpatient Psychiatric Facilities Quality Data Reporting Issues.
Deborah Krauss, (410) 786-5264, and Lisa Marie Gomez, (410) 786-
1175, EHR Incentive Program Clinical Quality Measure Related Issues.
Elizabeth Myers, (410) 786-4751, EHR Incentive Program Nonclinical
Quality Measure Related Issues.
Lauren Wu, (202) 690-7151, Certified EHR Technology Related Issues.
Kellie Shannon, (410) 786-0416, Technical Changes Relating to Costs
to Organizations and Medicare Cost Reports Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

Inspection of Public Comments: All public comments received before
the close of the comment period are available for viewing by the
public, including any personally identifiable or confidential business
information that is included in a comment. We post all public comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.

Electronic Access

This Federal Register document is also available from the Federal
Register online database through Federal Digital System (FDsys), a
service of the U.S. Government Printing Office. This database can be
accessed via the Internet at: http://www.thefederalregister.org/fdsys.

Tables Available Only Through the Internet on the CMS Web Site

In the past, a majority of the tables referred to throughout this
preamble and in the Addendum to the proposed rule and the final rule
were published in the Federal Register as part of the annual proposed
and final rules. However, beginning in FY 2012, some of the IPPS tables
and LTCH PPS tables are no longer published in the Federal Register.
Instead, these tables generally will be available only through the
Internet. The IPPS tables for this proposed rule are available through
the Internet on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on
the link on the left side of the screen titled, ``FY 2017 IPPS Proposed
Rule Home Page'' or ``Acute Inpatient--Files for Download''. The LTCHy
PPS tables for this FY 2017 proposed rule are available through the
Internyet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the
list item for Regulation Number CMS-1655-P. For further details on the
contents of the tables referenced in this proposed rule, we refer
readers to section VI. of the Addendum to this proposed rule.
Readers who experience any problems accessing any of the tables
that are posted on the CMS Web sites identified above should contact
Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
ACoS American College of Surgeons
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
AJCC American Joint Committee on Cancer
ALOS Average length of stay-
ALTHA Acute Long-Term Hospital Association
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
APRN Advanced practice registered nurse
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASCA Administrative Simplification Compliance Act of 2002, Public
Law 107-105
ASITN American Society of Interventional and Therapeutic
Neuroradiology
ASPE Assistant Secretary for Planning and Evaluation (DHHS)
ATRA American Taxpayer Relief Act of 2012, Public Law 112-240
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Public
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Public Law 106-554
BLS Bureau of Labor Statistics
CABG Coronary artery bypass graft [surgery]
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation
[Instrument]
CART CMS Abstraction & Reporting Tool
CAUTI Catheter-associated urinary tract infection
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCN CMS Certification Number
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC Centers for Disease Control and Prevention
CERT Comprehensive error rate testing
CDI Clostridium difficile [C. difficile] infection
CFR Code of Federal Regulations
CLABSI Central line-associated bloodstream infection
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
COPD Chronic obstructive pulmonary disease
CPI Consumer price index
CQL Clinical quality language
CQM Clinical quality measure
CY Calendar year
DACA Data Accuracy and Completeness Acknowledgement

[[Page 24948]]

DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
EBRT External beam radiotherapy
ECE Extraordinary circumstances exemption
ECI Employment cost index
eCQM Electronic clinical quality measure
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law
99-272
EP Eligible professional
FAH Federation of American Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FPL Federal poverty line
FQHC Federally qualified health center
FR Federal Register
FTE Full-time equivalent
FY Fiscal year
GAF Geographic Adjustment Factor
GME Graduate medical education
HAC Hospital-acquired condition
HAI Healthcare-associated infection
HCAHPS Hospital Consumer Assessment of Healthcare Providers and
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCP Healthcare personnel
HCRIS Hospital Cost Report Information System
HF Heart failure
HHA Home health agency
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
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-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision,
Procedure Coding System
ICR Information collection requirement
ICU Intensive care unit
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
IMPACT Act Improving Medicare Post-Acute Care Transformation Act of
2014, Public Law 113-185
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPFQR Inpatient Psychiatric Facility Quality Reporting [Program]
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR [Hospital] Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LEP Limited English proficiency
LOC Limitation on charges
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
LTCH QRP Long-Term Care Hospital Quality Reporting Program
MA Medicare Advantage
MAC Medicare Administrative Contractor
MACRA Medicare Access and CHIP Reauthorization Act of 2015, Public
Law 114-10
MAP Measure Application Partnership
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
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
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public
Law 110-173
MOON Medicare Outpatient Observation Notice
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
MU Meaningful Use [EHR Incentive Program]
MUC Measure under consideration
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NHSN National Healthcare Safety Network
NOP Notice of Participation
NOTICE Act Notice of Observation Treatment and Implication for Care
Eligibility Act, Public Law 114-42
NQF National Quality Forum
NQS National Quality Strategy
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991,
Public Law 104-113
NUBC National Uniform Billing Code
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1986, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB [Executive] Office of Management and Budget
ONC Office of the National Coordinator for Health Information
Technology
OPM [U.S.] Office of Personnel Management
OQR [Hospital] Outpatient Quality Reporting
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PAC Post-acute care
PAMA Protecting Access to Medicare Act of 2014, Public Law 113-93
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality reporting
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
PPR Potentially Preventable Readmissions
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PSI Patient safety indicator
PS&R Provider Statistical and Reimbursement [System]
PQRS Physician Quality Reporting System
PUF Public use file
QDM Quality data model
QIES ASAP Quality Improvement Evaluation System Assessment
Submission and Processing
QIG Quality Improvement Group [CMS]
QIO Quality Improvement Organization
QM Quality measure
QRDA Quality Reporting Document Architecture
RFA Regulatory Flexibility Act, Public Law 96-354
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RIM Reference information model
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center

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RSMR Risk-standard mortality rate
RSP Risk-standardized payment
RSSR Risk-standard readmission rate
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SCHIP State Child Health Insurance Program
SCIP Surgical Care Improvement Project
SFY State fiscal year
SGR Sustainable Growth Rate
SIC Standard Industrial Classification
SIR Standardized infection ratio
SNF Skilled nursing facility
SNF QRP Skilled Nursing Facility Quality Reporting Program
SNF VBP Skilled Nursing Facility Value-Based Purchasing
SOCs Standard occupational classifications
SOM State Operations Manual
SRR Standardized risk ratio
SSI Surgical site infection
SSI Supplemental Security Income
SSO Short-stay outlier
SUD Substance use disorder
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law
97-248
TEP Technical expert panel
THA/TKA Total hip arthroplasty/total knee arthroplasty
TMA TMA [Transitional Medical Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs Extension Act of 2007, Public
Law 110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UR Utilization review
VBP [Hospital] Value Based Purchasing [Program]
VTE Venous thromboembolism

Table of Contents

I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
2. Summary of the Major Provisions
3. Summary of Costs and Benefits
B. Summary
1. Acute Care Hospital Inpatient Prospective Payment System
(IPPS)
2. Hospitals and Hospital Units Excluded from the IPPS
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical Education (GME)
C. Summary of Provisions of Recent Legislation Proposed to be
Implemented in this Proposed Rule
1. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
3. Improving Medicare Post-Acute Care Transformation Act of 2014
(IMPACT Act) (Pub. L. 113-185)
4. The Medicare Access and CHIP Reauthorization Act (MACRA) of
2015 (Pub. L. 114-10)
5. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113)
6. The Notice of Observation Treatment and Implication for Care
Eligibility Act (the NOTICE Act) of 2015 (Pub. L. 114-42)
D. Summary of the Provisions of this Proposed Rule
II. Proposed Changes to Medicare Severity Diagnosis-Related Group
(MS-DRG) Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
C. Adoption of the MS-DRGs in FY 2008
D. Proposed FY 2017 MS-DRG Documentation and Coding Adjustment
1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
2. Adjustment to the Average Standardized Amounts Required by
Public Law 110-90
a. Prospective Adjustment Required by Section 7(b)(1)(A) of
Public Law 110-90
b. Recoupment or Repayment Adjustments in FYs 2010 through 2012
Required by Section 7(b)(1)(B) of Public Law 110-90
3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by
Section 7(b)(1)(A) of Public Law 110-90
5. Recoupment or Repayment Adjustment Authorized by Section
7(b)(1)(B) of Public Law 110-90
6. Proposed Recoupment or Repayment Adjustment Authorized by
Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Discussion of Policy for FY 2017
F. Proposed Changes to Specific MS-DRG Classifications
1. Discussion of Changes to Coding System and Basis for MS-DRG
Updates
a. Conversion of MS-DRGs to the International Classification of
Diseases, 10th Revision (ICD-10)
b. Basis for Proposed FY 2017 MS-DRG Updates
2. Pre-Major Diagnostic Category (Pre-MDC): Total Artificial
Heart Replacement
3. MDC 1 (Diseases and Disorders of the Nervous System)
a. Endovascular Embolization (Coiling) or Occlusion of Head and
Neck Procedures
b. Mechanical Complication Codes
4. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and
Throat)
a. Proposed Reassignment of Diagnosis Code R22.2 (Localized
Swelling, Mass and Lump, Trunk)
b. Pulmonary Embolism with tPA or Other Thrombolytic Therapy
5. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Implant of Loop Recorder
b. Endovascular Thrombectomy of the Lower Limbs
c. Pacemaker Procedures Code Combinations
d. Transcatheter Mitral Valve Repair with Implant
e. MS-DRG 245 (AICD Generator Procedures)
6. MDC 6 (Diseases and Disorders of the Digestive System):
Excision of Ileum
7. MDC 7 (Diseases and Disorders of the Hepatobiliary System and
Pancreas): Bypass Procedures of the Veins
8. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Proposed Updates to MS-DRGs 469 and 470 (Major Joint
Replacement or Reattachment of Lower Extremity with and without MCC,
respectively)
(1) Total Ankle Replacement (TAR) Procedures
(2) Hip Replacements Procedures with Principal Diagnosis of Hip
Fracture
b. Revision of Total Ankle Replacement Procedures
(1) Revision of Total Ankle Replacement Procedures
(2) Combination Codes for Removal and Replacement of Knee Joints
c. Decompression Laminectomy
d. Lordosis
9. MDC 13 (Diseases and Disorders of the Female Reproductive
System): Pelvic Evisceration
10. MDC 19 (Mental Diseases and Disorders): Proposed
Modification of Title of MS-DRG 884 (Organic Disturbances and Mental
Retardation)
11. MDC 23 (Factors Influencing Health Status and Other Contacts
with Health Services): Logic of MS-DRGs 945 and 946 (Rehabilitation
with and without CC/MCC, Respectively)
12. Proposed Medicare Code Editor (MCE) Changes
a. Age Conflict Edit
(1) Newborn Diagnosis Category
(2) Pediatric Diagnosis Category
b. Sex Conflict Edit
c. Non-Covered Procedure Edit
(1) Endovascular Mechanical Thrombectomy
(2) Radical Prostatectomy
d. Unacceptable Principal Diagnosis Edit
(1) Liveborn Infant
(2) Multiple Gestation
(3) Supervision of High Risk Pregnancy
e. Other MCE Issues
(1) Procedure Inconsistent with Length of Stay Edit
(2) Maternity Diagnoses
(3) Manifestation Codes Not Allowed as Principal Diagnosis Edit
(4) Questionable Admission Edit
(5) Removal of Edits and Future Enhancement
13. Proposed Changes to Surgical Hierarchies
14. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2017
15. Proposed Complications or Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC Exclusions List
b. Proposed CC Exclusions List for FY 2017
16. Review of Procedure Codes in MS DRGs 981 through 983; 984
through 986; and 987 through 989
a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-
DRGs 987 through 989 into MDCs
b. Reassignment of Procedures among MS-DRGs 981 through 983, 984
through 986, and 987 through 989

[[Page 24950]]

c. Adding Diagnosis or Procedure Codes to MDCs
(1) Angioplasty of Extracranial Vessel
(2) Excision of Abdominal Arteries
(3) Excision of Retroperitoneal Tissue
(4) Occlusion of Vessels: Esophageal Varices
(5) Excision of Vulva
(6) Lymph Node Biopsy
(7) Obstetrical Laceration Repair
17. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding
Systems
a. ICD-10 Coordination and Maintenance Committee
b. Code Freeze
18. Replaced Devices Offered without Cost or With a Credit
a. Background
b. Proposed Changes for FY 2017
19. Other Proposed Policy Changes
a. MS-DRG GROUPER Logic
(1) Operations on Products of Conception
(2) Other Heart Revascularization
(3) Procedures on Vascular Bodies: Chemoreceptors
(4) Repair of the Intestine
(5) Insertion of Infusion Pump
(6) Procedures on the Bursa
(7) Procedures on the Breast
(8) Excision of Subcutaneous Tissue and Fascia
(9) Shoulder Replacement
(10) Reposition
(11) Insertion of Infusion Device
(12) Bladder Neck Repair
(13) Future Consideration
b. Issues Relating to MS-DRG 999 (Ungroupable)
c. Other Operating Room (O.R.) and Non-O.R. Issues
(1) O.R. Procedures to Non-O.R. Procedures
(a) Endoscopic/Transorifice Insertion
(b) Endoscopic/Transorifice Removal
(c) Tracheostomy Device Removal
(d) Endoscopic/Percutaneous Insertion
(e) Percutaneous Removal
(f) Percutaneous Drainage
(g) Percutaneous Inspection
(h) Inspection without Incision
(i) Dilation of Stomach
(j) Endoscopic/Percutaneous Occlusion
(k) Infusion Device
(2) Non-O.R. Procedures to O.R. Procedures
(a) Drainage of Pleural Cavity
(b) Drainage of Cerebral Ventricle
G. Recalibration of the Proposed FY 2017 MS-DRG Relative Weights
1. Data Sources for Developing the Proposed Relative Weights
2. Methodology for Calculation of the Proposed Relative Weights
3. Development of National Average CCRs
H. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. ICD-10-PCS Section ``X'' Codes for Certain New Medical
Services and Technologies
4. Proposed FY 2017 Status of Technologies Approved for FY 2016
Add-On Payments
a. Kcentra^TM
b. Argus[supreg] II Retinal Prosthesis System
c. CardioMEMS^TM HF (Heart Failure) Monitoring System
d. MitraClip[supreg] System
e. Responsive Neurostimulator (RNS[supreg]) System
f. Blinatumomab (BLINCYTO^TM Trade Brand)
g. Lutonix[supreg] Drug Coated Balloon PTA Catheter and
In.PACT^TM Admiral^TM Pacliaxel Coated
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
5. Proposed FY 2017 Applications for New Technology Add-On
Payments
a. MAGEC[supreg] Spinal Bracing and Distraction System
(MAGEC[supreg] Spine)
b. MIRODERM Biologic Wound Matrix (MIRODERM)
c. Idarucizumab
d. Titan Spine (Titan Spine Endoskeleton[supreg]
nanoLOCK^TM Interbody Device)
e. Andexanet Alfa
f. Defitelio[supreg] (Defibrotide)
g. EDWARDS INTUITY Elite^TM Valve System
h. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis
(IBE)
i. Vistogard^TM (Uridine Triacetate)
III. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals
A. Background
1. Legislative Authority
2. Core-Based Statistical Areas (CBSAs) Revisions for the
Proposed FY 2017 Hospital Wage Index
B. Worksheet S-3 Wage Data for the Proposed FY 2017 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
C. Verification of Worksheet S-3 Wage Data
D. Method for Computing the Proposed FY 2017 Unadjusted Wage
Index
E. Proposed Occupational Mix Adjustment to the FY 2017 Wage
Index
1. Use of 2013 Occupational Mix Survey for the Proposed FY 2017
Wage Index
2. Development of the 2016 Medicare Wage Index Occupational Mix
Survey for the FY 2019 Wage Index
3. Calculation of the Proposed Occupational Mix Adjustment for
FY 2017
F. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2017 Occupational Mix Adjusted Wage
Index
G. Transitional Wage Indexes
1. Background
2. Transition for Hospitals in Urban Areas That Became Rural
3. Transition for Hospitals Deemed Urban under Section
1886(d)(8)(B) of the Act Where the Urban Area Became Rural under the
New OMB Delineations
4. Budget Neutrality
H. Proposed Application of the Proposed Rural, Imputed, and
Frontier Floors
1. Proposed Rural Floor
2. Proposed Imputed Floor for FY 2017
3. Proposed State Frontier Floor for FY 2017
I. Proposed FY 2017 Wage Index Tables
J. Proposed Revisions to the Wage Index Based on Hospital
Redesignations and Reclassifications
1. General Policies and Effects of Reclassification and
Redesignation
2. MGCRB Reclassification and Redesignation Issues for FY 2017
a. FY 2017 Reclassification Requirements and Approvals
b. Requirements for FY 2018 Applications and Proposed Revisions
Regarding Paper Application Requirements
c. Other Policy Regarding Reclassifications for Terminated
Hospitals
3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the
Act
4. Waiving Lugar Redesignation for the Out-Migration Adjustment
K. Proposed Out-Migration Adjustment Based on Commuting Patterns
of Hospital Employees for FY 2017
L. Notification Regarding Proposed CMS ``Lock-In'' Date for
Urban to Rural Reclassifications Under Sec. 412.103
M. Process for Requests for Wage Index Data Corrections
N. Proposed Labor Market Share for the Proposed FY 2017 Wage
Index
O. Solicitation of Comments on Treatment of Overhead and Home
Office Costs in the Wage Index Calculation
IV. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and Graduate Medical Education (GME) Costs
A. Changes to Operating Payments for Subsection (d) Puerto Rico
Hospitals as a Result of Section 601 of Public Law 114-113
B. Proposed Changes in the Inpatient Hospital Updates for FY
2017 (Sec. Sec. 412.64(d) and 412.211(c))
1. Proposed FY 2017 Inpatient Hospital Update
2. Proposed FY 2017 Puerto Rico Hospital Update
3. Electronic Health Records (EHR) Adjustment to IPPS Market
Basket
C. Rural Referral Centers (RRCs): Proposed Annual Updates to
Case-Mix Index (CMI) and Discharge Criteria (Sec. 412.96)
1. Case-Mix Index (CMI)
2. Discharges
D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.
412.101)
E. Indirect Medical Education (IME) Payment Adjustment (Sec.
412.105)
1. IME Adjustment Factor for FY 2017
2. Other Proposed Policy Changes Affecting IME
F. Proposed Payment Adjustment for Medicare Disproportionate
Share Hospitals (DSHs) for FY 2017 and Subsequent Years (Sec.
412.106)
1. General Discussion
2. Eligibility for Empirically Justified Medicare DSH Payments
and Uncompensated Care Payments
3. Empirically Justified Medicare DSH Payments
4. Uncompensated Care Payments
a. Calculation of Proposed Factor 1 for FY 2017
b. Calculation of Proposed Factor 2 for FY 2017
c. Calculation of Proposed Factor 3 for FY 2017

[[Page 24951]]

d. Proposed Calculation of Factor 3 for FY 2018 and Subsequent
Fiscal Years
(1) Background
(2) Proposed Data Source and Time Period for FY 2018 and
Subsequent Years, Including Methodology for Incorporating Worksheet
S-10 Data
(3) Proposed Definition of Uncompensated Care for FY 2018 and
Subsequent Fiscal Years
(4) Other Methodological Considerations for FY 2018 and
Subsequent Fiscal Years
G. Hospital Readmissions Reduction Program: Proposed Updates and
Changes (Sec. Sec. 412.150 through 412.154)
1. Statutory Basis for the Hospital Readmissions Reduction
Program
2. Regulatory Background
3. Proposed Policies for the FY 2017 Hospital Readmissions
Reduction Program
4. Maintenance of Technical Specifications for Quality Measures
5. Proposed Applicable Period for FY 2017
6. Proposed Calculation of Aggregate Payments for Excess
Readmissions for FY 2017
7. Extraordinary Circumstance Exception Policy
8. Timeline for Public Reporting of Excess Readmission Ratios on
Hospital Compare for the FY 2017 Payment Determination
H. Hospital Value-Based Purchasing (VBP) Program: Proposed
Policy Changes for the FY 2018 Program Year and Subsequent Years
1. Background
a. Statutory Background and Overview of Past Program Years
b. FY 2017 Program Year Payment Details
2. PSI 90 Measure in the FY 2018 and Future Program Years
a. Proposed PSI 90 Measure Performance Period Change for the FY
2018 Program Year
b. Intent To Propose in Future Rulemaking To Adopt the Modified
PSI 90 Measure
3. Retention Policy, Domain Name Proposal, and Updating of
Quality Measures for the FY 2019 Program Year
a. Retention of Previously Adopted Hospital VBP Program Measures
b. Proposed Domain Name Change
c. Proposed Inclusion of Selected Ward Non-Intensive Care Unit
(ICU) Locations in Certain NHSN Measures Beginning With the FY 2019
Program Year
d. Summary of Previously Adopted Measures and Newly Proposed
Measure Refinements for the FY 2019 Program Year
4. Newly Proposed Measures and Measure Refinements for the FY
2021 Program Year and Subsequent Years
a. Condition-Specific Hospital Level, Risk-Standardized Payment
Measures
b. Proposed Update to an Existing Measure for the FY 2021
Program Year: Hospital 30-Day, All-Cause, Risk-Standardized
Mortality Rate (RSMR) Following Pneumonia (PN) Hospitalization (NQF
#0468) (Updated Cohort)
5. Proposed New Measure for the FY 2022 Program Year: Hospital
30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following
Coronary Artery Bypass Graft (CABG) Surgery (NQF #2558)
6. Previously Adopted and Newly Proposed Baseline and
Performance Periods
a. Background
b. Patient- and Caregiver-Centered Experience of Care/Care
Coordination Domain (Proposed Person and Community Engagement
Domain)
c. Efficiency and Cost Reduction Domain
d. Safety Domain
e. Clinical Care Domain
f. Summary of Previously Adopted and Newly Proposed Baseline and
Performance Periods for the FY 2018, FY 2019, FY 2020, FY 2021, and
FY 2022 Program Years
7. Proposed Immediate Jeopardy Policy Changes
a. Background
b. Proposed Increase of Immediate Jeopardy Citations From Two to
Three Surveys
c. EMTALA-Related Immediate Jeopardy Citations
8. Proposed Performance Standards for the Hospital VBP Program
a. Background
b. Previously Adopted and Proposed Performance Standards for the
FY 2019 Program Year
c. Previously Adopted Performance Standards for Certain Measures
for the FY 2020 Program Year
d. Previously Adopted and Newly Proposed Performance Standards
for Certain Measures for the FY 2021 Program Year
e. Proposed Performance Standards for Certain Measures for the
FY 2022 Program Year
9. FY 2019 Program Year Scoring Methodology
a. Domain Weighting for the FY 2019 Program Year for Hospitals
That Receive a Score on All Domains
b. Domain Weighting for the FY 2019 Program Year for Hospitals
Receiving Scores on Fewer Than Four Domains
I. Proposed Changes to the Hospital-Acquired Condition (HAC)
Reduction Program
1. Background
2. Statutory Basis for the HAC Reduction Program
3. Overview of Previous HAC Reduction Program Rulemaking
4. Implementation of the HAC Reduction Program for FY 2017
a. Clarification of Complete Data Requirements for Domain 1
b. Clarification of NHSN CDC HAI Data Submission Requirements
for Newly Opened Hospitals
5. Implementation of the HAC Reduction Program for FY 2018
a. Proposed Adoption of PSI 90: Patient Safety and Adverse
Events Composite (NQF # 0531)
b. Applicable Time Periods for the FY 2018 HAC Reduction Program
and the FY 2019 HAC Reduction Program
c. Proposed Changes to the HAC Reduction Program Scoring
Methodology
6. Request for Comments on Additional Measures for Potential
Future Adoption
7. Maintenance of Technical Specifications for Quality Measures
8. Extraordinary Circumstance Exception Policy for the HAC
Reduction Program Beginning in FY 2016 and for Subsequent Years
J. Payment for Graduate Medical Education (GME) and Indirect
Medical Education (IME) Costs (Sec. Sec. 412.105, 413.75 through
413.83)
1. Background
2. Change in New Program Growth From 3 Years to 5 Years
a. Urban and Rural Hospitals
b. Proposed Policy Changes Relating to Rural Training Tracks at
Urban Hospitals
c. Proposed Effective Date
K. Rural Community Hospital Demonstration Program
1. Background
2. Budget Neutrality Offset Adjustments: Fiscal Years 2005
Through 2016
a. Fiscal Years 2005 Through 2013
b. Fiscal Years 2014 and 2015
c. Fiscal Year 2016
3. Proposed Budget Neutrality Methodology for FY 2017
L. Proposed Hospital and CAH Notification Procedures for
Outpatients Receiving Observation Services
1. Background
a. Statutory Authority
b. Proposed Effective Date
2. Proposed Implementation of the NOTICE Act Provisions
a. Proposed Notice Process
b. Proposed Notification Recipients
c. Proposed Timing of Notice Delivery
d. Proposed Requirements for Written Notice
e. Outpatient Observation Services and Beneficiary Financial
Liability
f. Delivering the Medicare Outpatient Observation Notice
g. Proposed Oral Notice
h. Proposed Signature Requirements
i. No Appeal Rights Under the NOTICE Act
M. Proposed Technical Changes and Correction of Typographical
Errors in Certain Regulations Under 42 CFR part 413 Relating to
Costs to Related Organizations and Medicare Cost Reports
1. General Background
2. Proposed Technical Change to Regulations at 42 CFR
413.17(d)(1) on Cost to Related Organizations
3. Proposed Changes to 42 CFR 413.24(f)(4)(i) Relating to
Electronic Submission of Cost Reports
4. Proposed Technical Changes to 42 CFR 413.24(f)(4)(ii)
Relating to Electronic Submission of Cost Reports and Due Dates
5. Proposed Technical Changes to 42 CFR 413.24(f)(4)(iv)
Relating to Reporting Entities, Cost Report Certification Statement,
Electronic Submission and Cost Reports Due Dates
6. Proposed Technical Correction to 42 CFR 413.200(c)(1)(i)
Relating to Medicare Cost Report Due Dates for Organ Procurement
Organizations and Histocompatibility Laboratories
N. Clarification Regarding the Medicare Utilization Requirement
for Medicare-

[[Page 24952]]

Dependent, Small Rural Hospitals (MDHs) (Sec. 412.108)
1. Background
2. Clarification of Medicare Utilization Criterion for MDH
Classification
O. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
V. Proposed Changes to the IPPS for Capital-Related Costs
A. Overview
B. Additional Provisions
1. Exception Payments
2. New Hospitals
3. Proposed Changes in Payments for Hospitals Located in Puerto
Rico
C. Proposed Annual Update for FY 2017
VI. Proposed Changes for Hospitals Excluded From the IPPS
A. Proposed Rate-of-Increase in Payments to Excluded Hospitals
for FY 2017
B. Critical Care Hospitals (CAHs)
1. Background
2. Frontier Community Health Integration Project (FCHIP)
Demonstration
VII. Proposed Changes to the Long-Term Care Hospital Prospective
Payment System (LTCH PPS) for FY 2015
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
B. Proposed Modifications to the Application of the Site Neutral
Payment Rate (Sec. 412.522)
1. Background
2. Technical Correction of Definition of ``Subsection (d)
Hospital'' for the Site Neutral Payment Rate (Sec. 412.503)
C. Proposed Medicare Severity Long-Term Care Diagnosis-Related
Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2017
1. Background
2. Patient Classifications Into MS-LTC-DRGs
a. Background
b. Proposed Changes to the MS-LTC-DRGs for FY 2017
3. Development of the Proposed FY 2017 MS-LTC-DRG Relative
Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Development of the Proposed MS-LTC-DRG Relative Weights for
FY 2017
c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Treatment of Severity Levels in Developing the MS-LTC-DRG
Relative Weights
f. Proposed Low-Volume MS-LTC-DRGs
g. Steps for Determining the Proposed FY 2017 MS-LTC-DRG
Relative Weights
D. Proposed Rebasing of the LTCH Market Basket
1. Background
2. Overview of the Proposed 2013-Based LTCH Market Basket
3. Development of the Proposed 2013-Based LTCH Market Basket
Cost Categories and Weights
a. Use of Medicare Cost Report Data
(1) Wages and Salaries Costs
(2) Employee Benefit Costs
(3) Contract Labor Costs
(4) Pharmaceutical Costs
(5) Professional Liability Insurance Costs
(6) Capital Costs
b. Final Major Cost Category Computation
c. Derivation of the Detailed Operating Cost Weights
d. Derivation of the Detailed Capital Cost Weights
e. Proposed 2013-Based LTCH Market Basket Cost Categories and
Weights
4. Selection of Proposed Price Proxies
a. Price Proxies for the Operating Portion of the Proposed 2013-
Based LTCH Market Basket
(1) Wages and Salaries
(2) Employee Benefits
(3) Electricity
(4) Fuel, Oil, and Gasoline
(5) Water and Sewage
(6) Professional Liability Insurance
(7) Pharmaceuticals
(8) Food: Direct Purchases
(9) Food: Contract Services
(10) Chemicals
(11) Medical Instruments
(12) Rubber and Plastics
(13) Paper and Printing Products
(14) Miscellaneous Products
(15) Professional Fees: Labor-Related
(16) Administrative and Facilities Support Services
(17) Installation, Maintenance, and Repair Services
(18) All Other: Labor-Related Services
(19) Professional Fees: Nonlabor-Related
(20) Financial Services
(21) Telephone Services
(22) All Other: Nonlabor-Related Services
b. Price Proxies for the Capital Portion of the Proposed 2013-
Based LTCH Market Basket
(1) Capital Price Proxies Prior to Vintage Weighting
(2) Vintage Weights for Price Proxies
c. Summary of Price Proxies of the Proposed 2013-Based LTCH
Market Basket
d. Proposed FY 2017 Market Basket Update for LTCHs
e. Proposed FY 2017 Labor-Related Share
E. Proposed Changes to the LTCH PPS Payment Rates and Other
Proposed Changes to the LTCH PPS for FY 2017
1. Overview of Development of the LTCH PPS Standard Federal
Payment Rates
2. Proposed FY 2017 LTCH PPS Standard Federal Payment Rate
Annual Market Basket Update
a. Overview
b. Proposed Market Basket Under the LTCH PPS for FY 2017
c. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
d. Proposed Adjustment to the LTCH PPS Standard Federal Payment
Rate Under the Long-Term Care Hospital Quality Reporting Program
(LTCH QRP)
e. Proposed Annual Market Basket Update Under the LTCH PPS for
FY 2017
3. Proposed Update Under the Payment Adjustment for ``Subclause
(II)'' LTCHs
F. Proposed Modifications to the ``25-Percent Threshold Policy''
Payment Adjustments (Sec. Sec. 412.534 and 412.536)
G. Proposed Refinement to the Payment Adjustment for ``Subclause
II'' LTCHs
VIII. Quality Data Reporting Requirements for Specific Providers and
Suppliers
A. Hospital Inpatient Quality Reporting (IQR) Program
1. Background
a. History of the Hospital IQR Program
b. Maintenance of Technical Specifications for Quality Measures
c. Public Display of Quality Measures
2. Process for Retaining Previously Adopted Hospital IQR Program
Measures for Subsequent Payment Determinations
3. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital
IQR Program
b. Proposed Removal of Hospital IQR Program Measures for the FY
2019 Payment Determination and Subsequent Years
4. Previously Adopted Hospital IQR Program Measures for the FY
2018 and FY 2019 Payment Determination and Subsequent Years
5. Expansion and Updating of Quality Measures
6. Proposed Refinements to Existing Measures in the Hospital IQR
Program
a. Proposed Expansion of the Cohort for the PN Payment Measure:
Hospital-Level, Risk-Standardized Payment Associated With a 30-Day
Episode-of-Care for Pneumonia (NQF # 2579)
b. Proposed Adoption of Modified PSI 90: Patient Safety and
Adverse Events Composite Measure (NQF #0531)
7. Proposed Additional Hospital IQR Program Measures for the FY
2019 Payment Determinations and Subsequent Years
a. Proposed Adoption of Three Clinical Episode-Based Payment
Measures
b. Proposed Adoption of Excess Days in Acute Care After
Hospitalization for Pneumonia (PN Excess Days) Measure
c. Summary of Previously Adopted and Newly Proposed Hospital IQR
Program Measures for the FY 2019 Payment Determination and
Subsequent Years
8. Proposed Changes to Policies on Reporting of eCQMs
a. Proposed Requirement That Hospitals Report on All eCQMs in
the Hospital IQR Program Measure Set for the CY 2017 Reporting
Period/FY 2019 Payment Determination and Subsequent Years
b. Proposed Requirement That Hospitals Report a Full Year of
eCQM Data
c. Clarification Regarding Data Submission for ED-1, ED-2, PC-
01, STK-4, VTE-5, and VTE-6
9. Possible New Quality Measures and Measure Topics for Future
Years
a. Potential Inclusion of the National Institutes of Health
(NIH) Stroke Scale for the Hospital 30-Day Mortality Following Acute
Ischemic Stroke Hospitalization Measure Beginning as Early as the FY
2022 Payment Determination

[[Page 24953]]

b. Potential Inclusion of National Healthcare Safety Network
(NHSN) Antimicrobial Use Measure (NQF #2720)
c. Potential Measures for Behavioral Health in the Hospital IQR
Program
d. Potential Public Reporting of Quality Measures Data
Stratified by Race, Ethnicity, Sex, and Disability and Future
Hospital Quality Measures That Incorporate Health Equity
10. Form, Manner, and Timing of Quality Data Submission
a. Background
b. Procedural Requirements for the FY 2019 Payment Determination
and Subsequent Years
c. Data Submission Requirements for Chart-Abstracted Measures
d. Proposed Alignment of the Hospital IQR Program With the
Medicare and Medicaid EHR Incentive Programs for Eligible Hospitals
and CAHs
e. Sampling and Case Thresholds for the FY 2019 Payment
Determination and Subsequent Years
f. HCAHPS Requirements for the FY 2019 Payment Determination and
Subsequent Years
g. Data Submission Requirements for Structural Measures for the
FY 2019 Payment Determination and Subsequent Years
h. Data Submission and Reporting Requirements for HAI Measures
Reported via NHSN
11. Proposed Modifications to the Existing Processes for
Validation of Hospital IQR Program Data
a. Background
b. Proposed Modifications to the Existing Processes for
Validation of Hospital IQR Program Data
12. Data Accuracy and Completeness Acknowledgement (DACA)
Requirements for the FY 2019 Payment Determination and Subsequent
Years
13. Public Display Requirements for the FY 2019 Payment
Determination and Subsequent Years
14. Reconsideration and Appeal Procedures for the FY 2019
Payment Determination and Subsequent Years
15. Proposed Changes to the Hospital IQR Program Extraordinary
Circumstances Extensions or Exemptions (ECE) Policy
a. Proposal To Extend the General ECE Request Deadline for Non-
eCQM Circumstances
b. Proposal To Establish a Separate Submission Deadline for ECE
Requests Related to eCQMs
B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
1. Background
2. Proposed Criteria for Removal and Retention of PCHQR Program
Measures
3. Retention and Proposed Update to Previously Finalized Quality
Measures for PCHs Beginning With the FY 2019 Program Year
a. Background
b. Proposed Update of Oncology: Radiation Dose Limits to Normal
Tissues (NQF #0382) Measure for FY 2019 Program Year and Subsequent
Years
4. Proposed New Quality Measure Beginning With the FY 2019
Program Year
a. Considerations in the Selection of Quality Measures
b. Admissions and Emergency Department (ED) Visits for Patients
Receiving Outpatient Chemotherapy
5. Possible New Quality Measure Topics for Future Years
6. Maintenance of Technical Specifications for Quality Measures
7. Public Display Requirements
a. Background
b. Proposed Additional Public Display Requirements
c. Proposed Public Display of Additional PCHQR Measure
d. Proposed Public Display of Updated Measure
e. Proposed Postponement of Public Display of Two Measures
8. Form, Manner, and Timing of Data Submission
9. Exceptions From PCHQR Program Requirements
C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
1. Background and Statutory Authority
2. General Considerations Used for Selection of Quality,
Resource Use, and Other Measures for the LTCH QRP
3. Policy for Retention of LTCH QRP Measures Adopted for
Previous Payment Determinations
4. Policy for Adopting Changes to LTCH QRP Measures
5. Quality Measures Previously Finalized for and Currently Used
in the LTCH QRP
6. LTCH QRP Quality, Resource Use and Other Measures Proposed
for the FY 2018 Payment Determination and Subsequent Years
a. Proposal To Address the IMPACT Act Domain of Resource Use and
Other Measures: Total Estimated MSPB--PAC LTCH QRP
b. Proposal To Address the IMPACT Act Domain of Resource Use and
Other Measures: Discharge to Community-Post-Acute Care (PAC) Long-
Term Care Hospital Quality Reporting Program
c. Proposal To Address the IMPACT Act Domain of Resource Use and
Other Measures: Potentially Preventable 30-Day Post-Discharge
Readmission Measure for the Long-Term Care Hospital Quality
Reporting Program
7. LTCH QRP Quality Measure Proposed for the FY 2020 Payment
Determination and Subsequent Years
a. Background
b. Quality Measure Addressing the IMPACT Act Domain of
Medication Reconciliation: Drug Regimen Review Conducted With
Follow-Up for Identified Issues-Post-Acute Care LTCH QRP
8. LTCH QRP Quality Measures and Measure Concepts Under
Consideration for Future Years
9. Proposed Form, Manner, and Timing of Quality Data Submission
for the FY 2018 Payment Determination and Subsequent Years
a. Background
b. Timeline for Data Submission Under the LTCH QRP for the FY
2018 and Subsequent Years Payment Determinations
c. Proposed Timeline and Data Submission Mechanisms for the FY
2018 Payment Determination and Subsequent Years for New LTCH QRP
Resource Use and Other Measures--Claims-Based Measures
d. Proposal To Revise the Previously Adopted Data Collection
Period and Submission Deadlines for Percent of Residents or Patients
Who Were Assessed and Appropriately Given the Seasonal Influenza
Vaccine (Short Stay) (NQF #0680) for the FY 2019 Payment
Determination and Subsequent Years
e. Proposed Timeline and Data Submission Mechanisms for the
Proposed LTCH QRP Quality Measure for the FY 2020 Payment
Determination and Subsequent Years
10. LTCH QRP Data Completion Thresholds for the FY 2016 Payment
Determination and Subsequent Years
11. LTCH QRP Data Validation Process for the FY 2016 Payment
Determination and Subsequent Years
12. Proposed Change to Previously Codified LTCH QRP Submission
Exception and Extension Policies
13. Previously Finalized LTCH QRP Reconsideration and Appeals
Procedures
14. Proposals and Policies Regarding Public Display of Measure
Data for the LTCH QRP and Procedures for the Opportunity To Review
and Correct Data and Information
a. Public Display of Measures
b. Procedures for the Opportunity To Review and Correct Data and
Information
15. Proposed Mechanism for Providing Feedback Reports to LTCHs
D. Inpatient Psychiatric Facility Quality Reporting (IPFQR)
Program
1. Background
a. Statutory Authority
b. Covered Entities
c. Considerations in Selecting Quality Measures
2. Retention of IPFQR Program Measures Adopted in Previous
Payment Determinations
3. Proposed Update to Previously Finalized Measure: Screening
for Metabolic Disorders
4. Proposed New Quality Measures for the FY 2019 Payment
Determination and Subsequent Years
a. SUB-3--Alcohol and Other Drug Use Disorder Treatment Provided
or Offered at Discharge and the Subset Measure SUB-3a--Alcohol and
Other Drug Use Disorder Treatment at Discharge (NQF #1664)
b. Thirty-Day All-Cause Unplanned Readmission Following
Psychiatric Hospitalization in an IPF
5. Summary of Proposed Measures for the FY 2019 Payment
Determination and Subsequent Years
6. Possible IPFQR Program Measures and Topics for Future
Consideration
7. Public Display and Review Requirements

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8. Form, Manner, and Timing of Quality Data Submission
a. Procedural and Submission Requirements
b. Proposed Change to the Reporting Periods and Submission
Timeframes
c. Population and Sampling
d. Data Accuracy and Completeness Acknowledgement (DACA)
Requirements
9. Reconsideration and Appeals Procedures
10. Exceptions to Quality Reporting Requirements
E. Clinical Quality Measurement for Eligible Hospitals and
Critical Access Hospitals (CAHs) Participating in the EHR Incentive
Programs in 2017
1. Background
2. CQM Reporting for the Medicare and Medicaid EHR Incentive
Programs in 2017
a. Background
b. CQM Reporting Period for the Medicare and Medicaid EHR
Incentive Programs in CY 2017
c. CQM Reporting Form and Method for the Medicare EHR Incentive
Program in 2017
IX. MedPAC Recommendations
X. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Statutory Requirement for Solicitation of Comments
2. ICRs for Add-On Payments for New Services and Technologies
3. ICRs for the Occupational Mix Adjustment to the Proposed FY
2017 Wage Index (Hospital Wage Index Occupational Mix Survey)
4. Hospital Applications for Geographic Reclassifications by the
MGCRB
5. ICRs for the Notice of Observation Treatment by Hospitals and
CAHs
6. ICRs for the Hospital Inpatient Quality Reporting (IQR)
Program
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program
8. ICRs for Hospital Value-Based Purchasing (VBP) Program
9. ICRs for the Long-Term Care Hospital Quality Reporting
Program (LTCH QRP)
10. ICRs for the Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
11. ICRs for the Electronic Health Record (EHR) Incentive
Program and Meaningful Use
C. Response to Public Comments
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages Effective With Cost Reporting
Periods Beginning on or After October 1, 2016 and Payment Rates for
LTCHs Effective With Discharges Occurring on or After October 1,
2016
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital
Inpatient Operating Costs for Acute Care Hospitals for FY 2017
A. Calculation of the Adjusted Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
C. Calculation of the Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2017
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2017
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-
of-Increase Percentages for FY 2017
V. Proposed Updates to the Payment Rates for the LTCH PPS for FY
2017
A. Proposed LTCH PPS Standard Federal Payment Rate for FY 2017
B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS
for FY 2017
1. Background
2. Proposed Geographic Classifications (Labor Market Areas) for
the LTCH PPS Standard Federal Payment Rate
3. Proposed Labor-Related Share for the LTCH PPS Standard
Federal Payment Rate
4. Proposed Wage Index for FY 2017 for the LTCH PPS Standard
Federal Payment Rate
5. Proposed Budget Neutrality Adjustment for Changes to the LTCH
PPS Standard Federal Payment Rate Area Wage Level Adjustment
C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs
Located in Alaska and Hawaii
D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO)
Cases
E. Proposed Update to the IPPS Comparable/Equivalent Amounts to
Reflect the Statutory Changes to the IPPS DSH Payment Adjustment
Methodology
F. Computing the Proposed Adjusted LTCH PPS Federal Prospective
Payments for FY 2017
VI. Tables Referenced in This Proposed Rulemaking and Available
Through the Internet on the CMS Web site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
A. Introduction
B. Need
C. Objectives of the IPPS
D. Limitations of Our Analysis
E. Hospitals Included in and Excluded From the IPPS
F. Effects on Hospitals and Hospital Units Excluded From the
IPPS
G. Quantitative Effects of the Proposed Policy Changes Under the
IPPS for Operating Costs
1. Basis and Methodology of Estimates
2. Analysis of Table I
3. Impact Analysis of Table II
H. Effects of Other Proposed Policy Changes
1. Effects of Proposed Policy Relating to New Medical Service
and Technology Add-On Payments
2. Effect of Proposed Changes Relating to Payment Adjustment for
Medicare Disproportionate Share Hospitals
3. Effects of Proposed Reduction Under the Hospital Readmissions
Reduction Program
4. Effects of Proposed Changes Under the FY 2017 Hospital Value-
Based Purchasing (VBP) Program
5. Effects of the Proposed Changes to the HAC Reduction Program
for FY 2017
6. Effects of Proposed Policy Changes Relating to Direct GME and
IME Payments for Rural Training Tracks at Urban Hospitals
7. Effects of Implementation of Rural Community Hospital
Demonstration Program
8. Effects of Proposed Implementation of the Notice of
Observation Treatment and Implications for Care Eligibility Act
(NOTICE Act)
9. Effects of Proposed Technical Changes and Correction of
Typographical Errors in Certain Regulations Under 42 CFR part 413
Relating to Costs to Related Organizations and Medicare Cost Reports
10. Effects of Proposed Implementation of the Frontier Community
Health Integration Project (FCHIP) Demonstration
I. Effects of Proposed Changes in the Capital IPPS
1. General Considerations
2. Results
J. Effects of Proposed Payment Rate Changes and Policy Changes
Under the LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals
3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes
and Policy Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Effects of Proposed Requirements for Hospital Inpatient
Quality Reporting (IQR) Program
L. Effects of Proposed Requirements for the PPS-Exempt Cancer
Hospital Quality Reporting (PCHQR) Program
M. Effects of Proposed Requirements for the Long-Term Care
Hospital Quality Reporting Program (LTCH QRP) for the FY 2018
Payment Determination and Subsequent Years
N. Effects of Proposed Updates to the Inpatient Psychiatric
Facility Quality Reporting (IPFQR) Program
O. Effects of Proposed Requirements Regarding Electronic Health
Record (EHR) Meaningful Use Program
P. Alternatives Considered
Q. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
II. Accounting Statements and Tables
A. Acute Care Hospitals
B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA) Analysis
VI. 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 2017
A. Proposed FY 2017 Inpatient Hospital Update
B. Proposed Update for SCHs and MDHs for FY 2017

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C. Proposed FY 2017 Puerto Rico Hospital Update
D. Proposed Update for Hospitals Excluded From the IPPS
E. Proposed Update for LTCHs for FY 2017
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
This proposed rule would make payment and policy changes under the
Medicare inpatient prospective payment systems (IPPS) for operating and
capital-related costs of acute care hospitals as well as for certain
hospitals and hospital units excluded from the IPPS. In addition, it
would make payment and policy changes for inpatient hospital services
provided by long-term care hospitals (LTCHs) under the long-term care
hospital prospective payment system (LTCH PPS). It also would make
policy changes to programs associated with Medicare IPPS hospitals,
IPPS-excluded hospitals, and LTCHs.
We are proposing to establish new requirements or revise
requirements for quality reporting by specific providers (acute care
hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient
psychiatric facilities) that are participating in Medicare, including
related provisions for eligible hospitals and critical assess hospitals
(CAHs) participating in the Electronic Health Record (EHR) Incentive
Program. We are proposing to update policies relating to the Hospital
Value-Based Purchasing (VBP) Program, the Hospital Readmissions
Reduction Program, and the Hospital-Acquired Condition (HAC) Reduction
Program. We also are proposing to: Implement statutory provisions that
require hospitals and CAHs to furnish notification to Medicare
beneficiaries, including Medicare Advantage enrollees, when the
beneficiaries receive outpatient observation services for more than 24
hours; announce the implementation of the Frontier Community Health
Integration Project Demonstration; make technical corrections and
changes to regulations relating to costs to organizations and Medicare
cost reports.
Under various statutory authorities, we are proposing to make
changes to the Medicare IPPS, to the LTCH PPS, and to other related
payment methodologies and programs for FY 2017 and subsequent fiscal
years. These statutory authorities include, but are not limited to, the
following:
Section 1886(d) of the Social Security Act (the Act),
which 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 that, instead of paying for capital-related costs of inpatient
hospital services on a reasonable cost basis, the Secretary use a
prospective payment system (PPS).
Section 1886(d)(1)(B) of the Act, which specifies that
certain hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: Rehabilitation hospitals and units; LTCHs;
psychiatric hospitals and units; children's hospitals; and cancer
hospitals. Religious nonmedical health care institutions (RNHCIs) are
also excluded from the IPPS.
Sections 123(a) and (c) of Public Law 106-113 and section
307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1)
of the Act), which provide for the development and implementation of a
prospective payment system for payment for inpatient hospital services
of long-term care hospitals (LTCHs) described in section
1886(d)(1)(B)(iv) of the Act.
Sections 1814(l), 1820, and 1834(g) of the Act, which
specify that payments are made to critical access hospitals (CAHs)
(that is, rural hospitals or facilities that meet certain statutory
requirements) for inpatient and outpatient services and that these
payments are generally based on 101 percent of reasonable cost.
Section 1866(k) of the Act, as added by section 3005 of
the Affordable Care Act, which establishes a quality reporting program
for hospitals described in section 1886(d)(1)(B)(v) of the Act,
referred to as ``PPS-exempt cancer hospitals.''
Section 1886(a)(4) of the Act, which specifies that 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.
Section 1886(b)(3)(B)(viii) of the Act, which requires the
Secretary to reduce the applicable percentage increase in payments to a
subsection (d) hospital for a fiscal year if the hospital does not
submit data on measures in a form and manner, and at a time, specified
by the Secretary.
Section 1886(o) of the Act, which requires the Secretary
to establish a Hospital Value-Based Purchasing (VBP) Program under
which value-based incentive payments are made in a fiscal year to
hospitals meeting performance standards established for a performance
period for such fiscal year.
Section 1886(p) of the Act, as added by section 3008 of
the Affordable Care Act, which establishes a Hospital-Acquired
Condition (HAC) Reduction Program, under which payments to applicable
hospitals are adjusted to provide an incentive to reduce hospital-
acquired conditions.
Section 1886(q) of the Act, as added by section 3025 of
the Affordable Care Act and amended by section 10309 of the Affordable
Care Act, which establishes the ``Hospital Readmissions Reduction
Program'' effective for discharges from an ``applicable hospital''
beginning on or after October 1, 2012, under which payments to those
hospitals under section 1886(d) of the Act will be reduced to account
for certain excess readmissions.
Section 1886(r) of the Act, as added by section 3133 of
the Affordable Care Act, which provides for a reduction to
disproportionate share hospital (DSH) payments under section
1886(d)(5)(F) of the Act and for a new uncompensated care payment to
eligible hospitals. Specifically, section 1886(r) of the Act requires
that, for fiscal year 2014 and each subsequent fiscal year, subsection
(d) hospitals that would otherwise receive a DSH payment made under
section 1886(d)(5)(F) of the Act will receive two separate payments:
(1) 25 percent of the amount they previously would have received under
section 1886(d)(5)(F) of the Act for DSH (``the empirically justified
amount''), and (2) an additional payment for the DSH hospital's
proportion of uncompensated care, determined as the product of three
factors. These three factors are: (1) 75 percent of the payments that
would otherwise be made under section 1886(d)(5)(F) of the Act; (2) 1
minus the percent change in the percent of individuals under the age of
65 who are uninsured (minus 0.1 percentage points for FY 2014, and
minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a
hospital's uncompensated care amount relative to the uncompensated care
amount of all DSH hospitals expressed as a percentage.
Section 1886(m)(6) of the Act, as added by section
1206(a)(1) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67),
which provided for the establishment of site neutral payment rate
criteria under the LTCH PPS with implementation beginning in FY 2016.
Section 1886(m)(5)(D)(iv) of the Act, as added by section
1206 (c) of the Pathway for SGR Reform Act of 2013, which provides for
the establishment of a functional status quality measure under the LTCH
QRP for change in

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mobility among inpatients requiring ventilator support.
Section 1899B of the Act, as added by the Improving
Medicare Post-Acute Care Transformation Act of 2014 (the IMPACT Act),
which imposes data reporting requirements for certain post-acute care
providers, including LTCHs.
Section 1886(d)(12) of the Act, as amended by section 204
of the Medicare Access and CHIP Reauthorization Act of 2015, which
extended, through FY 2017, changes to the inpatient hospital payment
adjustment for certain low-volume hospitals; and section 1886(d)(5)(G)
of the Act, as amended by section 205 of the Medicare Access and CHIP
Reauthorization Act of 2015, which extended, through FY 2017, the
Medicare-dependent, small rural hospital (MDH) program.
2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment
Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-
240) amended section 7(b)(1)(B) of Public Law 110-90 to require the
Secretary to make a recoupment adjustment to the standardized amount of
Medicare payments to acute care hospitals to account for changes in MS-
DRG documentation and coding that do not reflect real changes in case-
mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016,
and 2017. This adjustment represents the amount of the increase in
aggregate payments as a result of not completing the prospective
adjustment authorized under section 7(b)(1)(A) of Public Law 110-90
until FY 2013. Prior to the ATRA, this amount could not have been
recovered under Public Law 110-90.
While our actuaries estimated that a -9.3 percent adjustment to the
standardized amount would be necessary if CMS were to fully recover the
$11 billion recoupment required by section 631 of the ATRA in one year,
it is often our practice to delay or phase in rate adjustments over
more than one year, in order to moderate the effects on rates in any
one year. Therefore, consistent with the policies that we have adopted
in many similar cases, we made a -0.8 percent recoupment adjustment to
the standardized amount in FY 2014, FY 2015, and FY 2016. For FY 2017,
we are proposing to make an additional -1.5 percent recoupment
adjustment to the standardized amount.
b. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
In this proposed rule, we are proposing a permanent adjustment of
(1/0.998) to the standardized amount, the hospital-specific payment
rates, and the national capital Federal rate using our authority under
sections 1886(d)(5)(I)(i) and 1886(g) of the Act to prospectively
remove the 0.2 percent reduction to the rate put in place in FY 2014 to
offset the estimated increase in IPPS expenditures as a result of the
2-midnight policy. In addition, we are proposing a temporary one-time
prospective increase to the FY 2017 standardized amount, the hospital-
specific payment rates, and the national capital Federal rate of 0.6
percent by including a temporary one-time factor of 1.006 in the
calculation of the standardized amount, the hospital-specific payment
rates, and the national capital Federal rate using our authority under
sections 1886(d)(5)(I)(i) and 1886(g) of the Act, to address the
effects of the 0.2 percent reduction to the rate for the 2-midnight
policy in effect for FYs 2014, 2015, and 2016.
c. Reduction of Hospital Payments for Excess Readmissions
We are proposing to make changes to policies for the Hospital
Readmissions Reduction Program, which is established under section
1886(q) of the Act, as added by section 3025 of the Affordable Care
Act, as amended by section 10309 of the Affordable Care Act. The
Hospital Readmissions Reduction Program requires a reduction to a
hospital's base operating DRG payment to account for excess
readmissions of selected applicable conditions. For FY 2017 and
subsequent years, the reduction is based on a hospital's risk-adjusted
readmission rate during a 3-year period for acute myocardial infarction
(AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary
disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/
TKA), and coronary artery bypass graft (CABG). In this proposed rule,
to align with other quality reporting programs and allow us to post
data as soon as possible, we are clarifying our public reporting policy
so that excess readmission rates will be posted to the Hospital Compare
Web site as soon as feasible following the preview period, and we are
proposing the methodology to include the addition of the CABG
applicable condition in the calculation of the readmissions payment
adjustment for FY 2017.
d. Hospital Value-Based Purchasing (VBP) Program
Section 1886(o) of the Act requires the Secretary to establish a
Hospital VBP Program under which value-based incentive payments are
made in a fiscal year to hospitals based on their performance on
measures established for a performance period for such fiscal year.
In this proposed rule, we are proposing to refine two previously
adopted measures beginning with the FY 2019 program year, to update one
previously adopted measure beginning with the FY 2021 program year, to
adopt two new measures beginning with the FY 2021 program year, and to
adopt one new measure beginning with the FY 2022 program year. We also
are proposing to change the performance period for one previously
adopted measure for the FY 2018 program year and to change the name of
the Patient- and Caregiver-Centered Experience of Care/Care
Coordination domain to the Person and Community Engagement domain
beginning with the FY 2019 program year. In addition, we are proposing
changes to the immediate jeopardy citation policy.
e. Hospital-Acquired Condition (HAC) Reduction Program
Section 1886(p) of the Act, as added under section 3008(a) of the
Affordable Care Act, establishes an incentive to hospitals to reduce
the incidence of hospital-acquired conditions by requiring the
Secretary to make an adjustment to payments to applicable hospitals
effective for discharges beginning on October 1, 2014. This 1-percent
payment reduction applies to a hospital whose ranking is in the top
quartile (25 percent) of all applicable hospitals, relative to the
national average, of conditions acquired during the applicable period
and on all of the hospital's discharges for the specified fiscal year.
In this proposed rule, we are proposing the following HAC Reduction
Program policies: (1) Establishing NHSN CDC HAI data submission
requirements for newly opened hospitals; (2) a clarification of data
requirements for Domain 1 scoring; (3) establishing performance periods
for the FY 2018 and FY 2019 HAC Reduction Programs, including revising
our regulations to accommodate variable timeframes; (4) adopting the
refined PSI 90: Patient Safety and Adverse Events Composite (NQF
#0531); and (5) changing the program scoring methodology from the
current decile-based scoring to a continuous scoring methodology.
f. DSH Payment Adjustment and Additional Payment for Uncompensated Care
Section 3133 of the Affordable Care Act modified the Medicare
disproportionate share hospital (DSH) payment methodology beginning in
FY

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2014. Under section 1886(r) of the Act, which was added by section 3133
of the Affordable Care Act, starting in FY 2014, DSHs will receive 25
percent of the amount they previously would have received under the
statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of
the Act. The remaining amount, equal to 75 percent of what otherwise
would have been paid as Medicare DSH payments, will be paid as
additional payments after the amount is reduced for changes in the
percentage of individuals that are uninsured. Each Medicare DSH will
receive an additional payment based on its share of the total amount of
uncompensated care for all Medicare DSHs for a given time period.
In this proposed rule, we are proposing to update our estimates of
the three factors used to determine uncompensated care payments for FY
2017 and proposing to continue our methodology of using a hospital's
share of insured low-income days for purposes of determining Factor 3.
For Puerto Rico hospitals, we are proposing to use 14 percent of
Medicaid days as a proxy for SSI days in the calculation of Factor 3.
We are proposing to continue to use the methodology we established in
FY 2015 to calculate the uncompensated care payment amounts for merged
hospitals such that we combine uncompensated care data for the
hospitals that have undergone a merger in order to calculate their
relative share of uncompensated care. We are proposing to expand the
time period of the data used to calculate the uncompensated care
payment amounts to be distributed, from one cost reporting period to
three cost reporting periods. We also are proposing a future transition
to using Worksheet S-10 data to determine the amounts and distribution
of uncompensated care payments. Specifically, we are proposing a 3-year
transition beginning in FY 2018 where we use a combination of Worksheet
S-10 and proxy data until FY 2020 when all data used in computing the
uncompensated care payment amounts to be distributed would come from
Worksheet S-10.
g. Payments for Capital-Related Costs for Hospitals Located in Puerto
Rico
Capital IPPS payments to hospitals located in Puerto Rico are
currently computed based on a blend of 25 percent of the capital IPPS
Puerto Rico rate and 75 percent of the capital IPPS Federal rate.
Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-
113) increased the applicable Federal percentage of the operating IPPS
payment for hospitals located in Puerto Rico from 75 percent to 100
percent and decreased the applicable Puerto Rico percentage of the
operating IPPS payments for hospitals located in Puerto Rico from 25
percent to zero percent, applicable to discharges occurring on or after
January 1, 2016. In this proposed rule, we are proposing to revise the
calculation of capital IPPS payments to hospitals located in Puerto
Rico to parallel the change in the statutory calculation of operating
IPPS payments to hospitals located in Puerto Rico, beginning in FY
2017.
h. Proposed Changes to the LTCH PPS
In this proposed rule, we are proposing to revise and rebase the
market basket used under the LTCH PPS (currently the 2009-based LTCH-
specific market basket) to reflect a 2013 base year. In addition, in
this proposed rule, we are proposing to change our 25-percent threshold
policy by proposing to sunset our existing regulations at 42 CFR
412.534 and 412.536 and replace them with a single consolidated 25-
percent threshold policy at proposed Sec. 412.538. We also are
proposing to change our existing regulations limiting allowable charges
to beneficiaries for Subclause (II) LTCHs and proposing to make
technical corrections to Sec. 412.503.
i. Hospital Inpatient Quality Reporting (IQR) Program
Under section 1886(b)(3)(B)(viii) of the Act, hospitals are
required to report data on measures selected by the Secretary for the
Hospital IQR Program in order to receive the full annual percentage
increase in payments. In past years, we have established measures for
reporting data and the process for submittal and validation of the
data.
In this proposed rule, we are making several proposals. First, we
are proposing to remove 15 measures for the FY 2019 payment
determination and subsequent years. Thirteen of these measures are
electronic clinical quality measures (eCQMs), two of which we are
proposing also to remove in their chart-abstracted form, because they
are ``topped-out,'' and two others are structural measures.
Second, we are proposing to refine two previously adopted measures
beginning with the FY 2018 payment determination: (1) The Hospital-
level, Risk-standardized Payment Associated with a 30-day Episode-of-
Care for Pneumonia (NQF #2579); and (2) the Patient Safety and Adverse
Events Composite (NQF #0531).
Third, we are proposing to add four new claims-based measures: (1)
Aortic Aneurysm Procedure Clinical Episode-Based Payment Measure; (2)
Cholecystectomy and Common Duct Exploration Clinical Episode-Based
Payment Measure; (3) Spinal Fusion Clinical Episode-Based Payment
Measure; and (4) Excess Days in Acute Care after Hospitalization for
Pneumonia for the FY 2019 payment determination and subsequent years.
Fourth, we are inviting public comment on potential new quality
measures under consideration for future inclusion in the Hospital IQR
Program: (1) A refined version of the NIH Stroke Scale for the Hospital
30-Day Mortality Following Acute Ischemic Stroke Hospitalization
Measure beginning as early as the FY 2022 payment determination; (2)
the National Healthcare Safety Network (NHSN) Antimicrobial Use Measure
(NQF #2720); and (3) one or more measures of behavioral health for the
inpatient hospital setting, including measures previously adopted for
the IPFQR Program (80 FR 46417). Also, we are seeking public comment on
the possibility of future stratification of Hospital IQR Program data
by race, ethnicity, sex, and disability on Hospital Compare, as well as
on potential future hospital quality measures that incorporate health
equity.
Fifth, we are proposing to require hospitals to submit all
available eCQMs included in the Hospital IQR Program measure set for
four quarters of data, on an annual basis, beginning with the CY 2017
reporting period/FY 2019 payment determination, in order to align the
Hospital IQR Program with the Medicare and Medicaid EHR Incentive
Programs. Also, we are proposing related eCQM submission requirements
beginning with the FY 2019 payment determination.
Sixth, we are proposing to modify the existing validation process
for Hospital IQR Program data to include validation of eCQMs beginning
with the FY 2020 payment determination.
Seventh, we are proposing to update our Extraordinary Circumstances
Extensions or Exemptions (ECE) policy by: (1) Extending the ECE request
deadline for non-eCQM circumstances from 30 to 90 calendar days
following an extraordinary circumstance, beginning in FY 2017 as
related to extraordinary circumstance events that occur on or after
October 1, 2016; and (2) establishing a separate submission deadline of
April 1 following the end of the reporting calendar year for ECEs
related to eCQMs beginning with an April 1, 2017 deadline and applying
for subsequent eCQM reporting years.

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j. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
Section 3004(a) of the Affordable Care Act amended section
1886(m)(5) of the Act to require the Secretary to establish the Long-
Term Care Hospital Quality Reporting Program (LTCH QRP). This program
applies to all hospitals certified by Medicare as LTCHs. Beginning with
the FY 2014 payment determination and subsequent years, the Secretary
is required to reduce any annual update to the LTCH PPS standard
Federal rate for discharges occurring during such fiscal year by 2
percentage points for any LTCH that does not comply with the
requirements established by the Secretary.
The Improving Medicare Post-Acute Care Transformation Act of 2014
(IMPACT Act) amended the Act in ways that affect the LTCH QRP.
Specifically, section 2(a) of the IMPACT Act amended title XVIII of the
Act by adding section 1899B, titled Standardized Post-Acute Care (PAC)
Assessment Data for Quality, Payment, and Discharge Planning. The Act
requires that each LTCH submit, for FYs beginning on or after the
specified application date (as defined in section 1899B(a)(2)(E) of the
Act), data on quality measures specified under section 1899B(c)(1) of
the Act and data on resource use and other measures specified under
section 1899B(d)(1) of the Act in a manner and within the timeframes
specified by the Secretary. In addition, each LTCH is required to
submit standardized patient assessment data required under section
1899B(b)(1) of the Act in a manner and within the timeframes specified
by the Secretary. Sections 1899B(c)(1) and 1899B(d)(1) of the Act
require the Secretary to specify quality measures and resource use and
other measures with respect to certain domains no later than the
specified application date in section 1899B(a)(2)(E) of the Act that
applies to each measure domain and PAC provider setting.
In this proposed rule, we are proposing three new measures for the
FY 2018 payment determination and subsequent years to meet the
requirements as set forth by the IMPACT Act. These proposed measures
are: (1) MSPB-PAC LTCH QRP; (2) Discharge to Community-PAC LTCH QRP;
and (3) Potentially Preventable 30-Day Post-Discharge Readmission
Measure for the PAC LTCH QRP. We also are proposing one new quality
measure to meet the requirements of the IMPACT Act for the FY 2020
determination and subsequent years. The proposed measure, Drug Regimen
Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP,
addresses the IMPACT Act domain of Medication Reconciliation.
In addition, we will publicly report LTCH quality data beginning in
fall 2016, on a CMS Web site, such as Hospital Compare. We will
initially publicly report quality data on four quality measures. In
this proposed rule, we are proposing to publicly report data in 2017 on
four additional measures. We are proposing additional details regarding
procedures that would allow individual LTCHs to review and correct
their data and information on measures that are to be made public
before those measure data are made public. We also are proposing to
provide confidential feedback reports to LTCHs on their performance on
the specified measures, beginning 1 year after the specified
application date that applies to such measures and LTCHs.
Finally, we are proposing to change the timing for submission of
exception and extension requests from 30 days to 90 days from the date
of the qualifying event which is preventing an LTCH from submitting
their quality data for the LTCH QRP.
k. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program
Section 1886(s)(4) of the Act, as added and amended by sections
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary
to implement a quality reporting program for inpatient psychiatric
hospitals and psychiatric units. Section 1886(s)(4)(C) of the Act
requires that, for FY 2014 (October 1, 2013 through September 30, 2014)
and each subsequent year, each psychiatric hospital and psychiatric
unit must submit to the Secretary data on quality measures as specified
by the Secretary. The data must be submitted in a form and manner and
at a time specified by the Secretary. In this proposed rule, for the
IPFQR Program, we are making several proposals. We are proposing two
new measures beginning with the FY 2019 payment determination:
SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided
or Offered at Discharge and SUB-3a Alcohol and Other Drug Use Disorder
Treatment at Discharge (NQF #1664); and
Thirty-day all-cause unplanned readmission following
psychiatric hospitalization in an IPF.
We also are proposing a technical update to the previously
finalized measure, ``Screening for Metabolic Disorder.'' In addition,
we are proposing to no longer specify in rulemaking the date of the
public display of the program's data or that the preview period will be
approximately 12 weeks before the public display date.
3. Summary of Costs and Benefits
Adjustment for MS-DRG Documentation and Coding Changes. We
are proposing to make a -1.5 percent recoupment adjustment to the
standardized amount for FY 2017 to implement, in part, the requirement
of section 631 of the ATRA that the Secretary make an adjustment
totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and
2017. This recoupment adjustment represents the amount of the increase
in aggregate payments as a result of not completing the prospective
adjustment authorized under section 7(b)(1)(A) of Public Law 110-90
until FY 2013. Prior to the ATRA, this amount could not have been
recovered under Public Law 110-90.
While our actuaries estimated that a -9.3 percent recoupment
adjustment to the standardized amount would be necessary if CMS were to
fully recover the $11 billion recoupment required by section 631 of the
ATRA in FY 2014, it is often our practice to delay or phase in rate
adjustments over more than one year, in order to moderate the effects
on rates in any one year. Taking into account the cumulative effects of
this proposed adjustment and the adjustments made in FYs 2014, 2015,
and 2016, we estimate that we would recover the full $11 billion
required under section 631 of the ATRA by the end of FY 2017. We note
that section 414 of the MACRA (Pub. L. 114-10), enacted on April 16,
2015, requires us to not make the single positive adjustment we
intended to make in FY 2018, but instead make a 0.5 percent positive
adjustment for each of FYs 2018 through 2023. The provision under
section 414 of the MACRA does not impact our proposed FY 2017
recoupment adjustment, and we will address this MACRA provision in
future rulemaking.
Proposed Adjustment to IPPS Payment Rates as a Result of
the 2-Midnight Policy. The proposed adjustment to IPPS rates resulting
from the 2-midnight policy would increase IPPS payment rates by (1/
0.998) * 1.006 for FY 2017. The 1.006 is a one-time factor that would
be applied to the standardized amount, the hospital-specific rates, and
the national capital Federal rate for FY 2017 only. Therefore, for FY
2018, we would apply a one-time factor of (1/1.006) in the calculation
of the rates to remove this one-time prospective increase.
Proposed Changes to the Hospital Readmissions Reduction
Program. For FY 2017 and subsequent years, the

[[Page 24959]]

reduction is based on a hospital's risk-adjusted readmission rate
during a 3-year period for acute myocardial infarction (AMI), heart
failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD),
total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary
artery bypass graft (CABG). Overall, in this proposed rule, we estimate
that 2,603 hospitals will have their base operating DRG payments
reduced by their proposed proxy FY 2017 hospital-specific readmission
adjustment. As a result, we estimate that the Hospital Readmissions
Reduction Program will save approximately $532 million in FY 2017, an
increase of approximately $100 million over the estimated FY 2016
savings. This increase in the estimated savings for the Hospital
Readmissions Reduction Program in FY 2017 as compared to FY 2016 is
primarily due to the inclusion of the refinement of the pneumonia
readmissions measure, which expanded the measure cohort, along with the
addition of the CABG readmission measure, in the calculation of the
payment adjustment.
Value-Based Incentive Payments under the Hospital VBP
Program. We estimate that there will be no net financial impact to the
Hospital VBP Program for the FY 2017 program year in the aggregate
because, by law, the amount available for value-based incentive
payments under the program in a given year must be equal to the total
amount of base operating MS-DRG payment amount reductions for that
year, as estimated by the Secretary. The estimated amount of base
operating MS-DRG payment amount reductions for the FY 2017 program year
and, therefore, the estimated amount available for value-based
incentive payments for FY 2017 discharges is approximately $1.7
billion.
Proposed Changes to the HAC Reduction Program. In regard
to the five proposed changes to existing HAC Reduction Program policies
described earlier, because a hospital's Total HAC score and its ranking
in comparison to other hospitals in any given year depends on several
different factors, any significant impact due to the HAC Reduction
Program proposed changes for FY 2017, including which hospitals receive
the adjustment, would depend on actual experience.
Medicare DSH Payment Adjustment and Additional Payment for
Uncompensated Care. Under section 1886(r) of the Act (as added by
section 3133 of the Affordable Care Act), DSH payments to hospitals
under section 1886(d)(5)(F) of the Act are reduced and an additional
payment for uncompensated care is made to eligible hospitals beginning
in FY 2014. Hospitals that receive Medicare DSH payments will receive
25 percent of the amount they previously would have received under the
current statutory formula for Medicare DSH payments in section
1886(d)(5)(F) of the Act. The remainder, equal to an estimate of 75
percent of what otherwise would have been paid as Medicare DSH
payments, will be the basis for determining the additional payments for
uncompensated care after the amount is reduced for changes in the
percentage of individuals that are uninsured and additional statutory
adjustments. Each hospital that receives Medicare DSH payments will
receive an additional payment for uncompensated care based on its share
of the total uncompensated care amount reported by Medicare DSHs. The
reduction to Medicare DSH payments is not budget neutral.
For FY 2017, we are providing that the 75 percent of what otherwise
would have been paid for Medicare DSH is adjusted to approximately
56.74 percent of the amount to reflect changes in the percentage of
individuals that are uninsured and additional statutory adjustments. In
other words, approximately 42.56 percent (the product of 75 percent and
56.74 percent) of our estimate of Medicare DSH payments, prior to the
application of section 3133 of the Affordable Care Act, is available to
make additional payments to hospitals for their relative share of the
total amount of uncompensated care. We project that estimated Medicare
DSH payments, and additional payments for uncompensated care made for
FY 2017, would reduce payments overall by approximately 0.3 percent as
compared to the estimate of Medicare DSH payments and uncompensated
care payments that will be distributed in FY 2016. The additional
payments have redistributive effects based on a hospital's
uncompensated care amount relative to the uncompensated care amount for
all hospitals that are estimated to receive Medicare DSH payments, and
the proposed payment amount is not directly tied to a hospital's number
of discharges.
Proposed Update to the LTCH PPS Payment Rates and Other
Payment Factors. Based on the best available data for the 419 LTCHs in
our data base, we estimate that the proposed changes to the payment
rates and factors that we are presenting in the preamble and Addendum
of this proposed rule, which includes the second year under the
transition of the statutory application of the new site neutral payment
rate required by section 1886(m)(6)(A) of the Act, the proposed update
to the LTCH PPS standard Federal payment rate for FY 2017, the proposed
update to the LTCH PPS adjustment for differences in area wage levels
(which includes the proposed update to the labor-related share based on
the proposed revised and rebased LTCH PPS market basket) and estimated
changes to the site neutral payment rate and short-stay outlier (SSO)
and high-cost outlier (HCO) payments would result in an estimated
decrease in payments from FY 2016 of approximately $355 million.
Hospital Inpatient Quality Reporting (IQR) Program. In
this proposed rule, we are proposing to remove 15 measures for the FY
2019 payment determination and subsequent years. We are proposing to
add four new claims-based measures to the Hospital IQR Program for the
FY 2019 payment determination and subsequent years. We also are
proposing to require hospitals to report on all Hospital IQR Program
electronic clinical quality measures that align with the Medicare EHR
Incentive Program for four quarters of data on an annual basis for the
FY 2019 payment determination and subsequent years. In addition, we are
proposing to modify the existing validation process for the Hospital
IQR Program data to include a random sample of up to 200 hospitals for
validation of eCQMs. We estimate that our policies for the adoption and
removal of measures will result in total hospital costs of $30 million
across 3,300 IPPS hospitals.
Proposed Changes Related to the LTCH QRP. In this proposed
rule, we are proposing four quality measures for the LTCH QRP. We
estimate that the total cost related to one of these proposed measures,
the Drug Regimen Review Conducted with Follow-up for Identified Issues-
PAC measure, would be $3,080 per LTCH annually, or $1,330,721 for all
LTCHs annually. We also estimate that while there will be some
additional burden associated with our proposal to expand data
collection for the measure NQF #0680 Percent of Residents or Patients
Who Were Assessed and Appropriately Given the Seasonal Influenza
Vaccine (77 FR 53624 through 53627), this burden has been previously
accounted for in PRA submissions approved under OMB control number
0938-1163. For a detailed explanation, we refer readers to section I.M.
of Appendix A (Economic Analyses) of this proposed rule. There is no
additional burden for the three other claims-based measures proposed
for adoption. Overall, we estimate the total cost for the 13 previously
adopted measures and the four proposed new

[[Page 24960]]

measures would be $27,905 per LTCH annually or $12,054,724 for all
LTCHs annually. These estimates were based on 432 LTCHs that are
currently certified by Medicare. This is an average increase of 14
percent over the burden for FY 2016. This increase includes all quality
measures that LTCHs are required to report, with the exception of the
four proposed measures for FY 2017. Section VIII.C. of this proposed
rule includes a detailed discussion of the policies.
Proposed Changes to the IPFQR Program. In this proposed
rule, we are proposing to add two new measures beginning with the FY
2019 payment determination and for subsequent years. One of these
measures, the 30-Day All-Cause Unplanned Readmissions following
Psychiatric Hospitalization in an Inpatient Psychiatric Facility
measure, is calculated from administrative claims data. For the second
measure, we estimate that our proposed policies would result in total
costs of $11,834,748 for 1,684 IPFs nationwide.

B. 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 use a prospective payment system (PPS) to pay for the
capital-related costs of inpatient hospital services for these
``subsection (d) hospitals.'' 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 certain 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 varies based on the
outcome of the statutory calculations. The Affordable Care Act revised
the Medicare DSH payment methodology and provides for a new additional
Medicare payment that considers the amount of uncompensated care
beginning on October 1, 2013.
If the hospital is training residents in an approved residency
program(s), it receives a percentage add-on payment for each case paid
under the IPPS, known as the indirect medical education (IME)
adjustment. This percentage varies, depending on the ratio of residents
to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. To qualify, a new technology or medical service must
demonstrate that it is a substantial clinical improvement over
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any eligible outlier payment is added to the DRG-adjusted base payment
rate, plus any DSH, IME, and new technology or medical service add-on
adjustments.
Although payments to most hospitals under the IPPS are made on the
basis of the standardized amounts, some categories of hospitals are
paid in whole or in part based on their hospital-specific rate, which
is determined from their costs in a base year. For example, sole
community hospitals (SCHs) receive the higher of a hospital-specific
rate based on their costs in a base year (the highest of FY 1982, FY
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the
standardized amount. SCHs are the sole source of care in their areas.
Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a
hospital that is located more than 35 road miles from another hospital
or that, by reason of factors such as isolated location, weather
conditions, travel conditions, or absence of other like hospitals (as
determined by the Secretary), is the sole source of hospital inpatient
services reasonably available to Medicare beneficiaries. In addition,
certain rural hospitals previously designated by the Secretary as
essential access community hospitals are considered SCHs.
Under current law, the Medicare-dependent, small rural hospital
(MDH) program is effective through FY 2017. Through and including FY
2006, an MDH received the higher of the Federal rate or the Federal
rate plus 50 percent of the amount by which the Federal rate was
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific
rate. For discharges occurring on or after October 1, 2007, but before
October 1, 2017, an MDH receives the higher of the Federal rate or the
Federal rate plus 75 percent of the amount by which the Federal rate is
exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-
specific rate. MDHs are a major source of care for Medicare
beneficiaries in their areas. Section 1886(d)(5)(G)(iv) of the Act
defines an MDH as a hospital that is located in a rural area, has not
more than 100 beds, is not an SCH, and has a high percentage of
Medicare discharges (not less than 60 percent of its inpatient days or
discharges in its cost reporting year beginning in FY 1987 or in two of
its three most recently settled Medicare cost reporting years).
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. In addition, hospitals may receive outlier payments for
those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: Inpatient rehabilitation facility (IRF)
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

[[Page 24961]]

1997 (BBA, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State
Children's Health Insurance Program] Balanced Budget Refinement Act of
1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554)
provide for the implementation of PPSs for IRF hospitals and units,
LTCHs, and psychiatric hospitals and units (referred to as inpatient
psychiatric facilities (IPFs)). (We note that the annual updates to the
LTCH PPS are now included as part of the IPPS annual update document.
Updates to the IRF PPS and IPF PPS are issued as separate documents.)
Children's hospitals, cancer hospitals, and RNHCIs continue to be paid
solely under a reasonable cost-based system subject to a rate-of-
increase ceiling on inpatient operating costs.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to
hospitals described in section 1886(d)(1)(B)(iv) of the Act effective
for cost reporting periods beginning on or after October 1, 2002. The
LTCH PPS was established under the authority of sections 123 of the
BBRA and section 307(b) of the BIPA (as codified under section
1886(m)(1) of the Act). During the 5-year (optional) transition period,
a LTCH's payment under the PPS was based on an increasing proportion of
the LTCH Federal rate with a corresponding decreasing proportion based
on reasonable cost principles. Effective for cost reporting periods
beginning on or after October 1, 2006, all LTCHs are paid 100 percent
of the Federal rate. Section 1206(a) of Public Law 113-67 established
the site neutral payment rate under the LTCH PPS, which made the LTCH
PPS a dual rate payment system beginning in FY 2016. Under this
statute, based on a rolling effective date that is linked to the date
on which a given LTCH's Federal FY 2016 cost reporting period begins,
LTCHs are paid for LTCH discharges at the site neutral payment rate
unless the discharge meets the patient criteria for payment at the LTCH
PPS standard Federal payment rate. The existing regulations governing
payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
Beginning October 1, 2009, we issue the annual updates to the LTCH PPS
in the same documents that update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments made
to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are generally based on 101 percent of reasonable
cost. Reasonable cost is determined under the provisions of section
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts
413 and 415.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR part 413.

C. Summary of Provisions of Recent Legislation Proposed To Be
Implemented in This Proposed Rule

1. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240),
enacted on January 2, 2013, made a number of changes that affect the
IPPS. In this proposed rule, we are proposing to make policy changes to
implement section 631 of the American Taxpayer Relief Act of 2012,
which amended section 7(b)(1)(B) of Public Law 110-90 and requires a
recoupment adjustment to the standardized amounts under section 1886(d)
of the Act based upon the Secretary's estimates for discharges
occurring in FY 2014 through FY 2017 to fully offset $11 billion (which
represents the amount of the increase in aggregate payments from FYs
2008 through 2013 for which an adjustment was not previously applied).
2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) introduced
new payment rules in the LTCH PPS. Under section 1206 of this law,
discharges in cost reporting periods beginning on or after October 1,
2015 under the LTCH PPS will receive payment under a site neutral rate
unless the discharge meets certain patient-specific criteria. In this
proposed rule, we are providing clarifications to prior policy changes
that implemented provisions under section 1206 of the Pathway for SGR
Reform Act.
3. Improving Medicare Post-Acute Care Transformation Act of 2014
(IMPACT Act) (Pub. L. 113-185)
The Improving Medicare Post-Acute Care Transformation Act of 2014
(IMPACT Act (Pub. L. 113-185), enacted on October 6, 2014, made a
number of changes that affect the Long-Term Care Quality Reporting
Program (LTCH QRP). In this proposed rule, we are continuing to
implement portions of section 1899B of the Act, as added by section 2
of the IMPACT Act, which, in part, requires LTCHs, among other
postacute care providers, to report standardized patient assessment
data, data on quality measures, and data on resource use and other
measures.
4. The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L.
114-10)
The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L.
114-10) extended the MDH program and changes to the payment adjustment
for low-volume hospitals through FY 2017. In this proposed rule, we are
proposing to update the low-volume hospital payment adjustment for FY
2017 under the extension of the temporary changes to the low-volume
hospital payment adjustment provided for by section 204 of Public Law
114-10. We also state our intention to finalize in the FY 2017 IPPS/
LTCH PPS final rule the provisions of the FY 2016 IPPS/LTCH PPS interim
final rule with comment period (80 FR 49594 through 49597) that
implemented sections 204 and 205 of Public Law 114-10.
5. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113)
The Consolidated Appropriations Act, 2016 (Pub. L. 114-113),
enacted on December 18, 2015, made changes that affect the IPPS and the
LTCH PPS. Section 231 of Public Law 114-113 provides for a temporary
exception for certain wound care discharges from the application of the
site neutral payment rate under the LTCH PPS for certain LTCHs, which
is being implemented in an interim final rule with comment period.
Section 601 of Public Law 114-113 made changes to the payment
calculation for operating IPPS payments for hospitals located in Puerto
Rico. Section 602 of Public Law 114-113 specifies that Puerto Rico
hospitals are eligible for incentive payments for the

[[Page 24962]]

meaningful use of certified EHR technology, effective beginning FY
2016, and also applies the adjustments to the applicable percentage
increase under the statute for Puerto Rico hospitals that are not
meaningful EHR users, effective FY 2022. In this proposed rule, we are
proposing conforming changes to our regulations to reflect the
provisions of section 601 of Public Law 114-113, which increased the
applicable Federal percentage of the operating IPPS payment for
hospitals located in Puerto Rico from 75 percent to 100 percent and
decreased the applicable Puerto Rico percentage of the operating IPPS
payments for hospitals located in Puerto Rico from 25 percent to zero
percent, applicable to discharges occurring on or after January 1,
2016.
6. The Notice of Observation Treatment and Implication for Care
Eligibility Act (the NOTICE Act) (Pub. L. 114-42)
The Notice of Observation Treatment and Implication for Care
Eligibility Act (the NOTICE Act) (Pub. L. 114-42) enacted on August 6,
2015, amended section 1866(a)(1) of the Act by adding new subparagraph
(Y) that requires hospitals and CAHs to provide written notification
and an oral explanation of such notification to individuals receiving
observation services as outpatients for more than 24 hours at the
hospitals or CAHs. In this proposed rule, we are proposing to implement
the provisions of Public Law 114-42.

D. Summary of the Provisions of This Proposed Rule

In this proposed rule, we are setting forth proposed payment and
policy changes to the Medicare IPPS for FY 2017 operating costs and for
capital-related costs of acute care hospitals and certain hospitals and
hospital units that are excluded from IPPS, including proposed changes
relating to payments for IME and direct GME to certain hospitals that
continue to be excluded from the IPPS and paid on a reasonable cost
basis. In addition, in this proposed rule, we are setting forth
proposed changes to the payment rates, factors, and other payment and
policy-related changes to programs associated with payment rate
policies under the LTCH PPS for FY 2017.
Below is a summary of the major changes that we are proposing to
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the proposed rule, we include--
Proposed changes to MS-DRG classifications based on our
yearly review for FY 2017.
Proposed application of the documentation and coding
adjustment for FY 2017 resulting from implementation of the MS-DRG
system.
Proposed recalibrations of the MS-DRG relative weights.
A discussion of the FY 2017 status of new technologies
approved for add-on payments for FY 2016 and a presentation of our
evaluation and analysis of the FY 2017 applicants for add-on payments
for high-cost new medical services and technologies (including public
input, as directed by Public Law 108-173, obtained in a town hall
meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to this proposed rule, we are
proposing revisions to the wage index for acute care hospitals and the
annual update of the wage data. Specific issues addressed include, but
not limited to, the following:
The proposed FY 2017 wage index update using wage data
from cost reporting periods beginning in FY 2013.
Calculation of the proposed occupational mix adjustment
for FY 2017 based on the 2013 Occupational Mix Survey.
Analysis and implementation of the proposed FY 2017
occupational mix adjustment to the wage index for acute care hospitals.
Proposed application of the rural floor, the proposed
imputed floor, and the proposed frontier State floor.
Transitional wage indexes relating to the continued use of
the revised OMB labor market area delineations based on 2010 Decennial
Census data.
Proposed revisions to the wage index for acute care
hospitals based on hospital redesignations and reclassifications under
sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.
Notification regarding proposed CMS ``lock-in'' date for
urban to rural reclassifications under Sec. 412.103.
The proposed adjustment to the wage index for acute care
hospitals for FY 2017 based on commuting patterns of hospital employees
who reside in a county and work in a different area with a higher wage
index.
Determination of the labor-related share for the proposed
FY 2017 wage index.
Solicitation of Comments on Treatment of Overhead and Home
Office Costs in the Wage Index Calculation
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of this proposed rule, we discuss
proposed changes or clarifications of a number of the provisions of the
regulations in 42 CFR parts 412 and 413, including the following:
Proposed conforming changes to our regulations to reflect
the changes to operating payments for subsection (d) Puerto Rico
hospitals in accordance with the provisions of section 601 of Public
Law 114-113.
Proposed changes to the inpatient hospital update for FY
2017.
Proposed updated national and regional case-mix values and
discharges for purposes of determining RRC status.
Proposed payment adjustment for low-volume hospitals for
FY 2017.
The statutorily required IME adjustment factor for FY
2017.
Proposed changes to the methodologies for determining
Medicare DSH payments and the additional payments for uncompensated
care.
Proposed changes to the rules for payment adjustments
under the Hospital Readmissions Reduction Program based on hospital
readmission measures and the process for hospital review and correction
of those rates for FY 2017.
Proposed changes to the requirements and provision of
value-based incentive payments under the Hospital Value-Based
Purchasing Program for FY 2017.
Proposed requirements for payment adjustments to hospitals
under the HAC Reduction Program for FY 2017.
Proposed changes relating to direct GME and IME payments
to urban hospitals with rural track training programs.
Discussion of the Rural Community Hospital Demonstration
Program and a proposal for making a budget neutrality adjustment for
the demonstration program.
Proposed implementation of the Notice of Observation
Treatment and Implications for Care Eligibility Act (the NOTICE Act)
for hospitals and CAHs.
Proposed technical changes and corrections to regulations
relating to cost to related organizations and Medicare cost reports.
4. Proposed FY 2017 Policy Governing the IPPS for Capital-Related Costs
In section V. of the preamble to this proposed rule, we discuss the
proposed payment policy requirements for capital-related costs and
capital

[[Page 24963]]

payments to hospitals for FY 2017. In addition, we discuss proposed
changes to the calculation of capital IPPS payments to hospitals
located in Puerto Rico to parallel the change in the statutory
calculation of operating IPPS payments to hospitals located in Puerto
Rico, beginning in FY 2017.
5. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VI. of the preamble of this proposed rule, we discuss--
Proposed changes to payments to certain excluded hospitals
for FY 2017.
Proposed implementation of the Frontier Community Health
Integration Project (FCHIP) Demonstration.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of this proposed rule, we set
forth--
Proposed changes to the LTCH PPS Federal payment rates,
factors, and other payment rate policies under the LTCH PPS for FY
2017.
Proposals to sunset our existing 25-percent threshold
policy regulations, and replace them with single consolidated 25
percent threshold policy regulation.
Proposed changes to the limitation on charges (LOC) to
beneficiaries and related billing requirements for ``subclause (II)''
LTCHs to align those LTCH PPS payment adjustment policies with the LOC
policies applied in the TEFRA payment context.
Proposed technical corrections to certain definitions to
correct and clarify their use under the application of the site neutral
payment rate and proposed additional definitions in accordance with our
proposed modifications to the 25-percent policy.
Proposed rebasing and revising of the LTCH market basket
to update the LTCH PPS, effective for FY 2017.
7. Proposed Changes Relating to Quality Data Reporting for Specific
Providers and Suppliers
In section VIII. of the preamble of the proposed rule, we address--
Proposed requirements for the Hospital Inpatient Quality
Reporting (IQR) Program as a condition for receiving the full
applicable percentage increase.
Proposed changes to the requirements for the quality
reporting program for PPS-exempt cancer hospitals (PCHQR Program).
Proposed changes to the requirements under the LTCH
Quality Reporting Program (LTCH QRP).
Proposed changes to the requirements under the Inpatient
Psychiatric Facility Quality Reporting (IPFQR) Program.
Proposed changes relating to clinical quality measures for
the Medicare Electronic Health Record (EHR) Incentive Program and
eligible hospitals and CAHs.
8. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2017
prospective payment rates for operating costs and capital-related costs
for acute care hospitals. We are proposing to establish the threshold
amounts for outlier cases. In addition, we address the update factors
for determining the rate-of-increase limits for cost reporting periods
beginning in FY 2017 for certain hospitals excluded from the IPPS.
9. Determining Prospective Payment Rates for LTCHs
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2017
LTCH PPS standard Federal payment rate and other factors used to
determine LTCH PPS payments under both the LTCH PPS standard Federal
payment rate and the site neutral payment rate in FY 2017. We are
proposing to establish the adjustments for wage levels, the labor-
related share, the cost-of-living adjustment, and high-cost outliers,
including the applicable fixed-loss amounts and the LTCH cost-to-charge
ratios (CCRs) for both payment rates. We also are providing the
estimated market basket update to apply to the ceiling used to
determine payments under the existing payment adjustment for
``subclause (II)'' LTCHs for cost reporting periods beginning in FY
2017.
10. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected acute care
hospitals, CAHs, LTCHs, PCHs, and IPFs.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2017 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs of
acute care hospitals (and hospital-specific rates applicable to SCHs
and MDHs).
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by certain hospitals
excluded from the IPPS.
The LTCH PPS standard Federal payment rate and the site
neutral payment rate for hospital inpatient services provided for LTCH
PPS discharges.
12. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 15 of each year, in which
MedPAC reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2016 recommendations concerning hospital inpatient
payment policies address the update factor for hospital inpatient
operating costs and capital-related costs for hospitals under the IPPS.
We addressed these recommendations in Appendix B of this proposed rule.
For further information relating specifically to the MedPAC March 2016
report or to obtain a copy of the report, contact MedPAC at (202) 220-
3700 or visit MedPAC's Web site at: http://www.medpac.gov.

II. Proposed Changes to Medicare Severity Diagnosis-Related Group (MS-
DRG) Classifications and Relative Weights

A. Background

Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as diagnosis-related
groups (DRGs)) for inpatient discharges and adjust payments under the
IPPS based on appropriate weighting factors assigned to each DRG.
Therefore, under the IPPS, Medicare pays 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

[[Page 24964]]

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

For general information about the MS-DRG system, including yearly
reviews and changes to the MS-DRGs, we refer readers to the previous
discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053
through 50055), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485
through 51487), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273), the
FY 2014 IPPS/LTCH PPS final rule (78 FR 50512), the FY 2015 IPPS/LTCH
PPS final rule (79 FR 49871), and the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49342).

C. Adoption of the MS-DRGs in FY 2008

For information on the adoption of the MS-DRGs in FY 2008, we refer
readers to the FY 2008 IPPS final rule with comment period (72 FR 47140
through 47189).

D. Proposed FY 2017 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
In the FY 2008 IPPS final rule with comment period (72 FR 47140
through 47189), we adopted the MS-DRG patient classification system for
the IPPS, effective October 1, 2007, to better recognize severity of
illness in Medicare payment rates for acute care hospitals. The
adoption of the MS-DRG system resulted in the expansion of the number
of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, for FY 2016,
there are 756 MS-DRGs.) By increasing the number of MS-DRGs and more
fully taking into account patient severity of illness in Medicare
payment rates for acute care hospitals, 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), we indicated that the adoption of the MS-DRGs had the
potential to lead to increases in aggregate payments without a
corresponding increase in actual patient severity of illness due to the
incentives for additional documentation and coding. In that final rule
with comment period, we exercised our authority under section
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget
neutrality by adjusting the national standardized amount, to eliminate
the estimated effect of changes in coding or classification that do not
reflect real changes in case-mix. Our actuaries estimated that
maintaining budget neutrality required an adjustment of -4.8 percent to
the national standardized amount. We provided for phasing in this -4.8
percent adjustment over 3 years. Specifically, we established
prospective documentation and coding adjustments of -1.2 percent for FY
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
On September 29, 2007, Congress enacted the TMA [Transitional
Medical Assistance], Abstinence Education, and QI [Qualifying
Individuals] Programs Extension Act of 2007 (Pub. L. 110-90). Section
7(a) of Public Law 110-90 reduced the documentation and coding
adjustment made as a result of the MS-DRG system that we adopted in the
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment
through rulemaking, effective October 1, 2007 (72 FR 66886).
For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent, and we finalized
that adjustment through rulemaking effective October 1, 2008 (73 FR
48447). The documentation and coding adjustments established in the FY
2008 IPPS final rule with comment period, which reflected the
amendments made by section 7(a) of Public Law 110-90, are cumulative.
As a result, the -0.9 percent documentation and coding adjustment for
FY 2009 was in addition to the -0.6 percent adjustment for FY 2008,
yielding a combined effect of -1.5 percent.
2. Adjustment to the Average Standardized Amounts Required by Public
Law 110-90
a. Prospective Adjustment Required by Section 7(b)(1)(A) of Public Law
110-90
Section 7(b)(1)(A) of Public Law 110-90 requires that, if the
Secretary determines that implementation of the MS-DRG system resulted
in changes in documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2008 or FY 2009
that are different than the prospective documentation and coding
adjustments applied under section 7(a) of Public Law 110-90, the
Secretary shall make an appropriate adjustment under section
1886(d)(3)(A)(vi) of the Act.
Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the
average standardized amounts for subsequent fiscal years in order to
eliminate the effect of such coding or classification changes. These
adjustments are intended to ensure that future annual aggregate IPPS
payments are the same as the payments that otherwise would have been
made had the prospective adjustments for documentation and coding
applied in FY 2008 and FY 2009 reflected the change that occurred in
those years.
b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012
Required by Section 7(b)(1)(B) Public Law 110-90
If, based on a retroactive evaluation of claims data, the Secretary
determines that implementation of the MS-DRG system resulted in changes
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are
different from the prospective documentation and coding adjustments
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of
Public Law 110-90 requires the Secretary to make an additional
adjustment to the standardized amounts under section 1886(d) of the
Act. This adjustment must offset the estimated increase or decrease in
aggregate payments for FYs 2008 and 2009 (including interest) resulting
from the difference between the estimated actual documentation and
coding effect and the documentation and coding adjustment applied under
section 7(a) of Public Law 110-90. This adjustment is in addition to
making an appropriate adjustment to the standardized amounts under
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A)
of Public Law 110-90. That is, these adjustments are intended to recoup
(or repay, in the case of underpayments) spending in excess of (or less
than) spending that would have occurred had the prospective adjustments
for changes in documentation and coding applied in FY 2008 and FY 2009
matched the changes that occurred in those years. Public Law 110-90
requires that the Secretary only make these recoupment or repayment
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
In order to implement the requirements of section 7 of Public Law
110-90, we performed a retrospective

[[Page 24965]]

evaluation of the FY 2008 data for claims paid through December 2008
using the methodology first described in the FY 2009 IPPS/LTCH PPS
final rule (73 FR 43768 and 43775) and later discussed in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772). We
performed the same analysis for FY 2009 claims data using the same
methodology as we did for FY 2008 claims (75 FR 50057 through 50068).
The results of the analysis for the FY 2011 IPPS/LTCH PPS proposed and
final rules, and subsequent evaluations in FY 2012, supported that the
5.4 percent estimate accurately reflected the FY 2009 increases in
documentation and coding under the MS-DRG system. We were persuaded by
both MedPAC's analysis (as discussed in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50064 through 50065)) and our own review of the
methodologies proposed by various commenters that the methodology we
employed to determine the required documentation and coding adjustments
was sound.
As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files
are available to the public to allow independent analysis of the FY
2008 and FY 2009 documentation and coding effects. Interested
individuals may still order these files through the CMS Web site at:
http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/ by clicking on MedPAR Limited Data Set (LDS)--
Hospital (National). This CMS Web page describes the file and provides
directions and further detailed instructions for how to order.
Persons placing an order must send the following: A Letter of
Request, the LDS Data Use Agreement and Research Protocol (refer to the
Web site for further instructions), the LDS Form, and a check (refer to
the Web site for the required payment amount) to:
Mailing address if using the U.S. Postal Service:

Centers for Medicare & Medicaid Services, RDDC Account, Accounting
Division, P.O. Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail:

Centers for Medicare & Medicaid Services, OFM/Division of Accounting--
RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.
4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by
Section 7(b)(1)(A) of Public Law 110-90
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767
through 43777), we opted to delay the implementation of any
documentation and coding adjustment until a full analysis of case-mix
changes based on FY 2009 claims data could be completed. We refer
readers to the FY 2010 IPPS/RY LTCH PPS final rule for a detailed
description of our proposal, responses to comments, and finalized
policy. After analysis of the FY 2009 claims data for the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50057 through 50073), we found a total
prospective documentation and coding effect of 5.4 percent. After
accounting for the -0.6 percent and the -0.9 percent documentation and
coding adjustments in FYs 2008 and 2009, we found a remaining
documentation and coding effect of 3.9 percent. As we have discussed,
an additional cumulative adjustment of -3.9 percent would be necessary
to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to
make an adjustment to the average standardized amounts in order to
eliminate the full effect of the documentation and coding changes that
do not reflect real changes in case-mix on future payments. Unlike
section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not
specify when we must apply the prospective adjustment, but merely
requires us to make an ``appropriate'' adjustment. Therefore, as we
stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we
believed the law provided some discretion as to the manner in which we
applied the prospective adjustment of -3.9 percent. As we discussed
extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our
practice to moderate payment adjustments when necessary to mitigate the
effects of significant downward adjustments on hospitals, to avoid what
could be widespread, disruptive effects of such adjustments on
hospitals. Therefore, we stated that we believed it was appropriate to
not implement the -3.9 percent prospective adjustment in FY 2011
because we finalized a -2.9 percent recoupment adjustment for that
fiscal year. Accordingly, we did not propose a prospective adjustment
under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868
through 23870). We noted that, as a result, payments in FY 2011 (and in
each future fiscal year until we implemented the requisite adjustment)
would be higher than they would have been if we had implemented an
adjustment under section 7(b)(1)(A) of Public Law 110-90.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we
indicated that, because further delay of this prospective adjustment
would result in a continued accrual of unrecoverable overpayments, it
was imperative that we implement a prospective adjustment for FY 2012,
while recognizing CMS' continued desire to mitigate the effects of any
significant downward adjustments to hospitals. Therefore, we
implemented a -2.0 percent prospective adjustment to the standardized
amount instead of the full -3.9 percent.
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through
53276), we completed the prospective portion of the adjustment required
under section 7(b)(1)(A) of Public Law 110-90 by finalizing a -1.9
percent adjustment to the standardized amount for FY 2013. We stated
that this adjustment would remove the remaining effect of the
documentation and coding changes that do not reflect real changes in
case-mix that occurred in FY 2008 and FY 2009. We believed that it was
imperative to implement the full remaining adjustment, as any further
delay would result in an overstated standardized amount in FY 2013 and
any future fiscal years until a full adjustment was made.
We noted again that delaying full implementation of the prospective
portion of the adjustment required under section 7(b)(1)(A) of Public
Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY
2012 being overstated. These overpayments could not be recovered by
CMS, as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to
overpayments made in FY 2008 and FY 2009.
5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B)
of Public Law 110-90
Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to
make an adjustment to the standardized amounts under section 1886(d) of
the Act to offset the estimated increase or decrease in aggregate
payments for FY 2008 and FY 2009 (including interest) resulting from
the difference between the estimated actual documentation and coding
effect and the documentation and coding adjustments applied under
section 7(a) of Public Law 110-90. This determination must be based on
a retrospective evaluation of claims data. Our actuaries estimated that
there was a 5.8 percentage point difference resulting in an increase in
aggregate payments of approximately $6.9 billion. Therefore, as
discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through
50067), we determined that an aggregate adjustment of -5.8 percent in
FYs 2011 and 2012 would be necessary in order to meet the requirements
of section 7(b)(1)(B) of Public Law 110-90

[[Page 24966]]

to adjust the standardized amounts for discharges occurring in FYs
2010, 2011, and/or 2012 to offset the estimated amount of the increase
in aggregate payments (including interest) in FYs 2008 and 2009.
It is often our practice to phase in payment rate adjustments over
more than one year in order to moderate the effect on payment rates in
any one year. Therefore, consistent with the policies that we have
adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS final rule,
we made an adjustment to the standardized amount of -2.9 percent,
representing approximately half of the aggregate adjustment required
under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An
adjustment of this magnitude allowed us to moderate the effects on
hospitals in one year while simultaneously making it possible to
implement the entire adjustment within the timeframe required under
section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY
2012). For FY 2012, in accordance with the timeframes set forth by
section 7(b)(1)(B) of Public Law 110-90, and consistent with the
discussion in the FY 2011 IPPS/LTCH PPS final rule, we completed the
recoupment adjustment by implementing the remaining -2.9 percent
adjustment, in addition to removing the effect of the -2.9 percent
adjustment to the standardized amount finalized for FY 2011 (76 FR
51489 and 51498). Because these adjustments, in effect, balanced out,
there was no year-to-year change in the standardized amount due to this
recoupment adjustment for FY 2012. In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53276), we made a final +2.9 percent adjustment to the
standardized amount, completing the recoupment portion of section
7(b)(1)(B) of Public Law 110-90. We note that with this positive
adjustment, according to our estimates, all overpayments made in FY
2008 and FY 2009 have been fully recaptured with appropriate interest,
and the standardized amount has been returned to the appropriate
baseline.
6. Proposed Recoupment or Repayment Adjustment Authorized by Section
631 of the American Taxpayer Relief Act of 2012 (ATRA)
Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law
110-90 to require the Secretary to make a recoupment adjustment or
adjustments totaling $11 billion by FY 2017. This adjustment represents
the amount of the increase in aggregate payments as a result of not
completing the prospective adjustment authorized under section
7(b)(1)(A) of Public Law 110-90 until FY 2013. As discussed earlier,
this delay in implementation resulted in overstated payment rates in
FYs 2010, 2011, and 2012. The resulting overpayments could not have
been recovered under Public Law 110-90.
Similar to the adjustments authorized under section 7(b)(1)(B) of
Public Law 110-90, the adjustment required under section 631 of the
ATRA is a one-time recoupment of a prior overpayment, not a permanent
reduction to payment rates. Therefore, we anticipated that any
adjustment made to reduce payment rates in one year would eventually be
offset by a positive adjustment in 2018, once the necessary amount of
overpayment was recovered. However, section 414 of the Medicare Access
and CHIP Reauthorization Act (MACRA) of 2015, Public Law 114-10,
enacted on April 16, 2015, replaced the single positive adjustment we
intended to make in FY 2018 with a 0.5 percent positive adjustment for
each of FYs 2018 through 2023. We stated in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49345) that we will address this MACRA provision in
future rulemaking.
As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515
through 50517), our actuaries estimate that a -9.3 percent adjustment
to the standardized amount would be necessary if CMS were to fully
recover the $11 billion recoupment required by section 631 of the ATRA
in FY 2014. It is often our practice to phase in payment rate
adjustments over more than one year, in order to moderate the effect on
payment rates in any one year. Therefore, consistent with the policies
that we have adopted in many similar cases, and after consideration of
the public comments we received, in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50515 through 50517), we implemented a -0.8 percent
recoupment adjustment to the standardized amount in FY 2014. We stated
that if adjustments of approximately -0.8 percent are implemented in
FYs 2014, 2015, 2016, and 2017, using standard inflation factors, we
estimate that the entire $11 billion will be accounted for by the end
of the statutory 4-year timeline. As estimates of any future
adjustments are subject to slight variations in total savings, we did
not provide for specific adjustments for FYs 2015, 2016, or 2017 at
that time. We stated that we believed that this level of adjustment for
FY 2014 was a reasonable and fair approach that satisfies the
requirements of the statute while mitigating extreme annual
fluctuations in payment rates.
Consistent with the approach discussed in the FY 2014 rulemaking
for recouping the $11 billion required by section 631 of the ATRA, in
the FY 2015 IPPS/LTCH PPS final rule (79 FR 49874) and the FY 2016
IPPS/LTCH PPS final rule (80 FR 49345), we implemented additional -0.8
percent recoupment adjustments to the standardized amount in FY 2015
and FY 2016, respectively. We estimated that these adjustments,
combined with leaving the prior -0.8 percent adjustments in place,
would recover up to $2 billion in FY 2015 and another $3 billion in FY
2016. When combined with the approximately $1 billion adjustment made
in FY 2014, we estimated that approximately $5 to $6 billion would be
left to recover under section 631 of the ATRA by the end of FY 2016.
However, due to lower than previously estimated inpatient spending,
an adjustment of -0.8 percent in FY 2017 would not recoup the $11
billion under section 631 of the ATRA. Based on the FY 2017 President's
Budget, our actuaries currently estimate that FY 2014 through FY 2016
spending subject to the documentation and coding recoupment adjustment
in the absence of the -0.8 percent adjustments made in FYs 2014 through
2016 would have been $123.783 billion in FY 2014, $124.361 billion in
FY 2015, and $127.060 billion in FY 2016. As shown in the following
table, the amount recouped in each of those fiscal years is therefore
calculated as the difference between those amounts and the amounts
determined to have been spent in those years with the -0.8 percent
adjustment applied, namely $122.801 billion in FY 2014, $122.395
billion in FY 2015, and $124.059 billion in FY 2016. This yields an
estimated total recoupment through the end of FY 2016 of $5.950
billion.

Recoupment Made Under Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)
----------------------------------------------------------------------------------------------------------------
Cumulative Adjusted IPPS Recoupment
IPPS Spending adjustment spending amount
* (billions) factor (billions) (billions)
----------------------------------------------------------------------------------------------------------------
FY 2014......................................... $122.801 1.00800 $123.783 $0.98

[[Page 24967]]

FY 2015......................................... 122.395 1.01606 124.361 1.97
FY 2016......................................... 124.059 1.02419 127.060 3.00
---------------------------------------------------------------
Total....................................... .............. .............. .............. 5.95
----------------------------------------------------------------------------------------------------------------
* Based on FY 2017 President's Budget, including capital, IME, and DSH payments.

These estimates and the estimate of FY 2017 spending subject to the
documentation and coding recoupment adjustment also will be contained
in a memorandum from the Office of the Actuary that we will make
publicly available on the CMS Web site. A description of the
President's Budget for FY 2017 is currently available on the OMB Web
site at: https://www.whitehouse.gov/omb/budget.
Our actuaries currently estimate that the FY 2017 spending subject
to the documentation and coding recoupment adjustment (including
capital, IME, and DSH payment) would be $129.625 billion in the absence
of any documentation and recoupment adjustments from FY 2014 through FY
2017. Therefore, our actuaries currently estimate that, to the nearest
tenth of a percent, the FY 2017 documentation and coding adjustment
factor that will recoup as closely as possible $11 billion from FY 2014
through FY 2017 without exceeding this amount is -1.5 percent. This
adjustment factor yields an estimated spending amount in FY 2017 of
$124.693 billion, calculated as $129.625/(1.008*1.008*1.008*1.015).
This estimated -1.5 percent adjustment factor will be updated for the
final rule based on the FY 2017 President's Budget Midsession Review.
It is possible that, based on updated estimates, the necessary
adjustment factor to the nearest tenth of a percent could be different
than our actuaries' current estimate of -1.5 percent. The proposed -1.5
percent adjustment would be the final adjustment required under section
631 of the ATRA, and when combined with the effects of previous
adjustments made in FY 2014, FY 2015, and FY 2016, we estimate will
satisfy the section 631 of the ATRA recoupment. As stated earlier, once
the recoupment was complete, we had anticipated making a single
positive adjustment in FY 2018 to offset the reductions required to
recoup the $11 billion under section 631 of the ATRA. However, as
stated earlier, section 414 of the MACRA requires that we not make the
single positive adjustment we intended to make in FY 2018, but instead
make a 0.5 percent positive adjustment for each of FYs 2018 through
2023. The provision under section 414 of the MACRA does not impact our
proposed FY 2017 adjustment, and we will address this MACRA provision
in future rulemaking.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
Beginning in FY 2007, we implemented relative weights for DRGs
based on cost report data instead of charge information. We refer
readers to the FY 2007 IPPS final rule (71 FR 47882) for a detailed
discussion of our final policy for calculating the cost-based DRG
relative weights and to the FY 2008 IPPS final rule with comment period
(72 FR 47199) for information on how we blended relative weights based
on the CMS DRGs and MS-DRGs.
As we implemented cost-based relative weights, some public
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 cost-to-charge
ratio (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 the Research Triangle Institute, International (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. For a detailed summary of RTI's
findings, recommendations, and public comments that we received on the
report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR
48452 through 48453). In addition, we refer readers to RTI's July 2008
final report titled ``Refining Cost to Charge Ratios for Calculating
APC and MS-DRG Relative Payment Weights'' (http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf).
In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in
response to the RTI's recommendations concerning cost report
refinements, we discussed our decision to pursue changes to the cost
report to split the cost center for Medical Supplies Charged to
Patients into one line for ``Medical Supplies Charged to Patients'' and
another line for ``Implantable Devices Charged to Patients.'' We
acknowledged, as RTI had found, that charge compression occurs in
several cost centers that exist on the Medicare cost report. However,
as we stated in the FY 2009 IPPS final rule, we focused on the CCR for
Medical Supplies and Equipment because RTI found that the largest
impact on the MS-DRG relative weights could result from correcting
charge compression for devices and implants. In determining the items
that should be reported in these respective cost centers, we adopted
the commenters' recommendations that hospitals use revenue codes
established by the AHA's National Uniform Billing Committee to
determine the items that should be reported in the ``Medical Supplies
Charged to Patients'' and the ``Implantable Devices Charged to
Patients'' cost centers. Accordingly, a new subscripted line for
``Implantable Devices Charged to Patients'' was created in July 2009.
This new subscripted cost center has been available for use for cost
reporting periods beginning on or after May 1, 2009.
As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519
through 68527), in addition to the findings regarding implantable
devices, RTI found that the costs and charges of computed tomography
(CT) scans, magnetic resonance imaging (MRI), and cardiac
catheterization differ significantly from the costs and charges of
other services included in the standard associated cost center. RTI
also concluded that both the IPPS and the

[[Page 24968]]

OPPS relative weights would better estimate the costs of those services
if CMS were to add standard cost centers for CT scans, MRIs, and
cardiac catheterization in order for hospitals to report separately the
costs and charges for those services and in order for CMS to calculate
unique CCRs to estimate the costs from charges on claims data. In the
FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we
finalized our proposal to create standard cost centers for CT scans,
MRIs, and cardiac catheterization, and to require that hospitals report
the costs and charges for these services under new cost centers on the
revised Medicare cost report Form CMS-2552-10. (We refer readers to the
FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a
detailed discussion of the reasons for the creation of standard cost
centers for CT scans, MRIs, and cardiac catheterization.) The new
standard cost centers for CT scans, MRIs, and cardiac catheterization
are effective for cost reporting periods beginning on or after May 1,
2010, on the revised cost report Form CMS-2552-10.
In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due
to what is typically a 3-year lag between the reporting of cost report
data and the availability for use in ratesetting, we anticipated that
we might be able to use data from the new ``Implantable Devices Charged
to Patients'' cost center to develop a CCR for ``Implantable Devices
Charged to Patients'' in the FY 2012 or FY 2013 IPPS rulemaking cycle.
However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 43782), due to delays in the issuance of the revised cost report
Form CMS 2552-10, we determined that a new CCR for ``Implantable
Devices Charged to Patients'' might not be available before FY 2013.
Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS
final rule to add new cost centers for CT scans, MRIs, and cardiac
catheterization, we explained that data from any new cost centers that
may be created will not be available until at least 3 years after they
are first used (75 FR 50077). In preparation for the FY 2012 IPPS/LTCH
PPS rulemaking, we checked the availability of data in the
``Implantable Devices Charged to Patients'' cost center on the FY 2009
cost reports, but we did not believe that there was a sufficient amount
of data from which to generate a meaningful analysis in this particular
situation. Therefore, we did not propose to use data from the
``Implantable Devices Charged to Patients'' cost center to create a
distinct CCR for ``Implantable Devices Charged to Patients'' for use in
calculating the MS-DRG relative weights for FY 2012. We indicated that
we would reassess the availability of data for the ``Implantable
Devices Charged to Patients'' cost center for the FY 2013 IPPS/LTCH PPS
rulemaking cycle and, if appropriate, we would propose to create a
distinct CCR at that time.
During the development of the FY 2013 IPPS/LTCH PPS proposed and
final rules, hospitals were still in the process of transitioning from
the previous cost report Form CMS-2552-96 to the new cost report Form
CMS-2552-10. Therefore, we were able to access only those cost reports
in the FY 2010 HCRIS with fiscal year begin dates on or after October
1, 2009, and before May 1, 2010; that is, those cost reports on Form
CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not
available because cost reports filed on the Form CMS-2552-10 were not
accessible in the HCRIS. Further complicating matters was that, due to
additional unforeseen technical difficulties, the corresponding
information regarding charges for implantable devices on hospital
claims was not yet available to us in the MedPAR file. Without the
breakout in the MedPAR file of charges associated with implantable
devices to correspond to the costs of implantable devices on the cost
report, we believed that we had no choice but to continue computing the
relative weights with the current CCR that combines the costs and
charges for supplies and implantable devices. We stated in the FY 2013
IPPS/LTCH PPS final rule (77 FR 53281 through 53283) that when we do
have the necessary data for supplies and implantable devices on the
claims in the MedPAR file to create distinct CCRs for the respective
cost centers for supplies and implantable devices, we hoped that we
would also have data for an analysis of creating distinct CCRs for CT
scans, MRIs, and cardiac catheterization, which could then be finalized
through rulemaking. In the FY 2013 IPPS/LTCH PPS final rule (77 FR
53281), we stated that, prior to proposing to create these CCRs, we
would first thoroughly analyze and determine the impacts of the data,
and that distinct CCRs for these new cost centers would be used in the
calculation of the relative weights only if they were first finalized
through rulemaking.
At the time of the development of the FY 2014 IPPS/LTCH PPS
proposed rule (78 FR 27506 through 27507), we had a substantial number
of hospitals completing all, or some, of these new cost centers on the
FY 2011 Medicare cost reports, compared to prior years. We stated that
we believed that the analytic findings described using the FY 2011 cost
report data and FY 2012 claims data supported our original decision to
break out and create new cost centers for implantable devices, MRIs, CT
scans, and cardiac catheterization, and we saw no reason to further
delay proposing to implement the CCRs of each of these cost centers.
Therefore, beginning in FY 2014, we proposed a policy to calculate the
MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost
report data for implantable devices, MRIs, CT scans, and cardiac
catheterization.
We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR
27507 through 27509) and final rule (78 FR 50518 through 50523) in
which we presented data analyses using distinct CCRs for implantable
devices, MRIs, CT scans, and cardiac catheterization. The FY 2014 IPPS/
LTCH PPS final rule also set forth our responses to public comments we
received on our proposal to implement these CCRs. As explained in more
detail in the FY 2014 IPPS/LTCH PPS final rule, we finalized our
proposal to use 19 CCRs to calculate MS-DRG relative weights beginning
in FY 2014--the then existing 15 cost centers and the 4 new CCRs for
implantable devices, MRIs, CT scans, and cardiac catheterization.
Therefore, beginning in FY 2014, we calculate the IPPS MS-DRG relative
weights using 19 CCRs, creating distinct CCRs for implantable devices,
MRIs, CT scans, and cardiac catheterization.
2. Discussion of Policy for FY 2017
Consistent with our established policy, we calculated the proposed
MS-DRG relative weights for FY 2017 using two data sources: The MedPAR
file as the claims data source and the HCRIS as the cost report data
source. We adjusted the charges from the claims to costs by applying
the 19 national average CCRs developed from the cost reports. The
description of the calculation of the proposed 19 CCRs and the proposed
MS-DRG relative weights for FY 2017 is included in section II.G. of the
preamble of this proposed rule. As we did with the FY 2016 IPPS/LTCH
PPS final rule, we are providing the version of the HCRIS from which we
calculated these proposed 19 CCRs on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of the
screen titled, ``FY 2017 IPPS Proposed Rule Home Page'' or ``Acute
Inpatient Files for Download.''

[[Page 24969]]

F. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for MS-DRG Updates
a. Conversion of MS-DRGs to the International Classification of
Diseases, 10th Revision (ICD-10)
As of October 1, 2015, providers use the International
Classification of Diseases, 10th Revision (ICD-10) coding system to
report diagnoses and procedures for Medicare hospital inpatient
services under the MS-DRG system instead of the ICD-9-CM coding system,
which was used through September 30, 2015. The ICD-10 coding system
includes the International Classification of Diseases, 10th Revision,
Clinical Modification (ICD-10-CM) for diagnosis coding and the
International Classification of Diseases, 10th Revision, Procedure
Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as
well as the Official ICD-10-CM and ICD-10-PCS Guidelines for Coding and
Reporting. The ICD-10 coding system was initially adopted for
transactions conducted on or after October 1, 2013, as described in the
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
Administrative Simplification: Modifications to Medical Data Code Set
Standards to Adopt ICD-10-CM and ICD-10-PCS Final Rule published in the
Federal Register on January 16, 2009 (74 FR 3328 through 3362)
(hereinafter referred to as the ``ICD-10-CM and ICD-10-PCS final
rule''). However, the Secretary of Health and Human Services (the
Secretary) issued a final rule that delayed the compliance date for
ICD-10 from October 1, 2013, to October 1, 2014. That final rule,
entitled ``Administrative Simplification: Adoption of a Standard for a
Unique Health Plan Identifier; Addition to the National Provider
Identifier Requirements; and a Change to the Compliance Date for ICD-
10-CM and ICD-10-PCS Medical Data Code Sets,'' CMS-0040-F, was
published in the Federal Register on September 5, 2012 (77 FR 54664)
and is available for viewing on the Internet at: http://www.thefederalregister.org/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf. On April 1, 2014, the
Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was
enacted, which specified that the Secretary may not adopt ICD-10 prior
to October 1, 2015. Accordingly, the U.S. Department of Health and
Human Services released a final rule in the Federal Register on August
4, 2014 (79 FR 45128 through 45134) that included a new compliance date
that required the use of ICD-10 beginning October 1, 2015. The rule
also required HIPAA-covered entities to continue to use ICD-9-CM
through September 30, 2015.
The anticipated move to ICD-10 necessitated the development of an
ICD-10-CM/ICD-10-PCS version of the MS-DRGs. CMS began a project to
convert the ICD-9-CM-based MS-DRGs to ICD-10 MS-DRGs. In response to
the FY 2011 IPPS/LTCH PPS proposed rule, we received public comments on
the creation of the ICD-10 version of the MS-DRGs to be implemented at
the same time as ICD-10 (75 FR 50127 and 50128). While we did not
propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS
proposed rule, we noted that we have been actively involved in
converting current MS-DRGs from ICD-9-CM codes to ICD-10 codes and
sharing this information through the ICD-10 (previously ICD-9-CM)
Coordination and Maintenance Committee. We undertook this early
conversion project to assist other payers and providers in
understanding how to implement their own conversion projects. We posted
ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of the MS-DRGs. We also
posted a paper that describes how CMS went about completing this
project and suggestions for other payers and providers to follow.
Information on the ICD-10 MS-DRG conversion project can be found on the
ICD-10 MS-DRG Conversion Project Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We have
continued to keep the public updated on our maintenance efforts for
ICD-10-CM and ICD-10-PCS coding systems, as well as the General
Equivalence Mappings that assist in conversion through the ICD-10
(previously ICD-9-CM) Coordination and Maintenance Committee.
Information on these committee meetings can be found on the CMS Web
site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
During FY 2011, we developed and posted Version 28.0 of the ICD-10
MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized
in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-
10 MS-DRGs Version 28.0 also included the CC Exclusion List and the
ICD-10 version of the hospital-acquired conditions (HACs), which was
not posted with Version 26. We also discussed this update at the
September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM
Coordination and Maintenance Committee. The minutes of these two
meetings are posted on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
We reviewed comments on the ICD-10 MS-DRGs Version 28 and made
updates as a result of these comments. We called the updated version
the ICD-10 MS-DRGs Version 28-R1. We posted a Definitions Manual of
ICD-10 MS-DRGs Version 28-R1 on our ICD-10 MS-DRG Conversion Project
Web site. To make the review of Version 28-R1 updates easier for the
public, we also made available pilot software on a CD ROM that could be
ordered through the National Technical Information Service (NTIS). A
link to the NTIS ordering page was provided on the CMS ICD-10 MS-DRGs
Web site. We stated that we believed that, by providing the ICD-10 MS-
DRGs Version 28-R1 Pilot Software (distributed on CD ROM), the public
would be able to more easily review and provide feedback on updates to
the ICD-10 MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28-
R1 at the September 14, 2011 ICD-9-CM Coordination and Maintenance
Committee meeting. We encouraged the public to continue to review and
provide comments on the ICD-10 MS-DRGs so that CMS could continue to
update the system.
In FY 2012, we prepared the ICD-10 MS-DRGs Version 29, based on the
FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 IPPS/
LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-DRGs
Version 29 on our ICD-10 MS-DRG Conversion Project Web site. We also
prepared a document that describes changes made from Version 28 to
Version 29 to facilitate a review. The ICD-10 MS-DRGs Version 29 was
discussed at the ICD-9-CM Coordination and Maintenance Committee
meeting on March 5, 2012. Information was provided on the types of
updates made. Once again the public was encouraged to review and
comment on the most recent update to the ICD-10 MS-DRGs.
CMS prepared the ICD-10 MS-DRGs Version 30 based on the FY 2013 MS-
DRGs (Version 30) that we finalized in the FY 2013 IPPS/LTCH PPS final
rule. We posted a Definitions Manual of the ICD-10 MS-DRGs Version 30
on our ICD-10 MS-DRG Conversion Project Web site. We also prepared a
document that describes changes made from Version 29 to Version 30 to
facilitate a review. We produced mainframe and computer software for
Version 30, which was made available to the public in February 2013.
Information on ordering the mainframe and computer software through
NTIS was posted on the ICD-10 MS-DRG Conversion Project

[[Page 24970]]

Web site. The ICD-10 MS-DRGs Version 30.0 computer software facilitated
additional review of the ICD-10 MS-DRGs conversion.
We provided information on a study conducted on the impact of
converting the MS-DRGs to ICD-10. Information on this study is
summarized in a paper entitled ``Impact of the Transition to ICD-10 on
Medicare Inpatient Hospital Payments.'' This paper was posted on the
CMS ICD-10 MS-DRGs Conversion Project Web site and was distributed and
discussed at the September 15, 2010 ICD-9-CM Coordination and
Maintenance Committee meeting. The paper described CMS' approach to the
conversion of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The
study was undertaken using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010),
which was converted to the ICD-10 MS-DRGs Version 27.0. The study
estimated the impact on aggregate payment to hospitals and the
distribution of payments across hospitals. The impact of the conversion
from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was
estimated using FY 2009 Medicare claims data. The study found a
hospital payment increase of 0.05 percent using the ICD-10 MS-DRGs
Version 27.
CMS provided an overview of this hospital payment impact study at
the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee
meeting. This presentation followed presentations on the creation of
ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be
found on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. At this March 2012 meeting, CMS
announced that it would produce an update on this impact study based on
an updated version of the ICD-10 MS-DRGs. This update of the impact
study was presented at the March 5, 2013 ICD-9-CM Coordination and
Maintenance Committee meeting. The study found that moving from an ICD-
9-CM-based system to an ICD-10 MS-DRG replicated system would lead to
DRG reassignments on only 1 percent of the 10 million MedPAR sample
records used in the study. Ninety-nine percent of the records did not
shift to another MS-DRG when using an ICD-10 MS-DRG system. For the 1
percent of the records that shifted, 45 percent of the shifts were to a
higher-weighted MS-DRG, while 55 percent of the shifts were to lower-
weighted MS-DRGs. The net impact across all MS-DRGs was a reduction by
4/10000 or minus 4 pennies per $100. The updated paper is posted on the
CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Downloads'' section.
Information on the March 5, 2013 ICD-9-CM Coordination and Maintenance
Committee meeting can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. This update of the impact paper and the ICD-
10 MS-DRG Version 30 software provided additional information to the
public who were evaluating the conversion of the MS-DRGs to ICD-10 MS-
DRGs.
CMS prepared the ICD-10 MS-DRGs Version 31 based on the FY 2014 MS-
DRGs (Version 31) that we finalized in the FY 2014 IPPS/LTCH PPS final
rule. In November 2013, we posted a Definitions Manual of the ICD-10
MS-DRGs Version 31 on the ICD-10 MS-DRG Conversion Project Web site at:
http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that described changes made
from Version 30 to Version 31 to facilitate a review. We produced
mainframe and computer software for Version 31, which was made
available to the public in December 2013. Information on ordering the
mainframe and computer software through NTIS was posted on the CMS Web
site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This ICD-
10 MS-DRGs Version 31.0 computer software facilitated additional review
of the ICD-10 MS-DRGs conversion. We encouraged the public to submit to
CMS any comments on areas where they believed the ICD-10 MS-DRGs did
not accurately reflect grouping logic found in the ICD-9-CM MS-DRGs
Version 31.
We reviewed public comments received and developed an update of
ICD-10 MS-DRGs Version 31, which we called ICD-10 MS-DRGs Version 31-R.
We posted a Definitions Manual of the ICD-10 MS-DRGs Version 31-R on
the ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that describes changes made
from Version 31 to Version 31-R to facilitate a review. We continued to
share ICD-10 MS-DRG conversion activities with the public through this
Web site.
CMS prepared the ICD-10 MS-DRGs Version 32 based on the FY 2015 MS-
DRGs (Version 32) that we finalized in the FY 2015 IPPS/LTCH PPS final
rule. In November 2014, we made available a Definitions Manual of the
ICD-10 MS DRGs Version 32 on the ICD-10 MS-DRG Conversion Project Web
site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that described
changes made from Version 31-R to Version 32 to facilitate a review. We
produced mainframe and computer software for Version 32, which was made
available to the public in January 2015. Information on ordering the
mainframe and computer software through NTIS was made available on the
CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This
ICD-10 MS-DRGs Version 32 computer software facilitated additional
review of the ICD-10 MS-DRGs conversion. We encouraged the public to
submit to CMS any comments on areas where they believed the ICD-10 MS-
DRGs did not accurately reflect grouping logic found in the ICD-9-CM
MS-DRGs Version 32. We discussed five requests from the public to
update the ICD-10 MS-DRGs Version 32 to better replicate the ICD-9-CM
MS-DRGs in section II.G.3., 4., and 5. of the preamble of the FY 2016
IPPS/LTCH PPS final rule. In the FY 2016 IPPS/LTCH PPS proposed rule
(80 FR 24351), we proposed to implement the MS-DRG code logic in the
ICD-10 MS-DRGs Version 32 along with any finalized updates to the ICD-
10 MS-DRGs Version 32 for the final ICD-10 MS-DRGs Version 33. In the
proposed rule, we proposed the ICD-10 MS-DRGs Version 33 as the
replacement logic for the ICD-9-CM based MS-DRGs Version 32 as part of
the proposed MS-DRG updates for FY 2016. We invited public comments on
how well the ICD-10 MS-DRGs Version 32 replicated the logic of the MS-
DRGs Version 32 based on ICD-9-CM codes.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49356 through 49357
and 49363 through 49407), we addressed the public comments we received
on the replication in the ICD-10 MS-DRGs Version 32 of the logic of the
MS-DRGs Version 32 based on ICD-9-CM codes. We refer readers to that
final rule for a discussion of the changes we made in response to
public comments.
b. Basis for Proposed FY 2017 MS-DRG Updates
CMS encourages input from our stakeholders concerning the annual
IPPS updates when that input is made available to us by December 7 of
the year prior to the next annual proposed rule update. For example, to
be considered for any updates or changes

[[Page 24971]]

in FY 2017, comments and suggestions should have been submitted by
December 7, 2015. The comments that were submitted in a timely manner
for FY 2017 are discussed in this section of the proposed rule.
Interested parties should submit any comments and suggestions for FY
2018 by December 7, 2016, via the new CMS MS-DRG Classification Change
Requests Mailbox located at: [email protected].
Following are the changes we are proposing to the MS-DRGs for FY
2017. We are inviting public comment on each of the MS-DRG
classification proposed changes described in this rule, as well as our
proposals to maintain certain existing MS-DRG classifications, which
are also discussed later in this section of the proposed rule. In some
cases, we are proposing changes to the MS-DRG classifications based on
our analysis of claims data. In other cases, we are proposing to
maintain the existing MS-DRG classification based on our analysis of
claims data. For this FY 2017 proposed rule, our MS-DRG analysis is
based on claims data from the December 2015 update of the FY 2015
MedPAR file, which contains hospital bills received through September
30, 2015, for discharges occurring through September 30, 2015. In our
discussion of the proposed MS-DRG reclassification changes that
follows, we refer to our analysis of claims data from the ``December
2015 update of the FY 2015 MedPAR file.''
As explained in previous rulemaking (76 FR 51487), in deciding
whether to propose to make further modification to the MS-DRGs for
particular circumstances brought to our attention, we consider 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 evaluate patient care costs using
average costs and lengths of stay and rely on the judgment of our
clinical advisors to decide whether patients are clinically distinct or
similar to other patients in the MS-DRG. In evaluating resource costs,
we consider both the absolute and percentage differences in average
costs between the cases we select for review and the remainder of cases
in the MS-DRG. We also consider variation in costs within these groups;
that is, whether observed average differences are consistent across
patients or attributable to cases that are extreme in terms of costs or
length of stay, or both. Further, we consider the number of patients
who will have a given set of characteristics and generally prefer not
to create a new MS-DRG unless it would include a substantial number of
cases.
In our examination of the claims data, we apply the following
criteria established in FY 2008 (72 FR 47169) to determine if the
creation of a new complication or comorbidity (CC) or major
complication or comorbidity (MCC) subgroup within a base MS-DRG is
warranted:
A reduction in variance of costs of at least 3 percent.
At least 5 percent of the patients in the MS-DRG fall
within the CC or MCC subgroup.
At least 500 cases are in the CC or MCC subgroup.
There is at least a 20-percent difference in average costs
between subgroups.
There is a $2,000 difference in average costs between
subgroups.
In order to warrant creation of a CC or MCC subgroup within a base
MS-DRG, the subgroup must meet all five of the criteria.
We note that some of the issues being evaluated for the FY 2017 MS-
DRGs update continue to relate to the need for the ICD-10 MS-DRGs to
accurately replicate the logic of the ICD-9-CM based version of the MS-
DRGs. Replication is important because both the logic for the proposed
MS-DRGs and the data source used to calculate and develop proposed
relative payment weights are based on the same MedPAR claims data. In
other words, as the logic for the proposed FY 2017 ICD-10 MS-DRGs is
based upon the FY 2015 ICD-9-CM MedPAR claims data, the data source
used to calculate and develop the proposed FY 2017 relative payment
weights is also based on the FY 2015 ICD-9-CM MedPAR claims data,
including any proposed MS-DRG classification changes discussed in this
proposed rule. This is consistent with how the current FY 2016 relative
payment weights are based on the ICD-9-CM diagnosis and procedure codes
from the FY 2014 MedPAR claims data that were grouped through the ICD-
9-CM version of the FY 2016 GROUPER Version 33. We note that we made
the MS-DRG GROUPER and Medicare Code Editor (MCE) ICD-9-CM Software
Version 33 available to the public for use in analyzing ICD-9-CM data
to create relative payment weights using ICD-9-CM data on our CMS Web
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page.html?DLSort=0&DLEntries=10&DLPage=1&DLSortDir=ascending.
Therefore, as discussed in section II.G. of the preamble of this
proposed rule, ICD-9-CM data were used for computing the proposed FY
2017 MS-DRG relative payment weights. If the ICD-9 and ICD-10 versions
of MS-DRGs cease to be replications of each other, the relative payment
weights computed using the ICD-9 claims data and MS-DRGs would be
inconsistent with the relative payment weights assigned for the ICD-10
MS-DRGs, causing unintended payment redistributions. Thus, if the
findings of our data analyses and the recommendations of our clinical
advisors supported modifications to the current ICD-10 MS-DRG
structure, prior to proposing any changes, we first evaluated whether
the requested change could be replicated in the ICD-9-CM MS-DRGs. If
the answer was ``yes,'' from a replication perspective, the change was
considered feasible. If the answer was ``no,'' we examined whether the
change in the ICD-10 MS-DRGs was likely to cause a significant number
of patient cases to change or ``shift'' ICD-10 MS-DRGs. If relatively
few patient cases would be impacted, we evaluated if it would be
feasible to propose the change even though it could not be replicated
by the ICD-9 MS-DRGs because it would not cause a material payment
redistribution. For the ICD-10 MS-DRG classification change requests
that could not be replicated in ICD-9-CM and that would cause a
significant number of patient cases to shift MS-DRG assignment, we
considered other alternatives.
2. Pre-Major Diagnostic Category (Pre-MDC): Total Artificial Heart
Replacement
An ICD-10 MS-DRG replication issue regarding the assignment of two
ICD-10-PCS procedure codes was identified after the October 1, 2015
implementation of the Version 33 ICD-10 MS-DRGs. ICD-10-PCS procedure
codes 02RK0JZ (Replacement of right ventricle with synthetic
substitute, open approach) and 02RL0JZ (Replacement of left ventricle
with synthetic substitute, open approach), when reported together,
describe a biventricular heart replacement (artificial heart). Under
the Version 32 ICD-9-CM based MS-DRGs, this procedure was described by
ICD-9-CM procedure code 37.52 (Implantation of total internal
biventricular heart replacement system) and grouped to MS-DRGs 001 and
002 (Heart Transplant or Implant of Heart Assist System with and
without MCC, respectively).
As discussed in section II.F.1.a. of the preamble of this proposed
rule, to assist in the conversion from the ICD-9-CM

[[Page 24972]]

based MS-DRGs to ICD-10, beginning in FY 2011, draft versions of the
ICD-10 based MS-DRGs were developed and made available for public
comment. The two ICD-10-PCS procedure codes (02RK0JZ and 02RL0JZ) were
assigned as a ``cluster'' to the draft ICD-10 based MS-DRGs 001 and 002
in prior draft versions of the ICD-10 MS-DRGs. In ICD-10-PCS, a cluster
is the term used to describe when a combination of ICD-10-PCS procedure
codes are needed to fully satisfy the equivalent meaning of an ICD-9-CM
procedure code for it to be considered a plausible translation. Upon
review of prior draft versions of the ICD-10 MS-DRGs, it was determined
that Version 30 was the last version to include ICD-10-PCS procedure
codes 02RK0JZ and 02RL0JZ as a code cluster (from ICD-9-CM procedure
code 37.52) that grouped to the draft ICD-10 based MS-DRGs 001 and 002.
Subsequent draft versions of the ICD-10 MS-DRGs inadvertently omitted
this code cluster from those MS-DRGs.
Therefore, for FY 2017, we are proposing to assign ICD-10-PCS
procedure codes 02RK0JZ and 02RL0JZ as a code cluster to ICD-10 Version
34 MS-DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist
System with and without MCC, respectively) to accurately replicate the
Version 32 ICD-9-CM based MS-DRG logic of procedure code 37.52. We are
inviting public comments on our proposal.
3. MDC 1 (Diseases and Disorders of the Nervous System)
a. Endovascular Embolization (Coiling) or Occlusion of Head and Neck
Procedures
We received a repeat request to change the MS-DRG assignment for
procedure codes describing endovascular embolization (coiling) or
occlusion of the head and neck. This topic was discussed in the FY 2015
IPPS/LTCH PPS proposed rule (79 FR 28005 through 28007); the FY 2015
IPPS/LTCH PPS final rule (79 FR 49883 through 49886); the FY 2016 IPPS/
LTCH PPS proposed rule (80 FR 24351 through 24356); and the FY 2016
IPPS/LTCH PPS final rule (80 FR 49358 through 49363). For these 2
fiscal years, we did not change the MS-DRG assignment for procedure
codes describing endovascular embolization (coiling) or occlusion of
the head and neck for the reasons discussed in these proposed and final
rules.
For FY 2017, the requestor again asked that CMS change the MS-DRG
assignment for procedure codes describing endovascular embolization or
occlusion of the head and neck as well as several other codes
describing endovascular procedures of the head and neck.
The ICD-10-PCS procedure codes listed in the following table
capture endovascular embolization or occlusion of the head and neck
procedures that are assigned to the following MS-DRGs in ICD-10 Version
33 MS-DRGs: MS-DRG 020 (Intracranial Vascular Procedures with Principal
Diagnosis of Hemorrhage with MCC); MS-DRG 021 (Intracranial Vascular
Procedures with Principal Diagnosis of Hemorrhage with CC); MS-DRG 022
(Intracranial Vascular Procedures with Principal Diagnosis of
Hemorrhage without CC/MCC); MS-DRG 023 (Craniotomy with Major Device
Implant/Acute Complex CNS Principal Diagnosis with MCC or Chemo
Implant); MS-DRG 024 (Craniotomy with Major Device Implant/Acute
Complex CNS Principal Diagnosis without MCC); MS-DRG 025 (Craniotomy
and Endovascular Intracranial Procedures with MCC); MS-DRG 026
(Craniotomy and Endovascular Intracranial Procedures with CC); and MS-
DRG 027 (Craniotomy and Endovascular Intracranial Procedures without
CC/MCC):

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of the Head
and Neck Procedures Assigned to MS-DRGs 020 Through 027 in ICD-10 MS-
DRGs Version 33
------------------------------------------------------------------------
ICD-10-PCS code Code description
------------------------------------------------------------------------
03LG3BZ.................. Occlusion of intracranial artery with
bioactive intraluminal device, percutaneous
approach.
03LG3DZ.................. Occlusion of intracranial artery with
intraluminal device, percutaneous approach.
03LG4BZ.................. Occlusion of intracranial artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03LG4DZ.................. Occlusion of intracranial artery with
intraluminal device, percutaneous endoscopic
approach.
03LH3BZ.................. Occlusion of right common carotid artery with
bioactive intraluminal device, percutaneous
approach.
03LH3DZ.................. Occlusion of right common carotid artery with
intraluminal device, percutaneous approach.
03LH4BZ.................. Occlusion of right common carotid artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03LH4DZ.................. Occlusion of right common carotid artery with
intraluminal device, percutaneous endoscopic
approach.
03LJ3BZ.................. Occlusion of left common carotid artery with
bioactive intraluminal device, percutaneous
approach.
03LJ3DZ.................. Occlusion of left common carotid artery with
intraluminal device, percutaneous approach.
03LJ4BZ.................. Occlusion of left common carotid artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03LJ4DZ.................. Occlusion of left common carotid artery with
intraluminal device, percutaneous endoscopic
approach.
03LK3BZ.................. Occlusion of right internal carotid artery
with bioactive intraluminal device,
percutaneous approach.
03LK3DZ.................. Occlusion of right internal carotid artery
with intraluminal device, percutaneous
approach.
03LK4BZ.................. Occlusion of right internal carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03LK4DZ.................. Occlusion of right internal carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03LL3BZ.................. Occlusion of left internal carotid artery
with bioactive intraluminal device,
percutaneous approach.
03LL3DZ.................. Occlusion of left internal carotid artery
with intraluminal device, percutaneous
approach.
03LL4BZ.................. Occlusion of left internal carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03LL4DZ.................. Occlusion of left internal carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03LM3BZ.................. Occlusion of right external carotid artery
with bioactive intraluminal device,
percutaneous approach.
03LM3DZ.................. Occlusion of right external carotid artery
with intraluminal device, percutaneous
approach.
03LM4BZ.................. Occlusion of right external carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03LM4DZ.................. Occlusion of right external carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03LN3BZ.................. Occlusion of left external carotid artery
with bioactive intraluminal device,
percutaneous approach.
03LN3DZ.................. Occlusion of left external carotid artery
with intraluminal device, percutaneous
approach.
03LN4BZ.................. Occlusion of left external carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03LN4DZ.................. Occlusion of left external carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03LP3BZ.................. Occlusion of right vertebral artery with
bioactive intraluminal device, percutaneous
approach.
03LP3DZ.................. Occlusion of right vertebral artery with
intraluminal device, percutaneous approach.
03LP4BZ.................. Occlusion of right vertebral artery with
bioactive intraluminal device, percutaneous
endoscopic approach.

[[Page 24973]]

03LP4DZ.................. Occlusion of right vertebral artery with
intraluminal device, percutaneous endoscopic
approach.
03LQ3BZ.................. Occlusion of left vertebral artery with
bioactive intraluminal device, percutaneous
approach.
03LQ3DZ.................. Occlusion of left vertebral artery with
intraluminal device, percutaneous approach.
03LQ4BZ.................. Occlusion of left vertebral artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03LQ4DZ.................. Occlusion of left vertebral artery with
intraluminal device, percutaneous endoscopic
approach.
03LR3DZ.................. Occlusion of face artery with intraluminal
device, percutaneous approach.
03LR4DZ.................. Occlusion of face artery with intraluminal
device, percutaneous endoscopic approach.
03LS3DZ.................. Occlusion of right temporal artery with
intraluminal device, percutaneous approach.
03LS4DZ.................. Occlusion of right temporal artery with
intraluminal device, percutaneous endoscopic
approach.
03LT3DZ.................. Occlusion of left temporal artery with
intraluminal device, percutaneous approach.
03LT4DZ.................. Occlusion of left temporal artery with
intraluminal device, percutaneous endoscopic
approach.
03VG3BZ.................. Restriction of intracranial artery with
bioactive intraluminal device, percutaneous
approach.
03VG3DZ.................. Restriction of intracranial artery with
intraluminal device, percutaneous approach.
03VG4BZ.................. Restriction of intracranial artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03VG4DZ.................. Restriction of intracranial artery with
intraluminal device, percutaneous endoscopic
approach.
03VH3BZ.................. Restriction of right common carotid artery
with bioactive intraluminal device,
percutaneous approach.
03VH3DZ.................. Restriction of right common carotid artery
with intraluminal device, percutaneous
approach.
03VH4BZ.................. Restriction of right common carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03VH4DZ.................. Restriction of right common carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03VJ3BZ.................. Restriction of left common carotid artery
with bioactive intraluminal device,
percutaneous approach.
03VJ3DZ.................. Restriction of left common carotid artery
with intraluminal device, percutaneous
approach.
03VJ4BZ.................. Restriction of left common carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03VJ4DZ.................. Restriction of left common carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03VK3BZ.................. Restriction of right internal carotid artery
with bioactive intraluminal device,
percutaneous approach.
03VK3DZ.................. Restriction of right internal carotid artery
with intraluminal device, percutaneous
approach.
03VK4BZ.................. Restriction of right internal carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03VK4DZ.................. Restriction of right internal carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03VL3BZ.................. Restriction of left internal carotid artery
with bioactive intraluminal device,
percutaneous approach.
03VL3DZ.................. Restriction of left internal carotid artery
with intraluminal device, percutaneous
approach.
03VL4BZ.................. Restriction of left internal carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03VL4DZ.................. Restriction of left internal carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03VM3BZ.................. Restriction of right external carotid artery
with bioactive intraluminal device,
percutaneous approach.
03VM3DZ.................. Restriction of right external carotid artery
with intraluminal device, percutaneous
approach.
03VM4BZ.................. Restriction of right external carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03VM4DZ.................. Restriction of right external carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03VN3BZ.................. Restriction of left external carotid artery
with bioactive intraluminal device,
percutaneous approach.
03VN3DZ.................. Restriction of left external carotid artery
with intraluminal device, percutaneous
approach.
03VN4BZ.................. Restriction of left external carotid artery
with bioactive intraluminal device,
percutaneous endoscopic approach.
03VN4DZ.................. Restriction of left external carotid artery
with intraluminal device, percutaneous
endoscopic approach.
03VP3BZ.................. Restriction of right vertebral artery with
bioactive intraluminal device, percutaneous
approach.
03VP3DZ.................. Restriction of right vertebral artery with
intraluminal device, percutaneous approach.
03VP4BZ.................. Restriction of right vertebral artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03VP4DZ.................. Restriction of right vertebral artery with
intraluminal device, percutaneous endoscopic
approach.
03VQ3BZ.................. Restriction of left vertebral artery with
bioactive intraluminal device, percutaneous
approach.
03VQ3DZ.................. Restriction of left vertebral artery with
intraluminal device, percutaneous approach.
03VQ4BZ.................. Restriction of left vertebral artery with
bioactive intraluminal device, percutaneous
endoscopic approach.
03VQ4DZ.................. Restriction of left vertebral artery with
intraluminal device, percutaneous endoscopic
approach.
03VR3DZ.................. Restriction of face artery with intraluminal
device, percutaneous approach.
03VR4DZ.................. Restriction of face artery with intraluminal
device, percutaneous endoscopic approach.
03VS3DZ.................. Restriction of right temporal artery with
intraluminal device, percutaneous approach.
03VS4DZ.................. Restriction of right temporal artery with
intraluminal device, percutaneous endoscopic
approach.
03VT3DZ.................. Restriction of left temporal artery with
intraluminal device, percutaneous approach.
03VT4DZ.................. Restriction of left temporal artery with
intraluminal device, percutaneous endoscopic
approach.
03VU3DZ.................. Restriction of right thyroid artery with
intraluminal device, percutaneous approach.
03VU4DZ.................. Restriction of right thyroid artery with
intraluminal device, percutaneous endoscopic
approach.
03VV3DZ.................. Restriction of left thyroid artery with
intraluminal device, percutaneous approach.
03VV4DZ.................. Restriction of left thyroid artery with
intraluminal device, percutaneous endoscopic
approach.
------------------------------------------------------------------------

Cases reporting any of the ICD-10-PCS procedures codes listed in
the table above that are assigned to MS-DRGs 020, 021, and 022 under
MDC 1 require a principal diagnosis of hemorrhage. Cases reporting any
of the ICD-10-PCS procedure codes listed in the table above that are
assigned to MS-DRGs 023 and 024 require the insertion of a major
implant or an acute complex central nervous system (CNS) principal
diagnosis. Cases reporting any of the ICD-10-PCS procedure codes listed
in the table above that are assigned to MS-DRGs 025, 026, and 027 do
not have a principal diagnosis of hemorrhage, an acute complex CNS
principal diagnosis, or a major device implant.
The requestor expressed concerns about the appropriateness of the
MS-DRG assignment for the endovascular embolization or occlusion of
head and neck procedures. The requestor stated that past data
demonstrated that the cost of cases involving endovascular coils

[[Page 24974]]

exceeds the average cost of all cases within each of the MS-DRGs to
which these procedures are assigned. The requestor pointed out that
these procedures were formerly captured by the following ICD-9-CM codes
that were assigned to MS-DRGs 020 through 027:
39.72 (Endovascular (total) embolization or occlusion of
head and neck vessels);
39.75 (Endovascular embolization or occlusion of vessel(s)
of head or neck using bare coils); and
39.76 (Endovascular embolization or occlusion of vessel(s)
of head or neck using bioactive coils).
The commenter also expressed concern about the appropriateness of
the current ICD-10 MS-DRG assignment of the following ICD-9-CM codes
that describe other endovascular procedures of head and neck that were
previously assigned to MS-DRGs 023 through 027 in the ICD-9-CM MS-DRGs
Version 32. The commenter stated that these procedures are more
clinically complex than other procedures assigned to these MS-DRGs.
00.62 (Percutaneous angioplasty of intracranial
vessels(s));
39.74 (Endovascular removal of obstruction from head and
neck vessel(s)); and
39.79 (Other endovascular procedures on other vessels).
We examined claims data from the December 2015 update of the FY
2015 MedPAR file for the endovascular embolization or occlusion of the
head and neck procedures or other endovascular procedures reported
under ICD-9-CM procedure codes 00.62, 39.72, 39.74, 39.75, 39.76, and
39.79 in MS-DRGs 020 through 027. The table below shows our findings.

Endovascular Embolization or Occlusion of the Head and Neck Procedures and Other Endovascular Procedures
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 020--All cases........................................... 1,213 16.44 $70,716
MS-DRG 020--Cases with procedure code 00.62, 39.72, 39.74, 895 16.15 72,357
39.75, 39.76, or 39.79.........................................
MS-DRG 021--All cases........................................... 350 13.74 53,289
MS-DRG 021--Cases with procedure code 00.62, 39.72, 39.74, 272 13.21 53,478
39.75, 39.76, or 39.79.........................................
MS-DRG 022--All cases........................................... 84 7.83 33,598
MS-DRG 022--Cases with procedure code 00.62, 39.72, 39.74, 63 7.27 33,606
39.75, 39.76, or 39.79.........................................
MS-DRG 023--All cases........................................... 6,360 10.63 38,204
MS-DRG 023--Cases with procedure code 00.62, 39.72, 39.74, 2,183 8.57 38,935
39.75, 39.76, or 39.79.........................................
MS-DRG 024--All cases........................................... 2,376 5.52 28,270
MS-DRG 024--Cases with procedure code 00.62, 39.72, 39.74, 1,402 5.46 28,543
39.75, 39.76, or 39.79.........................................
MS-DRG 025--All cases........................................... 17,756 9.19 29,657
MS-DRG 025--Cases with procedure code 00.62, 39.72, 39.74, 671 9.20 47,579
39.75, 39.76 or 39.79..........................................
MS-DRG 026--All cases........................................... 7,630 5.80 21,441
MS-DRG 026--Cases with procedure code 00.62, 39.72, 39.74, 825 3.11 27,429
39.75, 39.76, or 39.79.........................................
MS-DRG 027--All cases........................................... 9,628 2.99 17,158
MS-DRG 027--Cases with procedure code 00.62, 39.72, 39.74, 1,847 1.62 22,845
39.75, 39.76 or 39.79..........................................
----------------------------------------------------------------------------------------------------------------

As can be seen from the table, most of the cases of endovascular
embolization or occlusion of the head and neck procedures and other
endovascular procedures reported with procedure codes 00.62, 39.72,
39.74, 39.75, 39.76, and 39.79 occur in MS-DRGs 023, 024, and 027.
There were 2,183 of these procedure cases reported in MS-DRG 023 with
an average length of stay of 8.57 days and average costs of $38,935,
compared to an average length of stay of 10.63 days and average costs
of $38, 204 for all 6,360 cases reported in MS-DRG 023. There were
1,402 of these cases reported in MS-DRG 024 with an average length of
stay of 5.46 days and average costs of $28,543, compared to an average
length of stay of 5.52 days and average costs of $28,270 for all 2,376
cases reported in MS-DRG 024. There were 1,847 of these cases reported
in MS-DRG 027 with an average length of stay of 1.62 days and average
costs of $22,845, compared to an average length of stay of 2.99 days
and average costs of $17,158 for all 9,628 cases reported in MS-DRG
027. The average costs for endovascular embolization or occlusion of
the head and neck procedures and other endovascular procedures cases
reported in MS-DRGs 023 and 024 are not significantly different from
the average costs for all cases reported in MS-DRGs 023 and 024. The
average costs for endovascular embolization or occlusion of the head
and neck procedures and other endovascular procedures cases reported in
MS-DRG 027 are higher ($22,845) than the average costs of all cases
reported in MS-DRG 027 ($17,158). However, average costs are not
significantly different for the endovascular embolization or occlusion
of the head and neck procedures and other endovascular procedures cases
reported in MS-DRG 020 ($72,357) compared to the average costs for all
cases ($70,716) reported in MS-DRS 020; for the endovascular
embolization or occlusion of the head and neck procedures and other
endovascular procedures cases reported in MS-DRG 021 ($53,478) compared
to the average costs for all cases ($53,289) reported in MS-DRG 021;
and for the endovascular embolization or occlusion of the head and neck
procedures and other endovascular procedures cases reported in MS-DRG
022 ($33,606) compared to the average costs for all cases ($33,598)
reported in MS-DRG 022.
Average costs were higher for the 671 endovascular embolization or
occlusion of the head and neck procedures and other endovascular
procedures cases reported in MS-DRG 025 ($47,579) compared to the
average costs for all 17,756 cases ($29,657) reported in MS-DRG 025.
The average costs also were higher for the 825 endovascular
embolization or occlusion of the head and neck procedures and other
endovascular procedures cases reported in MS-DRG 26 ($27,429) compared
to the average costs for all 7,630 cases ($21,441) reported in MS-DRG
26. Given that average costs are similar for most endovascular
embolization or occlusion of the head and neck

[[Page 24975]]

procedures and other endovascular procedures cases reported in MS-DRGs
020, 021, 022, 023, 024, 025, 026, and 027, we do not believe that all
endovascular embolization or occlusion of the head and neck procedures
and other endovascular procedures should be reassigned from these eight
MS-DRGs.
We also examined the average costs for each specific ICD-9-CM code
compared to the average costs of all cases within each of the eight MS-
DRGs. The following table shows our findings.

----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 020--All cases........................................... 1,213 16.44 $70,716
MS-DRG 020--Cases with code 00.62............................... 11 16.09 95,422
MS-DRG 020--Cases with code 39.72............................... 422 16.31 74,951
MS-DRG 020--Cases with code 39.74............................... 9 16.78 71,478
MS-DRG 020--Cases with code 39.75............................... 424 15.79 69,081
MS-DRG 020--Cases with code 39.76............................... 39 18.26 71,630
MS-DRG 020--Cases with code 39.79............................... 25 16.64 73,043
MS-DRG 021--All cases........................................... 350 13.74 53,289
MS-DRG 021--Cases with code 00.62............................... 1 11.00 75,492
MS-DRG 021--Cases with code 39.72............................... 130 13.12 54,715
MS-DRG 021--Cases with code 39.74............................... 1 11.00 75,492
MS-DRG 021--Cases with code 39.75............................... 133 13.46 52,819
MS-DRG 021--Cases with code 39.76............................... 7 10.57 48,749
MS-DRG 021--Cases with code 39.79............................... 3 12.00 40,458
MS-DRG 022--All cases........................................... 84 7.83 33,598
MS-DRG 022--Cases with code 00.62............................... 0 0 0
MS-DRG 022--Cases with code 39.72............................... 40 6.43 32,598
MS-DRG 022--Cases with code 39.74............................... 0 0 0
MS-DRG 022--Cases with code 39.75............................... 21 8.81 32,690
MS-DRG 022--Cases with code 39.76............................... 3 10.00 62,417
MS-DRG 022--Cases with code 39.79............................... 0 0 0
MS-DRG 023--All cases........................................... 6,360 10.63 38,204
MS-DRG 023--Cases with code 00.62............................... 67 9.30 43,741
MS-DRG 023--Cases with code 39.72............................... 56 11.14 52,589
MS-DRG 023--Cases with code 39.74............................... 2,016 8.30 38,047
MS-DRG 023--Cases with code 39.75............................... 20 12.65 53,837
MS-DRG 023--Cases with code 39.76............................... 3 23.00 84,947
MS-DRG 023--Cases with code 39.79............................... 71 13.08 50,720
MS-DRG 024--All cases........................................... 2,376 5.52 28,270
MS-DRG 024--Cases with code 00.62............................... 76 6.74 32,415
MS-DRG 024--Cases with code 39.72............................... 31 6.35 29,977
MS-DRG 024--Cases with code 39.74............................... 1,284 5.35 28,268
MS-DRG 024--Cases with code 39.75............................... 8 6.50 50,333
MS-DRG 024--Cases with code 39.76............................... 2 1.50 19,567
MS-DRG 024--Cases with code 39.79............................... 27 6.74 28,019
MS-DRG 025--All cases........................................... 17,756 9.19 29,657
MS-DRG 025--Cases with code 00.62............................... 17 5.88 29,036
MS-DRG 025--Cases with code 39.72............................... 380 9.46 51,082
MS-DRG 025--Cases with code 39.74............................... 55 9.87 45,895
MS-DRG 025--Cases with code 39.75............................... 139 8.94 52,188
MS-DRG 025--Cases with code 39.76............................... 25 5.84 38,654
MS-DRG 025--Cases with code 39.79............................... 82 11.04 39,839
MS-DRG 026--All cases........................................... 7,630 5.80 21,441
MS-DRG 026--Cases with code 00.62............................... 31 3.48 25,611
MS-DRG 026--Cases with code 39.72............................... 481 3.00 27,180
MS-DRG 026--Cases with code 39.74............................... 16 4.69 27,519
MS-DRG 026--Cases with code 39.75............................... 253 2.77 26,863
MS-DRG 026--Cases with code 39.76............................... 31 3.32 27,891
MS-DRG 026--Cases with code 39.79............................... 45 5.42 37,410
MS-DRG 027--All cases........................................... 9,628 2.99 17,158
MS-DRG 027--Cases with code 00.62............................... 61 2.23 21,337
MS-DRG 027--Cases with code 39.72............................... 1,159 1.58 22,893
MS-DRG 027--Cases with code 39.74............................... 13 1.62 69,081
MS-DRG 027--Cases with code 39.75............................... 580 1.63 23,296
MS-DRG 027--Cases with code 39.76............................... 61 1.74 27,403
MS-DRG 027--Cases with code 39.79............................... 30 1.53 17,740
----------------------------------------------------------------------------------------------------------------

As can be seen from the table above, there are a large number of
cases reporting procedure code 39.74 in MS-DRGs 023 and 024. There were
2,016 cases that reported procedure code 39.74 in MS-DRG 023 compared
to 6,360 total cases reported in the MS-DRG. The cases that reported
procedure code 39.74 in MS-DRG 023 had an average length of stay of
8.30 days and average costs of $38,047, compared to an average length
of stay of 10.63 days and average costs of $38,204 for all cases
reported in MS-DRG 023. There were 1,284 cases that reported

[[Page 24976]]

procedure code 39.74 in MS-DRG 024 compared to 2,376 total cases
reported in MS-DRG 024. The cases that reported procedure code 39.74 in
MS-DRG 024 had an average length of stay of 5.35 days and average costs
of $28,268, compared to an average length of stay of 5.52 days and
average costs of $28,270 for all cases reported in MS-DRG 024. The
average length of stay and average costs for cases that reported
procedure code 39.74 are very similar to the average length of stay and
average costs for all cases reported in MS-DRGs 023 and 024. The only
other group of endovascular embolization or occlusion of the head and
neck procedures and other endovascular procedures cases that exceeded
1,000 in number was reported in MS-DRG 027. There were 1,159 cases that
reported procedure code 39.72 in MS-DRG 027, compared to 9,628 total
cases reported in MS-DRG 027. The cases that reported procedure code
39.72 in MS-DRG 027 had an average length of stay of 1.58 days and
average costs of $22,893, compared to an average length of stay of 2.99
days and average costs of $17,158 for all cases reported in MS-DRG 027.
In other words, the cases that reported procedure code 39.72 in MS-DRG
027 had a shorter average length of stay and average costs that were
$5,735 higher than the average costs for all cases reported in MS-DRG
027. The cases that reported procedure code 39.72 in MS-DRG 020 had a
shorter average length of stay and average costs that were $4,235
higher than the average costs for all cases reported in MS-DRG 020.
However, the average costs for the cases that reported procedure code
39.72 in MS-DRGs 021, 022, and 024 were close to the average costs for
all cases reported in the three MS-DRGs ($54,715 compared to $53,289 in
MS-DRG 021; $32,598 compared to $33,598 in MS-DRG 022; and $29,997
compared to $28,270 in MS-DRG 024).
Our clinical advisors reviewed this issue and advised us that the
endovascular embolization or occlusion of head and neck procedures and
other endovascular procedures currently are appropriately assigned to
MS-DRGs 020 through 027. They did not support reassigning these
procedures from MS-DRGs 020 through 027 to another MS-DRG or creating a
new MS-DRG for these procedures. Our clinical advisors stated that
these procedures are all clinically similar to other procedures in
these MS-DRGs. In addition, they stated that the surgical techniques
are all designed to correct the same clinical problem and advised us
against reassigning the procedures from MS-DRGs 020 through 027.
Based on the findings from our data analyses and the
recommendations from our clinical advisors, we are not proposing to
reassign the cited endovascular embolization or occlusion of head and
neck procedures and other endovascular procedures from MS-DRGs 020
through 027 to another MS-DRG or to create a new MS-DRG for these
procedures for FY 2017. We are inviting public comments on our proposal
to maintain the current MS-DRG assignments of these procedures in MS-
DRGs 020 through 027.
b. Mechanical Complication Codes
We received a request to reassign the following four ICD-10-CM
diagnosis codes from MDC 21 (Injuries, Poisonings and Toxic Effects of
Drugs) under MS-DRGs 919, 920, and 921 (Complications of Treatment with
MCC, with CC, and without CC/MCC, respectively) to MDC 1 (Diseases and
Disorders of the Nervous System) under MS-DRGs 091, 092, and 093 (Other
Disorders of the Nervous System with MCC, with CC, and without CC/MCC,
respectively):
T85.610A (Breakdown (mechanical) of epidural and subdural
infusion catheter, initial encounter);
T85.620A (Displacement of epidural and subdural infusion
catheter, initial encounter);
T85.630A (Leakage of epidural and subdural infusion
catheter, initial encounter); and
T85.690A (Other mechanical complication of epidural and
subdural infusion catheter, initial encounter).
The requestor stated that these ICD-10-CM diagnosis code titles
clearly describe mechanical complications of nervous system devices,
implants, or grafts and are unquestionably nervous system codes.
Therefore, the requestor recommended that these diagnosis codes be
reassigned to MDC 1 under MS-DRGs 091, 092, and 093.
We examined ICD-10-CM diagnosis codes T85.610A, T85.620A, T85.630A,
and T85.690A that are currently assigned to MDC 21 under MS-DRGs 919,
920, and 921. We note that the predecessor ICD-9-CM diagnosis code for
these four ICD-10-CM diagnosis codes was diagnosis code 996.59
(Mechanical complication due to other implant and internal device, not
elsewhere classified), which also was assigned to MDC 21 under MS-DRGs
919, 920, and 921. ICD-9-CM diagnosis code 996.59 did not describe the
location of the device. However, ICD-10-CM diagnosis codes T85.610A,
T85.620A, T85.630A, and T85.690A provide additional detail that
describes the location of the mechanical complication as being within
the nervous system.
Based on the results of our examination, we agree with the
requestor that ICD-10-CM diagnosis codes T85.610A, T85.620A, T85.630A,
and T85.690A describe conditions occurring within the nervous system.
Within the ICD-9-CM MS-DRGs, codes describing nervous system disorders
were assigned to MDC 1. The prior ICD-9-CM codes for mechanical
complications did not indicate the type of complication and therefore
could not be assigned to a specific MDC. Therefore, the nonspecific
complication codes were assigned to MDC 21. These new ICD-10-CM
diagnosis codes describe concepts not previously captured by the ICD-9-
CM codes and capture nervous system conditions. Therefore, ICD-10-CM
diagnosis codes T85.610A, T85.620A, T85.630A, and T85.690A should be
reassigned from MDC 21 under MS-DRGs 919, 920, and 921 to MDC 1 under
MS-DRGs 091, 092, and 093. Our clinical advisors reviewed this issue
and also agree that the four ICD-10-CM diagnosis codes describe
conditions occurring within the nervous system and therefore should be
reassigned from MDC 21 to MDC 1. Based on the results of our analysis
and the recommendations of our clinical advisors, we are proposing to
reassign ICD-10-CM diagnosis codes T85.610A, T85.620A, T85.630A, and
T85.690A from MDC 21 under MS-DRGs 919, 920, and 921 to MDC 1 under MS-
DRGs 091, 092, and 093.
We are inviting public comments on our proposal.
4. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)
a. Proposed Reassignment of Diagnosis Code R22.2 (Localized Swelling,
Mass and Lump, Trunk)
We received a request to reassign ICD-10-CM diagnosis code R22.2
(Localized swelling, mass and lump, trunk) from MDC 4 (Diseases and
Disorders of the Respiratory System) to MDC 9 (Diseases and Disorders
of the Skin, Subcutaneous Tissue and Breast). The requestor stated that
this code is used to capture a buttock mass. The requestor pointed out
that the ICD-10-CM index for localized swelling and localized mass
directs the coder to diagnosis code R22.2 for both the chest and the
trunk as sites.
We reviewed this issue and note that diagnosis code R22.2 is
included in a category of ICD-10-CM codes describing symptoms and signs

[[Page 24977]]

involving the skin and subcutaneous tissue (categories R20 through
R23). Diagnosis code R22.2 is clearly designated within the ICD-10
coding system as a code that describes a condition of the skin and
subcutaneous tissue. Therefore, we agree with the requester that ICD-
10-CM diagnosis code R22.2 should be reassigned from MDC 4 to MDC 9.
One of the predecessor ICD-9-CM codes for ICD-10-CM diagnosis code
R22.2 was diagnosis code 782.2 (Localized superficial swelling, mass,
or lump), which is assigned to MS-DRG 606 and 607 (Minor Skin Disorders
with and without MCC, respectively). Our clinical advisors reviewed
this issue and agree that ICD-10-CM diagnosis code R22.2 captures a
skin diagnosis. Therefore, for FY 2017, we are proposing to reassign
ICD-10-CM diagnosis code R22.2 from MDC 4 to MDC 9 under MS-DRGs 606
and 607 (Minor Skin Disorders with and without MCC, respectively).
We are inviting public comments on our proposal to reassign ICD-10-
CM diagnosis code R22.2 from MDC 4 to MDC 9 under MS-DRGs 606 and 607.
b. Pulmonary Embolism With tPA or Other Thrombolytic Therapy
We received a request to create a new MS-DRG or to reassign cases
with a principal diagnosis of pulmonary embolism where tPA or other
thrombolytic therapy was administered from MS-DRGs 175 and 176
(Pulmonary Embolism with and without MCC, respectively) to a higher
paying MS-DRG. The requestor suggested that CMS review cases reporting
the following ICD-9-CM diagnosis codes describing pulmonary embolism:
415.11 (Iatrogenic pulmonary embolism and infarction), 415.12 (Septic
pulmonary embolism), 415.13 (Saddle embolus of pulmonary artery), and
415.19 (Other pulmonary embolism and infarction), when reported in
combination with ICD-9-CM procedure code 99.10 (Injection or infusion
of thrombolytic agent), to identify that thrombolytic therapy was
administered.
The comparable ICD-10-CM diagnosis code translations for the ICD-9-
CM pulmonary embolism diagnosis codes to which the requestor cited
consist of the following:

Thrombolytic therapy is identified with the following ICD-10-PCS
procedure codes:

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
3E03017.................. Introduction of other thrombolytic into
peripheral vein, open approach.
3E03317.................. Introduction of other thrombolytic into
peripheral vein, percutaneous approach.
3E04017.................. Introduction of other thrombolytic into
central vein, open approach.
3E04317.................. Introduction of other thrombolytic into
central vein, percutaneous approach.
3E05017.................. Introduction of other thrombolytic into
peripheral artery, open approach.
3E05317.................. Introduction of other thrombolytic into
peripheral artery, percutaneous approach.
3E06017.................. Introduction of other thrombolytic into
central artery, open approach.
3E06317.................. Introduction of other thrombolytic into
central artery, percutaneous approach.
------------------------------------------------------------------------

A pulmonary embolism is an obstruction of pulmonary vasculature
most commonly caused by a venous thrombus, and less commonly by fat or
tumor tissue or air bubbles or both. Risk factors for a pulmonary
embolism include prolonged immobilization from any cause, obesity,
cancer, fractured hip or leg, use of certain medications such as oral
contraceptives, presence of certain medical conditions such as heart
failure, sickle cell anemia, or certain congenital heart defects.
Common symptoms of pulmonary embolism include shortness of breath with
or without chest pain, tachycardia, hemoptysis, low grade fever,
pleural effusion, and depending on the etiology of the embolus, might
include lower extremity pain or swelling, syncope, jugular venous
distention, and finally a pulmonary embolus could be asymptomatic.
We examined the claims data from the December 2015 update of the FY
2015 MedPAR file for ICD-9-CM MS-DRGs 175 and 176 for cases with a
principal diagnosis of pulmonary embolism where tPA or other
thrombolytic therapy (procedure code 99.10) was administered and cases
of a principal diagnosis of pulmonary embolism where no tPA or other
thrombolytic therapy was administered. Our findings are shown in the
table below.

Principal Diagnosis of Pulmonary Embolism With and Without tPA or Other Thrombolytic Therapy Administered
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 175--All MCC cases....................................... 19,274 5.76 $10,479

[[Page 24978]]

MS-DRG 175--MCC cases with principal diagnosis of pulmonary 630 6.31 19,419
embolism with tPA or other thrombolytic therapy administered...
MS-DRG 175--MCC cases with principal diagnosis of pulmonary 18,529 5.74 10,181
embolism without tPA or other thrombolytic therapy administered
MS-DRG 176--All Without MCC cases............................... 33,565 3.81 6,645
MS-DRG 176--Without MCC cases with principal diagnosis of 544 5.07 16,345
pulmonary embolism with tPA or other thrombolytic therapy
administered...................................................
MS-DRG 176--Without MCC cases with principal diagnosis of 32,789 3.79 6,483
pulmonary embolism without tPA or other thrombolytic therapy
administered...................................................
----------------------------------------------------------------------------------------------------------------

As shown in the table above, for MS-DRG 175, there were a total of
19,274 cases with an average length of stay of 5.76 days and average
costs of $10,479. Of the 19,274 cases in MS-DRG 175, there were 630
cases that reported a principal diagnosis of pulmonary embolism where
tPA or other thrombolytic therapy was also reported with an average
length of stay of 6.31 days and average costs of $19,419. For MS-DRG
176, there were a total of 33,565 cases with an average length of stay
of 3.81 days and average costs of $6,645. Of the 33,565 cases reported
in MS-DRG 176, there were 544 cases that reported a principal diagnosis
of pulmonary embolism where tPA or other thrombolytic therapy also was
reported with an average length of stay of 5.07 days and average costs
of $16,345.
To address the request we received to create a new MS-DRG, we
reviewed the data for the 1,174 total cases (630 and 544, respectively)
that reported a principal diagnosis of pulmonary embolism that received
tPA or other thrombolytic therapy in MS-DRGs 175 and 176. As shown in
the table above, our data analysis demonstrates the average costs for
these cases are higher ($19,419 compared to $10,479 for MS-DRG 175, and
$16,345 compared to $6,645 for MS-DRG 176) and the length of stay is
slightly longer (6.31 days compared to 5.76 days for MS-DRG 175, and
5.07 days compared to 3.81 days for MS-DRG 176) compared to all cases
reported in MS-DRGs 175 and 176. Out of a total of 52,492 cases (630 +
18,529 + 544 + 32,789) in MS-DRGs 175 and 176 reporting a principal
diagnosis of pulmonary embolism, 1,174 (2.24 percent) of these cases
also received tPA or other thrombolytic therapy. While we recognize the
differences in average costs and length of stay for these cases, the
volume of these cases as well as the potential creation of a new MS-DRG
for this subset of patients raised some concerns with our clinical
advisors. We present our clinical advisors' concerns following the
additional data analysis discussions below.
We then conducted additional data analyses to determine if
reassignment of cases with a principal diagnosis of pulmonary embolism
where tPA or other thrombolytic therapy was administered to a higher
paying MS-DRG was supported. As displayed in the data findings in the
tables below, we explored reassigning cases with a principal diagnosis
of pulmonary embolism that received tPA or other thrombolytic therapy
from MS-DRG 176 to the higher severity level MS-DRG 175. The data do
not adequately support this reassignment, as the cases with a principal
diagnosis of pulmonary embolism where tPA or other thrombolytic therapy
is administered would continue to be underpaid.
As shown in the data findings in the table below, the initial data
analysis for MS-DRG 175 found the average costs for cases that reported
a principal diagnosis of pulmonary embolism that received tPA or other
thrombolytic therapy were $19,419, and for MS-DRG 176, the average
costs for these cases were $16,345.

Principal Diagnosis of Pulmonary Embolism With tPA or Other Thrombolytic Therapy Administered
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 175--All MCC cases....................................... 19,274 5.76 $10,479
MS-DRG 175--MCC cases with principal diagnosis of pulmonary 630 6.31 19,419
embolism with tPA or other thrombolytic therapy administered...
MS-DRG 176--All without MCC cases............................... 33,565 3.81 6,645
MS-DRG 176--Without MCC cases with principal diagnosis of 544 5.07 16,345
pulmonary embolism with tPA or other thrombolytic therapy
administered...................................................
----------------------------------------------------------------------------------------------------------------

As displayed in the table below, if we reassigned the 544 cases
with a principal diagnosis of pulmonary embolism where tPA or other
thrombolytic therapy is administered from the ``without MCC'' level,
MS-DRG 176, to the ``with MCC'' severity level, MS-DRG 175, the average
costs for all cases in MS-DRG 175 would be approximately $10,640. This
figure continues to result in a difference of approximately $9,000 for
the MCC cases and $6,000 for the without MCC cases when compared to
findings for the average costs of these cases from the initial data
analysis ($19,419-$10,640 = $8,779 and $16,345-$10,640 = $5,705,
respectively). In addition, our clinical advisors had concerns about
the prospect of moving the subset of 544 patients from the ``without
MCC'' level to the ``with MCC'' level. We present these concerns
following the additional data analysis discussion below.

[[Page 24979]]

Option of Reassignment of Cases of Principal Diagnosis of Pulmonary Embolism With and Without tPA
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
MS-DRG 175--Cases with pulmonary embolism with MCC or tPA or 19,818 5.74 $10,640
other thrombolytic therapy.....................................
MS-DRG 176--Cases with pulmonary embolism without MCC........... 33,021 3.79 6,486
----------------------------------------------------------------------------------------------------------------

We also reviewed claims data in considering the option of adding
another severity level to the current structure of MS-DRGs 175 and 176
and assigning the cases with a principal diagnosis of pulmonary
embolism that receive tPA or other thrombolytic therapy to the highest
level. This option would involve modifying the current 2-way severity
level split of ``with MCC'' and ``without MCC'' to a 3-way severity
level split of ``with MCC or tPA, with CC, and without CC/MCC.''
Therefore, it would include proposing new MS-DRGs if the data and our
clinical advisors supported creation of new MS-DRGs. However, as
displayed in the data findings in the table below, the data did not
support this option. In addition to similar results from the previous
option's discussion regarding continued differences in average costs
for these cases, the data failed to meet the criterion that there be at
least a $2,000 difference between the ``with CC'' and ``without CC/
MCC'' subgroups. Our data analysis shows the average costs in the
hypothetical ``with CC'' subgroup of $6,932 and the average costs in
the hypothetical ``without CC/MCC'' subgroup of $5,309. The difference
only amounts to $1,623 ($6,932 minus $5,309 = $1,623).

Principal Diagnosis of Pulmonary Embolism With and Without tPA or Other Thrombolytic Therapy
----------------------------------------------------------------------------------------------------------------
Number of Average length
Optional new MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG XXX--Pulmonary embolism with MCC or tPA or other 19,819 5.74 $10,641
thrombolytic therapy...........................................
MS-DRG XXX--Pulmonary embolism with CC.......................... 23,929 4.04 6,932
MS-DRG XXX--Pulmonary embolism without CC/MCC................... 9,091 3.13 5,309
----------------------------------------------------------------------------------------------------------------

Lastly, we explored reassigning cases with a principal diagnosis of
pulmonary embolism that receive tPA or other thrombolytic therapy to
other MS-DRGs within MDC 4. However, our review did not support
reassignment of these cases to any other medical MS-DRGs as these cases
would not be clinically coherent with the cases assigned to those other
MS-DRGs.
In addition to the results of the various data analyses we
performed for creating a new MS-DRG or for reassignment of cases of
pulmonary embolism with tPA or other thrombolytic therapy to another
higher paying MS-DRG, our clinical advisors also expressed a number of
concerns. They pointed out that all patients with a diagnosis of
pulmonary embolism are considered high risk and the small subset of
patients receiving thrombolytic therapy does not necessarily warrant a
separate MS-DRG or reassignment at this time. Our clinical advisors
noted that it is unclear if: (1) The higher costs associated with
receiving tPA or other thrombolytic therapy are due to a different
subset of patients or complications; (2) if those patients treated with
tPA or other thrombolytic therapy for pulmonary embolism are indeed
sicker patients; (3) if the cost of tPA or other thrombolytic therapy
for patients with pulmonary embolism is the reason for the higher costs
seen with these cases; or (4) if the increased average costs for cases
of pulmonary embolism with tPA or other thrombolytic therapy is a
combination of numbers (1) through (3). They recommended maintaining
the current structure of MS-DRGs 175 and 176 at this time.
As a result of the data analysis and the concerns expressed by our
clinical advisors, we are not proposing to create a new MS-DRG or to
reassign cases with a principal diagnosis of pulmonary embolism with
tPA or other thrombolytic therapy for FY 2017. We are inviting public
comment on our proposal.
5. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Implant of Loop Recorder
We received a request to examine a potential ICD-9 to ICD-10
replication issue for procedures describing implantation or revision of
loop recorder that were reported using ICD-9-CM procedure code 37.79
(Revision or relocation of cardiac device pocket). A loop recorder is
also known as an implantable cardiac monitor. It is indicated for
patients who experience episodes of unexplained syncope (fainting),
heart palpitations, or patients at risk for various types of cardiac
arrhythmias, such as atrial fibrillation or ventricular
tachyarrhythmia. Loop recorders function by detecting and monitoring
potential episodes of these kinds of conditions. The requestor
acknowledged that these implantation procedures are frequently
performed in the outpatient setting. However, the requestor also noted
that the implantation procedures are often performed in the inpatient
setting and suggested that they be recognized under the ICD-10 MS-DRGs
as they had been under the ICD-9-CM based MS-DRG logic.
The requestor stated that, under the ICD-9-CM based MS-DRGs,
procedure code 37.79 was designated as an operating room (O.R.)
procedure in the Definitions Manual under Appendix E--Operating Room
Procedures and Procedure Code/MS-DRG Index and grouped to MS-DRGs 040,
041, and 042 (Peripheral, Cranial Nerve and Other Nervous System
Procedures with MCC, with CC or peripheral neurostimulator, and without
CC/MCC, respectively); MS-DRGs 260, 261, and 262 (Cardiac Pacemaker
Revision Except Device Replacement with MCC, with CC, and without CC/
MCC, respectively); MS-DRGs 579, 580, and 581 (Other Skin, Subcutaneous
Tissue and Breast Procedures with MCC, with CC and without CC/MCC,
respectively); MS-DRGs 907, 908, and 909 (Other O.R. Procedures for
Injuries with MCC, with CC, and without CC/MCC, respectively); and MS-
DRGs 957, 958, and 959 (Other O.R. Procedures for Multiple Significant
Trauma with MCC, with CC, and without CC/MCC, respectively).
Under the current Version 33 ICD-10 MS-DRGs, there are two
comparable ICD-10-PCS code translations for ICD-9-CM code 37.79. They
are procedure codes 0JWT0PZ (Revision of cardiac

[[Page 24980]]

rhythm related device in trunk subcutaneous tissue and fascia, open
approach) and 0JWT3PZ (Revision of cardiac rhythm related device in
trunk subcutaneous tissue and fascia, percutaneous approach), which are
designated as O.R. procedures and group to the above listed MS-DRGs.
According to the requestor, the following six ICD-10-PCS procedure
codes identify the implantation or revision of a loop recorder and were
not replicated appropriately because they are currently designated as
nonoperating room (non-O.R.) procedures under the ICD-10 MS-DRGs. The
requestor suggested that these codes be designated as O.R. procedures
and assigned to the same MS-DRGs as the former ICD-9-CM procedure code
37.79:

We examined the six ICD-10-PCS procedure codes that the commenter
recommended be designated as O.R. procedures and assigned to the same
MS-DRGs as ICD-9-CM procedure code 37.79. As discussed in section
II.F.1.b. of the preamble of this proposed rule, in evaluating
requested MS-DRG changes, we determined if they could be replicated in
the ICD-9-CM MS-DRGs so as not to affect the FY 2017 relative payment
weights. If the answer was ``no,'' we examined whether the change in
the ICD-10 MS-DRGs was likely to cause a significant number of patient
cases to change or ``shift'' ICD-10 MS-DRGs. If relatively few patient
cases would be impacted, we evaluated if it would be feasible to
propose the change even though it could not be replicated by the ICD-9
MS-DRGs logic because it would not cause a material payment
redistribution.
Under our review, we recognized that the six ICD-10-PCS procedure
codes are currently identified as comparable translations of ICD-9-CM
procedure code 86.09 (Other incision of skin and subcutaneous tissue),
which was designated as a non-O.R. procedure code under the ICD-9-CM
based MS-DRGs. Therefore, changing the designation of the six ICD-10-
PCS procedure codes from non-O.R. to O.R. for the ICD-10 MS-DRGs cannot
be replicated in the ICD-9-CM based MS-DRGs. In other words, we cannot
designate ICD-9-CM procedure code 86.09 as an O.R. code. However, we
believe that if we limit the change in designation to four of the six
identified ICD-10-PCS procedure codes from non-O.R. to O.R., the change
would not have any impact. We are not including the two ICD-10-PCS
procedure codes that describe the insertion of a monitoring device into
the abdomen in our proposal because a loop recorder is not inserted
into that location and it would not be clinically appropriate.
Therefore, for FY 2017, we are proposing to designate the following
four ICD-10-PCS codes as O.R. procedures within Appendix E of the
Version 34 ICD-10 MS-DRG Definitions Manual:
0JH602Z (Insertion of monitoring device into chest
subcutaneous tissue and fascia, open approach);
0JH632Z (Insertion of monitoring device into chest
subcutaneous tissue and fascia, percutaneous approach);
0JWT02Z (Revision of monitoring device in trunk
subcutaneous tissue and fascia, open approach); and
0JWT32Z (Revision of monitoring device in trunk
subcutaneous tissue and fascia, percutaneous approach).
We also are proposing that the ICD-10 MS-DRG assignment for these
four ICD-10-PCS codes replicate the ICD-9-CM based MS-DRG assignment
for procedure code 37.79; that is, MS-DRGs 040, 041, 042, 260, 261,
262, 579,580, 581, 907, 908, 909, 957, 958, and 959 as cited earlier in
this section.
We are inviting public comments on our proposals.
b. Endovascular Thrombectomy of the Lower Limbs
We received a comment stating that the logic for ICD-10 MS-DRGs
Version 33 is not compatible with the ICD-9-CM MS-DRGs Version 32 for
the assignment of procedures describing endovascular thrombectomy of
the lower limbs. The commenter asked CMS to reconfigure the MS-DRG
structure within the ICD-10 MS-DRGs for endovascular thrombectomy of
the lower limbs, specifically MS-DRGs 270, 271, and 272 (Endovascular
Thrombectomy of the Lower Limbs with MCC, with CC, and without CC/MCC,
respectively). The commenter believed that this requested restructuring
would be consistent with the MS-DRG assignments for the other
procedures describing lower extremity thrombectomy, and would
accurately replicate the logic of the ICD-9-CM MS-DRGs Version 32.
Under the ICD-9-CM, endovascular thrombectomy of the lower limbs is
described by procedure code 39.79 (Other endovascular procedures on
other vessels). The commenter stated that, with deep vein thrombosis
(DVT) or any other circulatory system disorders as the principal
diagnosis, cases involving procedures described by procedure code 39.79
grouped to ICD-9-CM MS-DRGs 237 and 238 (Major Cardiovascular
Procedures with and without MCC, respectively). However, the commenter
pointed out that, for FY 2016, ICD-9-CM MS-DRGs 237 and 238 were
deleted and replaced with ICD-10 Version 33 MS-DRGs 268 and 269 (Aortic
and Heart Assist Procedures Except Pulsation Balloon with and without
MCC, respectively), for the higher complexity procedures, and MS-DRGs
270, 271, and 272 (Other Major Cardiovascular Procedures with MCC, with
CC, and without CC/MCC, respectively), for the lower complexity
procedures (80 FR 49389). The commenter stated that ICD-9-CM procedure
code 39.79 describes the lower complexity procedures assigned to ICD-
10-PCS MS-DRGs 270, 271, and 272. The commenter believed that the
comparable ICD-10-PCS procedure codes also should have been assigned to
MS-DRGs 270, 271, and 272.
We agree with the requestor that procedures describing endovascular
thrombectomy of the lower limbs should be assigned to ICD-10 MS-DRGs
270, 271, and 272. Therefore, for implementation October 1, 2016, we
are proposing to restructure the ICD-10-PCS MS-DRG configuration and
add the ICD-10-PCS code translations listed in the following chart
(which would

[[Page 24981]]

capture procedures describing endovascular thrombectomy of the lower
limbs) to ICD-10-PCS Version 34 MS-DRGs 270, 271, and 272.

ICD-10-PCS Endovascular Thrombectomy Procedure Codes Proposed To Be
Assigned to MS-DRGs 270, 271, and 272 for FY 2017
------------------------------------------------------------------------

------------------------------------------------------------------------
03C53ZZ.................. Extirpation of matter from right axillary
artery, percutaneous approach.
03C63ZZ.................. Extirpation of matter from left axillary
artery, percutaneous approach.
03C73ZZ.................. Extirpation of matter from right brachial
artery, percutaneous approach.
03C83ZZ.................. Extirpation of matter from left brachial
artery, percutaneous approach.
03C93ZZ.................. Extirpation of matter from right ulnar
artery, percutaneous approach.
03CA3ZZ.................. Extirpation of matter from left ulnar artery,
percutaneous approach.
03CB3ZZ.................. Extirpation of matter from right radial
artery, percutaneous approach.
03CC3ZZ.................. Extirpation of matter from left radial
artery, percutaneous approach.
03CD3ZZ.................. Extirpation of matter from right hand artery,
percutaneous approach.
03CF3ZZ.................. Extirpation of matter from left hand artery,
percutaneous approach.
03CY3ZZ.................. Extirpation of matter from upper artery,
percutaneous approach.
04CK3ZZ.................. Extirpation of matter from right femoral
artery, percutaneous approach.
04CL3ZZ.................. Extirpation of matter from left femoral
artery, percutaneous approach.
04CM3ZZ.................. Extirpation of matter from right popliteal
artery, percutaneous approach.
04CN3ZZ.................. Extirpation of matter from left popliteal
artery, percutaneous approach.
04CP3ZZ.................. Extirpation of matter from right anterior
tibial artery, percutaneous approach.
04CQ3ZZ.................. Extirpation of matter from left anterior
tibial artery, percutaneous approach.
04CR3ZZ.................. Extirpation of matter from right posterior
tibial artery, percutaneous approach.
04CS3ZZ.................. Extirpation of matter from left posterior
tibial artery, percutaneous approach.
04CT3ZZ.................. Extirpation of matter from right peroneal
artery, percutaneous approach.
04CU3ZZ.................. Extirpation of matter from left peroneal
artery, percutaneous approach.
04CV3ZZ.................. Extirpation of matter from right foot artery,
percutaneous approach.
04CW3ZZ.................. Extirpation of matter from left foot artery,
percutaneous approach.
04CY3ZZ.................. Extirpation of matter from lower artery,
percutaneous approach.
05C73ZZ.................. Extirpation of matter from right axillary
vein, percutaneous approach.
05C83ZZ.................. Extirpation of matter from left axillary
vein, percutaneous approach.
05C93ZZ.................. Extirpation of matter from right brachial
vein, percutaneous approach.
05CA3ZZ.................. Extirpation of matter from left brachial
vein, percutaneous approach.
05CB3ZZ.................. Extirpation of matter from right basilic
vein, percutaneous approach.
05CC3ZZ.................. Extirpation of matter from left basilic vein,
percutaneous approach.
05CD3ZZ.................. Extirpation of matter from right cephalic
vein, percutaneous approach.
05CF3ZZ.................. Extirpation of matter from left cephalic
vein, percutaneous approach.
05CG3ZZ.................. Extirpation of matter from right hand vein,
percutaneous approach.
05CH3ZZ.................. Extirpation of matter from left hand vein,
percutaneous approach.
05CL3ZZ.................. Extirpation of matter from intracranial vein,
percutaneous approach.
05CM3ZZ.................. Extirpation of matter from right internal
jugular vein, percutaneous approach.
05CN3ZZ.................. Extirpation of matter from left internal
jugular vein, percutaneous approach.
05CP3ZZ.................. Extirpation of matter from right external
jugular vein, percutaneous approach.
05CQ3ZZ.................. Extirpation of matter from left external
jugular vein, percutaneous approach.
05CR3ZZ.................. Extirpation of matter from right vertebral
vein, percutaneous approach.
05CS3ZZ.................. Extirpation of matter from left vertebral
vein, percutaneous approach.
05CT3ZZ.................. Extirpation of matter from right face vein,
percutaneous approach.
05CV3ZZ.................. Extirpation of matter from left face vein,
percutaneous approach.
05CY3ZZ.................. Extirpation of matter from upper vein,
percutaneous approach.
06C33ZZ.................. Extirpation of matter from esophageal vein,
percutaneous approach.
06CM3ZZ.................. Extirpation of matter from right femoral
vein, percutaneous approach.
06CN3ZZ.................. Extirpation of matter from left femoral vein,
percutaneous approach.
06CP3ZZ.................. Extirpation of matter from right greater
saphenous vein, percutaneous approach.
06CQ3ZZ.................. Extirpation of matter from left greater
saphenous vein, percutaneous approach.
06CR3ZZ.................. Extirpation of matter from right lesser
saphenous vein, percutaneous approach.
06CS3ZZ.................. Extirpation of matter from left lesser
saphenous vein, percutaneous approach.
06CT3ZZ.................. Extirpation of matter from right foot vein,
percutaneous approach.
------------------------------------------------------------------------

We are inviting public comments on our proposal to assign the ICD-
10-PCS procedures describing the endovascular thrombectomy of the lower
limbs listed in the table above to ICD-10 Version 34 MS-DRGs 270, 271,
and 272 for FY 2017.
c. Pacemaker Procedures Code Combinations
We received a request that CMS examine the list of ICD-10-PCS
procedure code combinations that describe procedures involving
pacemakers to determine if some procedure code combinations were
excluded from the ICD-10 MS-DRG assignments for MS-DRGs 242, 243, and
244 (Permanent Cardiac Pacemaker Implant with MCC, with CC, and without
CC/MCC). The requestor believed that some ICD-10-PCS procedure code
combinations describing procedures involving pacemaker devices and
leads are not included in the current list.
We reviewed the list of ICD-10-PCS procedure code combinations
describing procedures involving pacemakers assigned to ICD-10 MS-DRGs
242, 243, and 244, and determined that our initial approach of using
specified procedure code combinations to identify procedures involving
pacemakers and leads was overly complex and may have led to inadvertent
omissions of qualifying procedure code combinations. Under our initial
approach, we developed a list of

[[Page 24982]]

possible ICD-10-PCS procedure code combinations that describe
procedures involving pacemaker devices and leads as well as ICD-10-PCS
procedure code combinations for procedures describing the removal and
replacement of pacemaker devices. We now believe that a more
appropriate approach would be to compile a list of all procedure codes
describing procedures involving pacemaker devices and a list of all
procedure codes describing procedures involving pacemaker leads. If a
procedure code from the list of procedure codes describing procedures
involving pacemaker devices and a procedure code from the list of
procedure codes describing procedures involving pacemaker leads are
reported in combination with one another, the case would be assigned to
ICD-10 MS-DRGs 242, 243, and 244. We believe that this more generic
approach would capture a wider range of possible reported procedure
codes describing procedures involving pacemaker devices and leads.
Therefore, we are proposing to modify the ICD-10 MS-DRG logic so that
if one of the ICD-10-PCS procedure codes describing procedures
involving pacemaker devices listed in column 1 of the table below is
reported in combination with one of the ICD-10-PCS procedure codes
describing procedures involving leads listed in column 3 of the table
below, the case would be assigned to MS-DRGs 242, 243, and 244. We
believe that this proposed simplified approach would capture all
possible cases reporting procedure code combinations describing
procedures involving pacemaker devices and leads to ensure that these
cases would be assigned to MS-DRGs 242, 243, and 244.

----------------------------------------------------------------------------------------------------------------
ICD-10-PCS Procedure codes describing ICD-10-PCS Procedure codes describing
procedures involving cardiac pacemaker devices procedures involving cardiac pacemaker leads
(any one code reported from this column list) In combination (any one code reported from this column list)
(1) with (2) (3)
------------------------------------------------ -----------------------------------------------
Procedure code Code description Procedure code Code description
----------------------------------------------------------------------------------------------------------------
0JH604Z................ Insertion of ............... 02H40JZ Insertion of
pacemaker, single pacemaker lead into
chamber into chest coronary vein, open
subcutaneous tissue approach.
and fascia, open
approach.
0JH605Z................ Insertion of ............... 02H40MZ Insertion of cardiac
pacemaker, single lead into coronary
chamber rate vein, open approach.
responsive into chest
subcutaneous tissue
and fascia, open
approach.
0JH606Z................ Insertion of ............... 02H43JZ Insertion of
pacemaker, dual pacemaker lead into
chamber into chest coronary vein,
subcutaneous tissue percutaneous
and fascia, open approach.
approach.
0JH607Z................ Insertion of cardiac ............... 02H43MZ Insertion of cardiac
resynchronization lead into coronary
pacemaker pulse vein, percutaneous
generator into chest approach.
subcutaneous tissue
and fascia, open
approach.
0JH60PZ................ Insertion of cardiac ............... 02H44JZ Insertion of
rhythm related device pacemaker lead into
into chest coronary vein,
subcutaneous tissue percutaneous
and fascia, open endoscopic approach.
approach.
0JH634Z................ Insertion of ............... 02H44MZ Insertion of cardiac
pacemaker, single lead into coronary
chamber into chest vein, percutaneous
subcutaneous tissue endoscopic approach.
and fascia,
percutaneous approach.
0JH635Z................ Insertion of ............... 02H60JZ Insertion of
pacemaker, single pacemaker lead into
chamber rate right atrium, open
responsive into chest approach.
subcutaneous tissue
and fascia,
percutaneous approach.
0JH636Z................ Insertion of ............... 02H60MZ Insertion of cardiac
pacemaker, dual lead into right
chamber into chest atrium, open
subcutaneous tissue approach.
and fascia,
percutaneous approach.
0JH637Z................ Insertion of cardiac ............... 02H63JZ Insertion of
resynchronization pacemaker lead into
pacemaker pulse right atrium,
generator into chest percutaneous
subcutaneous tissue approach.
and fascia,
percutaneous approach.
0JH63PZ................ Insertion of cardiac ............... 02H63MZ Insertion of cardiac
rhythm related device lead into right
into chest atrium, percutaneous
subcutaneous tissue approach.
and fascia,
percutaneous approach.
0JH804Z................ Insertion of ............... 02H64JZ Insertion of
pacemaker, single pacemaker lead into
chamber into abdomen right atrium,
subcutaneous tissue percutaneous
and fascia, open endoscopic approach.
approach.
0JH805Z................ Insertion of ............... 02H64MZ Insertion of cardiac
pacemaker, single lead into right
chamber rate atrium, percutaneous
responsive into endoscopic approach.
abdomen subcutaneous
tissue and fascia,
open approach.
0JH806Z................ Insertion of ............... 02H70JZ Insertion of
pacemaker, dual pacemaker lead into
chamber into abdomen left atrium, open
subcutaneous tissue approach.
and fascia, open
approach.
0JH807Z................ Insertion of cardiac ............... 02H70MZ Insertion of cardiac
resynchronization lead into left
pacemaker pulse atrium, open
generator into approach.
abdomen subcutaneous
tissue and fascia,
open approach.
0JH80PZ................ Insertion of cardiac ............... 02H73JZ Insertion of
rhythm related device pacemaker lead into
into abdomen left atrium,
subcutaneous tissue percutaneous
and fascia, open approach.
approach.
0JH834Z................ Insertion of ............... 02H73MZ Insertion of cardiac
pacemaker, single lead into left
chamber into abdomen atrium, percutaneous
subcutaneous tissue approach.
and fascia,
percutaneous approach.

[[Page 24983]]

0JH835Z................ Insertion of ............... 02H74JZ Insertion of
pacemaker, single pacemaker lead into
chamber rate left atrium,
responsive into percutaneous
abdomen subcutaneous endoscopic approach.
tissue and fascia,
percutaneous approach.
0JH836Z................ Insertion of ............... 02H74MZ Insertion of cardiac
pacemaker, dual lead into left
chamber into abdomen atrium, percutaneous
subcutaneous tissue endoscopic approach.
and fascia,
percutaneous approach.
0JH837Z................ Insertion of cardiac ............... 02HK0JZ Insertion of
resynchronization pacemaker lead into
pacemaker pulse right ventricle,
generator into open approach.
abdomen subcutaneous
tissue and fascia,
percutaneous approach.
0JH83PZ................ Insertion of cardiac ............... 02HK0MZ Insertion of cardiac
rhythm related device lead into right
into abdomen ventricle, open
subcutaneous tissue approach.
and fascia,
percutaneous approach.
02HK3JZ Insertion of
pacemaker lead into
right ventricle,
percutaneous
approach.
02HK3MZ Insertion of cardiac
lead into right
ventricle,
percutaneous
approach.
02HK4JZ Insertion of
pacemaker lead into
right ventricle,
percutaneous
endoscopic approach.
02HK4MZ Insertion of cardiac
lead into right
ventricle,
percutaneous
endoscopic approach.
02HL0JZ Insertion of
pacemaker lead into
left ventricle, open
approach.
02HL0MZ Insertion of cardiac
lead into left
ventricle, open
approach.
02HL3JZ Insertion of
pacemaker lead into
left ventricle,
percutaneous
approach.
02HL3MZ Insertion of cardiac
lead into left
ventricle,
percutaneous
approach.
02HL4JZ Insertion of
pacemaker lead into
left ventricle,
percutaneous
endoscopic approach.
02HL4MZ Insertion of cardiac
lead into left
ventricle,
percutaneous
endoscopic approach.
02HN0JZ Insertion of
pacemaker lead into
pericardium, open
approach.
02HN0MZ Insertion of cardiac
lead into
pericardium, open
approach.
02HN3JZ Insertion of
pacemaker lead into
pericardium,
percutaneous
approach.
02HN3MZ Insertion of cardiac
lead into
pericardium,
percutaneous
approach.
02HN4JZ Insertion of
pacemaker lead into
pericardium,
percutaneous
endoscopic approach.
02HN4MZ Insertion of cardiac
lead into
pericardium,
percutaneous
endoscopic approach.
----------------------------------------------------------------------------------------------------------------

We are inviting public comments on our proposal to modify the MS-
DRG logic for MS-DRGs 242, 243, and 244 to establish that cases
reporting one ICD-10-PCS code from the list of procedure codes
describing procedures involving pacemaker devices and one ICD-10-PCS
code from the list of procedure codes describing procedures involving
pacemaker leads in combination with one another would qualify the case
for assignment to MS-DRGs 242, 243, and 244.
We also examined our GROUPER logic for MS-DRGs 258 and 259 (Cardiac
Pacemaker Device Replacement with and without MCC, respectively).
Assignments of cases to these MS-DRGs also include qualifying ICD-10-
PCS procedure code combinations describing procedures that involve the
removal of pacemaker devices and the insertion of new devices. We
believe that this logic may also be overly complex. Moreover, we
believe that a more simplified approach would be to compile a list of
all ICD-10-PCS procedure codes describing procedures involving cardiac
pacemaker device insertions. Therefore, we are proposing this approach
for FY 2017. Under the proposed approach, if one of the procedure codes
describing procedures involving pacemaker device insertions is
reported, and there are no other procedure codes describing procedures
involving the insertion of a pacemaker lead reported in combination
with one of these procedures, the case would be assigned to MS-DRG 258
and 259. Cases reporting any one of the following ICD-10-PCS procedure
codes describing procedures involving pacemaker device insertions would
be assigned to MS-DRG 258 and 259.

[[Page 24984]]

Procedure Codes Describing Procedures Involving Cardiac Pacemaker Device
Insertions Reported Without Any Other Pacemaker Device Procedure Code
Proposed To Be Assigned to ICD-10 MS-DRGs 258 and 259
------------------------------------------------------------------------
Procedure code Description
------------------------------------------------------------------------
0JH604Z.................. Insertion of pacemaker, single chamber into
chest subcutaneous tissue and fascia, open
approach.
0JH605Z.................. Insertion of pacemaker, single chamber rate
responsive into chest subcutaneous tissue
and fascia, open approach.
0JH606Z.................. Insertion of pacemaker, dual chamber into
chest subcutaneous tissue and fascia, open
approach.
0JH607Z.................. Insertion of cardiac resynchronization
pacemaker pulse generator into chest
subcutaneous tissue and fascia, open
approach.
0JH60PZ.................. Insertion of cardiac rhythm related device
into chest subcutaneous tissue and fascia,
open approach.
0JH634Z.................. Insertion of pacemaker, single chamber into
chest subcutaneous tissue and fascia,
percutaneous approach.
0JH635Z.................. Insertion of pacemaker, single chamber rate
responsive into chest subcutaneous tissue
and fascia, percutaneous approach.
0JH636Z.................. Insertion of pacemaker, dual chamber into
chest subcutaneous tissue and fascia,
percutaneous approach.
0JH637Z.................. Insertion of cardiac resynchronization
pacemaker pulse generator into chest
subcutaneous tissue and fascia, percutaneous
approach.
0JH63PZ.................. Insertion of cardiac rhythm related device
into chest subcutaneous tissue and fascia,
percutaneous approach.
0JH804Z.................. Insertion of pacemaker, single chamber into
abdomen subcutaneous tissue and fascia, open
approach.
0JH805Z.................. Insertion of pacemaker, single chamber rate
responsive into abdomen subcutaneous tissue
and fascia, open approach.
0JH806Z.................. Insertion of pacemaker, dual chamber into
abdomen subcutaneous tissue and fascia, open
approach.
0JH807Z.................. Insertion of cardiac resynchronization
pacemaker pulse generator into abdomen
subcutaneous tissue and fascia, open
approach.
0JH80PZ.................. Insertion of cardiac rhythm related device
into abdomen subcutaneous tissue and fascia,
open approach.
0JH834Z.................. Insertion of pacemaker, single chamber into
abdomen subcutaneous tissue and fascia,
percutaneous approach.
0JH835Z.................. Insertion of pacemaker, single chamber rate
responsive into abdomen subcutaneous tissue
and fascia, percutaneous approach.
0JH836Z.................. Insertion of pacemaker, dual chamber into
abdomen subcutaneous tissue and fascia,
percutaneous approach.
0JH837Z.................. Insertion of cardiac resynchronization
pacemaker pulse generator into abdomen
subcutaneous tissue and fascia, percutaneous
approach.
0JH83PZ.................. Insertion of cardiac rhythm related device
into abdomen subcutaneous tissue and fascia,
percutaneous approach.
------------------------------------------------------------------------

We are inviting public comments on our proposal to modify the
GROUPER logic for MS-DRGs 258 and 259 to establish that a case
reporting one procedure code from the above list of ICD-10-PCS
procedure codes describing procedures involving pacemaker device
insertions without any other procedure codes describing procedures
involving pacemaker leads reported would be assigned to MS-DRGs 258 and
259.
We also examined our GROUPER logic for MS-DRGs 260, 261, and 262
(Cardiac Pacemaker Revision Except Device with MCC, with CC, and
without CC/MCC, respectively). Cases assigned to MS-DRGs 260, 261, and
262 also include lists of procedure code combinations describing
procedures involving the removal of pacemaker leads and the insertion
of new leads, in addition to lists of single procedure codes describing
procedures involving the insertion of pacemaker leads, removal of
devices, and revision of devices. We believe that this logic may also
be overly complex. Moreover, we believe that a more simplified approach
would be to provide a single list of procedure codes describing
procedures involving cardiac pacemaker lead insertions and other
related procedures involving device insertions that would be assigned
to MS-DRGs 260, 261, and 262. If one of these procedure codes
describing procedures involving the insertion of pacemaker leads is
reported, and there are no other procedure codes describing procedures
involving the insertion of a device reported, the case would be
assigned to MS-DRG 260, 261, and 262. We are proposing that the list of
ICD-10-PCS procedure codes describing procedures involving pacemaker
lead insertion, removal, or revisions and insertion of hemodynamic
devices in the following table would be assigned to MS-DRGs 260, 261,
and 262. We are simply proposing to use a single list of ICD-10-PCS
procedure codes to determine the MS-DRG assignment.

List of Procedure Codes Proposed To Be Assigned to MS-DRGs 260, 261, and
262
------------------------------------------------------------------------
Procedure code Description
------------------------------------------------------------------------
02H40JZ.................. Insertion of pacemaker lead into coronary
vein, open approach.
02H40MZ.................. Insertion of cardiac lead into coronary vein,
open approach.
02H43JZ.................. Insertion of pacemaker lead into coronary
vein, percutaneous approach.
02H43MZ.................. Insertion of cardiac lead into coronary vein,
percutaneous approach.
02H44JZ.................. Insertion of pacemaker lead into coronary
vein, percutaneous endoscopic approach.
02H44MZ.................. Insertion of cardiac lead into coronary vein,
percutaneous endoscopic approach.
02H60MZ.................. Insertion of pacemaker lead into right
atrium, open approach.
02H63JZ.................. Insertion of cardiac lead into right atrium,
open approach.
02H63MZ.................. Insertion of pacemaker lead into right
atrium, percutaneous approach.
02H64JZ.................. Insertion of cardiac lead into right atrium,
percutaneous approach.
02H64MZ.................. Insertion of pacemaker lead into right
atrium, percutaneous endoscopic approach.
02H70JZ.................. Insertion of cardiac lead into right atrium,
percutaneous endoscopic approach.
02H70MZ.................. Insertion of pacemaker lead into left atrium,
open approach.
02H73JZ.................. Insertion of cardiac lead into left atrium,
open approach.
02H73MZ.................. Insertion of pacemaker lead into left atrium,
percutaneous approach.
02H74JZ.................. Insertion of cardiac lead into left atrium,
percutaneous approach.
02H74MZ.................. Insertion of pacemaker lead into left atrium,
percutaneous endoscopic approach.
02HK00Z.................. Insertion of cardiac lead into left atrium,
percutaneous endoscopic approach.

[[Page 24985]]

02HK02Z.................. Insertion of pressure sensor monitoring
device into right ventricle, open approach.
02HK0JZ.................. Insertion of monitoring device into right
ventricle, open approach.
02HK0MZ.................. Insertion of pacemaker lead into right
ventricle, open approach.
02HK30Z.................. Insertion of cardiac lead into right
ventricle, open approach.
02HK32Z.................. Insertion of pressure sensor monitoring
device into right ventricle, percutaneous
approach.
02HK3JZ.................. Insertion of monitoring device into right
ventricle, percutaneous approach.
02HK3MZ.................. Insertion of pacemaker lead into right
ventricle, percutaneous approach.
02HK40Z.................. Insertion of cardiac lead into right
ventricle, percutaneous approach.
02HK42Z.................. Insertion of pressure sensor monitoring
device into right ventricle, percutaneous
endoscopic approach.
02HK4JZ.................. Insertion of monitoring device into right
ventricle, percutaneous endoscopic approach.
02HK4MZ.................. Insertion of pacemaker lead into right
ventricle, percutaneous endoscopic approach.
02HL0JZ.................. Insertion of cardiac lead into right
ventricle, percutaneous endoscopic approach.
02HL0MZ.................. Insertion of pacemaker lead into left
ventricle, open approach.
02HL3JZ.................. Insertion of cardiac lead into left
ventricle, open approach.
02HL3MZ.................. Insertion of pacemaker lead into left
ventricle, percutaneous approach.
02HL4JZ.................. Insertion of cardiac lead into left
ventricle, percutaneous approach.
02HL4MZ.................. Insertion of pacemaker lead into left
ventricle, percutaneous endoscopic approach.
02HN0JZ.................. Insertion of cardiac lead into left
ventricle, percutaneous endoscopic approach.
02HN0MZ.................. Insertion of pacemaker lead into pericardium,
open approach.
02HN3JZ.................. Insertion of cardiac lead into pericardium,
open approach.
02HN3MZ.................. Insertion of pacemaker lead into pericardium,
percutaneous approach.
02HN4JZ.................. Insertion of cardiac lead into pericardium,
percutaneous approach.
02HN4MZ.................. Insertion of pacemaker lead into pericardium,
percutaneous endoscopic approach.
02PA0MZ.................. Insertion of cardiac lead into pericardium,
percutaneous endoscopic approach.
02PA3MZ.................. Removal of cardiac lead from heart, open
approach.
02PA4MZ.................. Removal of cardiac lead from heart,
percutaneous approach.
02PAXMZ.................. Removal of cardiac lead from heart,
percutaneous endoscopic approach.
02WA0MZ.................. Revision of cardiac lead in heart, open
approach.
02WA3MZ.................. Revision of cardiac lead in heart,
percutaneous approach.
02WA4MZ.................. Revision of cardiac lead in heart,
percutaneous endoscopic approach.
0JH600Z.................. Insertion of hemodynamic monitoring device
into chest subcutaneous tissue and fascia,
open approach.
0JH630Z.................. Insertion of hemodynamic monitoring device
into chest subcutaneous tissue and fascia,
percutaneous approach.
0JH800Z.................. Insertion of hemodynamic monitoring device
into abdomen subcutaneous tissue and fascia,
open approach.
0JH830Z.................. Insertion of hemodynamic monitoring device
into abdomen subcutaneous tissue and fascia,
percutaneous approach.
0JPT0PZ.................. Removal of cardiac rhythm related device from
trunk subcutaneous tissue and fascia, open
approach.
0JPT3PZ.................. Removal of cardiac rhythm related device from
trunk subcutaneous tissue and fascia,
percutaneous approach.
0JWT0PZ.................. Revision of cardiac rhythm related device in
trunk subcutaneous tissue and fascia, open
approach.
0JWT3PZ.................. Revision of cardiac rhythm related device in
trunk subcutaneous tissue and fascia,
percutaneous approach.
------------------------------------------------------------------------

We are inviting public comments on our proposal to modify the
GROUPER logic for MS-DRGs 260, 261, and 262 so that cases reporting any
one of the ICD-10-PCS procedure codes describing procedures involving
pacemakers and related procedures and associated devices listed in the
table above would be assigned to MS-DRGs 260, 261, and 262.
d. Transcatheter Mitral Valve Repair With Implant
As we did for the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28008
through 28010), for FY 2017, we received a request to modify the MS-DRG
assignment for transcatheter mitral valve repair with implant
procedures. We refer readers to detailed discussions of the
MitraClip[supreg] System (hereafter referred to as MitraClip[supreg])
for transcatheter mitral valve repair in previous rulemakings,
including the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25822) and
final rule (76 FR 51528 through 51529) and the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27902 through 27903) and final rule (77 FR 53308
through 53310), in response to requests for MS-DRG reclassification, as
well as the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27547 through
27552), under the new technology add-on payment policy. In the FY 2014
IPPS/LTCH PPS final rule (78 FR 50575), the application for a new
technology add-on payment for MitraClip[supreg] was unable to be
considered further due to lack of FDA approval by the July 1, 2013
deadline.
In the FY 2015 IPPS/LTCH PPS final rule, we finalized our proposal
to not create a new MS-DRG or to reassign cases reporting procedures
involving the MitraClip[supreg] to another MS-DRG (79 FR 49890 through
49892). Under a separate process, the request for a new technology add-
on payment for the MitraClip[supreg] System was approved (79 FR 49941
through 49946). As discussed in section II.I.4.e. of the preamble of
this proposed rule, we are proposing to discontinue the new technology
add-on payment for MitraClip[supreg] for FY 2017.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49371), we finalized
a modification to the MS-DRGs to which the procedure involving the
MitraClip[supreg] System was assigned. For the ICD-10 based MS-DRGs to
fully replicate the ICD-9-CM based MS-DRGs, ICD-10-PCS code 02UG3JZ
(Supplement mitral valve with synthetic substitute, percutaneous
approach), which identifies the use of the MitraClip[supreg] technology
and is the ICD-10-PCS code translation for ICD-9-CM procedure code
35.97 (Percutaneous mitral valve repair with implant), was assigned to
new MS-DRGs 273 and 274 (Percutaneous Intracardiac Procedures with and
without MCC, respectively) and continued to be assigned to MS-DRGs 231
and 232 (Coronary Bypass with PTCA with MCC and without MCC,
respectively). According to the requestor, there are substantial
clinical and resource differences between the transcatheter mitral
valve repair procedure and other procedures currently grouping to MS-
DRGs 273 and 274, which are the focus of the request.

[[Page 24986]]

The requestor submitted three options for CMS to consider for FY
2017. The first option was to create a new MS-DRG for endovascular
cardiac valve repair with implant; the second option was to reassign
cases for the MitraClip[supreg] implant from MS-DRGs 273 and 274 to MS-
DRGs 266 and 267 (Endovascular Cardiac Valve Replacement with and
without MCC, respectively); and the third option was to reassign cases
involving the MitraClip[supreg] system to another higher paying MS-DRG.
We analyzed claims data from the December 2015 update of the FY
2015 MedPAR file on reported cases of percutaneous mitral valve repair
with implant (ICD-9-CM procedure code 35.97) in MS-DRGs 273 and 274.
Our findings are shown in the table below.

Percutaneous Mitral Valve Repair With Implant
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 273--All cases........................................... 6,620 8.01 $27,625
MS-DRG 273--Cases with procedure code 35.97..................... 457 7.57 50,560
MS-DRG 274--All cases........................................... 14,220 3.46 19,316
MS-DRG 274--Cases with procedure code 35.97..................... 693 2.67 37,686
----------------------------------------------------------------------------------------------------------------

As shown in the table, the total number of cases reported in MS-DRG
273 was 6,620 and had an average length of stay of 8.01 days and
average costs of $27,625. The number of cases reporting the ICD-9-CM
procedure code 35.97 in MS-DRG 273 totaled 457 and had an average
length of stay of 7.57 days and average costs of $50,560. For MS-DRG
274, there were a total of 14,220 cases with an average length of stay
of 3.46 days and average costs of $19,316. There were a total of 693
cases in MS-DRG 274 that reported procedure code 35.97; these cases had
an average length of stay of 2.67 days and average costs of $37,686. We
recognize that the cases reporting procedure code 35.97 had a shorter
length of stay and higher average costs in comparison to all the cases
within MS-DRGs 273 and 274.
As stated above, the first option of the requestor was that we
create a new MS-DRG for endovascular cardiac valve repair with implant
procedures for all cardiac valve repairs. We reviewed the following
list of ICD-10-PCS procedure codes that the requestor submitted to
comprise this proposed new MS-DRG.

------------------------------------------------------------------------
ICD-10-PCS Code Description
------------------------------------------------------------------------
02UF37Z.................. Supplement aortic valve with autologous
tissue substitute, percutaneous approach.
02UF38Z.................. Supplement aortic valve with zooplastic
tissue, percutaneous approach.
02UF3JZ.................. Supplement aortic valve with synthetic
substitute, percutaneous approach.
02UF3KZ.................. Supplement aortic valve with nonautologous
tissue substitute, percutaneous approach.
02UG37Z.................. Supplement mitral valve with autologous
tissue substitute, percutaneous approach.
02UG38Z.................. Supplement mitral valve with zooplastic
tissue, percutaneous approach.
02UG3JZ.................. Supplement mitral valve with synthetic
substitute, percutaneous approach.
02UG3KZ.................. Supplement mitral valve with nonautologous
tissue substitute, percutaneous approach.
02UH37Z.................. Supplement pulmonary valve with autologous
tissue substitute, percutaneous approach.
02UH38Z.................. Supplement pulmonary valve with zooplastic
tissue, percutaneous approach.
02UH3JZ.................. Supplement pulmonary valve with synthetic
substitute, percutaneous approach.
02UH3KZ.................. Supplement pulmonary valve with nonautologous
tissue substitute, percutaneous approach.
02UJ37Z.................. Supplement tricuspid valve with autologous
tissue substitute, percutaneous approach.
02UJ38Z.................. Supplement tricuspid valve with zooplastic
tissue, percutaneous approach.
02UJ3JZ.................. Supplement tricuspid valve with synthetic
substitute, percutaneous approach.
02UJ3KZ.................. Supplement tricuspid valve with nonautologous
tissue substitute, percutaneous approach.
------------------------------------------------------------------------

The above list of ICD-10-PCS procedure codes are currently assigned
to MS-DRGs 216 through 221 (Cardiac Valve and Other Major
Cardiovascular Procedures with and without Cardiac Catheterization with
MCC, with CC, and without CC/MCC, respectively), with the exception of
procedure code 02UG3JZ, which is assigned to MS-DRGs 273 and 274, as
noted earlier in this section.
All 16 of the ICD-10-PCS procedure codes submitted by the requester
are comparable translations of ICD-9-CM procedure code 35.33
(Annuloplasty), which also grouped to MS-DRGs 216 through 221. However,
ICD-10-PCS procedure code 02UG3JZ (Supplement mitral valve with
synthetic substitute, percutaneous approach) is the comparable
translation for both ICD-9-CM procedure code 35.33 and ICD-9-CM
procedure code 35.97 (Percutaneous mitral valve repair with implant),
which grouped to MS-DRGs 273 and 274 as mentioned previously.
Upon review of the 16 ICD-10-PCS procedure codes submitted for
consideration by the requestor, we determined that we cannot propose
the suggested change because the resulting ICD-10 MS-DRG logic would
not be an accurate replication of the ICD-9-CM based MS-DRG logic.
Specifically, it is not possible to replicate reassigning the
percutaneous annuloplasty codes from ICD-9-CM based MS-DRGs 216 through
221 to a new MS-DRG because we cannot isolate those cases from
procedure code 35.33. Under ICD-9-CM, procedure code 35.33 does not
differentiate the specific type of approach used to perform the
procedure. This is in contrast to the 60 comparable ICD-10 code
translations that do differentiate among various approaches (open,
percutaneous, and percutaneous endoscopic).
As stated previously, if the ICD-9-CM and ICD-10 versions of the
MS-DRGs cease to be replications of each other, the relative payment
weights (computed using the ICD-9-CM based MS-DRGs) would be
inconsistent with the ICD-10 MS-DRG assignment, which may cause
unintended payment redistribution. Therefore, we are not proposing to

[[Page 24987]]

create a new MS-DRG for transcatheter mitral valve repair with implant
procedures for FY 2017.
The second option in the request was to evaluate reassigning cases
involving the MitraClip[supreg] to MS-DRGs 266 and 267. This option is
not supported for the same reasons provided in previous rulemaking
regarding differences between valve replacements and valve repairs. Our
clinical advisors do not believe that these procedures are clinically
coherent or similar in terms of resource consumption because the
MitraClip[supreg] technology is utilized for a percutaneous mitral
valve repair, while the other technologies assigned to MS-DRGs 266 and
267 are utilized for transcatheter/endovascular cardiac valve
replacements. In addition, if cases involving the MitraClip[supreg]
were reassigned to MS-DRGs 266 and 267, they would be overpaid by
approximately $10,000 as shown in the table below. Our clinical
advisors agree that we should not propose to reassign endovascular
cardiac valve repair procedures to the endovascular cardiac valve
replacement MS-DRGs.

Endovascular Cardiac Valve Replacement With and Without MCC
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
MS-DRG 266--All cases........................................... 7,436 8.54 $59,675
MS-DRG 267--All cases........................................... 8,480 4.45 47,013
----------------------------------------------------------------------------------------------------------------

Next, we analyzed claims data from the December 2015 update of the
FY 2015 MedPAR file relating to the possible reassignment of cases
involving the MitraClip[supreg] (identified by ICD-9-CM procedure code
35.97) to MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures
with MCC, with CC, and without CC/MCC, respectively). However, as shown
in the findings in the table below, the claims data did not support
this option under the current 3-way severity level split. That is, the
data findings based on reassignment of MitraClip[supreg] cases (ICD-9-
CM procedure code 35.97) to MS-DRGs 228, 229, and 230 did not support
the required criterion that there be at least a $2,000 difference
between subgroups. A reassignment would not meet the requirement for
the ``with CC'' and ``without CC/MCC'' subgroups ($34,461 - $33,216 =
$1,245).

Other Cardiothoracic Procedures (With Procedure Code 35.97)
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--with MCC............................................ 1,966 11.53 $51,634
MS-DRG 229--with CC............................................. 2,318 6.28 34,461
MS-DRG 230--without CC/MCC...................................... 709 3.76 33,216
----------------------------------------------------------------------------------------------------------------

We then performed additional analysis consisting of the base DRG
report for MS-DRGs 228, 229 and 230. As shown in the table below, the
average costs between the ``with CC'' and the ``without CC/MCC''
subgroups no longer meet the criterion that there be at least a 20-
percent difference in average costs between subgroups. These data
findings support collapsing MS-DRGs 228, 229, and 230 from a 3-way
severity level split into a 2-way severity level split (with MCC and
without MCC) based on 2 years (FY 2014 and FY 2015) of MedPAR data.
This option would involve the deletion of an MS-DRG.

Other Cardiothoracic Procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average length Average length
MS-DRG Number of of stay FY Average costs Number of of stay FY Average costs
cases FY 2015 2015 FY 2015 cases FY 2014 2014 FY 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
MS-DRG 228--with MCC.................................... 1,509 12.73 $51,960 1,486 12.75 $50,688
MS-DRG 229--with CC..................................... 1,835 7.16 33,786 1,900 7.46 33,277
MS-DRG 230--without CC/MCC.............................. 499 4.52 30,697 443 4.84 31,053
--------------------------------------------------------------------------------------------------------------------------------------------------------

In the additional analysis, we evaluated if reassignment of cases
reporting ICD-9-CM procedure code 35.97 to this proposed 2-way severity
split was supported. We confirmed that the reassignment of ICD-9-CM
procedure code 35.97 could be replicated under the ICD-9 MS-DRGs. We
believe that deleting MS-DRG 230, revising MS-DRG 229, and reassigning
cases with procedure code 35.97 from MS-DRGs 273 and 274 to this new
structure would reflect these procedures more accurately in the ICD-10
MS-DRGs. Our clinical advisors agreed with a proposal to delete MS-DRG
230 and reassign cases involving percutaneous mitral valve repair with
implant (MitraClip[supreg]) to MS-DRG 228 and revised MS-DRG 229. We
believe that this approach would maintain clinical coherence for these
MS-DRGs and reflect more appropriate payment for procedures involving
percutaneous mitral valve repair. The proposed revisions to the MS-
DRGs, which include the MitraClip[supreg] cases, are shown in the table
below.

[[Page 24988]]

Other Cardiothoracic Procedures
----------------------------------------------------------------------------------------------------------------
Number of Average length
Proposed revised MS-DRGs cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--with MCC............................................ 1,966 11.53 $51,634
MS-DRG 229--without MCC......................................... 3,027 5.69 34,169
----------------------------------------------------------------------------------------------------------------

For FY 2017, we are proposing to collapse MS-DRGs 228, 229, and 230
from three severity levels to two severity levels by deleting MS-DRG
230 and revising MS-DRG 229. We also are proposing to reassign ICD-9-CM
procedure code 35.97 and the cases reporting ICD-10-PCS procedure code
02UG3JZ (Supplement mitral valve with synthetic substitute,
percutaneous approach) from MS-DRGs 273 and 274 to MS-DRG 228 and
proposed revised MS-DRG 229. The title of MS-DRG 229 would be modified
as follows to reflect the ``without MCC'' designation. The title of
proposed revised MS-DRG 229 would be ``Other Cardiothoracic Procedures
without MCC''. The title for MS-DRG 228 would remain the same: MS-DRG
228 (Other Cardiothoracic Procedures with MCC). We are inviting public
comments on our proposals.
We also note that, as discussed earlier in this section, in the FY
2016 IPPS/LTCH PPS final rule (80 FR 49371), ICD-10-PCS code 02UG3JZ
(Supplement mitral valve with synthetic substitute, percutaneous
approach) was assigned to MS-DRGs 231 and 232 (Coronary Bypass with
PTCA with MCC and without MCC, respectively), in addition to new MS-
DRGs 273 and 274, to fully replicate the ICD-9-CM based MS-DRG logic
for ICD-9-CM procedure code 35.97. If our proposal in this FY 2017
proposed rule to reassign ICD-10-PCS code 02UG3JZ to MS-DRGs 228 and
proposed revised MS-DRG 229 is finalized in the FY 2017 IPPS/LTCH PPS
final rule, it will eliminate the need to continue having ICD-10-PCS
code 02UG3JZ and ICD-9-CM code 35.97 group to MS-DRGs 231 and 232. This
is due to the fact that, currently, MS-DRGs 228, 229, and 230 are
listed higher than MS-DRGs 231 through 236 in the surgical hierarchy,
as shown in the ICD-9 and ICD-10 MS-DRGs Definitions Manual Files in
Appendix D--MS-DRG Surgical Hierarchy by MDC and MS-DRG, which is
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending.
Therefore, if the proposal is finalized for FY 2017, cases reporting
ICD-10-PCS procedure code 02UG3JZ will group to MS-DRGs 228 and revised
MS-DRG 229 versus MS-DRGs 231 and 232 because of the surgical hierarchy
GROUPER logic.
As a result, we are proposing to remove ICD-10-PCS procedure code
02UG3JZ and ICD-9-CM procedure code 35.97 from the PTCA list in MS-DRGs
231 and 232 (Coronary Bypass with PTCA with MCC and without MCC,
respectively) for FY 2017 if the proposal to reassign ICD-9-CM
procedure code 35.97 and the cases reporting ICD-10-PCS procedure codes
02UG3JZ from MS-DRGs 273 and 274 to MS-DRGs 228 and proposed revised
MS-DRG 229 is finalized. We are inviting public comments on our
proposals.
e. MS-DRG 245 (AICD Generator Procedures)
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49369), we stated
that we would continue to monitor MS-DRG 245 (AICD Generator
Procedures) to determine if the data supported subdividing this base
MS-DRG into severity levels. As displayed in the table below, the
results of the FY 2015 data analysis showed there were a total of 1,464
cases, with an average length of stay of 5.5 days and average costs of
$34,564 for MS-DRG 245.

AICD Generator Procedures
----------------------------------------------------------------------------------------------------------------
Average length
MS-DRG Number of cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 245................................................... 1,464 5.5 $34,564
----------------------------------------------------------------------------------------------------------------

We applied the five criteria established in the FY 2008 IPPS final
rule (72 FR 47169), as described in section II.F.1.b. of the preamble
of this proposed rule to determine if it was appropriate to subdivide
MS-DRG 245 into severity levels. The table below illustrates our
findings.

AICD Generator Procedures
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG by suggested severity level cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 245--with MCC............................................ 449 8.37 $40,175
MS-DRG 245--with CC............................................. 861 4.59 32,518
MS-DRG 245--without CC/MCC...................................... 154 2.86 29,646
----------------------------------------------------------------------------------------------------------------

Based on our analysis of claims data from the December 2015 update
of the FY 2015 MedPAR file, the data findings do not support creating
new severity levels. The findings show that the data do not meet the
criteria for a 3-way severity level split as the criterion that there
be at least a 20-percent difference in average costs between subgroups
is

[[Page 24989]]

not met for the ``with CC'' and ``without CC/MCC'' severity levels. We
also looked at the prospect of a 2-way severity level split.

AICD Generator Procedures
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG by suggested severity level cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 245--with MCC............................................ 449 8.37 $40,175
MS-DRG 245--without MCC......................................... 1,015 4.33 32,081
----------------------------------------------------------------------------------------------------------------

The findings do show that the data are close to meeting the
criteria for a 2-way severity level split of ``with MCC and without
MCC.'' However, the required criterion that there must be at least 500
cases in the MCC group is not met.
Therefore, for FY 2017, we are not proposing to subdivide MS-DRG
245 into severity levels. We are inviting public comments on our
proposal to maintain the current structure for MS-DRG 245.
6. MDC 6 (Diseases and Disorders of the Digestive System): Excision of
Ileum
We received a request to analyze an MS-DRG replication issue from
the ICD-9-CM based MS-DRGs to the ICD-10 based MS-DRGs for excision
procedures performed on the ileum. Under ICD-9-CM, procedure code 45.62
(Other partial resection of small intestine) was assigned to MS-DRGs
329, 330 and 331 (Major Small and Large Bowel Procedures with MCC, with
CC, and without CC/MCC, respectively). Under the current ICD-10 MS-DRGs
Version 33, ICD-10-PCS procedure code 0DBB0ZZ (Excision of ileum, open
approach) is assigned to MS-DRGs 347, 348, and 349 (Anal and Stomal
Procedures with MCC, with CC, and without CC/MCC, respectively). The
requestor indicated that, despite the variation in terms for
``excision'' and ``resection'' between the two code sets, the surgical
procedure to remove a portion of the small intestine, whether it is the
ileum, duodenum, or jejunum, has not changed and should not result in
different MS-DRG assignments when translated from ICD-9-CM to ICD-10.
We agree that this is a replication error. In addition to ICD-10-
PCS code 0DBB0ZZ, we also reviewed the MS-DRG assignments for ICD-10-
PCS code 0DBA0ZZ (Excision of jejunum, open approach) and determined
the MS-DRG assignment for this code resulted in the same replication
error. Therefore, we are proposing to reassign ICD-10-PCS codes 0DBB0ZZ
and 0DBA0ZZ from MS-DRGs 347, 348, and 349 to MS-DRGs 329, 330, and
331, effective with the ICD-10 MS-DRGs Version 34 on October 1, 2016.
We are inviting public comments on our proposal.
7. MDC 7 (Diseases and Disorders of the Hepatobiliary System and
Pancreas): Bypass Procedures of the Veins
We received a request to assign ICD-10-PCS code 06183DY (Bypass
portal vein to lower vein with intraluminal device, percutaneous
approach) to MDC 7 (Diseases and Disorders of the Hepatobiliary System
and Pancreas) under MS-DRGs 405, 406, and 407 (Pancreas Liver and Shunt
Procedures with MCC, with CC, and without CC/MCC, respectively). The
requestor described this code as capturing a transjugular intrahepatic
portosystem shunt procedure. The requestor stated that, under ICD-9-CM,
when a procedure for cirrhosis of the liver was performed, the
procedure was assigned to ICD-9-CM code 39.1 (Intra-abdominal venous
shunt). The requestor noted that when ICD-9-CM procedure code 39.1 is
reported with a principal diagnosis of cirrhosis of the liver, the
procedure was assigned to MS-DRG 405, 406, or 407 in the ICD-9-CM MS-
DRGs.
Currently, ICD-10-PCS procedure code 06183DY is assigned to only
MDC 5 (Diseases and Disorders of the Circulatory System) and MS-DRGs
270, 271, and 272 (Other Major Cardiovascular Procedures with MCC, with
CC, and without CC/MCC, respectively) under ICD-10 MS-DRGs Version 33.
The requestor stated that ICD-10-PCS procedure code 06183DY code should
also be assigned to MDC 7 and MS-DRGs 405, 406, and 407 to be
consistent with the ICD-9-CM MS-DRGs Version 32.
We analyzed this issue and agree that the ICD-10 MS-DRGs do not
fully replicate the ICD-9-CM MS-DRGs. We agree that ICD-10-PCS
procedure code 06183DY should be assigned to MDC 7 and MS-DRGs 405,
406, and 407 to replicate the ICD-9-CM MS-DRGs. Our clinical advisors
reviewed this issue and also agree that ICD-10-PCS procedure code
06183DY should be assigned to MDC 7 and MS-DRGs 405, 406, and 407.
Therefore, we are proposing to assign ICD-10-PCS procedure code 06183DY
to MDC 7 and MS-DRGs 405, 406, and 407 for FY 2017.
We are inviting public comments on our proposal.
8. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Proposed Updates to MS-DRGs 469 and 470 (Major Joint Replacement or
Reattachment of Lower Extremity With and Without MCC, respectively)
(1) Total Ankle Replacement (TAR) Procedures
We received a request to create a new MS-DRG for total ankle
replacement (TAR) procedures, which are currently assigned to MS-DRGs
469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity
with and without MCC, respectively). We previously discussed requested
changes to the MS-DRG assignment for TAR procedures in the FY 2015
IPPS/LTCH PPS proposed rule (79 FR 28013 through 28015) and in the FY
2015 IPPS/LTCH PPS final rule (79 FR 49896 through 49899). For FY 2015,
we did not change the MS-DRG assignment for total ankle replacements.
The requestor stated that reassigning total ankle replacement
procedures from MS-DRGs 469 and 470 to a new MS-DRG would have an
important benefit for the new Medicare Comprehensive Care for Joint
Replacement (CJR) model. The commenter noted that because total ankle
replacement cases currently are assigned to MS-DRGs 469 and 470, they
are included in the model.
Ankle replacement procedures were captured by ICD-9-CM code 81.56
(Total ankle replacement). We examined claims data for total ankle
procedures using the December 2015 update of the FY 2015 MedPAR file.
Our findings are displayed in the table below.

[[Page 24990]]

Total Ankle Replacement Cases Reported in MS-DRGs 469 and 470
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases........................................... 25,729 6.92 $22,358
MS-DRG 469--Total ankle replacement cases....................... 30 5.40 34,889
MS-DRG 470--All cases........................................... 421,149 2.92 14,834
MS-DRG 470--Total ankle replacement cases....................... 1,626 1.94 20,019
----------------------------------------------------------------------------------------------------------------

As the total ankle replacement claims data analysis showed, these
procedures represent a small fraction of the total number of cases
reported in MS-DRGs 469 and 470. There were 30 total ankle replacement
cases reported in MS-DRG 469 and 1,626 total ankle replacement cases in
MS-DRG 470, compared to 25,729 total cases reported in MS-DRG 469 and
421,149 total cases reported in MS-DRG 470. The average length of stay
for total ankle replacement cases was 5.40 days and average costs for
total ankle replacement cases were $34,889 reported in MS-DRG 469,
compared to average length of stay of 6.92 days and average costs of
$22,358 for all cases reported in MS-DRG 469. The average length of
stay for total ankle replacement cases was 1.94 days and average costs
of total ankle replacement cases were $20,019 reported in MS-DRG 470,
compared to an average length of stay of 2.92 days and average costs of
$14,834 for all cases reported in MS-DRG 470.
Given the low volume of cases, we believe that these cost data may
not be a complete measure of actual differences in inpatient resource
utilization for beneficiaries receiving total ankle replacements. In
addition, these total ankle replacement cases may have been impacted by
other factors such as complication or comorbidities. Several expensive
cases could impact the average costs for a very small number of
patients. The average cost of total ankle replacement cases reported in
MS-DRG 469 was $12,531 higher than all cases reported in MS-DRG 469
($34,889 compared to $22,358 for all reported cases), but there were
only 30 cases compared to a total of 25,729 cases reported in MS-DRG
469. The average cost of total ankle replacement cases reported in MS-
DRG 470 was $5,185 higher than all cases reported in MS-DRG 470. There
were 1,626 total ankle replacement cases out of a total of 421,149
cases reported in MS-DRG 470. The average costs of the total ankle
replacement cases were higher than those for all cases reported in MS-
DRG 469 and 470. However, some cases have higher and some cases have
lower average costs within any MS-DRG. MS-DRGs are groups of clinically
similar cases that have similar overall costs. Within a group of cases,
one would expect that some cases have costs that are higher than the
overall average and some cases have costs that are lower than the
overall average.
The data do not support creating a new total ankle replacement MS-
DRG for this small number of cases. Also, our clinical advisors pointed
out that creating a new MS-DRG for total ankle replacements would
result in combining cases reporting an MCC with an average length of
stay of 5.40 days and cases not reporting an MCC with an average length
of stay of 1.94 days. Our clinical advisors did not recommend the
creation of a new MS-DRG for this single procedure with such a small
number of cases. They also stated that patients undergoing total ankle
replacement have similar clinical features compared to other patients
undergoing procedures included in MS-DRGs 469 and 470. Furthermore, we
believe that the volume of total ankle replacement procedures performed
relative to hip and knee replacement procedures minimizes the benefit
that a new MS-DRG would have on the Medicare CJR model. Our clinical
advisors determined that the cases involving total ankle replacements
are more appropriately assigned to MS-DRGs 469 and 470 with the two
severity levels.
Based on the findings from our data analysis and the
recommendations from our clinical advisors, we are not proposing to
create a new MS-DRG for total ankle replacement procedures. We are
proposing to maintain the current MS-DRG structure for MS-DRGs 469 and
470.
We are inviting public comments on this proposal.
(2) Hip Replacement Procedures With Principal Diagnosis of Hip Fracture
We received several requests to remove hip replacement procedures
with a principal diagnosis of hip fracture from MS-DRGs 469 and 470
(Major Joint Replacement or Reattachment of Lower Extremity with and
without MCC, respectively) and to create a new MS-DRG for assignment of
these hip replacement procedures. One requestor suggested that if such
a new MS-DRG could not be created, CMS consider reassigning all hip
replacement procedures with a principal diagnosis of hip fracture only
to MS-DRG 469, even if there were no reported MCC.
The requestors stated that hip replacement procedures performed on
patients with hip fractures involve a more fragile population of
patients than the typical patient population who undergo elective hip
or knee replacement and that these more fragile patient cases also are
assigned to MS-DRGs 469 and 470. The requestors stated that cases of
patients who have hip replacements with hip fractures may have
significant comorbidities not present in patients who undergo elective
hip replacements. One requestor stated that the absolute number of
hospitalizations for hip fractures in the United States is currently
more than 350,000 and the number is rising. The requestor stated that
90 percent of hip fractures result from a simple fall, and that hip
fracture rates increase with age. According to the requestor, the 1-
year mortality rate for patients who undergo hip replacement procedures
after a hip fracture was approximately 20 percent, and the 3-year
mortality rate was up to 50 percent. The requestor also stated that one
out of three adults who lived independently before their hip fracture
remains in a nursing home for at least a year after the hip fracture.
In contrast, the requestor noted that patients under elective hip
replacement procedures for arthritis have fewer comorbidities, improved
health after the procedure, low rates of readmission, and less
postacute needs. The requestor believed that there are many factors
that impact the outcome of hip replacements for hip fractures,
including patient factors, fracture type, surgeon and hospital factors,
treatment decisions, complication rates, and rehabilitation factors/
access. The requestor added that, despite the commitment to
standardization, the use of protocol-driven care, early surgery (<24
hours) after surgical optimization, prevention of recurrent fractures,
and comanagement with medical/surgical teams, many patients who undergo
hip replacement procedures for hip

[[Page 24991]]

fractures have serious renal, cardiovascular, and liver disease, as
well as multiple medical comorbidities. The rates of postoperative
infections, readmissions, and postacute care for the patients who
undergo hip replacements for hip fractures are higher than for patients
who undergo elective hip replacement. Some requestors referenced the
Bundled Payments for Care Improvement Initiative (BPCI) and believed
that their requested changes to MS-DRGs 469 and 470 would support this
effort. The requestors stated that the MS-DRG assignment for the hip
replacement procedures with hip fractures has tremendous implications
for successful participation in the BPCI because the BPCI's clinical
episodes track to MS-DRG assignment, and the Major Joint Replacement of
the Lower Extremity Clinical Episode encompasses procedures assigned to
MS-DRGs 469 and 470. Alternatively, the requestors suggested that CMS
reassign all cases of hip replacement procedures with a principal
diagnosis of hip fracture to MS-DRG 469 to recognize the more
significant adverse health profile of these types of cases.
We examined claims data for cases reporting hip replacement
procedures for patients admitted with hip fractures under MS-DRGs 469
and 470 in the December 2015 update of the FY 2015 MedPAR file. We used
the following list of ICD-9-CM diagnosis codes to identify cases
representing hip replacements for hip fractures:

ICD-9-CM Diagnosis Codes Reviewed for Cases Representing Hip Replacement
for Hip Fractures
------------------------------------------------------------------------
ICD-9-CM diagnosis code Descriptions
------------------------------------------------------------------------
733.14................... Pathological fracture of neck of femur.
733.15................... Pathological fracture of other specified part
of femur.
733.81................... Malunion of fracture.
733.82................... Nonunion of fracture.
733.96................... Stress fracture of femoral neck.
808.0.................... Closed fracture of acetabulum.
808.1.................... Open fracture of acetabulum.
820.8.................... Fracture of unspecified part of neck of femur
closed.
820.9.................... Fracture of unspecified part of neck of femur
open.
820.00................... Fracture of unspecified intracapsular section
of neck of femur closed.
820.01................... Fracture of epiphysis (separation) (upper) of
neck of femur closed.
820.02................... Fracture of midcervical section of femur
closed.
820.03................... Fracture of base of neck of femur closed.
820.09................... Other transcervical fracture of femur closed.
820.10................... Fracture of unspecified intracapsular section
of neck of femur open.
820.11................... Fracture of epiphysis (separation) (upper) of
neck of femur open.
820.12................... Fracture of midcervical section of femur
open.
820.13................... Fracture of base of neck of femur open.
820.19................... Other transcervical fracture of femur open.
820.20................... Fracture of unspecified trochanteric section
of femur closed.
820.21................... Fracture of intertrochanteric section of
femur closed.
820.22................... Fracture of subtrochanteric section of femur
closed.
820.30................... Fracture of unspecified trochanteric section
of femur open.
820.31................... Fracture of intertrochanteric section of
femur open.
820.32................... Fracture of subtrochanteric section of femur
open.
------------------------------------------------------------------------

Our findings from our examination of the data are shown in the
table below.

Cases of Hip Replacements With and Without Principal Diagnosis of Hip Fracture
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases........................................... 25,729 6.9 $22,358
MS-DRG 469--Hip replacement cases with hip fractures............ 14,459 7.9 22,852
MS-DRG 469--Hip replacement cases without hip fractures......... 4,714 5.7 22,430
MS-DRG 470--All cases........................................... 421,149 2.9 14,834
MS-DRG 470--Hip replacement cases with hip fractures............ 49,703 4.7 15,795
MS-DRG 470--Hip replacement cases without hip fractures......... 125,607 2.6 14,870
----------------------------------------------------------------------------------------------------------------

For MS-DRG 469, the average costs of all 25,729 reported cases were
$22,358 and the average length of stay was 6.9 days. Within MS-DRG 469,
there were 14,459 cases of hip replacements with hip fractures
reported, with average costs of $22,852 and an average length of stay
of 7.9 days. Within MS-DRG 469, there were 4,714 cases of hip
replacements without hip fractures reported, with average costs of
$22,430 and an average length of stay of 5.7 days. The average costs of
reported cases of hip replacements with hip fractures are similar to
the average costs of all cases reported within MS-DRG 469 ($22,852
compared to $22,358), and to the average costs of reported cases of hip
replacements without hip fractures ($22,852 compared to $22,430).
However, the average length of stay for cases of hip replacements with
hip fractures reported in MS-DRG 469 is higher than the average length
of stay for all cases reported in MS-DRG 469 and for cases of hip
replacements without hip fractures reported in MS-

[[Page 24992]]

DRG 469 (7.9 days compared to 6.9 days and 5.7 days, respectively.)
For MS-DRG 470, the average costs of all 421,149 cases reported
were $14,834 and the average length of stay was 2.9 days. Within MS-DRG
470, there were 49,703 reported cases of hip replacements with hip
fractures, with average costs $15,795 and an average length of stay of
4.7 days. Within MS-DRG 470, there were 125,607 cases of hip
replacements without hip fractures reported, with average costs of
$14,870 and an average length of stay of 2.6 days. However, the average
length of stay for cases of hip replacements with hip fractures
reported in MS-DRG 470 was higher than the average length of stay for
all cases and for cases of hip replacements without hip fractures
reported in MS-DRG 470 (4.7 days compared to 2.9 days and 2.6 days,
respectively). Therefore, the average costs of cases of hip
replacements with hip fractures were similar for both MS-DRG 469 and
MS-DRG 470 ($22,852 compared to $22,358 and $15,795 compared to
$14,834, respectively). However, the average lengths of stay are longer
for cases of hip replacements with hip fractures compared to all cases
reported in both MS-DRGs 469 and 470 (7.9 days compared to 6.9 days and
4.7 days compared to 2.9 days, respectively).
The claims data do not support creating a new MS-DRG for the
assignment of cases of hip replacements with hip fractures. As
discussed earlier, the average costs for cases of hip replacements with
hip fractures reported in MS-DRG 469 and MS-DRG 470 are similar to the
average costs for all cases reported in MS-DRG 469 and MS-DRG 470.
While the average length of stay is longer for cases of hip
replacements with hip fractures than for cases of hip replacements
without hip fractures reported within MS-DRGs 469 and 470, the
increased length of stay did not impact the average costs of reported
cases in either MS-DRG 469 or 470. The data showed that cases of hip
replacement procedures are clearly influenced by the presence of an
MCC. The average costs of all cases reported in MS-DRG 469, which
identifies an MCC, were $22,358, compared to average costs of $14,834
for all cases reported in MS-DRG 470, which did not identify an MCC.
The data showed that the presence of a principal diagnosis of a hip
fracture did not impact the average costs of cases reported in either
MS-DRG 469 or MS-DRG 470.
We also examined the data in relation to the request to reassign
all procedures of hip replacement with hip fractures from MS-DRG 470 to
MS-DRG 469, even if there is no MCC present. The data showed that the
49,703 cases of hip replacements with hip fractures reported in MS-DRG
470 have average costs of $15,795 and an average length of stay of 4.7
days. The 25,729 total cases of hip replacements reported in MS-DRG 469
have average costs of $22,358 and an average length of stays of 6.9
days. Therefore, the data for average costs and average length of stay
for all cases involving hip replacement procedures with hip fractures
reported in MS-DRG 470 do not support reassigning all cases of hip
replacement procedures with hip fractures to MS-DRG 469, even if there
is no MCC present.
Our clinical advisors reviewed this issue and agree that the hip
replacement procedures performed for patients with hip fractures are
appropriately assigned to MS-DRGs 469 and 470. They did not support
reassigning these procedures from MS-DRGs 469 and 470 to a new MS-DRG
or reassigning all cases of hip replacement procedures with hip
fractures to MS-DRG 469, even if the case does not have an MCC. Our
clinical advisors stated that the surgical techniques used for hip
replacements are similar for all patients. They advised that the fact
that some patients also had a hip fracture would not justify creating a
new MS-DRG or reassigning all cases of hip replacement procedures with
hip fractures to MS-DRG 469. Our clinical advisors noted that the costs
of cases of hip replacements are more directly impacted by the presence
or absence of an MCC than the presence or absence of a hip fracture.
Based on the findings from our data analyses and the
recommendations from our clinical advisors, we are not proposing to
create a new MS-DRG for the assignment of procedures involving hip
replacement in patients who have hip fractures or to reassign all
procedures involving hip replacements with hip fractures to MS-DRG 469
even if there is no MCC present. We are proposing to maintain the
current MS-DRG structure for MS-DRGs 469 and 470.
We are inviting public comments on our proposals.
b. Revision of Total Ankle Replacement Procedures
(1) Revision of Total Ankle Replacement Procedures
We received a request to modify the MS-DRG assignment for revision
of total ankle replacement procedures. Currently, these procedures are
assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and
Connective Tissue O.R. Procedures with MCC, with CC and without CC/MCC,
respectively). This topic was discussed in the FY 2015 IPPS/LTCH PPS
proposed rule (79 FR 28013 through 28015) and the FY 2015 IPPS/LTCH PPS
final rule (79 FR 49896 through 49899). However, at that time, we did
not change the MS-DRG assignment for revisions of total ankle
replacement procedures.
The requestor presented two options for consideration for modifying
the MS-DRG assignment for the revisions of total ankle replacement
procedures. The requestor's first option was to create a new MS-DRG for
the assignment of revision of total ankle replacement procedures. The
requestor believed that a new MS-DRG would be justified based on the
distinct costs, resources, and utilization associated with ankle joint
revision cases. The requestor's second option was to reassign revision
of total ankle replacement procedures to MS-DRGs 466, 467, and 468
(Revision of Hip or Knee Replacement with MCC, with CC, and without CC/
MCC, respectively) and rename MS-DRGs 466, 467, and 468 as ``Revision
of Hip, Knee, or Ankle with MCC, with CC, and without CC/MCC'',
respectively. The requestor believed that this second option would be
justified because it is a reasonable, temporary approach until CMS has
sufficient utilization and cost data for revision of total ankle
replacement procedures based on the reporting of the new and more
specific ICD-10-PCS procedure codes. The requestor pointed out that the
following more specific ICD-10-PCS procedure codes were implemented
effective October 1, 2015, with the implementation of ICD-10. The
requestor stated that these new codes will provide improved data on
these procedures that can be analyzed for future MS-DRG updates.

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
0SWF0JZ.................. Revision of synthetic substitute in right
ankle joint, open approach.
0SWF3JZ.................. Revision of synthetic substitute in right
ankle joint, percutaneous approach.
0SWF4JZ.................. Revision of synthetic substitute in right
ankle joint, percutaneous endoscopic
approach.

[[Page 24993]]

0SWFXJZ.................. Revision of synthetic substitute in right
ankle joint, external approach.
0SWG0JZ.................. Revision of synthetic substitute in left
ankle joint, open approach.
0SWG3JZ.................. Revision of synthetic substitute in left
ankle joint, percutaneous approach.
0SWG4JZ.................. Revision of synthetic substitute in left
ankle joint, percutaneous endoscopic
approach.
0SWGXJZ.................. Revision of synthetic substitute in left
ankle joint, external approach.
------------------------------------------------------------------------

We agree with the requestor that the previous code used to identify
revisions of total ankle replacement procedures, ICD-9-CM procedure
code 81.59 (Revision of joint replacement of lower extremity, not
elsewhere classified), is not as precise as the new ICD-10-PCS
procedure codes that were implemented on October 1, 2015. As discussed
in the FY 2015 IPPS/LTCH PPS proposed rule and final rule, ICD-9-CM
procedure code 81.59 included procedures involving revisions of joint
replacements of a variety of lower extremity joints, including the
ankle, foot, and toe. Therefore, the ICD-9-CM procedure code does not
provide precise information on the number of revisions of total ankle
replacement procedures as do the ICD-10-PCS procedure codes listed
above. We also agree that the ICD-10-PCS procedure codes will provide
more precise data on revisions of ankle replacements.
We examined claims data from the December 2015 update of the FY
2015 MedPAR file on cases reporting procedure code 81.59 in MS-DRGs
515, 516, and 517. The table below shows our findings.

Revisions of Joint Replacements Procedures
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases........................................... 3,852 8.54 $21,900
MS-DRG 515--Cases reporting procedure code 81.59................ 2 7.00 36,983
MS-DRG 516--All cases........................................... 8,567 5.24 14,839
MS-DRG 516--Cases reporting procedure code 81.59................ 19 3.74 14,957
MS-DRG 517--All cases........................................... 5,664 3.20 12,979
MS-DRG 517--Cases reporting procedure code 81.59................ 47 1.89 16,524
----------------------------------------------------------------------------------------------------------------

As can be seen from the data in the above table, there were only 68
total cases reported with procedure code 81.59 among MS-DRGs 515, 516,
and 517: 2 Cases in MS-DRG 515; 19 cases in MS-DRG 516; and 47 in MS-
DRG 517. We point out that while there were 68 total cases reported
with procedure code 81.59 in MS-DRGs 515, 516, and 517, we are unable
to determine how many of these cases were actually revisions of ankle
replacements versus other revisions of joint replacement of lower
extremities such as those of the foot or toe. This small number of
cases does not justify creating a new MS-DRG as suggested by the
requestor in its first option.
While the average costs of cases reporting procedure code 81.59 in
MS-DRG 515 were $36,983, compared to $21,900 for all cases reported in
MS-DRG 515, there were only 2 cases reporting procedure code 81.59 in
MS-DRG 515, of the 3,852 total cases reported in MS-DRG 515. In MS-DRG
516, the average costs of the 19 cases reporting procedure code 81.59
cases were $14,957, which is very close to the average costs of $14,839
for all 8,567 cases reported in MS-DRG 516. The average costs for cases
reporting procedure code 81.59 in MS-DRG 517 were higher than the
average costs for all cases reported in MS-DRG 517 ($16,524 for cases
reporting procedure code 81.59 cases compared to $12,979 for all cases
reported in MS-DRG 517). While the average costs for cases reporting
procedure code 81.59 were $3,545 higher than all cases reported in MS-
DRG 517, we point out that there were only 47 cases that reported
procedure code 81.59 out of the 5,664 total cases reported in MS-DRG
517. The relatively small number of cases may have been impacted by
other factors. Several expensive cases could impact the average costs
for a very small number of patients.
As stated by the requestor, we do not yet have data using the more
precise ICD-10-PCS revisions of total ankle replacement procedure codes
that were implemented on October 1, 2015. These new codes will more
precisely identify the number of patients who had a revision of total
ankle replacement procedure and the number of patients who had
revisions of other lower joint replacement procedures such as the foot
or toe. The available clinical data from the December 2015 update of
the FY 2015 MedPAR file do not support the creation of a new MS-DRG for
the assignment of revisions of total ankle replacement procedures or
the reassignment of these cases to other MS-DRGs, such as MS-DRGs 466,
467, and 468, because there were so few cases and because we could not
determine how many of these cases were revisions of ankle replacements.
Claims data on the ICD-10-PCS codes will not be available until 2 years
after the implementation of the codes, which was October 1, 2015.
Our clinical advisors reviewed this issue and determined that the
revision of total ankle replacement procedures are appropriately
classified within MS-DRGs 515, 516, and 517 along with other orthopedic
procedures captured by nonspecific codes. They do not support
reassignment of the procedures to MS-DRGs 466, 467, and 468 until such
time as detailed data for ICD-10-PCS claims are available to evaluate
revision of total ankle replacement procedures. Therefore, based on the
findings of our analysis of claims data and the advice of our clinical
advisors, we are proposing to maintain the current MS-DRG assignment
for revision of total ankle replacement procedures for FY 2017.
We are inviting public comments on our proposal.
(2) Combination Codes for Removal and Replacement of Knee Joints
We received several requests asking CMS to examine whether
additional combinations of procedure codes for the removal and
replacements of knee joints should be added to MS-DRGs 466, 467,

[[Page 24994]]

and 468 (Revision of Hip or Knee Replacement with MCC, with CC, and
without CC/MCC, respectively). This topic was discussed in the FY 2016
IPPS/LTCH PPS proposed rule (80 FR 24379 through 24395) and the FY 2016
IPPS/LTCH PPS final rule (80 FR 49390 through 49406). One requestor
stated that the procedure codes in the following table were not
included in the code pairs that group to MS-DRGs 466, 467, and 468 in
the ICD-10 MS-DRGs Version 33.

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
0SPD08Z.................. Removal of spacer from left knee joint, open
approach.
0SPD38Z.................. Removal of spacer from left knee joint,
percutaneous approach.
0SPD48Z.................. Removal of spacer from left knee joint,
percutaneous endoscopic approach.
0SPC08Z.................. Removal of spacer from right knee joint, open
approach.
0SPC38Z.................. Removal of spacer from right knee joint,
percutaneous approach.
0SPC48Z.................. Removal of spacer from right knee joint,
percutaneous approach.
------------------------------------------------------------------------

Other requestors stated that the procedure codes in the following
table are not included in the list of combinations that group to MS-
DRGs 466, 467, and 468 when reported in conjunction with an ICD-10-PCS
code for the removal of synthetic substitute from the joint in the ICD-
10 MS-DRGs Version 33.

We agree that the joint revision cases involving the removal of a
spacer and subsequent insertion of a new knee joint prosthesis should
be assigned to MS-DRGs 466, 467, and 468. We examined knee joint
revision combination codes that are not currently assigned to MS-DRGs
466, 467, and 468 in ICD-10 MS-DRGs Version 33 and identified 58
additional combinations that also should be included so that the same
logic is used in the ICD-10 version of the MS-DRGs as is used in the
ICD-9-CM version. We are proposing to add the following 58 new code
combinations that capture the joint revisions to the Version 34 MS DRG
structure for MS-DRGs 466, 467, and 468, effective October 1, 2016.

ICD-10-PCS Code Pairs Proposed To Be Added to Version 34 ICD-10 MS-DRGs 466, 467, and 468: Proposed New Knee
Revision ICD-10-PCS Combinations
----------------------------------------------------------------------------------------------------------------
Code Code description Code Code description
----------------------------------------------------------------------------------------------------------------
0SPC08Z.................. Removal of Spacer from and 0SRC0J9.................. Replacement of Right
Right Knee Joint, Open Knee Joint with
Approach. Synthetic Substitute,
Cemented, Open
Approach.
0SPC08Z.................. Removal of Spacer from and 0SRC0JA.................. Replacement of Right
Right Knee Joint, Open Knee Joint with
Approach. Synthetic Substitute,
Uncemented, Open
Approach.
0SPC08Z.................. Removal of Spacer from and 0SRC0JZ.................. Replacement of Right
Right Knee Joint, Open Knee Joint with
Approach. Synthetic Substitute,
Open Approach.
0SPC08Z.................. Removal of Spacer from and 0SRT0J9.................. Replacement of Right
Right Knee Joint, Open Knee Joint, Femoral
Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPC08Z.................. Removal of Spacer from and 0SRT0JA.................. Replacement of Right
Right Knee Joint, Open Knee Joint, Femoral
Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPC08Z.................. Removal of Spacer from and 0SRT0JZ.................. Replacement of Right
Right Knee Joint, Open Knee Joint, Femoral
Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPC08Z.................. Removal of Spacer from and 0SRV0J9.................. Replacement of Right
Right Knee Joint, Open Knee Joint, Tibial
Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPC08Z.................. Removal of Spacer from and 0SRV0JA.................. Replacement of Right
Right Knee Joint, Open Knee Joint, Tibial
Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPC08Z.................. Removal of Spacer from and 0SRV0JZ.................. Replacement of Right
Right Knee Joint, Open Knee Joint, Tibial
Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPC38Z.................. Removal of Spacer from and 0SRC0J9.................. Replacement of Right
Right Knee Joint, Knee Joint with
Percutaneous Approach. Synthetic Substitute,
Cemented, Open
Approach.
0SPC38Z.................. Removal of Spacer from and 0SRC0JA.................. Replacement of Right
Right Knee Joint, Knee Joint with
Percutaneous Approach. Synthetic Substitute,
Uncemented, Open
Approach.
0SPC38Z.................. Removal of Spacer from and 0SRC0JZ.................. Replacement of Right
Right Knee Joint, Knee Joint with
Percutaneous Approach. Synthetic Substitute,
Open Approach.

[[Page 24995]]

0SPC38Z.................. Removal of Spacer from and 0SRT0J9.................. Replacement of Right
Right Knee Joint, Knee Joint, Femoral
Percutaneous Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPC38Z.................. Removal of Spacer from and 0SRT0JA.................. Replacement of Right
Right Knee Joint, Knee Joint, Femoral
Percutaneous Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPC38Z.................. Removal of Spacer from and 0SRT0JZ.................. Replacement of Right
Right Knee Joint, Knee Joint, Femoral
Percutaneous Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPC38Z.................. Removal of Spacer from and 0SRV0J9.................. Replacement of Right
Right Knee Joint, Knee Joint, Tibial
Percutaneous Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPC38Z.................. Removal of Spacer from and 0SRV0JA.................. Replacement of Right
Right Knee Joint, Knee Joint, Tibial
Percutaneous Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPC38Z.................. Removal of Spacer from and 0SRV0JZ.................. Replacement of Right
Right Knee Joint, Knee Joint, Tibial
Percutaneous Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPC48Z.................. Removal of Spacer from and 0SRC0J9.................. Replacement of Right
Right Knee Joint, Knee Joint with
Percutaneous Endoscopic Synthetic Substitute,
Approach. Cemented, Open
Approach.
0SPC48Z.................. Removal of Spacer from and 0SRC0JA.................. Replacement of Right
Right Knee Joint, Knee Joint with
Percutaneous Endoscopic Synthetic Substitute,
Approach. Uncemented, Open
Approach.
0SPC48Z.................. Removal of Spacer from and 0SRC0JZ.................. Replacement of Right
Right Knee Joint, Knee Joint with
Percutaneous Endoscopic Synthetic Substitute,
Approach. Open Approach.
0SPC48Z.................. Removal of Spacer from and 0SRT0J9.................. Replacement of Right
Right Knee Joint, Knee Joint, Femoral
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Cemented,
Open Approach.
0SPC48Z.................. Removal of Spacer from and 0SRT0JA.................. Replacement of Right
Right Knee Joint, Knee Joint, Femoral
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute,
Uncemented, Open
Approach.
0SPC48Z.................. Removal of Spacer from and 0SRT0JZ.................. Replacement of Right
Right Knee Joint, Knee Joint, Femoral
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Open
Approach.
0SPC48Z.................. Removal of Spacer from and 0SRV0J9.................. Replacement of Right
Right Knee Joint, Knee Joint, Tibial
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Cemented,
Open Approach.
0SPC48Z.................. Removal of Spacer from and 0SRV0JA.................. Replacement of Right
Right Knee Joint, Knee Joint, Tibial
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute,
Uncemented, Open
Approach.
0SPC48Z.................. Removal of Spacer from and 0SRV0JZ.................. Replacement of Right
Right Knee Joint, Knee Joint, Tibial
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Open
Approach.
0SPC4JZ.................. Removal of Synthetic and 0SRT0JZ.................. Replacement of Right
Substitute from Right Knee Joint, Femoral
Knee Joint, Surface with Synthetic
Percutaneous Endoscopic Substitute, Open
Approach. Approach.
0SPC4JZ.................. Removal of Synthetic and 0SRV0JZ.................. Replacement of Right
Substitute from Right Knee Joint, Tibial
Knee Joint, Surface with Synthetic
Percutaneous Endoscopic Substitute, Open
Approach. Approach.
0SPD08Z.................. Removal of Spacer from and 0SRD0J9.................. Replacement of Left
Left Knee Joint, Open Knee Joint with
Approach. Synthetic Substitute,
Cemented, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRD0JA.................. Replacement of Left
Left Knee Joint, Open Knee Joint with
Approach. Synthetic Substitute,
Uncemented, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRD0JZ.................. Replacement of Left
Left Knee Joint, Open Knee Joint with
Approach. Synthetic Substitute,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRU0JA.................. Replacement of Left
Left Knee Joint, Open Knee Joint, Femoral
Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRU0JA.................. Replacement of Left
Left Knee Joint, Open Knee Joint, Femoral
Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRU0JZ.................. Replacement of Left
Left Knee Joint, Open Knee Joint, Femoral
Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRW0J9.................. Replacement of Left
Left Knee Joint, Open Knee Joint, Tibial
Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRW0JA.................. Replacement of Left
Left Knee Joint, Open Knee Joint, Tibial
Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRW0JZ.................. Replacement of Left
Left Knee Joint, Open Knee Joint, Tibial
Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRD0J9.................. Replacement of Left
Left Knee Joint, Knee Joint with
Percutaneous Approach. Synthetic Substitute,
Cemented, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRD0JA.................. Replacement of Left
Left Knee Joint, Knee Joint with
Percutaneous Approach. Synthetic Substitute,
Uncemented, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRD0JZ.................. Replacement of Left
Left Knee Joint, Knee Joint with
Percutaneous Approach. Synthetic Substitute,
Open Approach.

[[Page 24996]]

0SPD38Z.................. Removal of Spacer from and 0SRU0JA.................. Replacement of Left
Left Knee Joint, Knee Joint, Femoral
Percutaneous Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPD38Z.................. Removal of Spacer from and 0SRU0JA.................. Replacement of Left
Left Knee Joint, Knee Joint, Femoral
Percutaneous Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRU0JZ.................. Replacement of Left
Left Knee Joint, Knee Joint, Femoral
Percutaneous Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRW0J9.................. Replacement of Left
Left Knee Joint, Knee Joint, Tibial
Percutaneous Approach. Surface with Synthetic
Substitute, Cemented,
Open Approach.
0SPD38Z.................. Removal of Spacer from and 0SRW0JA.................. Replacement of Left
Left Knee Joint, Knee Joint, Tibial
Percutaneous Approach. Surface with Synthetic
Substitute,
Uncemented, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRW0JZ.................. Replacement of Left
Left Knee Joint, Knee Joint, Tibial
Percutaneous Approach. Surface with Synthetic
Substitute, Open
Approach.
0SPD48Z.................. Removal of Spacer from and 0SRD0J9.................. Replacement of Left
Left Knee Joint, Knee Joint with
Percutaneous Endoscopic Synthetic Substitute,
Approach. Cemented, Open
Approach.
0SPD48Z.................. Removal of Spacer from and 0SRD0JA.................. Replacement of Left
Left Knee Joint, Knee Joint with
Percutaneous Endoscopic Synthetic Substitute,
Approach. Uncemented, Open
Approach.
0SPD48Z.................. Removal of Spacer from and 0SRD0JZ.................. Replacement of Left
Left Knee Joint, Knee Joint with
Percutaneous Endoscopic Synthetic Substitute,
Approach. Open Approach.
0SPD48Z.................. Removal of Spacer from and 0SRU0JA.................. Replacement of Left
Left Knee Joint, Knee Joint, Femoral
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Cemented,
Open Approach.
0SPD48Z.................. Removal of Spacer from and 0SRU0JA.................. Replacement of Left
Left Knee Joint, Knee Joint, Femoral
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute,
Uncemented, Open
Approach.
0SPD48Z.................. Removal of Spacer from and 0SRU0JZ.................. Replacement of Left
Left Knee Joint, Knee Joint, Femoral
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Open
Approach.
0SPD48Z.................. Removal of Spacer from and 0SRW0J9.................. Replacement of Left
Left Knee Joint, Knee Joint, Tibial
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Cemented,
Open Approach.
0SPD48Z.................. Removal of Spacer from and 0SRW0JA.................. Replacement of Left
Left Knee Joint, Knee Joint, Tibial
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute,
Uncemented, Open
Approach.
0SPD48Z.................. Removal of Spacer from and 0SRW0JZ.................. Replacement of Left
Left Knee Joint, Knee Joint, Tibial
Percutaneous Endoscopic Surface with Synthetic
Approach. Substitute, Open
Approach.
0SPD4JZ.................. Removal of Synthetic and 0SRU0JZ.................. Replacement of Left
Substitute from Left Knee Joint, Femoral
Knee Joint, Surface with Synthetic
Percutaneous Endoscopic Substitute, Open
Approach. Approach.
----------------------------------------------------------------------------------------------------------------

We are inviting public comments on our proposal to add the joint
revision code combinations listed above to the ICD-10 Version 34 MS-
DRGs 466, 467, and 468.
c. Decompression Laminectomy
Currently, under ICD-10-PCS, the procedure describing a
decompression laminectomy is coded for the ``release'' of a specified
area of the spinal cord. These decompression codes are assigned to MS-
DRGs 028, 029, and 030 (Spinal Procedures with MCC, with CC or Spinal
Neurostimulators, or without CC/MCC, respectively) and to MS-DRGs 518,
519, and 520 (Back and Neck Procedures Except Spinal Fusion with MCC or
Disc Device or Neurostimulator, with CC, or without CC/MCC,
respectively) in the ICD-10 MS-DRGs Version 33. A commenter brought to
our attention that codes describing release of specific peripheral
nerve are assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal
System and Connective Tissue O.R. Procedures with MCC, with CC, and
without CC/MCC, respectively). The commenter suggested that a subset of
these codes also be assigned to MS-DRGs 028 through 030 and MS-DRGs 518
through 520 for clinical coherence purposes. The commenter stated, for
example, that ICD-10-PCS procedure code 00NY0ZZ (Release lumbar spinal
cord, open approach) is assigned to MS-DRGs 028 through 030 and MS-DRGs
518 through 520. However, ICD-10-PCS procedure code 01NB0ZZ (Release
lumbar nerve, open approach) is assigned to MS-DRGs 515 through 517.
We agree with the commenter's suggestion. Therefore, for FY 2017,
we are proposing to reassign the ICD-10-PCS procedure codes listed in
the following table from MS-DRGs 515 through 517 to MS-DRGs 028 through
030 and MS-DRGs 518 through 520 under the ICD-10 MS-DRGs Version 34.

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
01N00ZZ...................... Release cervical plexus, open approach.
01N03ZZ...................... Release cervical plexus, percutaneous
approach.
01N04ZZ...................... Release cervical plexus, percutaneous
endoscopic approach.
01N10ZZ...................... Release cervical nerve, open approach.
01N13ZZ...................... Release cervical nerve, percutaneous
approach.

[[Page 24997]]

01N14ZZ...................... Release cervical nerve, percutaneous
endoscopic approach.
01N80ZZ...................... Release thoracic nerve, open approach.
01N83ZZ...................... Release thoracic nerve, percutaneous
approach.
01N84ZZ...................... Release thoracic nerve, percutaneous
endoscopic approach.
01N90ZZ...................... Release lumbar plexus, open approach.
01N93ZZ...................... Release lumbar plexus, percutaneous
approach.
01N94ZZ...................... Release lumbar plexus, percutaneous
endoscopic approach.
01NA0ZZ...................... Release lumbosacral plexus, open
approach.
01NA3ZZ...................... Release lumbosacral plexus, percutaneous
approach.
01NA4ZZ...................... Release lumbosacral plexus, percutaneous
approach.
01NB0ZZ...................... Release lumbar nerve, open approach.
01NB3ZZ...................... Release lumbar nerve, percutaneous
approach.
01NB4ZZ...................... Release lumbar nerve, percutaneous
endoscopic approach.
------------------------------------------------------------------------

We are inviting public comments on our proposal.
d. Lordosis
An ICD-10 replication issue involving four diagnosis codes related
to lordosis (excessive curvature of the lower spine) was discovered in
MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or Infection or Extensive Fusions with MCC,
with CC, and without CC/MCC). These MS-DRGs contain specific logic that
requires a principal diagnosis describing a spinal curvature, a
malignancy, or infection or a secondary diagnosis that describes a
spinal curvature disorder related to another condition.
Under the ICD-10 MS-DRGs Version 33, the following diagnosis codes
were listed on the principal diagnosis list and the secondary diagnosis
list for MS-DRGs 456, 457, and 458:
M40.50 (Lordosis, unspecified, site unspecified);
M40.55 (Lordosis, unspecified, thoracolumbar region);
M40.56 (Lordosis, unspecified, lumbar region); and
M40.57 (Lordosis, unspecified, lumbosacral region).
We are proposing to remove the above four diagnosis codes from the
secondary diagnosis list. We also are proposing to maintain these same
four codes in the logic for the principal diagnosis list. This proposed
change for MS-DRGs 456, 457, and 458 would be effective October 1,
2016, in the ICD-10 MS-DRGs Version 34.
We are inviting public comments on our proposals.
9. MDC 13 (Diseases and Disorders of the Female Reproductive System):
Pelvic Evisceration
In the ICD-10 MS-DRG Definitions Manual Version 33, the GROUPER
logic for ICD-10 MS-DRGs 332, 333, and 334 (Rectal Resection with MCC,
with CC and without CC/MCC, respectively) under MDC 6 (Diseases and
Disorders of the Digestive System) and the GROUPER logic for MS-DRGs
734 and 735 (Pelvic Evisceration, Radical Hysterectomy and Radical
Vulvectomy with CC/MCC and without CC/MCC, respectively) under MDC 13
(Diseases and Disorders of the Female Reproductive System) include a
``cluster'' of ICD-10-PCS procedure codes that describe pelvic
evisceration. A ``cluster'' is the term used to describe a circumstance
when a combination of ICD-10-PCS procedure codes is needed to fully
satisfy the equivalent meaning of an ICD-9-CM procedure code for it to
be considered a plausible code translation. The code cluster in MS-DRGs
332, 333, and 334 and MS-DRGs 734 and 735 is shown in the table below.

------------------------------------------------------------------------
ICD-10-PCS procedure code
in cluster Description
------------------------------------------------------------------------
0TTB0ZZ.................. Resection of bladder, open approach.
0TTD0ZZ.................. Resection of urethra, open approach.
0UT20ZZ.................. Resection of bilateral ovaries, open
approach.
0UT70ZZ.................. Resection of bilateral fallopian tubes, open
approach.
0UT90ZZ.................. Resection of uterus, open approach.
0UTC0ZZ.................. Resection of cervix, open approach.
0UTG0ZZ.................. Resection of vagina, open approach.
------------------------------------------------------------------------

Pelvic evisceration (or exenteration) is a procedure performed to
treat gynecologic cancers (cervical, uterine, vulvar, and vaginal,
among others) and involves resection of pelvic structures such as the
procedures described by the cluster of procedure codes listed above.
Under the ICD-9-CM MS-DRGs Version 32, procedure code 68.8 (Pelvic
evisceration) was used to report pelvic evisceration. ICD-9-CM
procedure code 68.8 also was assigned to ICD-9-CM MS-DRGs 332, 333, and
334 and MS-DRGs 734 and 735 in MDCs 6 and 13, respectively. The
inclusion term in the ICD-9-CM Tabular List of Diseases for pelvic
evisceration (procedure code 68.8) was ``Removal of ovaries, tubes,
uterus, vagina, bladder, and urethra (with removal of sigmoid colon and
rectum).'' In the ICD-9-CM Tabular List, the terms shown in parentheses
are called a ``non-essential modifier''. A ``non-essential modifier''
is used in the classification to identify a supplementary word that
may, or may not, be present in the statement of a disease or procedure.
In other words, the terms in parentheses do not have to be documented
to report the code.
Because the removal of sigmoid colon and the removal of rectum were
classified as non-essential modifiers under ICD-9-CM, documentation
that identified that removal of those body sites occurred was not
required to report the procedure code describing pelvic evisceration
(procedure code 68.8). In other words, when a pelvic evisceration
procedure was performed and included removal of other body sites
(ovaries and tubes, among others) listed in the

[[Page 24998]]

inclusion term, absent the terms in parentheses, procedure code 68.8
could be reported and grouped appropriately to MDC 13 under MS-DRGs 734
and 735. When a pelvic evisceration procedure was performed and removal
of the body sites listed in the inclusion term occurred, including the
terms in parentheses, procedure code 68.8 could be reported and grouped
appropriately to MDC 6 under MS-DRGs 332 through 334.
Under ICD-10-PCS, users are instructed to code separately the
organs or structures that are actually removed and for which there is a
distinctly defined body part. Therefore, the case of a patient who
undergoes a pelvic evisceration (exenteration) that involves the
removal of the sigmoid colon and rectum would have each of those
procedure sites (sigmoid colon and rectum) coded and reported
separately (in addition to the procedure codes displayed in the
cluster). In this scenario, if the principal diagnosis is a condition
from the MDC 6 diagnosis list, the case would group to MS-DRGs 332,
333, and 334, regardless of the code cluster. In other words, it would
not be necessary to retain the code cluster describing procedures
performed on female pelvic organs in MDC 6.
Therefore, for FY 2017, we are proposing to remove the procedure
code cluster for pelvic evisceration procedures from MDC 6 under the
ICD-10 MS-DRGs Version 34. The cluster would remain in ICD-10 MDC 13
under MS-DRGs 734 and 735 only. We are inviting public comments on our
proposal.
10. MDC 19 (Mental Diseases and Disorders): Proposed Modification of
Title of MS-DRG 884 (Organic Disturbances and Mental Retardation)
We received a request to change the title of MS-DRG 884 (Organic
Disturbances and Mental Retardation) under MDC 19 (Mental Diseases and
Disorders) to ``MS-DRG 884 (Organic Disturbances and Intellectual
Disability)'' to reflect more recent terminology used to appropriately
describe the latter medical condition in the MDC.
We agree with the requestor that the reference to the phrase
``Mental Retardation'' should be changed to ``Intellectual
Disability'', to reflect the current terminology used to describe the
condition. Therefore, we are proposing to change the title of MS-DRG
884 as requested by the requestor.
We are inviting public comments on our proposal to change the title
of MS-DRG 884 from ``Organic Disturbances and Mental Retardation'' to
``Organic Disturbances and Intellectual Disability'', effective October
1, 2016, in the ICD-10 MS-DRGs Version 34.
11. MDC 23 (Factors Influencing Health Status and Other Contacts With
Health Services): Logic of MS-DRGs 945 and 946 (Rehabilitation With and
Without CC/MCC, Respectively)
We received several requests to examine the MS-DRG logic for MS-
DRGs 945 and 946 (Rehabilitation with CC/MCC and without CC/MCC,
respectively). The requestors were concerned that ICD-9-CM codes that
clearly identified an encounter for rehabilitation services such as
procedure codes V57.89 (Care involving other specified rehabilitation
procedure) and V57.9 (Care involving unspecified rehabilitation
procedure) were not included in ICD-10-CM Version 33. In addition, the
requestors pointed out that ICD-10-CM has significantly changed the
guidelines for coding of admissions/encounters for rehabilitation. The
requestors pointed out that under ICD-9-CM, Section I.B.15. of the
Official Guidelines for Coding and Reporting indicates that ``when the
purpose for the admission/encounter is rehabilitation, sequence the
appropriate V code from category V57, Care involving use of
rehabilitation procedures, as the principal/first listed diagnosis.''
The requestors stated that the concept of the ICD-9-CM category V57
codes is no longer valid in ICD-10-CM and the guidelines have been
revised to provide greater specificity. Instead, the requestors added,
the ICD-10-CM guidelines state in Section II.K., ``When the purpose for
the admission/encounter is rehabilitation, sequence first the code for
the condition for which the service is being performed. For example,
for an admission/encounter for rehabilitation for right-sided dominant
hemiplegia following a cerebrovascular infarction, report code I69.351,
Hemiplegia and hemiparesis following cerebral infarction affecting
right dominant side, as the first-listed or principal diagnosis.''
Given this lack of ICD-10-CM codes to indicate that the reason for
the encounter was for rehabilitation, some requesters asked that CMS
review ICD-10-CM codes for conditions requiring rehabilitation (such as
codes from category I69) and add them to MS-DRGs 945 and 946 when
rehabilitation services are provided in order to replicate the logic
found in the ICD-9-CM MS-DRG GROUPER. The requestors did not suggest
any specific ICD-10-CM codes to add to MS-DRGs 945 and 946.
One requestor made a specific recommendation for updating MS-DRGs
945 and 946. The requestor previously recommended that CMS review
diagnosis codes in ICD-10-CM category I69 for possible addition to MS-
DRGs 945 and 946. The requestor stated that, upon further review, they
believe that a great number of diagnosis codes beyond sequelae of
stroke (ICD-10-CM category I69) would need to be added in order to
replicate the logic of the ICD-9-CM MS-DRGs. Therefore, they modified
their recommendation as follows:
Designate MS-DRGs 945 and 946 as pre-major diagnostic
categories (Pre-MDC) MS-DRGs so that cases are grouped to these MS-DRGs
on the basis of the procedure code rather than the principal diagnosis.
The requestor stated that the ICD-10-PCS rehabilitation codes (Section
F, Physical Rehabilitation and Diagnostic Audiology, Body system 0,
Rehabilitation) should be used to group cases to MS-DRGs 945 and 946
similar to how the MS-DRG GROUPER logic currently treats lung
transplants and tracheostomies. This would ensure that the
rehabilitation procedure codes drive the MS-DRG assignment.
Revise ICD-10-PCS Official Guidelines for Coding and
Reporting and designate that the ICD-10-PCS rehabilitation codes be
used only for admissions for rehabilitation therapy.
We acknowledge that ICD-10-CM does not have clear diagnosis codes
that indicate the reason for the encounter was for rehabilitation
services. For that reason, CMS had to modify the MS-DRG logic using
ICD-10-PCS procedure codes to assign these cases to MS-DRGs 945 and
946. The logic used in MS-DRGs 945 and 946 is shown in the Definitions
Manual Version 33, which is posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending. We also
posted a Frequently Asked Question section to explain how inpatient
admissions are assigned to MS-DRGs 945 and 946, which is posted on the
CMS Web site at: https://questions.cms.gov/faq.php?id=5005&faqId=12548.
As indicated in the Frequently Asked Question section, the ICD-10-CM
codes required a different approach to make sure the same cases
captured with ICD-9-CM codes would be captured with ICD-10-CM codes. As
stated earlier, ICD-10-CM does not contain specific codes for
encounters for rehabilitation such as ICD-9-CM procedure codes V57.89
and V57.9. In order to replicate the ICD-9-CM MS-DRG logic using ICD-
10-CM and ICD-

[[Page 24999]]

10-PCS codes, CMS developed the new logic included in the MS-DRG
Version 33 Definitions Manual.
The Frequently Asked Question section explains that, in order to be
assigned to ICD-10 MS-DRG 945 or 946, a case must first have a
principal diagnosis from MDC 23 (Factors Influencing Health Status and
Other Contacts with Health Services), where MS-DRGs 945 and 946 are
assigned. This is currently the logic with the ICD-9-CM MS-DRGs Version
33 where one would first have to have a MDC 23 principal diagnosis. A
complete list of ICD-10-CM principal diagnoses for MDC 23 can be found
in the ICD-10 MS-DRGs Version 33 Definitions Manual which is posted on
the FY 2016 IPPS Final Rule Home Page under the link for the FY 2016
Final Rule Data Files at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Data-Files.html. Look under the Related
Links section and select the ICD-10-CM/PCS MS-DRG v33 Definitions
Manual Table of Contents Full Titles HTML Version file. Open this file
and the Table of Contents page will appear. Click on the link for MDC
23 (Factors Influencing Health Status and Other Contacts with Health
Services). On the next page that opens (MDC 23), click on the link
titled ``MDC 23 Assignment of Diagnosis Codes'' on the upper left side
of the screen. By using the navigation arrows at the top right hand
side of the page, users can review the 24 pages listing all of the
principal diagnosis codes assigned to MDC 23, including many injury
codes for subsequent encounters.
Under the GROUPER Logic, cases are assigned to MS-DRGs 945 and 946
in one of two ways as described in the Definitions Manual as follows:
The encounter has a principal diagnosis code Z44.8
(Encounter for fitting and adjustment of other external prosthetic
devices) or Z44.9 (Encounter for fitting and adjustment of unspecified
external prosthetic device). Both of these codes are included in the
list of principal diagnosis codes assigned to MDC 23.
The encounter has an MDC 23 principal diagnosis code and
one of the rehabilitation procedure codes listed under MS-DRGs 945 and
946.
If the case does not have a principal diagnosis code from the MDC
23 list, but does have a procedure code from the list included under
the Rehabilitation Procedures for MS-DRGs 945 and 946, the case will
not be assigned to MS-DRGs 945 or 946. The case will instead be
assigned to a MS-DRG within the MDC where the principal diagnosis code
is found.

Example: The encounter has a principal diagnosis code of
S02119D (Unspecified fracture of occiput, subsequent encounter for
fracture with routine healing). This code is included in MDC 8.
Therefore, diagnosis code S02119D and a procedure code from the MS-
DRG 945 and 946 Rehabilitation Procedure list, such as procedure
code F0706GZ (Therapeutic Exercise Treatment of Neurological
System--Head and Neck using Aerobic Endurance and Conditioning
Equipment) would not lead to assignment of the case to MS-DRGs 945
and 946 because the principal diagnosis code is not included in MDC
23.

Diagnosis code S02119D is included in MDC 8 as was the ICD-9-CM
predecessor code, V54.19 (Aftercare for healing traumatic fracture of
other bone). Therefore, these cases would be assigned to MS-DRGs 559,
560, and 561 (Aftercare, Musculoskeletal System and Connective Tissue
with MCC, with CC, and without MCC/CC, respectively) within MDC 8.
At this time, we do not have any claims data that indicate how well
this MS-DRG logic is working. We are hesitant to simply add more codes
from category I69 without evaluating the impact of doing so using
claims data. We also do not have claims data to indicate whether or not
there have been changes in the types or numbers of cases assigned to
MS-DRGs 945 and 946. We welcome specific suggestions of codes to be
added to MS-DRGs 945 and 946 based on hospitals' experience in coding
these cases. We would evaluate these suggestions once we have claims
data to study the impact.
We have major concerns about the recommendation to revise the ICD-
10-PCS Official Guidelines for Coding and Reporting and designate that
the ICD-10-PCS rehabilitation codes be assigned and reported only for
admissions for rehabilitation therapy. This would be a major new
precedent for developing coding and reporting guidelines based on one
specific payer's payment polices, in this case Medicare inpatient acute
care prospective payment system policies. Hospitals would need to know
who the payer was prior to knowing whether or not they could assign a
code for a rehabilitation service that they provided. If those payment
policies change, the hospital coder would need to be aware of those
changes in order to determine whether or not they could submit a code
that captures the fact that a rehabilitation service was provided. CMS
has worked with the Centers for Disease Control and Prevention (CDC),
the American Hospital Association (AHA), and the American Health
Information Management Association (AHIMA) to make ICD-10-PCS
guidelines generic and applicable to all types of inpatient facilities
and for all payer types. The current ICD-10-PCS Guidelines for Coding
and Reporting do not support this recommendation that rehabilitation
services could only be coded and reported if the admission was
specifically for rehabilitation therapy. The ICD-10-PCS codes were
created to accurately capture services provided.
We also have concerns about designating MS-DRGs 945 and 946 as pre-
MDCs so that cases are grouped to these MS-DRGs on the basis of a
rehabilitation procedure code rather than a principal diagnosis. Pre-
MDCs were an addition to Version 8 of the Diagnosis Related Groups.
This was the first departure from the use of principal diagnosis as the
initial variable in DRG and subsequently MS-DRG assignment. For Pre-MDC
DRGs, the initial step in DRG assignment was not the principal
diagnosis, but was instead certain surgical procedures with extremely
high costs such as heart transplant, liver transplant, bone marrow
transplant, and tracheostomies performed on patients on long-term
ventilation. These types of services were viewed as being very resource
intensive. Recognizing these resource intensive services and assigning
them to one of the high-cost MS-DRGs assures appropriate payment even
if the patient is admitted for a variety of principal diagnoses. We
believe it is inappropriate to consider rehabilitation services in the
same group as high-cost procedures such as heart transplants. There is
the significant potential of patients being classified out of higher
paying surgical MS-DRGs in other MDCs and into the lower paying MS-DRGs
945 and 946 based on the reporting of a rehabilitation procedure code
if these MS-DRGs are moved to the Pre-MDCs. We examined claims data for
cases reporting a rehabilitation therapy code and found cases assigned
to a wide variety of both medical and surgical MS-DRGs. The current
coding and reporting of rehabilitation procedure codes for services
provided suggest the potential of significant payment problems if MS-
DRGs 945 and 946 were assigned to the Pre-MDC section and the reporting
of cases with a rehabilitation code led to an inappropriate
reassignment to the lower paying medical MS-DRGs 945 and 946.
The following are only a few examples of current claims data that
showed the hospital reported a rehabilitation therapy procedure code
for services provided which did not impact the MS-DRG assignment. Under
the suggested approach of making MS-

[[Page 25000]]

DRGs 945 and 946 a Pre-MDC, these cases would move from the
appropriately assigned MS-DRGs which may have significantly higher
average costs, to MS-DRGs 945 and 946, which have much lower average
costs. Based on claims data from the December 2015 update of the FY
2015 MedPAR file, the average costs for cases reported in MS-DRGs 945
and 946 were $8,531 and $8,411, respectively.
Examples of cases reporting a rehabilitation therapy code that
would move to MS-DRGs 945 and 946 based on the suggested logic change
are as follows:
An MS-DRG 460 (Spinal Fusion Except Cervical with MCC)
case with average costs of $42,390;
An MS-DRG 464 (Wound Debridement and Skin Graft Excluding
Hand, for Musculoskeletal Tissue Disease with CC) case with average
costs of $55,633;
An MS-DRG 579 (Other Skin, Subcutaneous Tissue and Breast
Procedure with MCC) case with average costs of $63,834;
An MS-DRG 854 (Infectious and Parasitic Diseases with O.R.
procedure with MCC) case with average costs of $62,455; and
An MS-DRG 021 (Intracranial Vascular Procedures with
Principal Diagnosis of Hemorrhage with CC) case with average costs of
$90,522.
Our clinical advisors reviewed this issue and agreed that we should
wait for ICD-10 claims data to become available prior to proposing
updates to MS-DRGs 945 and 946. They did not support adding MS-DRGs 945
and 946 to the Pre-MDCs because the rehabilitation services are not as
resource intensive as are the other MS-DRGs in the Pre-MDC section.
Considering these ICD-10-PCS guideline concerns, the structure of
the pre-MDC section, and the lack of any ICD-10 claims data for MS-DRGs
945 and 946, we are proposing to maintain the current structure of MS-
DRGs 945 and 946 and reconsider the issue when ICD-10 claims data
become available and prior to proposing any updates.
We are inviting public comments on our proposal to maintain the
current structure of MS-DRGs 945 and 946.
12. Proposed Medicare Code Editor (MCE) Changes
The Medicare Code Editor (MCE) is a software program that detects
and reports errors in the coding of Medicare claims data. Patient
diagnoses, procedure(s), and demographic information are entered into
the Medicare claims processing systems and are subjected to a series of
automated screens. The MCE screens are designed to identify cases that
require further review before classification into an MS-DRG.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49409 through
49412), we finalized the ICD-10 Definitions of Medicare Code Edits
(ICD-10 MCE) Version 33. ICD-10 MCE Version 33 was based on the FY 2015
ICD-9-CM MCE Version 32 and the draft ICD-10 MCE Version 32 that had
been made publicly available for comments in November 2014 on the ICD-
10 MS-DRG Conversion Project Web site at: https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. In August 2015, we
posted the finalized FY 2016 ICD-10 MCE Version 33 manual file and an
ICD-9-CM MCE Version 33.0A manual file (for analysis purposes only).
The links to these MCE manual files, along with the links to purchase
the mainframe and computer software for the MCE Version 33 (and ICD-10
MS-DRGs) were posted on the CMS Web site through the FY 2016 IPPS Final
Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page.html?DLSort=0&DLEntries=10&DLPage=1&DLSortDir=ascending.
After implementation of the ICD-10 MCE Version 33, we received
several requests to examine specific code edit lists that the
requestors believed were incorrect and that affected claims processing
functions. We received requests to review the MCE relating specifically
to the Age conflict edit, the Sex conflict edit, the Non-covered
procedure edit, and the Unacceptable principal diagnosis code edit. We
discuss these code edit issues below.
a. Age Conflict Edit
In the MCE, the Age conflict edit exists to detect inconsistencies
between a patient's age and any diagnosis on the patient's record; for
example, a 5-year-old patient with benign prostatic hypertrophy or a
78-year-old patient coded with a delivery. In these cases, the
diagnosis is clinically and virtually impossible for a patient of the
stated age. Therefore, either the diagnosis or the age is presumed to
be incorrect. Currently, in the MCE, the following four age diagnosis
categories appear under the Age conflict edit and are listed in the
manual and written in the software program:
Newborn--Age of 0 years; a subset of diagnoses intended
only for newborns and neonates (e.g., fetal distress, perinatal
jaundice).
Pediatric--Age is 0-17 years inclusive (e.g., Reye's
syndrome, routine child health exam).
Maternity--Age range is 12-55 years inclusive (e.g.,
diabetes in pregnancy, antepartum pulmonary complication).
Adult--Age range is 15-124 years inclusive (e.g., senile
delirium, mature cataract).
(1) Newborn Diagnosis Category
Under the ICD-10-CM Official Guidelines for Coding and Reporting
(available on the Web site at: https://www.cms.gov/Medicare/Coding/ICD10/2016-ICD-10-CM-and-GEMs.html), there are general guidelines and
chapter-specific coding guidelines. The chapter-specific guidelines
state that diagnosis codes from Chapter 16 (Certain Conditions
Originating in the Perinatal Period) may be reported throughout the
life of the patient if the condition is still present. The requestors
noted that several codes from this Chapter 16 appear on the ICD-10 MCE
Version 33 Age conflict edit for the newborn diagnosis category. Codes
from this chapter are included in the P00 through P96 code range.
Therefore, the requestors believed that because the chapter-specific
guidelines state that codes within this chapter may be reported
throughout the life of a patient, all codes within this range (P00
through P96) should be removed from the newborn diagnosis category on
the Age conflict edit code list.
We examined the newborn diagnosis category on the age conflict edit
list in the ICD-9-CM MCE Version 32 in comparison to the ICD-9-CM
chapter-specific guidelines. Under ICD-9-CM, Chapter 15 (Certain
Conditions Originating in the Perinatal Period) includes codes within
the 760 through 779 range. We found that the same chapter-specific
guideline under ICD-10 exists under ICD-9-CM: Diagnosis codes from
Chapter 15 may be reported throughout the life of the patient if the
condition is still present. Similar to the ICD-10 MCE Version 33
newborn diagnosis category in the Age conflict edit code list, we noted
that several codes from this Chapter 15 appear on the ICD-9-CM MCE
Version 32 Age conflict edit for the newborn diagnosis category.
Because the full definition of the chapter-specific guideline for
``Certain Conditions Originating in the Perinatal Period'' clearly
states the codes within the chapter may be reported throughout the life
of the patient if the condition is still present, we believe that,
historically, under ICD-9-CM, this was the rationale for inclusion of
the

[[Page 25001]]

diagnosis codes that were finalized for the newborn diagnosis category
under the Age conflict edit (in code range 760 through 779). For
example, under ICD-9-CM, there are four diagnosis codes in the 760.6x
series that specifically include the term ``newborn'' in the title.
These diagnosis codes are:
760.61 (Newborn affected by amniocentesis);
760.62 (Newborn affected by other in utero procedure);
760.63 (Newborn affected by other surgical operations on
mother during pregnancy); and
760.64 (Newborn affected by previous surgical procedure on
mother not associated with pregnancy).
Under the ICD-9-CM classification, the chapter-specific guidelines
in Chapter 15 (Certain Conditions Originating in the Perinatal Period)
state that, for coding and reporting purposes, the perinatal period is
defined as before birth through the 28th day following birth. As such,
for coding and reporting purposes, a patient that is beyond the 28th
day of life is no longer considered a newborn. Therefore, we believe
that the diagnosis codes listed on the newborn diagnosis category in
the Age conflict edit code list are, in fact, appropriate because they
identify what the title of Chapter 15 describes (certain conditions
specific to beginning in the perinatal period); that is, a newborn. The
intent of the diagnosis codes included on the Age conflict edit code
list is to identify claims where any one of the listed diagnoses is
reported for a patient who is beyond the 28th day of life. If that
definition is met according to the patient's date of birth, the edit is
correctly triggered in those cases.
Transitioning to the ICD-10 MCE was based on replication of the
ICD-9-CM based MCE (in parallel with the transition to the ICD-10 MS-
DRGs, which was based on replication of the ICD-9-CM MS-DRGs).
Therefore, the diagnosis codes included in the newborn diagnosis
category on the Age conflict edit code list in the ICD-10 MCE are a
replication of the diagnosis code descriptions included on the newborn
diagnosis category on the Age conflict edit code list under the ICD-9-
CM MCE. However, the chapter-specific guideline in ICD-10-CM Chapter
16, section C.16.e. (Low birth weight and immaturity status), specifies
that codes within category P07 (Disorders of newborn related to short
gestation and low birth weight, not elsewhere classified) are for use
for a child or adult who was premature or had a low birth weight as a
newborn and this condition is affecting the patient's current health
status. Therefore, we agree that codes within the range of P07.00
through P07.39 should not be listed under newborn diagnosis category on
the Age conflict edit code list in the ICD-10 MCE. It is unclear why
this range of codes within category P07 is distinguished separately
when under the General Perinatal Rules for Chapter 16 (Certain
Conditions Originating in the Perinatal Period), section I.C.16.a.1.
states that diagnosis codes from Chapter 16 may be reported throughout
the life of the patient if the condition is still present. In addition,
the guideline at section I.C.16.a.4. states that ``should a condition
originate in the perinatal period, and continue throughout the life of
the patient, the perinatal code should continue to be used regardless
of the patient's age.'' According to these general guidelines, we could
assume that potentially all codes within Chapter 16 in the code range
of P00 through P96 should be considered for removal from the newborn
diagnosis category on the Age conflict edit code list. However, a
subsequent section of Chapter 16, section 1.C.16.c.2. (Codes for
conditions specified as having implication for future health care
needs), instructs users to assign codes for conditions that have been
specified by the provider as having implications for future health care
needs. Immediately below that instruction is a note which states:
``This guideline should not be used for adult patients.''
The ICD-10-CM Official Guidelines for Coding and Reporting are
updated separately from the IPPS rulemaking process. Due to the
confusion with the chapter-specific guidelines for codes in Chapter 16
and how they impact the newborn diagnosis category on the Age conflict
edit code list, we believe it would be beneficial to fully evaluate the
intent of these guidelines with the Centers for Disease Control's
(CDC's) National Center for Health Statistics (NCHS) because NCHS has
the lead responsibility for the ICD-10-CM diagnosis codes.
In the meantime, to address claims processing concerns related to
the newborn diagnosis category on the Age conflict edit code list, we
are proposing to remove all the ICD-10-CM diagnoses in the code range
of P00 through P96 from the newborn diagnosis category in the Age
conflict code edit list for the ICD-10 MCE for FY 2017. We are inviting
public comments on our proposal. We also are soliciting public comments
on the appropriateness of the other diagnosis codes currently listed
under the newborn diagnosis category in the Age conflict edit in the
ICD-10 MCE Version 33. We refer readers to Table 6P.1a. associated with
this proposed rule (which is available via the Internet on the CMs Web
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) for review of the diagnosis codes we are
proposing to remove. In addition, for FY 2017, we are examining the
need to revise the description for the newborn diagnosis category in
the Age conflict edit under the MCE. The current description as
written, Newborn--Age of 0 years; a subset of diagnoses intended only
for newborns and neonates (e.g., fetal distress, perinatal jaundice),
is not consistent with the instructions for reporting the diagnosis
codes in Chapter 16. We are inviting public comments on our proposal to
revise the description of the newborn diagnosis category in the Age
conflict edit under the MCE.
(2) Pediatric Diagnosis Category
Under the ICD-10 MCE Version 33, the pediatric diagnosis category
for the Age conflict edit considers the age range of 0 to 17 years
inclusive. For that reason, the diagnosis codes on this Age conflict
edit list would be expected to apply to conditions or disorders
specific to that age group only. The code list for the pediatric
diagnosis category in the Age conflict edit currently includes 12
diagnosis codes that fall within the F90 through F98 code range. These
codes were included as a result of replication from the ICD-9-CM MCE
Version 32 and the draft ICD-10 MCE Version 32.
We received a request to review the 12 ICD-10-CM diagnosis codes
listed in the following table because they appear to conflict with
guidance in the ICD-10-CM classification:

------------------------------------------------------------------------
ICD-10-CM diagnosis
code Description
------------------------------------------------------------------------
F93.0.................... Separation anxiety disorder of childhood.
F93.8.................... Other childhood emotional disorders.
F93.9.................... Childhood emotional disorder, unspecified.

[[Page 25002]]

F94.1.................... Reactive attachment disorder of childhood.
F94.2.................... Disinhibited attachment disorder of
childhood.
F94.8.................... Other childhood disorders of social
functioning.
F94.9.................... Childhood disorder of social functioning,
unspecified.
F98.21................... Rumination disorder of infancy.
F98.29................... Other feeding disorders of infancy and early
childhood.
F98.3.................... Pica of infancy and childhood.
F98.8.................... Other specified behavioral and emotional
disorders with onset usually occurring in
childhood and adolescence.
F98.9.................... Unspecified behavioral and emotional
disorders with onset usually occurring in
childhood and adolescence.
------------------------------------------------------------------------

Under the ICD-10-CM Tabular List of Diseases and Injuries, Chapter
5 (Mental, Behavioral and Neurodevelopmental Disorders) contains a
section titled ``Behavioral and emotional disorders with onset usually
occurring in childhood and adolescence'' which includes codes for the
F90 to F98 code range. At the beginning of this tabular section is an
instructional ``note'' that states: ``Codes within categories F90-F98
may be used regardless of the age of a patient. These disorders
generally have onset within the childhood or adolescent years, but may
continue throughout life or not be diagnosed until adulthood.''
Because the note specifically states that these codes may be used
regardless of the age of a patient, we believe they should not be
included on the pediatric diagnosis category on the Age conflict edit
code list. Therefore, we are proposing to remove the 12 codes that fall
within the F90 through F98 code range currently listed for the
pediatric diagnosis category on the ICD-10 MCE age conflict edit code
list, effective October 1, 2016, for FY 2017. We are inviting public
comments on our proposal.
We also received a request to review whether another group of
diagnosis codes is clinically incorrect for the ICD-10 MCE Version 33
pediatric diagnosis category in the Age conflict edit. The requestor
stated that ICD-10-CM diagnosis codes describing infantile and juvenile
cataracts, by their titles, appear to merit inclusion on the pediatric
diagnosis category on the Age conflict edit code list. However,
according to the requestor, the diagnosis is not constrained to a
patient's age, but rather the ``infantile'' versus ``juvenile''
reference is specific to the type of cataract the patient has. These
diagnosis codes that are currently listed for the pediatric diagnosis
category in the ICD-10 MCE Age conflict edit code list are as follows:

------------------------------------------------------------------------
ICD-10-CM diagnosis
code Description
------------------------------------------------------------------------
H26.001.................. Unspecified infantile and juvenile cataract,
right eye.
H26.002.................. Unspecified infantile and juvenile cataract,
left eye.
H26.003.................. Unspecified infantile and juvenile cataract,
bilateral.
H26.009.................. Unspecified infantile and juvenile cataract,
unspecified eye.
H26.011.................. Infantile and juvenile cortical, lamellar, or
zonular cataract, right eye.
H26.012.................. Infantile and juvenile cortical, lamellar, or
zonular cataract, left eye.
H26.013.................. Infantile and juvenile cortical, lamellar, or
zonular cataract, bilateral.
H26.019.................. Infantile and juvenile cortical, lamellar, or
zonular cataract, unspecified eye.
H26.031.................. Infantile and juvenile nuclear cataract,
right eye.
H26.032.................. Infantile and juvenile nuclear cataract, left
eye.
H26.033.................. Infantile and juvenile nuclear cataract,
bilateral.
H26.039.................. Infantile and juvenile nuclear cataract,
unspecified eye.
H26.041.................. Anterior subcapsular polar infantile and
juvenile cataract, right eye.
H26.042.................. Anterior subcapsular polar infantile and
juvenile cataract, left eye.
H26.043.................. Anterior subcapsular polar infantile and
juvenile cataract, bilateral.
H26.049.................. Anterior subcapsular polar infantile and
juvenile cataract, unspecified eye.
H26.051.................. Posterior subcapsular polar infantile and
juvenile cataract, right eye.
H26.052.................. Posterior subcapsular polar infantile and
juvenile cataract, left eye.
H26.053.................. Posterior subcapsular polar infantile and
juvenile cataract, bilateral.
H26.059.................. Posterior subcapsular polar infantile and
juvenile cataract, unspecified eye.
H26.061.................. Combined forms of infantile and juvenile
cataract, right eye.
H26.062.................. Combined forms of infantile and juvenile
cataract, left eye.
H26.063.................. Combined forms of infantile and juvenile
cataract, bilateral.
H26.069.................. Combined forms of infantile and juvenile
cataract, unspecified eye.
H26.09................... Other infantile and juvenile cataract.
------------------------------------------------------------------------

Our clinical advisors reviewed the list of diagnoses presented
above and confirmed that these diagnosis codes are appropriate to
include in the ICD-10 MCE for the pediatric diagnosis category in the
Age conflict edit because the diseases described by these codes are
typically diagnosed in early childhood and treated very rapidly to
prevent amblyopia. Therefore, for FY 2017, we are not proposing to
remove these codes under the pediatric diagnosis category in the Age
conflict edit. We are proposing to maintain this list in the ICD-10 MCE
Version 34, effective October 1, 2016. We are inviting public comments
on our proposal.
As stated earlier, for the pediatric diagnosis category in the Age
conflict edit, the MCE considers the age range of 0 through 17 years
inclusive. In the ICD-10 MCE Version 33, there are four diagnosis codes
describing the body

[[Page 25003]]

mass index (BMI) for pediatric patients in the pediatric diagnosis
category on the Age conflict edit code list. The four ICD-10-CM
diagnosis codes describing the BMI percentiles for pediatric patients
are as follows:

------------------------------------------------------------------------
ICD-10-CM diagnosis
code Description
------------------------------------------------------------------------
Z68.51................... Body mass index (BMI) pediatric, less than
5th percentile for age.
Z68.52................... Body mass index (BMI) pediatric, 5th
percentile to less than 85th percentile for
age.
Z68.53................... Body mass index (BMI) pediatric, 85th
percentile to less than 95th percentile for
age.
Z68.54................... Body mass index (BMI) pediatric, greater than
or equal to 95th percentile for age.
------------------------------------------------------------------------

Under the ICD-10-CM Tabular List of Diseases and Injuries, the BMI
pediatric diagnosis codes are designated for use in persons 2 through
20 years of age. The percentiles are based on the growth charts
published by the CDC. As a result of the age discrepancy between the
MCE pediatric diagnosis category in the Age conflict edit (ages 0
through 17) and the Tabular reference for the BMI pediatric codes (ages
2 through 20), we are proposing to remove ICD-10 diagnosis codes
Z68.51, Z68.52, Z68.53, and Z68.54 from the ICD-10 MCE pediatric
diagnosis category on the Age conflict edit code list for Version 34,
effective FY 2017. We are inviting public comments on our proposal.
One requestor also asked that CMS review the ICD-10-CM diagnosis
codes currently included in ICD-10-CM category R62 (Lack of expected
normal physiological development in childhood and adults) series.
Specifically, the requestor noted that there are adult patients
diagnosed with the conditions in subcategory R62.5 (Other and
unspecified lack of expected normal physiological development in
childhood) and that three of these conditions also were listed in the
ICD-10 MCE Version 33 pediatric diagnosis category on the Age conflict
edit code list. These three diagnosis codes are:
R62.50 (Unspecified lack of expected normal physiological
development in childhood);
R62.52 (Short stature (child)); and
R62.59 (Other lack of expected normal physiological
development in childhood).
We acknowledge that subcategory R62.5 can be confusing with regard
to how to appropriately report a condition diagnosed for an adult when
the titles reference the terms ``child'' or ``childhood''. Therefore,
we consulted with the ICD-10-CM classification staff at the NCHS to
determine the intended use and reporting of the diagnosis codes R62.50,
R62.52, and R62.59. The NCHS staff agreed that the three diagnosis
codes should not be restricted to the pediatric ages as defined by the
MCE. The NCHS staff stated the codes are appropriate to report for
adult patients, noting that if a patient is diagnosed with short
stature as a child, the patient could very well carry over that
diagnosis into adulthood.
During our review of the issue relating to the subcategory R62.5
pediatric diagnosis category on the Age conflict edit code list, we
identified another diagnosis code that also appeared appropriate to
report for an adult patient. ICD-10-CM diagnosis code Y93.6A (Activity,
physical games generally associated with school recess, summer camp and
children) is one of several activity codes included in ICD-10-CM
Chapter 20 (External Causes of Morbidity). This diagnosis code includes
games such as dodge ball and captures the flag, which one can
reasonably expect an adult to be engaged in for physical activity.
We discussed this diagnosis code with the NCHS staff to receive
their input on the intent for coding and reporting the code. They
agreed that ICD-10-CM diagnosis code Y93.6A is applicable for adults as
well as children. Therefore, for FY 2017, we are proposing to remove
ICD-10-CM diagnosis codes R62.50, R62.52, and R62.59 in subcategory
R62.5 and ICD-10-CM diagnosis code Y93.6A from the ICD-10 MCE pediatric
diagnosis category on the Age conflict edit code list. We are inviting
public comment on our proposal.
b. Sex Conflict Edit
In the MCE, the Sex conflict edit detects inconsistencies between a
patient's sex and any diagnosis or procedure on the patient's record;
for example, a male patient with cervical cancer (diagnosis) or a
female patient with a prostatectomy (procedure). In both instances, the
indicated diagnosis or the procedure conflicts with the stated sex of
the patient. Therefore, the patient's diagnosis, procedure, or sex is
presumed to be incorrect.
We received a request to review ICD-10-CM diagnosis code Z79.890
(Hormone replacement therapy (postmenopausal)). This code is listed on
the Diagnoses for females only edit code list. Therefore, when the
diagnosis is reported for a male patient, the edit will be triggered.
However, the requester noted that the term ``postmenopausal'' is
enclosed in parentheses and is a ``non-essential modifier.'' A ``non-
essential modifier'' is used in the ICD-10-CM classification to
identify a supplementary word that may, or may not be present in the
statement of a disease or procedure. In other words, the term in
parentheses does not have to be documented to report the code. If the
medical record documentation states a female patient is undergoing
hormone replacement therapy, the documentation supports assignment of
the case to ICD-10-CM diagnosis code Z79.890 (Hormone replacement
therapy (postmenopausal)). There does not need to be a diagnostic
statement that the patient is postmenopausal to assign the code. The
requester asked that CMS review why this diagnosis code is being
classified as applicable to females only because, in the absence of the
non-essential modifier (postmenopausal), the code could also apply to
males.
We note that the ICD-9-CM equivalent code, V07.4 Hormone
replacement therapy (postmenopausal) has been on the female only edit
since October 1, 1992 in the ICD-9-CM MCE. We consulted with the ICD-
10-CM classification staff at the NCHS to determine the intended use
and reporting of this diagnosis code. The staff at NCHS acknowledged
that, historically, the intent of the ICD-9-CM diagnosis code was for
females only. However, they agreed that, under ICD-10-CM, the diagnosis
code Z79.890 can be reported for both men and women. Therefore, we are
proposing to remove this diagnosis code from the Diagnoses for females
only edit code list effective October 1, 2016. We are inviting public
comments on our proposal.
We also considered the ICD-10-CM diagnosis codes listed in the
table below that are included on the Diagnoses for females only edit
code list.

[[Page 25004]]

------------------------------------------------------------------------
ICD-10-CM diagnosis
code Description
------------------------------------------------------------------------
Z44.30................... Encounter for fitting and adjustment of
external breast prosthesis, unspecified
breast.
Z44.31................... Encounter for fitting and adjustment of
external right breast prosthesis.
Z44.32................... Encounter for fitting and adjustment of
external left breast prosthesis).
Z45.811.................. Encounter for adjustment or removal of right
breast implant.
Z45.812.................. Encounter for adjustment or removal of left
breast implant.
Z45.819.................. Encounter for adjustment or removal of
unspecified breast implant).
------------------------------------------------------------------------

These codes describe encounters for breast implants or prostheses.
Our clinical advisors and the NCHS staff agree that diagnosis codes
Z44.30, Z44.31, Z44.32, Z45.811, Z45.812, and Z45.819 are clinically
appropriate to report for male patients and should not be restricted to
females. Therefore, we are proposing to remove these diagnosis codes
from the Diagnoses for females only edit code list in the ICD-10 MCE,
effective October 1, 2016. We are inviting public comments on our
proposal.
c. Non-Covered Procedure Edit
In the MCE, the Non-covered procedure edit identifies procedures
for which Medicare does not provide payment. Payment is not provided
due to specific criteria that are established in the National Coverage
Determination (NCD) process. We refer readers to the Web site at:
https://www.cms.gov/Medicare/Coverage/DeterminationProcess/howtorequestanNCD.html for additional information on this process. In
addition, there are procedures that would normally not be paid by
Medicare but, due to the presence of certain diagnoses, are paid.
(1) Endovascular Mechanical Thrombectomy
We received several requests to review ICD-10-PCS procedure code
03CG3ZZ (Extirpation of matter from intracranial artery, percutaneous
approach) which is currently listed as a non-covered procedure in the
ICD-10 MCE Non-covered procedure edit code list. The comparable ICD-9-
CM code translations for ICD-10-PCS code 03CG3ZZ are ICD-9-CM codes
17.54 (Percutaneous atherectomy of intracranial vessel(s)) and 39.74
(Endovascular removal of obstruction from head and neck vessel(s)).
The requestors noted that, under ICD-9-CM, endovascular mechanical
thrombectomy of a cerebral artery to remove a clot that is causing an
ischemic stroke was reported with procedure code 39.74 (Endovascular
removal of obstruction from head and neck vessel(s)) and is a well-
recognized procedure that has been covered by Medicare. After
implementation of ICD-10 on October 1, 2015, claims that were correctly
submitted for endovascular mechanical thrombectomy procedures with ICD-
10-PCS procedure code 03CG3ZZ were triggering the Non-covered procedure
edit. The requestors sought clarification as to whether there was a
change in coverage or if there was a replication issue.
Under the ICD-9-CM MCE Version 32, procedure code 00.62 is listed
on the Non-covered procedure edit code list. Percutaneous angioplasty
of an intracranial vessel procedure (with and without stent) may be
reported under ICD-10 with the ICD-10-PCS procedure codes listed in the
following table:

We discovered that a replication error occurred due to an outdated
ICD-9-CM entry for procedure code 00.62. This error led to ICD-10-PCS
procedure codes 03CG3ZZ (Extirpation of matter from intracranial
artery, percutaneous approach) and 05CL3ZZ (Extirpation of matter from
intracranial vein, percutaneous approach) being listed as comparable
translations for ICD-9-CM code 00.62. As a result, ICD-10-PCS procedure
code 03CG3ZZ was included on the ICD-10 MCE Version 33 Non-covered
procedure edit code list.
For FY 2017, we are proposing to remove the ICD-10-PCS procedure
codes listed in the following table from the ICD-10 MCE Version 34.0
Non-covered procedure edit code list.

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
03CG3ZZ.................. Extirpation of matter from intracranial
artery, percutaneous approach.
03CG4ZZ.................. Extirpation of matter from intracranial
artery, percutaneous endoscopic approach.
05CL3ZZ.................. Extirpation of matter from intracranial vein,
percutaneous approach.
05CL4ZZ.................. Extirpation of matter from intracranial vein,
percutaneous endoscopic approach.
------------------------------------------------------------------------

[[Page 25005]]

We are inviting public comments on our proposal.
(2) Radical Prostatectomy
We received a request to review ICD-10-PCS procedure codes related
to a radical prostatectomy. Specifically, the requestor noted that when
coding cases where the removal of the vas deferens is also performed, a
Non-covered procedure edit is triggered. The requestor suggested that
the edit for this procedure may be intended for cases where the removal
of the vas deferens is being performed for sterilization (vasectomy)
purposes. According to the requester, removal of the vas deferens also
may be involved with removing the prostate in the radical prostatectomy
procedure. The requestor suggested that CMS address this issue by
revising the ICD-10 MCE Non-covered procedure edit code list to reflect
non-coverage of the procedure codes when the removal of vas deferens
procedure is being performed solely for sterilization (vasectomy)
purposes.
Because radical procedures can have different meanings, depending
on the procedure, the term ``radical'' is not always reliable
information for coding and reporting the procedure. Under ICD-10-PCS,
users are instructed to code separately the organs or structures that
were actually removed and for which there is a distinctly defined body
part. A radical prostatectomy is coded as a ``cluster'' under ICD-10-
PCS. A ``cluster'' is the term used to describe the circumstance when a
combination of ICD-10-PCS procedure codes are needed to fully satisfy
the equivalent meaning of an ICD-9-CM procedure code for it to be
considered a plausible translation.
The cluster definition for a radical prostatectomy in ICD-10-PCS
currently consists of the one of the following codes:
0VT00ZZ (Resection of prostate, open approach);
0VT04ZZ (Resection of prostate, percutaneous endoscopic
approach);
0VT07ZZ (Resection of prostate, via natural or artificial
opening); or
0VT08ZZ Resection of prostate, via natural or artificial
opening endoscopic; in combination with one of the following codes:
0VT30ZZ (Resection of bilateral seminal vesicles, open
approach); or
0VT34ZZ (Resection of bilateral seminal vesicles,
percutaneous endoscopic approach).
As stated earlier, under ICD-10-PCS, users are instructed to code
separately the organs or structures that were actually removed and for
which there is a distinctly defined body part. Therefore, a patient who
undergoes a radical prostatectomy that involves removal of the vas
deferens would have this procedure reported separately, in addition to
the options displayed in the ``cluster.''
The ICD-10-PCS procedure codes that may be reported for
sterilization and involve the bilateral vas deferens include the
following:

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
0V5Q0ZZ.................. Destruction of bilateral vas deferens, open
approach.
0V5Q3ZZ.................. Destruction of bilateral vas deferens,
percutaneous approach.
0V5Q4ZZ.................. Destruction of bilateral vas deferens,
percutaneous endoscopic approach.
0VBQ0ZZ.................. Excision of bilateral vas deferens, open
approach.
0VBQ3ZZ.................. Excision of bilateral vas deferens,
percutaneous approach.
0VBQ4ZZ.................. Excision of bilateral vas deferens,
percutaneous endoscopic approach.
0VTQ0ZZ.................. Resection of bilateral vas deferens, open
approach.
0VTQ4ZZ.................. Resection of bilateral vas deferens,
percutaneous endoscopic approach.
------------------------------------------------------------------------

The eight procedure codes listed above describing various methods
to remove the bilateral vas deferens are currently listed on the ICD-10
MCE Version 33 Non-covered procedure edit code list.
The requester is correct in stating that the codes related to
removal of the bilateral vas deferens are included on the ICD-10 MCE
Version 33 Non-covered procedure edit code list to reflect a
sterilization procedure. While the vast majority of sterilization
procedures will involve reporting the bilateral procedure codes, there
are instances where one vas deferens may have been previously removed
for other reasons and the remaining vas deferens requires
sterilization. Therefore, the procedure codes describing removal of a
unilateral vas deferens are also included on the ICD-10 MCE Version 33
Non-covered procedure edit code list to reflect a sterilization
procedure. We agree that revising the language in the edit will resolve
the issue of covered procedures being inappropriately subject to the
edit.
In addition, while reviewing the Non-covered procedure edit list of
codes that may be reported to identify sterilization procedures for
males, we considered the procedure codes that may be reported to
identify sterilization procedures for females. We examined the list of
ICD-10-PCS procedure codes included on the ICD-10 MCE Version 33 Non-
covered procedure edit code list that could reflect female
sterilization (removal of fallopian tubes) and determined those codes
also could be reported for other conditions and could be
inappropriately subject to the current edit as well.
Therefore, for FY 2017, we are proposing to create a new ICD-10 MCE
Version 34 Non-covered procedure edit to reflect that procedures
performed on males involving the unilateral or bilateral vas deferens
and procedures performed on females involving the fallopian tubes are
not covered procedures for sterilization purposes. The proposed new
ICD-10 MCE Version 34 Non-covered procedure edit would be displayed as
follows: ``G. Non-covered procedure. The procedure codes shown below
are identified as non-covered procedures only when ICD-10-CM diagnosis
code Z30.2 (Encounter for sterilization) is listed as the principal
diagnosis.''
We refer readers to Table 6P.1b. associated with this proposed rule
(which are available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) to review the proposed list of non-
covered procedure codes describing sterilization procedures for males
and females for this proposed Non-covered procedure edit. We are
inviting public comments on our proposal to create this new Non-covered
procedure edit and also invite public comments on the proposed list of
codes to describe sterilization procedures for the proposed edit.
d. Unacceptable Principal Diagnosis Edit
In the MCE, there are select codes that describe a circumstance
which influences an individual's health status

[[Page 25006]]

but does not actually describe a current illness or injury. There also
are codes that are not specific manifestations but may be due to an
underlying cause. These codes are considered unacceptable as a
principal diagnosis. In limited situations, there are a few codes on
the MCE Unacceptable principal diagnosis edit code list that are
considered ``acceptable'' when a specified secondary diagnosis is also
coded and reported on the claim.
(1) Liveborn Infant
We received a request to examine ICD-10-CM diagnosis codes Z38.1
(Single liveborn infant, born outside hospital), Z38.4 (Twin liveborn
infant, born outside hospital), and Z38.7 (Other multiple liveborn
infant, born outside hospital), all of which are currently listed on
the Unacceptable principal diagnosis edit code list for the ICD-10 MCE
Version 33. The requestor believed that these codes are listed in error
and suggested their removal.
The ICD-10-CM diagnosis code descriptions for liveborn infants
differ from the ICD-9-CM diagnosis code descriptions for liveborn
infants. The ICD-9-CM codes differentiate between a liveborn infant
that was born prior to admission and hospitalized versus a liveborn
infant that was born prior to admission and not hospitalized. The
following codes in the ICD-9-CM MCE Version 32 included on the
Unacceptable principal diagnosis edit code list are those that describe
a liveborn infant that was born outside the hospital and not
hospitalized:

------------------------------------------------------------------------
ICD-9-CM diagnosis code Description
------------------------------------------------------------------------
V30.2.................... Single liveborn, born outside hospital and
not hospitalized.
V31.2.................... Twin birth, mate liveborn, born outside
hospital and not hospitalized.
V32.2.................... Twin birth, mate stillborn, born outside
hospital and not hospitalized.
V33.2.................... Twin birth, unspecified whether mate liveborn
or stillborn, born outside hospital and not
hospitalized.
V34.2.................... Other multiple birth (three or more), mates
all liveborn, born outside hospital and not
hospitalized.
V35.2.................... Other multiple birth (three or more), mates
all stillborn, born outside of hospital and
not hospitalized.
V36.2.................... Other multiple birth (three or more), mates
liveborn and stillborn, born outside
hospital and not hospitalized.
V37.2.................... Other multiple birth (three or more),
unspecified whether mates liveborn or
stillborn, born outside of hospital.
V39.1.................... Liveborn, unspecified whether single, twin or
multiple, born before admission to hospital.
V39.2.................... Liveborn, unspecified whether single, twin or
multiple, born outside hospital and not
hospitalized.
------------------------------------------------------------------------

For replication purposes, the comparable ICD-10-CM diagnosis codes
for the above listed codes are: Z38.1 (Single liveborn infant, born
outside hospital); Z38.4 (Twin liveborn infant, born outside hospital);
and Z38.7 (Other multiple liveborn infant, born outside hospital).
There are no other ICD-10-CM diagnosis codes that describe a liveborn
infant born outside a hospital.
The liveborn infant codes are an example of where a particular
concept involving the place of birth is not the same between the ICD-9-
CM and ICD-10-CM classification systems. Because the ICD-10-CM
diagnosis codes do not include the same concept as the ICD-9-CM
diagnosis codes regarding whether the liveborn infant was hospitalized
or not, we agree it would not be appropriate to continue to include the
ICD-10-CM diagnosis codes on the Unacceptable principal diagnosis list.
For FY 2017, we are proposing to remove ICD-10-CM diagnosis codes
Z38.1, Z38.4, and Z38.7 from the Unacceptable principal diagnosis edit
in the ICD-10 MCE Version 34. We are inviting public comments on our
proposal.
(2) Multiple Gestation
We received a request to review the ICD-10-CM diagnosis codes
related to multiple gestation that are currently listed on the ICD-10
MCE Version 33 Unacceptable principal diagnosis edit code list. The
requestor expressed concern that these codes were included in the edit
and suggested that CMS evaluate further to determine if they were
appropriate.
In the ICD-10-CM classification, a single diagnosis code describes
a multiple gestation and contains information pertaining to the
placenta. This differs from the ICD-9-CM classification, where two
diagnosis codes are required to separately report (1) multiple
gestation with a delivery or complication and (2) multiple gestation
with the status of the placenta.
In the ICD-9-CM MCE Version 32, only the ICD-9-CM diagnosis codes
describing the status of the placenta are listed on the Unacceptable
principal diagnosis edit code list. These ICD-9-CM diagnosis codes are:

------------------------------------------------------------------------
ICD-9-CM diagnosis code Description
------------------------------------------------------------------------
V91.00................... Twin gestation, unspecified number of
placenta, unspecified number of amniotic
sacs.
V91.01................... Twin gestation, monochorionic/monoamniotic
(one placenta, one amniotic sac).
V91.02................... Twin gestation, monochorionic/diamniotic (one
placenta, two amniotic sacs).
V91.03................... Twin gestation, dichorionic/diamniotic (two
placentae, two amniotic sacs).
V91.09................... Twin gestation, unable to determine number of
placenta and number of amniotic sacs.
V91.10................... Triplet gestation, unspecified number of
placenta and unspecified number of amniotic
sacs.
V91.11................... Triplet gestation, with two or more
monochorionic fetuses.
V91.12................... Triplet gestation, with two or more
monoamniotic fetuses.
V91.19................... Triplet gestation, unable to determine number
of placenta and number of amniotic sacs.
V91.20................... (Quadruplet gestation, unspecified number of
placenta and unspecified number of amniotic
sacs.
V91.21................... Quadruplet gestation, with two or more
monochorionic fetuses.
V91.22................... Quadruplet gestation, with two or more
monoamniotic fetuses.
V91.29................... Quadruplet gestation, unable to determine
number of placenta and number of amniotic
sacs.
V91.90................... Other specified multiple gestation,
unspecified number of placenta and
unspecified number of amniotic sacs.
V91.91................... Other specified multiple gestation, with two
or more monochorionic fetuses.
V91.92................... Other specified multiple gestation, with two
or more monoamniotic fetuses.

[[Page 25007]]

V91.99................... Other specified multiple gestation, unable to
determine number of placenta and number of
amniotic sacs.
------------------------------------------------------------------------

There are 68 ICD-10-CM diagnosis codes included on the ICD-10 MCE
Version 33 Unacceptable principal diagnosis edit code list as
comparable translations that describe multiple gestation and status of
the placenta. The list of these codes is included in Table 6P.1c.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html).
Because only one, and not both, concepts from the ICD-9-CM
classification was considered to be an unacceptable principal diagnosis
(status of placenta) in the ICD-9-CM MCE, we agree this was a
replication error that incorrectly included the ICD-10-CM diagnosis
codes that identify both concepts (multiple gestation and status of
placenta) in a single code on the ICD-10 MCE. The edit cannot isolate
the status of placenta for the ICD-10 MCE because it is reported in
combination with the multiple gestation as a single code. Therefore, it
is inappropriate to include these codes on the Unacceptable principal
diagnosis edit code list.
For FY 2017, we are proposing to remove the ICD-10-CM diagnosis
codes listed in Table 6P.1c. associated with this proposed rule (which
is available via Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html)
from the ICD-10 MCE Version 34 Unacceptable principal diagnosis list.
We are inviting public comments on our proposal.
(3) Supervision of High Risk Pregnancy
We received a request to review the ICD-10-CM diagnosis codes
related to supervision of high risk pregnancy (elderly primigravida and
multigravida) that are currently listed on the ICD-10 MCE Version 33
Unacceptable principal diagnosis edit code list. The requestor stated
that these codes were not included in the edit under the ICD-9-CM MCE.
According to the requester, the codes describing these conditions
should be allowed for reporting as a principal diagnosis based on the
ICD-10-CM Tabular List of Diseases instructions for Chapter 15 (Certain
Conditions Originating in the Perinatal Period). The chapter-specific
guidelines for ICD-10-CM state that ``diagnosis code O80 (Encounter for
full-term uncomplicated delivery) should be assigned when a woman is
admitted for a full-term normal delivery and delivers a single, healthy
infant without any complications antepartum, during the delivery, or
postpartum during the delivery episode. Code O80 is always a principal
diagnosis. It is not to be used if any other code from Chapter 15 is
needed to describe a current complication of the antenatal, delivery,
or perinatal period.'' The requestor stated that obstetric patients
admitted as inpatients often meet the definition of an elderly
primigravida or elderly multigravida, \1\ which is the appropriate
condition to be reported as the principal diagnosis. However, because
the codes describing this condition are listed on the Unacceptable
principal diagnosis edit code list, they are unable to be reported.
---------------------------------------------------------------------------

\1\ The ICD-10-CM classification defines an elderly primigravida
or elderly multigravida as a complication of the pregnancy since the
management and care of the expectant mother is affected by the fact
they are an older patient.
---------------------------------------------------------------------------

The diagnosis codes describing high-risk patients admitted for
delivery differ between the ICD-10-CM and ICD-9-CM classifications.
Under ICD-9-CM, two diagnosis codes are required to separately report
concept 1 of elderly primigravida or elderly multigravida and whether a
delivery occurred and concept 2 of supervision of high-risk pregnancy
with elderly primigravida or elderly multigravida. We display the codes
that correspond to these concepts below and titled them as Code List 1
and Code List 2. A code from each list would be reported to fully
describe the circumstances of the admission and the patient.
Code List 1--We note that the following codes are listed on the
ICD-9-CM MCE Version 32 Unacceptable principal diagnosis edit code
list:

------------------------------------------------------------------------
ICD-9-CM diagnosis code Description
------------------------------------------------------------------------
V23.81................... Supervision of high-risk pregnancy with
elderly primigravida
V23.82................... Supervision of high-risk pregnancy with
elderly multigravida
------------------------------------------------------------------------

Code List 2--We note that the following codes are not listed on the
ICD-9-CM MCE Version 32 Unacceptable principal diagnosis edit code
list. However, we display them here for the benefit of the reader in
the discussion that follows.

------------------------------------------------------------------------
ICD-9-CM diagnosis code Description
------------------------------------------------------------------------
659.50................... Elderly primigravida, unspecified as to
episode of care or not applicable
659.51................... Elderly primigravida, delivered, with or
without mention of antepartum condition
659.53................... Elderly primigravida, antepartum condition or
complication
659.60................... Elderly multigravida, unspecified as to
episode of care or not applicable
659.61................... Elderly multigravida, delivered with or
without mention of antepartum condition
659.63................... Elderly multigravida, antepartum condition or
complication
------------------------------------------------------------------------

As noted above, in the ICD-9-CM MCE Version 32, only the ICD-9-CM
diagnosis codes describing the supervision of high-risk pregnancy are
listed on the Unacceptable principal diagnosis edit code list.

[[Page 25008]]

There are eight ICD-10-CM diagnosis codes included on the ICD-10
MCE Version 33 Unacceptable principal diagnosis edit code list that
describe the concept of elderly primigravida or elderly multigravida
and supervision of high-risk pregnancy, in a single code. As shown
below, the concept of whether a delivery occurred is not included in
the code description for the eight codes.

Because the concepts and coding guidelines between the ICD-9-CM and
ICD-10-CM classifications differ greatly in how they define this subset
of patients, we acknowledge that the eight ICD-10-CM diagnosis codes
listed above should be removed from the ICD-10 MCE Unacceptable
principal diagnosis edit code list to permit the reporting of these
codes as principal diagnosis when the documentation supports such
assignment.
We also note that during our analysis of the eight diagnosis codes
describing elderly primigravida and elderly multigravida high risk
pregnancy patients, we found additional codes on the ICD-10 MCE Version
33 Unacceptable principal diagnosis edit code list related to high-risk
pregnancy that we believe should also be removed so as to permit the
reporting of these codes as principal diagnosis when the documentation
supports such assignment.
For FY 2017, we are proposing to remove all the ICD-10-CM diagnosis
codes related to high-risk pregnancy currently listed in Table 6P.1d.
associated with this proposed rule (which is available via Internet on
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) from the ICD-10 MCE
Version 34 Unacceptable principal diagnosis edit code list. We are
inviting public comment on our proposal.
e. Other MCE Issues
The following MCE discussion and proposals are the result of
internal review of other MCE issues.
(1) Procedure Inconsistent With Length of Stay Edit
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49411), we finalized
a revision for the language of the ICD-10 MCE Version 33 edit for
``Procedure inconsistent with length of stay'' with regard to ICD-10-
PCS procedure code 5A1955Z (Respiratory ventilation, greater than 96
consecutive hours). The current description of the code edit reads as
follows: ``The following procedure code should only be coded on claims
with a length of stay greater than four days.''
As we strive to assist providers with correct coding and reporting
of this service, we are proposing to further revise the description of
this code edit. For FY 2017, we are proposing to modify the edit
description to read as follows: ``The following procedure code should
only be coded on claims when the respiratory ventilation is provided
for greater than four consecutive days during the length of stay.''
We believe this modification will further clarify the appropriate
circumstances in which ICD-10-PCS code 5A1955Z may be reported. We are
inviting public comments on our proposal.
Also, consistent with the discussion in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49411 through 49412), we believe it would be
beneficial to revise the title for ICD-10 MS-DRG 208 (Respiratory
System Diagnosis with Ventilator Support <96 Hours). Currently, this
ICD-10 MS-DRG title references terminology for mechanical ventilation
``< 96 hours'' based on the GROUPER logic for MS-DRG 208, which
includes ICD-10-PCS codes 5A1935Z (Respiratory ventilation, less than
24 consecutive hours) and 5A1945Z (Respiratory ventilation, 24-96
consecutive hours). Because ICD-10-PCS code 5A1945Z includes mechanical
ventilation up to and including 96 hours, we are proposing to modify
the title of MS-DRG 208 by adding an ``equal'' sign (=) after the
``less than'' (<) sign to better reflect the GROUPER logic. We are
proposing to revise the title of ICD-10 MS-DRG 208 as follows,
effective October 1, 2016: MS-DRG 208 (Respiratory System Diagnosis
with Ventilator Support <=96 Hours). We are inviting public comments on
our proposal.
(2) Maternity Diagnoses
We identified three ICD-10-CM diagnosis codes that describe
conditions related to pregnancy or the puerperium that are not
currently listed on the ICD-10 MCE Version 33 Age conflict edit code
list for maternity diagnoses. The diagnosis codes include:
C58 (Malignant neoplasm of placenta);
D39.2 (Neoplasm of uncertain behavior of placenta); and
F53 (Puerperal psychosis).
To be consistent with other related conditions currently included
on the Age conflict edit code list for maternity diagnoses, we are
proposing to add ICD-10-CM diagnosis codes C58, D39.2, and F53 to the
Age conflict edit code list for maternity diagnoses.
We are inviting public comments on our proposals for changes to the
FY 2017 ICD-10 MCE Version 34.
(3) Manifestation Codes Not Allowed as Principal Diagnosis Edit
Section I.A.13. of the FY 2016 ICD-10-CM Official Guidelines for
Coding and Reporting states that certain conditions have both an
underlying etiology and multiple body system manifestations due to the
underlying etiology. For such conditions, the classification has a
coding convention that requires the underlying condition be sequenced
first followed by the manifestation. Wherever such a combination
exists, there is a ``use additional code'' note at the etiology code,
and a ``code first'' note at the manifestation code. These
instructional notes indicate proper sequencing order of the codes,
etiology followed by manifestation.
We found that in the ICD-10-CM Tabular List of Diseases at category
M02- (Postinfective and reactive arthropathies), a ``Code first
underlying disease'' note exists. This would

[[Page 25009]]

indicate that there are codes in that category that are manifestations
of an underlying etiology. We then examined the ICD-10 MCE Version 33
to determine if diagnosis codes from that category were included on the
Manifestation codes not allowed as principal diagnosis edit code list.
Only three ICD-10-CM diagnosis codes from that category were listed:
M02.88 (Other reactive arthropathies, vertebrae);
M02.89 (Other reactive arthropathies, multiple sites); and
M02.9 (Reactive arthropathy, unspecified).
Based on the instructional note at the M02- category level, the
title at subcategory M02.8 (Other reactive arthropathies), and the
three diagnosis codes listed above on the current ICD-10 MCE Version 33
Manifestation codes not allowed as principal diagnosis edit code list,
it seems appropriate that all of the diagnosis codes in subcategory
M02.8 should be identified as manifestation codes.
We are proposing to add the ICD-10-CM diagnosis codes listed in the
following table to the ICD-10 MCE Version 34 Manifestation codes not
allowed as principal diagnosis edit code list.

------------------------------------------------------------------------
ICD-10-CM diagnosis code Description
------------------------------------------------------------------------
M02.80................... Other reactive arthropathies, unspecified
site.
M02.811.................. Other reactive arthropathies, right shoulder.
M02.812.................. Other reactive arthropathies, left shoulder.
M02.819.................. Other reactive arthropathies, unspecified
shoulder.
M02.821.................. Other reactive arthropathies, right elbow.
M02.822.................. Other reactive arthropathies, left elbow.
M02.829.................. Other reactive arthropathies, unspecified
elbow.
M02.831.................. Other reactive arthropathies, right wrist.
M02.832.................. Other reactive arthropathies, left wrist.
M02.839.................. Other reactive arthropathies, unspecified
wrist.
M02.841.................. Other reactive arthropathies, right hand.
M02.842.................. Other reactive arthropathies, left hand.
M02.849.................. Other reactive arthropathies, unspecified
hand.
M02.851.................. Other reactive arthropathies, right hip.
M02.852.................. Other reactive arthropathies, left hip.
M02.859.................. Other reactive arthropathies, unspecified
hip.
M02.861.................. Other reactive arthropathies, right knee.
M02.862.................. Other reactive arthropathies, left knee.
M02.869.................. Other reactive arthropathies, unspecified
knee.
M02.871.................. Other reactive arthropathies, right ankle and
foot.
M02.872.................. Other reactive arthropathies, left ankle and
foot.
M02.879.................. Other reactive arthropathies, unspecified
ankle and foot.
------------------------------------------------------------------------

We are inviting public comments on our proposal.
(4) Questionable Admission Edit
In the MCE, some diagnoses are not usually sufficient justification
for admission to an acute care hospital. For example, if a patient is
assigned ICD-10-CM diagnosis code R03.0 (Elevated blood pressure
reading, without diagnosis of hypertension), the patient would have a
questionable admission because an elevated blood pressure reading is
not normally sufficient justification for admission to a hospital.
Upon review of the ICD-10-CM diagnosis codes listed under the ICD-
10 MCE Version 33 Questionable Admission edit, our clinical advisors
determined that certain diagnoses clinically warrant hospital
admission. Therefore, we are proposing to remove the following
diagnosis codes from the ICD-10 MCE Version 34.0 Questionable admission
edit.
T81.81XA (Complication of inhalation therapy, initial
encounter);
T88.4XXA (Failed or difficult intubation, initial
encounter);
T88.7XXA (Unspecified adverse effect of drug or
medicament, initial encounter);
T88.8XXA (Other specified complications of surgical and
medical care, not elsewhere classified, initial encounter); and
T88.9XXA (Complication of surgical and medical care,
unspecified, initial encounter).
We are inviting public comments on our proposal.
(5) Removal of Edits and Future Enhancement
With the implementation of ICD-10, it is clear that there are
several concepts that differ from the ICD-9-CM classification. These
differences are evident in the MCE as discussed earlier in this
section. Looking ahead to the needs and uses of coded data as the data
continue to evolve from the reporting, collection, processing,
coverage, payment and analysis aspect, we believe the need to ensure
the accuracy of the coded data becomes increasingly significant.
The purpose of the MCE is to ensure that errors and inconsistencies
in the coded data are recognized during Medicare claims processing. As
shown in the FY 2016 ICD-10 MCE Version 33 manual file and an ICD-9-CM
MCE Version 33.0A manual file (developed for analysis only), an edit
code list exists according to the definition or criteria set forth for
each specified type of edit. Over time, certain edits under the ICD-9-
CM MCE became discontinued as they were no longer needed. However, the
MCE manual has continued to make reference to these discontinued edits,
including through the replication process with transitioning to ICD-10.
Currently, the FY 2016 ICD-10 MCE Version 33 manual file displays
the following edits:
12. Open biopsy check. Effective October 1, 2010, the Open
biopsy check edit was discontinued and will appear for claims processed
using MCE Version 2.0-26.0 only.
13. Bilateral procedure. Effective with the ICD-10
implementation, the bilateral procedure edit will be discontinued.
Because these edits are no longer valid, we are proposing to remove
the reference to them, effective with the ICD-10 MCE manual and
software

[[Page 25010]]

Version 34.0, for FY 2017. We are inviting public comments on our
proposal.
As we continue to evaluate the purpose and function of the MCE with
respect to the transition to ICD-10, we encourage public input for
future discussion. For instance, we recognize a need to further examine
the current list of edits and the definitions of those edits. We
encourage public comments on whether there are additional concerns with
the current edits, including specific edits or language that should be
removed or revised, edits that should be combined, or new edits that
should be added to assist in detecting errors or inaccuracies in the
coded data.
13. Proposed Changes to Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different MS-DRG within the MDC to which the principal diagnosis
is assigned. Therefore, it is necessary to have a decision rule within
the GROUPER by which these cases are assigned to a single MS-DRG. The
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function.
Application of this hierarchy ensures that cases involving multiple
surgical procedures are assigned to the MS-DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of MS-DRG reclassification and recalibrations, for
FY 2017, we reviewed the surgical hierarchy of each MDC, as we have for
previous reclassifications and recalibrations, to determine if the
ordering of classes coincides with the intensity of resource
utilization.
A surgical class can be composed of one or more MS-DRGs. For
example, in MDC 11, the surgical class ``kidney transplant'' consists
of a single MS-DRG (MS-DRG 652) and the class ``major bladder
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655).
Consequently, in many cases, the surgical hierarchy has an impact on
more than one MS-DRG. The methodology for determining the most
resource-intensive surgical class involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. For example, assume surgical
class A includes MS-DRGs 001 and 002 and surgical class B includes MS-
DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG
001 are higher than that of MS-DRG 003, but the average costs of MS-
DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To
determine whether surgical class A should be higher or lower than
surgical class B in the surgical hierarchy, we would weigh the average
costs of each MS-DRG in the class by frequency (that is, by the number
of cases in the MS-DRG) to determine average resource consumption for
the surgical class. The surgical classes would then be ordered from the
class with the highest average resource utilization to that with the
lowest, with the exception of ``other O.R. procedures'' as discussed in
this rule.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average cost is
ordered above a surgical class with a higher average cost. For example,
the ``other O.R. procedures'' surgical class is uniformly ordered last
in the surgical hierarchy of each MDC in which it occurs, regardless of
the fact that the average costs for the MS-DRG or MS-DRGs in that
surgical class may be higher than those for other surgical classes in
the MDC. The ``other O.R. procedures'' class is a group of procedures
that are only infrequently related to the diagnoses in the MDC, but are
still occasionally performed on patients with cases assigned to the MDC
with these diagnoses. Therefore, assignment to these surgical classes
should only occur if no other surgical class more closely related to
the diagnoses in the MDC is appropriate.
A second example occurs when the difference between the average
costs for two surgical classes is very small. We have found that small
differences generally do not warrant reordering of the hierarchy
because, as a result of reassigning cases on the basis of the hierarchy
change, the average costs are likely to shift such that the higher-
ordered surgical class has lower average costs than the class ordered
below it.
Based on the changes that we are proposing to make for FY 2017, as
discussed in section II.F.4.c. of the preamble of this FY 2017 IPPS/
LTCH PPS proposed rule, we are proposing to maintain the existing
surgical hierarchy in MDC 5 for proposed revised MS-DRGs 228 and 229
(Other Cardiothoracic Procedures with MCC and without MCC,
respectively).
We are inviting public comments on our proposals.
14. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2017
The tables identifying the proposed additions and deletions to the
MCC severity levels list and the proposed additions and deletions to
the CC severity levels list for FY 2017 are available via the Internet
on the CMS Web site at: http://cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as follows:
Table 6I.1--Proposed Additions to the MCC List--FY 2017;
Table 6I.2--Proposed Deletions to the MCC List--FY 2017;
Table 6J.1--Proposed Additions to the CC List--FY 2017;
and
Table 6J.2--Proposed Deletions to the CC List--FY 2017.
15. Proposed Complications or Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC Exclusions List
Under the IPPS MS-DRG classification system, we have developed a
standard list of diagnoses that are considered CCs. Historically, we
developed this list using physician panels that classified each
diagnosis code based on whether the diagnosis, when present as a
secondary condition, would be considered a substantial complication or
comorbidity. A substantial complication or comorbidity was defined as a
condition that, because of its presence with a specific principal
diagnosis, would cause an increase in the length of stay by at least 1
day in at least 75 percent of the patients. However, depending on the
principal diagnosis of the patient, some diagnoses on the basic list of
complications and comorbidities may be excluded if they are closely
related to the principal diagnosis. In FY 2008, we evaluated each
diagnosis code to determine its impact on resource use and to determine
the most appropriate CC subclassification (non-CC, CC, or MCC)
assignment. We refer readers to sections II.D.2. and 3. of the preamble
of the FY 2008 IPPS final rule with comment period for a discussion of
the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008
(72 FR 47152 through 47171).

[[Page 25011]]

b. Proposed CC Exclusions List for FY 2017
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) To preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair. As previously indicated,
we developed a list of diagnoses, using physician panels, to include
those diagnoses that, when present as a secondary condition, would be
considered a substantial complication or comorbidity. In previous
years, we made changes to the list of CCs, either by adding new CCs or
deleting CCs already on the list.
In the May 19, 1987 proposed notice (52 FR 18877) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another;
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another;
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another;
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another; and
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a CC. We
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541) for
detailed information regarding revisions that were made to the CC
Exclusion Lists under the ICD-9-CM MS-DRGs.
For FY 2017, we are proposing changes to the ICD-10 MS-DRGs Version
34 CC Exclusion List. Therefore, we have developed Table 6G.1.--
Proposed Secondary Diagnosis Order Additions to the CC Exclusions
List--FY 2017; Table 6G.2.--Proposed Principal Diagnosis Order
Additions to the CC Exclusions List--FY 2017; Table 6H.1.--Proposed
Secondary Diagnosis Order Deletions to the CC Exclusions List--FY 2017;
and Table 6H.2.--Proposed Principal Diagnosis Order Deletions to the CC
Exclusions List--FY 2017. Each of these principal diagnosis codes for
which there is a CC exclusion is shown in Table 6G.2. with an asterisk
and the conditions that will not count as a CC are provided in an
indented column immediately following the affected principal diagnosis.
Beginning with discharges on or after October 1 of each year, the
indented diagnoses are not recognized by the GROUPER as valid CCs for
the asterisked principal diagnoses. Tables 6G and 6H associated with
this proposed rule are available via the Internet on the CMS Web site
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
To capture new and deleted diagnosis and procedure codes, for FY
2017, we have developed Table 6A.--New Diagnosis Codes, Table 6B.--New
Procedure Codes, and Table 6C--Invalid Diagnosis Codes to this proposed
rule. However, they are not published in the Addendum to this proposed
rule but are available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, as described in section VI. of the
Addendum to this proposed rule. We note that while we did not
specifically develop a Table 6E.--Revised Diagnosis Code Titles for
this proposed rule, a document containing the FY 2017 revised diagnosis
code titles, as well as new diagnosis codes that have been finalized to
date since implementation of the partial code freeze, was made
available in advance in response to requests from the health care
industry. During the March 9-10, 2016 ICD-10 Coordination and
Maintenance Committee meeting, a discussion regarding this document was
presented. Participants were informed that the document titled ``FY
2017 New Released ICD-10-CM Codes'' would contain the information that
would otherwise be included for this table. This document has been
posted along with the other March 9-10, 2016 ICD-10 Coordination and
Maintenance Committee meeting materials on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.htm.
In addition, we did not specifically develop a Table 6F.--Revised
Procedure Code Titles for this proposed rule. However, a document
containing the FY 2017 revised procedure code titles, as well as new
procedure codes that have been finalized to date since implementation
of the partial code freeze, was made available in advance in response
in response to requests from the health care industry. During the March
9-10, 2016 ICD-10 Coordination and Maintenance Committee meeting, a
discussion regarding this document was presented. Participants were
informed that the document titled ``FY 2017 New Revised ICD-10-PCS
Codes'' would contain the information that would otherwise be included
for this table. This document is posted on the CMS Web site at: https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2016-03-09-MeetingMaterials.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=descending.
As mentioned in section II.F.14. of this proposed rule, we are
proposing additions and deletions to the MS-DRG MCC and CC Lists for FY
2017 based on the creation of new ICD-10-CM codes. This information is
available in Tables 6I.1 (Proposed Additions to the MCC List--FY 2017),
6I.2 (Proposed Deletions to the MCC List--FY 2017), 6J.1 (Proposed
Additions to the CC List--FY 2017), and 6J.2 (Proposed Deletions to the
CC List--FY 2017). However, they are not published in the Addendum to
this proposed rule but are available via the Internet on the CMS Web
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, as described in section VI. of the
Addendum to this proposed rule.
16. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through
986; and 987 Through 989
Each year, we review cases assigned to MS-DRGs 981, 982, and 983
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC,
with CC, and without CC/MCC, respectively); MS-DRGs 984, 985, and 986
(Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC,
with CC, and without CC/MCC, respectively); and MS-DRGs 987, 988, and
989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC, respectively) to determine whether it
would be appropriate to change the procedures assigned among these MS-
DRGs. MS-DRGs 981 through 983, 984 through 986, and 987 through 989 are
reserved for those cases in which none of the O.R. procedures performed
are related to the

[[Page 25012]]

principal diagnosis. These MS-DRGs are intended to capture atypical
cases, that is, those cases not occurring with sufficient frequency to
represent a distinct, recognizable clinical group. Under ICD-9-CM, MS-
DRGs 984 through 986 are assigned to those discharges in which one or
more of the following prostatic procedures are performed and are
unrelated to the principal diagnosis:
60.0 (Incision of prostate);
60.12 (Open biopsy of prostate);
60.15 (Biopsy of periprostatic tissue);
60.18 (Other diagnostic procedures on prostate and
periprostatic tissue);
60.21 (Transurethral prostatectomy);
60.29 (Other transurethral prostatectomy);
60.61 (Local excision of lesion of prostate);
60.69 (Prostatectomy, not elsewhere classified);
60.81 (Incision of periprostatic tissue);
60.82 (Excision of periprostatic tissue);
60.93 (Repair of prostate);
60.94 (Control of (postoperative) hemorrhage of prostate);
60.95 (Transurethral balloon dilation of the prostatic
urethra);
60.96 (Transurethral destruction of prostate tissue by
microwave thermotherapy);
60.97 (Other transurethral destruction of prostate tissue
by other thermotherapy); and
60.99 (Other operations on prostate).
Under the ICD-10 MS-DRGs Version 33, the comparable ICD-10-PCS code
translations for the above list of codes are available in Table 6P.2.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html). All remaining O.R.
procedures are assigned to MS-DRGs 981 through 983 and 987 through 989,
with MS-DRGs 987 through 989 assigned to those discharges in which the
only procedures performed are nonextensive procedures that are
unrelated to the principal diagnosis.
We refer the reader to the FY 2014 IPPS/LTCH PPS final rule (78 FR
50544 through 50545) for detailed information regarding modifications
that were made to the former ICD-9-CM CMS DRG 468 (MS-DRGs 981 through
983), CMS DRG 476 (MS-DRGs 984 through 986), and CMS DRG 477 (MS-DRGs
987 through 989) with regard to the movement of procedure codes. We
note that no procedure codes were moved from these DRGs from FY 2008
through FY 2016.
Our review of MedPAR claims data showed that there are no cases
that merited movement or should logically be reassigned from ICD-10 MS-
DRGs 984 through 986 to any of the other MDCs. Therefore, for FY 2017,
we are not proposing to change the procedures assigned among these MS-
DRGs. We are inviting public comments on our proposal to maintain the
current structure of these MS-DRGs.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 Into MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) on the basis of volume, by procedure, to see if it would
be appropriate to move procedure codes out of these MS-DRGs into one of
the surgical MS-DRGs for the MDC into which the principal diagnosis
falls. The data are arrayed in two ways for comparison purposes. We
look at a frequency count of each major operative procedure code. We
also compare procedures across MDCs by volume of procedure codes within
each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical MS-DRGs for the MDC in which the diagnosis falls.
Upon review of the claims data from the December 2015 update of the FY
2015 MedPAR file, we did not find any cases that merited movement or
that should logically be assigned to any of the other MDCs. Therefore,
for FY 2017, we are not proposing to remove any procedures from MS-DRGs
981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-
DRGs for the MDC into which the principal diagnosis is assigned. We are
inviting public comments on our proposal to maintain the current
structure of these MS-DRGs.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
We also reviewed the list of ICD-10-PCS procedures that, when in
combination with their principal diagnosis code, result in assignment
to MS-DRGs 981 through 983, 984 through 986, or 987 through 989, to
ascertain whether any of those procedures should be reassigned from one
of those three groups of MS-DRGs to another of the three groups of MS-
DRGs based on average costs and the length of stay. We look at the data
for trends such as shifts in treatment practice or reporting practice
that would make the resulting MS-DRG assignment illogical. If we find
these shifts, we would propose to move cases to keep the MS-DRGs
clinically similar or to provide payment for the cases in a similar
manner. Generally, we move only those procedures for which we have an
adequate number of discharges to analyze the data.
There are no cases representing shifts in treatment practice or
reporting practice that would make the resulting MS-DRG assignment
illogical, or that merited movement so that cases should logically be
assigned to any of the other MDCs. Therefore, for FY 2017, we are not
proposing to move any procedure codes among these MS-DRGs. We are
inviting public comments on our proposal.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on the review of cases in the MDCs, we are proposing to add
multiple diagnosis and procedure codes to MDCs for FY 2017 to address
replication issues. We discuss each of these proposals below.
(1) Angioplasty of Extracranial Vessel
In the ICD-9-CM MS-DRGs Version 32, procedures describing
angioplasty of an extracranial vessel were assigned to MDC 1 (Diseases
and Disorders of the Nervous System) under MS-DRGs 037, 038, and 039
(Extracranial Procedures with MCC, with CC, or without CC/MCC,
respectively). Under ICD-9-CM, more than one ICD-9-CM code could be
reported for these procedures, depending on the approach that was
documented. For example, ICD-9-CM procedure code 00.61 (Percutaneous
angioplasty of extracranial vessel(s)) would have been appropriately
reported if the percutaneous approach was documented, and procedure
code 39.50 (Angioplasty of other non-coronary vessel(s)) would have
been appropriately reported if a specified approach was not documented.
A replication issue for 41 ICD-10-PCS procedure codes describing
angioplasty with the open approach was identified after implementation
of the ICD-10 MS-DRGs Version 33. In the code translation, these 41
ICD-10-PCS procedure codes were grouped and assigned to ICD-10 MS-DRGs
981 through 983 (Extensive O.R. Procedure Unrelated to Principal
Diagnosis with

[[Page 25013]]

MCC, with CC, and without CC/MCC, respectively). However, these
procedure codes should have been grouped to ICD-10 MS-DRGs 037 through
039 when a principal diagnosis was reported under MDC 1.
To resolve this replication issue, we are proposing to add the 41
ICD-10-PCS procedure codes listed in the following table to ICD-10 MS-
DRGs 037 through 039 under MDC 1.

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
037H04Z.................. Dilation of right common carotid artery with
drug-eluting intraluminal device, open
approach.
037H0DZ.................. Dilation of right common carotid artery with
intraluminal device, open approach.
037H0ZZ.................. Dilation of right common carotid artery, open
approach.
037J04Z.................. Dilation of left common carotid artery with
drug-eluting intraluminal device, open
approach.
037J0DZ.................. Dilation of left common carotid artery with
intraluminal device, open approach.
037J0ZZ.................. Dilation of left common carotid artery, open
approach.
037K04Z.................. Dilation of right internal carotid artery
with drug-eluting intraluminal device, open
approach.
037K0DZ.................. Dilation of right internal carotid artery
with intraluminal device, open approach.
037K0ZZ.................. Dilation of right internal carotid artery,
open approach.
037L04Z.................. Dilation of left internal carotid artery with
drug-eluting intraluminal device, open
approach.
037L0DZ.................. Dilation of left internal carotid artery with
intraluminal device, open approach.
037L0ZZ.................. Dilation of left internal carotid artery,
open approach.
037M04Z.................. Dilation of right external carotid artery
with drug-eluting intraluminal device, open
approach.
037M0DZ.................. Dilation of right external carotid artery
with intraluminal device, open approach.
037M0ZZ.................. Dilation of right external carotid artery,
open approach.
037N04Z.................. Dilation of left external carotid artery with
drug-eluting intraluminal device, open
approach.
037N0DZ.................. Dilation of left external carotid artery with
intraluminal device, open approach.
037N0ZZ.................. Dilation of left external carotid artery,
open approach.
037P04Z.................. Dilation of right vertebral artery with drug-
eluting intraluminal device, open approach.
037P0DZ.................. Dilation of right vertebral artery with
intraluminal device, open approach.
037P0ZZ.................. Dilation of right vertebral artery, open
approach.
037Q04Z.................. Dilation of left vertebral artery with drug-
eluting intraluminal device, open approach.
037Q0DZ.................. Dilation of left vertebral artery with
intraluminal device, open approach.
037Q0ZZ.................. Dilation of left vertebral artery, open
approach.
037Y04Z.................. Dilation of upper artery with drug-eluting
intraluminal device, open approach.
037Y0DZ.................. Dilation of upper artery with intraluminal
device, open approach.
037Y0ZZ.................. Dilation of upper artery, open approach.
057M0DZ.................. Dilation of right internal jugular vein with
intraluminal device, open approach.
057M0ZZ.................. Dilation of right internal jugular vein, open
approach.
057N0DZ.................. Dilation of left internal jugular vein with
intraluminal device, open approach.
057N0ZZ.................. Dilation of left internal jugular vein, open
approach.
057P0DZ.................. Dilation of right external jugular vein with
intraluminal device, open approach.
057P0ZZ.................. Dilation of right external jugular vein, open
approach
057Q0DZ.................. Dilation of left external jugular vein with
intraluminal device, open approach.
057Q0ZZ.................. Dilation of left external jugular vein, open
approach.
057R0DZ.................. Dilation of right vertebral vein with
intraluminal device, open approach.
057R0ZZ.................. Dilation of right vertebral vein, open
approach.
057S0DZ.................. Dilation of left vertebral vein with
intraluminal device, open approach.
057S0ZZ.................. Dilation of left vertebral vein, open
approach.
057T0DZ.................. Dilation of right face vein with intraluminal
device, open approach.
057T0ZZ.................. Dilation of right face vein, open approach.
------------------------------------------------------------------------

We are inviting public comments on our proposal to add the above
listed codes to ICD-10 MS-DRGs 037, 038, and 039 (Extracranial
Procedures with MCC, with CC, or without CC/MCC, respectively) under
MDC 1, effective October 1, 2016, for the ICD-10 MS-DRGs Version 34.
(2) Excision of Abdominal Arteries
In the ICD-9-CM MS-DRGs Version 32, procedures involving excision
of a vessel and anastomosis, such as those performed for the treatment
of an abdominal artery aneurysm (aneurysmectomy), are identified with
procedure code 38.36 (Resection of vessel with anastomosis, abdominal
arteries) and are assigned to the following MDCs and MS-DRGs:
MDC 5 (Diseases and Disorders of the Circulatory System):
MS-DRGs 270 through 272 (Other Major Cardiovascular Procedures with
MCC, with CC and without CC/MCC, respectively);
MDC 6 (Diseases and Disorders of the Digestive System):
MS-DRGs 356 through 358 (Other Digestive System O.R. Procedures with
MCC, with CC and without CC/MCC, respectively);
MDC 11 (Diseases and Disorders of the Kidney and Urinary
Tract): MS-DRGs 673 through 675 (Other Kidney and Urinary Tract
Procedures with MCC, with CC and without CC/MCC, respectively);
MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs):
MS-DRGs 907 through 909 (Other O.R. Procedures for Injuries with MCC,
with CC, and without CC/MCC, respectively); and
MDC 24 (Multiple Significant Trauma): MS-DRG 957 through
959 (Other O.R. Procedures for Multiple Significant Trauma without CC/
MCC).
A replication issue for 34 ICD-10-PCS procedure codes describing
aneurysmectomy procedures with the open and percutaneous endoscopic
approach was identified after implementation of the ICD-10 MS-DRGs
Version 33. For example, cases with a principal diagnosis of I72.2
(Aneurysm of renal artery) and procedure code 04BA0ZZ (Excision of left
renal artery, open approach) are resulting in assignment to ICD-10 MS-
DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and

[[Page 25014]]

without CC/MCC, respectively) instead of to MDC 11 in MS-DRGs 673
through 675 (Other Kidney and Urinary Tract Procedures with MCC, with
CC, and without CC/MCC, respectively).
To resolve this replication issue, we are proposing to add the 34
ICD-10-PCS procedure codes listed in the following table that are
comparable translations of ICD-9-CM procedure code 38.36 to ICD-10 MDCs
6, 11, 21, and 24. We note that there is no replication issue related
to MDC 5 as the ICD-10-PCS procedure codes listed in the table below
group there appropriately.

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
04B10ZZ.................. Excision of celiac artery, open approach.
04B14ZZ.................. Excision of celiac artery, percutaneous
endoscopic approach.
04B20ZZ.................. Excision of gastric artery, open approach.
04B24ZZ.................. Excision of gastric artery, percutaneous
endoscopic approach.
04B30ZZ.................. Excision of hepatic artery, open approach.
04B34ZZ.................. Excision of hepatic artery, percutaneous
endoscopic approach.
04B40ZZ.................. Excision of splenic artery, open approach.
04B44ZZ.................. Excision of splenic artery, percutaneous
endoscopic approach.
04B50ZZ.................. Excision of superior mesenteric artery, open
approach.
04B54ZZ.................. Excision of superior mesenteric artery,
percutaneous endoscopic approach.
04B60ZZ.................. Excision of right colic artery, open
approach.
04B64ZZ.................. Excision of right colic artery, percutaneous
endoscopic approach.
04B70ZZ.................. Excision of left colic artery, open approach.
04B74ZZ.................. Excision of left colic artery, percutaneous
endoscopic approach.
04B80ZZ.................. Excision of middle colic artery, open
approach.
04B84ZZ.................. Excision of middle colic artery, percutaneous
endoscopic approach.
04B90ZZ.................. Excision of right renal artery, open
approach.
04B94ZZ.................. Excision of right renal artery, percutaneous
endoscopic approach.
04BA0ZZ.................. Excision of left renal artery, open approach.
04BA4ZZ.................. Excision of left renal artery, percutaneous
endoscopic approach.
04BB0ZZ.................. Excision of inferior mesenteric artery, open
approach.
04BB4ZZ.................. Excision of inferior mesenteric artery,
percutaneous endoscopic approach.
04BC0ZZ.................. Excision of right common iliac artery, open
approach.
04BC4ZZ.................. Excision of right common iliac artery,
percutaneous endoscopic approach.
04BD0ZZ.................. Excision of left common iliac artery, open
approach.
04BD4ZZ.................. Excision of left common iliac artery,
percutaneous endoscopic approach.
04BE0ZZ.................. Excision of right internal iliac artery, open
approach.
04BE4ZZ.................. Excision of right internal iliac artery,
percutaneous endoscopic approach.
04BF0ZZ.................. Excision of left internal iliac artery, open
approach.
04BF4ZZ.................. Excision of left internal iliac artery,
percutaneous endoscopic approach.
04BH0ZZ.................. Excision of right external iliac artery, open
approach.
04BH4ZZ.................. Excision of right external iliac artery,
percutaneous endoscopic approach.
04BJ0ZZ.................. Excision of left external iliac artery, open
approach.
04BJ4ZZ.................. Excision of left external iliac artery,
percutaneous endoscopic approach.
------------------------------------------------------------------------

Adding these procedures to those MDCs in the ICD-10 MS-DRGs Version
34 will result in a more accurate replication for the same procedure
under the ICD-9-CM MS-DRGs Version 32. We also are proposing that these
procedure codes be assigned to the corresponding MS-DRGs in each
respective MDC as listed above. The proposed changes would eliminate
erroneous assignment to MS-DRGs 981 through 983 (Extensive O.R.
Procedure Unrelated to Principal Diagnosis with MCC, with CC, and
without CC/MCC, respectively) for these procedures.
We are inviting public comments on our proposal to add the above
listed codes to MDCs 6, 11, 21, and 24 in the corresponding MS-DRGs,
effective October 1, 2016, in the ICD-10 MS-DRGs Version 34.
(3) Excision of Retroperitoneal Tissue
In the ICD-9-CM MS-DRGs Version 32, procedures involving excision
of a retroperitoneal lesion (or tissue), such as those performed for
the treatment of a neoplasm, are identified with procedure code 54.4
(Excision or destruction of peritoneal tissue) and are assigned to a
number of MDCs and MS-DRGs across a variety of body systems, some of
which include the following:
MDC 6 (Diseases and Disorders of the Digestive System):
MS-DRGs 356 through 358 (Other Digestive System O.R. Procedures with
MCC, with CC, and without CC/MCC, respectively);
MDC 7 (Diseases and Disorders of the Hepatobiliary System
and Pancreas): MS-DRGs 423 through 425 (Other Hepatobiliary or Pancreas
O.R. Procedures with MCC, with CC, and without CC/MCC, respectively);
and
MDC 10 (Endocrine, Nutritional and Metabolic Diseases and
Disorders): MS-DRGs 628 through 630 (Other Endocrine, Nutritional and
Metabolic O.R. Procedures with MCC, with CC, and without CC/MCC,
respectively).
A replication issue for the ICD-10-PCS procedure codes describing
excision of retroperitoneum that involves MDC 6 was identified after
implementation of the ICD-10 MS-DRGs Version 33. These procedure codes
are ICD-10-PCS codes 0WBH0ZZ (Excision of retroperitoneum, open
approach), 0WBH3ZZ (Excision of retroperitoneum, percutaneous
approach), and 0WBH4ZZ (Excision of retroperitoneum, percutaneous
endoscopic approach). For example, when an ICD-10-CM diagnosis code
such as D20.0 (Benign neoplasm of soft tissue of retroperitoneum) is
reported with any one of these three ICD-10-PCS procedure codes, the
case is assigned to MS-DRGs 981 through 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively).
To resolve this replication issue, we are proposing to add the
three ICD-10-PCS procedure codes to MDC 6 in MS-DRGs 356 through 358
(Other Digestive System O.R. Procedures with MCC, with CC, and without
CC/MCC, respectively). This would result in a more accurate replication
of the comparable procedure under the ICD-9-CM MS-DRGs Version

[[Page 25015]]

32. The proposed changes also would eliminate erroneous assignment to
MS-DRGs 981 through 983 for these procedures.
We are inviting public comments on our proposal to add the three
ICD-10-PCS codes describing excision of retroperitoneum to MDC 6 in MS-
DRGs 356 through 358, effective October 1, 2016, in the ICD-10 MS-DRGs
Version 34.
(4) Occlusion of Vessels: Esophageal Varices
In the ICD-9-CM MS-DRGs Version 32, procedures including ligation
or surgical occlusion of esophageal varices are identified with
procedure code 42.91 (Ligation of esophageal varices) and are assigned
to MDC 6 (Diseases and Disorders of the Digestive System) under MS-DRGs
326 through 328 (Stomach, Esophageal and Duodenal Procedures with MCC,
with CC, and without CC/MCC, respectively) and MDC 7 (Diseases and
Disorders of the Hepatobiliary System and Pancreas) under MS-DRGs 423
through 425 (Other Hepatobiliary or Pancreas O.R. procedures with MCC,
with CC, and without CC/MCC, respectively).
A replication issue for MDC 7 involving ICD-10-PCS procedure codes
06L30CZ (Occlusion of esophageal vein with extraluminal device, open
approach) and 06L30DZ (Occlusion of esophageal vein with intraluminal
device, open approach) was identified in the ICD-10 MS-DRGs Version 33
after implementation on October 1, 2015. For instance, when an ICD-10-
CM diagnosis code such as K70.30 (Alcoholic cirrhosis of liver without
ascites) is reported with either one of the ICD-10-PCS procedure codes,
it results in assignment to MS-DRGs 981 through 983 (Extensive O.R.
Procedure Unrelated to Principal Diagnosis with MCC, with CC, and
without CC/MCC, respectively).
To resolve this replication issue, we are proposing to add the two
ICD-10-PCS procedure codes describing occlusion of esophageal vein to
MDC 7 under MS-DRGs 423 through 425. This will result in a more
accurate replication of the comparable procedure under the ICD-9-CM MS-
DRGs Version 32. The proposed changes also would eliminate erroneous
assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) for these procedures.
We are inviting public comments on our proposal to add ICD-10-PCS
procedure codes 06L30CZ and 06L30DZ to MDC 7 under MS-DRGs 423 through
425, effective October 1, 2016, in the ICD-10 MS-DRGs Version 34.
(5) Excision of Vulva
In the ICD-9-CM MS-DRGs Version 32, procedures involving excision
of the vulva are identified with procedure code 71.3 (Other local
excision or destruction of vulva and perineum) and are assigned to the
following MDCs and MS-DRGs:
MDC 9 (Diseases & Disorders of the Skin, Subcutaneous
Tissue and Breast): MS-DRGs 579 through 581 (Other Skin, Subcutaneous
Tissue and Breast Procedures with MCC, with CC, and without CC/MCC,
respectively); and
MDC 13 (Diseases & Disorders of the Female Reproductive
System): MS-DRG 746 (Vagina, cervix and vulva procedures with CC/MCC)
and MS-DRG 747 (Vagina, Cervix and Vulva procedures without CC/MCC).
A replication issue involving ICD-10-PCS procedure code 0UBMXZZ
(Excision of vulva, external approach) was identified after
implementation of the ICD-10 MS-DRGs Version 33. For example, when
cases with an ICD-10-CM principal diagnosis of code D07.1 (Carcinoma in
situ of vulva) are reported with ICD-10-PCS procedure code 0UBMXZZ
(Excision of vulva, external approach), they are resulting in
assignment to MS-DRGs 981 through 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively).
To resolve this replication issue, we are proposing to add ICD-10-
PCS procedure code 0UBMXZZ to MDC 13 under MS-DRGs 746 and 747. Adding
procedure code 0UBMXZZ to MDC 13 in MS-DRGs 746 and 747 would result in
a more accurate replication of the comparable procedure under the ICD-
9-CM MS-DRGs Version 32. The proposed changes also would eliminate
erroneous assignment to MS-DRGs 981 through 983 for these procedures.
In addition, the proposed changes would be consistent with the
assignment of other clinically similar procedures, such as ICD-10-PCS
procedure code 0WBNXZZ (Excision of female perineum, external
approach). Finally, we note that there is no replication issue for MDC
9 regarding this procedure code.
We are inviting public comment on our proposal to add ICD-10-PCS
procedure code 0UBMXZZ to MDC 13 in MS-DRGs 746 and 747, effective
October 1, 2016, in the ICD-10 MS-DRGs Version 34.
(6) Lymph Node Biopsy
In the ICD-9-CM MS-DRGs Version 32, procedures involving a lymph
node biopsy are identified with procedure code 40.11 (Biopsy of
lymphatic structure), which may be assigned to several MDCs
representing various body systems. Under the ICD-10 MS-DRGs Version 33,
this procedure has 114 ICD-10-PCS procedure codes considered to be
comparable translations that describe diagnostic drainage or excision
of specified lymphatic structures and also warrant assignment to the
same MDCs across various body systems.
A replication issue for the lymph node biopsy procedure involving
MDC 4 (Diseases and Disorders of the Respiratory System) under the ICD-
10 MS-DRGs Version 33 was identified after implementation on October 1,
2015. For example, when a respiratory system diagnosis is reported with
the comparable ICD-10-PCS procedure code 07B74ZX (Excision of thorax
lymphatic, percutaneous endoscopic approach, diagnostic), the case is
assigned to MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively).
To resolve this replication issue, we are proposing to add ICD-10-
PCS procedure code 07B74ZX to MDC 4 under MS-DRGs 166 through 168
(Other Respiratory System O.R. Procedures with MCC, with CC, and
without CC/MCC, respectively) to more accurately replicate assignment
of the comparable procedure code under the ICD-9-CM MS-DRGs Version 32.
While reviewing that specific example, we also identified two other
comparable ICD-10-PCS procedure code translations of ICD-9-CM procedure
code 40.11 (Biopsy of lymphatic structure) describing diagnostic
excision of thoracic lymphatic structures that were not replicated
consistent with the ICD-9-CM MS-DRGs Version 32. These are ICD-10-PCS
procedure codes 07B70ZX (Excision of thorax lymphatic, open approach,
diagnostic) and 07B73ZX (Excision of thorax lymphatic, percutaneous
approach, diagnostic). Therefore, we are proposing to add these two
ICD-10-PCS procedure codes to MDC 4 in MS-DRGs 166 through 168 as well.
Adding ICD-10-PCS procedure codes 07B74ZX, 07B70ZX, and 07B73ZX
that describe diagnostic excision of thoracic lymphatic structures to
MDC 4 under MS-DRGs 166 through 168 would result in a more accurate
replication of the comparable procedure under ICD-9-CM MS-DRGs Version
32. The proposed changes would eliminate erroneous assignment to MS-
DRGs 987 through 989 for these procedures.

[[Page 25016]]

We are inviting public comments on our proposal to add ICD-10-PCS
procedure codes 07B74ZX, 07B70ZX, and 07B73ZX to the ICD-10 MS-DRGs
Version 34 for MS-DRGs 166 through 168 in MDC 4, effective October 1,
2016.
(7) Obstetrical Laceration Repair
A replication issue for eight ICD-10-PCS procedure codes describing
procedures that may be performed for the repair of obstetrical
lacerations was identified after implementation of the ICD-10 MS-DRGs
Version 33. These codes are:

We discovered that the ICD-10 MDC and MS-DRG assignment are not
consistent with other ICD-10-PCS procedure codes that identify and
describe clinically similar procedures for the repair of obstetrical
lacerations which are coded and reported based on the extent of the
tear. For example, ICD-10-PCS procedure code 0DQP0ZZ (Repair rectum,
open approach) is appropriately assigned to MDC 14 (Pregnancy,
Childbirth and the Puerperium) under MS-DRG 774 (Vaginal Delivery with
Complicating Diagnoses). This procedure may be performed in the
treatment of a fourth-degree perineal laceration involving the rectal
mucosa. In contrast, ICD-10-PCS procedure code 0DQR0ZZ (Repair anal
sphincter, open approach), when reported for repair of a perineal
laceration, currently results in assignment to MS-DRGs 987 through 989
(Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis).
To resolve this replication issue, we are proposing to add these
eight ICD-10-PCS procedure codes to MDC 14 in MS-DRG 774. The proposed
changes would eliminate erroneous assignment to MS-DRGs 987 through 989
for these procedures.
We are inviting public comments on our proposal to add the eight
listed codes to MDC 14 under MS-DRG 774, effective October 1, 2016, in
the ICD-10 MS-DRGs Version 34.
17. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
a. ICD-10 Coordination and Maintenance Committee
In September 1985, the ICD-9-CM Coordination and Maintenance
Committee was formed. This is a Federal interdepartmental committee,
co-chaired by the National Center for Health Statistics (NCHS), the
Centers for Disease Control and Prevention, and CMS, charged with
maintaining and updating the ICD-9-CM system. The final update to ICD-
9-CM codes was to be made on October 1, 2013. Thereafter, the name of
the Committee was changed to the ICD-10 Coordination and Maintenance
Committee, effective with the March 19-20, 2014 meeting. The ICD-10
Coordination and Maintenance Committee addresses updates to the ICD-10-
CM and ICD-10-PCS coding systems. The Committee is jointly responsible
for approving coding changes, and developing errata, addenda, and other
modifications to the coding systems to reflect newly developed
procedures and technologies and newly identified diseases. The
Committee is also responsible for promoting the use of Federal and non-
Federal educational programs and other communication techniques with a
view toward standardizing coding applications and upgrading the quality
of the classification system.
The official list of ICD-9-CM diagnosis and procedure codes by
fiscal year can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. The official
list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS Web site
at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.
The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM
diagnosis codes included in the Tabular List and Alphabetic Index for
Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD-
9-CM procedure codes included in the Tabular List and Alphabetic Index
for Procedures.
The Committee encourages participation in the previously mentioned
process by health-related organizations. In this regard, the Committee
holds public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA), the
American Hospital Association (AHA), and various physician specialty
groups, as well as individual physicians, health information management
professionals, and other members of the public, to contribute ideas on
coding matters. After considering the opinions expressed at the public
meetings and in writing, the Committee formulates recommendations,
which then must be approved by the agencies.
The Committee presented proposals for coding changes for
implementation in FY 2017 at a public meeting held on September 22-23,
2015, and finalized the coding changes after consideration of comments
received at the meetings and in writing by November 13, 2015.
The Committee held its 2016 meeting on March 9-10, 2016. It was
announced at this meeting that any new ICD-10-CM/PCS codes for which
there was consensus of public support and for which complete tabular
and indexing changes would be made by May 2016 would be included in the
October 1, 2016 update to ICD-10-CM/ICD-10-PCS. As discussed in earlier
sections of this preamble, there are new and deleted ICD-10-CM
diagnosis codes and ICD-10-PCS procedure codes that are captured in
Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, and
Table 6C.--Invalid Diagnosis Codes for the proposed rule, which are
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
Because of the length of these tables, they are not

[[Page 25017]]

published in the Addendum to this proposed rule. Rather, they are
available via the Internet as discussed in section VI. of the Addendum
to this proposed rule.
Live Webcast recordings of the discussions of procedure codes at
the Committee's September 22-23, 2015 meeting and March 9-10, 2016
meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the
discussions of diagnosis codes at the September 23-24, 2015 meeting and
March 9-10, 2016 meeting are found at: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.html. These Web sites also provide detailed
information about the Committee, including information on requesting a
new code, attending a Committee meeting, and timeline requirements and
meeting dates.
We encourage commenters to address suggestions on coding issues
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-10
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo
Road, Hyattsville, MD 20782. Comments may be sent by Email to:
[email protected].
Questions and comments concerning the procedure codes should be
addressed to: Patricia Brooks, Co-Chairperson, ICD-10 Coordination and
Maintenance Committee, CMS, Center for Medicare Management, Hospital
and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500
Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by
Email to: [email protected].
In the September 7, 2001 final rule implementing the IPPS new
technology add-on payments (66 FR 46906), we indicated we would attempt
to include proposals for procedure codes that would describe new
technology discussed and approved at the Spring meeting as part of the
code revisions effective the following October.
Section 503(a) of Public Law 108-173 included a requirement for
updating diagnosis and procedure codes twice a year instead of a single
update on October 1 of each year. This requirement was included as part
of the amendments to the Act relating to recognition of new technology
under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act
by adding a clause (vii) which states that the Secretary shall provide
for the addition of new diagnosis and procedure codes on April 1 of
each year, but the addition of such codes shall not require the
Secretary to adjust the payment (or diagnosis-related group
classification) until the fiscal year that begins after such date. This
requirement improves the recognition of new technologies under the IPPS
system by providing information on these new technologies at an earlier
date. Data will be available 6 months earlier than would be possible
with updates occurring only once a year on October 1.
While section 1886(d)(5)(K)(vii) of the Act states that the
addition of new diagnosis and procedure codes on April 1 of each year
shall not require the Secretary to adjust the payment, or DRG
classification, under section 1886(d) of the Act until the fiscal year
that begins after such date, we have to update the DRG software and
other systems in order to recognize and accept the new codes. We also
publicize the code changes and the need for a mid-year systems update
by providers to identify the new codes. Hospitals also have to obtain
the new code books and encoder updates, and make other system changes
in order to identify and report the new codes.
The ICD-10 (previously the ICD-9-CM) Coordination and Maintenance
Committee holds its meetings in the spring and fall in order to update
the codes and the applicable payment and reporting systems by October 1
of each year. Items are placed on the agenda for the Committee meeting
if the request is received at least 2 months prior to the meeting. This
requirement allows time for staff to review and research the coding
issues and prepare material for discussion at the meeting. It also
allows time for the topic to be publicized in meeting announcements in
the Federal Register as well as on the CMS Web site. Final decisions on
code title revisions are currently made by March 1 so that these titles
can be included in the IPPS proposed rule. A complete addendum
describing details of all diagnosis and procedure coding changes, both
tabular and index, is published on the CMS and NCHS Web sites in May of
each year. Publishers of coding books and software use this information
to modify their products that are used by health care providers. This
5-month time period has proved to be necessary for hospitals and other
providers to update their systems.
A discussion of this timeline and the need for changes are included
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance
Committee Meeting minutes. The public agreed that there was a need to
hold the fall meetings earlier, in September or October, in order to
meet the new implementation dates. The public provided comment that
additional time would be needed to update hospital systems and obtain
new code books and coding software. There was considerable concern
expressed about the impact this new April update would have on
providers.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-10
(previously ICD-9-CM) Coordination and Maintenance Committee meeting
are considered for an April 1 update if a strong and convincing case is
made by the requester at the Committee's public meeting. The request
must identify the reason why a new code is needed in April for purposes
of the new technology process. The participants at the meeting and
those reviewing the Committee meeting summary report are provided the
opportunity to comment on this expedited request. All other topics are
considered for the October 1 update. Participants at the Committee
meeting are encouraged to comment on all such requests. There were no
requests approved for an expedited April l, 2016 implementation of a
code at the September 22-23, 2015 Committee meeting. Therefore, there
were no new codes implemented on April 1, 2016.
ICD-9-CM addendum and code title information is published on the
CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/
icD9ProviderDiagnosticCodes/01overview.asp#TopofPage. ICD-10-CM and
ICD-10-PCS addendum and code title information is published on the CMS
Web site at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.
Information on ICD-10-CM diagnosis codes, along with the Official ICD-
10-CM Coding Guidelines, can also be found on the CDC Web site at:
http://www.cdc.gov/nchs/icd/icd10.htm. Information on new, revised, and
deleted ICD-10-CM/ICD-10-PCS codes is also provided to the AHA for
publication in the Coding Clinic for ICD-10. AHA also distributes
information to publishers and software vendors.
CMS also sends copies of all ICD-10-CM and ICD-10-PCS coding
changes to its Medicare contractors for use in updating their systems
and providing education to providers.

[[Page 25018]]

The code titles are adopted as part of the ICD-10 (previously ICD-
9-CM) Coordination and Maintenance Committee process. Therefore,
although we publish the code titles in the IPPS proposed and final
rules, they are not subject to comment in the proposed or final rules.
b. Code Freeze
In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR
3340), there was a discussion of the need for a partial or total freeze
in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS
codes. The public comment addressed in that final rule stated that the
annual code set updates should cease l year prior to the implementation
of ICD-10. The commenters stated that this freeze of code updates would
allow for instructional and/or coding software programs to be designed
and purchased early, without concern that an upgrade would take place
immediately before the compliance date, necessitating additional
updates and purchases.
HHS responded to comments in the ICD-10 final rule that the ICD-9-
CM Coordination and Maintenance Committee has jurisdiction over any
action impacting the ICD-9-CM and ICD-10 code sets. Therefore, HHS
indicated that the issue of consideration of a moratorium on updates to
the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of
the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the
Committee at a future public meeting.
The code freeze was discussed at multiple meetings of the ICD-9-CM
Coordination and Maintenance Committee and public comment was actively
solicited. The Committee evaluated all comments from participants
attending the Committee meetings as well as written comments that were
received. The Committee also considered the delay in implementation of
ICD-10 until October 1, 2014. There was an announcement at the
September 19, 2012 ICD-9-CM Coordination and Maintenance Committee
meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be
implemented as follows:
The last regular annual update to both ICD-9-CM and ICD-10
code sets was made on October 1, 2011.
On October 1, 2012 and October 1, 2013, there will be only
limited code updates to both ICD-9-CM and ICD-10 code sets to capture
new technology and new diseases.
On October 1, 2014, there were to be only limited code
updates to ICD-10 code sets to capture new technology and diagnoses as
required by section 503(a) of Public Law 108-173. There were to be no
updates to ICD-9-CM on October 1, 2014.
On October 1, 2015, one year after the originally
scheduled implementation of ICD-10, regular updates to ICD-10 were to
begin.
On May 15, 2014, CMS posted an updated Partial Code Freeze schedule
on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-9-CM-Coordination-and-Maintenance-Committee-Meetings.html. This updated
schedule provided information on the extension of the partial code
freeze until 1 year after the implementation of ICD-10. As stated
earlier, on April 1, 2014, the Protecting Access to Medicare Act of
2014 (PAMA) (Pub. L. 113-93) was enacted, which specified that the
Secretary may not adopt ICD-10 prior to October 1, 2015. On August 4,
2014, the Department published a final rule with a compliance date to
require the use of ICD-10 beginning October 1, 2015. The final rule
also required HIPAA-covered entities to continue to use ICD-9-CM
through September 30, 2015. Accordingly, the updated schedule for the
partial code freeze was as follows:
The last regular annual updates to both ICD-9-CM and ICD-
10 code sets were made on October 1, 2011.
On October 1, 2012, October 1, 2013, and October 1, 2014,
there will be only limited code updates to both the ICD-9-CM and ICD-10
code sets to capture new technologies and diseases as required by
section 1886(d)(5)(K) of the Act.
On October 1, 2015, there will be only limited code
updates to ICD-10 code sets to capture new technologies and diagnoses
as required by section 1886(d)(5)(K) of the Act. There will be no
updates to ICD-9-CM, as it will no longer be used for reporting.
On October 1, 2016 (1 year after implementation of ICD-
10), regular updates to ICD-10 will begin.
The ICD-10 (previously ICD-9-CM) Coordination and Maintenance
Committee announced that it would continue to meet twice a year during
the freeze. At these meetings, the public was encouraged to comment on
whether or not requests for new diagnosis and procedure codes should be
created based on the need to capture new technology and new diseases.
Any code requests that do not meet the criteria will be evaluated for
implementation within ICD-10 one year after the implementation of ICD-
10, once the partial freeze is ended.
Complete information on the partial code freeze and discussions of
the issues at the Committee meetings can be found on the ICD-10
Coordination and Maintenance Committee Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html. A summary of the September 19, 2012 Committee meeting,
along with both written and audio transcripts of this meeting, is
posted on the Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html.
This partial code freeze dramatically decreased the number of codes
created each year as shown by the following information.

Total Number of Codes and Changes in Total Number of Codes per Fiscal Year
--------------------------------------------------------------------------------------------------------------------------------------------------------
ICD-9-CM Codes ICD-10-CM and ICD-10-PCS Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year Number Change Fiscal year Number Change
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2009 (October 1, 2008) FY 2009 .............. ..............
Diagnoses.................................. 14,025 348 ICD-10-CM.......................... 68,069 +5
Procedures................................. 3,824 56 ICD-10-PCS......................... 72,589 -14,327
FY 2010 (October 1, 2009) FY 2010 .............. ..............
Diagnoses.................................. 14,315 290 ICD-10-CM.......................... 69,099 +1,030
Procedures................................. 3,838 14 ICD-10-PCS......................... 71,957 -632
FY 2011 (October 1, 2010)
Diagnoses.................................. 14,432 117 ICD-10-CM.......................... 69,368 +269
Procedures................................. 3,859 21 ICD-10-PCS......................... 72,081 +124
FY 2012 (October 1, 2011) FY 2012 .............. ..............
Diagnoses.................................. 14,567 135 ICD-10-CM.......................... 69,833 +465

[[Page 25019]]

Procedures................................. 3,877 18 ICD-10-PCS......................... 71,918 -163
FY 2013 (October 1, 2012) FY 2013 .............. ..............
Diagnoses.................................. 14,567 0 ICD-10-CM.......................... 69,832 -1
Procedures................................. 3,878 1 ICD-10-PCS......................... 71,920 +2
FY 2014 (October 1, 2013) FY 2014 .............. ..............
Diagnoses.................................. 14,567 0 ICD-10-CM.......................... 69,823 -9
Procedures................................. 3,882 4 ICD-10-PCS......................... 71,924 +4
FY 2015 (October 1, 2014) FY 2015 .............. ..............
Diagnoses.................................. 14,567 0 ICD-10-CM.......................... 69,823 0
Procedures................................. 3,882 0 ICD-10-PCS......................... 71,924 0
FY 2016 (October 1, 2015) FY 2016 .............. ..............
Diagnoses.................................. 14,567 0 ICD-10-CM.......................... 69,823 0
Procedures................................. 3,882 0 ICD-10-PCS......................... 71,924 0
Proposed FY 2017 (October 1, 2016) Proposed FY 2017 .............. ..............
Diagnoses.................................. 14,567 0 ICD-10-CM.......................... 71,558 0
Procedures................................. 3,882 0 ICD-10-PCS......................... 75,625 0
--------------------------------------------------------------------------------------------------------------------------------------------------------

As mentioned previously, the public is provided the opportunity to
comment on any requests for new diagnosis or procedure codes discussed
at the ICD-10 Coordination and Maintenance Committee meeting. The
public has supported only a limited number of new codes during the
partial code freeze, as can be seen by previously shown data. We have
gone from creating several hundred new codes each year to creating only
a limited number of new ICD-9-CM and ICD-10 codes.
At the September 22-23, 2015 and March 9-10, 2016 Committee
meetings, we discussed any requests we had received for new ICD-10-CM
diagnosis codes and ICD-10-PCS procedure codes that were to be
implemented on October 1, 2016. We did not discuss ICD-9-CM codes.
Because the partial code freeze will end on October 1, 2016, the public
no longer had to comment on whether or not new ICD-10-CM and ICD-10-PCS
codes should be created based on the partial code freeze criteria. We
invited public comments on any code requests discussed at the September
22-23, 2015 and March 9-10, 2016 Committee meetings for implementation
as part of the October 1, 2016 update. The deadline for commenting on
code proposals discussed at the September 22-23, 2015 Committee meeting
was November 13, 2015. The deadline for commenting on code proposals
discussed at the March 9-10, 2016 Committee meeting was April 8, 2016.
18. Replaced Devices Offered Without Cost or With a Credit
a. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47246
through 47251), we discussed the topic of Medicare payment for devices
that are replaced without cost or where credit for a replaced device is
furnished to the hospital. We implemented a policy to reduce a
hospital's IPPS payment for certain MS-DRGs where the implantation of a
device that has been recalled determined the base MS-DRG assignment. At
that time, we specified that we will reduce a hospital's IPPS payment
for those MS-DRGs where the hospital received a credit for a replaced
device equal to 50 percent or more of the cost of the device.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through
51557), we clarified this policy to state that the policy applies if
the hospital received a credit equal to 50 percent or more of the cost
of the replacement device and issued instructions to hospitals
accordingly.
b. Proposed Changes for FY 2017
For FY 2017 we are proposing not to add any MS-DRGs to the policy
for replaced devices offered without cost or with a credit. We are
proposing to continue to include the existing MS-DRGs currently subject
to the policy as displayed in the table below.

------------------------------------------------------------------------
MDC MS-DRG MS-DRG Title
------------------------------------------------------------------------
Pre-MDC........ 001 Heart Transplant or Implant of Heart
Assist System with MCC.
Pre-MDC........ 002 Heart Transplant or Implant of Heart
Assist System without MCC.
1.............. 023 Craniotomy with Major Device Implant/Acute
Complex CNS Principal Diagnosis with MCC
or Chemo Implant.
1.............. 024 Craniotomy with Major Device Implant/Acute
Complex CNS Principal Diagnosis without
MCC.
1.............. 025 Craniotomy & Endovascular Intracranial
Procedures with MCC.
1.............. 026 Craniotomy & Endovascular Intracranial
Procedures with CC.
1.............. 027 Craniotomy & Endovascular Intracranial
Procedures without CC/MCC.
1.............. 040 Peripheral/Cranial Nerve & Other Nervous
System Procedure with MCC.
1.............. 041 Peripheral/Cranial Nerve & Other Nervous
System Procedure with CC or Peripheral
Neurostimulator.
1.............. 042 Peripheral/Cranial Nerve & Other Nervous
System Procedure without CC/MCC.
3.............. 129 Major Head & Neck Procedures with CC/MCC
or Major Device.
3.............. 130 Major Head & Neck Procedures without CC/
MCC.
5.............. 215 Other Heart Assist System Implant.
5.............. 216 Cardiac Valve & Other Major Cardiothoracic
Procedure with Cardiac Catheter with MCC.
5.............. 217 Cardiac Valve & Other Major Cardiothoracic
Procedure with Cardiac Catheter with CC.
5.............. 218 Cardiac Valve & Other Major Cardiothoracic
Procedure with Cardiac Catheter without
CC/MCC.
5.............. 219 Cardiac Valve & Other Major Cardiothoracic
Procedure without Cardiac Catheter with
MCC.
5.............. 220 Cardiac Valve & Other Major Cardiothoracic
Procedure without Cardiac Catheter with
CC.

[[Page 25020]]

5.............. 221 Cardiac Valve & Other Major Cardiothoracic
Procedure without Cardiac Catheter
without CC/MCC.
5.............. 222 Cardiac Defibrillator Implant with Cardiac
Catheter with AMI/Heart Failure/Shock
with MCC.
5.............. 223 Cardiac Defibrillator Implant with Cardiac
Catheter with AMI/Heart Failure/Shock
without MCC.
5.............. 224 Cardiac Defibrillator Implant with Cardiac
Catheter without AMI/Heart Failure/Shock
with MCC.
5.............. 225 Cardiac Defibrillator Implant with Cardiac
Catheter without AMI/Heart Failure/Shock
without MCC.
5.............. 226 Cardiac Defibrillator Implant without
Cardiac Catheter with MCC.
5.............. 227 Cardiac Defibrillator Implant without
Cardiac Catheter without MCC.
5.............. 242 Permanent Cardiac Pacemaker Implant with
MCC.
5.............. 243 Permanent Cardiac Pacemaker Implant with
CC.
5.............. 244 Permanent Cardiac Pacemaker Implant
without CC/MCC.
5.............. 245 AICD Generator Procedures.
5.............. 258 Cardiac Pacemaker Device Replacement with
MCC.
5.............. 259 Cardiac Pacemaker Device Replacement
without MCC.
5.............. 260 Cardiac Pacemaker Revision Except Device
Replacement with MCC.
5.............. 261 Cardiac Pacemaker Revision Except Device
Replacement with CC.
5.............. 262 Cardiac Pacemaker Revision Except Device
Replacement without CC/MCC.
5.............. 266 Endovascular Cardiac Valve Replacement
with MCC.
5.............. 267 Endovascular Cardiac Valve Replacement
without MCC.
5.............. 268 Aortic and Heart Assist Procedures Except
Pulsation Balloon with MCC.
5.............. 269 Aortic and Heart Assist Procedures Except
Pulsation Balloon without MCC.
5.............. 270 Other Major Cardiovascular Procedures with
MCC.
5.............. 271 Other Major Cardiovascular Procedures with
CC.
5.............. 272 Other Major Cardiovascular Procedures
without CC/MCC.
8.............. 461 Bilateral or Multiple Major Joint
Procedures Of Lower Extremity with MCC.
8.............. 462 Bilateral or Multiple Major Joint
Procedures of Lower Extremity without
MCC.
8.............. 466 Revision of Hip or Knee Replacement with
MCC.
8.............. 467 Revision of Hip or Knee Replacement with
CC.
8.............. 468 Revision of Hip or Knee Replacement
without CC/MCC.
8.............. 469 Major Joint Replacement or Reattachment of
Lower Extremity with MCC.
8.............. 470 Major Joint Replacement or Reattachment of
Lower Extremity without MCC.
------------------------------------------------------------------------

We are soliciting public comments on our proposal to continue to
include the existing MS-DRGs currently subject to the policy and to not
add any additional MS-DRGs to the policy. The final list of MS-DRGs
subject to the policy for FY 2017 will be listed in the FY 2017 IPPS/
LTCH PPS final rule, as well as issued to providers in the form of a
Change Request (CR).
19. Other Proposed Policy Changes
a. MS-DRG GROUPER Logic
(1) Operations on Products of Conception
In the ICD-9-CM MS-DRGs Version 32, intrauterine operations that
may be performed in an attempt to correct a fetal abnormality are
identified by ICD-9-CM procedure code 75.36 (Correction of fetal
defect). This procedure code is designated as an O.R. procedure and is
assigned to MDC 14 (Pregnancy, Childbirth and the Puerperium) in MS-DRG
768 (Vaginal Delivery with O.R. Procedure Except Sterilization and/or
Dilation and Curettage).
A replication issue for 208 ICD-10-PCS comparable code translations
that describe operations on the products of conception (fetus) to
correct fetal defects was identified during an internal review. These
208 procedure codes were inadvertently omitted from the MDC 14 GROUPER
logic for ICD-10 MS-DRG 768. To resolve this replication issue, we are
proposing to add the 208 ICD-10-PCS procedure codes shown in Table
6P.3a. associated with this proposed rule (which is available via the
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) to MDC 14 in MS-DRG
768, effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are
inviting public comments on our proposal.
Separate from the replication issue described above, during our
internal review, we also concluded that the proposed MS-DRG logic for
these intrauterine procedures under ICD-10 may not accurately represent
a subset of the 208 ICD-10-PCS procedure codes (listed in Table
6P.3a.). For example, the GROUPER logic for MS-DRG 768 requires that a
vaginal delivery occur during the same episode of care in which an
intrauterine procedure is performed. However, this scenario may not be
clinically consistent with all pregnant patients who undergo fetal
surgery. For example, a pregnant patient whose fetus is diagnosed with
a congenital diaphragmatic hernia (CDH) may undergo a fetoscopic
endoluminal tracheal occlusion (FETO) procedure in which the pregnant
patient does not subsequently deliver during the same hospital stay.
The goal of this specific fetal surgery is to allow the fetus to remain
in utero until its lungs have developed to increase the chance of
survival. Therefore, this scenario of a patient who has fetal surgery
but does not have a delivery during the same hospital stay is not
appropriately captured in the GROUPER logic. We believe that further
analysis is warranted regarding a future proposal for a new MS-DRG to
better recognize this subset of patients.
In past rulemaking (72 FR 24700 and 24705), we have acknowledged
that CMS does not have the expertise or data to maintain the DRGs in
clinical areas that have very low volume in the Medicare population,
including for conditions associated with and/or occurring in the
maternal-fetal patient population. Additional information is needed to
fully and accurately evaluate all the possible fetal conditions that
may fall under similar scenarios to the one described above before
making a specific proposal. Therefore, we are soliciting public
comments on two clinical concepts for consideration for a possible
future proposal for the FY 2018 ICD-10 MS-DRGs Version 35: (1) The ICD-
10-CM diagnosis codes and ICD-10-PCS procedure codes that describe
fetal abnormalities for which fetal surgery may be performed in the
absence of a delivery during the same hospital stay; and (2) the ICD-
10-CM diagnosis codes and ICD-10-PCS procedure codes that describe
fetal abnormalities for which fetal surgery

[[Page 25021]]

may be performed with a subsequent delivery during the same hospital
stay. This second concept is the structure of current MS-DRG 768.
Commenters should submit their code recommendations for these concepts
to the following email address [email protected] by
December 7, 2016. We encourage public comments as we consider these
enhancements for the FY 2018 ICD-10 MS-DRGs Version 35.
(2) Other Heart Revascularization
In the ICD-9-CM MS-DRGs Version 32, revascularization procedures
that are performed to restore blood flow to the heart are identified
with procedure code 36.39 (Other heart revascularization). This
procedure code is designated as an O.R. procedure and is assigned to
MDC 5 (Diseases and Disorders of the Circulatory System) in MS-DRGs 228
through 230 (Other Cardiothoracic Procedures with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for 16 ICD-10-PCS comparable code translations
that describe revascularization procedures was identified after
implementation of the ICD-10 MS-DRGs Version 33. These 16 procedure
codes were inadvertently omitted from the MDC 5 GROUPER logic for ICD-
10 MS-DRGs 228 through 230. We note that, as discussed in section
II.F.5.d. of the preamble of this proposed rule, we are proposing to
delete MS-DRG 230 and revise MS-DRG 229. Accordingly, to resolve this
replication issue, we are proposing to add the 16 ICD-10-PCS procedure
codes listed in the table below to MDC 5 in MS-DRG 228 and proposed
revised MS-DRG 229.

We are inviting public comments on our proposal to add the above
listed ICD-10-PCS procedure codes to MDC 5 in MS-DRG 228 and proposed
revised MS-DRG 229 (Other Cardiothoracic Procedures with and without
MCC, respectively), effective October 1, 2016, in ICD-10 MS-DRGs
Version 34.
(3) Procedures on Vascular Bodies: Chemoreceptors
In the ICD-9-CM MS-DRGs Version 32, procedures performed on the
sensory receptors are identified with ICD-9-CM procedure code 39.89
(Other operations on carotid body, carotid sinus and other vascular
bodies). This procedure code is designated as an O.R. procedure and is
assigned to MDC 5 (Diseases and Disorders of the Circulatory System) in
MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC,
and without CC/MCC, respectively).
A replication issue for 234 ICD-10-PCS comparable code translations
that describe these procedures was identified after implementation of
the ICD-10 MS-DRGs Version 33. These 234 procedure codes were
inadvertently omitted from the MDC 5 GROUPER logic for ICD-10 MS-DRGs
252 through 254. To resolve this replication issue, we are proposing to
add the 234 ICD-10-PCS procedure codes listed in Table 6P.3b.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) to MDC 5 in MS-DRG 252, 253,
and 254, effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We
are inviting public comments on our proposal.
(4) Repair of the Intestine
In the ICD-9-CM MS-DRGs Version 32, the procedure for a repair to
the intestine may be identified with procedure code 46.79 (Other repair
of intestine). This procedure code is designated as an O.R. procedure
and is assigned to MDC 6 (Diseases and Disorders of the Digestive
System) in MS-DRGs 329, 330, and 331 (Major Small and Large Bowel
Procedures with MCC, with CC, and without CC/MCC, respectively).
A replication issue for four ICD-10-PCS comparable code
translations was identified after implementation of the ICD-10 MS-DRGs
Version 33. These four procedure codes are:
0DQF0ZZ (Repair right large intestine, open approach);
0DQG0ZZ (Repair left large intestine, open approach);
0DQL0ZZ (Repair transverse colon, open approach); and
0DQM0ZZ (Repair descending colon, open approach).
These four ICD-10-PCS codes were inadvertently omitted from the MDC
6 GROUPER logic for ICD-10 MS-DRGs 329 through 331. To resolve this
replication issue, we are proposing to add the four ICD-10-PCS
procedure codes to MDC 6 in MS-DRG 329, 230, and 331, effective October
1, 2016, in ICD-10 MS-DRGs Version 34. We are inviting public comments
on our proposal.
(5) Insertion of Infusion Pump
In the ICD-9-CM MS-DRGs Version 32, the procedure for insertion of
an infusion pump is identified with procedure code 86.06 (Insertion of

[[Page 25022]]

totally implantable infusion pump), which is designated as an O.R.
procedure and assigned to a number of MDCs and MS-DRGs across various
body systems. We refer readers to the ICD-9-CM MS-DRG Definitions
Manual Appendix E--Operating Room Procedures and Procedure Code/MS-DRG
Index, which is available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Rule-Data-Files.html, for
the complete list of MDCs and MS-DRGs to which procedure code 86.06 is
assigned
A replication issue for 16 ICD-10-PCS comparable code translations
was identified after implementation of the ICD-10 MS-DRGs Version 33.
These 16 procedure codes are listed in the table below:

These codes were inadvertently omitted from the MDCs and MS-DRGs to
which they should be assigned (consistent with the assignment of ICD-9-
CM procedure code 86.06) to accurately replicate the ICD-9-CM MS-DRG
logic. To resolve this replication issue, we are proposing to add the
16 ICD-10-PCS procedure codes listed above to the corresponding MDCs
and MS-DRGs, as set forth in the ICD-9-CM MS-DRG Definitions Manual--
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index
as described earlier, effective October 1, 2016, in ICD-10 MS-DRGs
Version 34. We are inviting public comments on our proposal.
(6) Procedures on the Bursa
In the ICD-9-CM MS-DRGs Version 32, procedures that involve cutting
into the bursa are identified with procedure code 83.03 (Bursotomy).
This procedure code is designated as an O.R. procedure and is assigned
to MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue) in MS-DRGs 500, 501, and 502 (Soft Tissue Procedures
with MCC, with CC, and without CC/MCC, respectively).
A replication issue for six ICD-10-PCS comparable code translations
was identified after implementation of the ICD-10 MS-DRGs Version 33.
These six procedure codes are:
0M850ZZ (Division of right wrist bursa and ligament, open
approach);
0M853ZZ (Division of right wrist bursa and ligament,
percutaneous approach);
0M854ZZ (Division of right wrist bursa and ligament,
percutaneous endoscopic approach);
0M860ZZ (Division of left wrist bursa and ligament, open
approach);
0M863ZZ (Division of left wrist bursa and ligament,
percutaneous approach); and
0M864ZZ (Division of left wrist bursa and ligament,
percutaneous endoscopic approach).
These codes were inadvertently omitted from the MDC 8 GROUPER logic
for ICD-10 MS-DRGs 500, 501, and 502. To resolve this replication
issue, we are proposing to add the six ICD-10-PCS procedure codes
listed above to MDC 8 in MS-DRGs 500, 501, and 502, effective October
1, 2016, in ICD-10 MS-DRGs Version 34. We are inviting public comments
on our proposal.
(7) Procedures on the Breast
In the ICD-9-CM MS-DRGs Version 32, procedures performed for a
simple repair to the skin of the breast may be identified with
procedure code 86.59 (Closure of skin and subcutaneous tissue of other
sites). This procedure code is designated as a non-O.R. procedure.
Therefore, this procedure code does not have an impact on MS-DRG
assignment.
A replication issue for two ICD-10-PCS comparable code translations
was identified after implementation of the ICD-10 MS-DRGs Version 33.
These two procedure codes are: 0HQVXZZ (Repair bilateral breast,
external approach) and 0HQYXZZ (Repair supernumerary breast, external
approach). These ICD-10-PCS procedures codes were inadvertently
assigned to ICD-10 MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC,
respectively) in the ICD-10 MS-DRG GROUPER logic. To resolve this
replication issue, we are proposing to remove these two ICD-10-PCS
procedure codes from MS-DRG 981, 982, and 983, to designate them as
non-O.R. procedures, effective October 1, 2016, in ICD-10 MS-DRGs
Version 34. We are inviting public comments on our proposal.
(8) Excision of Subcutaneous Tissue and Fascia
In the ICD-9-CM MS-DRGs Version 32, procedures involving excision
of the skin and subcutaneous tissue are identified with procedure code
86.3 (Other local excision of lesion or tissue of skin and subcutaneous
tissue). This procedure code is designated as a non-O.R. procedure that
affects MS-DRG assignment for MS-DRGs 579, 580, and 581 (Other Skin,
Subcutaneous Tissue and Breast Procedures with MCC, with CC and without
CC/MCC, respectively) in MDC 9 (Diseases and Disorders of the Skin,
Subcutaneous Tissue and Breast).
A replication issue for 19 ICD-10-PCS comparable code translations
was

[[Page 25023]]

identified after implementation of the ICD-10 MS-DRGs Version 33. These
19 procedure codes are listed in the table below:

------------------------------------------------------------------------
ICD-10-PCS code Description
------------------------------------------------------------------------
0JB03ZZ.................. Excision of scalp subcutaneous tissue and
fascia, percutaneous approach.
0JB43ZZ.................. Excision of anterior neck subcutaneous tissue
and fascia, percutaneous approach.
0JB53ZZ.................. Excision of posterior neck subcutaneous
tissue and fascia, percutaneous approach.
0JB63ZZ.................. Excision of chest subcutaneous tissue and
fascia, percutaneous approach.
0JB73ZZ.................. Excision of back subcutaneous tissue and
fascia, percutaneous approach.
0JB83ZZ.................. Excision of abdomen subcutaneous tissue and
fascia, percutaneous approach.
0JB93ZZ.................. Excision of buttock subcutaneous tissue and
fascia, percutaneous approach.
0JBB3ZZ.................. Excision of perineum subcutaneous tissue and
fascia, percutaneous approach.
0JBC3ZZ.................. Excision of pelvic region subcutaneous tissue
and fascia, percutaneous approach.
0JBD3ZZ.................. Excision of right upper arm subcutaneous
tissue and fascia, percutaneous approach.
0JBF3ZZ.................. Excision of left upper arm subcutaneous
tissue and fascia, percutaneous approach.
0JBG3ZZ.................. Excision of right lower arm subcutaneous
tissue and fascia, percutaneous approach.
0JBH3ZZ.................. Excision of left lower arm subcutaneous
tissue and fascia, percutaneous approach.
0JBL3ZZ.................. Excision of right upper leg subcutaneous
tissue and fascia, percutaneous approach.
0JBM3ZZ.................. Excision of left upper leg subcutaneous
tissue and fascia, percutaneous approach.
0JBN3ZZ.................. Excision of right lower leg subcutaneous
tissue and fascia, percutaneous approach.
0JBP3ZZ.................. Excision of left lower leg subcutaneous
tissue and fascia, percutaneous approach.
0JBQ3ZZ.................. Excision of right foot subcutaneous tissue
and fascia, percutaneous approach.
0JBR3ZZ.................. Excision of left foot subcutaneous tissue and
fascia, percutaneous approach.
------------------------------------------------------------------------

These codes were inadvertently omitted from the ICD-10 MS-DRG
GROUPER logic for MDC 9 in MS-DRGs 579, 580, and 581. To resolve this
replication issue, we are proposing to add the 19 ICD-10-PCS procedure
codes listed in the table above to MDC 9 in MS-DRGs 579, 580, and 581,
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are
inviting public comments on our proposal.
(9) Shoulder Replacement
In the ICD-9-CM MS-DRGs Version 32, procedures that involve
replacing a component of bone from the upper arm are identified with
procedure code 78.42 (Other repair or plastic operations on bone,
humerus). This procedure code is designated as an O.R. procedure and is
assigned to MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue) in MS-DRGs 492, 493, and 494 (Lower Extremity
and Humerus Procedures Except Hip, Foot and Femur with MCC, with CC,
and without CC/MCC, respectively).
A replication issue for two ICD-10-PCS comparable code translations
was identified after implementation of the ICD-10 MS-DRGs Version 33.
These two procedure codes are: 0PRC0JZ (Replacement of right humeral
head with synthetic substitute, open approach) and 0PRD0JZ (Replacement
of left humeral head with synthetic substitute, open approach). These
two codes were inadvertently omitted from the ICD-10 MS-DRG GROUPER
logic for MDC 8 in MS-DRGs 492, 493, and 494. To resolve this
replication issue, we are proposing to add these two ICD-10-PCS
procedure codes to MDC 8 in MS-DRGs 492, 493, and 494, effective
October 1, 2016, in ICD-10 MS-DRGs Version 34. We are inviting public
comments on our proposal.
(10) Reposition
In the ICD-9-CM MS-DRGs Version 32, procedures that involve the
percutaneous repositioning of an area in the vertebra are identified
with procedure code 81.66 (Percutaneous vertebral augmentation). This
procedure code is designated as an O.R. procedure and is assigned to
MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue) in MS-DRGs 515, 516, and 517 (Other Musculoskeletal
System and Connective Tissue Procedures with MCC, with CC, and without
CC/MCC, respectively).
A replication issue for four ICD-10-PCS comparable code
translations was identified after implementation of the ICD-10 MS-DRGs
Version 33. These four procedure codes are:
0PS33ZZ (Reposition cervical vertebra, percutaneous
approach);
0PS43ZZ (Reposition thoracic vertebra, percutaneous
approach);
0QS03ZZ (Reposition lumbar vertebra, percutaneous
approach); and
0QS13ZZ (Reposition sacrum, percutaneous approach).
These four ICD-10PCS procedure codes were inadvertently omitted
from the ICD-10 MS-DRG GROUPER logic for MDC 8 and MS-DRGs 515, 516,
and 517. To resolve this replication issue, we are proposing to add
these four ICD-10-PCS procedure codes to MDC 8 in MS-DRGs 515, 516, and
517, effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are
inviting public comments on our proposal.
(11) Insertion of Infusion Device
In the ICD-9-CM MS-DRGs Version 32, the procedure for insertion of
an infusion pump is identified with procedure code 86.06 (Insertion of
totally implantable infusion pump) which is designated as an O.R.
procedure and assigned to a number of MDCs and MS-DRGs, one of which is
MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue) in MS-DRGs 515, 516, and 517 (Other Musculoskeletal
System and Connective Tissue O.R. Procedures with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for 49 ICD-10-PCS comparable code translations
that describe insertion of an infusion device into a joint or disc was
identified after implementation of the ICD-10 MS-DRGs Version 33. These
49 procedure codes appear to describe procedures that utilize a
specific type of infusion device known as an infusion pump and were
inadvertently omitted from the ICD-10 MS-DRG GROUPER logic for MDC 8.
To resolve this replication issue, we are proposing to add the 49 ICD-
10-PCS procedure codes shown in Table 6P.3c. (which is available via
the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) to MDC 8 in
MS-DRGs 515, 516, and 517, effective October 1, 2016, in ICD-10 MS-DRGs
Version 34. We are inviting public comments on our proposal.
(12) Bladder Neck Repair
In the ICD-9-CM MS-DRGs Version 32, a procedure involving a bladder

[[Page 25024]]

repair is identified with procedure code 57.89 (Other repair of
bladder) which is designated as an O.R. procedure and assigned to MDC
11 (Diseases and Disorders of the Kidney and Urinary Tract) in MS-DRGs
653, 654, and 655 (Major Bladder Procedures with MCC, with CC, and
without CC/MCC, respectively) and MDC 13 (Diseases and Disorders of the
Female Reproductive System) in MS-DRGs 749 and 750 (Other Female
Reproductive System O.R. Procedures with CC/MCC and without CC/MCC,
respectively).
A replication issue for five ICD-10-PCS comparable code
translations that describe a bladder neck repair was identified after
implementation of the ICD-10 MS-DRGs Version 33. These five procedure
codes are:
0TQC0ZZ (Repair Bladder Neck, Open Approach);
0TQC3ZZ (Repair Bladder Neck, Percutaneous Approach);
0TQC4ZZ (Repair Bladder Neck, Percutaneous Endoscopic
Approach);
0TQC7ZZ (Repair Bladder Neck, Via Natural or Artificial
Opening); and
0TQC8ZZ (Repair Bladder Neck, Via Natural or Artificial
Opening Endoscopic).
These five ICD-10-PCS procedure codes were inadvertently omitted
from the ICD-10 MS-DRG GROUPER logic for MDC 11 in MS-DRGs 653, 654,
and 655 and MDC 13 in MS-DRGs 749 and 750. To resolve this replication
issue, we are proposing to add these five ICD-10-PCS procedure codes to
MDC 11 in MS-DRGs 653, 654, and 655 and MDC 13 in MS-DRGs 749 and 750,
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We are
inviting public comments on our proposal.
(13) Future Consideration
We note that commenters have suggested that there are a number of
procedure codes that may not appear to be clinically feasible due to a
specific approach or device value in relation to a unique body part in
a given body system. These commenters have not identified a
comprehensive list of codes to be deleted. However, they have suggested
that CMS examine these codes further. Due to the multiaxial structure
of ICD-10-PCS, the current system allows for multiple possibilities for
a given procedure, some of which may not currently be used. As our
focus to refine the ICD-10 MS-DRGs continues, for FY 2018, we will
begin to conduct an analysis of where such ICD-10-PCS codes may exist.
We welcome suggestions from the public of code refinements that could
address the issue of current ICD-10-PCS codes that capture procedures
that would not reasonably be performed. Commenters should submit their
recommendations for these code refinements to the following email
address: [email protected] by December 7, 2016.
We also note that any suggestions that are received by December 7,
2016 to update ICD-10-PCS, including creating new codes or deleting
existing codes, will be addressed by the ICD-10 Coordination and
Maintenance Committee. Proposals to address the modification of any
ICD-10-PCS codes are discussed at the ICD-10 Coordination and
Maintenance Committee meetings held in March and September of each
year. We refer the reader to section II.F.17. of the preamble of this
proposed rule for information related to this process to request
updates to ICD-10-PCS.
b. Issues Relating to MS-DRG 999 (Ungroupable)
Under the ICD-9-CM MS-DRGs Version 32, a diagnosis of complications
of an obstetric surgical wound after delivery is identified with
diagnosis code 674.32 (Other complications of obstetrical surgical
wounds, delivered, with mention of postpartum complication) and is
assigned to MDC 14 (Pregnancy, Childbirth and the Puerperium) under MS-
DRG 769 (Postpartum and Post Abortion Diagnoses with O.R. Procedure) or
MS-DRG 776 (Postpartum and Post Abortion Diagnoses without O.R.
Procedure). A replication issue under the ICD-10 MS-DRGs Version 33 for
this condition was identified after implementation on October 1, 2015.
Under ICD-10-CM, diagnosis code O90.2 (Hematoma of obstetric wound) is
the comparable translation for ICD-9-CM diagnosis code 674.32. We
discovered that cases where a patient has been readmitted to the
hospital after a delivery and ICD-10-CM diagnosis code O90.2 is
reported as the principal diagnosis are resulting in assignment to MS-
DRG 999 (Ungroupable).
In the ICD-9-CM diagnosis code description, the concept of
``delivery'' is included in the code title. This concept is not present
in the ICD-10-CM classification and has led to a replication issue for
patients who delivered during a previous stay and are subsequently
readmitted for the complication. To resolve this replication issue, we
are proposing to add ICD-10-CM diagnosis code O90.2 to MDC 14 under MS-
DRGs 769 and 776. This refinement would be consistent with the ICD-9-CM
diagnosis code assignment and result in a more accurate replication of
the ICD-9-CM MS-DRGs Version 32.
We are inviting public comments on our proposal to add ICD-10-CM
diagnosis code O90.2 to MS-DRG 769 and MS-DRG 776 in MDC 14, effective
October 1, 2016, in the ICD-10 MS-DRGs Version 34.
c. Other Operating Room (O.R.) and Non-O.R. Issues
(1) O.R. Procedures to Non-O.R. Procedures
For this FY 2017 IPPS/LTCH PPS proposed rule, we continued our
efforts to address the MS-DRG replication issues between ICD-9-CM logic
and ICD-10 that were brought to our attention. As a result of analyzing
those specific requests, we identified areas in the ICD-10-PCS
classification where additional refinements could further support our
replication efforts. We discuss these below.
We evaluated specific groups of ICD-10-PCS procedure codes with
respect to their current operating room (O.R.) designation that were
determined to be inconsistent with the ICD-9-CM procedure codes from
which the designation was initially derived. Our review demonstrated
that these ICD-10-PCS procedure codes should instead have the
attributes of a more logical ICD-9-CM procedure code translation for
MS-DRG replication purposes. As specified below, we are proposing to
change the status of ICD-10-PCS procedure codes from being designated
as O.R. to non-O.R. for the ICD-10 MS-DRGs Version 34. For each group
summarized below, the detailed code lists are shown in Tables 6P.4a.
through 6P.4k. (ICD-10-CM and ICD-10-PCS Codes for Proposed MCE and MS-
DRG Changes--FY 2017) associated with this proposed rule, which are
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
(a) Endoscopic/Transorifice Insertion
We found 72 ICD-10-PCS procedure codes describing an endoscopic/
transorifice (via natural or artificial opening) insertion of infusion
and monitoring devices into various tubular body parts that, when coded
under ICD-9-CM, would reasonably correlate to other noninvasive
catheterization and monitoring types of procedure codes versus an
``incision of [body part]'' or ``other operation on a [body part]''
procedure code. We are proposing that the 72 ICD-10-PCS procedure codes
in Table 6P.4a. associated with this proposed rule (which is available
via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/

[[Page 25025]]

Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be
assigned the attributes of the ICD-9-CM procedure code specified in
column C. The ICD-9-CM procedure codes and descriptions in column C
would replace the ICD-9-CM procedure codes and descriptions reflected
in column D, which are considered less accurate correlations. We are
inviting public comments on this proposal.
(b) Endoscopic/Transorifice Removal
We found 155 ICD-10-PCS procedure codes describing an endoscopic/
transorifice (via natural or artificial opening) removal of common
devices such as a drainage device, infusion device, intraluminal
device, or monitoring device from various tubular body parts that, when
coded under ICD-9-CM, would reasonably correlate to other nonoperative
removal of a wide range of devices/appliances procedure codes versus an
``incision of [body part]'' or ``other operation on a [body part]''
procedure code. We are proposing that the 155 ICD-10-PCS procedure
codes in Table 6P.4b. associated with this proposed rule (which is
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html)
be assigned the attributes of the ICD-9-CM procedure code specified in
column C. The ICD-9-CM procedure codes and descriptions in column C
would replace the ICD-9-CM procedure codes and descriptions reflected
in column D, which are considered less accurate correlations. We are
inviting public comments on this proposal.
(c) Tracheostomy Device Removal
We found five ICD-10-PCS procedure codes describing removal of a
tracheostomy device with various approaches such that, when coded under
ICD-9-CM, would reasonably correlate to the nonoperative removal of a
tracheostomy device procedure code versus an ``incision of [body
part]'' or ``other operation on a [body part]'' procedure code. We
acknowledge that, under ICD-10-PCS, an ``open'' approach is defined as
``cutting through.'' However, this procedure was designated as non-O.R.
under ICD-9-CM. For replication purposes, we are proposing that the
five ICD-10-PCS procedure codes in Table 6P.4c. associated with this
proposed rule (which is available via the Internet on the CMS Web site
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the ICD-9-
CM procedure code specified in column C. The ICD-9-CM procedure codes
and descriptions in column C would replace the ICD-9-CM procedure codes
and descriptions reflected in column D, which are considered less
accurate correlations. We are inviting public comments on this
proposal.
(d) Endoscopic/Percutaneous Insertion
We found 117 ICD-10-PCS procedure codes describing the endoscopic/
percutaneous insertion of infusion and monitoring devices into vascular
and musculoskeletal body parts that, when coded under ICD-9-CM, would
reasonably correlate to other noninvasive catheterization and
monitoring types of procedure codes versus an ``incision of [body
part]'' or ``other operation on a [body part]'' procedure code. We are
proposing that the 117 ICD-10-PCS procedure codes in Table 6P.4d.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html be assigned the attributes
of the ICD-9-CM procedure code specified in column C. The ICD-9-CM
procedure codes and descriptions in column C would replace the ICD-9-CM
procedure codes and descriptions reflected in column D, which are less
accurate correlations. We are inviting public comments on this
proposal.
(e) Percutaneous Removal
We found 124 ICD-10-PCS procedure codes describing the percutaneous
removal of drainage, infusion and monitoring devices from vascular and
musculoskeletal body parts that, when coded under ICD-9-CM, would
reasonably correlate to the nonoperative removal of a wide range of
devices/appliances procedure codes versus an ``incision of [body
part]'' or ``other operation on a [body part]'' procedure code. We are
proposing that the 124 ICD-10-PCS procedure codes in Table 6P.4e.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the
attributes of the ICD-9-CM procedure code specified in column C. The
ICD-9-CM procedure codes and descriptions in column C would replace the
ICD-9-CM procedure codes and descriptions reflected in column D, which
are considered less accurate correlations. We are inviting public
comments on this proposal.
(f) Percutaneous Drainage
We found 518 ICD-10-PCS procedure codes describing the percutaneous
therapeutic drainage of all body sites that do not have specific
percutaneous drainage codes. The list includes procedure codes for
drainage with or without placement of a drainage device. Exceptions to
this are cranial, intracranial and the eye where small incisions are
the norm and appropriately classified as O.R. These 518 ICD-10-PCS
procedures codes, when coded under ICD-9-CM, would reasonably correlate
to the nonoperative puncture or drainage of various body sites and
other miscellaneous procedures versus an ``incision of [body part]''
procedure code. We are proposing that the 518 ICD-10-PCS procedure
codes in Table 6P.4f. associated with this proposed rule (which is
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html)
be assigned the attributes of the ICD-9-CM procedure code specified in
column C. The ICD-9-CM procedure codes and descriptions in column C
would replace the ICD-9-CM procedure codes and descriptions reflected
in column D, which are considered less accurate correlations. We are
inviting public comments on this proposal.
(g) Percutaneous Inspection
We found 131 ICD-10-PCS procedure codes describing the percutaneous
inspection of body part sites, with the exception of the cranial cavity
and brain, whose designation is not consistent with other percutaneous
inspection codes. When coded under ICD-9-CM, these procedure codes
would reasonably correlate to the ``other nonoperative examinations''
and ``other diagnostic procedures on [body part]'' codes where the
approach is not specified and the codes are designated as non-O.R. We
are proposing that the 131 ICD-10-PCS procedure codes in Table 6P.4g.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the
attributes of the ICD-9-CM procedure code specified in column C. The
ICD-9-CM procedure codes and descriptions in column C would replace the
ICD-9-CM procedure codes and descriptions reflected in column D, which
are considered less accurate correlations. We are inviting public
comments on this proposal.

[[Page 25026]]

(h) Inspection Without Incision
We found 40 ICD-10-PCS procedure codes describing the inspection of
various body sites with endoscopic/transorifice and external
approaches. Under ICD-9-CM, these codes would reasonably correlate to
``other diagnostic procedures on [body part]'' codes where the approach
is not specified and the codes are designated as non-O.R. We are
proposing that the 40 ICD-10-PCS codes in Table 6P.4h. associated with
this proposed rule (which is available via the Internet on the CMS Web
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the ICD-9-
CM code specified in column C. The ICD-9-CM codes and descriptions in
column C would replace the ICD-9-CM codes and descriptions reflected in
column D, which are considered less accurate correlations. We are
inviting public comments on this proposal.
(i) Dilation of Stomach
We found six ICD-10-PCS procedure codes describing the dilation of
stomach and pylorus body sites with various approaches whose
designation is not consistent with all other gastrointestinal body
parts dilation codes. Under ICD-9-CM, where a unique dilation code
exists, the approach is not specified and these codes are designated as
non-O.R. Therefore, we are proposing that the six ICD-10-PCS procedure
codes in Table 6P.4i. (which is available via the Internet on the CMS
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the
ICD-9-CM code specified in column C. The ICD-9-CM codes and
descriptions in column C would replace the ICD-9-CM codes and
descriptions reflected in column D, which are considered less accurate
correlations. We are inviting public comments on this proposal.
(j) Endoscopic/Percutaneous Occlusion
We found six ICD-10-PCS codes describing percutaneous occlusion of
esophageal vein with and without a device that, when coded under ICD-9-
CM would reasonably correlate to the endoscopic excision or destruction
of the vessel versus an open surgical procedure. We are proposing that
the six ICD-10-PCS procedure codes in Table 6P.4j. associated with this
proposed rule (which is available via the Internet on the CMS Web site
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be assigned the attributes of the ICD-9-
CM code specified in column C. The ICD-9-CM codes and descriptions in
column C would replace the ICD-9-CM codes and descriptions reflected in
column D, which are considered less accurate correlations. We are
inviting public comments on this proposal.
(k) Infusion Device
We found 82 ICD-10-PCS codes describing the insertion of an
infusion device to various body parts that, when coded under ICD-9-CM,
would reasonably correlate to the insertion of a common infusion
catheter versus the insertion of a totally implantable infusion pump.
We are proposing that the 82 ICD-10-PCS procedure codes in Table 6P.4k.
associated with this proposed rule (which is available via the Internet
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) be assigned the attributes of
the ICD-9-CM code specified in column C. The ICD-9-CM codes and
descriptions in column C would replace the ICD-9-CM codes and
descriptions reflected in column D, which are considered less accurate
correlations. We are inviting public comments on this proposal.
(2) Non-O.R. Procedures to O.R. Procedures
(a) Drainage of Pleural Cavity
In the ICD-9-CM MS-DRGs Version 32 Definitions Manual under
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index,
procedure code 34.06 (Thoracoscopic drainage of pleural cavity) is
designated as an O.R. procedure code and is assigned to MS-DRGs 166
through 168 (Other Respiratory System O.R. Procedures with MCC, with
CC, and without CC/MCC, respectively) in MDC 4 (Diseases and Disorders
of the Respiratory System).
A replication issue regarding the procedure code designation and
MS-DRG assignment for the comparable code translations under the ICD-10
MS-DRGs Version 33 was brought to our attention after implementation on
October 1, 2015. The replication issue involves the following four ICD-
10-PCS procedure codes:
0W9940Z (Drainage of right pleural cavity with drainage
device, percutaneous endoscopic approach);
0W994ZZ (Drainage of right pleural cavity, percutaneous
endoscopic approach);
0W9B40Z (Drainage of left pleural cavity with drainage
device, percutaneous endoscopic approach); and
0W9B4ZZ (Drainage of left pleural cavity, percutaneous
endoscopic approach).
In the ICD-10 MS-DRGs Version 33, these four ICD-10-PCS procedure
codes are not recognized as O.R. procedures for purposes of MS-DRG
assignment. We agree that this was a replication error and the
designation and MS-DRG assignment should be consistent with the
designation and MS-DRG assignment of ICD-9-CM procedure code 34.06.
To resolve this replication issue, we are proposing to add ICD-10-
PCS procedure codes 0W9940Z, 0W994ZZ, 0W9B40Z, and 0W9B4ZZ to the FY
2017 ICD-10 MS-DRGs Version 34 Definitions Manual in Appendix E--
Operating Room Procedures and Procedure Code/MS-DRG Index as O.R.
procedures assigned to MS-DRGs 166 through 168 in MDC 4. We are
inviting public comments on our proposal.
(b) Drainage of Cerebral Ventricle
In the ICD-9-CM MS-DRGs Version 32 Definitions Manual under
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index,
procedure code 02.22 (Intracranial ventricular shunt or anastomosis) is
designated as an O.R. procedure code and is assigned to MS-DRGs 023
through 027, collectively referred to as the ``Craniotomy'' MS-DRGs, in
MDC 1 (Diseases and Disorders of the Nervous System).
A replication issue regarding the procedure code designation and
MS-DRG assignment for the comparable code translations under the ICD-10
MS-DRGs Version 33 was brought to our attention after implementation on
October 1, 2015. The replication issue involves the following ICD-10-
PCS procedure codes:

------------------------------------------------------------------------
ICD-10-PCS procedure code Description
------------------------------------------------------------------------
009130Z.................. Drainage of cerebral meninges with drainage
device, percutaneous approach.
00913ZZ.................. Drainage of cerebral meninges, percutaneous
approach.
009140Z.................. Drainage of cerebral meninges with drainage
device, percutaneous endoscopic approach.

[[Page 25027]]

00914ZZ.................. Drainage of cerebral meninges with drainage
device, percutaneous endoscopic approach.
009230Z.................. Drainage of dura mater with drainage device,
percutaneous approach.
00923ZZ.................. Drainage of dura mater, percutaneous
approach.
009240Z.................. Drainage of dura mater with drainage device,
percutaneous endoscopic approach.
00924ZZ.................. Drainage of dura mater, percutaneous
endoscopic approach.
009430Z.................. Drainage of subdural space with drainage
device, percutaneous approach.
00943ZZ.................. Drainage of subdural space, percutaneous
approach.
009440Z.................. Drainage of subdural space with drainage
device, percutaneous endoscopic approach.
00944ZZ.................. Drainage of subdural space, percutaneous
endoscopic approach.
009530Z.................. Drainage of subarachnoid space with drainage
device, percutaneous approach.
00953ZZ.................. Drainage of subarachnoid space, percutaneous
approach.
009540Z.................. Drainage of subarachnoid space with drainage
device, percutaneous endoscopic approach.
00954ZZ.................. Drainage of subarachnoid space, percutaneous
endoscopic approach.
00963ZZ.................. Drainage of cerebral ventricle, percutaneous
approach.
00964ZZ.................. Drainage of cerebral ventricle, percutaneous
endoscopic approach.
------------------------------------------------------------------------

In the ICD-10 MS-DRGs Version 33, these ICD-10-PCS procedure codes
are not recognized as O.R. procedures for purposes of MS-DRG
assignment. We agree that this was a replication error and their
translation should be consistent with the designation and MS-DRG
assignment of ICD-9-CM procedure 02.22.
To resolve this replication issue, we are proposing to add the ICD-
10-PCS procedure codes listed above to the FY 2017 ICD-10 MS-DRGs
Version 34 Definitions Manual in Appendix E--Operating Room Procedures
and Procedure Code/MS-DRG Index as O.R. procedures assigned to MS-DRGs
023 through 027 in MDC 1. We are inviting public comments on our
proposal.

G. Recalibration of the Proposed FY 2017 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights
In developing the proposed FY 2017 system of weights, we used two
data sources: Claims data and cost report data. As in previous years,
the claims data source is the MedPAR file. This file is based on fully
coded diagnostic and procedure data for all Medicare inpatient hospital
bills. The FY 2015 MedPAR data used in this proposed rule include
discharges occurring on October 1, 2014, through September 30, 2015,
based on bills received by CMS through December 31, 2015, from all
hospitals subject to the IPPS and short-term, acute care hospitals in
Maryland (which at that time were under a waiver from the IPPS). The FY
2015 MedPAR file used in calculating the proposed relative weights
includes data for approximately 9,706,869 Medicare discharges from IPPS
providers. Discharges for Medicare beneficiaries enrolled in a Medicare
Advantage managed care plan are excluded from this analysis. These
discharges are excluded when the MedPAR ``GHO Paid'' indicator field on
the claim record is equal to ``1'' or when the MedPAR DRG payment
field, which represents the total payment for the claim, is equal to
the MedPAR ``Indirect Medical Education (IME)'' payment field,
indicating that the claim was an ``IME only'' claim submitted by a
teaching hospital on behalf of a beneficiary enrolled in a Medicare
Advantage managed care plan. In addition, the December 31, 2015 update
of the FY 2015 MedPAR file complies with version 5010 of the X12 HIPAA
Transaction and Code Set Standards, and includes a variable called
``claim type.'' Claim type ``60'' indicates that the claim was an
inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,''
``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME
claims, and HMO no-pay claims. Therefore, the calculation of the
proposed relative weights for FY 2017 also excludes claims with claim
type values not equal to ``60.'' The data exclude CAHs, including
hospitals that subsequently became CAHs after the period from which the
data were taken. We note that the proposed FY 2017 relative weights are
based on the ICD-9-CM diagnoses and procedures codes from the FY 2015
MedPAR claims data, grouped through the ICD-9-CM version of the FY 2017
GROUPER (Version 34).
The second data source used in the cost-based relative weighting
methodology is the Medicare cost report data files from the HCRIS.
Normally, we use the HCRIS dataset that is 3 years prior to the IPPS
fiscal year. Specifically, we used cost report data from the December
31, 2015 update of the FY 2014 HCRIS for calculating the proposed FY
2017 cost-based relative weights.
2. Methodology for Calculation of the Proposed Relative Weights
As we explain in section II.E.2. of the preamble of this proposed
rule, we calculated the proposed FY 2017 relative weights based on 19
CCRs, as we did for FY 2016. The methodology we used to calculate the
proposed FY 2017 MS-DRG cost-based relative weights based on claims
data in the FY 2015 MedPAR file and data from the FY 2014 Medicare cost
reports is as follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2017 MS-DRG classifications discussed in sections
II.B. and II.F. of the preamble of this proposed rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 2015 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those
facilities that have received approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis. Because
these acquisition costs are paid separately from the prospective
payment rate, it is necessary to subtract the acquisition charges from
the total charges on each transplant bill that showed acquisition
charges before computing the average cost for each MS-DRG and before
eliminating statistical outliers.
Claims with total charges or total lengths of stay less
than or equal to zero were deleted. Claims that had an amount in the
total charge field that differed by more than $10.00 from the sum of
the routine day charges,

[[Page 25028]]

intensive care charges, pharmacy charges, special equipment charges,
therapy services charges, operating room charges, cardiology charges,
laboratory charges, radiology charges, other service charges, labor and
delivery charges, inhalation therapy charges, emergency room charges,
blood charges, and anesthesia charges were also deleted.
At least 92.4 percent of the providers in the MedPAR file
had charges for 14 of the 19 cost centers. All claims of providers that
did not have charges greater than zero for at least 14 of the 19 cost
centers were deleted. In other words, a provider must have no more than
five blank cost centers. If a provider did not have charges greater
than zero in more than five cost centers, the claims for the provider
were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the geometric mean of the
log distribution of both the total charges per case and the total
charges per day for each MS-DRG.
Effective October 1, 2008, because hospital inpatient
claims include a POA indicator field for each diagnosis present on the
claim, only for purposes of relative weight-setting, the POA indicator
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have
an ``N'' (No) or a ``U'' (documentation insufficient to determine if
the condition was present at the time of inpatient admission) in the
POA field.
Under current payment policy, the presence of specific HAC codes,
as indicated by the POA field values, can generate a lower payment for
the claim. Specifically, if the particular condition is present on
admission (that is, a ``Y'' indicator is associated with the diagnosis
on the claim), it is not a HAC, and the hospital is paid for the higher
severity (and, therefore, the higher weighted MS-DRG). If the
particular condition is not present on admission (that is, an ``N''
indicator is associated with the diagnosis on the claim) and there are
no other complicating conditions, the DRG GROUPER assigns the claim to
a lower severity (and, therefore, the lower weighted MS-DRG) as a
penalty for allowing a Medicare inpatient to contract a HAC. While the
POA reporting meets policy goals of encouraging quality care and
generates program savings, it presents an issue for the relative
weight-setting process. Because cases identified as HACs are likely to
be more complex than similar cases that are not identified as HACs, the
charges associated with HAC cases are likely to be higher as well.
Therefore, if the higher charges of these HAC claims are grouped into
lower severity MS-DRGs prior to the relative weight-setting process,
the relative weights of these particular MS-DRGs would become
artificially inflated, potentially skewing the relative weights. In
addition, we want to protect the integrity of the budget neutrality
process by ensuring that, in estimating payments, no increase to the
standardized amount occurs as a result of lower overall payments in a
previous year that stem from using weights and case-mix that are based
on lower severity MS-DRG assignments. If this would occur, the
anticipated cost savings from the HAC policy would be lost.
To avoid these problems, we reset the POA indicator field to ``Y''
only for relative weight-setting purposes for all claims that otherwise
have an ``N'' or a ``U'' in the POA field. This resetting ``forced''
the more costly HAC claims into the higher severity MS-DRGs as
appropriate, and the relative weights calculated for each MS-DRG more
closely reflect the true costs of those cases.
In addition, in the FY 2013 IPPS/LTCH PPS final rule, for FY 2013
and subsequent fiscal years, we finalized a policy to treat hospitals
that participate in the Bundled Payments for Care Improvement (BPCI)
initiative the same as prior fiscal years for the IPPS payment modeling
and ratesetting process without regard to hospitals' participation
within these bundled payment models (that is, as if hospitals were not
participating in those models under the BPCI initiative). The BPCI
initiative, developed under the authority of section 3021 of the
Affordable Care Act (codified at section 1115A of the Act), is
comprised of four broadly defined models of care, which link payments
for multiple services beneficiaries receive during an episode of care.
Under the BPCI initiative, organizations enter into payment
arrangements that include financial and performance accountability for
episodes of care. For FY 2017, we are proposing to continue to include
all applicable data from subsection (d) hospitals participating in BPCI
Models 1, 2, and 4 in our IPPS payment modeling and ratesetting
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule
for a complete discussion on our final policy for the treatment of
hospitals participating in the BPCI initiative in our ratesetting
process. For additional information on the BPCI initiative, we refer
readers to the CMS' Center for Medicare and Medicaid Innovation's Web
site at: http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53341 through 53343).
Once the MedPAR data were trimmed and the statistical outliers were
removed, the charges for each of the 19 cost groups for each claim were
standardized to remove the effects of differences in area wage levels,
IME and DSH payments, and for hospitals located in Alaska and Hawaii,
the applicable cost-of-living adjustment. Because hospital charges
include charges for both operating and capital costs, we standardized
total charges to remove the effects of differences in geographic
adjustment factors, cost-of-living adjustments, and DSH payments under
the capital IPPS as well. Charges were then summed by MS-DRG for each
of the 19 cost groups so that each MS-DRG had 19 standardized charge
totals. These charges were then adjusted to cost by applying the
national average CCRs developed from the FY 2014 cost report data.
The 19 cost centers that we used in the proposed relative weight
calculation are shown in the following table. The table shows the lines
on the cost report and the corresponding revenue codes that we used to
create the proposed 19 national cost center CCRs. If stakeholders have
comments about the groupings in this table, we may consider those
comments as we finalize our policy.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare charges
Revenue codes Cost from HCRIS Charges from HCRIS from HCRIS
Cost center group name (19 MedPAR charge contained in Cost report line (worksheet C, Part (worksheet C, Part (worksheet D-3,
total) field MedPAR charge description 1, column 5 and 1, column 6 & 7 column & line
field line number) form and line number) number) form CMS-
CMS-2552-10 form CMS-2552-10 2552-10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Routine Days.................... Private Room 011X and 014X..... Adults & C_1_C5_30......... C_1_C6_30......... D3_HOS_C2_30
Charges. Pediatrics
(General Routine
Care).

[[Page 25029]]

Semi[dash]Private 012X, 013X and
Room Charges. 016X-019X.
Ward Charges...... 015X..............
Intensive Days.................. Intensive Care 020X.............. Intensive Care C_1_C5_31......... C_1_C6_31......... D3_HOS_C2_31
Charges. Unit.
Coronary Care 021X.............. Coronary Care Unit C_1_C5_32......... C_1_C6_32......... D3_HOS_C2_32
Charges.
Burn Intensive C_1_C5_33......... C_1_C6_33......... D3_HOS_C2_33
Care Unit.
Surgical Intensive C_1_C5_34......... C_1_C6_34......... D3_HOS_C2_34
Care Unit.
Other Special Care C_1_C5_35......... C_1_C6_35......... D3_HOS_C2_35
Unit.
Drugs........................... Pharmacy Charges.. 025X, 026X and Intravenous C_1_C5_64......... C_1_C6_64......... D3_HOS_C2_64
063X. Therapy. C_1_C7_64.........
Drugs Charged To C_1_C5_73......... C_1_C6_73......... D3_HOS_C2_73
Patient. C_1_C7_73.........
Supplies and Equipment.......... Medical/Surgical 0270, 0271, 0272, Medical Supplies C_1_C5_71......... C_1_C6_71......... D3_HOS_C2_71
Supply Charges. 0273, 0274, 0277, Charged to C_1_C7_71.........
0279, and 0621, Patients.
0622, 0623.
Durable Medical 0290, 0291, 0292 DME[dash]Rented... C_1_C5_96......... C_1_C6_96......... D3_HOS_C2_96
Equipment Charges. and C_1_C7_96.........
0294[dash]0299.
Used Durable 0293.............. DME[dash]Sold..... C_1_C5_97......... C_1_C6_97......... D3_HOS_C2_97
Medical Charges. C_1_C7_97.........
Implantable Devices............. .................. 0275, 0276, 0278, Implantable C_1_C5_72......... C_1_C6_72......... D3_HOS_C2_72
0624. Devices Charged C_1_C7_72.........
to Patients.
Therapy Services................ Physical Therapy 042X.............. Physical Therapy.. C_1_C5_66......... C_1_C6_66......... D3_HOS_C2_66
Charges. C_1_C7_66.........
Occupational 043X.............. Occupational C_1_C5_67......... C_1_C6_67......... D3_HOS_C2_67
Therapy Charges. Therapy. C_1_C7_67.........
Speech Pathology 044X and 047X..... Speech Pathology.. C_1_C5_68......... C_1_C6_68......... D3_HOS_C2_68
Charges. C_1_C7_68.........
Inhalation Therapy.............. Inhalation Therapy 041X and 046X..... Respiratory C_1_C5_65......... C_1_C6_65......... D3_HOS_C2_65
Charges. Therapy. C_1_C7_65.........
Operating Room.................. Operating Room 036X.............. Operating Room.... C_1_C5_50......... C_1_C6_50......... D3_HOS_C2_50
Charges. C_1_C7_50.........
071X.............. Recovery Room..... C_1_C5_51......... C_1_C6_51......... D3_HOS_C2_51
C_1_C7_51.........
Labor & Delivery................ Operating Room 072X.............. Delivery Room and C_1_C5_52......... C_1_C6_52......... D3_HOS_C2_52
Charges. Labor Room. C_1_C7_52.........
Anesthesia...................... Anesthesia Charges 037X.............. Anesthesiology.... C_1_C5_53......... C_1_C6_53......... D3_HOS_C2_53
C_1_C7_53.........
Cardiology...................... Cardiology Charges 048X and 073X..... Electro-cardiology C_1_C5_69......... C_1_C6_69......... D3_HOS_C2_69
C_1_C7_69.........
Cardiac Catheterization......... .................. 0481.............. Cardiac C_1_C5_59......... C_1_C6_59......... D3_HOS_C2_59
Catheterization. C_1_C7_59.........
Laboratory...................... Laboratory Charges 030X, 031X, and Laboratory........ C_1_C5_60......... C_1_C6_60......... D3_HOS_C2_60
075X. C_1_C7_60.........
PBP Clinic C_1_C5_61......... C_1_C6_61......... D3_HOS_C2_61
Laboratory C_1_C7_61.........
Services.
074X, 086X........ Electro- C_1_C5_70......... C_1_C6_70......... D3_HOS_C2_70
Encephalography. C_1_C7_70.........
Radiology....................... Radiology Charges. 032X, 040X........ Radiology--Diagnos C_1_C5_54......... C_1_C6_54......... D3_HOS_C2_54
tic. C_1_C7_54.........
028x, 0331, 0332, Radiology--Therape C_1_C5_55......... C_1_C6_55......... D3_HOS_C2_55
0333, 0335, 0339, utic.
0342.
0343 and 344...... Radioisotope...... C_1_C5_56......... C_1_C6_56......... D3_HOS_C2_56
C_1_C7_56.........
Computed Tomography (CT) Scan... CT Scan Charges... 035X.............. Computed C_1_C5_57......... C_1_C6_57......... D3_HOS_C2_57
Tomography (CT) C_1_C7_57.........
Scan.

[[Page 25030]]

Magnetic Resonance Imaging (MRI) MRI Charges....... 061X.............. Magnetic Resonance C_1_C5_58......... C_1_C6_58......... D3_HOS_C2_58
Imaging (MRI). C_1_C7_58.........
Emergency Room.................. Emergency Room 045x.............. Emergency......... C_1_C5_91......... C_1_C6_91......... D3_HOS_C2_91
Charges. C_1_C7_91.........
Blood and Blood Products........ Blood Charges..... 038x.............. Whole Blood & C_1_C5_62......... C_1_C6_62......... D3_HOS_C2_62
Packed Red Blood C_1_C7_62.........
Cells.
Blood Storage/ 039x.............. Blood Storing, C_1_C5_63......... C_1_C6_63......... D3_HOS_C2_63
Processing. Processing, & C_1_C7_63.........
Transfusing.
Other Services.................. Other Service 0002-0099, 022X,
Charge. 023X, 024X, 052X,
053X.
055X-060X, 064X-
070X, 076X-078X,
090X-095X and
099X.
Renal Dialysis.... 0800X............. Renal Dialysis.... C_1_C5_74......... C_1_C6_74......... D3_HOS_C2_74
ESRD Revenue 080X and 082X-088X C_1_C7_74.........
Setting Charges.
Home Program C_1_C5_94......... C_1_C6_94......... D3_HOS_C2_94
Dialysis. C_1_C7_94.........
Outpatient Service 049X.............. ASC (Non Distinct C_1_C5_75......... C_1_C6_75......... D3_HOS_C2_75
Charges. Part). C_1_C7_75.........
Lithotripsy Charge 079X..............
Other Ancillary... C_1_C5_76......... C_1_C6_76......... D3_HOS_C2_76
C_1_C7_76.........
Clinic Visit 051X.............. Clinic............ C_1_C5_90......... C_1_C6_90......... D3_HOS_C2_90
Charges. C_1_C7_90.........
Observation beds.. C_1_C5_92.01...... C_1_C6_92.01...... D3_HOS_C2_92.01
C_1_C7_92.01......
Professional Fees 096X, 097X, and Other Outpatient C_1_C5_93......... C_1_C6_93......... D3_HOS_C2_93
Charges. 098X. Services. C_1_C7_93.........
Ambulance Charges. 054X.............. Ambulance......... C_1_C5_95......... C_1_C6_95......... D3_HOS_C2_95
C_1_C7_95.........
Rural Health C_1_C5_88......... C_1_C6_88......... D3_HOS_C2_88
Clinic. C_1_C7_88.........
FQHC.............. C_1_C5_89......... C_1_C6_89......... D3_HOS_C2_89
C_1_C7_89.........
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Development of National Average CCRs
We developed the national average CCRs as follows:
Using the FY 2014 cost report data, we removed CAHs, Indian Health
Service hospitals, all-inclusive rate hospitals, and cost reports that
represented time periods of less than 1 year (365 days). We included
hospitals located in Maryland because we include their charges in our
claims database. We then created CCRs for each provider for each cost
center (see prior table for line items used in the calculations) and
removed any CCRs that were greater than 10 or less than 0.01. We
normalized the departmental CCRs by dividing the CCR for each
department by the total CCR for the hospital for the purpose of
trimming the data. We then took the logs of the normalized cost center
CCRs and removed any cost center CCRs where the log of the cost center
CCR was greater or less than the mean log plus/minus 3 times the
standard deviation for the log of that cost center CCR. Once the cost
report data were trimmed, we calculated a Medicare-specific CCR. The
Medicare-specific CCR was determined by taking the Medicare charges for
each line item from Worksheet D-3 and deriving the Medicare-specific
costs by applying the hospital-specific departmental CCRs to the
Medicare-specific charges for each line item from Worksheet D-3. Once
each hospital's Medicare-specific costs were established, we summed the
total Medicare-specific costs and divided by the sum of the total
Medicare-specific charges to produce national average, charge-weighted
CCRs.
After we multiplied the total charges for each MS-DRG in each of
the 19 cost centers by the corresponding national average CCR, we
summed the 19 ``costs'' across each MS-DRG to produce a total
standardized cost for the MS-DRG. The average standardized cost for
each MS-DRG was then computed as the total standardized cost for the
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The
average cost for each MS-DRG was then divided by the national average
standardized cost per case to determine the relative weight.
The proposed FY 2017 cost-based relative weights were then
normalized by an adjustment factor of 1.690233 so that the average case
weight after recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total

[[Page 25031]]

payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of
the Act.
The proposed 19 national average CCRs for FY 2017 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days................................................. 0.459
Intensive Days............................................... 0.378
Drugs........................................................ 0.194
Supplies & Equipment......................................... 0.298
Implantable Devices.......................................... 0.336
Therapy Services............................................. 0.322
Laboratory................................................... 0.120
Operating Room............................................... 0.192
Cardiology................................................... 0.113
Cardiac Catheterization...................................... 0.119
Radiology.................................................... 0.154
MRIs......................................................... 0.079
CT Scans..................................................... 0.039
Emergency Room............................................... 0.172
Blood and Blood Products..................................... 0.325
Other Services............................................... 0.368
Labor & Delivery............................................. 0.411
Inhalation Therapy........................................... 0.170
Anesthesia................................................... 0.090
------------------------------------------------------------------------

Since FY 2009, the relative weights have been based on 100 percent
cost weights based on our MS-DRG grouping system.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. For FY 2017, we are proposing to use that
same case threshold in recalibrating the MS-DRG relative weights for FY
2017. Using data from the FY 2015 MedPAR file, there were 8 MS-DRGs
that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-
volume DRGs than under the CMS DRGs because we no longer have separate
DRGs for patients aged 0 to 17 years. With the exception of newborns,
we previously separated some DRGs based on whether the patient was age
0 to 17 years or age 17 years and older. Other than the age split,
cases grouping to these DRGs are identical. The DRGs for patients aged
0 to 17 years generally have very low volumes because children are
typically ineligible for Medicare. In the past, we have found that the
low volume of cases for the pediatric DRGs could lead to significant
year-to-year instability in their relative weights. Although we have
always encouraged non-Medicare payers to develop weights applicable to
their own patient populations, we have received frequent complaints
from providers about the use of the Medicare relative weights in the
pediatric population. We believe that eliminating this age split in the
MS-DRGs will provide more stable payment for pediatric cases by
determining their payment using adult cases that are much higher in
total volume. Newborns are unique and require separate MS-DRGs that are
not mirrored in the adult population. Therefore, it remains necessary
to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs
listed are for newborns. For FY 2017, because we do not have sufficient
MedPAR data to set accurate and stable cost relative weights for these
low-volume MS-DRGs, we are proposing to compute relative weights for
the low-volume MS-DRGs by adjusting their final FY 2016 relative
weights by the percentage change in the average weight of the cases in
other MS-DRGs. The crosswalk table is shown:

------------------------------------------------------------------------
Low-volume MS-DRG MS-DRG title Crosswalk to MS-DRG
------------------------------------------------------------------------
768...................... Vaginal Delivery Final FY 2016 relative
with O.R. weight (adjusted by
Procedure Except percent change in
Sterilization and/ average weight of the
or D&C. cases in other MS-
DRGs).
789...................... Neonates, Died or Final FY 2016 relative
Transferred to weight (adjusted by
Another Acute Care percent change in
Facility. average weight of the
cases in other MS-
DRGs).
790...................... Extreme Immaturity Final FY 2016 relative
or Respiratory weight (adjusted by
Distress Syndrome, percent change in
Neonate. average weight of the
cases in other MS-
DRGs).
791...................... Prematurity with Final FY 2016 relative
Major Problems. weight (adjusted by
percent change in
average weight of the
cases in other MS-
DRGs).
792...................... Prematurity without Final FY 2016 relative
Major Problems. weight (adjusted by
percent change in
average weight of the
cases in other MS-
DRGs).
793...................... Full-Term Neonate Final FY 2016 relative
with Major weight (adjusted by
Problems. percent change in
average weight of the
cases in other MS-
DRGs).
794...................... Neonate with Other Final FY 2016 relative
Significant weight (adjusted by
Problems. percent change in
average weight of the
cases in other MS-
DRGs).
795...................... Normal Newborn..... Final FY 2016 relative
weight (adjusted by
percent change in
average weight of the
cases in other MS-
DRGs).
------------------------------------------------------------------------

We are inviting public comments on this proposal.

H. Proposed Add-On Payments for New Services and Technologies for FY
2017

1. Background
Sections 1886(d)(5)(K) and (L) of the Act establish a process of
identifying and ensuring adequate payment for new medical services and
technologies (sometimes collectively referred to in this section as
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the
Act specifies that a medical service or technology will be considered
new if it meets criteria established by the Secretary after notice and
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that a new medical service or technology may be considered
for new technology add-on payment if, based on the estimated costs
incurred with respect to discharges involving such service or
technology, the DRG prospective payment rate otherwise applicable to
such discharges under this subsection is inadequate. We note that,
beginning with discharges occurring in FY 2008, CMS transitioned from
CMS-DRGs to MS-DRGs.
The regulations at 42 CFR 412.87 implement these provisions and
specify three criteria for a new medical service or technology to
receive the additional payment: (1) The medical service or technology
must be new; (2) the medical service or technology must be costly such
that the DRG rate otherwise applicable to discharges involving the
medical service or technology is determined to be inadequate; and (3)
the service or technology must demonstrate a substantial clinical
improvement over existing services or technologies. Below we highlight
some of the major statutory and regulatory provisions relevant to the
new technology add-on payment criteria, as well as other information.
For a complete discussion on the new technology add-on payment
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76
FR 51572 through 51574).
Under the first criterion, as reflected in Sec. 412.87(b)(2), a
specific medical service or technology will be considered ``new'' for
purposes of new medical service or technology add-on payments

[[Page 25032]]

until such time as Medicare data are available to fully reflect the
cost of the technology in the MS-DRG weights through recalibration. We
note that we do not consider a service or technology to be new if it is
substantially similar to one or more existing technologies. That is,
even if a technology receives a new FDA approval, it may not
necessarily be considered ``new'' for purposes of new technology add-on
payments if it is ``substantially similar'' to a technology that was
approved by FDA and has been on the market for more than 2 to 3 years.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through
43814), we established criteria for evaluating whether a new technology
is substantially similar to an existing technology, specifically: (1)
Whether a product uses the same or a similar mechanism of action to
achieve a therapeutic outcome; (2) whether a product is assigned to the
same or a different MS-DRG; and (3) whether the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population. If a technology
meets all three of these criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments. For a detailed
discussion of the criteria for substantial similarity, we refer readers
to the FY 2006 IPPS final rule (70 FR 47351 through 47352), and the FY
2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814).
Under the second criterion, Sec. 412.87(b)(3) further provides
that, to be eligible for the add-on payment for new medical services or
technologies, the MS-DRG prospective payment rate otherwise applicable
to the discharge involving the new medical services or technologies
must be assessed for adequacy. Under the cost criterion, consistent
with the formula specified in section 1886(d)(5)(K)(ii)(I) of the Act,
to assess the adequacy of payment for a new technology paid under the
applicable MS-DRG prospective payment rate, we evaluate whether the
charges for cases involving the new technology exceed certain threshold
amounts. Table 10 that was released with the FY 2016 IPPS/LTCH PPS
final rule contains the final thresholds that we used to evaluate
applications for new medical service and new technology add-on payments
for FY 2017. We refer readers to the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2016-IPPS-Final-Rule-Home-Page-Items/FY2016-IPPS-Final-Rule-Tables.html to download and view Table 10.
In the September 7, 2001 final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed the
issue of whether the Health Insurance Portability and Accountability
Act (HIPAA) Privacy Rule at 45 CFR parts 160 and 164 applies to claims
information that providers submit with applications for new medical
service and new technology add-on payments. We refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR 51573) for complete information on
this issue.
Under the third criterion, Sec. 412.87(b)(1) of our existing
regulations provides that a new technology is an appropriate candidate
for an additional payment when it represents an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries. For example, a
new technology represents a substantial clinical improvement when it
reduces mortality, decreases the number of hospitalizations or
physician visits, or reduces recovery time compared to the technologies
previously available. (We refer readers to the September 7, 2001 final
rule for a more detailed discussion of this criterion (66 FR 46902).)
The new medical service or technology add-on payment policy under
the IPPS provides additional payments for cases with relatively high
costs involving eligible new medical services or technologies while
preserving some of the incentives inherent under an average-based
prospective payment system. The payment mechanism is based on the cost
to hospitals for the new medical service or technology. Under Sec.
412.88, if the costs of the discharge (determined by applying cost-to-
charge ratios (CCRs) as described in Sec. 412.84(h)) exceed the full
DRG payment (including payments for IME and DSH, but excluding outlier
payments), Medicare will make an add-on payment equal to the lesser of:
(1) 50 percent of the estimated costs of the new technology or medical
service (if the estimated costs for the case including the new
technology or medical service exceed Medicare's payment); or (2) 50
percent of the difference between the full DRG payment and the
hospital's estimated cost for the case. Unless the discharge qualifies
for an outlier payment, the additional Medicare payment is limited to
the full MS-DRG payment plus 50 percent of the estimated costs of the
new technology or new medical service.
Section 503(d)(2) of Public Law 108-173 provides that there shall
be no reduction or adjustment in aggregate payments under the IPPS due
to add-on payments for new medical services and technologies.
Therefore, in accordance with section 503(d)(2) of Public Law 108-173,
add-on payments for new medical services or technologies for FY 2005
and later years have not been subjected to budget neutrality.
In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we
modified our regulations at Sec. 412.87 to codify our longstanding
practice of how CMS evaluates the eligibility criteria for new medical
service or technology add-on payment applications. That is, we first
determine whether a medical service or technology meets the newness
criterion, and only if so, do we then make a determination as to
whether the technology meets the cost threshold and represents a
substantial clinical improvement over existing medical services or
technologies. We amended Sec. 412.87(c) to specify that all applicants
for new technology add-on payments must have FDA approval or clearance
for their new medical service or technology by July 1 of each year
prior to the beginning of the fiscal year that the application is being
considered.
The Council on Technology and Innovation (CTI) at CMS oversees the
agency's cross-cutting priority on coordinating coverage, coding and
payment processes for Medicare with respect to new technologies and
procedures, including new drug therapies, as well as promoting the
exchange of information on new technologies and medical services
between CMS and other entities. The CTI, composed of senior CMS staff
and clinicians, was established under section 942(a) of Public Law 108-
173. The Council is co-chaired by the Director of the Center for
Clinical Standards and Quality (CCSQ) and the Director of the Center
for Medicare (CM), who is also designated as the CTI's Executive
Coordinator.
The specific processes for coverage, coding, and payment are
implemented by CM, CCSQ, and the local claims-payment contractors (in
the case of local coverage and payment decisions). The CTI supplements,
rather than replaces, these processes by working to assure that all of
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to
streamline, accelerate, and improve coordination of these processes to
ensure that they remain up to date as new issues arise. To achieve its
goals, the CTI works to streamline and create a more transparent coding
and payment process, improve the quality of medical

[[Page 25033]]

decisions, and speed patient access to effective new treatments. It is
also dedicated to supporting better decisions by patients and doctors
in using Medicare-covered services through the promotion of better
evidence development, which is critical for improving the quality of
care for Medicare beneficiaries.
To improve the understanding of CMS' processes for coverage,
coding, and payment and how to access them, the CTI has developed an
``Innovator's Guide'' to these processes. The intent is to consolidate
this information, much of which is already available in a variety of
CMS documents and in various places on the CMS Web site, in a user-
friendly format. This guide was published in 2010 and is available on
the CMS Web site at: http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.
As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we
invite any product developers or manufacturers of new medical services
or technologies to contact the agency early in the process of product
development if they have questions or concerns about the evidence that
would be needed later in the development process for the agency's
coverage decisions for Medicare.
The CTI aims to provide useful information on its activities and
initiatives to stakeholders, including Medicare beneficiaries,
advocates, medical product manufacturers, providers, and health policy
experts. Stakeholders with further questions about Medicare's coverage,
coding, and payment processes, or who want further guidance about how
they can navigate these processes, can contact the CTI at
[email protected].
We note that applicants for add-on payments for new medical
services or technologies for FY 2018 must submit a formal request,
including a full description of the clinical applications of the
medical service or technology and the results of any clinical
evaluations demonstrating that the new medical service or technology
represents a substantial clinical improvement, along with a significant
sample of data to demonstrate that the medical service or technology
meets the high-cost threshold. Complete application information, along
with final deadlines for submitting a full application, will be posted
as it becomes available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical
services or technologies under review before the publication of the
proposed rule for FY 2018, the CMS Web site also will post the tracking
forms completed by each applicant.
2. Public Input Before Publication of a Notice of Proposed Rulemaking
on Add-On Payments
Section 1886(d)(5)(K)(viii) of the Act, as amended by section
503(b)(2) of Public Law 108-173, provides for a mechanism for public
input before publication of a notice of proposed rulemaking regarding
whether a medical service or technology represents a substantial
clinical improvement or advancement. The process for evaluating new
medical service and technology applications requires the Secretary to--
Provide, before publication of a proposed rule, for public
input regarding whether a new service or technology represents an
advance in medical technology that substantially improves the diagnosis
or treatment of Medicare beneficiaries;
Make public and periodically update a list of the services
and technologies for which applications for add-on payments are
pending;
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
clinical improvement; and
Provide, before publication of a proposed rule, for a
meeting at which organizations representing hospitals, physicians,
manufacturers, and any other interested party may present comments,
recommendations, and data regarding whether a new medical service or
technology represents a substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2017 prior
to publication of the FY 2017 IPPS/LTCH PPS proposed rule, we published
a notice in the Federal Register on November 30, 2015 (80 FR 74774),
and held a town hall meeting at the CMS Headquarters Office in
Baltimore, MD, on February 16, 2016. In the announcement notice for the
meeting, we stated that the opinions and presentations provided during
the meeting would assist us in our evaluations of applications by
allowing public discussion of the substantial clinical improvement
criterion for each of the FY 2017 new medical service and technology
add-on payment applications before the publication of the FY 2017 IPPS/
LTCH PPS proposed rule.
Approximately 76 individuals registered to attend the town hall
meeting in person, while additional individuals listened over an open
telephone line. We also live-streamed the town hall meeting and posted
the town hall on the CMS YouTube Web page at: https://www.youtube.com/watch?v=dn-R5KGQu-M. We considered each applicant's presentation made
at the town hall meeting, as well as written comments submitted on the
applications that were received by the due date of February 26, 2016,
in our evaluation of the new technology add-on payment applications for
FY 2017 in this proposed rule.
As indicated earlier in this section, CMS is required to provide,
before publication of a proposed rule, for a meeting at which
organizations representing hospitals, physicians, manufacturers, and
any other interested party may present comments, recommendations, and
data regarding whether a new medical service or technology represents a
substantial clinical improvement to the clinical staff of CMS. In
recent years, CMS has live-streamed the town hall meeting through the
CMS YouTube Web page and later posted the recorded version of the town
hall meeting, in addition to maintaining an open telephone line. We are
proposing to conduct future town hall meetings entirely via
teleconference and Webcast using the same technologies. Under this
proposal, we would continue to publish a notice informing the public of
the date of the meeting, as well as requirements for the submission of
presentations. We also would continue to maintain an open telephone
line, with an option for participation in the Webcast. The recording of
the town hall meeting would continue to be available on the CMS You
Tube Web page or other CMS Web site following the meeting. This
recording would include closed captioning of all presentations and
comments. In addition to submitting materials for discussion at the
town hall meeting, individuals would continue to be able to submit
other written comments after the town hall meeting on whether the
service or technology represents a substantial clinical improvement. We
are inviting public comments on this proposal.
In response to the published notice and the February 16, 2016 New
Technology Town Hall meeting, we received written comments regarding
the applications for FY 2017 new technology add-on payments. We
summarize below a general comment that does not relate to a specific
application for FY 2017 new technology

[[Page 25034]]

add-on payments. We also summarize comments regarding individual
applications, or, if applicable, indicate that there were no comments
received in section II.H.5. of the preamble of this proposed rule at
the end of each discussion of the individual applications.
Comment: One commenter recommended that CMS broaden the criteria
applied in making substantial clinical improvement determinations to
require, in addition to existing criteria, consideration of whether the
new technology or medical service meets one or more of the following
additional suggested criteria: (1) Results in a reduction of the length
of a hospital stay; (2) improves patient quality of life; (3) creates
long-term clinical efficiencies in treatment; (3) addresses patient-
centered objectives as defined by the Secretary; or (4) meets such
other criteria as the Secretary may specify. The commenter also
suggested that an entity that submits an application for new technology
add-on payments be entitled to administrative review of an adverse
determination made by the Secretary.
Response: We appreciate these recommendations and suggestions and
will consider them in future rulemaking.
We note that the commenter also provided comments that were
unrelated to the substantial clinical improvement criterion. As stated
earlier, the purpose of the new technology town hall meeting is
specifically to discuss the substantial clinical improvement criterion
in regard to pending new technology add-on payment applications for FY
2017. Therefore, we are not summarizing these additional comments in
this proposed rule. However, the commenter is welcome to resubmit its
comments in response to proposals presented in this proposed rule.
3. ICD-10-PCS Section ``X'' Codes for Certain New Medical Services and
Technologies
As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49434), the
ICD-10-PCS includes a new section containing the new Section ``X''
codes, which began being used with discharges occurring on or after
October 1, 2015. Decisions regarding changes to ICD-10-PCS Section
``X'' codes will be handled in the same manner as the decisions for all
of the other ICD-10-PCS code changes. That is, proposals to create,
delete, or revise Section ``X'' codes under the ICD-10-PCS structure
will be referred to the ICD-10 Coordination and Maintenance Committee.
In addition, several of the new medical services and technologies that
have been, or may be, approved for new technology add-on payments may
now, and in the future, be assigned a Section ``X'' code within the
structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS
Web site at: http://www.cms.gov/Medicare/Coding/ICD10/2016-ICD-10-PCS-and-GEMs.html, including guidelines for ICD-10-PCS ``X'' codes. We
encourage providers to view the material provided on ICD-10-PCS Section
``X'' codes.
4. Proposed FY 2017 Status of Technologies Approved for FY 2016 Add-On
Payments
a. Kcentra^TM
CSL Behring submitted an application for new technology add-on
payments for Kcentra^TM for FY 2014. Kcentra^TM is
a replacement therapy for fresh frozen plasma (FFP) for patients with
an acquired coagulation factor deficiency due to warfarin and who are
experiencing a severe bleed. Kcentra^TM contains the Vitamin
K dependent coagulation factors II, VII, IX and X, together known as
the prothrombin complex, and antithrombotic proteins C and S. Factor IX
is the lead factor for the potency of the preparation. The product is a
heat-treated, non-activated, virus filtered and lyophilized plasma
protein concentrate made from pooled human plasma. Kcentra^TM
is available as a lyophilized powder that needs to be reconstituted
with sterile water prior to administration via intravenous infusion.
The product is dosed based on Factor IX units. Concurrent Vitamin K
treatment is recommended to maintain blood clotting factor levels once
the effects of Kcentra^TM have diminished.
Kcentra^TM was approved by the FDA on April 29, 2013.
Under the ICD-10 coding system, Kcentra^TM is uniquely
identified by ICD-10-CM procedure code 30283B1 (Transfusion of
nonautologous 4-factor prothrombin complex concentrate into vein,
percutaneous approach).
After evaluation of the newness, cost, and substantial clinical
improvement criteria for new technology add-on payments for
Kcentra^TM and consideration of the public comments we
received in response to the FY 2014 IPPS/LTCH PPS proposed rule, we
approved Kcentra^TM for new technology add-on payments for FY
2014 (78 FR 50575 through 50580). In the application, the applicant
estimated that the average Medicare beneficiary would require an
average dosage of 2500 International Units (IU). Vials contain 500 IU
at a cost of $635 per vial. Therefore, cases of Kcentra^TM
would incur an average cost per case of $3,175 ($635 x 5). Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
50 percent of the average cost of the technology or 50 percent of the
costs in excess of the MS-DRG payment for the case. As a result, the
maximum add-on payment for a case of Kcentra^TM was $1,587.50
for FY 2014. We refer the reader to the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50579) for complete details on the new technology add-on
payments for Kcentra^TM.
As stated above, the new technology add-on payment regulations
provide that a medical service or technology may be considered new
within 2 or 3 years after the point at which data begin to become
available reflecting the ICD-9-CM code assigned to the new service or
technology (Sec. 412.87(b)(2)). Our practice has been to begin and end
new technology add-on payments on the basis of a fiscal year, and we
have generally followed a guideline that uses a 6-month window before
and after the start of the fiscal year to determine whether to extend
the new technology add-on payment for an additional fiscal year. In
general, we extend add-on payments for an additional year only if the
3-year anniversary date of the product's entry on the market occurs in
the latter half of the fiscal year (70 FR 47362).
With regard to the newness criterion for Kcentra^TM, we
considered the beginning of the newness period to commence when
Kcentra^TM was approved by the FDA on April 29, 2013. Because
the 3-year anniversary date for Kcentra^TM will occur in the
latter half of FY 2016 (April 29, 2016), in the FY 2016 IPPS/LTCH PPS
final rule, we continued new technology add-on payments for this
technology for FY 2016 (80 FR 49437). However, for FY 2017, the 3-year
anniversary date of the entry of Kcentra^TM on the U.S.
market (April 29, 2016) will occur prior to the beginning of FY 2017.
Therefore, we are proposing to discontinue new technology add-on
payments for this technology for FY 2017. We are inviting public
comments on this proposal.
b. Argus[supreg] II Retinal Prosthesis System
Second Sight Medical Products, Inc. submitted an application for
new technology add-on payments for the Argus[supreg] II Retinal
Prosthesis System (Argus[supreg] II System) for FY 2014. The
Argus[supreg] II System is an active implantable medical device that is
intended to provide electrical stimulation of the retina to induce
visual perception in patients who are profoundly blind due to retinitis

[[Page 25035]]

pigmentosa (RP). These patients have bare or no light perception in
both eyes. The system employs electrical signals to bypass dead photo-
receptor cells and stimulate the overlying neurons according to a real-
time video signal that is wirelessly transmitted from an externally
worn video camera. The Argus[supreg] II implant is intended to be
implanted in a single eye, typically the worse-seeing eye. Currently,
bilateral implants are not intended for this technology. According to
the applicant, the surgical implant procedure takes approximately 4
hours and is performed under general anesthesia.
With regard to the newness criterion, the applicant received a
Humanitarian Device Exemption (HDE) approval from the FDA on February
14, 2013. However, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49924
through 49925), we discussed comments we had received informing CMS
that the Argus[supreg] II System was not available on the U.S. market
until December 20, 2013. The applicant explained that, as part of the
lengthy approval process, it was required to submit a request to the
Federal Communications Commission (FCC) for a waiver of section
15.209(a) of the FCC rules that would allow the applicant to apply for
FCC authorization to utilize this specific RF band. The FCC approved
the applicant's waiver request on November 30, 2011. After receiving
the FCC waiver of the section 15.209(a) rules, the applicant requested
and obtained a required Grant of Equipment Authorization to utilize the
specific RF band, which the FCC issued on December 20, 2013. Therefore,
the applicant stated that the date the Argus[supreg] II System first
became available for commercial sale in the United States was December
20, 2013. We agreed with the applicant that, due to the delay, the date
of newness for the Argus[supreg] II System was December 20, 2013,
instead of February 14, 2013.
After evaluation of the new technology add-on payment application
and consideration of public comments received, we concluded that the
Argus[supreg] II System met all of the new technology add-on payment
policy criteria. Therefore, we approved the Argus[supreg] II System for
new technology add-on payments in FY 2014 (78 FR 50580 through 50583).
Cases involving the Argus[supreg] II System that are eligible for new
technology add-on payments currently are identified when one of the
following ICD-10-PCS procedure codes is reported: 08H005Z (Insertion of
epiretinal visual prosthesis into right eye, open approach); or 08H105Z
(Insertion of epiretinal visual prosthesis into left eye, open
approach). In the application, the applicant provided a breakdown of
the costs of the Argus[supreg] II System. The total operating cost of
the Argus[supreg] II System is $144,057.50. Under Sec. 412.88(a)(2),
we limit new technology add-on payments to the lesser of 50 percent of
the average cost of the device or 50 percent of the costs in excess of
the MS-DRG payment for the case. As a result, the maximum add-on
payment for a case involving the Argus[supreg] II System for FY 2014
was $72,028.75.
With regard to the newness criterion for the Argus[supreg] II
System, we considered the beginning of the newness period to commence
when the Argus[supreg] II System became available on the U.S. market on
December 20, 2013. Because the 3-year anniversary date for the
Argus[supreg] II System will occur after FY 2016 (December 20, 2016),
in the FY 2016 IPPS/LTCH PPS final rule, we continued new technology
add-on payments for this technology for FY 2016 (80 FR 49439). However,
for FY 2017, the 3-year anniversary date of the entry of the
Argus[supreg] II System on the U.S. market (December 20, 2016) will
occur in the first half of FY 2017. As discussed previously in this
section, in general, we extend new technology add-on payments for an
additional year only if the 3-year anniversary date of the product's
entry on to the U.S. market occurs in the latter half of the fiscal
year. Therefore, we are proposing to discontinue new technology add-on
payments for this technology for FY 2017. We are inviting public
comments on this proposal.
c. CardioMEMS^TM HF (Heart Failure) Monitoring System
CardioMEMS, Inc. submitted an application for new technology add-on
payment for FY 2015 for the CardioMEMS^TM HF (Heart Failure)
Monitoring System, which is an implantable hemodynamic monitoring
system comprised of an implantable sensor/monitor placed in the distal
pulmonary artery. Pulmonary artery hemodynamic monitoring is used in
the management of heart failure. The CardioMEMS^TM HF
Monitoring System measures multiple pulmonary artery pressure
parameters for an ambulatory patient to measure and transmit data via a
wireless sensor to a secure Web site.
The CardioMEMS^TM HF Monitoring System utilizes
radiofrequency (RF) energy to power the sensor and to measure pulmonary
artery (PA) pressure and consists of three components: An Implantable
Sensor with Delivery Catheter, an External Electronics Unit, and a
Pulmonary Artery Pressure Database. The system provides the physician
with the patient's PA pressure waveform (including systolic, diastolic,
and mean pressures) as well as heart rate. The sensor is permanently
implanted in the distal pulmonary artery using transcatheter techniques
in the catheterization laboratory where it is calibrated using a Swan-
Ganz catheter. PA pressures are transmitted by the patient at home in a
supine position on a padded antenna, pushing one button which records
an 18-second continuous waveform. The data also can be recorded from
the hospital, physician's office or clinic.
The hemodynamic data, including a detailed waveform, are
transmitted to a secure Web site that serves as the Pulmonary Artery
Pressure Database, so that information regarding PA pressure is
available to the physician or nurse at any time via the Internet.
Interpretation of trend data allows the clinician to make adjustments
to therapy and can be used along with heart failure signs and symptoms
to adjust medications.
The applicant received FDA approval on May 28, 2014.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the
CardioMEMS^TM HF Monitoring System and consideration of the
public comments we received in response to the FY 2015 IPPS/LTCH PPS
proposed rule, we approved the CardioMEMS^TM HF Monitoring
System for new technology add-on payments for FY 2015 (79 FR 49940).
Cases involving the CardioMEMS^TM HF Monitoring System that
are eligible for new technology add-on payments are identified by
either ICD-10-PCS procedure code 02HQ30Z (Insertion of pressure sensor
monitoring device into right pulmonary artery, percutaneous approach)
or ICD-10-PCS procedure code 02HR30Z (Insertion of pressure sensor
monitoring device into left pulmonary artery, percutaneous approach).
With the new technology add-on payment application, the applicant
stated that the total operating cost of the CardioMEMS^TM HF
Monitoring System is $17,750. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 50 percent of the average
cost of the device or 50 percent of the costs in excess of the MS-DRG
payment for the case. As a result, the maximum new technology add-on
payment for a case involving the CardioMEMS^TM HF Monitoring
System is $8,875.
With regard to the newness criterion for the
CardioMEMS^TM HF Monitoring System, we considered the
beginning of the newness period to commence when the
CardioMEMS^TM HF Monitoring System was approved by the FDA on
May 28, 2014. Because the 3-year

[[Page 25036]]

anniversary date of the entry of the CardioMEMS^TM HF
Monitoring System on the U.S. market will occur in the latter half of
FY 2017 (May 28, 2017), we are proposing to continue new technology
add-on payments for this technology for FY 2017. The maximum payment
for a case involving the CardioMEMS^TM HF Monitoring System
would remain at $8,875 for FY 2017. We are inviting public comments on
our proposal.
d. MitraClip[supreg] System
Abbott Vascular submitted an application for new technology add-on
payments for the MitraClip[supreg] System for FY 2015. The
MitraClip[supreg] System is a transcatheter mitral valve repair system
that includes a MitraClip[supreg] device implant, a Steerable Guide
Catheter, and a Clip Delivery System. It is designed to perform
reconstruction of the insufficient mitral valve for high-risk patients
who are not candidates for conventional open mitral valve repair
surgery.
With regard to the newness criterion, the MitraClip[supreg] System
received a premarket approval from the FDA on October 24, 2013. The
MitraClip[supreg] System is indicated ``for the percutaneous reduction
of significant symptomatic mitral regurgitation (MR >= 3+) due to
primary abnormality of the mitral apparatus (degenerative MR) in
patients who have been determined to be at prohibitive risk for mitral
valve surgery by a heart team, which includes a cardiac surgeon
experienced in mitral valve surgery and a cardiologist experienced in
mitral valve disease, and in whom existing comorbidities would not
preclude the expected benefit from reduction of the mitral
regurgitation.'' The MitraClip[supreg] System became immediately
available on the U.S. market following FDA approval. The
MitraClip[supreg] System is a Class III device, and has an
investigational device exemption (IDE) for the EVEREST study
(Endovascular Valve Edge-to-Edge Repair Study)--IDE G030061, and for
the COAPT study (Cardiovascular Outcomes Assessment of the MitraClip
Percutaneous Therapy for Health Failure Patients with Functional Mitral
Regurgitation)--IDE G120024. Cases involving the MitraClip[supreg]
System are identified using ICD-10-PCS procedure code 02UG3JZ
(Supplement mitral valve with synthetic substitute, percutaneous
approach).
On August 7, 2014, CMS issued a National Coverage Decision (NCD)
concerning Transcatheter Mitral Valve Repair procedures. We refer
readers to the CMS Web site at: http://www.cms.gov/medicare-coverage-database/details/nca-tracking-sheet.aspx?NCAId=273 for information
related to this NCD.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the
MitraClip[supreg] System and consideration of the public comments we
received in response to the FY 2015 IPPS/LTCH PPS proposed rule, we
approved the MitraClip[supreg] System for new technology add-on
payments for FY 2015 (79 FR 49946). As discussed in the FY 2015 IPPS/
LTCH PPS final rule, this approval is on the basis of using the
MitraClip[supreg] consistent with the NCD. The average cost of the
MitraClip[supreg] System is reported as $30,000. Under section
412.88(a)(2), we limit new technology add-on payments to the lesser of
50 percent of the average cost of the device or 50 percent of the costs
in excess of the MS-DRG payment for the case. As a result, the maximum
new technology add-on payment for a case involving the
MitraClip[supreg] System is $15,000 for FY 2015.
With regard to the newness criterion for the MitraClip[supreg]
System, we considered the beginning of the newness period to commence
when the MitraClip[supreg] System was approved by the FDA on October
24, 2013. Because the 3-year anniversary date of the entry of the
MitraClip[supreg] System on the U.S. market (October 24, 2016) will
occur after FY 2016, in the FY 2016 IPPS/LTCH PPS final rule, we
continued new technology add-on payments for this technology for FY
2016 (80 FR 49442). However, for FY 2017, the 3-year anniversary date
of the entry of MitraClip[supreg] System on the U.S. market (October
24, 2016) will occur in the first half of FY 2017. As discussed
previously in this section, in general, we extend new technology add-on
payments for an additional year only if the 3-year anniversary date of
the product's entry on to the U.S. market occurs in the latter half of
the fiscal year. Therefore, we are proposing to discontinue new
technology add-on payments for this technology for FY 2017. We are
inviting public comments on this proposal.
e. Responsive Neurostimulator (RNS[supreg]) System
NeuroPace, Inc. submitted an application for new technology add-on
payments for FY 2015 for the use of the RNS[supreg] System. (We note
that the applicant submitted an application for new technology add-on
payments for FY 2014, but failed to receive FDA approval prior to the
July 1 deadline.) Seizures occur when brain function is disrupted by
abnormal electrical activity. Epilepsy is a brain disorder
characterized by recurrent, unprovoked seizures. According to the
applicant, the RNS[supreg] System is the first implantable medical
device (developed by NeuroPace, Inc.) for treating persons diagnosed
with epilepsy whose partial onset seizures have not been adequately
controlled with antiepileptic medications. The applicant further stated
that, the RNS[supreg] System is the first closed-loop, responsive
system to treat partial onset seizures. Responsive electrical
stimulation is delivered directly to the seizure focus in the brain
when abnormal brain activity is detected. A cranially implanted
programmable neurostimulator senses and records brain activity through
one or two electrode-containing leads that are placed at the patient's
seizure focus/foci. The neurostimulator detects electrographic patterns
previously identified by the physician as abnormal, and then provides
brief pulses of electrical stimulation through the leads to interrupt
those patterns. Stimulation is delivered only when abnormal
electrocorticographic activity is detected. The typical patient is
treated with a total of 5 minutes of stimulation a day. The RNS[supreg]
System incorporates remote monitoring, which allows patients to share
information with their physicians remotely.
With regard to the newness criterion, the applicant stated that
some patients diagnosed with partial onset seizures that cannot be
controlled with antiepileptic medications may be candidates for the
vagus nerve stimulator (VNS) or for surgical removal of the seizure
focus. According to the applicant, these treatments are not appropriate
for, or helpful to, all patients. Therefore, the applicant believed
that there is an unmet clinical need for additional therapies for
partial onset seizures. The applicant further stated that the
RNS[supreg] System addresses this unmet clinical need by providing a
novel treatment option for treating persons diagnosed with medically
intractable partial onset seizures. The applicant received FDA
premarket approval on November 14, 2013.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the RNS[supreg]
System and consideration of the public comments we received in response
to the FY 2015 IPPS/LTCH PPS proposed rule, we approved the RNS[supreg]
System for new technology add-on payments for FY 2015 (79 FR 49950).
Cases involving the RNS[supreg] System that are eligible for new
technology add-on payments are identified using the following ICD-10-
PCS procedure code

[[Page 25037]]

combination: 0NH00NZ (Insertion of neurostimulator generator into
skull, open approach) in combination with 00H00MZ (Insertion of
neurostimulator lead into brain, open approach). According to the
applicant, cases using the RNS[supreg] System would incur an
anticipated cost per case of $36,950. Under Sec. 412.88(a)(2) of the
regulations, we limit new technology add-on payments to the lesser of
50 percent of the average costs of the device or 50 percent of the
costs in excess of the MS-DRG payment rate for the case. As a result,
the maximum new technology add-on payment for cases involving the
RNS[supreg] System is $18,475.
With regard to the newness criterion for the RNS[supreg] System, we
considered the beginning of the newness period to commence when the
RNS[supreg] System was approved by the FDA on November 14, 2013.
Because the 3-year anniversary date of the entry of the RNS[supreg]
System on the U.S. market (November 14, 2016) will occur after FY 2016,
in the FY 2016 IPPS/LTCH PPS final rule, we continued new technology
add-on payments for this technology for FY 2016 (80 FR 49443). However,
for FY 2017, the 3-year anniversary date of the entry of RNS[supreg]
System on the U.S. market (November 14, 2016) will occur in the first
half of FY 2017. As discussed previously in this section, in general,
we extend new technology add-on payments for an additional year only if
the 3-year anniversary date of the product's entry on to the U.S.
market occurs in the latter half of the fiscal year. Therefore, we are
proposing to discontinue new technology add-on payments for this
technology for FY 2017. We are inviting public comments on this
proposal.
f. Blinatumomab (BLINCYTO^TM Trade Brand)
Amgen, Inc. submitted an application for new technology add-on
payments for FY 2016 for Blinatumomab (BLINCYTO^TM), a bi-
specific T-cell engager (BiTE) used for the treatment of Philadelphia
chromosome-negative (Ph-) relapsed or refractory (R/R) B-cell precursor
acute-lymphoblastic leukemia (ALL), which is a rare aggressive cancer
of the blood and bone marrow. Approximately 6,050 individuals are
diagnosed with Ph- R/R B-cell precursor ALL in the United States each
year, and approximately 2,400 individuals, representing 30 percent of
all new cases, are adults. Ph- R/R B-cell precursor ALL occurs when
there are malignant transformations of B-cell or T-cell progenitor
cells, causing an accumulation of lymphoblasts in the blood, bone
marrow, and occasionally throughout the body. As a bi-specific T-cell
engager, the BLINCYTO^TM technology attaches to a molecule on
the surface of the tumorous cell, as well as to a molecule on the
surface of normal T-cells, bringing the two into closer proximity and
allowing the normal T-cell to destroy the tumorous cell. Specifically,
the BLINCYTO^TM technology attaches to a cell identified as
CD19, which is present on all of the cells of the malignant
transformations that cause Ph- R/R B-cell precursor ALL and helps
attract the cell into close proximity of the T-cell CD3 with the intent
of getting close enough to allow the T-cell to inject toxins that
destroy the cancerous cell. According to the applicant, the
BLINCYTO^TM technology is the first, and the only, bi-
specific CD19-directed CD3 T-cell engager single-agent immunotherapy
approved by the FDA.
BLINCYTO^TM is administered as a continuous IV infusion
delivered at a constant flow rate using an infusion pump. A single
cycle of treatment consists of 28 days of continuous infusion, and each
treatment cycle followed by 2 weeks without treatment prior to
administering any further treatments. A course of treatment would
consist of two phases. Phase 1 consists of initial inductions or
treatments intended to achieve remission followed by additional
inductions and treatments to maintain consolidation; or treatments
given after remission has been achieved to prolong the duration. During
phase 1 of a single treatment course, up to two cycles of
BLINCYTO^TM are administered, and up to three additional
cycles are administered during consolidation. The recommended dosage of
BLINCYTO^TM administered during the first cycle of treatment
is 9 mcg per day for the first 7 days of treatment. The dosage is then
increased to 28 mcg per day for 3 weeks until completion. During phase
2 of the treatment course, all subsequent doses are administered as 28
mcg per day throughout the entire duration of the 28-day treatment
period.
With regard to the newness criterion, the BLINCYTO^TM
technology received FDA approval on December 3, 2014, for the treatment
of patients diagnosed with Ph- R/R B-cell precursor ALL, and the
product gained entry onto the U.S. market on December 17, 2014.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for
BLINCYTO^TM and consideration of the public comments we
received in response to the FY 2016 IPPS/LTCH PPS proposed rule, we
approved BLINCYTO^TM for new technology add-on payments for
FY 2016 (80 FR 49449). Cases involving BLINCYTO^TM that are
eligible for new technology add-on payments are identified using one of
the following ICD-10-PCS procedure codes: XW03351 (Introduction of
Blinatumomab antineoplastic immunotherapy into peripheral vein,
percutaneous approach, new technology group 1) or XW04351 (Introduction
of Blinatumomab antineoplastic immunotherapy into central vein,
percutaneous approach, new technology group1).
As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49449), the
applicant recommended that CMS consider and use the cost of the full
28-day inpatient treatment cycle as the expected length of treatment
when determining the maximum new technology add-on payment for cases
involving the BLINCYTO^TM rather than the average cost of
lesser number of days used as other variables. For the reasons
discussed, we disagreed with the applicant and established the maximum
new technology add-on payment amount for a case involving the
BLINCYTO^TM technology for FY 2016 using the weighted average
of the cycle 1 and cycle 2 observed treatment length. Specifically, in
the Phase II trial, the most recent data available, 92 patients
received cycle 1 for an average length of 21.2 days, and 52 patients
received cycle 2 for an average length of 10.2 days. The weighted
average of cycle 1 and 2 treatment length is 17 days. We noted that a
small number of patients also received 3 to 5 treatment cycles.
However, based on the data provided, these cases do not appear to be
typical at this point and we excluded them from this calculation. We
noted that, if we included all treatment cycles in this calculation,
the weighted average number of days of treatment is much lower, 10
days. Using the clinical data provided by the applicant, we stated that
we believe that setting the maximum new technology add-on payment
amount for a case involving the BLINCYTO^TM technology for FY
2016 based on a 17-day length of treatment cycle is representative of
historical and current practice. We also stated that, for FY 2017, if
new data on length of treatment are available, we would consider any
such data in evaluating the maximum new technology add-on payment
amount. However, we did not receive any new data from the applicant to
evaluate for FY 2017.
In the application, the applicant estimated that the average
Medicare beneficiary would require a dosage of 9mcg/day for the first 7
days under the

[[Page 25038]]

first treatment cycle, followed by a dosage of 28mcg/day for the
duration of the treatment cycle, as well as all days included in
subsequent cycles. All vials contain 35mcg at a cost of $3,178.57 per
vial. The applicant noted that all vials are single-use. Therefore, we
determined that cases involving the use of the BLINCYTO^TM
technology would incur an average cost per case of $54,035.69 (1 vial/
day x 17 days x $3,178.57/vial). Under 42 CFR 412.88(a)(2), we limit
new technology add-on payments to the lesser of 50 percent of the
average cost of the technology or 50 percent of the costs in excess of
the MS-DRG payment for the case. As a result, the maximum new
technology add-on payment amount for a case involving the use of the
BLINCYTO^TM is $27,017.85 for FY 2016.
With regard to the newness criterion for BLINCYTO^TM, we
considered the beginning of the newness period to commence when the
product gained entry onto the U.S. market on December 17, 2014. Because
the 3-year anniversary date of the entry of the BLINCYTO^TM
on the U.S. market will occur after FY 2017 (December 17, 2017), we are
proposing to continue new technology add-on payments for this
technology for FY 2017. The maximum payment for a case involving
BLINCYTO^TM would remain at $27,017.85 for FY 2017. We are
inviting public comments on this proposal.
g. Lutonix[supreg] Drug Coated Balloon PTA Catheter and
In.PACT^TM Admiral^TM Paclitaxel Coated
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
Two manufacturers, CR Bard Inc. and Medtronic, submitted
applications for new technology add-on payments for FY 2016 for
LUTONIX[supreg] Drug-Coated Balloon (DCB) Percutaneous Transluminal
Angioplasty (PTA) Catheter (LUTONIX[supreg]) and IN.PACT^TM
Admiral^TM Paclitaxel Coated Percutaneous Transluminal
Angioplasty (PTA) Balloon Catheter (IN.PACT^TM
Admiral^TM), respectively. Both of these technologies are
drug-coated balloon angioplasty treatments for patients diagnosed with
peripheral artery disease (PAD). Typical treatments for patients with
PAD include angioplasty, stenting, atherectomy and vascular bypass
surgery. PAD most commonly occurs in the femoropopliteal segment of the
peripheral arteries, is associated with significant levels of morbidity
and impairment in quality of life, and requires treatment to reduce
symptoms and prevent or treat ischemic events.\2\ Treatment options for
symptomatic PAD include noninvasive treatment such as medication and
life-style modification (for example, exercise programs, diet, and
smoking cessation) and invasive options which include endovascular
treatment and surgical bypass. The 2013 American College of Cardiology
and American Heart Association (ACC/AHA) guidelines for the management
of PAD recommend endovascular therapy as the first-line treatment for
femoropopliteal artery lesions in patients suffering from claudication
(Class I, Level A recommendation).\3\
---------------------------------------------------------------------------

\2\ Tepe G, Zeller T, Albrecht T, Heller S, Schwarzwalder U,
Beregi JP, Claussen CD, Oldenburg A, Scheller B, Speck U.: Local
delivery of paclitaxel to inhibit restenosis during angioplasty of
the leg. N Engl J Med 2008; 358: 689-99.
\3\ Anderson JL, Halperin JL, Albert NM, Bozkurt B, Brindis RG,
Curtis LH, DeMets D, Guyton RA, Hochman JS, Kovacs RJ, Ohman EM,
Pressler SJ, Sellke FW, Shen WK.: Management of patients with
peripheral artery disease (compilation of 2005 and 2011 ACCF/AHA
guideline recommendations): a report of the American College of
Cardiology Foundation/American Heart Association Task Force on
Practice Guidelines. J Am Coll Cardiol 2013; 61:1555-70. Available
at: http://dx.doi.org/10.1016/j.jacc.2013.01.004.
---------------------------------------------------------------------------

According to both applicants, LUTONIX[supreg] and
IN.PACT^TM Admiral^TM are the first drug coated
balloons that can be used for treatment of patients who are diagnosed
with PAD. In the FY 2016 IPPS/LTCH final rule, we stated that because
cases eligible for the two devices would group to the same MS-DRGs and
we believe that these devices are substantially similar to each other
(that is, they are intended to treat the same or similar disease in the
same or similar patient population and are purposed to achieve the same
therapeutic outcome using the same or similar mechanism of action), we
evaluated both technologies as one application for new technology add-
on payment under the IPPS. The applicants submitted separate cost and
clinical data, and we reviewed and discussed each set of data
separately. However, we made one determination regarding new technology
add-on payments that applied to both devices. We believe that this is
consistent with our policy statements in the past regarding substantial
similarity. Specifically, we have noted that approval of new technology
add-on payments would extend to all technologies that are substantially
similar (66 FR 46915), and that we believe that continuing our current
practice of extending a new technology add-on payment without a further
application from the manufacturer of the competing product or a
specific finding on cost and clinical improvement if we make a finding
of substantial similarity among two products is the better policy
because we avoid--
Creating manufacturer-specific codes for substantially
similar products;
Requiring different manufacturers of substantially similar
products from having to submit separate new technology applications;
Having to compare the merits of competing technologies on
the basis of substantial clinical improvement; and
Bestowing an advantage to the first applicant representing
a particular new technology to receive approval (70 FR 47351).
CR Bard, Inc. received FDA approval for LUTONIX[supreg] on October
9, 2014. Commercial sales in the U.S. market began on October 10, 2014.
Medtronic received FDA approval for IN.PACT^TM
Admiral^TM on December 30, 2014. Commercial sales in the U.S.
market began on January 29, 2015.
In accordance with our policy, we stated in the FY 2016 IPPS\LTCH
final rule (80 FR 49463) that we believe it is appropriate to use the
earliest market availability date submitted as the beginning of the
newness period. Accordingly, for both devices, we stated that the
beginning of the newness period will be October 10, 2014.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the
LUTONIX[supreg] and IN.PACT^TM Admiral^TM
technologies and consideration of the public comments we received in
response to the FY 2016 IPPS/LTCH PPS proposed rule, we approved the
LUTONIX[supreg] and IN.PACT^TM Admiral^TM
technologies for new technology add-on payments for FY 2016 (80 FR
49469). Cases involving the LUTONIX[supreg] and IN.PACT^TM
Admiral^TM technologies that are eligible for new technology
add-on payments are identified using one of the ICD-10-PCS procedure
codes in the following table:

------------------------------------------------------------------------
ICD-10-PCS Code Code description
------------------------------------------------------------------------
047K041.................. Dilation of right femoral artery with drug-
eluting intraluminal device using drug-
coated balloon, open approach.

[[Page 25039]]

047K0D1.................. Dilation of right femoral artery with
intraluminal device using drug-coated
balloon, open approach.
047K0Z1.................. Dilation of right femoral artery using drug-
coated balloon, open approach.
047K341.................. Dilation of right femoral artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous approach.
047K3D1.................. Dilation of right femoral artery with
intraluminal device using drug-coated
balloon, percutaneous approach.
047K3Z1.................. Dilation of right femoral artery using drug-
coated balloon, percutaneous approach.
047K441.................. Dilation of right femoral artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous endoscopic
approach.
047K4D1.................. Dilation of right femoral artery with
intraluminal device using drug-coated
balloon, percutaneous endoscopic approach.
047K4Z1.................. Dilation of right femoral artery using drug-
coated balloon, percutaneous endoscopic
approach.
047L041.................. Dilation of left femoral artery with drug-
eluting intraluminal device using drug-
coated balloon, open approach.
047L0D1.................. Dilation of left femoral artery with
intraluminal device using drug-coated
balloon, open approach.
047L0Z1.................. Dilation of left femoral artery using drug-
coated balloon, open approach.
047L341.................. Dilation of left femoral artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous approach.
047L3D1.................. Dilation of left femoral artery with
intraluminal device using drug-coated
balloon, percutaneous approach.
047L3Z1.................. Dilation of left femoral artery using drug-
coated balloon, percutaneous approach.
047L441.................. Dilation of left femoral artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous endoscopic
approach.
047L4D1.................. Dilation of left femoral artery with
intraluminal device using drug-coated
balloon, percutaneous endoscopic approach.
047L4Z1.................. Dilation of left femoral artery using drug-
coated balloon, percutaneous endoscopic
approach.
047M041.................. Dilation of right popliteal artery with drug-
eluting intraluminal device using drug-
coated balloon, open approach.
047M0D1.................. Dilation of right popliteal artery with
intraluminal device using drug-coated
balloon, open approach.
047M0Z1.................. Dilation of right popliteal artery using drug-
coated balloon, open approach.
047M341.................. Dilation of right popliteal artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous approach.
047M3D1.................. Dilation of right popliteal artery with
intraluminal device using drug-coated
balloon, percutaneous approach.
047M3Z1.................. Dilation of right popliteal artery using drug-
coated balloon, percutaneous approach.
047M441.................. Dilation of right popliteal artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous endoscopic
approach.
047M4D1.................. Dilation of right popliteal artery with
intraluminal device using drug-coated
balloon, percutaneous endoscopic approach.
047M4Z1.................. Dilation of right popliteal artery using drug-
coated balloon, percutaneous endoscopic
approach.
047N041.................. Dilation of left popliteal artery with drug-
eluting intraluminal device using drug-
coated balloon, open approach.
047N0D1.................. Dilation of left popliteal artery with
intraluminal device using drug-coated
balloon, open approach.
047N0Z1.................. Dilation of left popliteal artery using drug-
coated balloon, open approach.
047N341.................. Dilation of left popliteal artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous approach.
047N3D1.................. Dilation of left popliteal artery with
intraluminal device using drug-coated
balloon, percutaneous approach.
047N3Z1.................. Dilation of left popliteal artery using drug-
coated balloon, percutaneous approach.
047N441.................. Dilation of left popliteal artery with drug-
eluting intraluminal device using drug-
coated balloon, percutaneous endoscopic
approach.
047N4D1.................. Dilation of left popliteal artery with
intraluminal device using drug-coated
balloon, percutaneous endoscopic approach.
047N4Z1.................. Dilation of left popliteal artery using drug-
coated balloon, percutaneous endoscopic
approach.
------------------------------------------------------------------------

As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49469),
each of the applicants submitted operating costs for its DCB. The
manufacturer of the LUTONIX[supreg] stated that a mean of 1.37 drug-
coated balloons was used during the LEVANT 2 clinical trial. The
acquisition price for the hospital will be $1,900 per drug-coated
balloon, or $2,603 per case (1.37 x $1,900). The applicant projected
that approximately 8,875 cases will involve use of the LUTONIX[supreg]
for FY 2016. The manufacturer for the IN.PACT^TM
Admiral^TM stated that a mean of 1.4 drug-coated balloons was
used during the IN.PACT^TM Admiral^TM DCB arm. The
acquisition price for the hospital will be $1,350 per drug-coated
balloon, or $1,890 per case (1.4 x $1,350). The applicant projected
that approximately 26,000 cases will involve use of the
IN.PACT^TM Admiral^TM for FY 2016.
For FY 2016, we based the new technology add-on payment for cases
involving these technologies on the weighted average cost of the two
DCBs described by the ICD-10-PCS procedure codes listed above (which
are not manufacturer specific). Because ICD-10 codes are not
manufacturer specific, we cannot set one new technology add-on payment
amount for IN.PACT^TM Admiral^TM and a different
new technology add-on payment amount for LUTONIX[supreg]; both
technologies will be captured by using the same ICD-10-PCS procedure
code. As such, we stated that we believe that the use of a weighted
average of the cost of the standard DCBs based on the projected number
of cases involving each technology to determine the maximum new
technology add-on payment would be most appropriate. To compute the
weighted cost average, we summed the total number of projected cases
for each of the applicants, which equaled 34,875 cases (26,000 plus
8,875). We then divided the number of projected cases for each of the
applicants by the total number of cases, which resulted in the
following case-weighted percentages: 25 Percent for the LUTONIX[supreg]
and 75 percent for the IN.PACT^TM Admiral^TM. We
then multiplied the cost per case for the manufacturer specific DCB by
the case-weighted percentage (0.25 * $2,603=$662.41 for LUTONIX[supreg]
and 0.75 * $1,890=$1,409.03 for the IN.PACT^TM
Admiral^TM). This resulted in a case-weighted average cost of
$2,071.45 for DCBs. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 50 percent of the average cost of the
device or 50 percent of the costs in excess of the MS-DRG payment for
the case. As a result, the maximum payment for a case involving the
LUTONIX[supreg] or IN.PACT^TM Admiral^TM DCBs is
$1,035.72.
With regard to the newness criterion for LUTONIX[supreg] and
IN.PACT^TM Admiral^TM technologies, we considered
the beginning of the newness period to commence when LUTONIX[supreg]
gained entry onto the U.S. market on October 10, 2014. Because the 3-
year anniversary date of the entry of LUTONIX[supreg] on the U.S.
market will occur after FY 2017 (October 10, 2017), we are proposing to
continue new technology add-on payments for both the LUTONIX[supreg]
and IN.PACT^TM Admiral^TM technologies for

[[Page 25040]]

FY 2017. The maximum add-on payment for a case involving
LUTONIX[supreg] and IN.PACT^TM Admiral^TM would
remain at $1,035.72 for FY 2017. We are inviting public comments on
this proposal.
5. Proposed FY 2017 Applications for New Technology Add-On Payments
We are reviewing nine applications for new technology add-on
payments for FY 2017. In accordance with the regulations under Sec.
412.87(c), applicants for new technology add-on payments must have FDA
approval by July 1 of each year prior to the beginning of the fiscal
year that the application is being considered. One applicant withdrew
its application prior to the issuance of this proposed rule.
a. MAGEC[supreg] Spinal Bracing and Distraction System (MAGEC[supreg]
Spine)
Ellipse Technologies, Inc. submitted an application for new
technology add-on payments for FY 2017 for the MAGEC[supreg] Spine.
According to the applicant, the MAGEC[supreg] Spine has been developed
for use in the treatment of children diagnosed with severe spinal
deformities, such as scoliosis. The system can be used in the treatment
of skeletally immature patients less than 10 years of age who have been
diagnosed with severe progressive spinal deformities associated with or
at risk of Thoracic Insufficiency Syndrome (TIS). The MAGEC[supreg]
Spine consists of a (spinal growth) rod that can be lengthened through
the use of magnets that are controlled by an external remote controller
(ERC). The rod(s) can be implanted into children as young as 2 years of
age. According to the applicant, use of the MAGEC[supreg] Spine has
proven to be successfully used in the treatment of patients diagnosed
with scoliosis who have not been responsive to other treatments.
The MAGEC[supreg] Spine initially received FDA approval for use of
the predicate device, which used a Harrington Rod on February 27, 2014.
Subsequent FDA approval was granted for use of the modified device,
which uses a shorter 70 mm on September 18, 2014. After minor
modification of the product, the MAGEC[supreg] Spine received its final
FDA approvals on March 24, 2015, and May 29, 2015, respectively.
Currently, there is no ICD-9-CM or ICD-10-PCS code to uniquely describe
procedures involving the MAGEC[supreg] Spine.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813
through 43814), we established criteria for evaluating whether a new
technology is substantially similar to an existing technology,
specifically: (1) Whether a product uses the same or a similar
mechanism of action to achieve a therapeutic outcome; (2) whether a
product is assigned to the same or a different MS-DRG; and (3) whether
the new use of the technology involves the treatment of the same or
similar type of disease and the same or similar patient population. If
a technology meets all three of these criteria, it would be considered
substantially similar to an existing technology and would not be
considered ``new'' for purposes of new technology add-on payments. For
a detailed discussion of the criteria for substantial similarity, we
refer readers to the FY 2006 IPPS final rule (70 FR 47351 through
47352), and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through
43814).
With regard to the first criterion, the applicant stated that the
MAGEC[supreg] Spine's mechanism of action is dependent upon growing
rods used for the treatment of patients diagnosed with early onset
scoliosis (EOS), and is unique because the technique uses magnetic
distraction (lengthening), which does not require the patients to be
subjected to the potential and adverse effects of additional surgeries.
The applicant explained that treatment of patients diagnosed with
EOS involves the implantation of traditional growth rods (TGRs)
followed by surgery every 6 months to distract the rods to accommodate
the growing spine until the patient reaches a level of spinal maturity
when the spine can then be fused. The average number of distraction
surgeries per patient is 12 over the course of 6 years. Once spinal
alignment and maturity is reached, the TGRs are surgically and
permanently removed. The applicant stated that, while the most recent
modification to the MAGEC[supreg] Spine's rods accomplish the same goal
as the predicate device, Harrington rods, MAGEC[supreg] Spine rods
achieve the predetermined goal with minimally invasive techniques after
implantation, which prevents the patients from being subjected to the
potential and adverse effects of numerous lengthening surgeries. The
applicant further noted that after the MAGEC[supreg] Spine's rod has
been implanted, the ERC is placed externally over the patient's spine
at the location of the magnet in the MAGEC[supreg] Spine's rod.
Periodic, noninvasive distraction of the rod is performed to lengthen
the spine and to provide adequate bracing during growth. Routine X-ray
or ultrasound procedures are used to confirm the position and amount of
distraction. The frequency of distraction sessions is customized to the
needs of the individual patient by the treating surgeon.
With regard to the first criterion, we are concerned that the
MAGEC[supreg] Spine uses the same mechanism of action, spinal rod
distraction, to achieve the same therapeutic outcome of spinal
alignment as other currently available technologies and treatment
options for Medicare beneficiaries. Specifically, TGRs are implanted
and affixed to the immature spine in order to correct spinal
deformities. As a child grows, the TGRs must be distracted to
accommodate spinal growth. The common denominator between TGRs and the
MAGEC[supreg] Spine is that they both are devices (rods) that use the
same mechanism of action to perform and achieve spinal distraction, the
implantation of rods that are later lengthened. While we acknowledge
the applicant noted that the MAGEC[supreg] Spine does not require the
patient to endure the potential and adverse effects of additional
surgeries, this assertion seems to be a component of substantial
clinical improvement rather than a basis to distinguish the mechanism
of action.
In consideration of the applicant's statements that the mechanism
of action of the MAGEC[supreg] Spine, which uses growing rods in the
treatment of patients diagnosed with EOS, is unique because the
technique of using magnetic distraction (lengthening) does not require
patients to endure the potential and adverse effects of additional
surgeries, we note that there are other technologies and products
currently available that achieve spinal growth without the need to
subject patients to potential and adverse effects of additional
surgeries. For example, the Shilla growth guidance system, which
received FDA approval in 2014, uses a non-locking set screw at the
proximal and distal portions of the construct's rods. This specific
feature is designed to allow the rod to slide through the screw heads
as a child's spine grows, while still providing correction of the
spinal deformity. The Shilla technique also eliminates the need for
scheduled distraction surgeries, as the applicant pointed out are
needed with the use of TGRs. Therefore, we believe that the
MAGEC[supreg] Spine's mechanism of action may be similar to the
mechanism of action employed by the Shilla growth guidance system
because both technologies achieve the same therapeutic outcome and do
not require the patient to endure the potential and adverse effects of
additional surgeries.
With regard to the second criterion, cases that may be eligible for
treatment involving the MAGEC[supreg] Spine map to the following MS-
DRGs: 456 (Spinal

[[Page 25041]]

Fusion Except Cervical With Spinal Curvature or Malignancy or Infection
or Extensive Fusions with MCC); 457 (Spinal Fusion Except Cervical with
Spinal Curvature or Malignancy or Infection or Extensive Fusions with
CC); and 458 (Spinal Fusion Except Cervical with Spinal Curvature or
Malignancy or Infection or Extensive Fusions without CC/MCC). All cases
involving procedures describing spinal distraction devices, including
those that use TGRs and the Shilla growth guidance system, currently
map to the same MS-DRGs.
With regard to the third criterion, we believe that the
MAGEC[supreg] Spine technology involves the treatment of the same or
similar type of disease and the same or similar patient population.
Although the applicant stated that the MAGEC[supreg] Spine was
developed for the use in the treatment of children diagnosed with
severe spinal deformities, the MAGEC[supreg] Spine treats the same
patient population as other currently available spinal distraction
devices and technologies, including those that use TGRs and the Shilla
growth guidance system. Because it appears that the MAGEC[supreg] Spine
is substantially similar to these other currently available devices
used to treat the same or similar types of diseases and the same or
similar patient populations, we are concerned that the technology may
not be considered ``new'' for the purposes of new technology add-on
payments. We are inviting public comments on whether the MAGEC[supreg]
Spine meets the newness criterion.
With regard to the cost criterion, the applicant maintained that
there is an insufficient number of cases in the Medicare claims data to
evaluate because of the small number of potential cases and cases
reflecting patients who were actually diagnosed with or who experience
early onset scoliosis (EOS) requiring the implantation of growing rods.
Specifically, the majority of the Medicare population is 65 years of
age and older, while patients who may be eligible for the MAGEC[supreg]
Spine are typically less than 10 years of age. Therefore, the applicant
estimated the number of EOS cases using internal estimates for de novo
cases (<10 year of age), as well as cases that could potentially
convert to using the MAGEC[supreg] Spine without searching the MedPAR
data file or any other data source. The applicant estimated that a
total of 2,500 EOS cases may be eligible for treatment using the
MAGEC[supreg] Spine in FY 2016. According to the applicant, 580 cases
would map to MS-DRG 456, 870 cases would map to MS-DRG 457, and 1,050
cases would map to MS-DRG 458. The applicant based the distribution of
cases on data from its medical advisors, customers, and reimbursement
support team.
The applicant used Medicare and non-Medicare data for six providers
that used the MAGEC[supreg] Spine during CY 2016. This resulted in an
average unstandardized case-weighted charge per case of $243,999. The
applicant then removed charges related to the predicate technology.
Using the Impact File published with the FY 2016 IPPS/LTCH PPS final
rule, the applicant standardized the charges and applied an inflation
factor of 10 percent. The applicant computed an average CCR of the six
hospitals based on the overall hospitals CCRs in the FY 2016 IPPS/LTCH
final rule Impact File. The applicant then computed the charges for the
device by dividing the costs of the device by the average CCR and added
these charges to determine the inflated average standardized case-
weighted charge per case. The applicant noted that the cost of the
technology was proprietary information. Based on the FY 2016 IPPS/LTCH
PPS Table 10 thresholds, the average case-weighted threshold amount was
$105,909. The applicant computed an inflated average standardized case-
weighted charge per case of $248,037. Because the inflated average
standardized case-weighted charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology
meets the cost criterion.
We have the following concerns regarding the applicant's cost
analysis:
The applicant did not specify how many cases were the
basis for the average standardized case-weighted charges per case.
Therefore, we cannot determine if the charges per case represent a
statistical sample relative to the projected cases eligible for the
MAGEC[supreg] Spine for the upcoming fiscal year.
The applicant did not specify how many cases included in
the analysis were Medicare and non-Medicare cases. We typically rely on
Medicare data and understand the limitations of this patient population
in the Medicare data (as the applicant explained above). However, CMS
would still like the details regarding the numerical representation of
Medicare and non-Medicare cases the applicant used in its analysis.
The applicant did not explain the methodology it used to
remove the charges for the predicate technology, as well as the type of
technology that the charges replaced. Therefore, we are unable to
validate the accuracy of the applicant's methodology.
The applicant did not explain the basis of using a 10-
percent inflation factor. Specifically, the applicant used cases from
CY 2016 and inflated the costs to FY 2017 using a 10-percent inflation
factor. However, the 1-year inflation factor in the FY 2016 IPPS/LTCH
final rule (80 FR 49784) is 3.7 percent. Therefore, we do not believe
that a 10-percent inflation factor is appropriate.
The applicant used the average overall CCR of the six hospitals to
convert the costs of the MAGEC[supreg] Spine to charges. However,
rather than using an average CCR, to increase the precision of
determining the charges of the MAGEC[supreg] Spine, the applicant could
have instead used each hospital's individual CCR or the implantable
device CCR of 0.337 as reported in the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49429).
We are inviting public comments on whether the MAGEC[supreg] Spine
meets the cost criterion, particularly with regard to the concerns we
have raised.
With regard to substantial clinical improvement, the applicant
stated that use of the MAGEC[supreg] Spinal Bracing and Distraction
System significantly improves clinical outcomes for the pediatric
patient population with spinal deformities when compared to
technologies and treatment options that employ TGRs by decreasing the
number of subsequent surgeries and potential adverse effects following
implantation. The applicant provided results from a study \4\, which
demonstrated that patients receiving treatment using the magnetically
controlled growth rods (MCGR) system had 57 fewer surgeries as a whole
than those patients receiving treatment options using TGRs. According
to the applicant, the results further projected decreased rates of
infection and attendant costs because the need for additional
distraction (lengthening) surgeries is eliminated. In addition, the
applicant stated that 1,500 patients located around the world have been
successfully treated with the use of this technology. The applicant
indicated that the results from another study \5\ cited the following
qualitative outcomes: Minimal surgical scarring, decreased
psychological distress and improved quality of life, improved

[[Page 25042]]

pulmonary function tests (PFTs), and capabilities to continuously
monitor neurological behaviors because the patient is not exposed to
anesthesia during follow-up distractions.
---------------------------------------------------------------------------

\4\ Akbarnia BA, Cheung K, Noordeen H et al. Traditional rods
versus magnetically controlled growing rods in early onset
scoliosis: a case-matched two year study. 2013.
\5\ Cheng, KMC, Cheung JPY, Damartzis, D, Mak, KC, Wong, WYC,
Akbaria, BA, Luk KDK. Magnetically controlled growing rods for sever
spinal curvature in young children. A prospective study. Lancet 379
(830) 26 May-1 June 2012, pp. 1967-1974.
---------------------------------------------------------------------------

We are concerned that the applicant's assertions that the
MAGEC[supreg] Spine technology leads to significantly better clinical
outcomes; specifically, decreased rates of infection, when compared to
treatment options that use TGRs has not been shown by the results of
the studies provided. The results of the studies provided did not
compare rates of infection for patients receiving treatment using the
MAGEC[supreg] Spine versus patients receiving treatment using TGRs or
other spinal growth rods. Also, as previously mentioned, there are
other currently available technologies and devices such as the Shilla
growth guidance system that also achieve the same therapeutic outcome
and do not require the patient to be subjected to the potential and
adverse effects of additional surgery. Therefore, we are concerned that
the MAGEC[supreg] Spine may not represent a substantial clinical
improvement over existing technologies. We are inviting public comments
on whether the MAGEC[supreg] Spine meets the substantial clinical
improvement criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.
b. MIRODERM Biologic Wound Matrix (MIRODERM)
Miromatrix Medical, Inc. submitted an application for new
technology add-on payments for FY 2017 for MIRODERM. MIRODERM is a non-
crosslinked acellular wound matrix that is derived from the porcine
liver and is processed and stored in a phosphate buffered aqueous
solution. MIRODERM is clinically indicated for the management of
wounds, including: Partial and full-thickness wounds, pressure ulcers,
venous ulcers, chronic vascular ulcers, diabetic ulcers, trauma wounds,
drainage wounds, and surgical wounds. Typical decellularization where
tissues are immersed in a decellularization solution is a diffusion-
based process, and thereby limits the ability to fully decellularize
thick, complex tissues such as the liver. MIRODERM uses a perfusion
decellularization process that rapidly removes cellular material while
maintaining the native architecture, vasculature and tissue structure.
Following decellularization, MIRODERM is isolated from partial
thickness liver sections following slight compression of the liver.
This allows for the retention of the native liver structure, including
the vasculature, within MIRODERM. The applicant noted that the MIRODERM
is the only acellular skin substitute product that is derived from the
liver.
According to the applicant, MIRODERM is positioned to completely
contact the entire surface of the wound bed and extend slightly beyond
all wound margins. As required, it is securely anchored to the wound
site with a physician's preferred fixation method. An appropriate,
primary non-adherent wound dressing is then applied over the MIRODERM
matrix. A secondary dressing (multi-layer compression bandage system),
total contact cast, or other appropriate dressing that will manage the
wound exudate should be applied in order to keep the MIRODERM matrix
moist and keep all layers securely in place. Additional applications of
MIRODERM are applied as needed until the wound closes.
MIRODERM received FDA approval for its use on January 27, 2015.
Currently, there are no ICD-10-PCS procedure codes to uniquely identify
the use of MIRODERM. The applicant submitted a request for a unique
ICD-10-PCS procedure code that was presented at the March 2016 ICD-10
Coordination and Maintenance Committee meeting. If approved, the
procedure codes would become effective on October 1, 2016 (FY 2017).
More information on this request can be found on the CMS Web site
located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology meets all three of the
substantial similarity criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments.
With regard to the first substantial similarity criterion, whether
the product uses the same or a similar mechanism of action to achieve a
therapeutic outcome, the applicant stated that current wound healing
therapies are provided in several different modalities, which include
hyperbaric oxygen treatment, negative wound pressure therapy, and
treatment with other bioengineered skin substitute products. The
applicant noted that other products that have been commonly used for
similar procedures are Oasis Wound Matrix, Primatrix Dermal Repair, and
Theraskin. The applicant asserted that MIRODERM is different from these
other products because it is the only product sourced from porcine
liver and undergoes a unique, patented process of perfusion
decellularization that rapidly removes cellular material, while
maintaining the native architecture, vasculature and tissue structure.
The applicant explained that MIRODERM is isolated from partial
thickness liver sections following slight compression of the liver,
which allows for the retention of the native liver structure, including
the vasculature, within MIRODERM. The applicant stated that partial
thickness allows for one surface of MIRODERM to retain the native liver
capsule (an epithelial basement membrane) and the other opposite
surface to be comprised of open liver matrix. The applicant further
stated that case studies of the MIRODERM demonstrated accelerated
healing, which is likely the result of the unique perfusion
decellularization technology that retains a 3-dimensional extracellular
matrix that includes the vasculature.
With regard to the first criterion, similar to other current wound
matrix treatments, the MIRODERM uses a collagen matrix for tissue
repair and regeneration. Therefore, we are concerned that MIRODERM
employs the same mechanism of action as other wound matrix treatments.
Although the applicant has described how the MIRODERM differs from
other wound matrix treatments due to the perfusion decellularization
process, and is the first product that is derived from the porcine
liver, we believe that the mechanism of action of MIRODERM may be
substantially similar or the same as those employed by other wound
treatment matrixes. With regard to the second criterion, whether a
product is assigned to the same or a different MS-DRG, cases that may
be eligible for treatment using MIRODERM map to the same MS-DRGs as
other currently approved wound treatment matrixes. With regard to the
third criterion, whether the new use of the technology involves the
treatment of the same or similar type of disease and the same or
similar patient population, MIRODERM is used to treat the same patient
population as other currently approved wound treatment matrixes.
Because it appears that the MIRODERM may be substantially similar to
currently approved wound treatment matrixes, we are concerned that the
technology may not be considered ``new'' for the purposes of new
technology add-on payments. We are inviting public comments on whether
MIRODERM meets the newness criterion.
With regard to the cost criterion, the applicant conducted the
following

[[Page 25043]]

analysis. The applicant began by researching the 2014 Medicare
Inpatient Hospital Standard Analytical File (SAF) file for cases
primarily associated with dermal regenerative grafts that may be
eligible for treatment using MIRODERM. The applicant searched for
claims that reported ICD-9-CM procedure code 86.67 (Dermal regenerative
graft) that mapped to one of the following MS-DRGs: 463, 464, and 465
(Wound Debridement and Skin Graft Except Hand for Musculoskeletal
System and Connective Tissue Disorders with MCC, with CC, or without
CC/MCC, respectively); 573, 574, and 575 (Skin Graft for Skin Ulcer or
Cellulitis with MCC, with CC, or without CC/MCC, respectively); 576,
577, and 578 (Skin Graft Except for Skin Ulcer or Cellulitis with MCC,
with CC, or without CC/MCC, respectively); 622, 623, and 624 (Skin
Grafts and Wound Debridement for Endocrine, Nutritional and Metabolic
Diseases with MCC, with CC or without CC/MCC, respectively); and 904
and 905 (Skin Grafts for Injuries with CC/MCC or without CC/MCC,
respectively). As a result, the applicant identified 1,130 cases across
the MS-DRGs listed, which resulted in an average case-weighted charge
per case of $83,059.
Included in the average case-weighted charge per case were charges
for other previously used dermal regenerative grafts. According to the
applicant, the MIRODERM would replace the need for other dermal
regenerative grafts and, therefore, the applicant removed charges
related to the use of other currently used dermal regenerative grafts
from the average case-weighted charge per case. Specifically, using the
January 2016 CMS Part B Drug Pricing File, the applicant first computed
an average cost per square centimeter for currently used dermal
regenerative grafts (Apligraf $31.207/cm\2\, Oasis $10.676/cm\2\,
Integra DRT $21.585/cm\2\, Dermagraft $32.858/cm\2\, Integra skin
substitute $35.627/cm\2\, Primatrix $37.590/cm\2\, and Theraskin
$38.474/cm\2\), which equaled $29.72/cm\2\. To determine the average
amount of square centimeters of the other dermal regenerative grafts
used for each case within the MS-DRG, given the vast complexity and
variation in wounds, the applicant used clinical judgment based on
experience, observation and typical sizes and depths of wounds that
would present on different parts of the body. For an example, wounds on
the hand would typically be smaller than those located on the lower
extremities. The applicant also assumed that other dermal regenerative
grafts would require three applications to close a wound as opposed to
treatment using MIRODERM, which requires only two applications. Based
on this assumption, the applicant noted that it assumed that the first
application required 100 percent of the amount of skin substitute
required to treat the original wound area, the second application
required 70 percent, and the third application required 40 percent,
totaling 210 percent. To compute the total amount of square centimeters
used for each case within the MS-DRG, the applicant multiplied this
percentage (210 percent) by the amount of square centimeters used for
the first application for each case within the MS-DRG. The applicant
then multiplied the average cost of the other previously used dermal
regenerative grafts ($29.72/cm\2\) by the average amount of centimeters
used for each case within the MS-DRG to determine the average cost of
the other previously used dermal regenerative grafts for each case
within the MS-DRG. To convert the costs to charges, the applicant
computed an average CCR for each MS-DRG using CCRs from the FY 2014
Standardizing File of the hospitals indicated on each of the claims for
each case within the MS-DRG. The applicant then divided the average
cost of the other previously used dermal regenerative grafts for each
MS-DRG by the average CCR for each MS-DRG to determine the average
charges of the other previously used dermal regenerative grafts for
each MS-DRG. The applicant also reduced the charges for the number of
days of hospitalization by 30 percent because the applicant believed
that MIRODERM heals patients faster than the other currently used
dermal regenerative grafts, resulting in a reduction in the average
lengths of stay. The applicant then deducted the charges related to the
other previously used dermal regenerative grafts and the charges for
the reduction in the average lengths of stay from the average case-
weighted charge per case and then standardized the charges, which
resulted in an average standardized case-weighted charge per case of
$34,279. The applicant then inflated the average standardized case-
weighted charge per case by 7.7 percent, the same inflation factor used
by CMS to update the FY 2016 outlier threshold (80 FR 49784).
After inflating the charges it was necessary to add the associated
charges for the use of MIRODERM. The applicant conducted a similar
calculation to compute the charges for MIRODERM. Specifically, the
applicant used clinical judgment based on experience, observation, and
typical sizes and depths of wounds that would be present on different
parts of the body. The applicant stated that because MIRODERM has shown
greater efficacy in wound closure based on their case series, the
applicant modeled for only two applications with 50 percent closure of
the wound after the first application and full closure of the wound
after the second application. Based on this assumption, the applicant
noted that it assumed that the first application required 100 percent
of the amount of skin substitute required to treat the original wound
area and the second application required 50 percent, totaling 150
percent. To compute the total amount of square centimeters used for
each MS-DRG, the applicant multiplied this percentage (150 percent) by
the amount of square centimeters used for the first application for
each MS-DRG. The applicant then multiplied the cost per square
centimeter for MIRODERM by the average amount of centimeters used for
each case within the MS-DRG to determine the average cost of MIRODERM
grafts used for each MS-DRG. Similar to above, to convert the costs to
charges, the applicant used the same average CCRs for each MS-DRG and
divided the average cost of MIRODERM for each MS-DRG by the average CCR
for each MS-DRG to determine the average charges of MIRODERM for each
MS-DRG. The applicant then added charges related to the use of MIRODERM
to the inflated average standardized charges and determined a final
inflated average standardized case-weighted charge per case of $94,009.
Using the FY 2016 IPPS Table 10 thresholds, the average case-weighted
threshold amount was $67,559 (all calculations above were performed
using unrounded numbers). Because the final inflated average
standardized case-weighted charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology
meets the cost criterion.
We are inviting public comments on whether the MIRODERM technology
meets the cost criterion.
With regard to substantial clinical improvement, the applicant
believed that the technology represents a substantial clinical
improvement over existing technologies because patients treated with
the MIRODERM for complicated wounds heal quicker and avoid additional
surgeries. To demonstrate that the technology meets the substantial
clinical improvement criterion, the applicant submitted the results of
two actual case studies of a complicated wound from necrotizing
fasciitis that was treated with the

[[Page 25044]]

MIRODERM. According to the applicant, one case study involved a
complicated wound that would typically be treated with a diverting
colostomy. The applicant noted that that the patient was discharged
with intact anoplasty and good sphincter control after 35 days and four
applications for MIRODERM. The applicant further stated that the use of
MIRODERM demonstrated rapid healing and likely avoided at least two
major debilitating surgeries, as well as the emotional and physical
impact of a colostomy for 3 to 6 months. In the second case study,
according to the applicant, the attending physician estimated the wound
would likely take greater than 90 days to close using traditional wound
care matrixes. The applicant stated that after 12 days and two
applications of MIRODERM the patient was discharged and after 21 days
the wound was sutured closed.
The applicant noted that additional patients have been treated with
MIRODERM. According to the applicant, given the recent product launch,
the case studies have not been completed, but similar results have been
communicated to the applicant.
We are concerned that the clinical data the applicant submitted is
from a very small sample with no comparisons to other currently
approved wound treatment matrixes. Specifically, the applicant
submitted data from only two case studies. Also, the applicant compared
the use of MIRODERM to the use of other treatments, such as diverting
colostomy. While MIRODERM may represent an improvement in treatment
options compared to the other treatment options such as diverting
colostomy, we are unable to determine if use of MIRODERM represents a
substantial clinical improvement when compared to other wound treatment
matrixes of other currently approved treatments. We are inviting public
comments on whether MIRODERM meets the substantial clinical improvement
criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.
c. Idarucizumab
Boehringer Ingelheim Pharmaceuticals, Inc. submitted an application
for new technology add-on payments for FY 2017 for Idarucizumab; a
product developed as an antidote to reverse the effects of
PRADAXA[supreg] (Dabigatran), which is also manufactured by Boehringer
Ingelheim Pharmaceuticals, Inc. (We note that the applicant submitted
an application for new technology add-on payments for FY 2016, but
failed to obtain FDA approval prior to the July 1 deadline.) Dabigatran
is an oral direct thrombin inhibitor currently indicated to: (1) Reduce
the risk of stroke and systemic embolism in patients who have been
diagnosed with nonvalvular atrial fibrillation (NVAF); (2) treat deep
venous thrombosis (DVT) and pulmonary embolism (PE) in patients who
have been administered a parenteral anticoagulant for 5 to 10 days; and
(3) reduce the risk of recurrence of DVT and PE in patients who have
been previously diagnosed with NVAF. Currently, unlike the
anticoagulant Warfarin, there is no specific way to reverse the
anticoagulant effect of Dabigatran in the event of a major bleeding
episode.
Idarucizumab is a humanized fragment antigen binding (Fab)
molecule, which specifically binds to Dabigatran to deactivate the
anticoagulant effect, thereby allowing thrombin to act in blood clot
formation. The applicant stated that Idarucizumab represents a new
pharmacologic approach to neutralizing the specific anticoagulant
effect of Dabigatran in emergency situations. Idarucizumab was approved
by the FDA on October 16, 2015. The applicant noted that Idarucizumab
is the only FDA-approved therapy available to neutralize the
anticoagulant effect of Dabigatran. Before the FDA approval of
Idarucizumab, the approach for the management of the anticoagulant
effect of Dabigatran prior to an invasive procedure was to withhold
administration of Dabigatran, when possible, for a certain duration of
time prior to the procedure to allow sufficient time for the patient's
kidneys to flush out the medication. The duration of time needed to
flush out the medication prior to the surgical procedure is based on
the patient's kidney function. According to the applicant, if surgery
cannot be delayed to allow the kidneys the necessary time to flush out
the traces of Dabigatran, there is an increased risk of bleeding.
Based on the FDA indication for Idarucizumab, the product can be
used in the treatment of patients who have been diagnosed with NVAF and
administered Dabigatran to reverse life-threatening bleeding events, or
who require emergency surgery or medical procedures and rapid reversal
of the anticoagulant effects of Dabigatran is necessary and desired.
The applicant received a unique ICD-10-PCS procedure code that became
effective October 1, 2015. The approved procedure code is XW03331
(Introduction of Idarucizumab, Dabigatran reversal agent into central
vein, percutaneous approach, New Technology Group 1). We are inviting
public comments on whether Idarucizumab meets the newness criterion.
With regard to the cost criterion, the applicant conducted two
analyses. The applicant began by researching claims data in the FY 2014
MedPAR file for cases that may be eligible for Idarucizumab using a
combination of ICD-9-CM diagnosis and procedure codes. Specifically,
the applicant searched the database for cases reporting anticoagulant
therapy diagnosis code E934.2 (Agents primarily affecting blood
constituents, anticoagulants) or V58.61 (Long-term (current) use of
anticoagulants) in combination with either current standard of care
procedure code 99.03 (Other transfusion of whole blood), 99.04
(Transfusion of packed cells), 99.05 (Transfusion of platelets), 99.06
(Transfusion of coagulation factors), 99.07 (Transfusion of other
serum), or 39.95 (Hemodialysis), and Dabigatran indication diagnosis
code 427.31 (Atrial fibrillation), 453.40 (Acute venous embolism and
thrombosis of unspecified deep vessels of lower extremity), 453.41
(Acute venous embolism and thrombosis of deep vessels of proximal lower
extremity), 453.42 (Acute venous embolism and thrombosis of deep
vessels of distal lower extremity), 453.50 (Chronic venous embolism and
thrombosis of unspecified deep vessels of lower extremity), 453.51
(Chronic venous embolism and thrombosis of deep vessels of proximal
lower extremity), 453.52 (Chronic venous embolism and thrombosis of
deep vessels of distal lower extremity), 415.11 (Iatrogenic pulmonary
embolism and infarction), 415.12 (Septic pulmonary embolism), 415.13
(Saddle embolus of pulmonary artery), 415.19 (Other pulmonary embolism
and infarction), 416.2 (Chronic pulmonary embolism), V12.51 (Personal
history of venous thrombosis and embolism), or V12.55 (Personal history
of pulmonary embolism).
To further target potential cases that may be eligible for
Idarucizumab, the applicant also excluded specific cases based on
Dabigatran contraindications, including all cases representing patients
who have been diagnosed with chronic kidney disease (CKD) stage V
(diagnosis code 585.5), end-stage renal disease (diagnosis code 585.6),
prosthetic heart valves (diagnosis code V43.3), and cases representing
patients who have been diagnosed with both CKD stage IV (diagnosis code
585.4) and either DVT or PE (using the same ICD-9-CM

[[Page 25045]]

diagnosis codes listed above). As a result, the applicant identified
84,224 cases that mapped to 684 MS-DRGs. The applicant standardized the
charges and computed an average case-weighted standardized charge per
case of $60,089.
The applicant then identified hospital charges potentially
associated with the current treatments to reverse anticoagulation,
specifically charges associated with pharmacy services, dialysis
services, and laboratory services for blood work. Due to limitations
associated with the claims data, the applicant was unable to determine
the specific drugs used to reverse anticoagulation and if these cases
represented patients who required laboratory services for blood work or
dialysis services unrelated to the reversal of anticoagulation.
Therefore, the applicant subtracted 40 percent of the charges related
to these three categories from the standardized charge per case, based
on the estimation that the full amount of charges associated with these
services would not be incurred by hospitals when Idarucizumab is
administered for use in the treatment of patients who have been
diagnosed with NVAF and Dabigatran is administered during treatment.
The applicant then inflated the standardized charge per case by 7.665
percent, the same inflation factor used by CMS to update the FY 2016
outlier threshold (80 FR 49784) and added charges for Idarucizumab.
This resulted in an inflated average case-weighted standardized charge
per case of $67,617. Using the FY 2016 IPPS Table 10 thresholds, the
average case-weighted threshold amount across all 684 MS-DRGs is
$55,586 (all calculations above were performed using unrounded
numbers). Because the inflated average case-weighted standardized
charge per case exceeds the average case-weighted threshold amount, the
applicant maintained that the technology meets the cost criterion under
this analysis.
Further, the applicant conducted an additional analysis using the
same data from the FY 2014 MedPAR file and variables used in the
previous analysis. However, instead of using potentially eligible cases
that mapped to 100 percent of the 684 MS-DRGs identified, the applicant
used potentially eligible cases that mapped to the top 75 percent of
the 684 MS-DRGs identified. By applying this limitation, the applicant
identified 63,033 cases that mapped to 87 MS-DRGs. The applicant
computed an inflated average case-weighted standardized charge per case
of $55,872. Using the FY 2016 IPPS Table 10 thresholds, the average
case-weighted threshold amount across all 87 MS-DRGs is $63,323 (all
calculations above were performed using unrounded numbers). Because the
inflated average case-weighted standardized charge per case exceeds the
average case-weighted threshold amount, the applicant maintained that
the technology also meets the cost criterion under this analysis. We
are inviting public comments regarding the applicant's analyses with
regard to the cost criterion.
With regard to substantial clinical improvement, according to the
applicant, aside from Idarucizumab, there are no other FDA-approved
antidotes to reverse the anticoagulant effects of Dabigatran.
Management of the treatment of patients who have been diagnosed with
NVAF and administered Dabigatran and experience bleeding may often
include supportive care such as Hemodialysis and the use of fresh
frozen plasma, blood factor products such as prothrombin complex
concentrates (PCC), activated prothrombin complex concentrates, and
recombinant factor VIIa or delayed intervention. Protamine sulfate and
Vitamin K are typically used to reverse the effects of Heparin and
Warfarin, respectively. However, due to the mechanism of action in
Dabigatran, the applicant maintained that the use of protamine sulfate
and Vitamin K may not be effective to reverse the anticoagulant effect
of Dabigatran.
The applicant provided information regarding the management of
major bleeding events experienced by patients who were administered
Dabigatran and Warfarin during the RE-LY trial.\6\ During this study,
most major bleeding events were only managed by supportive care.
Patients who were administered 150 mg of Dabigatran were transfused
with pack red blood cells more often when compared to patients who were
administered Warfarin (61.4 percent versus 49.9 percent, respectively).
However, patients who were administered Warfarin were transfused with
plasma more often when compared to patients who were administered 150
mg of Dabigatran (30.2 percent versus 21.6 percent, respectively). In
addition, the use of Vitamin K in the treatment of patients who were
administered Warfarin was more frequent when compared to the frequency
of use in the treatment of patients who were administered 150 mg of
Dabigatran (27.3 percent versus 10.3 percent, respectively). The use of
PCCs, recombinant factor VIIa and other coagulation factor replacements
in the treatment of patients who were administered both Warfarin and
150 mg of Dabigatran was minimal, and did not significantly differ in
frequency when compared among patients assigned to either group.
Hemodialysis was used in a single case.
---------------------------------------------------------------------------

\6\ Healy, et al.: Periprocedural bleeding and thromboembolic
events with dabigatran compared with Warfarin: results from the
randomized evaluation of long-term anticoagulation therapy (RE-LY)
randomized trial, Circulation, 2012; 126:343-348.
---------------------------------------------------------------------------

The applicant reported that, currently, it is recommended that the
administration of Dabigatran be discontinued 1 to 2 days (CrCl >=50 ml/
min) or 3 to 5 days (CrCl <50 ml/min), if possible, before invasive or
surgical procedures because of the increased risk of bleeding.\7\ A
longer period of discontinuation time should be considered for patients
undergoing major surgery, spinal puncture, or placement of a spinal or
epidural catheter or port, if complete hemostasis is required. The
applicant stated that delaying emergency medical or surgical procedures
can cause urgent conditions to become more severe if intervention is
not initiated. The applicant further maintained that delaying emergency
medical or surgical procedures for an extended period of time can
ultimately lead to negative healthcare outcomes and increased
healthcare costs. The applicant asserted that rapidly reversing the
anticoagulant effect of Dabigatran administered to patients that
require an urgent medical procedure or surgery allows the medical
procedure or surgery to be performed in a timely manner, which in turn
may decrease complications and minimize the need for more costly
therapies.
---------------------------------------------------------------------------

\7\ Pradaxa[supreg] (Dabigatran Etexilate Mesylate) prescribing
information. Ridgefield, CT: Boehringer Ingelheim; 2014.
---------------------------------------------------------------------------

The applicant also provided interim data from an ongoing Phase III
trial ^{8 9} in patients who may have life-threatening
bleeding, or require emergency procedures. The applicant noted that
published results of the interim data based on 90 patients suggested
the following: Reversal of the Dabigatran anticoagulant effect, which
was evident immediately after administration; reversal was 100 percent
in the first 4 hours and greater than 89 percent of patients achieved
complete reversal; hemostasis in 35 patients in Group A was restored at
a median of 11.4 hours. Also, the 5 gram dose of Idarucizumab was
calculated to reverse the total body load of Dabigatran that was
associated

[[Page 25046]]

with the 99th percentile of the Dabigatran levels measured in the RE-LY
trial.
---------------------------------------------------------------------------

\8\ Pollack C, et al. Design and rationale for RE-VERSE AD: A
phase 3 study of idarucizumab, a specific reversal agent for
dabigatran. Thromb Haemost. 2015 Jul; 114(1):198-205.
\9\ Pollack C, et al. Idarucizumab for Dabigatran Reversal. N
Engl J Med. 2015 Aug 6; 373(6):511-20.
---------------------------------------------------------------------------

The applicant provided safety data from three Phase I studies and
interim data from the Phase III study. In the Phase I study, 110
healthy male patients enrolled in the study were administered dosages
of Idarucizumab that ranged from 20 mg to 8 grams. In this study, 135
patients received placebo. The applicant reported that adverse events
were generally mild in intensity and nonspecific. Healthy human
volunteers enrolled in the Phase I study were administered Idarucizumab
in dosages of 2 and 4 grams, which resulted in immediate and complete
reversal of the anticoagulant effect of Dabigatran that was sustained
for several hours. In the Phase III study, five thrombotic events
occurred. One occurred 2 days after treatment and the remainder
occurred 7, 9, 13, and 26 days after treatment. These patients were not
receiving antithrombotic therapy when the events occurred, and
complications or adverse effects can be attributed to patients'
underlying medical conditions. Twenty-one patients (13 in Group A and 8
in Group B) had a serious adverse event. The most frequently reported
adverse reactions in greater than or equal to 5 percent of the patients
treated with Idarucizumab were hypokalemia, delirium, constipation,
pyrexia, and pneumonia. The applicant concluded that the data from
these studies demonstrated that Idarucizumab effectively, safely, and
potently reverses the anticoagulant effect of Dabigatran. We are
inviting public comments on whether Idarucizumab meets the substantial
clinical improvement criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.
d. Titan Spine (Titan Spine Endoskeleton[supreg] nanoLOCK^TM
Interbody Device)
Titan Spine submitted an application for new technology add-on
payments for the Titan Spine Endoskeleton[supreg] nanoLOCK^TM
Interbody Device (the Titan Spine nanoLOCK^TM) for FY 2017.
The Titan Spine nanoLOCK^TM is a nanotechnology-based
interbody medical device with a dual acid-etched titanium interbody
system used to treat patients diagnosed with degenerative disc disease
(DDD). One of the key distinguishing features of the device is the
surface manufacturing technique and materials, which produce macro,
micro, and nano surface textures. According to the applicant, the
combination of surface topographies enables initial implant fixation,
mimics an osteoclastic pit for bone growth, and produces the nano-scale
features that interface with the integrins on the outside of the
cellular membrane. Further, the applicant noted that these features
generate better osteogenic and angiogenic responses that enhance bone
growth, fusion, and stability. The applicant asserted that the Titan
Spine nanoLOCK^TM's clinical features also reduce pain,
improve recovery time, and produces lower rates of device complications
such as debris and inflammation.
On October 27, 2014, the Titan Spine nanoLOCK^TM received
FDA approval for the use of five lumbar interbody devices and one
cervical interbody device: The nanoLOCK\TM\ TA-Sterile Packaged Lumbar
ALIF Interbody Fusion Device with nanoLOCK^TM surface,
available in multiple sizes to accommodate anatomy; the nanoLOCK\TM\
TAS-Sterile Packaged Lumbar ALIF Stand Alone Interbody Fusion Device
with nanoLOCK^TM surface, available in multiple sizes to
accommodate anatomy; the nanoLOCK\TM\ TL-Sterile Packaged Lumbar
Lateral Approach Interbody Fusion Device with nanoLOCK^TM
surface, available in multiple sizes to accommodate anatomy; the
nanoLOCK\TM\ TO-Sterile Packaged Lumbar Oblique/PLIF Approach Interbody
Fusion Device with nanoLOCK^TM surface, available in multiple
sizes to accommodate anatomy; the nanoLOCK\TM\ TT-Sterile Packaged
Lumbar TLIF Interbody Fusion Device with nanoLOCK^TM surface,
available in multiple sizes to accommodate anatomy and the nanoLOCK\TM\
TC-Sterile Packaged Cervical Interbody Fusion Device with
nanoLOCK^TM surface, available in multiple sizes to
accommodate anatomy. The applicant received FDA approval on December
14, 2015, for the nanoLOCK^TM TCS-Sterile Package Cervical
Stand Alone Interbody Fusion Device with nanoLOCK^TM surface,
available in multiple sizes to accommodate anatomy. Currently, there
are no ICD-10-PCS procedure codes that uniquely describe procedures
involving use of the Titan Spine nanoLOCK^TM surface
technology.
We note that cases reporting procedures involving lumbar and
cervical interbody devices map to different MS-DRGs. As discussed in
the Inpatient New Technology Add-On Payment Final Rule (66 FR 46915),
two separate reviews and evaluations of the technologies are necessary
in this instance because cases representing patients receiving
treatment for diagnoses associated with lumbar procedures that may be
eligible for use of the technology under the first indication are not
expected to be assigned to the same MS-DRGs as patients receiving
treatment for diagnoses associated with cervical procedures using the
technology under the second indication. Specifically, cases
representing patients who have been diagnosed with lumbar DDD and
received treatment that involved implanting a lumbar device map to MS-
DRGs 028 (Spinal Procedures with MCC), 029 (Spinal Procedures with CC
or Spinal Neurostimulators), 030 (Spinal Procedures without CC/MCC),
453 (Combined Anterior/Posterior Spinal Fusion with MCC), 454 (Combined
Anterior/Posterior Spinal Fusion with CC), 455 (Combined Anterior/
Posterior Spinal Fusion without CC/MCC), 456 (Spinal Fusion Except
Cervical with Spinal Curvature or Malignancy or Infection or Extensive
Fusions with MCC), 457 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or Infection or Extensive Fusion without MCC),
458 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy
or Infection or Extensive Fusions without CC/MCC), 459 (Spinal Fusion
Except Cervical with MCC), and 460 (Spinal Fusion Except Cervical
without MCC), while cases representing patients who have been diagnosed
with cervical DDD and received treatment that involved implanting a
cervical interbody device map to MS-DRGs 471 (Cervical Spinal Fusion
with MCC), 472 (Cervical Spinal Fusion with CC), and 473 (Cervical
Spinal Fusion without CC/MCC). Procedures involving the lumbar and
cervical interbody devices are assigned to separate MS-DRGs. Therefore,
the devices categorized as lumbar devices and the devices categorized
as cervical devices must distinctively (each category) meet the cost
criterion and the substantial clinical improvement criterion in order
to be eligible for new technology add-on payments beginning in FY 2017.
We discuss application of these criteria following discussion of the
newness criterion.
As discussed previously in this section, if a technology meets all
three of the substantial similarity criteria, it would be considered
substantially similar to an existing technology and would not be
considered ``new'' for the purposes of new technology add-on payments.
We note that the substantial similarity discussion is applicable to
both the lumbar and the cervical devices

[[Page 25047]]

because all of the devices use the Titan Spine nanLOCK^TM
technology.
With regard to the first criterion, whether a product uses the same
or a similar mechanism of action to achieve a therapeutic outcome, the
applicant stated that, for both interbody devices (the lumbar and the
cervical interbody device), the Titan Spine nanoLOCK^TM's
surface stimulates osteogenic cellular response to assist in bone
formation during fusion. During the manufacturing process, the surface
produces macro, micro, and nano-surface textures. The applicant
believed that this unique combination and use of these surface
topographies represents a new approach to stimulating osteogenic
cellular response. The applicant asserted that the macro-scale textured
features are important for initial implant fixation. The micro-scale
textured features mimic an osteoclastic pit for supporting bone growth.
The nano-scale textured features interface with the integrins on the
outside of the cellular membrane, which generates the osteogenic and
angiogenic (mRNA) responses necessary to promote healthy bone growth
and fusion. The applicant provided the results from in vitro studies,
using human mesenchymal cells (MSCs), which showed positive effects on
bone growth related to cellular signaling achieved by using the
device's surface, and osteoblasts exhibited a more differentiated
phenotype and increased bone morphogenetic protein (BMP) production
using titanium alloy substrates as opposed to poly-ether-ether-ketone
(PEEK) substrates. The applicant stated that Titan Spine's proprietary
and unique surface technology, the Titan Spine nanoLOCK^TM
interbody devices, contain optimized nano-surface characteristics,
which generate the distinct cellular responses necessary for improved
bone growth, fusion, and stability. The applicant further stated that
the Titan Spine nanoLOCK^TM's surface engages with the
strongest portion of the endplate, which enables better resistance to
subsidence because a unique dual acid-etched titanium surface promotes
earlier bone in-growth. The Titan Spine nanoLOCK^TM's surface
is created by using a reductive process of the titanium itself. The
applicant asserted that use of the Titan Spine nanoLOCK^TM
significantly reduces the potential for debris generated during
impaction when compared to treatments using PEEK-based implants coated
with titanium. According to the results of an in vitro study \10\
provided by the applicant, which compared angiogenic factor production
using PEEK-based versus titanium alloy surfaces, osteogenic production
levels were greater with the use of rough titanium alloy surfaces than
the levels produced using smooth titanium alloy surfaces. The results
of an additional study \11\ provided by the applicant examined whether
inflammatory microenvironment generated by cells as a result of use of
titanium aluminum-vanadium (Ti-alloy, TiAlV) surfaces is effected by
surface microtexture, and whether it differs from the effects generated
by PEEK-based substrates. The applicant noted that the use of
microtextured surfaces has demonstrated greater promotion of osteoblast
differentiation when compared to use of PEEK-based surfaces.
---------------------------------------------------------------------------

\10\ Olivares-Navarrete R, Hyzy S, Gittens R. Titanium Alloys
Regulate Osteoblast Production of Angiogenic Factors. The Spine
Journal, 2013, ep.13. 1563-1570.
\11\ Olivares-Navrrete R, Hyzy s, Slosar P, et al. Implant
Materials Generate Different Peri-implant Inflammatory Factors.
SPINE. 2015: 40:6:339-404.
---------------------------------------------------------------------------

With regard to the second criterion, whether a product is assigned
to the same or a different MS-DRG, cases that may be eligible for
treatment involving the Titan Spine nanoLOCK^TM map to the
same MS-DRGs as other (lumbar and cervical) interbody devices currently
available to Medicare beneficiaries and also are used for the treatment
of patients who have been diagnosed with DDD (lumbar or cervical).
With regard to the third criterion, whether the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population, the applicant
stated that the Titan Spine nanoLOCK^TM can be used in the
treatment of patients diagnosed with similar types of diseases, such as
DDD, and for a similar patient population receiving treatment involving
both lumbar and cervical interbody devices.
In summary, the applicant maintained that the Titan Spine
nanoLOCK^TM technology has a different mechanism of action
when compared to other spinal fusion devices. Therefore, the applicant
did not believe that the Titan Spine nanoLOCK^TM technology
is substantially similar to existing technologies.
After reviewing the applicant's statements regarding nonsubstantial
similarity of its technology with other existing technologies, we are
still concerned that there are other titanium surfaced devices
currently available on the U.S. market. While these devices do not use
the Titan Spine nanoLOCK^TM technology, their surfaces also
are made of titanium. Therefore, we believe that the Titan Spine
nanoLOCK^TM interbody devices may be substantially similar to
currently available titanium interbody devices.
We are seeking public comments on whether the Titan Spine
Endoskeleton[supreg] nanoLOCK^TM Interbody Devices are
substantially similar to existing technologies and whether these
devices meet the newness criterion.
(1) Titan Spine Endoskeleton[supreg] nanoLOCK^TM Interbody
Device for Lumbar DDD
As previously mentioned, the Titan Spine nanoLOCK^TM
received FDA approval for the use of five lumbar interbody devices on
October 27, 2014. To demonstrate that the Titan Spine
nanoLOCK^TM for Lumbar DDD technology meets the cost
criterion, the applicant researched claims data in the FY 2014 MedPAR
file for cases assigned to MS-DRGs 028, 029, 030, 453, 454, and 455
reporting any of the ICD-9-CM procedure codes within the code series
81.xx (Repair and plastic operations on joint structures) or code
series 084.6x (Replacement of spinal disk), excluding cases reporting
the following ICD-9-CM procedure codes describing cervical fusion:
81.01 (Atlas-axis spinal fusion), 81.02 (Other cervical fusion,
anterior technique), 81.03 (Other cervical fusion, posterior
technique), 81.31 (Refusion of atlas-axis spine), 81.32 (Refusion of
other cervical spine, anterior technique), or 81.33 (Refusion of other
cervical spine, posterior technique). As a result, the applicant found
that all cases potentially eligible for treatment using the technology
mapped to MS-DRGs 456, 457, 458, 459, and 460. However, the applicant
focused its analyses on MS-DRGs 028 through 030, 453 through 455, and
456 through 460 because these are the MS-DRGs to which cases treated
with interbody fusion devices for degenerative disc disease would most
likely be assigned. The applicant applied CMS' relative weight
filtering process as described in the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49424) to ensure the correct claim types were used and the
charge details across the cost centers were appropriate.
According to the applicant, 78.03 percent of the 96,281 cases found
in the FY 2014 MedPAR file mapped to MS-DRG 460, while the remaining
21.97 percent of cases mapped to MS-DRGs 028 through 030, 453 through
455, and 456 through 459. This resulted in an average case-weighted
charge per case of $127,082. The applicant then removed $15,766 for
associated charges for other previously used spinal devices. The

[[Page 25048]]

applicant determined the associated charges to be removed for other
previously used devices based on current Titan Spine sales data for the
Titan Spine nanolock^TM for Lumbar DDD various sizes. The
applicant computed the associated charges by multiplying the weighted
sales mix by the average sales price for each product in the Titan
Spine nanoLOCK^TM for Lumbar DDD product line. After the
charges for other previously used technologies were removed, the
applicant standardized the charges for all cases using the FY 2014
standardizing file posted on the CMS Web site. The applicant excluded
all cases without standardized charges, resulting in a total of 96,281
cases. The applicant then inflated the average standardized case-
weighted charges from 2014 to 2016 by applying a 2-year rate of
inflation factor of 7.7 percent, which is the same inflation factor
used by CMS to update the FY 2016 outlier threshold (80 FR 49784).
To calculate the appropriate charges for the Titan Spine
nanoLOCK^TM for Lumbar DDD, the applicant used a case-
weighted charge because the devices implanted are produced and made
available in different sizes. To calculate the case-weighted charge for
different lumbar device sizes, the applicant determined the average
cost to the hospital per device and divided that amount by the national
average CCR for implantable devices (0.337) published in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49429). Based on sales data, the
applicant then applied a factor of 1.5 per patient to the case-weighted
charge by dividing the total number of products sold in the United
States by the total invoices generated; with one invoice being the
equivalent to one patient and a single surgery. The applicant then
added the device-related charges to the inflated average standardized
charge per case, which resulted in an inflated average standardized
case-weighted charge per case of $167,197. Using the FY 2016 IPPS Table
10 thresholds, the average case-weighted threshold amount was $112,825
(all calculations above were performed using unrounded numbers).
Because the final inflated average standardized case-weighted charge
per case exceeds the average case-weighted threshold amount, the
applicant maintained that the technology meets the cost criterion.
We are inviting public comments on whether the Titan Spine
nanoLOCK^TM for Lumbar DDD meets the cost criterion,
particularly with regard to the assumptions and methodology used in the
applicant's analyses.
(2) Titan Spine Endoskeleton[supreg] nanoLOCK^TM Interbody
Device for Cervical DDD
As previously mentioned, Titan Spine received FDA approval for the
use of the nanoLOCK^TM TC-Sterile Packaged Cervical Interbody
Fusion Device with nanoLOCK^TM surface on October 27, 2014,
and the nanoLOCK^TM TCS-Sterile Package Cervical Interbody
Fusion Device with nanoLOCK^TM surface on December 14, 2015.
To demonstrate that the Titan Spine nanoLOCK^TM for Cervical
DDD meets the cost criterion, the applicant researched claims data in
the FY 2014 MedPAR file for cases assigned to MS-DRGs 028, 029, 030,
453, 454, and 455 reporting any of the following ICD-9-CM cervical
fusion procedure codes: 81.01, 81.02, 81.03, 81.32, 81.33. The
applicant found that all of the cases mapped to MS-DRGs 471, 472, and
473. However, the applicant focused its analysis on MS-DRGs 028 through
030, 453 through 455, and 471 through 473 because these are the MS-DRGs
to which cases treated with the implantation of cervical spinal devices
for degenerative disc disease would most likely be assigned. Similar to
the sensitivity analysis submitted for the Titan Spine
nanoLOCK^TM for Lumbar DDD, the applicant applied CMS'
relative weight filtering process as described in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49424) to ensure the correct claim types were
used and the charge details across the cost centers were appropriate.
According to the applicant, 59.47 percent of the 48,187 cases
mapped to MS-DRG 473 and 25.65 percent of the cases mapped to MS-DRG
472, while the remaining 14.88 percent of the cases mapped to MS-DRGs
028 through 030, 453 through 455, and 471. This resulted in an average
case-weighted charge per case of $83,841. Using the same methodology
described above, the applicant removed $4,423 for associated charges
for other previously used technologies from the average case-weighted
charge per case using current Titan Spine sales data for cervical
device sizes and then standardized the charges. The applicant then
inflated the average standardized case-weighted charges from 2014 to
2016 by applying the same 2-year rate of inflation factor used above
(7.7 percent). Similar to the methodology described above, the
applicant calculated $36,023 for associated device related charges for
the Titan Spine nanoLOCK^TM for Cervical DDD and added this
amount to the inflated average standardized case-weighted charge per
case, which resulted in a final inflated average standardized case-
weighted charge per case of $114,472. Using the FY 2016 IPPS Table 10
thresholds, the average case-weighted threshold amount was $79,827 (all
calculations above were performed using unrounded numbers). Because the
final inflated average standardized case-weighted charge per case
exceeds the average case-weighted threshold amount, the applicant
maintained that the technology meets the cost criterion.
We are inviting public comments on whether the Titan Spine
nanoLOCK^TM for Cervical DDD meets the cost criterion.
With regard to the substantial clinical improvement criterion for
the Titan Spine Endoskeleton[supreg] nanoLOCK^TM Interbody
Device for Lumbar and Cervical DDD, the applicant asserted that the
Titan Spine nanoLOCK^TM substantially improves the treatment
of Medicare beneficiaries who have been diagnosed with and receive
treatment for serious spinal pathologies, such as DDD, compared to the
currently available technologies and treatment options, especially in
terms of improved fusion, decreased pain, greater stability, faster
recovery times, and lower rates of interbody device related
complications, such as debris and inflammation.
The applicant noted that the cellular process that occurs after
implantation of the Titan Spine nanoLOCK^TM induces the body
to produce and regulate its own bone morphogenetic proteins (BMP),
which help stimulate bone growth naturally in the human body. According
to the applicant, this result supports new bone growth without
requiring use of exogenous BMP. The applicant explained that exogenous
rhBMPs trigger a significant cytokine related anti-inflammatory
reaction that has resulted in adverse side effects. The applicant
stated that the Titan Spine nanoLOCK^TM's proprietary surface
and use promotes endogenous production of osteogenic growth factors,
such as BMP-2, BMP-4, BMP-7, and TGF-[beta]1.2, which produce only the
physiologic amounts necessary for bone production without the
concomitant cytokine related to anti-inflammatory reaction.
The applicant also stated that the unique surface of the TitanSpine
nanoLOCK^TM differentiates the technology from existing
interbody devices, which use materials such as PEEK-based or ceramic
surfaces. The applicant explained that these materials cause stem cells
to flatten on the surface of the implant and primarily differentiate
into fibroblasts (fiber-producing cells). This result is avoided by
using the Titan Spine nanoLOCK^TM because the nano-textured
surface

[[Page 25049]]

promotes differentiation of osteoblasts (bone-forming cells), which
increases bone production around the implant site and increases the
potential for a faster and more robust fusion. The applicant further
stated that use of titanium and titanium alloy surfaces with rough
microtopography demonstrate greater bone apposition, but use of
macrotextured titanium and titanium alloy surfaces, such as the Titan
Spine nanoLOCK^TM, promotes osteoblast differentiation and
productions of factors that favor bone formation, whereas PEEK-based
surfaces do not.
As previously noted, the applicant provided results from in vitro
studies, using human MSCs, which showed positive effects on bone growth
related to cellular signaling achieved from use of the device's
surface, and osteoblasts exhibited a more differentiated phenotype and
increased bone morphogenetic protein BMP production using titanium
alloy substrates as opposed to PEEK-based substrates. The applicant
believed that the Titan Spine nanoLOCK^TM substantially
improves the treatment of Medicare beneficiaries diagnosed with and
receiving treatment for serious spinal pathologies, such as DDD,
compared to currently available technologies and treatment options for
Medicare beneficiaries, especially in terms of improved fusion,
decreased pain, greater stability, faster recovery times, and lower
rates of interbody device related complications, such as debris and
inflammation.
We are concerned that the results of the in vitro studies may not
necessarily correlate with the clinical results specified by the
applicant. Specifically, because the applicant has only conducted in
vitro studies without obtaining any clinical data from live subjects
during a specific clinical trial, we are unable to substantiate the
clinical results that the applicant believed the technology achieved
from a clinical standpoint based on the results of the studies
provided. As a result, we are concerned that the results of the studies
provided by the applicant do not demonstrate that the Titan Spine
nanoLOCK^TM technologies meet the substantial clinical
improvement criterion. We are inviting public comments on whether the
Titan Spine nanoLOCK^TM technologies meet the substantial
clinical improvement criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.
e. Andexanet Alfa
Portola Pharmaceuticals, Inc. (Portola) submitted an application
for new technology add-on payments for FY 2017 for use of Andexanet
Alfa, an antidote used to treat patients who are receiving treatment
with an oral Factor Xa inhibitor who suffer a major bleeding episode
and require urgent reversal of direct and indirect Factor Xa
anticoagulation. Patients at high risk for thrombosis, including those
who have been diagnosed with atrial fibrillation (AF) and venous
thrombosis (VTE), typically receive treatment using long-term oral
anticoagulation agents, such as Warfarin. Factor Xa inhibitors are
included in a new class of anticoagulants. Factor Xa inhibitors are
oral anticoagulants used to prevent stroke and systemic embolism in
patients who have been diagnosed with AF. These oral anticoagulants are
also used to treat patients diagnosed with deep-vein thrombosis (DVT)
and its complications, pulmonary embolism (PE), and patients who have
undergone knee, hip, or abdominal surgery. Rivarobaxan
(Xarelto[supreg]), apixaban (Eliqis[supreg]), and edoxaban
(Savaysa[supreg]) also are included in the new class of Factor Xa
inhibitors, and are often referred to as ``novel oral anticoagulants''
(NOACs) or ``non-vitamin K antagonist oral anticoagulants.'' Although
these anticoagulants have been commercially available since 2010, there
is no FDA-approved therapy used for the urgent reversal of any Factor
Xa inhibitor as a result of serious bleeding episodes.
Andexanet Alfa has not received FDA approval at the time of the
development of this proposed rule. The applicant anticipates receiving
FDA approval for use of the technology in approximately June of 2016.
Currently, there are no ICD-10-PCS procedure codes that uniquely
identify the use of and administration of Andexanet Alfa. We note that
the applicant submitted a request for unique ICD-10-PCS procedure codes
that was presented at the March 2016 ICD-10 Coordination and
Maintenance Committee meeting. If approved, the procedure codes would
become effective on October 1, 2016 (FY 2017). More information on this
request can be found on the CMS Web site located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology meets all three of the
substantial similarity criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments.
The applicant believed that, if approved, Andexanet Alfa would be
the first and only antidote available used to treat patients receiving
treatment with an oral Factor Xa inhibitor who suffer a major bleeding
episode and require urgent reversal of direct and indirect Factor Xa
anticoagulation. Therefore, the applicant asserted that the technology
is not substantially similar to any other currently approved and
available treatment options for Medicare beneficiaries.
With regard to the first criterion, whether a product uses the same
or a similar mechanism of action to achieve a therapeutic outcome,
Andexanet Alfa, if approved, would be the first reversal agent that
binds to direct Factor Xa inhibitors with high affinity, sequestering
the inhibitors, and consequently rapidly reducing free plasma
concentration of Factor Xa inhibitors and neutralizing the inhibitors'
anticoagulant effect, which allows for the restoration of normal
hemostasis. Andexanet Alfa also binds to and sequesters antithrombin
III molecules that are complexed with indirect inhibitor molecules,
disrupting the capacity of the antithrombin complex to bind to native
Factor Xa inhibitors. According to the applicant, Andexanet Alfa
represents a significant therapeutic advance by providing rapid
reversal of anticoagulation therapy in the event of a serious bleeding
episode. Other reversal agents, such as Kcentra^TM and
Idarucizumab, do not reverse the effects of Factor Xa inhibitors.
With regard to the second criterion, whether a product is assigned
to the same or a different MS-DRG, Andexanet Alfa would be the first
FDA approved reversal agent for Factor Xa inhibitors. Therefore, the
MS-DRGs do not contain cases representing patients that have been
treated with any reversal agents for Factor Xa inhibitors.
With regard to the third criterion, whether the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population, Andexanet Alfa, if
approved, would be the only reversal agent available for treating
patients receiving direct or indirect Factor Xa therapy who experience
serious, uncontrolled bleeding events or who require emergency surgery.
Therefore, Andexanet Alfa would be the first type of treatment option
available to this patient population, As a result, it appears that
Andexanet Alfa is not substantially similar to any existing
technologies. We are inviting public comments on whether Andexanet Alfa

[[Page 25050]]

meets the substantial similarity criteria and whether Andexanet Alfa
meets the newness criterion.
With regard to the cost criterion, the applicant researched the FY
2014 MedPAR claims data file for cases that may be eligible for
treatment using Andexanet Alfa. The applicant used three sets of ICD-9-
CM codes to identify these cases: (1) Codes identifying cases of
patients who were treated with an anticoagulant and, therefore, are at
risk of bleeding; (2) Codes identifying cases of patients with a
history of conditions that were treated with Factor Xa inhibitors; and
(3) codes identifying cases of patients who experienced bleeding
episodes as the reason for the current admission. The applicant
included with its application the following table displaying a complete
list of ICD-9-CM codes that met its selection criteria:

------------------------------------------------------------------------
ICD-9-CM codes applicable Applicable ICD-9-CM code description
------------------------------------------------------------------------
V12.50................... Personal history of unspecified circulatory
disease.
V12.51................... Personal history of venous thrombosis and
embolism.
V12.52................... Personal history of thrombophlebitis.
V12.54................... Personal history of transient ischemic attack
(TIA), and cerebral infarction without
residual deficits.
V12.55................... Personal history of pulmonary embolism.
V12.59................... Personal history of other diseases of
circulatory system.
V43.64................... Hip joint replacement.
V43.65................... Knee joint replacement.
V58.43................... Aftercare following surgery for injury and
trauma.
V58.49................... Other specified aftercare following surgery.
V58.73................... Aftercare following surgery of the
circulatory system, NEC.
V58.75................... Aftercare following surgery of the teeth,
oral cavity and digestive system, NEC.
V58.61................... Long-term (current) use of anticoagulants.
E934.2................... Anticoagulants causing adverse effects in
therapeutic use.
99.00.................... Perioperative autologous transfusion of whole
blood or blood components.
99.01.................... Exchange transfusion.
99.02.................... Transfusion of previously collected
autologous blood.
99.03.................... Other transfusion of whole blood.
99.04.................... Transfusion of packed cells.
99.05.................... Transfusion of platelets.
99.06.................... Transfusion of coagulation factors.
99.07.................... Transfusion of other serum.
------------------------------------------------------------------------

The applicant identified a total of 54,200 cases that mapped to 680
MS-DRGs, resulting in an average case-weighted charge per case of
$67,197. The applicant also provided an analysis limited to 80 percent
of all cases (47,273 cases), which mapped to the top 147 MS-DRGs. Under
this analysis, the average case-weighted charge per case was $64,095.
Under each of these two analyses, the applicant also provided
sensitivity analyses based on variables representing two areas of
uncertainty: (1) Whether to remove 40 percent or 60 percent of blood
and blood administration charges; and (2) whether to remove pharmacy
charges based on the ceiling price of factor eight inhibitor bypass
activity (FEIBA), a branded anti-inhibitor coagulant complex, or on the
pharmacy indicator 5 (PI5) in the MedPAR data file, which correlates to
cases utilizing generic coagulation factors. Overall, the applicant
conducted eight sensitivity analyses, and provided the following
rationales:
The applicant chose to remove 40 percent and 60 percent of
blood and blood administration charges because patients who require
Andexanet Alfa for Factor Xa reversal may still require blood and blood
products to treat other conditions. Therefore, it would be
inappropriate to remove all of the charges associated with blood and
blood administration because all of the charges cannot be attributed to
Factor Xa reversal. The applicant maintained that the amounts of blood
and blood products required for treatment vary according to the
severity of the bleeding. Therefore, the use of Andexanet Alfa may
replace 60 percent of blood and blood product administration charges
for cases with less severity of bleeding, but only 40 percent of
charges for cases with more severe bleeding.
The applicant maintained that FEIBA is the highest priced
clotting factor used for Factor Xa inhibitor reversal, and it is
unlikely that pharmacy charges for Factor Xa reversal would exceed the
FEIBA ceiling price of $10,570. Therefore, the applicant capped the
charges to be removed at $10,570, which in many cases removed 100
percent of the pharmacy charges. The applicant also considered an
alternative scenario in which charges associated with pharmacy
indicator 5 (PI5) were removed from the costs of cases that included
this indicator in the MedPAR data. On average, charges removed from the
costs of cases utilizing generic coagulation factors were much lower
than the total pharmacy charges.
The applicant noted that, in all eight scenarios, the average
standardized case-weighted charge per case for cases eligible for
treatment using Andexanet Alfa would exceed the average case-weighted
threshold amounts in Table 10 of the FY 2016 IPPS/LTCH PPS final rule
by approximately $3,247 to $7,844, depending on the results determined
by using the combination of variables of the two areas of uncertainty
and the number of MS-DRGs analyzed.
The applicant's order of operations used for each analysis follows:
(1) Removing 60 percent or 40 percent of blood and blood administration
charges and up to 100 percent of pharmacy charges for PI5 or FEIBA from
the average unstandardized case-weighted charge per case; (2)
standardizing the charges per cases using the Impact File published
with the FY 2014 IPPS/LTCH PPS final rule. After removing the charges
for the prior technology and standardizing charges, the applicant
applied an inflation factor of 1.076647, which is the 2-year inflation
factor in the FY 2016 IPPS/LTCH final rule (80 FR 49784) to update the
charges from FY 2014 to FY 2016. The applicant noted that it did not
add charges for Andexanet Alfa and related services. Under each
scenario, the applicant stated that the inflated average standardized
case-weighted charge per case exceeded the average case-weighted
threshold (based on the FY 2016 IPPS Table 10 thresholds). Below

[[Page 25051]]

we provide a table for all eight scenarios that the applicant indicated
demonstrate that the technology meets the cost criterion.

------------------------------------------------------------------------
Inflated
average
standardized Average
Scenario case-weighted case[dash]weighted
charge per threshold amount
case
------------------------------------------------------------------------
100 Percent of Cases, FEIBA, 60 $60,231 $55,799
Percent Removal of Blood and Blood
Administration Costs...............
100 Percent of Cases, PI5, 60 63,643 55,799
Percent Removal of Blood and Blood
Administration Costs...............
100 Percent of Cases, FEIBA, 40 61,651 55,799
Percent Removal of Blood and Blood
Administration Costs...............
100 Percent of Cases, PI5, 40 64,203 55,799
Percent Removal of Blood and Blood
Administration Costs...............
80 Percent of Cases, FEIBA, 60 57,686 54,413
Percent Removal of Blood and Blood
Administration Costs...............
80 Percent of Cases, PI5, 60 Percent 60,994 54,413
Removal of Blood and Blood
Administration Costs...............
80 Percent of Cases, FEIBA, 40 59,096 54,413
Percent Removal of Blood and Blood
Administration Costs...............
80 Percent of Cases, PI5, 40 Percent 61,558 54,413
Removal of Blood and Blood
Administration Costs...............
------------------------------------------------------------------------

The applicant noted that 25 percent of the total volume of cases
map to the following 10 MS-DRGs: MS-DRG 378 (Gastrointestinal
Hemorrhage with CC), 7.56 percent of all cases; MS-DRG 812 (Red Blood
Cell Disorders without MCC), 3.13 percent of all cases; MS-DRG 377
(Gastrointestinal Hemorrhage with MCC), 2.68 percent of all cases; MS-
DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity
without MCC), 2.32 percent of all cases); MS-DRG 871 (Septicemia or
Severe Sepsis without Mechanical Ventilation >96 hours with MCC), 2.26
percent of all cases; MS-DRG 481 (Hip & Femur Procedures, Except Major
Joint with CC), 2.08 percent of all cases; MS-DRG 811 (Red Blood Cell
Disorders with MCC), 1.70 percent of all cases; MS-DRG 291 (Heart
Failure and Shock with MCC), 1.22 percent of all cases; MS-DRG 379
(Gastro intestinal Hemorrhage without CC/MCC), 1.12 percent of all
cases; and MS-DRG 683 (Renal Failure with CC), 1.06 percent of all
cases. We are concerned that the applicant did not include sensitivity
analyses for this subset of cases.
We are inviting public comments on whether Andexanet Alfa meets the
cost criterion, including with regard to the concern we have raised.
With regard to the substantial clinical improvement criterion, the
applicant asserted that Andexanet Alfa represents a substantial
clinical improvement for the treatment of patients receiving direct or
indirect Factor Xa therapy who experience serious, uncontrolled
bleeding events or who require emergency surgery because it addresses
an unmet medical need for a universal antidote to direct and indirect
Factor Xa inhibitors; if approved, would be the only agent shown in
prospective clinical trials to rapidly (within 2-5 minutes) and
sustainably reverse the anticoagulation activity of Factor Xa
inhibitors; is potentially non-thrombogenic, as no serious adverse
effects of thrombosis were observed in clinical trials; and could
supplant current treatments for bleeding from anti-Factor Xa treatment,
which have not been shown to be effective in the treatment of all
patients.
With regard to addressing an unmet need for a universal antidote to
direct and indirect Factor Xa inhibitors, the applicant asserted that
the use of any anticoagulant is associated with an increased risk of
bleeding, and bleeding complications can be life-threatening. Bleeding
is especially concerning in patients treated with Factor Xa inhibitors
because there are currently no antidotes to Factor Xa inhibitors
available. The applicant stated that Andexanet Alfa has a unique
mechanism of action and represents a new biological approach to the
treatment of patients who have been diagnosed with acute severe
bleeding who require immediate reversal of the Factor Xa inhibitor
therapy. The applicant explained that although Andexanet Alfa is
structurally very similar to native Factor Xa inhibitors, it has
undergone several modifications that restrict its biological activity
to reversing the effects of Factor Xa inhibitors by binding with and
sequestering direct or indirect Factor Xa inhibitors, which allows
native Factor Xa inhibitors to dictate the normal coagulation and
hemostasis process. As a result, the applicant maintained that
Andexanet Alfa represents a safe and effective therapy for the
management of bleeding in a fragile patient population and a
substantial clinical improvement over existing technologies and
reversal strategies.
The applicant noted the following: On average, patients with a
bleeding complication were hospitalized for 6.3 to 7.4 days; the most
common therapies currently used to manage bleeding events in patients
undergoing anticoagulant treatment are blood transfusions, most
frequently with packed red blood cells or fresh frozen plasma; and
Vitamin K therapy was used only in 1 percent of Medicare beneficiaries
who were receiving treatment with the indirect Factor Xa inhibitor
enoxaparin.
The applicant asserted that laboratory studies have failed to
provide consistent evidence of ``reversal'' of the anticoagulant effect
of Factor Xa inhibitors across a range of different PCC products and
concentrations. Results of thrombin generation assays have varied
depending on the format of the assay. Despite years of experience with
low molecular weight heparins and pentasaccharide anticoagulants,
neither PCCs nor factor eight inhibitor bypassing activity are
recognized as safe and effective reversal agents for these Factor Xa
inhibitors. Unlike patients taking Vitamin K antagonists, patients
receiving treatment with oral Factor Xa inhibitor drugs have normal
levels of clotting factors. Therefore, a strategy based on
``repleting'' factor levels is of uncertain foundation and could result
in supra-normal levels of coagulation factors after rapid metabolism
and clearance of the oral anticoagulant.
The applicant provided results from two Phase III studies
^{12 13} in which older healthy volunteers pretreated with
direct or indirect Factor Xa inhibitors (apixaban, edoxaban,
rivaroxaban, and enoxaparin) demonstrated the following: Rapid and
sustainable reversal of anticoagulation; reduced Factor Xa inhibitor
free plasma levels by at least 80 percent below a calculated no-effect
level; and reduced anti-Factor Xa activity to the lowest level of
detection within 2 to 5 minutes of

[[Page 25052]]

infusion. The applicant noted that decreased Factor Xa inhibitor levels
have been shown to correspond to decreased bleeding complications,
reconstitution of activity of coagulation factors, and correction of
coagulation.
---------------------------------------------------------------------------

\12\ Conners, J.M. Antidote for Factor Xa Anticoagulants. N Engl
J Med. 2015 Nov 13.
\13\ Siegal DM, Curnutte JT, Connolly SJ, et al. Andexanet Alfa
for the Reversal of Factor Xa Inhibitor Activity. N Engl J Med. 2015
Nov 11.
---------------------------------------------------------------------------

The applicant stated that the results from the two Phase III
studies and previous proof-of-concept Phase II dose-finding studies \2\
showed that use of Andexanet Alfa can rapidly reverse anticoagulation
activity of Factor Xa inhibitors and sustain that reversal. Therefore,
the applicant asserted that Andexanet Alfa has the potential to
successfully treat patients who only need short-duration reversal of
the Factor Xa inhibitor anticoagulant, as well as patients who require
longer-duration reversal, such as patients experiencing a severe
intracranial hemorrhage or requiring emergency surgery. Furthermore,
the applicant noted that its technology's duration of action allows for
a gradual return of Factor Xa inhibitor concentrations to placebo
control levels within 2 hours following the end of infusion.
With regard to Andexanet Alfa's non-thrombogenic nature, as no
serious adverse effects of thrombosis were observed in clinical trials,
the applicant provided clinical trial data which revealed participants
in Phase II and Phase III trials had no thrombotic events and there
were no serious or severe adverse events reported. Results also showed
that use of Andexanet Alfa has a much lower risk of thrombosis than
typical procoagulants because it lacks the region responsible for
inducing coagulation. Furthermore, the applicant asserted that
Andexanet Alfa is not associated with the known complications seen with
red blood cell transfusions.
The applicant asserted that, while the Phase II and Phase III
trials and studies measured physiological hallmarks of reversal of
NOACs, it is expected that the availability of a safe and reliable
Factor Xa reversal will result in an overall better prognosis for
patients--potentially leading to a reduction in length of hospital
stay, fewer complications, and decreased mortality associated with
unexpected bleeding episodes.
The applicant also stated that use of Andexanet Alfa can supplant
currently available treatments used for reversing bleeding from anti-
Factor Xa treatments, which have not been shown to be effective in the
treatment of all patients. With regard to PCCs, NOACs, and FFP, the
applicant stated that there is a lack of clinical evidence available
for patients taking Factor Xa inhibitors that experience bleeding
events. The applicant noted that the case reports provide a snapshot of
emergent treatment of these often medically complex anti-Factor Xa-
treated patients with major bleeds. However, the applicant stated that
these analyses reveal the inconsistent approach in assessing the degree
of anticoagulation in the patient and the variability in treatment
strategy. The applicant explained that little or no assessment of
efficacy in restoring coagulation in the patients was performed, and
the major outcomes measures were bleeding cessation or mortality. The
applicant concluded that overall, there is very little evidence for the
efficacy suggested in some guidelines, and the evidence is insufficient
to draw any conclusions.
We are inviting public comments on whether Andexanet Alfa meets the
substantial clinical improvement criterion.
Below is a summary of the written comments we received on the
Andexanet Alfa application in response to the February 2016 New
Technology Town Hall meeting and our response:
Comment: Two commenters supported the approval of new technology
add-on payments for Andexanet Alfa. According to the commenters,
Andexanet Alfa is a significant clinical improvement over existing
therapies used to reverse major bleeding in patients receiving
treatment using Factor Xa inhibitors. One commenter stated that
Andexanet Alfa would be the first and only antidote to treat patients
receiving an oral Factor Xa inhibitor who have suffered a major
bleeding episode and require urgent reversal of Factor Xa
anticoagulation. Based on professional experience as a first line
clinician charged with stabilizing and treating patients with bleeding
events or trauma such as assaults and motor vehicle accidents, the
commenter stated that patients on anticoagulation therapy present a
difficult scenario and they often have comorbidities, which complicate
the effectiveness of medical care and put them at risk for
complications. The commenter stated that major bleeding is observed in
approximately five percent of patients receiving treatment using Factor
Xa inhibitors, but only a small subset of those patients require urgent
reversal of anti-Factor Xa activity. The commenter believed that, in
spite of oral Factor Xa inhibitor's short half-life (7 to 9 hours) and
similar or even lower bleeding rates than with warfarin or low
molecular weight heparin, the lack of a targeted antidote that is safe
for Factor Xa inhibitors is believed to limit these anticoagulants,
which do not have a monitoring requirement, nor any dietary
restrictions. The commenter believed that a significant disadvantage of
Factor Xa inhibitors is the lack of an effective strategy to rapidly
reverse the anticoagulant effects in patients requiring emergency
surgery or presenting with an emergent bleed. There is currently no
agent indicated or proven to be effective for the treatment of patients
with Factor Xa inhibitor related bleeding. The commenter believed that
Andexanet Alfa would provide clinicians and their patients the ability
to restore homeostasis in critical emergency settings for the broad
range of bleeds experienced by patients receiving treatment using
Factor Xa inhibitors. The commenter compared Andexanet Alfa to
Kcentra^TM and FEIBA, and noted that both work upstream in
the coagulation cascade and thus cannot overcome the effects of the
Factor Xa inhibitors. The commenter further stated that human plasma-
derived clotting factors were not designed to reverse Factor Xa
inhibitors. The commenter also believed that it is well recognized
among clinicians that there is a critical need for a reversal agent for
the new oral anticoagulants (NOAC) that will rapidly restore normal
coagulation, and stated that Andexanet Alfa represents a significant
clinical improvement over existing therapies that should be approved
for the new technology add-on payments.
Another commenter also believed that Andexanet Alfa represents a
significant clinical improvement over existing therapies. The commenter
stated that, in the dire moment that a patient presents a critical care
team with a life-threatening bleed, reversing coagulation immediately
provides the foundation for stabilizing the patient, which is needed to
prevent further morbidity and mortality. The commenter also noted
Kcentra^TM's and FEIBA's inability to affect Factor Xa
inhibitors because they act on upstream coagulation cascade factors.
The commenter further believed that Andexanet Alfa's mechanism of
action is different from the mechanism of action of existing
treatments.
Response: We appreciate the commenters' input. We will take these
comments into consideration when deciding whether to approve new
technology add-on payments for Andexanet Alfa for FY 2017.
f. Defitelio[supreg] (Defibrotide)
Jazz Pharmaceuticals submitted an application for new technology
add-on payments for FY 2017 for Defibrotide (Defitelio[supreg]), a
treatment for patients diagnosed with hepatic veno-occlusive disease
(VOD) with evidence of multi-organ dysfunction. VOD is a potentially

[[Page 25053]]

life-threatening complication resulting from hematopoietic stem cell
transplantation (HSCT), with an incidence rate of 8 percent to 15
percent of patients experiencing its effects after HSCT. Diagnoses of
VOD range in severity from what has been classically defined as a
disease limited to the liver (mild) and reversible, to a severe
syndrome associated with multi-organ dysfunction or failure and death.
Patients treated with HSCT who develop VOD with evidence of multi-organ
dysfunction face an immediate risk of death, with a mortality rate of
more than 80 percent when only supportive care is used.
VOD is believed to be the result of endothelial cell damage and
hepatocellular injury from high-dose conditioning regimens administered
prior to receiving treatment with HSCT. Preclinical data suggest that
Defitelio[supreg] stabilizes endothelial cells by reducing endothelial
cell activation and by protecting endothelial cells from further
damage. Defitelio[supreg] is administered as a 2-hour intravenous
infusion every 6 hours. The recommended dosage is 6.25 mg/kg body
weight (25mg/kg/day). Defitelio[supreg] should be administered for a
minimum of 21 days. If after 21 days the signs and symptoms associated
with hepatic VOD are not resolved, the administration of
Defitelio[supreg] should be continued until clinical resolution.
With regard to the newness criterion, according to the
manufacturer, Defitelio[supreg] received FDA approval in March 30, 2016
and is expected to be commercially available on the U.S. market on
April 6, 2016. At this time, the applicant has not submitted any
specific information to establish that the technology was not available
on the U.S. market as of the FDA approval date or to describe the
reasons for a delay of availability until the first week of April 2016.
Therefore, we believe the newness period for Defitelio[supreg] would
begin on March 30, 2016, the date of FDA approval.
There are currently no ICD-10-PCS codes to uniquely identify the
intravenous administration of Defitelio[supreg]. The applicant
submitted an application for the March 9-10, 2016 meeting of the ICD-10
Coordination and Maintenance Committee for a unique ICD-10-PCS
procedure code to identify the use of Defitelio. If approved, the
procedure code would become effective on October 1, 2016 (FY 2017).
More information on this request can be found on the CMS Web site
located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology meets all three of the
criteria for substantial similarity, it would be considered
substantially similar to an existing technology and would not be
considered ``new'' for purposes of new technology add-on payments.
With regard to the first criterion, whether the product uses the
same or similar mechanism of action to achieve a therapeutic outcome,
the applicant maintained that Defitelio[supreg] has a unique mechanism
of action that is not shared by any other drug on the market used to
treat patients diagnosed with VOD with evidence of multi-organ failure.
According to the applicant, there are no FDA-approved treatments for
VOD other than supportive care. Anticoagulants such as heparin,
antithrombin, and tissue plasminogen factor have been used to treat
patients diagnosed with VOD, but there is a lack of conclusive evidence
that these treatments are effective and they also present a high risk
of bleeding. The applicant maintained that Defitelio[supreg] addresses
the underlying pathology of VOD with evidence of multi-organ failure
and its use is effective as a treatment for this form of the disease.
According to the applicant, it is speculated that the mechanism of
action of the Defitelio[supreg] revolves around the stabilization of
endothelial cells because endothelial cell damage is believed to be a
major contributing factor to the development of VOD. However, we are
concerned that this mechanism of action is not well understood by the
manufacturer and we are unable to determine whether Defitelio[supreg]
is substantially similar to the other drugs on the market without full
understanding of its distinct mechanism of action.
With regard to the second criterion, whether a product is assigned
to the same or a different MS-DRG, the applicant maintained that cases
potentially eligible for treatment using Defitelio[supreg] and
representing the target patient population mainly group to two MS-DRGs:
MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 016
(Autologous Bone Marrow Transplant with CC/MCC). We believe that these
are the same MS-DRGs that identify cases of patients treated with
supportive care for VOD with multi-organ failure.
With regard to the third criterion, whether the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population, the applicant
asserted that there are no FDA-approved treatments for VOD other than
supportive care, such as dialysis or ventilation. In addition, the
applicant stated that poor outcomes have been reported for patients
treated with nonapproved pharmacological treatments for VOD. These
treatments have largely been discontinued because of the high incidence
of hemorrhagic complications, particularly among patients diagnosed
with multi-organ failure. According to the applicant, Defitelio[supreg]
would be the first and only FDA-approved treatment for VOD with
evidence of multi-organ failure. However, we are concerned that the
applicant did not include in its application data comparing the
outcomes of patients treated with Defitelio[supreg] to outcomes of
patients treated only for supportive care. We are concerned that
Defitelio[supreg] may not produce outcomes that are significantly
different than the outcomes of patients treated with supportive care.
We are inviting public comments on whether Defitelio[supreg] is
substantially similar to existing technologies and whether it meets the
newness criterion.
With regard to the cost criterion, the applicant conducted
sensitivity analyses using claims data from 2012 through 2014 and
determined the results in aggregate and by year. The applicant
researched 100 percent of the 2012 through 2014 Inpatient Standard
Analytic Files (SAFs) for cases eligible for Defitelio[supreg]. Because
an ICD-9-CM code specific to treatment for VOD does not exist, the
applicant used an algorithm to identify cases to use in its sensitivity
analyses. The most appropriate ICD-9-CM diagnosis codes were identified
based on clinical criteria used to diagnose VOD and were used to
identify cohorts of patients diagnosed with VOD and VOD with multi-
organ dysfunction. The applicant first identified claims with an ICD-9-
CM procedure code indicating an HSCT (Group A) within a 30-day window;
VOD most commonly occurs after receipt of HSCT. The applicant then
looked for cases with ICD-9-CM diagnosis codes related to liver injury
(Group B) or clinical evidence of suspected VOD symptoms based on at
least two relevant ICD-9 diagnosis codes (Group C). Lastly, the
applicant filtered out cases that did not show clinical evidence of
multi-organ dysfunction based on at least one relevant ICD-9-CM code
(Group D).
The applicant submitted the following table indicating the ICD-9-CM
codes used for each category of the algorithm.

[[Page 25054]]

Table 12--ICD-9 Codes Used for the Premier VOD Algorithm
----------------------------------------------------------------------------------------------------------------
Group Title ICD-9-CM Code Description
----------------------------------------------------------------------------------------------------------------
A...................... Hematopoietic Stem Cell 41.00 Bone marrow transplant, not otherwise
Transplant (HSCT) (at 41.01 specified.
least one code). 41.02 Autologous bone marrow transplant without
purging.
Allogeneic bone marrow transplant with
purging.
41.03 Allogeneic bone marrow transplant without
purging.
41.04 Autologous hematopoietic stem cell
transplant without purging.
41.05 Allogeneic hematopoietic stem cell
transplant without purging.
41.06 Cord blood stem cell transplant.
41.07 Autologous hematopoietic stem cell
transplant with purging.
41.08 Allogeneic hematopoietic stem cell
transplant.
41.09 Autologous bone marrow transplant with
purging.
B...................... Liver Injury (at least one 453.xx Other venous embolism and thrombosis.
code). 570.xx Acute and subacute necrosis of liver.
573.8 Other specified disorders of liver.
573.9 Unspecified disorder of liver.
459.89 Other specified disorders of the
circulatory system.
277.4 Disorders of bilirubin excretion.
C...................... VOD Symptoms (at least two 782.4 Hyperbilirubinemia.
codes). 789.1 Hepatomegaly.
783.1 Abnormal weight gain.
789.5 Ascites.
D...................... Multi-Organ Dysfunction (at 518.8x Acute/Chronic Respiratory Failure.
least one code). 786.09 Other respiratory abnormalities
(respiratory distress, except that
associated with trauma/surgery in adults,
or with RDS in newborns).
799.02 Hypoxemia.
518.81 Acute respiratory failure.
V46.2 Other dependence on machines, supplemental
oxygen.
96.7x Other continuous invasive mechanical
ventilation.
93.90, 93.91, Non-invasive mechanical ventilation.
93.93, 93.99
584.X Acute renal failure.
586.X Renal failure unspecified.
593.9 Renal Failure.
39.27, 39.42, Dialysis, including hemodialysis,
39.95, 54.98 peritoneal dialysis, hemofiltration.
----------------------------------------------------------------------------------------------------------------

Using the above algorithm, the applicant identified a total of 267
patient cases of VOD with multi-organ dysfunction in the 2012-2014
Inpatient SAFs, with 78 patient cases in 2012, 102 patient cases in
2013, and 87 patient cases in 2014, or an average annual patient case
volume of 89. The applicant determined that these cases grouped mainly
into two MS-DRGs: 014 and 016. The applicant noted that there were no
cases in the data from MS-DRG 017 (Autologous Bone Marrow Transplant
without CC/MCC). The applicant further noted that there were no cases
from MS-DRG 017 because the ICD-9-CM codes identifying VOD with multi-
organ dysfunction include serious medical conditions that are listed on
the MCC and CC lists. In total, 38 MS-DRGs were represented in the
patient cohort, with 27 percent of cases mapping to MS-DRG 014 and 42
percent of cases mapping to MS-DRG 016. The remaining cases mapped to 1
of the 36 remaining MS-DRGs with fewer than 11 cases.
For results in the aggregate, the applicant calculated an average
case-weighted charge per case of $427,440 across 267 cases representing
diagnoses of VOD with multi-organ dysfunction from 2012 through 2014.
The applicant assumed there would be a reduction in the use of selected
drugs as a result of using Defitelio[supreg] and removed 50 percent of
the estimated charges for heparin, furosemide, and spironolactone. The
charges for these drugs were estimated based on pricing taken from the
Medispan PriceRx database, whose costs were marked up according to the
inverse of CCRs from cost center 073 (Drugs Charged to Patients)
obtained from providers' 2012, 2013, and 2014 cost reports. The
applicant matched these CCRs with the provider numbers on each claim.
The applicant removed an average of $2,631 in charges for these drugs
from the overall unstandardized charges for Defitelio[supreg].
The applicant then standardized the charges and calculated an
average standardized case-weighted charge per case of $310,651. To
update the charge data to the current fiscal year, the applicant
inflated the charges based on the charge inflation factor of 1.048116
in the FY 2016 IPPS/LTCH final rule (80 FR 49779). The 1-year inflation
factor was applied four times to FY 2012 claims, three times to FY 2013
claims, and twice to FY 2014 claims to inflate all charges to 2016. The
applicant computed an inflated average standardized case-weighted
charge per case of $356,015. Using the FY 2016 IPPS Table 10
thresholds, the average case-weighted threshold amount was $157,951
(all calculations above were performed using unrounded numbers).
Because the inflated average standardized case-weighted charge per case
exceeds the average case-weighted threshold amount, the applicant
maintained that the technology meets the cost criterion. The applicant
noted that it did not include charges for Defitelio[supreg] in the
inflated average standardized case-weighted charge per case because the
inflated average standardized case-weighted charge per case exceeded
the average case-weighted threshold amount without charges for
Defitelio[supreg].
The applicant provided a similar analysis for each individual year
of the SAF data rather than combining all the data from all 3 years
into one analysis. Under the other three analyses, the applicant noted
that the average standardized case-weighted charge per case exceeded
the average case-

[[Page 25055]]

weighted threshold amount (as shown in the table below) without
inflating the charges and without adding any charges for
Defitelio[supreg]. We are inviting public comments on whether
Defitelio[supreg] meets the cost criterion.

------------------------------------------------------------------------
Average
Average standardized
SAF year case[dash]weighted case-weighted
threshold amount charge per
case
------------------------------------------------------------------------
2012................................ $161,469 $347,910
2013................................ 150,585 326,445
2014................................ 163,434 404,883
------------------------------------------------------------------------

With regard to the substantial clinical improvement criterion, the
applicant maintained that Defitelio[supreg] is an effective treatment
for VOD as an early onset cause of mortality following HSCT. According
to the applicant, patients treated with Defitelio[supreg] have improved
survival and efficacy rates compared to patients who were not treated
with Defitelio[supreg]. In increasing the chances of post-HSCT
survival, Defitelio[supreg] affords the transplant patient the
opportunity for engraftment, which could be a potential cure for the
underlying disease that required HSCT.
The applicant supported these assertions with clinical evidence
from pivotal trial 2005-01, a Phase III historical control study in
which patients with VOD with multi-organ failure were given
Defitelio[supreg] in doses of 25/mg/kg/day for the recommended minimum
treatment duration of 21 days. Patients in the historical control group
were selected by an independent medical review committee (MRC) from a
pool of 6,867 medical charts of patients receiving HSCT that were
hospitalized from January 1995 through November 2007. The trial
consisted of 102 patients in the Defitelio[supreg] treated group and 32
patients in the historical control group. The trial used the survival
rate and rate of Complete Response (CR) at Day+100 as clinical
endpoints. The observed survival rate at Day+100 in the
Defitelio[supreg] treated group was 38.2 percent compared to 25 percent
in the historical control group. Moreover, the rate of CR by Day+100
post-HSCT for the Defitelio[supreg] treated group was 25.5 percent
compared to 12.5 percent in the historical control group. The applicant
conducted additional analyses that showed improvements in survival
outcomes among subgroups of patients with baseline prognostic factors
related to worse outcomes.
According to the applicant, running a controlled, blinded, and
randomized trial in a patient population with high mortality rates
would be unethical. We are concerned that there are limitations to the
historical control group used in pivotal trial 2005-01. We believe that
the discrepancy between the size of the treatment group (N=102) and the
historical control group (N=32) may skew the trial results in favor of
the treatment group. We also are uncertain, given the small sample size
and historical data used, whether the historical control group is
representative of patients with VOD with multi-organ failure. According
to the applicant, patients in the historical control group were
hospitalized between January 1995 and November 2007. Because of
advancements in medicine within this timeframe, we are concerned that
the patients in the historical control group cannot be appropriately
compared to patients in the treatment group. Moreover, we believe that
it is difficult to attribute improved survival and CR rates only to
Defitelio[supreg] treatment.
We are inviting public comments on whether Defitelio[supreg] meets
the substantial clinical improvement criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.
g. EDWARDS INTUITY Elite^TM Valve System
Edwards Lifesciences submitted an application for new technology
add-on payments for the EDWARDS INTUITY Elite^TM Valve System
(INTUITY) for FY 2017. The device uses a rapid deployment valve system
and serves as a prosthetic aortic valve, which is inserted using
surgical aortic valve replacement (AVR). The device replaces the
diseased native valve in patients with aortic valve disease, including
aortic stenosis. The components of the device are: (1) A bovine
pericardial aortic bioprosthetic valve; (2) a balloon expandable
stainless steel frame; and (3) a textured sealing cloth. The INTUITY
valve shares many basic features with other tissue, bioprosthetic
valves. The leaflets are made of bovine pericardium, rather than
porcine valve tissue, or purely mechanical elements.
With regard to the newness criterion, the applicant submitted an
application to the FDA for pre-market approval of the INTUITY valve and
anticipates FDA approval prior to July 1, 2016. The applicant indicated
that the device would be available on the market shortly after
approval. The applicant submitted a request for a unique ICD-10-PCS
code for consideration at the March 2016 ICD-10 Coordination and
Maintenance Committee meeting. If approved, the codes will be effective
on October 1, 2016 (FY 2017). More information on this request can be
found on the CMS Web site located at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology meets all three of the
substantial similarity criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments.
With regard to the first criterion, whether a product uses the same
or a similar mechanism of action to achieve a therapeutic outcome, the
applicant described three aspects of the valve system that are unique
relative to existing devices. First, the valve system has a deployment
mechanism that allows for rapid deployment and only requires 3 sutures,
as opposed to 12 to 18 sutures used in standard valve replacement
procedures. Second, the flexible deployment arm allows improved
surgical access and visualization, making the surgery less challenging
for the surgeon, which improves the likelihood that the surgeon can use
a minimally invasive approach. Third, the assembly of the device only
allows the correct valve size to be fitted, which ensures that the
valve does not slip or migrate, which prevents paravalvular leaks and
patient prosthetic mismatch. The applicant maintained that the INTUITY
has a different mechanism of action than other prosthetic aortic valves
and, therefore, is not substantially similar to those used in standard
aortic valve replacement procedures.
With regard to the second and third criteria, the device is used in
the same

[[Page 25056]]

patient population and would be assigned to the same MS-DRGs as cases
involving other prosthetic aortic valves. We also received information
about the Perceval aortic valve (LivaNova), which received FDA approval
in January 2016 and which appears to be a substantially similar aortic
valve. If the INTUITY valve were to receive approval for new technology
add-on payments, we would consider whether the INTUITY valve is
substantially similar to the device that has already received FDA
approval. If we determine that it is substantially similar, we note
that the start date for determining the duration of new technology add-
on payments would be the date of FDA approval for the Perceval aortic
valve.
After reviewing the information provided by the applicant with
regard to the substantial similarity criteria discussed above, we have
the following concerns. First, it appears that this device uses a
similar mechanism of action as standard aortic valves; the differences
described in the application, with respect to how the valve is placed
and secured, and the number of sutures required, do not readily
distinguish the mechanism of action from other aortic valves. Second,
the MS-DRGs to which cases using the INTUITY would be assigned, as
indicated in the application, are the same MS-DRGs to which cases
involving standard aortic valves would be assigned. Third, the device
is used to treat the same disease and patient population as standard
aortic valves. In light of these concerns, we believe that this device
appears to be substantially similar to other valves used in aortic
valve replacement. We are inviting public comments on whether the
INTUITY meets the newness criterion.
With regard to the cost criterion, the applicant researched the FY
2014 MedPAR claims data file to identify cases of patients who
represent potential recipients of treatment using the INTUITY. The
applicant identified claims that had an ICD-9-CM diagnosis code of
424.1 (Aortic valve disorder) in combination with an ICD-9-CM procedure
code of 35.21 (Replacement of aortic valve with tissue) or 35.22 (Open
and other replacement of aortic valve). The applicant also identified
cases with or without a coronary artery bypass graft (CABG) using the
ICD-9-CM procedure codes in the table below.

------------------------------------------------------------------------
ICD-9-CM code Code description
------------------------------------------------------------------------
36.10............................. Aortocoronary bypass for heart
revascularization, not otherwise
specified.
36.11............................. (Aorto)coronary bypass of one
coronary artery.
36.12............................. (Aorto)coronary bypass of two
coronary arteries.
36.13............................. (Aorto)coronary bypass of three
coronary arteries.
36.14............................. (Aorto)coronary bypass of four or
more coronary arteries.
36.15............................. Single internal mammary-coronary
artery bypass.
36.16............................. Double internal mammary-coronary
artery bypass.
36.17............................. Abdominal-coronary artery bypass.
------------------------------------------------------------------------

The applicant identified a total of 15,291 cases that mapped to MS-
DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with
Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major
Cardiothoracic Procedures with Cardiac Catheterization with CC), 218
(Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac
Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major
Cardiothoracic Procedures without Cardiac Catheterization with MCC),
220 (Cardiac Valve & Other Major Cardiothoracic Procedures without
Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major
Cardiothoracic Procedures without Cardiac Catheterization without CC/
MCC). The applicant calculated an average unstandardized charge per
case of $178,608 for all cases. The applicant then removed 100 percent
of the charges for pacemakers, investigational devices, and other
implants that would not be required for patients receiving treatment
using the INTUITY.
The applicant standardized the charges and then applied an
inflation factor of 1.076647, which is the 2-year inflation factor in
the FY 2016 IPPS/LTCH final rule (80 FR 49784), to update the charges
from FY 2014 to FY 2016. Because the price of the INTUITY has yet to be
determined, the applicant calculated the average expected charge using
the same price as charged in the recent IDE trial. Although the
applicant submitted data that related to the estimated clinical trial
cost of the INTUITY, the applicant noted that the cost of the
technology was proprietary information. To add charges for the new
technology, the applicant assumed a hospital mark-up of approximately
3.0 percent, based on the current average CCR for implantable devices
(0.337) as reported in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49429). Based on the FY 2016 IPPS/LTCH PPS Table 10 thresholds, the
average case-weighted threshold amount was $163,173. The applicant
computed an inflated average standardized case-weighted charge per case
of $185,982, which is $22,809 above the average case-weighted threshold
amount. Because the inflated average standardized case-weighted charge
per case exceeds the average case-weighted threshold amount, the
applicant maintained that the technology meets the cost criterion.
We are concerned that the number of individual cases that were
identified and provided by the applicant indicated a total of 26,520
cases that would be eligible for treatment using the INTUITY, but the
applicant only included 15,291 cases in the final sensitivity analysis.
We would like more information from the applicant regarding how it
decided upon which cases to include in the sensitivity analysis, as
well as further details about how and on what basis the applicant
weighted CABG and non-CABG cases. We are inviting public comments on
whether the INTUITY meets the cost criterion, including with regard to
the concerns we have raised.
With regard to the substantial clinical improvement criterion, the
applicant stated that the device improves clinical outcomes for
patients undergoing minimally invasive AVR and full-sternotomy AVR. The
applicant also stated that the rapid deployment technology enables
reduced operative time, specifically cross-clamp time, thereby reducing
the period of myocardial ischemia. The applicant also indicated that
the flexible deployment arm increases the likelihood that a minimally
invasive approach can be used. In addition, the applicant suggested
that the device offers a reduction in operative time for full-
sternotomy AVR. The applicant noted that clinical results demonstrated
significant patient outcome and utilization improvements, including
improved patient satisfaction, faster return to normal activity,
decreased post-operative pain, reduced mortality and decreased
complications, including

[[Page 25057]]

need for reoperation due to bleeding, reduced recovery time, and
reduced length of stay.
According to the applicant, the valve has been tested clinically in
several programs. In the TRITON trial (Kocher et al., 2013 \14\), 287
patients with aortic stenosis underwent surgery in 1 of 6 European
centers. The first 149 patients received the first generation Model
8300A valve, and the next 138 patients received the second generation
Model 8300AB. The average age of the patients was 75.7 years. Early,
30-day mortality was 1.7 percent (5/287), the post-operative valve
gradient was low, and 75 percent of the patients improved functionally.
A total of four valves were explanted in the final 30 days due to
bleeding, and three were explanted later for paravalvular leak,
endocarditis, and aortic root aneurysms. Follow-up extended to 3 years
(mean 1.8 years).
---------------------------------------------------------------------------

\14\ Kocher AA, Laufer G, Haverich A, et al. One-year outcomes
of the surgical treatment of aortic stenosis with a next generation
surgical aortic valve (TRITON) trial: A prospective multicenter
study of rapid-deployment aortic valve replacement with the EDWARDS
INTUITY valve system. J Thorac Cardiovasc Surg. 2013; 145:110-116.
---------------------------------------------------------------------------

Implantation of the INTUITY using minimally invasive surgery was
compared with conventional aortic valve replacement in the CADENCE-MIS
randomized trial (Borger et al., 2015 \15\) of 100 patients treated in
1 of 5 centers in Germany (3). Aortic cross-clamp time was reduced from
54.0 to 41.3 minutes (p<0.0001), and cardiopulmonary bypass time was
reduced from 74.4 to 68.8 minutes (p=0.21). Early clinical outcomes
were similar: Two deaths in the MIS group versus one death in the
conventional surgery group (p = 0.53), reoperation in one patient in
each group, and no differences in other clinical outcomes. The aortic
valve gradient was significantly lower in the MIS group: 8.5 vs. 10.3
mmHg.
---------------------------------------------------------------------------

\15\ Borger MA, Moustafine V, Conradi L, et al. A randomized
multicenter trial of minimally invasive rapid deployment versus
conventional full sternotomy aortic valve replacement. Ann Thorac
Surg 2015; 99:17-25.
---------------------------------------------------------------------------

The applicant also provided information referring to unpublished
data about the preliminary outcomes of the Transform trial; this trial
included a study arm that compared MIS surgery with the INTUITY valve
to historical comparators that involved MIS surgery with another valve.
The applicant indicated that key findings of this trial included
reduced procedure times and cross-clamp times, reduced reoperations and
30-day mortality, and reduced length of stay for the INTUITY valve
relative to historical comparators that involved another valve. The
applicant did not provide any details about these outcomes, stating
that the data would be submitted for publication after FDA review.
After reviewing the information provided by the applicant, we have
the following concerns. We are concerned that the INTUITY does not have
sufficient advantages over other alternative surgically implanted valve
systems to constitute a substantial clinical improvement. While the
studies included with the application demonstrate reduced aortic cross-
clamp time, conventional aortic valve replacement was used in the
comparison group; therefore, it is unclear whether the reduced aortic
cross-clamp time is associated with the INTUITY valve or with MIS
surgery in general. We understand that this issue is currently being
studied in the Transform trial, which is in progress. We also note
that, there have been no conducted trials of the INTUITY valve,
implanted using minimally invasive surgery, versus traditional
transcatheter aortic valve replacement (TAVR) procedures, which we
believe would be the most relevant comparison. We also do not believe
that the applicant provided evidence to support its assertion that the
use of the INTUITY valve increase the likelihood of MIS surgery being
performed. We are inviting public comments on whether the INTUITY valve
meets the substantial clinical improvement criterion.
Below is a summary of the written comments we received on the
INTUITY valve in response to the February 2016 New Technology Town Hall
meeting and our response.
Comment: One commenter stated that the Perceval bioprothesis is
substantially similar to the INTUITY valve, in that they both map to
the same MS-DRGs 219, 220, and 221; they utilize the same ICD-10 code
02RF8Z (Replacement of aortic valve with zooplastic tissue, open
approach); they are intended to treat the same or similar disease and
patient population; they are intended to achieve the same therapeutic
outcome; and they are both considered to be sutureless/rapid deployment
aortic heart valves used for the replacement of diseased, damaged, or
malfunctioning native or prosthetic aortic valves. The commenter cited
several meta-analyses that include both the Perceval and INTUITY valves
and consider them clinically equivalent technologies. The commenter
also cited excerpts from articles as well as a description of the
ongoing Perceval IDE study to provide support for the substantial
clinical improvement of sutureless/rapid deployment heart valves. The
applicant requested that Perceval and INTUITY valves be considered in
the same category for the new technology add-on payment.
Response: We appreciate the commenter's input. We welcome
additional input from the public and will take these comments into
consideration when deciding whether to approve new technology add-on
payments for the INTUITY valve for FY 2017.
h. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis (IBE)
W.L. Gore and Associates, Inc. submitted an application for new
technology add-on payments for the GORE[supreg] EXCLUDER[supreg] Iliac
Branch Endoprosthesis (GORE IBE device) for FY 2017. The device
consists of two components: The Iliac Branch Component (IBC) and the
Internal Iliac Component (IIC). The applicant indicated that each
endoprosthesis is pre-mounted on a customized delivery and deployment
system allowing for controlled endovascular delivery via bilateral
femoral access. According to the applicant, the device is designed to
be used in conjunction with the GORE[supreg] EXCLUDER[supreg] AAA
Endoprosthesis for the treatment of patients requiring repair of common
iliac or aortoiliac aneurysms. When deployed, the GORE IBE device
excludes the common iliac aneurysm from systemic blood flow, while
preserving blood flow in the external and internal iliac arteries.
With regard to the newness criterion, the applicant submitted an
application to the FDA for pre-market approval of the GORE IBE device,
but has not yet received FDA approval. The applicant submitted a
request for a unique ICD-10-PCS code that was presented at the March
2016 ICD-10 Coordination and Maintenance Committee meeting. If
approved, the code will be effective on October 1, 2016 (FY 2017). More
information on this request can be found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology meets all three of the
substantial similarity criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments.
With regard to the first criterion, whether a product uses the same
or a similar mechanism of action to achieve a therapeutic outcome, the
applicant indicated that the GORE IBE device is based on the same
design principles as other endovascular repair devices, and

[[Page 25058]]

its use differs because of the specific target site for implantation.
Consequently, it has a different shape and method of delivery from
other endovascular devices. The GORE IBE device is similar to the
GORE[supreg] EXCLUDER[supreg] AAA Endoprosthesis, primarily differing
in device dimensions to fit within the iliac artery anatomy. With
regard to the first criterion, we are concerned that the GORE IBE
device has a similar mechanism of action to other stenting grafts used
to treat patients with abdominal aortic aneurysms (AAAs) because it
repairs the abdominal aortoiliac aneurysm from the inside and is
inserted in a similar manner to other abdominal aortoiliac endovascular
aneurysm repair devices.
With regard to the second criterion, whether a product is assigned
to the same or a different MS-DRG, the applicant indicated that cases
using the GORE IBE device would map to the same MS-DRGs as cases
involving other stent-grafts used to treat patients with AAAs.
Specifically, similar to cases involving other stent-grafts used to
treat AAAs, cases involving the GORE IBE device would be assigned to
MS-DRG 268 (Aortic and Heart Assist Procedures except Pulsation Balloon
with MCC) and MS-DRG 269 (Aortic and Heart Assist Procedures except
Pulsation Balloon without MCC).
With regard to the third criterion, whether the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population, the applicant
indicated that the GORE IBE device is intended to be used in the
treatment of patients requiring repair of common iliac or aortoiliac
aneurysms. The applicant stated that this device, if approved, would be
the first purpose-built endovascular device for patients whose
conditions (common iliac or aortoiliac aneurysm) put them at risk for
negative clinical outcomes due to limitations of current treatment
methods, which may not preserve internal iliac artery perfusion. The
applicant described current repair options for these patients as: (a)
Intentional occlusion and coverage of the internal iliac artery; (b)
undergoing a more extensive surgical operation to place a bypass graft;
or (c) use of combinations of devices in a nonindicated, variable, and
inconsistent manner. With regard to the third criterion, we are
concerned that this device appears to treat a similar type of disease
to existing stent grafts.
Based on the statements above, the applicant maintained that the
GORE IBE device is not substantially similar to other stent-grafts used
to treat patients with AAAs. We are inviting public comments on whether
Gore IBE device is substantially similar to existing technologies and
whether the technology meets the newness criterion.
With regard to the cost criterion, the applicant researched the FY
2014 MedPAR claims data to identify patients who may be eligible for
treatment using the GORE IBE device. The applicant noted that cases
eligible for the GORE IBE device would map to MS-DRGs 268 (Aortic and
Heart Assist Procedures Except Pulsation Balloon with MCC) and 269
(Aortic and Heart Assist Procedures Except Pulsation Balloon without
MCC). The applicant provided two analyses. The first analysis searched
for cases that may be potentially eligible for the GORE IBE device by
identifying cases with endovascular aneurysm repair (EVAR) with iliac
diagnoses. To identify these cases, the applicant searched for cases
that had an ICD-9-CM primary procedure code of 39.71 (Endovascular
implantation of other graft in abdominal aorta) in combination with a
primary diagnosis code of 441.4 (Abdominal aneurysm without mention of
rupture) or 441.02 (Dissection of aorta, abdominal). The applicant
excluded cases with a diagnosis code of 441.3 (Abdominal aneurysm,
ruptured), and cases with atherosclerosis of the lower extremities
(ICD-9-CM diagnosis code 440.20 through 440.28). The applicant then
identified a subset of cases (1,615 cases) with significant iliac
involvement (which indicated use of the prior technology as well as
disease extent where the new technology could be used) by searching for
cases with a secondary ICD-9-CM diagnosis code of 442.2 (Aneurysm of
iliac artery) or 443.22 (Dissection of iliac artery). This subset of
cases was used in the analysis with 205 cases that mapped to MS-DRG 268
and 1,410 cases that mapped to MS-DRG 269. As discussed below, the
remaining cases (11,926 cases) were used to help evaluate and compare
subsequent offset charge calculations (base EVAR cases).
Using the 1,615 cases, the applicant calculated an average
unstandardized case-weighted charge per case of $121,527. Charges for
the prior technology (implants), which would be offset by the new
technology were established by subtracting the average implant charge
in the 1,615 cases from the average implant charge in the base EVAR
sample. The excess implant charge represents current implant charges
being used in EVAR cases with iliac involvement, and was subtracted
from the average unstandardized case-weighted charge per case.
The applicant compared the average unstandardized O.R. and
radiology charges associated with the new technology from the clinical
trial data with the unstandardized O.R. and radiology charges
associated with the prior technology from the MedPAR data and noted
that O.R. and radiology charges for resources related to the new
technology and the prior technology were similar. However, with regard
to charges in the intensive care unit (ICU), there was a reduction of
56 percent in ICU associated charges for the new technology. Therefore,
the applicant offset the ICU associated charge by 56 percent and
deducted this amount from the average unstandardized case-weighted
charge per case. The applicant then standardized the charges, but noted
that it did not inflate the charges. The applicant added charges for
the GORE IBE device by converting the costs of the device to charges
using the average CCR for implantable devices (0.337) as reported in
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49429). The applicant noted
that the cost of the technology was proprietary information. Based on
the FY 2016 IPPS/LTCH PPS Table 10 thresholds, the average case-
weighted threshold amount was $109,241. The applicant computed an
average standardized case-weighted charge per case of $124,129. Because
the average standardized case-weighted charge per case exceeds the
average case-weighted threshold amount, the applicant maintained that
the technology meets the cost criterion.
The second analysis was similar to the first analysis, but searched
the MedPAR claims data file for cases with an EVAR with an iliac
diagnosis and procedure instead of cases with EVAR and only an iliac
diagnosis. The applicant used the same ICD-9-CM procedure and diagnoses
codes as used in the first analysis, but used the following ICD-9-CM
procedure codes to identify cases that had an iliac procedure: 39.79
(Other endovascular procedures on other vessels) in combination with
39.29 (Other (peripheral) vascular shunt or bypass), 39.79 in
combination with 39.90 (Insertion of non-drug-eluting peripheral (non-
coronary) vessel stent(s)) without 39.29, 39.90 in combination with
00.41 (Procedure on two vessels), 00.46 (Insertion of two vascular
stents), and 00.47 (Insertion of three vascular stents) without 39.79
and 39.29. The applicant noted that the expected distribution of cases
for the GORE IBE device is that 20 percent of the cases would map to
MS-DRG 268 and 80 percent of the cases would map

[[Page 25059]]

to MS-DRG 269. Because this analysis represents cases that had an
actual iliac procedure, the applicant applied this distribution to the
cases. The applicant then followed the same methodology above and
removed charges for the prior technology and resources related to the
prior technology, standardized the charges, and then added charges
related to the GORE IBE device. Based on the FY 2016 IPPS/LTCH PPS
Table 10 thresholds, the average case-weighted threshold amount was
$113,015. The applicant computed an inflated average standardized case-
weighted charge per case of $138,179. Because the inflated average
standardized case-weighted charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology
meets the cost criterion.
With regard to the second analysis, the applicant imputed the
distribution of cases. We are not sure how the applicant determined
which cases would map to MS-DRG 268 or MS-DRG 269, if the distribution
was imputed. Also, the applicant did not disclose how many cases were
found in the claims data after filtering the case volume using ICD-9-CM
procedure codes identifying cases that had an iliac procedure. We are
inviting public comments on whether the GORE IBE device meets the cost
criterion, including with regard to the concerns we have raised.
With regard to the substantial clinical improvement criterion, the
applicant indicated that current treatment approaches have substantial
risks of complications that can negatively impact quality of life.
Available treatment methods that do not preserve internal iliac artery
perfusion increase risks for negative clinical outcomes; compared to
methods that preserve the internal iliac artery, those that use
contralateral hypogastric embolization result in a higher incidence of
buttock claudication (15-55 percent), sexual dysfunction (5-45
percent), ischemia of the colon (2.6 percent), and rarely, ischemia of
the spine. The applicant cited the ``12-04'' study,\16\ which the
applicant suggested showed the GORE IBE device to have 0 percent rates
of buttock claudication, new onset erectile dysfunction, colonic
ischemia, and spinal cord ischemia. The applicant also suggested that
the 12-04 study showed the GORE IBE device to have reduced procedure
time, reduced fluoroscopy time, reduced reintervention rates, and
increased patency rates. The applicant asserted that because the GORE
IBE device preserves flow to the internal iliac artery, the risk of
complications is reduced, which represents a substantial clinical
improvement relative to current treatment approaches. The applicant
also stated that, compared with historical data for procedures done
using contralateral hypogastric embolization, the GORE IBE device is
associated with reduced procedure time, reduced fluoroscopy time,
reduced reintervention rates, reduced incidence of aneurysm
enlargement, and improved patency rates.
---------------------------------------------------------------------------

\16\ DeRubertis BG, Quinones-Baldrich WJ, Greenberg JI, Jimenez
JC, Lee JT. Results of a double-barrel technique with commercially
available devices for hypogastric preservation during aortoilac
endovascular abdominal aortic aneurysm repair. J Vasc Surg
2012;56:1252-1259.
---------------------------------------------------------------------------

The applicant submitted several research articles with its
application, which consisted of a few very small case series of 23
total patients published,^{17 18 19} as well as some abstracts
of other case series. These publications describe the procedural
results of using the device, with angiographic endpoints, and
demonstrate the feasibility of insertion. The applicant also indicated
that other treatment approaches, including open surgery, are done
infrequently, while other approaches are not approved for this purpose.
Therefore, the applicant indicated that it would be impractical to
conduct comparative studies.
---------------------------------------------------------------------------

\17\ DeRubertis BG, Quinones-Baldrich WJ, Greenberg JI, Jimenez
JC, Lee JT. Results of a double-barrel technique with commercially
available devices for hypogastric preservation during aortoilac
endovascular abdominal aortic aneurysm repair. J Vasc Surg
2012;56:1252-1259.
\18\ Ferrer C, De Crescenzo F, Coscarella C, Cao P. Early
experience with the Excluder(R) iliac branch endoprosthesis. J
Cardiovasc Surg 2014;55:679-683.
\19\ Sch[ouml]nhofer S, Mansour R, Ghotbi R. Initial results of
the management of aortoiliac aneurysms with GORE(R) Excluder(R)
iliac branched endoprosthesis. J Cardiovasc Surg 2015;56:883-888.
---------------------------------------------------------------------------

After reviewing the information provided by the applicant, we have
the following concerns: We are concerned about the lack of clinical
studies comparing the GORE IBE device with alternative methods of
treatment, and note that the application did not provide data that
supported its assertions that the GORE IBE device is associated with
reduced procedure time, reduced fluoroscopy time, reduced
reintervention rates, reduced incidence of aneurysm enlargement, and
improved patency rates. We also note that the applicant's assertions
about decreased rates of complications appear to compare a small number
of published cases of the use of the GORE IBE device with complication
rates cited in the literature, which does not indicate whether there is
a valid basis for comparison. We are inviting public comments on
whether the GORE IBE device meets the substantial clinical improvement
criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.
i. Vistogard^TM (Uridine Triacetate)
BTG International Inc., submitted an application for new technology
add-on payments for the Vistogard^TM for FY 2017.
Vistogard^TM (Uridine Triacetate) was developed as an
antidote to Fluorouracil toxicity. Chemotherapeutic agent 5-
fluorouracil (5-FU) is used to treat specific solid tumors. It acts
upon deoxyribonucleic acid (DNA) and ribonucleic acid (RNA) in the
body, as uracil is a naturally occurring building block for genetic
material. Fluorouracil is a fluorinated pyrimidine. As a chemotherapy
agent, Fluorouracil is absorbed up by cells and causes the cell to
metabolize into byproducts that are toxic and used to destroy cancerous
cells. The byproducts fluorodoxyuridine monophosphate (F-dUMP) and
floxuridine triphosphate (FUTP) are believed to do the following:
Reduce DNA synthesis, lead to DNA fragmentation, and disrupt RNA
synthesis. Fluorouracil is used to treat a variety of solid tumors such
as colorectal, head and neck, breast, and ovarian cancer. With
different tumor treatments, different dosages, and different dosing
schedules, there is a risk for toxicity in these patients.
Patients may suffer from fluorouracil toxicity/death if 5-FU is
delivered in slight excess or at faster infusion rates than prescribed.
The cause of overdose can happen for a variety of reasons including:
Pump malfunction, incorrect pump programming or miscalculated doses,
and accidental or intentional ingestion.
According to the applicant, current treatment for fluorouracil
toxicity is supportive care, including discontinuation of the drug,
hydration, filgrastim for neutropenia, as well as antibiotics,
antiemetics, and treatments that are required for potential
gastrointestinal and cardiovascular compromise. Vistogard^TM
is an antidote to Fluorouracil toxicity and is a pro-drug of uridine.
Once the drug is metabolized into uridine, it competes with the toxic
byproduct FUTP in binding to RNA, thus reducing the impact FUTP has on
cell death.
With regard to the newness criterion, Vistogard^TM
received FDA approval on December 11, 2015. The applicant noted that
Vistogard^TM is the first FDA approved antidote used to
reverse fluorouracil toxicity. Currently, there

[[Page 25060]]

are no ICD-10-CM procedure codes that uniquely identify the use of
Vistogard^TM. The applicant presented an application at the
March 9-10, 2016 meeting of the ICD-10 Coordination and Maintenance
Committee for a unique ICD-10-PCS procedure code to identify the use of
Vistogard^TM. If approved, the code will be effective on
October 1, 2016 (FY 2017). More information on this request can be
found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10ProviderDiagnosticCodes/ICD-10-CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology meets all three of the
substantial similarity criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments.
With regard to the first criterion, whether the product uses the
same or a similar mechanism of action to achieve a therapeutic outcome,
the applicant stated that Vistogard^TM is the first FDA-
approved antidote used to reverse fluorouracil toxicity. The applicant
maintained that Vistogard^TM has a unique mechanism of action
that is not comparable to any other drug's mechanism of action that is
currently available on the U.S. market. The applicant described in
technical detail how the novel and unique mechanism of action provides
bioavailable uridine, a direct biochemical antagonist of 5-FU toxicity;
quickly absorbs into the gastrointestinal tract due to its lipophilic
nature; in normal cells, stops the process of cell damage and cell
destruction caused by 5-FU and counteracts the effects of 5-FU
toxicity; protects normal cells and allows recovery from damage caused
by 5-FU, without interfering with the primary antitumor mechanism of 5-
FU; and uses uridine derived from Vistogard^TM to convert it
into uridine triphosphate (UTP), which competes with FUTP for
incorporation into RNA, preventing further cell destruction and dose-
limiting toxicities.
With regard to the second criterion, whether the product is
assigned to the same or a different MS-DRG, the applicant noted that
Xuriden (uridine triacetate) was also approved by the FDA on September
8, 2015, as a pyrimidine analog for uridine replacement indicated for
the treatment of hereditary orotic aciduria (HOA). According to the
applicant, HOA is a rare, potentially life-threatening, genetic
disorder in which patients (primarily pediatric patients) lack the
ability to synthesize adequate amounts of uridine and consequently can
suffer from hematologic abnormalities, failure to thrive, a range of
developmental delays, and episodes of crystalluria leading to
obstructive uropathy. The applicant stated that, although Xuriden is
approved as a chronic, once daily medication (not to exceed 8 grams)
that is administered orally in the patient's home and also used to
replace uridine, Xuriden is not administered in a hospital setting and
cases involving the use of Xuriden would not be assigned to the same
MS-DRGs associated with the use of Vistogard^TM in the
treatment of patients experiencing 5-FU overdose or severe toxicity.
Therefore, the applicant maintained that no other technology similar to
Vistogard^TM would map to the same MS-DRGs as cases involving
the use of Vistogard^TM.
With regard to the third criterion, whether the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population, similar to above,
the applicant maintained that Vistogard^TM is the first FDA
approved antidote to reverse fluorouracil toxicity and, therefore, no
other technology treats this disease or patient population to reverse
fluorouracil toxicity. Therefore, the applicant believed that
Vistogard^TM is not substantially similar to any other
currently approved technology. We are inviting public comments on
whether Vistogard^TM is substantially similar to existing
technologies and whether it meets the newness criterion.
With regard to the cost criterion, the applicant searched the
claims data from the 2013 and 2014 Inpatient SAFs for cases that may be
eligible for treatment involving Vistogard^TM. Specifically,
the applicant searched for cases reporting a primary ICD-9-CM diagnosis
code for colorectal cancer, head and neck cancer, gastric cancers and
pancreatic cancer. The applicant further narrowed the potential target
patient population by identifying cases reporting toxicity due to an
antineoplastic. In order to include only patients diagnosed with severe
toxicity that would be eligible for treatment using
Vistogard^TM, using revenue center codes and ICD-9-CM V
codes, the applicant included an additional cohort of cases
representing patients admitted from the emergency department, an
observation unit, another short-term, acute care hospital, or who have
received chemotherapy treatment during the inpatient stay included on
the claim. Because 5-FU toxicity is associated with a high mortality
rate, the applicant identified a subgroup of patients diagnosed with
chemotherapy toxicity who expired during their inpatient visit or
within 7 days of discharge. The applicant provided two analyses to
determine that the technology meets the cost criterion: One analysis of
patients that experienced toxicity with mortality and a second analysis
using the broader chemotherapy toxicity cohort, which includes patients
who did not expire. The table below provides the diagnosis codes and
information the applicant used to identify cases for both of these
analyses.

------------------------------------------------------------------------
Criterion ICD-9 code Description
------------------------------------------------------------------------
Colorectal, head and neck, 153.x............... Malignant neoplasm
gastric, or pancreatic 154.x............... of colon.
cancer (at least one code). Malignant neoplasm
of rectum,
rectosigmoid
junction, and anus.
171.0............... Malignant neoplasm
of head, face, and
neck.
151.x............... Malignant neoplasm
of stomach.
157.x............... Malignant neoplasm
of pancreas.
Toxicity due to an 963.1............... Poisoning by
antineoplastic (at least antineoplastic and
one code). immunosuppressive
drugs.
E933.1.............. Antineoplastic and
immunosuppressive
drugs causing
adverse effects in
therapeutic use.
Admission to Inpatient Revenue Center...... Revenue Center Codes
Setting Admitted from ED. 450, 451, 452, 456,
459.
or observation unit..... Revenue Center...... Revenue Center Codes
760, 761, 762, 769.
or short-term, acute N/A................. Source of admission
care hospital. code = ``4''
``Transfer from
hospital (Different
facility)''.
or received chemotherapy V58.0............... Encounter or
during inpatient stay. admission for
radiation.
V58.11.............. Encounter for
antineoplastic
chemotherapy.
V58.12.............. Encounter for
antineoplastic
immunotherapy (Must
be primary
diagnosis on the
claim).

[[Page 25061]]

Expired during inpatient N/A................. Determined by
stay or within seven days N/A................. patient discharge
of discharge (at least one status code.
code) \a\. If date of death in
100 percent
Denominator File
pertaining to the
year of the claim
was within 7 days
of claim discharge
date.
------------------------------------------------------------------------
\a\ Required only for toxicity with mortality cohort.
Source: KNG Health analysis of 2013-2014 100% Inpatient Standard
Analytic Files and 2013-2014 100% Denominator Files.

Under the first analysis, the applicant found 76 cases with 18.42
percent of those cases mapping to MS-DRG 871 (Septicemia or Severe
Sepsis without Mechanical Ventilation > 96 hours with MCC), and the
remaining number of cases mapping to MS-DRGs with less than 11 cases.
According to the applicant, the results of the analysis of the MS-DRGs
with less than 11 cases could not be discussed separately because of
the small sample sizes. The applicant believed that it was unnecessary
to remove any charges for other previously used technologies because
although Vistogard^TM is singular in its ability to treat 5-
FU toxicity, the associated charges for palliative care would continue
to be necessary to treat the symptoms of the toxicity, even though it
is possible that the use of Vistogard^TM may reduce a
patient's hospital length of stay. To update the charge data to the
current fiscal year, the applicant inflated the charges based on the
charge inflation factor of 1.048116 in the FY 2016 IPPS/LTCH proposed
rule (80 FR 24632). A 1-year inflation factor was applied three times
for FY 2013 claims and two times for FY 2014 claims, inflating all
claims to FY 2016. This resulted in an inflated average standardized
case-weighted charge per case of $51,451. Using the FY 2016 IPPS Table
10 thresholds, the average case-weighted threshold amount was $46,233
(all calculations above were performed using unrounded numbers). The
applicant noted that the inflated average standardized case-weighted
charge per case exceeded the average case-weighted threshold amount
without including charges for Vistogard^TM. Therefore,
because the inflated average standardized case-weighted charge per case
exceeds the average case-weighted threshold amount, the applicant
maintained that the technology meets the cost criterion.
Under the second analysis, the applicant used the same methodology
it used in its first analysis, except that the analysis included cases
representing patients who did not expire. The applicant found 879 cases
with 8.53 percent of those cases mapping to MS-DRG 392 (Esophagitis,
Gastroenteritis and Miscellaneous Digestive System Disorders without
MCC), and the remaining number of cases spread across several MS-DRGs.
The inflated average standardized case-weighted charge per case was
$42,708. Using the FY 2016 IPPS Table 10 thresholds, the average case-
weighted threshold amount was $42,377 (all calculations above were
performed using unrounded numbers). Similar to the results of the first
analysis, the applicant noted that the inflated average standardized
case-weighted charge per case exceeded the average case-weighted
threshold amount without including charges for Vistogard^TM.
Therefore, because the inflated average standardized case-weighted
charge per case exceeds the average case-weighted threshold amount, the
applicant maintained that the technology also meets the cost criterion
under the second analysis.
We note that the applicant used the inflation factor of 1.048116
from the FY 2016 IPPS/LTCH proposed rule instead of the inflation
factor of 1.037616 from the FY 2016 IPPS/LTCH final rule (80 FR 49784).
We believe that the applicant should use the most recent data
available, which is the inflation factor from the final rule. The
inflation factor from the FY 2016 IPPS/LTCH final rule is lower than
the inflation factor from the proposed rule. However, the difference
between these two factors is marginal. Also, as the applicant noted, it
did not include charges for Vistogard^TM in its analysis.
Therefore, we believe that it is likely that the applicant would still
meet the cost criterion under both analyses even if it used the lower
inflation factor from the FY 2016 final rule. We are inviting public
comments on whether Vistogard^TM meets the cost criterion
under both analyses.
With regard to substantial clinical improvement, the applicant
maintained that Vistogard^TM represents a substantial
clinical improvement. The applicant noted that Vistogard^TM
is the first and only antidote indicated to treat adult and pediatric
patients following a fluorouracil overdose, regardless of the presence
of symptoms or whether a patient exhibits early-onset, severe or life-
threatening toxicity within 96 hours following the conclusion of
fluorouracil or capecitabine administration. The applicant provided
data from two studies (Study 1, an open-label, single arm, multi-center
expanded access study and Study 2, an open-label, single arm, multi-
center emergency use study), which combined enrolled 135 patients. The
applicant noted that 130 patients treated with Vistogard^TM
survived through the 30-day treatment and observation period (95
percent Confidence Interval: 0.92, 0.99). Of the 135 patients, 30
percent were 65 years old and older, including 11 percent of patients
who were 75 years old and older.
According to the applicant, the studies' results demonstrate that
Vistogard^TM reduced the incidence, severity and virulence of
toxicities associated with 5-FU toxicity due to overdose or rapid
onset. Specifically, the applicant noted the following results:
Vistogard^TM ameliorated the progression of
mucositis, leukopenia and thrombocytopenia; leukopenia and
thrombocytopenia were resolved in almost all patients by the 4th week,
indicating recovery of the hematopoietic system; mucositis also was
resolved in almost all patients within the 30-day observation period
with the incidence of serious (Grade 3 or 4) mucositis being very low;
and no grade 4 mucositis was observed in any patients who received
treatment using Vistogard^TM within 96 hours after 5-FU.
Thirty-eight percent of patients who experienced 5-FU
overdose were able to resume chemotherapy treatment in less than 30
days after 5-FU toxicity, with the majority of these patients resuming
treatment within 21 days. According to the applicant, 21 percent of the
patients who presented with rapid onset of serious toxicities resumed
chemotherapy treatment (typically with a different agent than 5-FU) in
less than 30 days, with an overall median time to resumption of
chemotherapy of 19 days.
The safety and tolerability profile of
Vistogard^TM is consistent with what would be expected for
patients diagnosed with cancer following 5-FU chemotherapy treatment,
but is generally less in severity and incidence when compared to what
would be expected with patients who experience a 5-FU overdose.
Specifically, during Study 1, there were no patients that

[[Page 25062]]

discontinued uridine triacetate treatment as a result of adverse
events, and during Study 2, three patients discontinued uridine
triacetate treatment as a result of adverse events, one of which was
considered possibly related to uridine triacetate (nausea and
vomiting).
We are inviting public comments on whether Vistogard^TM
meets the substantial clinical improvement criterion.
We did not receive any written public comments in response to the
February 2016 New Technology Town Hall meeting regarding this
application for new technology add-on payments.

III. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals

A. Background

1. Legislative Authority
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary adjust the standardized amounts for area differences in
hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level. We
currently define hospital labor market areas based on the delineations
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the proposed FY 2017 hospital wage index based
on the statistical areas appears under sections III.A.2. and G. of the
preamble of this proposed rule.
Section 1886(d)(3)(E) of the Act requires the Secretary to update
the wage index annually and to base the update on a survey of wages and
wage-related costs of short-term, acute care hospitals. (CMS collects
these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-
3, Parts II, III, and IV. The OMB control number for approved
collection of this information is 0938-0050.) This provision also
requires that any updates or adjustments to the wage index be made in a
manner that ensures that aggregate payments to hospitals are not
affected by the change in the wage index. The proposed adjustment for
FY 2017 is discussed in section II.B. of the Addendum to this proposed
rule.
As discussed in section III.J. of the preamble of this proposed
rule, we also take into account the geographic reclassification of
hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of
the Act when calculating IPPS payment amounts. Under section
1886(d)(8)(D) of the Act, the Secretary is required to adjust the
standardized amounts so as to ensure that aggregate payments under the
IPPS after implementation of the provisions of sections 1886(d)(8)(B),
1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate
prospective payments that would have been made absent these provisions.
The proposed budget neutrality adjustment for FY 2017 is discussed in
section II.A.4.b. of the Addendum to this proposed rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in
order to construct an occupational mix adjustment to the wage index. A
discussion of the occupational mix adjustment that we are proposing to
apply to the FY 2017 wage index, appears under sections III.E.3. and F.
of the preamble of this proposed rule.
2. Core-Based Statistical Areas (CBSAs) Revisions for the Proposed FY
2017 Hospital Wage Index
The wage index is calculated and assigned to hospitals on the basis
of the labor market area in which the hospital is located. Under
section 1886(d)(3)(E) of the Act, beginning with FY 2005, we delineate
hospital labor market areas based on OMB-established Core-Based
Statistical Areas (CBSAs). The current statistical areas (which were
implemented beginning with FY 2015) are based on revised OMB
delineations issued on February 28, 2013, in OMB Bulletin No. 13-01.
OMB Bulletin No. 13-01 established revised delineations for
Metropolitan Statistical Areas, Micropolitan Statistical Areas, and
Combined Statistical Areas in the United States and Puerto Rico based
on the 2010 Census, and provided guidance on the use of the
delineations of these statistical areas using standards published on
June 28, 2010 in the Federal Register (75 FR 37246 through 37252). We
refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951
through 49963) for a full discussion of our implementation of the new
OMB labor market area delineations beginning with the FY 2015 wage
index.
Generally, OMB issues major revisions to statistical areas every 10
years, based on the results of the decennial census. However, OMB
occasionally issues minor updates and revisions to statistical areas in
the years between the decennial censuses. On July 15, 2015, OMB issued
OMB Bulletin No. 15-01, which provides updates to and supersedes OMB
Bulletin No. 13-01 that was issued on February 28, 2013. The attachment
to OMB Bulletin No. 15-01 provides detailed information on the update
to statistical areas since February 28, 2013. The updates provided in
OMB Bulletin No. 15-01 are based on the application of the 2010
Standards for Delineating Metropolitan and Micropolitan Statistical
Areas to Census Bureau population estimates for July 1, 2012 and July
1, 2013. The complete list of statistical areas incorporating these
changes is provided in the attachment to OMB Bulletin No. 15-01.
According to OMB, ``[t]his bulletin establishes revised delineations
for the Nation's Metropolitan Statistical Areas, Micropolitan
Statistical Areas, and Combined Statistical Areas. The bulletin also
provides delineations of Metropolitan Divisions as well as delineations
of New England City and Town Areas.'' A copy of this bulletin may be
obtained on the Web site at: https://www.whitehouse.gov/omb/bulletins_default.
OMB Bulletin No. 15-01 made the following changes that are relevant
to the IPPS wage index:
Garfield County, OK, with principal city Enid, OK, which
was a Micropolitan (geographically rural) area, now qualifies as an
urban new CBSA 21420 called Enid, OK.
The county of Bedford City, VA, a component of the
Lynchburg, VA CBSA 31340, changed to town status and is added to
Bedford County. Therefore, the county of Bedford City (SSA State county
code 49088, FIPS State County Code 51515) is now part of the county of
Bedford, VA (SSA State county code 49090, FIPS State County Code
51019). However, the CBSA remains Lynchburg, VA, 31340.
The name of Macon, GA, CBSA 31420, as well as a principal
city of the Macon-Warner Robins, GA combined statistical area, is now
Macon-Bibb County, GA. The CBSA code remains as 31420.
We believe that it is important for the IPPS to use the latest
labor market area delineations available as soon as is reasonably
possible in order to maintain a more accurate and up-to-date payment
system that reflects the reality of population shifts and labor market
conditions (79 FR 28055). Therefore, we are proposing to implement
these revisions, effective October 1, 2016, beginning with the FY 2017
wage indexes. We are proposing to use these new definitions to
calculate area wage indexes in a manner that is generally consistent
with the CBSA-based methodologies finalized in the FY 2005 and the FY
2015 IPPS final rules. For FY

[[Page 25063]]

2017, Tables 2 and 3 for this proposed rule and the County to CBSA
Crosswalk File and Urban CBSAs and Constituent Counties for Acute Care
Hospitals File posted on the CMS Web site reflect these CBSA changes.
We are inviting public comments on these proposals.

B. Worksheet S-3 Wage Data for the Proposed FY 2017 Wage Index

The proposed FY 2017 wage index values are based on the data
collected from the Medicare cost reports submitted by hospitals for
cost reporting periods beginning in FY 2013 (the FY 2016 wage indexes
were based on data from cost reporting periods beginning during FY
2012).
1. Included Categories of Costs
The proposed FY 2017 wage index includes all of the following
categories of data associated with costs paid under the IPPS (as well
as outpatient costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty);
Home office costs and hours;
Certain contract labor costs and hours, which include
direct patient care, certain top management, pharmacy, laboratory, and
nonteaching physician Part A services, and certain contract indirect
patient care services (as discussed in the FY 2008 final rule with
comment period (72 FR 47315 through 47317)); and
Wage-related costs, including pension costs (based on
policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586
through 51590)) and other deferred compensation costs.
2. Excluded Categories of Costs
Consistent with the wage index methodology for FY 2016, the
proposed wage index for FY 2017 also excludes the direct and overhead
salaries and hours for services not subject to IPPS payment, such as
skilled nursing facility (SNF) services, home health services, costs
related to GME (teaching physicians and residents) and certified
registered nurse anesthetists (CRNAs), and other subprovider components
that are not paid under the IPPS. The proposed FY 2017 wage index also
excludes the salaries, hours, and wage-related costs of hospital-based
rural health clinics (RHCs), and Federally qualified health centers
(FQHCs) because Medicare pays for these costs outside of the IPPS (68
FR 45395). In addition, salaries, hours, and wage-related costs of CAHs
are excluded from the wage index for the reasons explained in the FY
2004 IPPS final rule (68 FR 45397 through 45398).
3. Use of Wage Index Data by Suppliers and Providers Other Than Acute
Care Hospitals Under the IPPS
Data collected for the IPPS wage index also are currently used to
calculate wage indexes applicable to suppliers and other providers,
such as SNFs, home health agencies (HHAs), ambulatory surgical centers
(ASCs), and hospices. In addition, they are used for prospective
payments to IRFs, IPFs, and LTCHs, and for hospital outpatient
services. We note that, in the IPPS rules, we do not address comments
pertaining to the wage indexes of any supplier or provider except IPPS
providers and LTCHs. Such comments should be made in response to
separate proposed rules for those suppliers and providers.

C. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2017 wage index were obtained
from Worksheet S-3, Parts II and III of the Medicare cost report (Form
CMS-2552-10, OMB control number 0938-0050) for cost reporting periods
beginning on or after October 1, 2012, and before October 1, 2013. For
wage index purposes, we refer to cost reports during this period as the
``FY 2013 cost report,'' the ``FY 2013 wage data,'' or the ``FY 2013
data.'' Instructions for completing the wage index sections of
Worksheet S-3 are included in the Provider Reimbursement Manual (PRM),
Part 2 (Pub. No. 15-2), Chapter 40, Sections 4005.2 through 4005.4. The
data file used to construct the proposed FY 2017 wage index includes FY
2013 data submitted to us as of February 29, 2016. As in past years, we
performed an extensive review of the wage data, mostly through the use
of edits for reasonableness designed to identify aberrant data.
We asked our MACs to revise or verify data elements that result in
specific edit failures. For the proposed FY 2017 wage index, we
identified and excluded 62 providers with aberrant data that should not
be included in the proposed wage index. Of these 62 providers that we
excluded from the proposed wage index, 47 have data that we do not
expect to change such that the data would be included in the final wage
index (for example, among the reasons these providers were excluded is
they are low Medicare utilization providers, they closed and failed
edits for reasonableness, or they have extremely high or low average
hourly wages that are atypical for their CBSAs). If data elements for
some of these providers are corrected, we intend to include those
providers in the calculation of the final FY 2017 wage index. We also
adjusted certain aberrant data and included these data in the proposed
wage index. For example, in situations where a hospital did not have
documentable salaries, wages, and hours for housekeeping and dietary
services, we imputed estimates, in accordance with policies established
in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967).
In constructing the proposed FY 2017 wage index, we included the
wage data for facilities that were IPPS hospitals in FY 2013, inclusive
of those facilities that have since terminated their participation in
the program as hospitals, as long as those data did not fail any of our
edits for reasonableness. We believed that including the wage data for
these hospitals is, in general, appropriate to reflect the economic
conditions in the various labor market areas during the relevant past
period and to ensure that the current wage index represents the labor
market area's current wages as compared to the national average of
wages. However, we excluded the wage data for CAHs as discussed in the
FY 2004 IPPS final rule (68 FR 45397 through 45398). For the this
proposed rule, we removed 3 hospitals that converted to CAH status on
or after February 5, 2015, the cut-off date for CAH exclusion from the
FY 2016 wage index, and through and including January 22, 2016, the
cut-off date for CAH exclusion from the FY 2017 wage index. After
removing hospitals that converted to CAH status, we calculated the
proposed FY 2017 wage index based on 3,345 hospitals.
For the proposed FY 2017 wage index, we allotted the wages and
hours data for a multicampus hospital among the different labor market
areas where its campuses are located in the same manner that we
allotted such hospitals' data in the FY 2016 wage index (80 FR 49489
through 49491). Table 2, which contains the proposed FY 2017 wage index
associated with proposed rule (available via the Internet on the CMS
Web site), includes separate wage data for the campuses of 9
multicampus hospitals.

D. Method for Computing the Proposed FY 2017 Unadjusted Wage Index

The method used to compute the proposed FY 2017 wage index without
an occupational mix adjustment follows the same methodology that we
used to compute the FY 2012, FY 2013, FY 2014, FY 2015, and FY 2016
final wage indexes without an occupational mix adjustment (76 FR 51591
through 51593, 77 FR 53366 through 53367, 78 FR 50587 through 50588, 79
FR 49967 and

[[Page 25064]]

80 FR 49491 through 49492, respectively).
As discussed in the FY 2012 IPPS/LTCH PPS final rule, in ``Step
5,'' for each hospital, we adjust the total salaries plus wage-related
costs to a common period to determine total adjusted salaries plus
wage-related costs. To make the wage adjustment, we estimate the
percentage change in the employment cost index (ECI) for compensation
for each 30-day increment from October 14, 2012, through April 15,
2014, for private industry hospital workers from the BLS' Compensation
and Working Conditions. We have consistently used the ECI as the data
source for our wages and salaries and other price proxies in the IPPS
market basket, and we are not proposing any changes to the usage for FY
2017. The factors used to adjust the hospital's data were based on the
midpoint of the cost reporting period, as indicated in the following
table.

Midpoint of Cost Reporting Period
------------------------------------------------------------------------
After Before Adjustment factor
------------------------------------------------------------------------
10/14/2012...................... 11/15/2012........ 1.02321
11/14/2012...................... 12/15/2012........ 1.02183
12/14/2012...................... 01/15/2013........ 1.02040
01/14/2013...................... 02/15/2013........ 1.01894
02/14/2013...................... 03/15/2013........ 1.01743
03/14/2013...................... 04/15/2013........ 1.01592
04/14/2013...................... 05/15/2013........ 1.01443
05/14/2013...................... 06/15/2013........ 1.01297
06/14/2013...................... 07/15/2013........ 1.01152
07/14/2013...................... 08/15/2013........ 1.01006
08/14/2013...................... 09/15/2013........ 1.00859
09/14/2013...................... 10/15/2013........ 1.00711
10/14/2013...................... 11/15/2013........ 1.00561
11/14/2013...................... 12/15/2013........ 1.00408
12/14/2013...................... 01/15/2014........ 1.00260
01/14/2014...................... 02/15/2014........ 1.00124
02/14/2014...................... 03/15/2014........ 1.00000
03/14/2014...................... 04/15/2014........ 0.99878
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning
January 1, 2013, and ending December 31, 2013, is June 30, 2013. An
adjustment factor of 1.01152 would be applied to the wages of a
hospital with such a cost reporting period.
Using the data as previously described, the proposed FY 2017
national average hourly wage (unadjusted for occupational mix) is
$41.1026.
Previously, we would also provide a Puerto Rico overall average
hourly wage. As discussed in section IV.A. of the preamble of this
proposed rule, prior to January 1, 2016, Puerto Rico hospitals were
paid based on 75 percent of the national standardized amount and 25
percent of the Puerto Rico-specific standardized amount. As a result,
we calculated a Puerto Rico-specific wage index that was applied to the
labor share of the Puerto Rico-specific standardized amount. Section
601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113),
enacted on December 18, 2015, amended section 1886(d)(9)(E) of the Act
to specify that the payment calculation with respect to operating costs
of inpatient hospital services of a subsection (d) Puerto Rico hospital
for inpatient hospital discharges on or after January 1, 2016, shall
use 100 percent of the national standardized amount. Because Puerto
Rico hospitals are no longer paid with a Puerto Rico-specific
standardized amount as of January 1, 2016, under section 1886(d)(9)(E)
of the Act, as amended by section 601 of the Consolidated
Appropriations Act, 2016, there is no longer a need to calculate a
Puerto Rico-specific average hourly wage and wage index. Hospitals in
Puerto Rico are now paid 100 percent of the national standardized
amount and, therefore, are subject to the national average hourly wage
(unadjusted for occupational mix) (which would be $41.1026 for this FY
2017 proposed rule) and the national wage index, which is applied to
the national labor share of the national standardized amount.
Accordingly, for FY 2017, we are not proposing a Puerto Rico-specific
overall average hourly wage or wage index.

E. Proposed Occupational Mix Adjustment to the FY 2017 Wage Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for
the collection of data every 3 years on the occupational mix of
employees for each short-term, acute care hospital participating in the
Medicare program, in order to construct an occupational mix adjustment
to the wage index, for application beginning October 1, 2004 (the FY
2005 wage index). The purpose of the occupational mix adjustment is to
control for the effect of hospitals' employment choices on the wage
index. For example, hospitals may choose to employ different
combinations of registered nurses, licensed practical nurses, nursing
aides, and medical assistants for the purpose of providing nursing care
to their patients. The varying labor costs associated with these
choices reflect hospital management decisions rather than geographic
differences in the costs of labor.
1. Use of 2013 Occupational Mix Survey for the FY 2017 Proposed Wage
Index
Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E)
of the Act to require CMS to collect data every 3 years on the
occupational mix of employees for each short-term, acute care hospital
participating in the Medicare program. We collected data in 2013 to
compute the occupational mix adjustment for the FY 2016, FY 2017, and
FY 2018 wage indexes. A new measurement of occupational mix is required
for FY 2019.
The 2013 survey included the same data elements and definitions as
the previous 2010 survey and provided for the collection of hospital-
specific wages and hours data for nursing employees for calendar year
2013 (that is, payroll periods ending between January 1, 2013 and
December 31, 2013). We published the 2013 survey in the Federal
Register on February 28, 2013 (78 FR 13679 through 13680). This survey
was approved by OMB on May 14, 2013, and is available on the CMS Web
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html. The 2013 Occupational Mix Survey
Hospital Reporting Form CMS-10079 for the Wage Index Beginning FY 2016
(in Excel format) is available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html. Hospitals were required to submit
their completed 2013 surveys to their MACs by July 1, 2014. The
preliminary, unaudited 2013 survey data were posted on the CMS Web site
on July 11, 2014. As with the Worksheet S-3, Parts II and III cost
report wage data, we asked our MACs to revise or verify data elements
in hospitals' occupational mix surveys that result in certain edit
failures.
2. Development of the 2016 Medicare Wage Index Occupational Mix Survey
for the FY 2019 Wage Index
As stated earlier, section 304(c) of Public Law 106-554 amended
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3
years on the occupational mix of employees for each short-term, acute
care hospital participating in the Medicare program. We collected data
in 2013 to compute the occupational mix adjustment for the FY 2016, FY
2017, and FY 2018 wage indexes. A new measurement of occupational mix
is required for FY 2019. The FY 2019 occupational mix adjustment will
be based on a new calendar year (CY) 2016 survey. The CY 2016 survey
(CMS Form CMS-10079) is currently awaiting approval by OMB,

[[Page 25065]]

and can be accessed at http://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201512-0938-011.
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2017
For FY 2017, we are proposing to calculate the occupational mix
adjustment factor using the same methodology that we used for the FY
2012, FY 2013, FY 2014, FY 2015, and FY 2016 wage indexes (76 FR 51582
through 51586, 77 FR 53367 through 53368, 78 FR 50588 through 50589, 79
FR 49968, and 80 FR 49492 through 49493, respectively) and to apply the
occupational mix adjustment to 100 percent of the FY 2017 wage index.
Because the statute requires that the Secretary measure the earnings
and paid hours of employment by occupational category not less than
once every 3 years, all hospitals that are subject to payments under
the IPPS, or any hospital that would be subject to the IPPS if not
granted a waiver, must complete the occupational mix survey, unless the
hospital has no associated cost report wage data that are included in
the FY 2017 wage index. For the FY 2017 wage index, we are using the
Worksheet S-3, Parts II and III wage data of 3,345 hospitals, and we
are using the occupational mix surveys of 3,143 hospitals for which we
also have Worksheet S-3 wage data, which represents a ``response'' rate
of 94 percent (3,143/3,345). For the proposed FY 2017 wage index in
this proposed rule, we applied proxy data for noncompliant hospitals,
new hospitals, or hospitals that submitted erroneous or aberrant data
in the same manner that we applied proxy data for such hospitals in the
FY 2012 wage index occupational mix adjustment (76 FR 51586).

F. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2017 Occupational Mix Adjusted Wage
Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix
Adjusted Wage Index
As discussed in section III.E. of the preamble of this proposed
rule, for FY 2017, we are proposing to apply the occupational mix
adjustment to 100 percent of the FY 2017 wage index. We calculated the
proposed occupational mix adjustment using data from the 2013
occupational mix survey data, using the methodology described in the FY
2012 IPPS/LTCH PPS final rule (76 FR 51582 through 51586).
Using the occupational mix survey data and applying the
occupational mix adjustment to 100 percent of the FY 2017 wage index
results in a proposed national average hourly wage of $41.0651.
Previously, we would also provide a Puerto Rico overall average hourly
wage. As discussed in section IV.A. of the preamble of this proposed
rule, prior to January 1, 2016, Puerto Rico hospitals were paid based
on 75 percent of the national standardized amount and 25 percent of the
Puerto Rico-specific standardized amount. As a result, we calculated a
Puerto Rico-specific wage index that was applied to the labor-related
share of the Puerto Rico-specific standardized amount. Section 601 of
the Consolidated Appropriations Act, 2016 (Pub. L. 114-113), enacted on
December 18, 2015, amended section 1886(d)(9)(E) of the Act to specify
that the payment calculation with respect to operating costs of
inpatient hospital services of a subsection (d) Puerto Rico hospital
for inpatient hospital discharges on or after January 1, 2016, shall
use 100 percent of the national standardized amount. Because Puerto
Rico hospitals are no longer paid with a Puerto Rico-specific
standardized amount as of January 1, 2016 under section 1886(d)(9)(E)
of the Act, as amended by section 601 of the Consolidated
Appropriations Act, 2016, there is no longer a need to calculate a
Puerto Rico-specific average hourly wage and wage index. Hospitals in
Puerto Rico are now paid 100 percent of the national standardized
amount and, therefore, are subject to the national average hourly wage
(adjusted for occupational mix) (which would be $41.0651 for this FY
2017 IPPS proposed rule) and the national wage index, which is applied
to the national labor share of the national standardized amount.
Accordingly, for FY 2017, we are not proposing a Puerto Rico-specific
overall average hourly wage or wage index.
The proposed FY 2017 national average hourly wages for each
occupational mix nursing subcategory as calculated in Step 2 of the
occupational mix calculation are as follows:

------------------------------------------------------------------------
Average hourly
Occupational mix nursing subcategory wage
------------------------------------------------------------------------
National RN........................................... $38.814164598
National LPN and Surgical Technician.................. 22.733613839
National Nurse Aide, Orderly, and Attendant........... 15.94875556
National Medical Assistant............................ 18.058859076
National Nurse Category............................... 32.844074591
------------------------------------------------------------------------

The proposed national average hourly wage for the entire nurse
category as computed in Step 5 of the occupational mix calculation is
$32.844074591. Hospitals with a nurse category average hourly wage (as
calculated in Step 4) of greater than the national nurse category
average hourly wage receive an occupational mix adjustment factor (as
calculated in Step 6) of less than 1.0. Hospitals with a nurse category
average hourly wage (as calculated in Step 4) of less than the national
nurse category average hourly wage receive an occupational mix
adjustment factor (as calculated in Step 6) of greater than 1.0.
Based on the 2013 occupational mix survey data, we determined (in
Step 7 of the occupational mix calculation) that the national
percentage of hospital employees in the nurse category is 42.6 percent,
and the national percentage of hospital employees in the all other
occupations category is 57.4 percent. At the CBSA level, the percentage
of hospital employees in the nurse category ranged from a low of 25.6
percent in one CBSA to a high of 80.5 percent in another CBSA.
We compared the proposed FY 2017 occupational mix adjusted wage
indexes for each CBSA to the proposed unadjusted wage indexes for each
CBSA. As a result of applying the occupational mix adjustment to the
wage data, the proposed wage index values for 221 (54.2 percent) urban
areas and 24 (51.1 percent) rural areas would increase. One hundred and
three (25.2 percent) urban areas would increase by greater than or
equal to 1 percent but less than 5 percent, and 6 (1.5 percent) urban
areas would increase by 5 percent or more. Nine (19.1 percent) rural
areas would increase by greater than or equal to 1 percent but less
than 5 percent, and no rural areas would increase by 5 percent or more.
However, the proposed

[[Page 25066]]

wage index values for 185 (45.3 percent) urban areas and 23 (48.9
percent) rural areas would decrease. Eighty-nine (21.8 percent) urban
areas would decrease by greater than or equal to 1 percent but less
than 5 percent, and no urban area would decrease by 5 percent or more.
Seven (14.9 percent) rural areas would decrease by greater than or
equal to 1 percent and less than 5 percent, and no rural areas would
decrease by 5 percent or more. The largest positive impacts would be
17.4 percent for an urban area and 2.9 percent for a rural area. The
largest negative impacts would be 4.9 percent for an urban area and 2.1
percent for a rural area. Two urban areas' wage indexes, but no rural
area wage indexes, would remain unchanged by application of the
proposed occupational mix adjustment. These results indicate that a
larger percentage of urban areas (54.2 percent) would benefit from the
proposed occupational mix adjustment than would rural areas (51.1
percent).

G. Transitional Wage Indexes

1. Background
In the FY 2015 IPPS/LTCH PPS proposed rule and final rule (79 FR
28060 and 49957, respectively), we stated that, overall, we believed
implementing the new OMB labor market area delineations would result in
wage index values being more representative of the actual costs of
labor in a given area. However, we recognized that some hospitals would
experience decreases in wage index values as a result of the
implementation of these new OMB labor market area delineations. We also
realized that some hospitals would have higher wage index values due to
the implementation of the new OMB labor market area delineations.
The FY 2015 IPPS/LTCH PPS final rule (79 FR 49957) explained the
methodology utilized in implementing prior transition periods when
adopting changes that have significant payment implications,
particularly large negative impacts. Specifically, for FY 2005, in the
FY 2005 IPPS final rule (69 FR 49032 through 49034), we provided
transitional wage indexes when the OMB definitions were implemented
after the 2000 Census. The FY 2015 IPPS/LTCH PPS final rule (79 FR
49957 through 49962) established similar transition methodologies to
mitigate any negative payment impacts experienced by hospitals due to
our adoption of the new OMB labor market area delineations for FY 2015.
As finalized in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957
through 49960) and as discussed below, for FY 2017, we will be in the
third and final year of two 3-year transition periods for wage index
(1) for hospitals that, for FY 2014, were located in an urban county
that became rural under the new OMB delineations, and had no form of
wage index reclassification or redesignation in place for FY 2015 (that
is, MGCRB reclassifications under section 1886(d)(10) of the Act,
redesignations under section 1886(d)(8)(B) of the Act, or rural
reclassifications under section 1886(d)(8)(E) of the Act); and (2) for
hospitals deemed urban under section 1886(d)(8)(B) of the Act where the
urban area became rural under the new OMB delineations.
2. Transition for Hospitals in Urban Areas That Became Rural
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 through
49959), for hospitals that, for FY 2014, were located in an urban
county that became rural under the new OMB delineations, and had no
form of wage index reclassification or redesignation in place for FY
2015 (that is, MGCRB reclassifications under section 1886(d)(10) of the
Act, redesignations under section 1886(d)(8)(B) of the Act, or rural
reclassifications under section 1886(d)(8)(E) of the Act), we adopted a
policy to assign them the urban wage index value of the CBSA in which
they were physically located for FY 2014 for a period of 3 fiscal years
(with the rural and imputed floors applied and with the rural floor
budget neutrality adjustment applied to the area wage index). FY 2017
will be the third year of this transition policy, and we are not
proposing any changes to this policy in this proposed rule. In the FY
2015 IPPS/LTCH PPS final rule (79 FR 49957) and the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49495), we stated our belief that it is
appropriate to apply a 3-year transition period for hospitals located
in urban counties that would become rural under the new OMB
delineations, given the potentially significant payment impacts for
these hospitals. We continue to believe that assigning the wage index
of the hospitals' FY 2014 area for a 3-year transition is the simplest
and most effective method for mitigating negative payment impacts due
to the adoption of the new OMB delineations.
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49959), we noted
that there were situations where a hospital could not be assigned the
wage index value of the CBSA in which it geographically was located in
FY 2014 because that CBSA split and no longer exists and some or all of
the constituent counties were added to another urban labor market area
under the new OMB delineations. If the hospital could not be assigned
the wage index value of the CBSA in which it was geographically located
in FY 2014 because that CBSA split apart and no longer exists, and some
or all of its constituent counties were added to another urban labor
market area under the new OMB delineations, we established that
hospitals located in such counties that became rural under the new OMB
delineations were assigned the wage index of the urban labor market
area that contained the urban county in their FY 2014 CBSA to which
they were closest (with the rural and imputed floors applied and with
the rural floor budget neutrality adjustment applied). Any such
assignment made in FY 2015 and continued in FY 2016 will continue for
FY 2017, except as discussed later in this section. We continue to
believe this approach minimizes the negative effects of the change in
the OMB delineations.
Under the policy adopted in the FY 2015 IPPS/LTCH PPS final rule,
if a hospital for FY 2014 was located in an urban county that became
rural for FY 2015 under the new OMB delineations and such hospital
sought and was granted reclassification or redesignation for FY 2015 or
FY 2016, or such hospital seeks and is granted any reclassification or
redesignation for FY 2017, the hospital will permanently lose its 3-
year transitional assigned wage index status, and will not be eligible
to reinstate it. We established the transition policy to assist
hospitals if they experience a negative payment impact specifically due
to the adoption of the new OMB delineations in FY 2015. If a hospital
chooses to forego this transition adjustment by obtaining some form of
reclassification or redesignation, we do not believe reinstatement of
this transition adjustment would be appropriate. The purpose of the
transition adjustment policy is to assist hospitals that may be
negatively impacted by the new OMB delineations in transitioning to a
wage index based on these delineations. By obtaining a reclassification
or redesignation, we believe that the hospital has made the
determination that the transition adjustment is not necessary because
it has other viable options for mitigating the impact of the transition
to the new OMB delineations.
As we did for FY 2015 (79 FR 49959) and FY 2016 (80 FR 49495), with
respect to the wage index computation for FY 2017, we will follow our
existing policy regarding the inclusion of a hospital's wage index data
in the CBSA in which it is geographically located (we

[[Page 25067]]

refer readers to Step 6 of the method for computing the unadjusted wage
index in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592)).
Accordingly, for FY 2017, the wage data of all hospitals receiving this
type of 3-year transition adjustment will be included in the statewide
rural area in which they are geographically located under the new OMB
labor market area delineations. After the 3-year transition period,
beginning in FY 2018, these formerly urban hospitals will receive their
statewide rural wage index, absent any reclassification or
redesignation.
In addition, we established in the FY 2015 IPPS/LTCH PPS final rule
(79 FR 49959) that the hospitals receiving this 3-year transition
because they are in counties that were urban under the FY 2014 CBSA
definitions, but are rural under the new OMB delineations, will not be
considered urban hospitals. Rather, they will maintain their status as
rural hospitals for other payment considerations. This is because our
application of a 3-year transitional wage index for these newly rural
hospitals only applies for the purpose of calculating the wage index
under our adoption of the new OMB delineations.
3. Transition for Hospitals Deemed Urban Under Section 1886(d)(8)(B) of
the Act Where the Urban Area Became Rural Under the New OMB
Delineations
As discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49959
through 49960) and FY 2016 IPPS/LTCH PPS final rule (80 FR 49495
through 49496), there were some hospitals that, for FY 2014, were
geographically located in rural areas but were deemed to be urban under
section 1886(d)(8)(B) of the Act. For FY 2015, some of these hospitals
redesignated under section 1886(d)(8)(B) of the Act were no longer
eligible for deemed urban status under the new OMB delineations, as
discussed in detail in section III.H.3. of the preamble of the FY 2015
IPPS/LTCH PPS final rule. Similar to the policy implemented in the FY
2005 IPPS final rule (69 FR 49059), and consistent with the FY 2015
policy we established for other hospitals in counties that were urban
and became rural under the new OMB delineations, we finalized a policy
to apply a 3-year transition to these hospitals redesignated to urban
areas under section 1886(d)(8)(B) of the Act for FY 2014 that are no
longer deemed urban under the new OMB delineations and revert to being
rural.
For FY 2017, we are not proposing any changes to this policy and
will continue the third and final year of the implementation of our
policy to provide a 3-year transition adjustment to hospitals that are
deemed urban under section 1886(d)(8)(B) of the Act under the FY 2014
labor market area delineations, but are considered rural under the new
OMB delineations, assuming no other form of wage index reclassification
or redesignation is granted. We assign these hospitals the area wage
index value of hospitals reclassified to the urban CBSA (that is, the
attaching wage index) to which they were redesignated in FY 2014 (with
the rural and imputed floors applied and with the rural floor budget
neutrality adjustment applied). If the hospital cannot be assigned the
reclassified wage index value of the CBSA to which it was redesignated
in FY 2014 because that CBSA was split apart and no longer exists, and
some or all of its constituent counties were added to another urban
labor market area under the new OMB delineations, such hospitals are
assigned the wage index of the hospitals reclassified to the urban
labor market area that contained the urban county in their FY 2014
redesignated CBSA to which they were closest. We assign these hospitals
the area wage index of hospitals reclassified to a CBSA because
hospitals deemed urban under section 1886(d)(8)(B) of the Act are
treated as reclassified under current policy, under which such
hospitals receive an area wage index that includes wage data of all
hospitals reclassified to the area. This wage index assignment will be
forfeited if the hospital obtains any form of wage index
reclassification or redesignation.
4. Budget Neutrality
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50372 through
50373), for FY 2015, and in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49496), for FY 2016, we applied the 3-year transition wage index
adjustments in a budget neutral manner. For FY 2017, we are proposing
to apply the 3-year transition adjustments in a budget neutral manner.
We are proposing to make an adjustment to the standardized amount to
ensure that the total payments, including the effect of the transition
provisions, would equal what payments would have been if we would not
be providing for any transitional wage indexes under the new OMB
delineations. For a complete discussion on the proposed budget
neutrality adjustment for FY 2017, we refer readers to section
II.A.4.b. of the Addendum to this proposed rule.

H. Proposed Application of the Proposed Rural, Imputed, and Frontier
Floors

1. Proposed Rural Floor
Section 4410(a) of Public Law 105-33 provides that, for discharges
on or after October 1, 1997, the area wage index applicable to any
hospital that is located in an urban area of a State may not be less
than the area wage index applicable to hospitals located in rural areas
in that State. This provision is referred to as the ``rural floor.''
Section 3141 of Public Law 111-148 also requires that a national budget
neutrality adjustment be applied in implementing the rural floor. Based
on the proposed FY 2017 wage index associated with this proposed rule
(which is available via the Internet on the CMS Web site), we estimated
that 371 hospitals would receive an increase in their FY 2017 proposed
wage index due to the application of the rural floor.
2. Proposed Imputed Floor for FY 2017
In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we
adopted the ``imputed floor'' policy as a temporary 3-year regulatory
measure to address concerns from hospitals in all-urban States that
have argued that they are disadvantaged by the absence of rural
hospitals to set a wage index floor for those States. Since its initial
implementation, we have extended the imputed floor policy six times,
the last of which was adopted in the FY 2016 IPPS/LTCH PPS final rule
and is set to expire on September 30, 2016. (We refer readers to
further discussions of the imputed floor in the FY 2014, FY 2015, and
FY 2016 IPPS/LTCH PPS final rules (78 FR 50589 through 50590, 79 FR
49969 through 49970, and 80 FR 49497 through 49498, respectively) and
to the regulations at 42 CFR 412.64(h)(4).) Currently, there are three
all-urban States--Delaware, New Jersey, and Rhode Island--with a range
of wage indexes assigned to hospitals in these States, including
through reclassification or redesignation. (We refer readers to
discussions of geographic reclassifications and redesignations in
section III.J. of the preamble of this proposed rule.)
In computing the imputed floor for an all-urban State under the
original methodology, which was established beginning in FY 2005, we
calculated the ratio of the lowest-to-highest CBSA wage index for each
all-urban State as well as the average of the ratios of lowest-to-
highest CBSA wage indexes of those all-urban States. We then compared
the State's own ratio to the average ratio for all-urban States and
whichever is higher is multiplied by the

[[Page 25068]]

highest CBSA wage index value in the State--the product of which
established the imputed floor for the State. As of FY 2012, there were
only two all-urban States--New Jersey and Rhode Island--and only New
Jersey benefitted under this methodology. Under the previous OMB labor
market area delineations, Rhode Island had only one CBSA (Providence-
New Bedford-Fall River, RI-MA) and New Jersey had 10 CBSAs. Therefore,
under the original methodology, Rhode Island's own ratio equaled 1.0,
and its imputed floor was equal to its original CBSA wage index value.
However, because the average ratio of New Jersey and Rhode Island was
higher than New Jersey's own ratio, this methodology provided a benefit
for New Jersey, but not for Rhode Island.
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through
53369), we retained the imputed floor calculated under the original
methodology as discussed above, and established an alternative
methodology for computing the imputed floor wage index to address the
concern that the original imputed floor methodology guaranteed a
benefit for one all-urban State with multiple wage indexes (New Jersey)
but could not benefit the other all-urban State (Rhode Island). The
alternative methodology for calculating the imputed floor was
established using data from the application of the rural floor policy
for FY 2013. Under the alternative methodology, we first determined the
average percentage difference between the post-reclassified, pre-floor
area wage index and the post-reclassified, rural floor wage index
(without rural floor budget neutrality applied) for all CBSAs receiving
the rural floor. (Table 4D associated with the FY 2013 IPPS/LTCH PPS
final rule (which is available via the Internet on the CMS Web site)
included the CBSAs receiving a State's rural floor wage index.) The
lowest post-reclassified wage index assigned to a hospital in an all-
urban State having a range of such values then is increased by this
factor, the result of which establishes the State's alternative imputed
floor. We amended Sec. 412.64(h)(4) of the regulations to add new
paragraphs to incorporate the finalized alternative methodology, and to
make reference and date changes. In summary, for the FY 2013 wage
index, we did not make any changes to the original imputed floor
methodology at Sec. 412.64(h)(4) and, therefore, made no changes to
the New Jersey imputed floor computation for FY 2013. Instead, for FY
2013, we adopted a second, alternative methodology for use in cases
where an all-urban State has a range of wage indexes assigned to its
hospitals, but the State cannot benefit under the original methodology.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through
50590), we extended the imputed floor policy (both the original
methodology and the alternative methodology) for 1 additional year,
through September 30, 2014, while we continued to explore potential
wage index reforms.
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49969 through
49970), for FY 2015, we adopted a policy to extend the imputed floor
policy (both the original methodology and alternative methodology) for
another year, through September 30, 2015, as we continued to explore
potential wage index reforms. In that final rule, we revised the
regulations at Sec. 412.64(h)(4) and (h)(4)(vi) to reflect the 1-year
extension of the imputed floor.
As discussed in section III.B. of the preamble of that FY 2015
final rule, we adopted the new OMB labor market area delineations
beginning in FY 2015. Under the new OMB delineations, Delaware became
an all-urban State, along with New Jersey and Rhode Island. Under the
new OMB delineations, Delaware has three CBSAs, New Jersey has seven
CBSAs, and Rhode Island continues to have only one CBSA (Providence-
Warwick, RI-MA). We refer readers to a detailed discussion of our
adoption of the new OMB labor market area delineations in section
III.B. of the preamble of the FY 2015 IPPS/LTCH PPS final rule.
Therefore, under the adopted new OMB delineations discussed in section
III.B. of the preamble of the FY 2015 IPPS/LTCH PPS final rule,
Delaware became an all-urban State and was subject to an imputed floor
as well for FY 2015.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49497 through
49498), for FY 2016, we extended the imputed floor policy (under both
the original methodology and the alternative methodology) for 1
additional year, through September 30, 2016. In that final rule, we
revised the regulations at Sec. 412.64(h)(4) and (h)(4)(vi) to reflect
this additional 1-year extension.
For FY 2017, we are proposing to extend the imputed floor policy
(under both the original methodology and the alternative methodology)
for 1 additional year, through September 30, 2017, while we continue to
explore potential wage index reforms. We are proposing to revise the
regulations at Sec. 412.64(h)(4) and (h)(4)(vi) to reflect this
proposed additional 1-year extension. We are inviting public comments
on the proposed additional 1-year extension of the imputed floor
through September 30, 2017. The wage index and impact tables associated
with this FY 2017 IPPS/LTCH PPS proposed rule (which are available on
the Internet via the CMS Web site) reflect the proposed continued
application of the imputed floor policy at Sec. 412.64(h)(4) and a
proposed national budget neutrality adjustment for the imputed floor
for FY 2017. There are 20 providers in New Jersey that would receive an
increase in their proposed FY 2017 wage index due to the proposed
continued application of the imputed floor policy under the original
methodology, and 10 hospitals in Rhode Island that would benefit under
the alternative methodology. No providers in Delaware would benefit
under the original methodology or the alternative methodology.
3. Proposed State Frontier Floor for FY 2017
Section 10324 of Public Law 111-148 requires that hospitals in
frontier States cannot be assigned a wage index of less than 1.0000 (we
refer readers to regulations at 42 CFR 412.64(m) and to a discussion of
the implementation of this provision in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50160 through 50161)). Fifty hospitals would receive the
frontier floor value of 1.0000 for their FY 2017 wage index in this
proposed rule. These hospitals are located in Montana, Nevada, North
Dakota, South Dakota, and Wyoming.
We are not proposing any changes to the frontier floor policy for
FY 2017.
The areas affected by the proposed rural, imputed, and frontier
floor policies for the proposed FY 2017 wage index are identified in
Table 2 associated with this proposed rule, which is available via the
Internet on the CMS Web site.

I. Proposed FY 2017 Wage Index Tables

In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49498 and 49807
through 49808), we finalized a proposal to streamline and consolidate
the wage index tables associated with the IPPS proposed and final rules
for FY 2016 and subsequent fiscal years. Prior to FY 2016, the wage
index tables had consisted of 12 tables (Tables 2, 3A, 3B, 4A, 4B, 4C,
4D, 4E, 4F, 4J, 9A, and 9C) that were made available via the Internet
on the CMS Web site. Effective beginning FY 2016, with the exception of
Table 4E, we streamlined and consolidated 11 tables (Tables 2, 3A, 3B,
4A, 4B, 4C, 4D, 4F, 4J, 9A, and 9C) into 2 tables (Tables 2 and 3). We
refer readers to section VI. of the Addendum to this proposed rule for
a discussion of

[[Page 25069]]

the proposed wage index tables for FY 2017.

J. Proposed Revisions to the Wage Index Based on Hospital
Redesignations and Reclassifications

1. General Policies and Effects of Reclassification and Redesignation
Under section 1886(d)(10) of the Act, the Medicare Geographic
Classification Review Board (MGCRB) considers applications by hospitals
for geographic reclassification for purposes of payment under the IPPS.
Hospitals must apply to the MGCRB to reclassify not later than 13
months prior to the start of the fiscal year for which reclassification
is sought (usually by September 1). Generally, hospitals must be
proximate to the labor market area to which they are seeking
reclassification and must demonstrate characteristics similar to
hospitals located in that area. The MGCRB issues its decisions by the
end of February for reclassifications that become effective for the
following fiscal year (beginning October 1). The regulations applicable
to reclassifications by the MGCRB are located in 42 CFR 412.230 through
412.280. (We refer readers to a discussion in the FY 2002 IPPS final
rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage
for purposes of the proximity requirements.) The general policies for
reclassifications and redesignations that we are proposing for FY 2017,
and the policies for the effects of hospitals' reclassifications and
redesignations on the wage index, are the same as those discussed in
the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index
(76 FR 51595 and 51596). In addition, in the FY 2012 IPPS/LTCH PPS
final rule, we discussed the effects on the wage index of urban
hospitals reclassifying to rural areas under 42 CFR 412.103. Hospitals
that are geographically located in States without any rural areas are
ineligible to apply for rural reclassification in accordance with the
provisions of 42 CFR 412.103.
2. MGCRB Reclassification and Redesignation Issues for FY 2017
a. FY 2017 Reclassification Requirements and Approvals
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. The specific procedures and rules that apply
to the geographic reclassification process are outlined in regulations
under 42 CFR 412.230 through 412.280.
At the time this proposed rule was constructed, the MGCRB had
completed its review of FY 2017 reclassification requests. Based on
such reviews, there are 299 hospitals approved for wage index
reclassifications by the MGCRB starting in FY 2017. Because MGCRB wage
index reclassifications are effective for 3 years, for FY 2017,
hospitals reclassified beginning in FY 2015 or FY 2016 are eligible to
continue to be reclassified to a particular labor market area based on
such prior reclassifications for the remainder of their 3-year period.
There were 302 hospitals approved for wage index reclassifications in
FY 2015 that will continue for FY 2017, and 266 hospitals approved for
wage index reclassifications in FY 2016 that will continue for FY 2017.
Of all the hospitals approved for reclassification for FY 2015, FY
2016, and FY 2017, based upon the review at the time of this proposed
rule, 867 hospitals are in a reclassification status for FY 2017.
Under the regulations at 42 CFR 412.273, hospitals that have been
reclassified by the MGCRB are permitted to withdraw their applications
within 45 days of the publication of a proposed rule. For information
about withdrawing, terminating, or canceling a previous withdrawal or
termination of a 3-year reclassification for wage index purposes, we
refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final rule
(66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR
50065 through 50066). Additional discussion on withdrawals and
terminations, and clarifications regarding reinstating
reclassifications and ``fallback'' reclassifications, were included in
the FY 2008 IPPS final rule (72 FR 47333).
Changes to the wage index that result from withdrawals of requests
for reclassification, terminations, wage index corrections, appeals,
and the Administrator's review process for FY 2017 will be incorporated
into the wage index values published in the FY 2017 IPPS/LTCH PPS final
rule. These changes affect not only the wage index value for specific
geographic areas, but also the wage index value that redesignated/
reclassified hospitals receive; that is, whether they receive the wage
index that includes the data for both the hospitals already in the area
and the redesignated/reclassified hospitals. Further, the wage index
value for the area from which the hospitals are redesignated/
reclassified may be affected.
b. Requirements for FY 2018 Applications and Proposed Revisions
Regarding Paper Application Requirements
Applications for FY 2018 reclassifications are due to the MGCRB by
September 1, 2016 (the first working day of September 2016). We note
that this is also the deadline for canceling a previous wage index
reclassification withdrawal or termination under 42 CFR 412.273(d).
Applications and other information about MGCRB reclassifications may be
obtained, beginning in mid-July 2016, via the Internet on the CMS Web
site at https://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html, or by calling the MGCRB at (410) 786-1174. The
mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L,
Baltimore, MD 21244-2670.
Under existing regulations at 42 CFR 412.256(a)(1), applications
for reclassification must be mailed or delivered to the MGCRB, with a
copy to CMS, and may not be submitted through the facsimile (FAX)
process or by other electronic means. While existing regulations
exclusively require paper applications, we believe this policy to be
outdated and overly restrictive. Therefore, to promote ease of
application for FY 2018 and subsequent years, we are proposing to
revise this policy to require applications and supporting documentation
to be submitted via the method prescribed in instructions by the MGCRB,
with an electronic copy to CMS. Therefore, we are proposing to revise
Sec. 412.256(a)(1) to specify that an application must be submitted to
the MGCRB according to the method prescribed by the MGCRB, with an
electronic copy of the application sent to CMS. We are specifying that
CMS copies should be sent via email to [email protected]. We are
inviting public comments on this proposal.
c. Other Policy Regarding Reclassifications for Terminated Hospitals
Under longstanding CMS policy, if a hospital that has an approved
reclassification by the MGCRB terminates its CMS certification number
(CCN), we terminate the reclassification status for that hospital when
calculating the wage index, because the CCN is no longer active, and
because the MGCRB makes its reclassification decisions based on CCNs.
We believe this policy results in more accurate reclassifications when
compiling CBSA labor market wage data, as it is often the case that

[[Page 25070]]

hospitals that have terminated their CCNs have also terminated
operations, and can no longer make timely and informed decisions
regarding reclassification statuses, which could have ramifications for
various wage index floors and labor market values.
However, as discussed in response to a comment in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49499 through 49500), in the case of a
merger or acquisition where the acquiring hospital accepted the
Medicare provider agreement of the acquired hospital located in a
different market area that has an existing MGCRB reclassification, we
do believe that the acquiring hospital should be able to make
determinations regarding the reclassification status of the subordinate
campus. While the original CCN for the acquired hospital would be
considered terminated or ``tied out'' by CMS, in the specific
situations where a hospital merges with or acquires another hospital
located in a different labor market area to create a ``multicampus''
hospital and accepts the Medicare provider agreement of the acquired
hospital, the reclassification status of the subordinate campus remains
in effect. The acquired campus (that is, the hospital whose CCN is no
longer active) may continue to receive its previously approved
reclassification status, and the acquiring hospital is authorized to
make timely requests to terminate, withdraw, or reinstate any
reclassification for the subordinate campus for any remaining years of
the reclassification. We believe this policy is consistent with
existing regulations regarding reclassification status of
``multicampus'' hospitals at Sec. 412.230(d)(2)(v). Hospitals should
take care to review their status on Table 2 associated with this
proposed rule (which is available via the Internet on the CMS Web site)
and notify CMS if they believe a reclassification for a hospital was
mistakenly terminated by CMS.
3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B)(i) of the Act requires the Secretary to treat
a hospital located in a rural county adjacent to one or more urban
areas as being located in the urban MSA to which the greatest number of
workers in the county commute if certain adjacency and commuting
criteria are met. The criteria utilize standards for designating MSAs
published in the Federal Register by the Director of the Office of
Management and Budget (OMB) based on the most recently available
decennial population data. Effective beginning FY 2015, we use the OMB
delineations based on the 2010 Decennial Census data to identify
counties in which hospitals qualify under section 1886(d)(8)(B) of the
Act to receive the wage index of the urban area. Hospitals located in
these counties are referred to as ``Lugar'' hospitals and the counties
themselves are often referred to as ``Lugar'' counties. The chart for
this FY 2017 proposed rule with the listing of the rural counties
containing the hospitals designated as urban under section
1886(d)(8)(B) of the Act is available via the Internet on the CMS Web
site.
In an interim final rule with comment period (IFC) (CMS-1664-IFC)
that appeared elsewhere in this issue of the Federal Register, CMS made
regulatory changes in order to implement the decisions in Geisinger
Community Medical Center v. Secretary, United States Department of
Health and Human Services, 794 F.3d 383 (3d Cir. 2015) and Lawrence +
Memorial Hospital v. Burwell, No. 15-164, 2016 WL 423702 (2d Cir. Feb.
4, 2015) in a nationally consistent manner. Specifically, the IFC
revises the regulations at Sec. 412.230(a)(5)(ii) and removes the
regulatory provision at Sec. 412.230(a)(5)(iii) to allow hospitals
nationwide to reclassify based on their acquired rural status,
effective with reclassifications beginning with FY 2018. The IFC also
gives hospitals with an existing MGCRB reclassification the opportunity
to seek rural reclassification for IPPS payment and other purposes
under Sec. 412.103 and keep their existing MGCRB reclassification.
As a consequence of the regulatory changes in the IFC that allow a
hospital to have more than one reclassification simultaneously, we are
clarifying in this proposed rule that a hospital with Lugar status may
simultaneously receive an urban to rural reclassification under Sec.
412.103. The IFC provides that when there is both a Sec. 412.103
reclassification and an MGCRB reclassification, the MGCRB
reclassification controls for wage index calculation and payment
purposes (the IFC can be downloaded from the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/IPPS-Regulations-and-Notices.html). Similarly, in
this proposed rule, we are clarifying that we are treating the wage
data of hospitals with simultaneous Lugar status and Sec. 412.103
reclassification as Lugar for wage index calculation and wage index
payment purposes. We believe it is appropriate to apply a similar
policy for simultaneous MGCRB reclassification and Sec. 412.103
reclassifications, and simultaneous Lugar and Sec. 412.103
reclassifications, because CMS treats Lugar status as a
reclassification for purposes of calculating the wage index in
accordance with section 1886(d)(8)(C)(iii) of the Act. (Section
1886(d)(8)(C)(iii) of the Act states that the application of section
1886(d)(8)(B) of the Act or a decision of the MGCRB or the Secretary
under section 1886(d)(10) of the Act may not result in the reduction of
any county's wage index to a level below the wage index for rural areas
in the State in which the county is located.) The wage index associated
with the Lugar status, and not the wage index associated with the Sec.
412.103 reclassification, is reflected accordingly in Table 2
associated with this proposed rule (which is available via the Internet
on the CMS Web site). We note that, for payment purposes other than the
wage index, a hospital with simultaneous Sec. 412.103 status and Lugar
reclassification receives payment as a rural hospital.
4. Waiving Lugar Redesignation for the Out-Migration Adjustment
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through
51600), we adopted the policy that, beginning with FY 2012, an eligible
hospital that waives its Lugar status in order to receive the out-
migration adjustment has effectively waived its deemed urban status
and, thus, is rural for all purposes under the IPPS, including being
considered rural for the DSH payment adjustment, effective for the
fiscal year in which the hospital receives the out-migration
adjustment. (We refer readers to a discussion of DSH payment adjustment
under section IV.F. of the preamble of this proposed rule.)
In addition, we adopted a minor procedural change in that rule that
allows a Lugar hospital that qualifies for and accepts the out-
migration adjustment (through written notification to CMS within 45
days from the publication of the proposed rule) to waive its urban
status for the full 3-year period for which its out-migration
adjustment is effective. By doing so, such a Lugar hospital would no
longer be required during the second and third years of eligibility for
the out-migration adjustment to advise us annually that it prefers to
continue being treated as rural and receive the out-migration
adjustment. Therefore, under the procedural change, a Lugar hospital
that requests to waive its urban status in order to receive the rural
wage index in addition to the out-migration adjustment would be deemed
to have accepted the out-migration adjustment and agrees to be treated
as rural for the duration of its 3-year eligibility period, unless,
prior to its second or third year

[[Page 25071]]

of eligibility, the hospital explicitly notifies CMS in writing, within
the required period (generally 45 days from the publication of the
proposed rule), that it instead elects to return to its deemed urban
status and no longer wishes to accept the out-migration adjustment. If
the hospital does notify CMS that it is electing to return to its
deemed urban status, it would again be treated as urban for all IPPS
payment purposes.
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51599 through 51600) for a detailed discussion of the policy and
process for waiving Lugar status for the out-migration adjustment.

K. Proposed Out-Migration Adjustment Based on Commuting Patterns of
Hospital Employees for FY 2017

In accordance with section 1886(d)(13) of the Act, as added by
section 505 of Public Law 108-173, beginning with FY 2005, we
established a process to make adjustments to the hospital wage index
based on commuting patterns of hospital employees (the ``out-
migration'' adjustment). The process, outlined in the FY 2005 IPPS
final rule (69 FR 49061), provides for an increase in the wage index
for hospitals located in certain counties that have a relatively high
percentage of hospital employees who reside in the county but work in a
different county (or counties) with a higher wage index.
Section 1886(d)(13)(B) of the Act requires the Secretary to use
data the Secretary determines to be appropriate to establish the
qualifying counties. When the provision of section 1886(d)(13) of the
Act was implemented for the FY 2005 wage index, we analyzed commuting
data compiled by the U.S. Census Bureau that were derived from a
special tabulation of the 2000 Census journey-to-work data for all
industries (CMS extracted data applicable to hospitals). These data
were compiled from responses to the ``long-form'' survey, which the
Census Bureau used at the time and which contained questions on where
residents in each county worked (69 FR 49062). However, the 2010 Census
was ``short form'' only; information on where residents in each county
worked was not collected as part of the 2010 Census. The Census Bureau
worked with CMS to provide an alternative dataset based on the latest
available data on where residents in each county worked in 2010, for
use in developing a new out-migration adjustment based on new commuting
patterns developed from the 2010 Census data beginning with FY 2016.
To determine the out-migration adjustments and applicable counties
for FY 2016, we analyzed commuting data compiled by the Census Bureau
that were derived from a custom tabulation of the American Community
Survey (ACS), an official Census Bureau survey, utilizing 2008 through
2012 (5-Year) Microdata. The data were compiled from responses to the
ACS questions regarding the county where workers reside and the county
to which workers commute. As we discussed in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49501), the same policies, procedures, and
computation that were used for the FY 2012 out-migration adjustment
were applicable for FY 2016, and we are proposing to use them again for
FY 2017. We have applied the same policies, procedures, and
computations since FY 2012, and we believe they continue to be
appropriate for FY 2017. We refer readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49500 through 49502) for a full explanation of the
revised data source.
For FY 2017, until such time that CMS finalizes out-migration
adjustments based on the next Census, the out-migration adjustment
continues to be based on the data derived from the custom tabulation of
the ACS utilizing 2008 through 2012 (5-Year) Microdata. For FY 2017, we
are not proposing any changes to the methodology or data source that we
used for FY 2016. (We refer readers to a full discussion of the out-
migration adjustment, including rules on deeming hospitals reclassified
under section 1886(d)(8) or section 1886(d)(10) of the Act to have
waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51601 through 51602).) Table 2 associated with this
proposed rule (which is available via the Internet on the CMS Web site)
includes the proposed out-migration adjustments for the FY 2017 wage
index.

L. Notification Regarding Proposed CMS ``Lock-In'' Date for Urban to
Rural Reclassifications Under Sec. 412.103

Under section 1886(d)(8)(E) of the Act, a qualifying prospective
payment hospital located in an urban area may apply for rural status
for payment purposes separate from reclassification through the MGCRB.
Specifically, section 1886(d)(8)(E) of the Act provides that, not later
than 60 days after the receipt of an application (in a form and manner
determined by the Secretary) from a subsection (d) hospital that
satisfies certain criteria, the Secretary shall treat the hospital as
being located in the rural area (as defined in paragraph (2)(D)) of the
State in which the hospital is located. We refer readers to the
regulations at 42 CFR 412.103 for the general criteria and application
requirements for a subsection (d) hospital to reclassify from urban to
rural status in accordance with section 1886(d)(8)(E) of the Act. The
FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes
our policies regarding the effect of wage data from reclassified or
redesignated hospitals.
Hospitals must meet the criteria to be reclassified from urban to
rural status under Sec. 412.103, as well as fulfill the requirements
for the application process. However, under existing Sec. 412.103(b),
there is no timeframe requirement as to when hospitals must apply for
the urban to rural reclassification. Therefore, a hospital can apply
for the urban to rural reclassification at any time, and under Sec.
412.103(d), the effective date of the hospital's rural status, once
approved, is the filing date of the application.
There may be one or more reasons that a hospital applies for the
urban to rural reclassification, and the timeframe that a hospital
submits an application is often dependent on those reason(s). Because
there are no timeframes for when a hospital must submit its application
under Sec. 412.103, it is the hospital's prerogative as to when it
files the application with the CMS Regional Office. Because the wage
index is part of the methodology for determining the prospective
payments to hospitals for each fiscal year, we believe there should be
a definitive timeframe within which a hospital should apply for rural
status in order for the reclassification to be reflected in the next
Federal fiscal year's wage data used for setting payment rates. As
hospitals are aware, the IPPS ratesetting process that CMS undergoes
each proposed and final rulemaking is complex and labor-intensive, and
subject to a compressed timeframe in order to issue the final rule each
year within the timeframes for publication. Accordingly, CMS must
ensure that it receives, in a timely fashion, the necessary data,
including, but not limited to, the list of hospitals that are
reclassified from urban to rural status under Sec. 412.103, in order
to calculate the wage indexes and other IPPS rates.
Therefore, in this proposed rule, we are proposing a date by when
we would ``lock in'' the list of hospitals that are reclassified from
urban to rural status under Sec. 412.103 in order to include them in
the upcoming Federal fiscal year's wage index calculation provided for
at Sec. 412.64(h) and budget neutrality calculations provided for at

[[Page 25072]]

Sec. Sec. 412.64(e)(1)(ii), (e)(2), and (e)(4) that are part of the
ratesetting process). The ratesetting process is described in the
Addendum of the annual proposed and final rules and includes the budget
neutrality adjustments in accordance with the regulations at Sec. Sec.
412.64(e)(1)(ii), (e)(2), and (e)(4), as well as adjustments for
differences in area wage levels provided for at Sec. 412.64(h). We
believe that this proposal would introduce additional transparency and
predictability regarding the timing of accounting for urban or rural
status in the IPPS ratesetting each Federal fiscal year. We are
proposing that this date for ``locking in'' the list of hospitals with
rural status achieved under Sec. 412.103 would be the second Monday in
June of each year. Therefore, if a hospital is applying for an urban to
rural reclassification under Sec. 412.103 for the purpose and
expectation that its rural status be reflected in the wage index and
budget neutrality calculations for setting payment rates for the next
Federal fiscal year, the hospital would need to file its application
with the CMS Regional Office not later than 70 days prior to the second
Monday in June. Because, under 412.103(c), the CMS Regional Office must
notify the hospital of its approval or disapproval of the application
within 60 days of the hospital's filing date (the date it is received
by the CMS Regional Office, in accordance with Sec. 412.103(b)(5)), we
would expect that the extra 10 days would provide the CMS Regional
Office with sufficient processing and administrative time to notify the
CMS Central Office of the reclassification status of the applications
by the second Monday in June of each year. This is the latest date that
CMS would need the information in order to ensure that reclassified
hospitals would be included as such in the wage index and budget
neutrality calculations for setting payment rates for the next Federal
fiscal year. This does not preclude a hospital from applying for
reclassification under Sec. 412.103 earlier or later than the proposed
deadline. Nor does the proposed deadline change the fact that the rural
reclassification is effective as of its filing date, in accordance with
Sec. 412.103(d). However, in order to ensure that a reclassification
is reflected in the wage index and budget neutrality calculations for
setting payment rates for the next Federal fiscal year, applications
must be received by the CMS Regional Office (the filing date) by no
later than 70 days prior to the second Monday in June of each year. If
the CMS Central Office is informed of a reclassification status after
the second Monday in June, for wage index and budget neutrality
purposes, the reclassification would not be reflected in the payment
rates until the following Federal fiscal year; that is, the Federal
fiscal year following the next Federal fiscal year. We are proposing to
revise Sec. 412.103(b) by adding a new paragraph (6) to incorporate
this proposed policy. Proposed Sec. 412.103(b)(6) would specify that
in order for a hospital to be treated as rural in the wage index and
budget neutrality calculations under Sec. Sec. 412.64(e)(1)(ii),
(e)(2), (e)(4), and (h) for payment rates for the next Federal fiscal
year, the hospital's filing date must be no later than 70 days prior to
the second Monday in June of the current Federal fiscal year and the
application must be approved by the CMS Regional Office in accordance
with the requirements of Sec. 412.103.

M. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data files for the
proposed FY 2017 wage index were made available on May 15, 2015, and
the preliminary CY 2013 occupational mix data files on May 15, 2015,
through the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html.
On January 29, 2016, we posted a public use file (PUF) at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html containing FY 2017 wage index data available as of January
28, 2016. This PUF contains a tab with the Worksheet S-3 wage data
(which includes Worksheet S-3, Parts II and III wage data from cost
reporting periods beginning on or after October l, 2012 through
September 30, 2013; that is, FY 2013 wage data), a tab with the
occupational mix data (which includes data from the CY 2013
occupational mix survey, Form CMS-10079), and new for FY 2017, a tab
containing the Worksheet S-3 wage data of hospitals deleted from the
January 29, 2016 wage data PUF and a tab containing the CY 2013
occupational mix data (if any) of the hospitals deleted from the
January 29, 2016 wage data PUF. In a memorandum dated January 21, 2016,
we instructed all MACs to inform the IPPS hospitals that they service
of the availability of the January 29, 2016 wage index data PUFs, and
the process and timeframe for requesting revisions in accordance with
the FY 2017 Wage Index Timetable.
In the interest of meeting the data needs of the public, beginning
with the proposed FY 2009 wage index, we post an additional PUF on our
Web site that reflects the actual data that are used in computing the
proposed wage index. The release of this file does not alter the
current wage index process or schedule. We notify the hospital
community of the availability of these data as we do with the current
public use wage data files through our Hospital Open Door Forum. We
encourage hospitals to sign up for automatic notifications of
information about hospital issues and about the dates of the Hospital
Open Door Forums at the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
In a memorandum dated April 30, 2015, we instructed all MACs to
inform the IPPS hospitals that they service of the availability of the
wage index data files and the process and timeframe for requesting
revisions (including the specific deadlines listed later in this
section). We also instructed the MACs to advise hospitals that these
data were also made available directly through their representative
hospital organizations.
If a hospital wished to request a change to its data as shown in
May 15, 2015 wage data files and May 15, 2015 occupational mix data
files, the hospital was to submit corrections along with complete,
detailed supporting documentation to its MAC by September 2, 2015.
Hospitals were notified of this deadline and of all other deadlines and
requirements, including the requirement to review and verify their data
as posted in the preliminary wage index data files on the Internet,
through the letters sent to them by their MACs.
November 4, 2015 was the date by when MACs notified State hospital
associations regarding hospitals that failed to respond to issues
raised during the desk reviews. The MACs notified the hospitals by mid-
January 2016 of any changes to the wage index data as a result of the
desk reviews and the resolution of the hospitals' revision requests.
The MACs also submitted the revised data to CMS by January 22, 2016.
CMS published the proposed wage index PUFs that included hospitals'
revised wage index data on January 29, 2016. Hospitals had until
February 16, 2016, to submit requests to the MACs for reconsideration
of adjustments made by the MACs as a result of the desk review, and to
correct errors due to CMS' or the MAC's mishandling of the wage index
data. Hospitals also were required to submit

[[Page 25073]]

sufficient documentation to support their requests.
After reviewing requested changes submitted by hospitals, MACs were
required to transmit to CMS any additional revisions resulting from the
hospitals' reconsideration requests by March 24, 2016. The deadline for
a hospital to request CMS intervention in cases where a hospital
disagreed with a MAC's policy interpretation was April 5, 2016. We note
that, as we did for the FY 2016 wage index, for the FY 2017 wage index,
in accordance with the FY 2017 wage index timeline posted on the CMS
Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html, the April appeals have to be sent via mail and email.
We refer readers to the wage index timeline for complete details.
Hospitals are given the opportunity to examine Table 2, which is
listed in section VI. of the Addendum to this proposed rule and
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html. Table 2 contains each
hospital's proposed adjusted average hourly wage used to construct the
wage index values for the past 3 years, including the FY 2013 data used
to construct the proposed FY 2017 wage index. We note that the proposed
hospital average hourly wages shown in Table 2 only reflect changes
made to a hospital's data that were transmitted to CMS by late February
2016.
We plan to post the final wage index data PUFs in late April 2016
on the Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html. The April 2016 PUFs are made available solely for
the limited purpose of identifying any potential errors made by CMS or
the MAC in the entry of the final wage index data that resulted from
the correction process previously described (revisions submitted to CMS
by the MACs by March 24, 2016).
After the release of the April 2016 wage index data PUFs, changes
to the wage and occupational mix data can only be made in those very
limited situations involving an error by the MAC or CMS that the
hospital could not have known about before its review of the final wage
index data files. Specifically, neither the MAC nor CMS will approve
the following types of requests:
Requests for wage index data corrections that were
submitted too late to be included in the data transmitted to CMS by the
MACs on or before March 24, 2016.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the January 29,
2016 wage index PUFs.
Requests to revisit factual determinations or policy
interpretations made by the MAC or CMS during the wage index data
correction process.
If, after reviewing the April 2016 final wage index data PUFs, a
hospital believes that its wage or occupational mix data were incorrect
due to a MAC or CMS error in the entry or tabulation of the final data,
the hospital is given the opportunity to notify both its MAC and CMS
regarding why the hospital believes an error exists and provide all
supporting information, including relevant dates (for example, when it
first became aware of the error). The hospital is required to send its
request to CMS and to the MAC no later than May 23, 2016. Similar to
the April appeals, beginning with the FY 2015 wage index, in accordance
with the FY 2017 wage index timeline posted on the CMS Web site at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home.html,
the May appeals must be sent via mail and email to CMS and the MACs. We
refer readers to the wage index timeline for complete details.
Verified corrections to the wage index data received timely by CMS
and the MACs (that is, by May 23, 2016) will be incorporated into the
final FY 2017 wage index, which will be effective October 1, 2016.
We created the processes previously described to resolve all
substantive wage index data correction disputes before we finalize the
wage and occupational mix data for the FY 2017 payment rates.
Accordingly, hospitals that do not meet the procedural deadlines set
forth above will not be afforded a later opportunity to submit wage
index data corrections or to dispute the MAC's decision with respect to
requested changes. Specifically, our policy is that hospitals that do
not meet the procedural deadlines set forth above will not be permitted
to challenge later, before the PRRB, the failure of CMS to make a
requested data revision. We refer readers also to the FY 2000 IPPS
final rule (64 FR 41513) for a discussion of the parameters for appeals
to the PRRB for wage index data corrections.
Again, we believe the wage index data correction process described
earlier provides hospitals with sufficient opportunity to bring errors
in their wage and occupational mix data to the MAC's attention.
Moreover, because hospitals have access to the final wage index data
PUFs by late April 2016, they have the opportunity to detect any data
entry or tabulation errors made by the MAC or CMS before the
development and publication of the final FY 2017 wage index by August
2016, and the implementation of the FY 2017 wage index on October 1,
2016. Given these processes, the wage index implemented on October 1
should be accurate. Nevertheless, in the event that errors are
identified by hospitals and brought to our attention after May 23,
2016, we retain the right to make midyear changes to the wage index
under very limited circumstances.
Specifically, in accordance with 42 CFR 412.64(k)(1) of our
regulations, we make midyear corrections to the wage index for an area
only if a hospital can show that: (1) The MAC or CMS made an error in
tabulating its data; and (2) the requesting hospital could not have
known about the error or did not have an opportunity to correct the
error, before the beginning of the fiscal year. For purposes of this
provision, ``before the beginning of the fiscal year'' means by the May
deadline for making corrections to the wage data for the following
fiscal year's wage index (for example, May 23, 2016 for the FY 2017
wage index). This provision is not available to a hospital seeking to
revise another hospital's data that may be affecting the requesting
hospital's wage index for the labor market area. As indicated earlier,
because CMS makes the wage index data available to hospitals on the CMS
Web site prior to publishing both the proposed and final IPPS rules,
and the MACs notify hospitals directly of any wage index data changes
after completing their desk reviews, we do not expect that midyear
corrections will be necessary. However, under our current policy, if
the correction of a data error changes the wage index value for an
area, the revised wage index value will be effective prospectively from
the date the correction is made.
In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and
47485), we revised 42 CFR 412.64(k)(2) to specify that, effective on
October 1, 2005, that is, beginning with the FY 2006 wage index, a
change to the wage index can be made retroactive to the beginning of
the Federal fiscal year only when CMS determines all of the following:
(1) The MAC or CMS made an error in tabulating data used for the wage
index calculation; (2) the hospital knew about

[[Page 25074]]

the error and requested that the MAC and CMS correct the error using
the established process and within the established schedule for
requesting corrections to the wage index data, before the beginning of
the fiscal year for the applicable IPPS update (that is, by the May 23,
2016 deadline for the FY 2017 wage index); and (3) CMS agreed before
October 1 that the MAC or CMS made an error in tabulating the
hospital's wage index data and the wage index should be corrected.
In those circumstances where a hospital requested a correction to
its wage index data before CMS calculated the final wage index (that
is, by the May 23, 2016 deadline for the FY 2017 wage index), and CMS
acknowledges that the error in the hospital's wage index data was
caused by CMS' or the MAC's mishandling of the data, we believe that
the hospital should not be penalized by our delay in publishing or
implementing the correction. As with our current policy, we indicated
that the provision is not available to a hospital seeking to revise
another hospital's data. In addition, the provision cannot be used to
correct prior years' wage index data; and it can only be used for the
current Federal fiscal year. In situations where our policies would
allow midyear corrections other than those specified in 42 CFR
412.64(k)(2)(ii), we continue to believe that it is appropriate to make
prospective-only corrections to the wage index.
We note that, as with prospective changes to the wage index, the
final retroactive correction will be made irrespective of whether the
change increases or decreases a hospital's payment rate. In addition,
we note that the policy of retroactive adjustment will still apply in
those instances where a final judicial decision reverses a CMS denial
of a hospital's wage index data revision request.

N. Proposed Labor Market Share for the Proposed FY 2017 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust
the proportion of the national prospective payment system base payment
rates that are attributable to wages and wage-related costs by a factor
that reflects the relative differences in labor costs among geographic
areas. It also directs the Secretary to estimate from time to time the
proportion of hospital costs that are labor-related and to adjust the
proportion (as estimated by the Secretary from time to time) of
hospitals' costs which are attributable to wages and wage-related costs
of the DRG prospective payment rates. We refer to the portion of
hospital costs attributable to wages and wage-related costs as the
labor-related share. The labor-related share of the prospective payment
rate is adjusted by an index of relative labor costs, which is referred
to as the wage index.
Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of
the Act to provide that the Secretary must employ 62 percent as the
labor-related share unless this would result in lower payments to a
hospital than would otherwise be made. However, this provision of
Public Law 108-173 did not change the legal requirement that the
Secretary estimate from time to time the proportion of hospitals' costs
that are attributable to wages and wage-related costs. Thus, hospitals
receive payment based on either a 62-percent labor-related share, or
the labor-related share estimated from time to time by the Secretary,
depending on which labor-related share resulted in a higher payment.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50596 through
50607), we rebased and revised the hospital market basket. We
established a FY 2010-based IPPS hospital market basket to replace the
FY 2006-based IPPS hospital market basket, effective October 1, 2013.
In that final rule, we presented our analysis and conclusions regarding
the frequency and methodology for updating the labor-related share for
FY 2014. Using the FY 2010-based IPPS market basket, we finalized a
labor-related share for FY 2014, FY 2015, and FY 2016 of 69.6 percent.
In addition, in FY 2014, we implemented this revised and rebased labor-
related share in a budget neutral manner (78 FR 51016). However,
consistent with section 1886(d)(3)(E) of the Act, we did not take into
account the additional payments that would be made as a result of
hospitals with a wage index less than or equal to 1.0000 being paid
using a labor-related share lower than the labor-related share of
hospitals with a wage index greater than 1.0000.
The labor-related share is used to determine the proportion of the
national IPPS base payment rate to which the area wage index is
applied. In this proposed rule, for FY 2017, we are not proposing to
make any further changes to the national average proportion of
operating costs that are attributable to wages and salaries, employee
benefits, contract labor, the labor-related portion of professional
fees, administrative and facilities support services, and all other
labor-related services. Therefore, for FY 2017, we are proposing to
continue to use a labor-related share of 69.6 percent for discharges
occurring on or after October 1, 2016.
As discussed in section IV.A of the preamble of this proposed rule,
prior to January 1, 2016, Puerto Rico hospitals were paid based on 75
percent of the national standardized amount and 25 percent of the
Puerto Rico-specific standardized amount. As a result, we applied the
Puerto Rico-specific labor-related share percentage and nonlabor-
related share percentage to the Puerto Rico-specific standardized
amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub.
L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that
the payment calculation with respect to operating costs of inpatient
hospital services of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after January 1, 2016, shall use
100 percent of the national standardized amount. Because Puerto Rico
hospitals are no longer paid with a Puerto Rico-specific standardized
amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as
amended by section 601 of the Consolidated Appropriations Act, 2016,
there is no longer a need for us to calculate a Puerto Rico-specific
labor-related share percentage and nonlabor-related share percentage
for application to the Puerto Rico-specific standardized amount.
Hospitals in Puerto Rico are now paid 100 percent of the national
standardized amount and, therefore, are subject to the national labor-
related share and nonlabor-related share percentages that are applied
to the national standardized amount. Accordingly, for FY 2017, we are
not proposing a Puerto Rico-specific labor-related share percentage or
a nonlabor-related share percentage.
Tables 1A and 1B, which are published in section VI. of the
Addendum to this FY 2017 IPPS/LTCH PPS proposed rule and available via
the Internet on the CMS Web site, reflect the proposed national labor-
related share, which is also applicable to Puerto Rico hospitals. For
FY 2017, for all IPPS hospitals (including Puerto Rico hospitals) whose
wage indexes are less than or equal to 1.0000, we are proposing to
apply the wage index to a labor-related share of 62 percent of the
national standardized amount. For all IPPS hospitals (including Puerto
Rico hospitals) whose wage indexes are greater than 1.000, for FY 2017,
we are proposing to apply the wage index to a proposed labor-related
share of 69.6 percent of the national standardized amount.

[[Page 25075]]

O. Solicitation of Comments on Treatment of Overhead and Home Office
Costs in the Wage Index Calculation

Section III.D. of the preamble of this proposed rule states that
the method used to compute the proposed FY 2017 wage index without an
occupational mix adjustment follows the same methodology that we used
to compute the FY 2012, FY 2013, FY 2014, FY 2015, and FY 2016 final
wage indexes without an occupational mix adjustment (76 FR 51591
through 51593, 77 FR 53366 through 53367, 78 FR 50587 through 50588, 79
FR 49967, and 80 FR 49491 through 49492, respectively).
As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592),
in ``Step 4'' of the calculation of the unadjusted wage index, for each
hospital reporting both total overhead salaries and total overhead
hours greater than zero, we allocate overhead costs to areas of the
hospital excluded from the wage index calculation. We also compute the
amounts of overhead wage-related costs to be allocated to excluded
areas. Finally, we subtract the computed overhead salaries, overhead
wage-related costs, and hours associated with excluded areas from the
total salaries (plus allowable wage-related costs) and hours derived in
``Steps 2 and 3'' of the calculation of the unadjusted wage index. (We
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592) for
a description of the calculation of the unadjusted wage index.) We
first began to remove from the wage index the overhead salaries and
hours allocated to excluded areas beginning with the FY 1999 wage index
calculation (63 FR 40971 and 40972). Beginning with the FY 2002 wage
index calculation, we estimated and removed overhead wage-related costs
allocated to excluded areas in addition to removing overhead salaries
and hours allocated to excluded areas (66 FR 39863 and 39864). We began
to estimate and remove overhead wage-related costs associated with
excluded areas because we realized that without doing so, the formula
resulted in large and inappropriate increases in the average hourly
wages of some hospitals, particularly hospitals with large overhead and
excluded area costs. These findings led us to believe that not all
hospitals were fully or consistently allocating their overhead salaries
among the lines on Worksheet S-3, Part II, of the hospital cost report
for allowable wage-related costs (Worksheet S-3, Part II, lines 13 and
14 on CMS Form 2552-96, and lines 17 and 18 on CMS Form 2552-10), and
nonallowable wage-related costs associated with excluded areas
(Worksheet S-3, Part II, line 15 on CMS Form 2552-96 and line 19 on CMS
Form 2552-10). Therefore, we determined that it was necessary to
estimate and remove overhead wage-related costs allocated to excluded
areas, and we have been doing so in ``Step 4'' of the unadjusted wage
index calculation since FY 2002.
With the implementation of CMS Form 2552-10, Worksheet S-3, Part IV
was added to the cost report on which hospitals are required to itemize
their wage-related costs (formerly reported on Exhibit 6 of CMS Form-
339). The total amount of wage-related costs reported on Worksheet S-3,
Part II, lines 17 through 25 (CMS Form 2552-10) must correspond to the
total core wage-related costs on Worksheet S-3, Part IV, line 24. (We
refer readers to the instructions for line 17 of Worksheet S-3, Part
II, which state: ``Enter the core wage-related costs from Worksheet S-
3, Part IV, line 24.'') Hospitals report wage-related costs associated
with excluded areas of the hospital on Worksheet S-3, Part II, line 19.
We understand that hospitals use an allocation methodology to allocate
total wage-related costs to each of lines Worksheet S-3, Part II, lines
17 through 25 respectively, typically based on the ratio of individual
line costs to total wage-related costs on lines 17 through 25.
Alternatively, we understand that hospitals use the ratio of full-time
equivalent (FTE) hours of an individual line to total FTE hours for
those lines 17 through 25. Because the wage-related costs of employees
who work in overhead areas of the hospital are included in the wage-
related costs of the hospital reported on Worksheet S-3, Part IV, and
in turn, on Worksheet S-3, Part II, it is possible to conclude that
hospitals' own allocation methodologies are properly allocating an
accurate amount of wage-related costs for both direct cost centers and
overhead areas to line 19 for the excluded areas. Accordingly, the
question has been raised whether it continues to be necessary for CMS
to estimate and remove the overhead wage-related costs associated with
excluded areas from the unadjusted wage index calculation.
We have tested the effect on the average hourly wages of hospitals
if we would not estimate and remove the overhead wage-related costs
associated with excluded areas from the unadjusted wage index
calculation. The results show that the problem manifested in the
formula prior to FY 2002 continues to be a concern; that is, while the
average hourly wages of all hospitals with excluded areas are impacted,
hospitals that have particularly large excluded areas experience large
and inappropriate increases to their average hourly wages. For example,
one hospital with an excluded area percentage of 95 percent that has an
average hourly wage of approximately $32 under our current methodology
would have an average hourly wage of $128 under the formula in effect
prior to FY 2002 (that is, without removal of overhead wage-related
costs). Accordingly, we believe that, at this point, there is a need
for CMS to continue to estimate and remove the overhead wage-related
costs associated with excluded areas from the unadjusted wage index
calculation. However, in an effort to improve consistency in hospital
cost reporting practices and to improve the accuracy of the wage index,
we are considering the possibility of future rulemaking or cost
reporting changes, or a combination of both, where hospitals would
apply a single allocation methodology between Worksheet S-3, Part IV
and Worksheet S-3, Part II, lines 17 through 25. For example, one
possibility is the modification and expansion of Worksheet S-3, Part IV
to add columns that would correspond to each line 17 through 25 of
Worksheet S-3, Part II. In addition, Worksheet S-3, Part IV could
employ one or two standard statistical allocation methods, facilitating
a direct flow of the allocated amounts to each line 17 through 25 of
Worksheet S-3, Part II. We are soliciting comments from stakeholders to
gain a better understanding of the nature of hospitals' reporting of
wage-related costs on Worksheet S-3, Part IV, statistical allocation
methods that hospitals typically use to allocate their wage-related
costs, the treatment of direct versus overhead employee wage-related
costs, and suggestions for possible modifications to Worksheet S-3,
Parts II and IV respectively, which would preempt the need for CMS to
estimate and remove overhead wage-related costs associated with
excluded areas from the unadjusted wage index.
Another issue about which we are concerned and would like to
solicit public comments relates to inconsistent reporting of home
office salaries and wage-related costs. Worksheet S-2, Part I, line
140, requires hospitals to complete Worksheet A-8-1 if they have any
related organization or home office costs claimed as defined in the
Provider Reimbursement Manual, CMS Pub. 15-1, Chapter 10, Section 1002,
and 42 CFR 413.17. Then, line 14 of Worksheet S-3, Part II instructs
hospitals to enter the salaries and wage-related costs paid to

[[Page 25076]]

personnel who are affiliated with a home office and/or related
organization, who provide services to the hospital, and whose salaries
are not included on Worksheet A, Column 1. Because home office salaries
and wage-related costs are not included on Worksheet A, Column 1, we
are concerned that hospitals are not including home office costs on
Worksheet A, Column 2 or Column 6 in the appropriate cost centers on
lines 4 through 17, adjusted from Worksheet A-8 or Worksheet A-8-1.\20\
Another concern is a hospital's inadvertent inclusion on line 14 of the
home office salaries or wage-related costs associated with excluded
areas on Worksheet S-3, Part II, lines 9 or 10. In addition, we are
concerned about the amalgam of personnel costs that hospitals report on
line 14, particularly when another more precise line exists for those
personnel costs to be reported. For example, if cafeteria services are
provided through the home office, those wages and hours should not be
reported on line 14, but instead should be reported on the more
specific cost center for Cafeteria, Worksheet S-3, Part II, line 36
(corresponding to Cafeteria on Worksheet A, line 11 \21\). We note
that, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through
49967), we reiterated our requirement that all hospitals must document
salaries, wages, and hours for the purpose of reporting this
information on Worksheet S-3, Part II, lines 32, 33, 34, and/or 35 (for
either directly employed housekeeping and dietary employees on lines 32
and 34, and contract labor on lines 33 and 35). We have learned of
instances where housekeeping or dietary services are provided through
the home office, and the hospital reported those wages and hours on
line 14. This is inconsistent with other hospitals' reporting of
housekeeping and dietary services on lines 32 through 35. As stated in
the FY 2015 IPPS/LTCH PPS final rule, we have instructed the MACs to
impute housekeeping or dietary wages and hours when hospitals have not
properly completed those lines 32 through 35. Hospitals whose
housekeeping or dietary services (either direct or under contract) are
provided through their home office are not exempt from this requirement
to report wages and hours on the specific cost centers for housekeeping
and dietary. Hospitals should also take care to report housekeeping and
dietary services in the appropriate cost centers on Worksheet A, lines
9 and 10 respectively. Because the nature of services provided by home
office personnel are for general management or administrative services
related to the provision of patient care (CMS Pub. 15-1, Chapter 21,
Section 2150), and may be provided to multiple areas of the hospital,
we are considering ending reporting of home office costs on line 14 of
Worksheet S-3, Part II, and instead we may require reporting of home
office costs as part of the overhead lines, possibly by adding lines or
columns, or subscripting existing line 27 (Administrative & General),
and line 28 (Administrative & General for contract labor). We are
soliciting public comments to gain a better understanding of hospitals'
reporting of home office salaries and wage-related costs for possible
future revisions to the cost report instructions and lines.
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\20\ CMS Pub. 15-2, Chapter 40, Section 4013, Worksheet A
instructions for column 6: ``Enter on the appropriate lines in
column 6 the amounts of any adjustments to expenses indicated on
Worksheet A-8, column 2,'' and the note for line 12 of Worksheet A-
8, section 4016: ``Worksheet A-8-1 represents the detail of the
various cost centers on Worksheet A which must be adjusted.''
\21\ CMS Pub. 15-2, Chapter 40, Section 4013, Worksheet A
instructions under Line Descriptions: ``The trial balance of
expenses is broken down into general service, inpatient routine
service, ancillary service, outpatient service, other reimbursable,
special purpose, and nonreimbursable cost center categories to
facilitate the transfer of costs to the various worksheets. The line
numbers on Worksheet A are used on subsequent worksheets. * * *''
(emphasis added).
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IV. Other Decisions and Changes to the IPPS for Operating Costs and
Direct Graduate Medical Education (GME) and Indirect Medical Education
(IME) Costs

A. Changes to Operating Payments for Subsection (d) Puerto Rico
Hospitals as a Result of Section 601 of Public Law 114-113

Prior to January 1, 2016, Puerto Rico hospitals were paid with
respect to operating costs of inpatient hospital services for inpatient
hospital discharges based on 75 percent of the national standardized
amount and 25 percent of the Puerto Rico-specific standardized amount.
Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-
113) amended section 1886(d)(9)(E) of the Act to specify that the
payment calculation with respect to operating costs of inpatient
hospital services of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after January 1, 2016, shall use
100 percent of the national standardized amount. As a result of the
amendment made by section 601 of Public Law 114-113, on February 4,
2016, we issued Change Request 9523 which updated the payment rates for
subsection (d) Puerto Rico hospitals for discharges occurring on or
after January 1, 2016. Change Request 9523 can be downloaded from the
CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2016-Transmittals-Items/R3449CP.html.
For operating costs for inpatient hospital discharges occurring in
FY 2017 and subsequent fiscal years, consistent with the provisions of
section 1886(d)(9)(E) of the Act as amended by section 601 of Public
Law 114-113, subsection (d) Puerto Rico hospitals will continue to be
paid based on 100 percent of the national standardized amount.
In this proposed rule, we are proposing to make conforming changes
to the regulations at 42 CFR 412.204 to reflect the current law that is
effective for discharges occurring on or after January 1, 2016.
Specifically, we are proposing to add a new paragraph (e) to Sec.
412.204 to reflect that, beginning January 1, 2016, subsection (d)
Puerto Rico hospitals are paid based on 100 percent of the national
standardized amount. We also are proposing to revise paragraph (d) of
Sec. 412.204 to specify that subsection (d) Puerto Rico hospitals were
paid based on 75 percent of the national standardized amount and 25
percent of the Puerto Rico-specific standardized amount for discharges
occurring through December 31, 2015.

B. Proposed Changes in the Inpatient Hospital Update for FY 2017 (Sec.
412.64(d))

1. Proposed FY 2017 Inpatient Hospital Update
In accordance with section 1886(b)(3)(B)(i) of the Act, each year
we update the national standardized amount for inpatient hospital
operating costs by a factor called the ``applicable percentage
increase.'' For FY 2017, we are setting the applicable percentage
increase by applying the adjustments listed in this section in the same
sequence as we did for FY 2016. Specifically, consistent with section
1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a)
of the Affordable Care Act, we are setting the applicable percentage
increase by applying the following adjustments in the following
sequence. The applicable percentage increase under the IPPS is equal to
the rate-of-increase in the hospital market basket for IPPS hospitals
in all areas, subject to--
(a) A reduction of one-quarter of the applicable percentage
increase (prior to the application of other statutory adjustments; also
referred to as the market basket update or rate-of-increase (with no
adjustments)) for hospitals that fail to submit quality information
under

[[Page 25077]]

rules established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act;
(b) A reduction of three-quarters of the applicable percentage
increase (prior to the application of other statutory adjustments; also
referred to as the market basket update or rate-of-increase (with no
adjustments)) for hospitals not considered to be meaningful EHR users
in accordance with section 1886(b)(3)(B)(ix) of the Act;
(c) An adjustment based on changes in economy-wide productivity
(the multifactor productivity (MFP) adjustment); and
(d) An additional reduction of 0.75 percentage point as required by
section 1886(b)(3)(B)(xii) of the Act.
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added
by section 3401(a) of the Affordable Care Act, state that application
of the MFP adjustment and the additional FY 2017 adjustment of 0.75
percentage point may result in the applicable percentage increase being
less than zero.
We note that, in compliance with section 404 of the MMA, in the FY
2014 IPPS/LTCH PPS final rule (78 FR 50596 through 50607), we replaced
the FY 2006-based IPPS operating and capital market baskets with the
revised and rebased FY 2010-based IPPS operating and capital market
baskets for FY 2014. In the FY 2015 IPPS/LTCH PPS final rule (79 FR
49993 through 49996) and the FY 2016 IPPS/LTCH PPS final rule (80 FR
49508 through 49511), we continued to use the FY 2010-based IPPS
operating and capital market baskets for FY 2015 and FY 2016 and the
labor-related share of 69.6 percent, which was based on the FY 2010-
based IPPS market basket. For FY 2017, we are proposing to continue
using the FY 2010-based IPPS operating and capital market baskets and
the proposed labor-related share of 69.6 percent, which is based on the
FY 2010-based IPPS market basket.
Based on the most recent data available for this FY 2017 proposed
rule, in accordance with section 1886(b)(3)(B) of the Act, we are
proposing to base the proposed FY 2017 market basket update used to
determine the applicable percentage increase for the IPPS on IHS Global
Insight, Inc.'s (IGI's) first quarter 2016 forecast of the FY 2010-
based IPPS market basket rate-of-increase with historical data through
fourth quarter 2015, which is estimated to be 2.8 percent. We are
proposing that if more recent data subsequently become available (for
example, a more recent estimate of the market basket and the MFP
adjustment), we would use such data, if appropriate, to determine the
FY 2017 market basket update and the MFP adjustment in the final rule.
For FY 2017, depending on whether a hospital submits quality data
under the rules established in accordance with section
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital
that submits quality data) and is a meaningful EHR user under section
1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that
is a meaningful EHR user), there are four possible applicable
percentage increases that can be applied to the standardized amount as
specified in the table that appears later in this section.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through
51692), we finalized our methodology for calculating and applying the
MFP adjustment. As we explained in that rule, section
1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the
Affordable Care Act, defines this productivity adjustment as equal to
the 10-year moving average of changes in annual economy-wide, private
nonfarm business MFP (as projected by the Secretary for the 10-year
period ending with the applicable fiscal year, calendar year, cost
reporting period, or other annual period). The Bureau of Labor
Statistics (BLS) publishes the official measure of private nonfarm
business MFP. We refer readers to the BLS Web site at http://www.bls.gov/mfp for the BLS historical published MFP data.
MFP is derived by subtracting the contribution of labor and capital
input growth from output growth. The projections of the components of
MFP are currently produced by IGI, a nationally recognized economic
forecasting firm with which CMS contracts to forecast the components of
the market baskets and MFP. As we discussed in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49509), beginning with the FY 2016 rulemaking
cycle, the MFP adjustment is calculated using the revised series
developed by IGI to proxy the aggregate capital inputs. Specifically,
in order to generate a forecast of MFP, IGI forecasts BLS aggregate
capital inputs using a regression model. A complete description of the
MFP projection methodology is available on the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html. As
discussed in the FY 2016 IPPS/LTCH PPS final rule, if IGI makes changes
to the MFP methodology, we will announce them on our Web site rather
than in the annual rulemaking.
For FY 2017, we are proposing an MFP adjustment of 0.5 percentage
point. Similar to the market basket update, for the proposed rule, we
used the most recent data available to compute the MFP adjustment. As
noted previously, we are proposing that if more recent data
subsequently become available, we would use such data, if appropriate,
to determine the FY 2017 market basket update and MFP adjustment for
the final rule.
Based on the most recent data available for this proposed rule, as
described previously, we have determined four proposed applicable
percentage increases to the standardized amount for FY 2017, as
specified in the following table:

Proposed FY 2017 Applicable Percentage Increases for the IPPS
----------------------------------------------------------------------------------------------------------------
Hospital Hospital Hospital did Hospital did
submitted submitted NOT submit NOT submit
quality data quality data quality data quality data
FY 2017 and is a and is NOT a and is a and is NOT a
meaningful EHR meaningful EHR meaningful EHR meaningful EHR
user user user user
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket 2.8 2.8 2.8 2.8
Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit 0.0 0.0 -0.7 -0.7
Quality Data under Section 1886(b)(3)(B)(viii)
of the Act.....................................
Proposed Adjustment for Failure to be a 0.0 -2.1 0.0 -2.1
Meaningful EHR User under Section
1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section -0.5 -0.5 -0.5 -0.5
1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................

[[Page 25078]]

Proposed Applicable Percentage Increase Applied 1.55 -0.55 0.85 -1.25
to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

We are proposing to revise the existing regulations at 42 CFR
412.64(d) to reflect the current law for the FY 2017 update.
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we
are proposing to add a new paragraph (vii) to Sec. 412.64(d)(1) to
reflect the applicable percentage increase to the FY 2017 operating
standardized amount as the percentage increase in the market basket
index, subject to the reductions specified under Sec. 412.64(d)(2) for
a hospital that does not submit quality data and Sec. 412.64(d)(3) for
a hospital that is not a meaningful EHR user, less an MFP adjustment
and less an additional reduction of 0.75 percentage point.
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase to the hospital-specific rates for SCHs and MDHs
equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Therefore, the update to the
hospital-specific rates for SCHs and MDHs also is subject to section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act. We note that section 205 of the
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L.
114-10, enacted on April 16, 2015) extended the MDH program (which,
under previous law, was to be in effect for discharges on or before
March 31, 2015 only) for discharges occurring on or after April 1,
2015, through FY 2017 (that is, for discharges occurring on or before
September 30, 2017).
For FY 2017, we are proposing the following updates to the
hospital-specific rates applicable to SCHs and MDHs: A proposed update
of 1.55 percent for a hospital that submits quality data and is a
meaningful EHR user; a proposed update of 0.85 percent for a hospital
that fails to submit quality data and is a meaningful EHR user; a
proposed update of -0.55 percent for a hospital that submits quality
data and is not a meaningful EHR user; and a proposed update of -1.25
percent for a hospital that fails to submit quality data and is not a
meaningful EHR user. As mentioned previously, for this FY 2017 proposed
rule, we are using IGI's first quarter 2016 forecast of the FY 2010-
based IPPS market basket update with historical data through fourth
quarter 2015. Similarly, we are using IGI's first quarter 2016 forecast
of the MFP adjustment. We are proposing that if more recent data
subsequently become available (for example, a more recent estimate of
the market basket increase and the MFP adjustment), we would use such
data, if appropriate, to determine the update for SCHs and MDHs in the
final rule.
2. Proposed FY 2017 Puerto Rico Hospital Update
As discussed in section IV.A. of the preamble of this proposed
rule, prior to January 1, 2016, Puerto Rico hospitals were paid based
on 75 percent of the national standardized amount and 25 percent of the
Puerto Rico-specific standardized amount. Section 601 of Public Law
114-113 amended section 1886(d)(9)(E) of the Act to specify that the
payment calculation with respect to operating costs of inpatient
hospital services of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after January 1, 2016, shall use
100 percent of the national standardized amount. Because Puerto Rico
hospitals are no longer paid with a Puerto Rico-specific standardized
amount under the amendments to section 1886(d)(9)(E) of the Act, there
is no longer a need for us to propose an update to the Puerto Rico
standardized amount. Hospitals in Puerto Rico are now paid 100 percent
of the national standardized amount and, therefore, are subject to the
same update to the national standardized amount discussed under section
IV.B.1. of the preamble of this proposed rule. Accordingly, for FY
2017, we are proposing an applicable percentage increase of 1.55
percent to the standardized amount for hospitals located in Puerto
Rico.
We note that section 1886(b)(3)(B)(viii) of the Act, which
specifies the adjustment to the applicable percentage increase for
``subsection (d)'' hospitals that do not submit quality data under the
rules established by the Secretary, is not applicable to hospitals
located in Puerto Rico.
In addition, section 602 of Public Law 114-113 amended section
1886(n)(6)(B) of the Act to specify that Puerto Rico hospitals are
eligible for incentive payments for the meaningful use of certified EHR
technology, effective beginning FY 2016, and also to apply the
adjustments to the applicable percentage increase under section
1886(b)(3)(B)(ix) of the Act to Puerto Rico hospitals that are not
meaningful EHR users, effective FY 2022. Accordingly, because the
provisions of section 1886(b)(3)(B)(ix) of the Act are not applicable
to hospitals located in Puerto Rico until FY 2022, the adjustments
under this provision are not applicable for FY 2017.

C. Rural Referral Centers (RRCs): Proposed Annual Updates to Case-Mix
Index and Discharge Criteria (Sec. 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at Sec. 412.96 set forth the criteria that a hospital must
meet in order to qualify under the IPPS as a rural referral center
(RRC). RRCs receive some special treatment under both the DSH payment
adjustment and the criteria for geographic reclassification.
Section 402 of Public Law 108-173 raised the DSH payment adjustment
for RRCs such that they are not subject to the 12-percent cap on DSH
payments that is applicable to other rural hospitals. RRCs also are not
subject to the proximity criteria when applying for geographic
reclassification. In addition, they do not have to meet the requirement
that a hospital's average hourly wage must exceed, by a certain
percentage, the average hourly wage of the labor market area in which
the hospital is located.
Section 4202(b) of Public Law 105-33 states, in part, that any
hospital classified as an RRC by the Secretary for FY 1991 shall be
classified as such an RRC for FY 1998 and each subsequent fiscal year.
In the August 29, 1997 IPPS final rule with comment period (62 FR
45999), we reinstated RRC status for all hospitals that lost that
status due to triennial review or MGCRB

[[Page 25079]]

reclassification. However, we did not reinstate the status of hospitals
that lost RRC status because they were now urban for all purposes
because of the OMB designation of their geographic area as urban.
Subsequently, in the August 1, 2000 IPPS final rule (65 FR 47089), we
indicated that we were revisiting that decision. Specifically, we
stated that we would permit hospitals that previously qualified as an
RRC and lost their status due to OMB redesignation of the county in
which they are located from rural to urban, to be reinstated as an RRC.
Otherwise, a hospital seeking RRC status must satisfy all of the other
applicable criteria. We use the definitions of ``urban'' and ``rural''
specified in Subpart D of 42 CFR part 412. One of the criteria under
which a hospital may qualify as an RRC is to have 275 or more beds
available for use (Sec. 412.96(b)(1)(ii)). A rural hospital that does
not meet the bed size requirement can qualify as an RRC if the hospital
meets two mandatory prerequisites (a minimum case-mix index (CMI) and a
minimum number of discharges), and at least one of three optional
criteria (relating to specialty composition of medical staff, source of
inpatients, or referral volume). (We refer readers to Sec.
412.96(c)(1) through (c)(5) and the September 30, 1988 Federal Register
(53 FR 38513) for additional discussion.) With respect to the two
mandatory prerequisites, a hospital may be classified as an RRC if--
The hospital's CMI is at least equal to the lower of the
median CMI for urban hospitals in its census region, excluding
hospitals with approved teaching programs, or the median CMI for all
urban hospitals nationally; and
The hospital's number of discharges is at least 5,000 per
year, or, if fewer, the median number of discharges for urban hospitals
in the census region in which the hospital is located. The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year, as specified in section 1886(d)(5)(C)(i) of the
Act.
1. Case-Mix Index (CMI)
Section 412.96(c)(1) provides that CMS establish updated national
and regional CMI values in each year's annual notice of prospective
payment rates for purposes of determining RRC status. The methodology
we used to determine the national and regional CMI values is set forth
in the regulations at Sec. 412.96(c)(1)(ii). The proposed national
median CMI value for FY 2017 is based on the CMI values of all urban
hospitals nationwide, and the proposed regional median CMI values for
FY 2017 are based on the CMI values of all urban hospitals within each
census region, excluding those hospitals with approved teaching
programs (that is, those hospitals that train residents in an approved
GME program as provided in Sec. 413.75). These proposed values are
based on discharges occurring during FY 2015 (October 1, 2014 through
September 30, 2015), and include bills posted to CMS' records through
December 2015.
We are proposing that, in addition to meeting other criteria, if
rural hospitals with fewer than 275 beds are to qualify for initial RRC
status for cost reporting periods beginning on or after October 1,
2016, they must have a CMI value for FY 2015 that is at least--
1.6125 (national--all urban); or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located.
The proposed CMI values by region are set forth in the following
table.

------------------------------------------------------------------------
Case-mix
Region index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................. 1.3637
2. Middle Atlantic (PA, NJ, NY).......................... 1.4441
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)... 1.51235
4. East North Central (IL, IN, MI, OH, WI)............... 1.5324
5. East South Central (AL, KY, MS, TN)................... 1.45055
6. West North Central (IA, KS, MN, MO, NE, ND, SD)....... 1.59535
7. West South Central (AR, LA, OK, TX)................... 1.643
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............. 1.6966
9. Pacific (AK, CA, HI, OR, WA).......................... 1.616
------------------------------------------------------------------------

We intend to update the preceding CMI values in the FY 2017 final
rule to reflect the updated FY 2015 MedPAR file, which would contain
data from additional bills received through March 2016.
A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its MAC. Data are
available on the Provider Statistical and Reimbursement (PS&R) System.
In keeping with our policy on discharges, the CMI values are computed
based on all Medicare patient discharges subject to the IPPS MS-DRG-
based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that CMS set forth the national
and regional numbers of discharges criteria in each year's annual
notice of prospective payment rates for purposes of determining RRC
status. As specified in section 1886(d)(5)(C)(ii) of the Act, the
national standard is set at 5,000 discharges. For FY 2017, we are
proposing to update the regional standards based on discharges for
urban hospitals' cost reporting periods that began during FY 2014 (that
is, October 1, 2013 through September 30, 2014), which are the latest
cost report data available at the time this proposed rule was
developed.
We are proposing that, in addition to meeting other criteria, a
hospital, if it is to qualify for initial RRC status for cost reporting
periods beginning on or after October 1, 2016, must have, as the number
of discharges for its cost reporting period that began during FY 2014,
at least--
5,000 (3,000 for an osteopathic hospital); or
The median number of discharges for urban hospitals in the
census region in which the hospital is located as indicated in the
following table.

------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)................. 8,090
2. Middle Atlantic (PA, NJ, NY)......................... 10,745
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 10,309
4. East North Central (IL, IN, MI, OH, WI).............. 8,090
5. East South Central (AL, KY, MS, TN).................. 7,457
6. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 7,718
7. West South Central (AR, LA, OK, TX).................. 5,027
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 8,621
9. Pacific (AK, CA, HI, OR, WA)......................... 8,509
------------------------------------------------------------------------

We intend to update these numbers in the FY 2017 final rule based
on the latest available cost report data.
We note that the median number of discharges for hospitals in each
census region is greater than the national standard of 5,000
discharges. Therefore, under this proposed rule, 5,000 discharges is
the minimum criterion for all hospitals, except for osteopathic
hospitals for which the minimum criterion is 3,000 discharges.

[[Page 25080]]

D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)

1. Background
Section 1886(d)(12) of the Act provides for an additional payment
to each qualifying low-volume hospital that is paid under IPPS
beginning in FY 2005, and the low-volume hospital payment policy is set
forth in the regulations at 42 CFR 412.101. Sections 3125 and 10314 of
the Affordable Care Act provided for a temporary change in the low-
volume hospital payment policy for FYs 2011 and 2012. Specifically, the
provisions of the Affordable Care Act amended the qualifying criteria
for low-volume hospitals to specify, for FYs 2011 and 2012, that a
hospital qualifies as a low-volume hospital if it is more than 15 road
miles from another subsection (d) hospital and has less than 1,600
discharges of individuals entitled to, or enrolled for, benefits under
Medicare Part A during the fiscal year. In addition, the statute as
amended by the Affordable Care Act, provides that the low-volume
hospital payment adjustment (that is, the percentage increase) is
determined using a continuous linear sliding scale ranging from 25
percent for low-volume hospitals with 200 or fewer discharges of
individuals entitled to, or enrolled for, benefits under Medicare Part
A in the fiscal year to 0 percent for low-volume hospitals with greater
than 1,600 discharges of such individuals in the fiscal year. We
revised the regulations governing the low-volume hospital payment
adjustment policy at Sec. 412.101 to reflect the changes to the
qualifying criteria and the calculation of the payment adjustment for
low-volume hospitals according to the provisions of the Affordable Care
Act in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275
and 50414).
The temporary changes to the low-volume hospital qualifying
criteria and the payment adjustment originally provided for by the
Affordable Care Act have been extended by subsequent legislation as
follows: Through FY 2013, by the American Taxpayer Relief Act of 2012
(ATRA), Public Law 112-240; through March 31, 2014, by the Pathway for
SGR Reform Act of 2013, Public Law 113- 167; through March 31, 2015, by
the Protecting Access to Medicare Act of 2014 (PAMA), Public Law 113-
93; and most recently through FY 2017, by the Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA), Public Law 114-10. For additional
details on the implementation of the previous extensions of the
temporary changes to the low-volume hospital qualifying criteria and
payment adjustment originally provided for by the Affordable Care Act,
we refer readers to the following Federal Register documents: The FY
2013 IPPS notice (78 FR 14689 through 14691); the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50611 through 50612); the FY 2014 IPPS interim final
rule with comment period (79 FR 15022 through 15025); the FY 2014 IPPS
notice (79 FR 34444 through 34446); the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49998 through 50001); and the FY 2016 IPPS interim final
rule with comment period (80 FR 49594 through 49595).
2. Proposed Low-Volume Hospital Definition and Payment Adjustment for
FY 2017
Under section 1886(d)(12) of the Act, as amended by section 204 of
the MACRA, the temporary changes in the low-volume hospital payment
policy originally provided by the Affordable Care Act and extended
through subsequent legislation, are effective through FY 2017. In this
proposed rule, consistent with our historical approach, we are
proposing to update the discharge data source used to identify
qualifying low-volume hospitals and calculate the payment adjustment
(percentage increase) for FY 2017. Under Sec. 412.101(b)(2)(ii), for
the applicable fiscal years, a hospital's Medicare discharges from the
most recently available MedPAR data, as determined by CMS, are used to
determine if the hospital meets the discharge criteria to receive the
low-volume payment adjustment in the current year and to determine the
applicable low-volume percentage increase for qualifying hospitals. The
applicable low-volume percentage increase for FY 2017 is determined
using a continuous linear sliding scale equation that results in a low-
volume hospital payment adjustment ranging from an additional 25
percent for hospitals with 200 or fewer Medicare discharges to a zero
percent additional payment adjustment for hospitals with 1,600 or more
Medicare discharges. For FY 2017, consistent with our historical
policy, we are proposing that qualifying low-volume hospitals and their
payment adjustment would be determined using the most recently
available Medicare discharge data from the December 2015 update of the
FY 2015 MedPAR file, as these data are the most recent data available.
Table 14 listed in the Addendum of this proposed rule (which is
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html)
lists the ``subsection (d)'' hospitals with fewer than 1,600 Medicare
discharges based on the claims data from the December 2015 update of
the FY 2015 MedPAR file and their potential proposed low-volume payment
adjustment for FY 2017. Consistent with past practice, we note that
this list of hospitals with fewer than 1,600 Medicare discharges in
Table 14 does not reflect whether or not the hospital meets the mileage
criterion. Eligibility for the low-volume hospital payment adjustment
for FY 2017 also is dependent upon meeting the mileage criterion
specified at Sec. 412.101(b)(2)(ii); that is, the hospital must be
located more than 15 road miles from any other IPPS hospital. In other
words, eligibility for the low-volume hospital payment adjustment for
FY 2017 also is dependent upon meeting (in the case of a hospital that
did not qualify for the low-volume hospital payment adjustment in FY
2016) or continuing to meet (in the case of a hospital that did qualify
for the low-volume hospital payment adjustment in FY 2016) the mileage
criterion specified at Sec. 412.101(b)(2)(ii). Consistent with
historical practice, we are proposing that if more recent Medicare
discharge data become available, we would use that updated data to
determine qualifying low-volume hospitals and their payment adjustment
in the final rule, and update Table 14 to reflect that updated data.
In order to receive a low-volume hospital payment adjustment under
Sec. 412.101 for FY 2017, consistent with our previously established
procedure, we are proposing that a hospital must notify and provide
documentation to its MAC that it meets the discharge and mileage
criteria under Sec. 412.101(b)(2)(ii). Specifically, for FY 2017, we
are proposing that a hospital must make a written request for low-
volume hospital status that is received by its MAC no later than
September 1, 2016, in order for the applicable low-volume hospital
payment adjustment to be applied to payments for its FY 2017 discharges
occurring on or after October 1, 2016. Under this procedure, a hospital
that qualified for the low-volume hospital payment adjustment in FY
2016 may continue to receive a low-volume hospital payment adjustment
for FY 2017 without reapplying if it continues to meet the Medicare
discharge criterion established for FY 2017 and the mileage criterion.
However, the hospital must send written verification that is received
by its MAC no later than September 1, 2016, stating that it continues
to be located more than 15 miles from any

[[Page 25081]]

other subsection (d) hospital. This written verification could be a
brief letter to the MAC stating that the hospital continues to meet the
low-volume hospital mileage criterion as documented in a prior low-
volume hospital status request. We also are proposing that if a
hospital's written request for low-volume hospital status for FY 2017
is received after September 1, 2016, and if the MAC determines that the
hospital meets the criteria to qualify as a low-volume hospital, the
MAC would apply the applicable low-volume hospital payment adjustment
to determine the payment for the hospital's FY 2017 discharges
effective prospectively within 30 days of the date of its low-volume
hospital status determination, consistent with past practice. (For
additional details on our established process for the low-volume
hospital payment adjustment, we refer readers to the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53408) and the FY 2015 IPPS/LTCH PPS final rule
(79 FR 50000 through 50001).)
We note that, in the FY 2016 IPPS interim final rule with comment
period (80 FR 49595), we revised the regulations at Sec. 412.101 to
conform the text to the provisions of section 204 of the MACRA, which
extended the changes to the qualifying criteria and the payment
adjustment methodology for low-volume hospitals through FY 2017 (that
is, through September 30, 2017). We intend to finalize the low-volume
hospital provisions (as well as the Medicare-dependent small rural
hospital (MDH) provisions at Sec. 412.108) included in that FY 2016
interim final rule with comment period in the FY 2017 IPPS/LTCH PPS
final rule.

E. Indirect Medical Education (IME) Payment Adjustment Factor for FY
2017 (Sec. 412.105)

1. IME Adjustment for FY 2017
Under the IPPS, an additional payment amount is made to hospitals
with residents in an approved graduate medical education (GME) program
in order to reflect the higher indirect patient care costs of teaching
hospitals relative to nonteaching hospitals. The payment amount is
determined by use of a statutorily specified adjustment factor. The
regulations regarding the calculation of this additional payment, known
as the IME adjustment, are located at Sec. 412.105. We refer readers
to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for a full
discussion of the IME adjustment and IME adjustment factor. Section
1886(d)(5)(B)(ii)(XII) of the Act provides that, for discharges
occurring during FY 2008 and fiscal years thereafter, the IME formula
multiplier is 1.35. Accordingly, for discharges occurring during FY
2017, the formula multiplier is 1.35. We estimate that application of
this formula multiplier for the FY 2017 IME adjustment will result in
an increase in IPPS payment of 5.5 percent for every approximately 10
percent increase in the hospital's resident to bed ratio.
2. Other Proposed Policies Related to IME
We refer readers to section IV.I. of the preamble of this proposed
rule for a discussion of the proposed policy changes relating to
medical residency training programs (or rural tracks) at urban
hospitals that also affect payments for IME.

F. Proposed Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs) for FY 2017 and Subsequent Years (Sec. 412.106)

1. General Discussion
Section 1886(d)(5)(F) of the Act provides for additional Medicare
payments to subsection (d) hospitals that serve a significantly
disproportionate number of low-income patients. The Act specifies two
methods by which a hospital may qualify for the Medicare
disproportionate share hospital (DSH) adjustment. Under the first
method, hospitals that are located in an urban area and have 100 or
more beds may receive a Medicare DSH payment adjustment if the hospital
can demonstrate that, during its cost reporting period, more than 30
percent of its net inpatient care revenues are derived from State and
local government payments for care furnished to needy patients with low
incomes. This method is commonly referred to as the ``Pickle method.''
The second method for qualifying for the DSH payment adjustment, which
is the most common, is based on a complex statutory formula under which
the DSH payment adjustment is based on the hospital's geographic
designation, the number of beds in the hospital, and the level of the
hospital's disproportionate patient percentage (DPP). A hospital's DPP
is the sum of two fractions: the ``Medicare fraction'' and the
``Medicaid fraction.'' The Medicare fraction (also known as the ``SSI
fraction'' or ``SSI ratio'') is computed by dividing the number of the
hospital's inpatient days that are furnished to patients who were
entitled to both Medicare Part A and Supplemental Security Income (SSI)
benefits by the hospital's total number of patient days furnished to
patients entitled to benefits under Medicare Part A. The Medicaid
fraction is computed by dividing the hospital's number of inpatient
days furnished to patients who, for such days, were eligible for
Medicaid, but were not entitled to benefits under Medicare Part A, by
the hospital's total number of inpatient days in the same period.
Because the DSH payment adjustment is part of the IPPS, the DSH
statutory references (under section 1886(d)(5)(F) of the Act) to
``days'' apply only to hospital acute care inpatient days. Regulations
located at Sec. 412.106 govern the Medicare DSH payment adjustment and
specify how the DPP is calculated as well as how beds and patient days
are counted in determining the Medicare DSH payment adjustment. Under
Sec. 412.106(a)(1)(i), the number of beds for the Medicare DSH payment
adjustment is determined in accordance with bed counting rules for the
IME adjustment under Sec. 412.105(b).
Section 3133 of the Patient Protection and Affordable Care Act, as
amended by section 10316 of the same Act and section 1104 of the Health
Care and Education Reconciliation Act (Pub. L. 111-152), added a new
section 1886(r) to the Act that modifies the methodology for computing
the Medicare DSH payment adjustment. (For purposes of this proposed
rule, we refer to these provisions collectively as section 3133 of the
Affordable Care Act.) Beginning with discharges in FY 2014, hospitals
that qualify for Medicare DSH payments under section 1886(d)(5)(F) of
the Act receive 25 percent of the amount they previously would have
received under the statutory formula for Medicare DSH payments. This
provision applies equally to hospitals that qualify for DSH payments
under section 1886(d)(5)(F)(i)(I) of the Act and those hospitals that
qualify under the Pickle method under section 1886(d)(5)(F)(i)(II) of
the Act.
The remaining amount, equal to an estimate of 75 percent of what
otherwise would have been paid as Medicare DSH payments, reduced to
reflect changes in the percentage of individuals under age 65 who are
uninsured, is available to make additional payments to each hospital
that qualifies for Medicare DSH payments and that has uncompensated
care. The payments to each hospital for a fiscal year are based on the
hospital's amount of uncompensated care for a given time period
relative to the total amount of uncompensated care for that same time
period reported by all hospitals that receive Medicare DSH payments for
that fiscal year.
As provided by section 3133 of the Affordable Care Act, section
1886(r) of the Act requires that, for FY 2014 and

[[Page 25082]]

each subsequent fiscal year, a subsection (d) hospital that would
otherwise receive DSH payments made under section 1886(d)(5)(F) of the
Act receives two separately calculated payments. Specifically, section
1886(r)(1) of the Act provides that the Secretary shall pay to such a
subsection (d) hospital (including a Pickle hospital) 25 percent of the
amount the hospital would have received under section 1886(d)(5)(F) of
the Act for DSH payments, which represents the empirically justified
amount for such payment, as determined by the MedPAC in its March 2007
Report to the Congress. We refer to this payment as the ``empirically
justified Medicare DSH payment.''
In addition to this empirically justified Medicare DSH payment,
section 1886(r)(2) of the Act provides that, for FY 2014 and each
subsequent fiscal year, the Secretary shall pay to such subsection (d)
hospital an additional amount equal to the product of three factors.
The first factor is the difference between the aggregate amount of
payments that would be made to subsection (d) hospitals under section
1886(d)(5)(F) of the Act if subsection (r) did not apply and the
aggregate amount of payments that are made to subsection (d) hospitals
under section 1886(r)(1) of the Act for each fiscal year. Therefore,
this factor amounts to 75 percent of the payments that would otherwise
be made under section 1886(d)(5)(F) of the Act.
The second factor is, for FYs 2014 through 2017, 1 minus the
percent change in the percent of individuals under the age of 65 who
are uninsured, determined by comparing the percent of such individuals
who were uninsured in 2013, the last year before coverage expansion
under the Affordable Care Act (as calculated by the Secretary based on
the most recent estimates available from the Director of the
Congressional Budget Office before a vote in either House on the Health
Care and Education Reconciliation Act of 2010 that, if determined in
the affirmative, would clear such Act for enrollment), and the percent
of individuals who were uninsured in the most recent period for which
data are available (as so calculated) minus 0.1 percentage point for FY
2014, and minus 0.2 percentage point for FYs 2015 through 2017. For FYs
2014 through 2017, the baseline for the estimate of the change in
uninsurance is fixed by the most recent estimate of the Congressional
Budget Office before the final vote on the Health Care and Education
Reconciliation Act of 2010, which is contained in a March 20, 2010
letter from the Director of the Congressional Budget Office to the
Speaker of the House. (The March 20, 2010 letter is available for
viewing on the following Web site: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf.)
For FY 2018 and subsequent fiscal years, the second factor is 1
minus the percent change in the percent of individuals who are
uninsured, as determined by comparing the percent of individuals who
were uninsured in 2013 (as estimated by the Secretary, based on data
from the Census Bureau or other sources the Secretary determines
appropriate, and certified by the Chief Actuary of CMS), and the
percent of individuals who were uninsured in the most recent period for
which data are available (as so estimated and certified), minus 0.2
percentage point for FYs 2018 and 2019. Therefore, for FY 2018 and
subsequent fiscal years, the statute provides some greater flexibility
in the choice of the data sources to be used for the estimate of the
change in the percent of uninsured individuals.
The third factor is a percent that, for each subsection (d)
hospital, represents the quotient of the amount of uncompensated care
for such hospital for a period selected by the Secretary (as estimated
by the Secretary, based on appropriate data), including the use of
alternative data where the Secretary determines that alternative data
are available which are a better proxy for the costs of subsection (d)
hospitals for treating the uninsured, and the aggregate amount of
uncompensated care for all subsection (d) hospitals that receive a
payment under section 1886(r) of the Act. Therefore, this third factor
represents a hospital's uncompensated care amount for a given time
period relative to the uncompensated care amount for that same time
period for all hospitals that receive Medicare DSH payments in the
applicable fiscal year, expressed as a percent.
For each hospital, the product of these three factors represents
its additional payment for uncompensated care for the applicable fiscal
year. We refer to the additional payment determined by these factors as
the ``uncompensated care payment.''
Section 1886(r) of the Act applies to FY 2014 and each subsequent
fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620
through 50647) and the FY 2014 IPPS interim final rule with comment
period (78 FR 61191 through 61197), we set forth our policies for
implementing the required changes to the Medicare DSH payment
methodology made by section 3133 of the Affordable Care Act for FY
2014. In those rules, we noted that, because section 1886(r) of the Act
modifies the payment required under section 1886(d)(5)(F) of the Act,
it affects only the DSH payment under the operating IPPS. It does not
revise or replace the capital IPPS DSH payment provided under the
regulations at 42 CFR part 412, subpart M, which were established
through the exercise of the Secretary's discretion in implementing the
capital IPPS under section 1886(g)(1)(A) of the Act.
Finally, section 1886(r)(3) of the Act provides that there shall be
no administrative or judicial review under section 1869, section 1878,
or otherwise of any estimate of the Secretary for purposes of
determining the factors described in section 1886(r)(2) of the Act or
of any period selected by the Secretary for the purpose of determining
those factors. Therefore, there is no administrative or judicial review
of the estimates developed for purposes of applying the three factors
used to determine uncompensated care payments, or the periods selected
in order to develop such estimates.
2. Eligibility for Empirically Justified Medicare DSH Payments and
Uncompensated Care Payments
As indicated earlier, the payment methodology under section 3133 of
the Affordable Care Act applies to ``subsection (d) hospitals'' that
would otherwise receive a DSH payment made under section 1886(d)(5)(F)
of the Act. Therefore, hospitals must receive empirically justified
Medicare DSH payments in a fiscal year in order to receive an
additional Medicare uncompensated care payment for that year.
Specifically, section 1886(r)(2) of the Act states that, in addition to
the payment made to a subsection (d) hospital under section 1886(r)(1)
of the Act, the Secretary shall pay to such subsection (d) hospitals an
additional amount. Because section 1886(r)(1) of the Act refers to
empirically justified Medicare DSH payments, the additional payment
under section 1886(r)(2) of the Act is limited to hospitals that
receive empirically justified Medicare DSH payments in accordance with
section 1886(r)(1) of the Act for the applicable fiscal year.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY
2014 IPPS interim final rule with comment period (78 FR 61193), we
provided that hospitals that are not eligible to receive empirically
justified Medicare DSH payments in a fiscal year will not receive
uncompensated care payments

[[Page 25083]]

for that year. We also specified that we would make a determination
concerning eligibility for interim uncompensated care payments based on
each hospital's estimated DSH status for the applicable fiscal year
(using the most recent data that are available). We indicated that our
final determination on the hospital's eligibility for uncompensated
care payments would be based on the hospital's actual DSH status at
cost report settlement for that payment year.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY
2015 IPPS/LTCH PPS final rule (79 FR 50006), we specified our policies
for several specific classes of hospitals within the scope of section
1886(r) of the Act. We refer readers to those two final rules for a
detailed discussion of our policies. In summary, we specified the
following:
Subsection (d) Puerto Rico hospitals that are eligible for
DSH payments also are eligible to receive empirically justified
Medicare DSH payments and uncompensated care payments under the new
payment methodology (78 FR 50623 and 79 FR 50006).
Maryland hospitals are not eligible to receive empirically
justified Medicare DSH payments and uncompensated care payments under
the payment methodology of section 1886(r) of the Act because they are
not paid under the IPPS. As discussed in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50007), effective January 1, 2014, the State of
Maryland elected to no longer have Medicare pay Maryland hospitals in
accordance with section 1814(b)(3) of the Act and entered into an
agreement with CMS that Maryland hospitals will be paid under the
Maryland All-Payer Model. However, under the Maryland All-Payer Model,
Maryland hospitals still are not paid under the IPPS. Therefore, they
remain ineligible to receive empirically justified Medicare DSH
payments or uncompensated care payments under section 1886(r) of the
Act.
SCHs that are paid under their hospital-specific rate are
not eligible for Medicare DSH payments. SCHs that are paid under the
IPPS Federal rate receive interim payments based on what we estimate
and project their DSH status to be prior to the beginning of the
Federal fiscal year (based on the best available data at that time)
subject to settlement through the cost report, and if they receive
interim empirically justified Medicare DSH payments in a fiscal year,
they also will receive interim uncompensated care payments for that
fiscal year on a per discharge basis, subject as well to settlement
through the cost report. Final eligibility determinations will be made
at the end of the cost reporting period at settlement, and both interim
empirically justified Medicare DSH payments and uncompensated care
payments will be adjusted accordingly (78 FR 50624 and 79 FR 50007).
MDHs are paid based on the IPPS Federal rate or, if
higher, the IPPS Federal rate plus 75 percent of the amount by which
the Federal rate is exceeded by the updated hospital-specific rate from
certain specified base years (76 FR 51684). The IPPS Federal rate used
in the MDH payment methodology is the same IPPS Federal rate that is
used in the SCH payment methodology. Section 205 of the Medicare Access
and CHIP Reauthorization Act of 2015 (MACRA), Public Law 114-10,
enacted April 16, 2015, extended the MDH program for discharges on or
after April 1, 2015, through September 30, 2017. Because MDHs are paid
based on the IPPS Federal rate, for FY 2017, MDHs will continue to be
eligible to receive empirically justified Medicare DSH payments and
uncompensated care payments if their DPP is at least 15 percent. We
will apply the same process to determine MDHs' eligibility for
empirically justified Medicare DSH and uncompensated care payments, as
we do for all other IPPS hospitals, through September 30, 2017.
Moreover, we will continue to make a determination concerning
eligibility for interim uncompensated care payments based on each
hospital's estimated DSH status for the applicable fiscal year (using
the most recent data that are available). Our final determination on
the hospital's eligibility for uncompensated care payments will be
based on the hospital's actual DSH status at cost report settlement for
that payment year. In addition, as we do for all IPPS hospitals, we
calculate a numerator for Factor 3 for all MDHs, regardless of whether
they are projected to be eligible for Medicare DSH payments during the
fiscal year, but the denominator for Factor 3 will be based on the
uncompensated care data from the hospitals that we have projected to be
eligible for Medicare DSH payments during the fiscal year.
IPPS hospitals that have elected to participate in the
Bundled Payments for Care Improvement initiative continue to be paid
under the IPPS (77 FR 53342) and, therefore, are eligible to receive
empirically justified Medicare DSH payments and uncompensated care
payments (78 FR 50625 and 79 FR 50008).
Hospitals participating in the Rural Community Hospital
Demonstration Program under section 410A of the Medicare Modernization
Act do not receive DSH payments and, therefore, are excluded from
receiving empirically justified Medicare DSH payments and uncompensated
care payments under the new DSH payment methodology (78 FR 50625 and 79
FR 50008). There are 14 hospitals currently participating in the
program; 10 will continue to participate through the end of FY 2016,
and 4 will continue to participate through the scheduled end of the
program on December 31, 2016. Once a hospital's participation in the
demonstration program ends, the hospital will be treated like a
subsection (d) hospital and subject to the IPPS. Therefore, once their
participation ends, these hospitals could be eligible to receive
empirically justified Medicare DSH payments and uncompensated care
payments and, if so, will be treated accordingly for interim and final
payments. We will apply the same process to determining their
eligibility as we do for all other IPPS hospitals, and will make
interim and final DSH and uncompensated care payments accordingly.
3. Empirically Justified Medicare DSH Payments
As we have discussed earlier, section 1886(r)(1) of the Act
requires the Secretary to pay 25 percent of the amount of the Medicare
DSH payment that would otherwise be made under section 1886(d)(5)(F) of
the Act to a subsection (d) hospital. Because section 1886(r)(1) of the
Act merely requires the program to pay a designated percentage of these
payments, without revising the criteria governing eligibility for DSH
payments or the underlying payment methodology, we stated in the FY
2014 IPPS/LTCH PPS final rule that we did not believe that it was
necessary to develop any new operational mechanisms for making such
payments. Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR
50626), we implemented this provision by advising MACs to simply adjust
the interim claim payments to the requisite 25 percent of what would
have otherwise been paid. We also made corresponding changes to the
hospital cost report so that these empirically justified Medicare DSH
payments can be settled at the appropriate level at the time of cost
report settlement. We provided more detailed operational instructions
and cost report instructions following issuance of the FY 2014 IPPS/
LTCH PPS final rule that are available on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html.

[[Page 25084]]

4. Uncompensated Care Payments
As we have discussed earlier, section 1886(r)(2) of the Act
provides that, for each eligible hospital in FY 2014 and subsequent
years, the uncompensated care payment is the product of three factors.
These three factors represent our estimate of 75 percent of the amount
of Medicare DSH payments that would otherwise have been paid, an
adjustment to this amount for the percent change in the national rate
of uninsurance compared to the rate of uninsurance in 2013, and each
eligible hospital's estimated uncompensated care amount relative to the
estimated uncompensated care amount for all eligible hospitals. Below
we discuss the data sources and methodologies for computing each of
these factors, our final policies for FYs 2014 through 2016, and our
proposed policies for FY 2017.
a. Calculation of Proposed Factor 1 for FY 2017
Section 1886(r)(2)(A) of the Act establishes Factor 1 in the
calculation of the uncompensated care payment. Section 1886(r)(2)(A) of
the Act states that this factor is equal to the difference between (1)
the aggregate amount of payments that would be made to subsection (d)
hospitals under section 1886(d)(5)(F) of the Act if section 1886(r) of
the Act did not apply for such fiscal year (as estimated by the
Secretary); and (2) the aggregate amount of payments that are made to
subsection (d) hospitals under section 1886(r)(1) of the Act for such
fiscal year (as so estimated). Therefore, section 1886(r)(2)(A)(i) of
the Act represents the estimated Medicare DSH payments that would have
been made under section 1886(d)(5)(F) of the Act if section 1886(r) of
the Act did not apply for such fiscal year. Under a prospective payment
system, we would not know the precise aggregate Medicare DSH payment
amount that would be paid for a Federal fiscal year until cost report
settlement for all IPPS hospitals is completed, which occurs several
years after the end of the Federal fiscal year. Therefore, section
1886(r)(2)(A)(i) of the Act provides authority to estimate this amount,
by specifying that, for each fiscal year to which the provision
applies, such amount is to be estimated by the Secretary. Similarly,
section 1886(r)(2)(A)(ii) of the Act represents the estimated
empirically justified Medicare DSH payments to be made in a fiscal
year, as prescribed under section 1886(r)(1) of the Act. Again, section
1886(r)(2)(A)(ii) of the Act provides authority to estimate this
amount.
Therefore, Factor 1 is the difference between our estimates of: (1)
The amount that would have been paid in Medicare DSH payments for the
fiscal year, in the absence of the new payment provision; and (2) the
amount of empirically justified Medicare DSH payments that are made for
the fiscal year, which takes into account the requirement to pay 25
percent of what would have otherwise been paid under section
1886(d)(5)(F) of the Act. In other words, this factor represents our
estimate of 75 percent (100 percent minus 25 percent) of our estimate
of Medicare DSH payments that would otherwise be made, in the absence
of section 1886(r) of the Act, for the fiscal year.
As we did for FY 2016, in order to determine Factor 1 in the
uncompensated care payment formula for FY 2017, we are proposing to
continue the policy established in the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50628 through 50630) and in the FY 2014 IPPS interim final rule
with comment period (78 FR 61194) of determining Factor 1 by developing
estimates of both the aggregate amount of Medicare DSH payments that
would be made in the absence of section 1886(r)(1) of the Act and the
aggregate amount of empirically justified Medicare DSH payments to
hospitals under 1886(r)(1) of the Act. These estimates will not be
revised or updated after we know the final Medicare DSH payments for FY
2017.
Therefore, in order to determine the two elements of Factor 1 for
FY 2017 (Medicare DSH payments prior to the application of section
1886(r)(1) of the Act, and empirically justified Medicare DSH payments
after application of section 1886(r)(1) of the Act), we used the most
recently available projections of Medicare DSH payments for the fiscal
year, as calculated by CMS' Office of the Actuary using the most
recently filed Medicare hospital cost report with Medicare DSH payment
information and the most recent Medicare DSH patient percentages and
Medicare DSH payment adjustments provided in the IPPS Impact File.
For purposes of calculating Factor 1 and modeling the impact of
this FY 2017 IPPS/LTCH PPS proposed rule, we used the Office of the
Actuary's March 2016 Medicare DSH estimates, which are based on data
from the December 2015 update of the Medicare Hospital Cost Report
Information System (HCRIS) and the FY 2016 IPPS/LTCH PPS final rule
IPPS Impact file, published in conjunction with the publication of the
FY 2016 IPPS/LTCH PPS final rule. Because SCHs that are projected to be
paid under their hospital-specific rate are excluded from the
application of section 1886(r) of the Act, these hospitals also were
excluded from the March 2016 Medicare DSH estimates. Furthermore,
because section 1886(r) of the Act specifies that the uncompensated
care payment is in addition to the empirically justified Medicare DSH
payment (25 percent of DSH payments that would be made without regard
to section 1886(r) of the Act), Maryland hospitals participating in the
Maryland All-Payer Model that do not receive DSH payments are also
excluded from the Office of the Actuary's Medicare DSH estimates.
Because the Rural Community Hospital Demonstration program is scheduled
to end on December 31, 2016, hospitals that are participating in the
program are included in this estimate for FY 2017. However, we have
excluded 25 percent of our estimate of DSH payments that would
otherwise be made to the 4 hospitals whose participation in the program
will continue through December 31, 2016, as these hospitals will be
excluded from receiving DSH payments until that time. The estimate
includes the total DSH payments that would be made to the 10 hospitals
whose participation in the Rural Community Hospital Demonstration
program will continue only through September 30, 2016.
Using the data sources discussed above, the Office of the Actuary
uses the most recently submitted Medicare cost report data to identify
Medicare DSH payments and the most recent Medicare DSH payment
adjustments provided in the IPPS Impact File, and applies inflation
updates and assumptions for future changes in utilization and case-mix
to estimate Medicare DSH payments for the upcoming fiscal year. The
March 2016 Office of the Actuary estimate for Medicare DSH payments for
FY 2017, without regard to the application of section 1886(r)(1) of the
Act, is approximately $14.227 billion. This estimate excludes Maryland
hospitals participating in the Maryland All-Payer Model, SCHs paid
under their hospital-specific payment rate, and 25 percent of payments
to the 4 hospitals whose participation in the Rural Community Hospital
Demonstration program will continue through December 31, 2016.
Therefore, based on the March 2016 estimate, the estimate for
empirically justified Medicare DSH payments for FY 2017, with the
application of section 1886(r)(1) of the Act, is approximately $3.556
billion (or 25 percent of the total amount of estimated Medicare DSH
payments for

[[Page 25085]]

FY 2017). Under Sec. 412.l06(g)(1)(i) of the regulations, Factor 1 is
the difference between these two estimates of the Office of the
Actuary. Therefore, in this proposed rule, we are proposing that Factor
1 for FY 2017 is $10,670,529,595.84, which is equal to 75 percent of
the total amount of estimated Medicare DSH payments for FY 2017
($14,227,372,794.46 minus $3,556,843,198.62).
The Office of the Actuary's estimates for FY 2017 begin with a
baseline of $12.154 billion in Medicare DSH expenditures for FY 2013.
The following table shows the factors applied to update this baseline
through the current estimate for FY 2017:

Factors Applied for FY 2014 Through FY 2017 To Estimate Medicare DSH Expenditures Using 2013 Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated DSH
FY Update Discharge Case-mix Other Total payment (in
billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.................................................... 1.009 0.9553 1.015 1.04795 1.025268 $12.461
2015.................................................... 1.014 0.9894 1.005 1.0702 1.079048 13.446
2016.................................................... 1.009 1.0078 1.005 0.9993 1.021239 13.732
2017.................................................... 1.0005 1.0168 1.005 1.0134 1.036095 14.227
--------------------------------------------------------------------------------------------------------------------------------------------------------

In this table, the discharge column shows the increase in the
number of Medicare FFS inpatient hospital discharges. The figures for
FYs 2014 and 2015 are based on Medicare claims data that have been
adjusted by a completion factor. The discharge figure for FY 2016 is
based on preliminary data for 2016. The discharge figure for FY 2017 is
an assumption based on recent trends recovering back to the long-term
trend and assumptions related to how many beneficiaries will be
enrolled in Medicare Advantage (MA) plans. The case-mix column shows
the increase in case-mix for IPPS hospitals. The case-mix figures for
FYs 2014 and 2015 are based on actual data adjusted by a completion
factor. The FY 2016 and FY 2017 increases are based on the
recommendation of the 2010-2011 Medicare Technical Review Panel. The
``other'' column shows the increase in other factors that contribute to
the Medicare DSH estimates. These factors include the difference
between the total inpatient hospital discharges and the IPPS
discharges, various adjustments to the payment rates that have been
included over the years but are not reflected in the other columns
(such as the change in rates for the 2-midnight stay policy). In
addition, the ``other'' column includes a factor for the Medicaid
expansion due to the Affordable Care Act.
The table below shows the factors that are included in the
``Update'' column of the above table:

----------------------------------------------------------------------------------------------------------------
Affordable
Market basket Care Act Multifactor Documentation Total update
FY percentage payment productivity and coding percentage
reductions adjustment
----------------------------------------------------------------------------------------------------------------
2014............................ 2.5 -0.3 -0.5 -0.8 0.9
2015............................ 2.9 -0.2 -0.5 -0.8 1.4
2016............................ 2.4 -0.2 -0.5 -0.8 0.9
2017............................ 2.8 -0.75 -0.5 -1.5 0.05
----------------------------------------------------------------------------------------------------------------
Note: All numbers are based on the FY 2017 President's Budget projections.

b. Calculation of Proposed Factor 2 for FY 2017
Section 1886(r)(2)(B) of the Act establishes Factor 2 in the
calculation of the uncompensated care payment. Specifically, section
1886(r)(2)(B)(i) of the Act provides that, for each of FYs 2014, 2015,
2016, and 2017, a factor equal to 1 minus the percent change in the
percent of individuals under the age of 65 who are uninsured, as
determined by comparing the percent of such individuals (1) who were
uninsured in 2013, the last year before coverage expansion under the
Affordable Care Act (as calculated by the Secretary based on the most
recent estimates available from the Director of the Congressional
Budget Office before a vote in either House on the Health Care and
Education Reconciliation Act of 2010 that, if determined in the
affirmative, would clear such Act for enrollment); and (2) who are
uninsured in the most recent period for which data are available (as so
calculated), minus 0.1 percentage point for FY 2014 and minus 0.2
percentage point for each of FYs 2015, 2016, and 2017.
Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the
percent of individuals under 65 without insurance in 2013 must be the
percent of such individuals who were uninsured in 2013, the last year
before coverage expansion under the Affordable Care Act (as calculated
by the Secretary based on the most recent estimates available from the
Director of the Congressional Budget Office before a vote in either
House on the Health Care and Education Reconciliation Act of 2010 that,
if determined in the affirmative, would clear such Act for enrollment).
The Health Care and Education Reconciliation Act (Pub. L. 111-152) was
enacted on March 30, 2010. It was passed in the House of
Representatives on March 21, 2010, and by the Senate on March 25, 2010.
Because the House of Representatives was the first House to vote on the
Health Care and Education Reconciliation Act of 2010 on March 21, 2010,
we have determined that the most recent estimate available from the
Director of the Congressional Budget Office ``before a vote in either
House on the Health Care and Education Reconciliation Act of 2010 . .
.'' (emphasis added) appeared in a March 20, 2010 letter from the
director of the CBO to the Speaker of the House. Therefore, we believe
that only the estimates in this March 20, 2010 letter meet the
statutory requirement under section 1886(r)(2)(B)(i)(I) of the Act. (To
view the March 20, 2010 letter, we refer readers to the Web site at:
http://

[[Page 25086]]

www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/
amendreconprop.pdf.)
In its March 20, 2010 letter to the Speaker of the House of
Representatives, the CBO provided two estimates of the ``post-policy
uninsured population.'' The first estimate is of the ``Insured Share of
the Nonelderly Population Including All Residents'' (82 percent) and
the second estimate is of the ``Insured Share of the Nonelderly
Population Excluding Unauthorized Immigrants'' (83 percent). In the FY
2014 IPPS/LTCH PPS final rule (78 FR 50631), we used the first estimate
that includes all residents, including unauthorized immigrants. We
stated that we believe this estimate is most consistent with the
statute, which requires us to measure ``the percent of individuals
under the age of 65 who are uninsured'' and provides no exclusions
except for individuals over the age of 65. In addition, we stated that
we believe that this estimate more fully reflects the levels of
uninsurance in the United States that influence uncompensated care for
hospitals than the estimate that reflects only legal residents. The
March 20, 2010 CBO letter reports these figures as the estimated
percentage of individuals with insurance. However, because section
1886(r)(2)(B)(i) of the Act requires that we compare the percent of
individuals who are uninsured in the most recent period for which data
are available with the percent of individuals who were uninsured in
2013, in the FY 2014 IPPS/LTCH PPS final rule, we used the CBO
insurance rate figure and subtracted that amount from 100 percent (that
is the total population without regard to insurance status) to estimate
the 2013 baseline percent of individuals without insurance. Therefore,
for FYs 2014 through 2017, our estimate of the uninsurance percentage
for 2013 is 18 percent.
Section 1886(r)(2)(B)(i) of the Act requires that we compare the
baseline uninsurance rate to the percent of such individuals who are
uninsured in the most recent period for which data are available (as so
calculated). In the FY 2014, FY 2015, and FY 2016 IPPS/LTCH PPS final
rules (78 FR 50634, 79 FR 50014, and 80 FR 49522, respectively), we
used the same data source, CBO estimates, to calculate this percent of
individuals without insurance. In response to public comments, we also
agreed that we should normalize the CBO estimates, which are based on
the calendar year, for the Federal fiscal years for which each
calculation of Factor 2 is made (78 FR 50633). Therefore, for this FY
2017 IPPS/LTCH PPS proposed rule, we used the most recently available
estimate of the uninsurance rate, which is based on the CBO's March
2015 estimates of the effects of the Affordable Care Act on health
insurance coverage (which are available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900-2014-04-ACAtables2.pdf). The
CBO's March 2015 estimate of individuals under the age of 65 with
insurance in CY 2016 is 89 percent. Therefore, the CBO's most recent
estimate of the rate of uninsurance in CY 2016 is 11 percent (that is,
100 percent minus 89 percent). Similarly, the CBO's March 2015 estimate
of individuals under the age of 65 with insurance in CY 2017 is 90
percent. Therefore, the CBO's most recent estimate of the rate of
uninsurance in CY 2017 available for this proposed rule is 10 percent
(that is, 100 percent minus 90 percent).
The calculation of the proposed Factor 2 for FY 2017, employing a
weighted average of the CBO projections for CY 2016 and CY 2017, is as
follows:
CY 2016 rate of insurance coverage (March 2015 CBO
estimate): 89 percent.
CY 2017 rate of insurance coverage (March 2015 CBO
estimate): 90 percent.
FY 2016 rate of insurance coverage: (89 percent * .25) +
(90 percent * .75) = 89.75 percent.
Percent of individuals without insurance for 2013 (March
2010 CBO estimate): 18 percent.
Percent of individuals without insurance for FY 2017
(weighted average): 10.25 percent.

1-[verbar]((0.1025-0.18)/0.18)[verbar] = 1 - 0.4306 = 0.5694 (56.94
percent)
0.5694 (56.94 percent) - .002 (0.2 percentage points for FY 2017 under
section 1886(r)(2)(B)(i) of the Act) = 0.5674 or 56.74 percent
0.5674 = Factor 2

Therefore, the proposed Factor 2 for FY 2017 is 56.74 percent.
The FY 2017 Proposed Uncompensated Care Amount is:
$10,670,529,595.84 x 0.5674 = $6,054,458,492.68.

------------------------------------------------------------------------

------------------------------------------------------------------------
FY 2017 Proposed Uncompensated Care Total $6,054,458,492.68
Available.....................................
------------------------------------------------------------------------

c. Calculation of Proposed Factor 3 for FY 2017
Section 1886(r)(2)(C) of the Act defines Factor 3 in the
calculation of the uncompensated care payment. As we have discussed
earlier, section 1886(r)(2)(C) of the Act states that Factor 3 is equal
to the percent, for each subsection (d) hospital, that represents the
quotient of (1) the amount of uncompensated care for such hospital for
a period selected by the Secretary (as estimated by the Secretary,
based on appropriate data (including, in the case where the Secretary
determines alternative data are available that are a better proxy for
the costs of subsection (d) hospitals for treating the uninsured, the
use of such alternative data)); and (2) the aggregate amount of
uncompensated care for all subsection (d) hospitals that receive a
payment under section 1886(r) of the Act for such period (as so
estimated, based on such data).
Therefore, Factor 3 is a hospital-specific value that expresses the
proportion of the estimated uncompensated care amount for each
subsection (d) hospital and each subsection (d) Puerto Rico hospital
with the potential to receive Medicare DSH payments relative to the
estimated uncompensated care amount for all hospitals estimated to
receive Medicare DSH payments in the fiscal year for which the
uncompensated care payment is to be made. Factor 3 is applied to the
product of Factor 1 and Factor 2 to determine the amount of the
uncompensated care payment that each eligible hospital will receive for
FY 2014 and subsequent fiscal years. In order to implement the
statutory requirements for this factor of the uncompensated care
payment formula, it was necessary to determine: (1) The definition of
uncompensated care or, in other words, the specific items that are to
be included in the numerator (that is, the estimated uncompensated care
amount for an individual hospital) and the denominator (that is, the
estimated uncompensated care amount for all hospitals estimated to
receive Medicare DSH payments in the applicable fiscal year); (2) the
data source(s) for the estimated uncompensated care amount; and (3) the
timing and manner of computing the quotient for each hospital estimated
to receive Medicare DSH payments. The statute instructs the Secretary
to estimate the amounts of uncompensated care for a period based on
appropriate data. In addition, we note that the statute permits the

[[Page 25087]]

Secretary to use alternative data in the case where the Secretary
determines that such alternative data are available that are a better
proxy for the costs of subsection (d) hospitals for treating
individuals who are uninsured.
In the course of considering how to determine Factor 3 during the
rulemaking process for FY 2014, we considered defining the amount of
uncompensated care for a hospital as the uncompensated care costs of
each hospital and determined that Worksheet S-10 of the Medicare cost
report potentially provides the most complete data regarding
uncompensated care costs for Medicare hospitals. However, because of
concerns regarding variations in the data reported on the Worksheet S-
10 and the completeness of these data, we did not propose to use data
from the Worksheet S-10 to determine the amount of uncompensated care
for FY 2014, the first year this provision was in effect, or for FY
2015 and FY 2016. We instead employed the utilization of insured low
income patients, defined as inpatient days of Medicaid patients plus
inpatient days of Medicare SSI patients as defined in Sec.
412.106(b)(4) and Sec. 412.106(b)(2)(i) of the regulations,
respectively, to determine Factor 3. We believed that these alternative
data, which are currently reported on the Medicare cost report, would
be a better proxy for the amount of uncompensated care provided by
hospitals. We also indicated that we were expecting reporting on the
Worksheet S-10 to improve over time and remained convinced that the
Worksheet S-10 could ultimately serve as an appropriate source of more
direct data regarding uncompensated care costs for purposes of
determining Factor 3. As discussed in section IV.F.3.d. of the preamble
of this proposed rule, since the introduction of the uncompensated care
payment in FY 2014, we believe that hospitals have been submitting more
accurate and consistent data through Worksheet S-10 and that it is
appropriate to begin incorporating Worksheet S-10 data for purposes of
calculating Factor 3 starting in FY 2018. As discussed in greater
detail in section IV.F.3.d. of the preamble of this proposed rule, we
are proposing a methodology and timeline for incorporating Worksheet S-
10 data and invite public comments on such a proposal.
For FY 2017, we believe it remains premature to propose the use of
Worksheet S-10 data for purposes of determining Factor 3 because
hospitals were not on notice that Worksheet S-10 would be used for
purposes of computing uncompensated care payments prior to FY 2014,
which could affect the accuracy and completeness of the information
reported on Worksheet S-10. As described more fully below regarding the
time period of the data used to calculate Factor 3, for FY 2017, we are
using data from hospital cost reports that precede FY 2014 to determine
Factor 3 of the uncompensated care payments methodology. Therefore, for
FY 2017, we remain concerned about the accuracy and consistency of the
data reported on Worksheet S-10 and are proposing to continue to employ
the utilization of insured low-income patients (defined as inpatient
days of Medicaid patients plus inpatient days of Medicare SSI patients
as defined in Sec. 412.106(b)(4) and Sec. 412.106(b)(2)(i),
respectively) to determine Factor 3. We also are proposing to continue
the policies that were finalized in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50020) to address several specific issues concerning the
process and data to be employed in determining Factor 3 in the case of
hospital mergers for FY 2017 and subsequent fiscal years.
We also are proposing to make a change to the data that will be
used to calculate Factor 3 for Puerto Rico hospitals. We received a
comment in response to the FY 2016 IPPS/LTCH PPS proposed rule that
requested CMS to create a proxy for the SSI days used in the Factor 3
calculation for Puerto Rico hospitals (80 FR 49526). Specifically,
commenters were concerned that residents of Puerto Rico are not
eligible for SSI benefits. Although we did not have logical outgrowth
to adopt any change for FY 2016, we indicated that we planned to
address this issue in the FY 2017 IPPS/LTCH PPS proposed rule if we
also proposed to continue using inpatient days of Medicare SSI patients
as a proxy for uncompensated care in FY 2017. Because we are proposing
to continue using insured low-income patient days as a proxy for
uncompensated care in FY 2017, we believe it is important to consider
the commenter's request regarding the data used to calculate Factor 3
for Puerto Rico hospitals. Accordingly, we are proposing to create a
proxy for SSI days for Puerto Rico hospitals for use in the Factor 3
calculation. The commenter specifically mentioned the use of inpatient
days for Medicare beneficiaries receiving Medicaid as this proxy. We
have examined this concept and have been unable to identify a
systematic source for these data for Puerto Rico hospitals.
Specifically, we note that inpatient utilization for Medicare
beneficiaries entitled to Medicaid is not reported by hospitals on the
Medicare cost report. Therefore, we sought an alternative method using
publicly available Medicare data for determining a proxy to account for
the fact that residents of Puerto Rico are not eligible for SSI, and
therefore Puerto Rico hospitals have a relatively low number of
Medicare SSI days in the Factor 3 computation. We believe it is
appropriate to use data from the Medicare cost report to develop a
Puerto Rico Medicare SSI days proxy because they are publicly
available, used for payment purposes, and subject to audit. However, we
acknowledge that there are other data sources that could be included to
develop such a proxy, in particular the SSI ratios posted on the
Medicare DSH Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html, and therefore are
soliciting public comment on their use.
To develop a Puerto Rico Medicare SSI days proxy using data from
the Medicare cost report, our Office of the Actuary examined data from
2013 cost reports and analyzed the relationship between Medicare SSI
days (estimated using SSI ratios on the cost report and Medicare days
from the same cost report) and Medicaid days (reported by the hospitals
in accordance with Sec. 412.106(b)(4)). Nationally, excluding Puerto
Rico, the Office of the Actuary found that, on average and across
States, for every 100 Medicaid inpatient days, hospitals had 14
Medicare SSI days. In other words, the relationship between Medicare
SSI days and Medicaid days reported by hospitals in States, excluding
Puerto Rico, was approximately 14 percent. We believe it would be
appropriate to extrapolate this relationship to Puerto Rico hospitals
to approximate how many patient days for these hospitals would be
Medicare SSI days if Puerto Rico residents were eligible to receive
SSI. Therefore, to calculate Factor 3 for FY 2017, we are proposing to
use a proxy for Medicare SSI days for each Puerto Rico hospital equal
to 14 percent (or 0.14) of its Medicaid days. In other words, for each
Puerto Rico hospital, we would compute a value that is equal to 14
percent of its Medicaid days, where Medicaid days are determined in
accordance with Sec. 412.106(b)(4). Because this is a proposed proxy
for the Puerto Rico hospital's Medicare SSI days, this value would
replace whatever value would otherwise be computed for the hospital
under Sec. 412.106(b)(2)(i). Specifically, we would first remove any
Medicare SSI days that a Puerto Rico hospital has from our calculation
for

[[Page 25088]]

purposes of determining the numerator of Factor 3 for the hospital and,
if the hospital is projected to be eligible for DSH payments in FY
2017, the denominator of Factor 3. Second, we would add the proxy to
the hospital's Medicaid days for purposes of determining the numerator
of Factor 3 for the hospital and, if the hospital is projected to be
eligible for DSH payments in FY 2017, the denominator of Factor 3. We
note that we continue to encourage Puerto Rico hospitals to report
uncompensated care costs on Worksheet S-10 of the Medicare cost report
completely and accurately in light of our proposal to begin
incorporating data from Worksheet S-10 in the computation of hospitals'
uncompensated care payments starting in FY 2018, as described in more
detail in section IV.F.3.d. of the preamble of this proposed rule.
In summary, we are inviting public comments on these proposals to
continue to use insured low-income days (that is, to use data for
Medicaid and Medicare SSI patient days determined in accordance with
Sec. 412.106(b)(2)(i) and (b)(4) as a proxy for uncompensated care, as
permitted by statute, including a proxy for Medicare SSI days for
Puerto Rico hospitals), to determine Factor 3 for FY 2017. These
proposals would be codified in our regulations at Sec.
412.106(g)(1)(iii)(C). We also are inviting public comments on our
proposal to continue the policies concerning the process and data to be
employed in determining Factor 3 in the case of hospital mergers.
As we have done for every proposed rule beginning in FY 2014, for
this FY 2017 IPPS/LTCH PPS proposed rule, we are publishing on the CMS
Web site a table listing Factor 3 for all hospitals that we estimate
would receive empirically justified Medicare DSH payments in FY 2017
(that is, hospitals that we project would receive interim uncompensated
care payments during the fiscal year), and for the remaining subsection
(d) hospitals and subsection (d) Puerto Rico hospitals that have the
potential of receiving a Medicare DSH payment in the event that they
receive an empirically justified Medicare DSH payment for the fiscal
year as determined at cost report settlement. This table also contains
a list of the mergers that we are aware of and the computed
uncompensated care payment for each merged hospital. Hospitals have 60
days from the date of public display of this FY 2017 IPPS/LTCH PPS
proposed rule to review this table and notify CMS in writing of any
inaccuracies. Comments can be submitted to the CMS inbox at
[email protected]. After the publication of the FY 2017 IPPS/
LTCH final rule, hospitals will have until August 31, 2016, to review
and submit comments on the accuracy of the table published in
conjunction with the final rule. Comments can be submitted to the CMS
inbox at [email protected] through August 31, 2016, and any
changes to Factor 3 will be posted on the CMS Web site prior to October
1, 2016.
The statute also allows the Secretary the discretion to determine
the time periods from which we will derive the data to estimate the
numerator and the denominator of the Factor 3 quotient. Specifically,
section 1886(r)(2)(C)(i) of the Act defines the numerator of the
quotient as the amount of uncompensated care for such hospital for a
period selected by the Secretary. Section 1886(r)(2)(C)(ii) of the Act
defines the denominator as the aggregate amount of uncompensated care
for all subsection (d) hospitals that receive a payment under section
1886(r) of the Act for such period. In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50638), we adopted a process of making interim payments
with final cost report settlement for both the empirically justified
Medicare DSH payments and the uncompensated care payments required by
section 3133 of the Affordable Care Act. Consistent with that process,
we also determined the time period from which to calculate the
numerator and denominator of the Factor 3 quotient in a way that would
be consistent with making interim and final payments. Specifically, we
must have Factor 3 values available for hospitals that we estimate will
qualify for Medicare DSH payments and for those hospitals that we do
not estimate will qualify for Medicare DSH payments but that may
ultimately qualify for Medicare DSH payments at the time of cost report
settlement.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638) and the FY
2015 IPPS/LTCH PPS final rule (79 FR 50018), we finalized a policy of
using the most recent available full year of Medicare cost report data
for determining Medicaid days and the most recently available SSI
ratios to calculate Factor 3. In the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49528), we held constant the cost reporting years used to
determine Medicaid days in the calculation of Factor 3. That is,
instead of calculating the numerator and the denominator of Factor 3
for hospitals based on the most recently available full year of
Medicare cost report data with respect to a Federal fiscal year, we
used data from the more recent of the cost report years (2012/2011)
used to determine Medicaid days in FY 2015. We made this change in
order to refine the balance between the recency and accuracy of the
data used in the Factor 3 calculation. Because we make prospective
determinations of the uncompensated care payment without
reconciliation, we believed this change would increase the accuracy of
the data used to determine Factor 3, and accordingly each eligible
hospital's allocation of the overall uncompensated care amount by
providing hospitals with more time to submit these data before they are
used in the computation of Factor 3. As in prior years, if the more
recent of the two cost reporting periods did not reflect data for a 12-
month period, we used data from the earlier of the two periods so long
as that earlier period reflected data for a period of 12 months. If
neither of the two periods reflected 12 months, we used the period that
reflected a longer amount of time. We also finalized a proposal to
continue to extract Medicaid days from the most recent HCRIS database
update and to use Medicare SSI days from the most recent SSI ratios
available to us during the time of rulemaking to calculate Factor 3. We
stated that, for subsequent fiscal years, if we propose and finalize a
policy of using insured low-income days in computing Factor 3, we would
continue to use the most recent HCRIS database extract at the time of
the annual rulemaking cycle, and to use the subsequent year of cost
reports (that is, to advance the 12-month cost reports by 1 year). In
addition, for any subsequent fiscal years in which we finalize a policy
to use insured low-income days to compute Factor 3, our intention would
be to continue to use the most recently available SSI ratio data at the
time of annual rulemaking to calculate Factor 3. We believed that it
was appropriate to state our intentions regarding the specific data we
would use in the event Factor 3 was determined on the basis of low-
income insured days for subsequent years to provide hospitals with as
much guidance as possible so they may best consider how and when to
submit cost report information in the future. We noted that we would
make proposals with regard to our methodology for calculating Factor 3
for subsequent fiscal years through notice-and-comment rulemaking.
Since the publication of the FY 2016 IPPS/LTCH PPS final rule, we
have learned that some members of the hospital community have been
disadvantaged by our policy of using only one cost reporting period to

[[Page 25089]]

determine their share of uncompensated care. Specifically, many
hospitals have reported unpredictable swings and anomalies in their
low-income insured days between cost reporting periods. These hospitals
expressed concern that the use of only one cost reporting period is a
poor predictor of their future uncompensated care burden and results in
inadequate payments. Because the data used to make uncompensated care
payment determinations are not subject to reconciliation after the end
of the fiscal year, we believe that it would be appropriate to expand
the time period for the data used to calculate Factor 3 from one cost
reporting period to three cost reporting periods. Using data from more
than one cost reporting period would mitigate undue fluctuations in the
amount of uncompensated care payments to hospitals from year to year
and smooth over anomalies between cost reporting periods. Moreover,
this policy would have the benefit of supplementing the data of
hospitals that filed cost reports that are less than 12 months, such
that the basis of their uncompensated care payments and those of
hospitals that filed full-year 12-month cost reports would be more
equitable. We believe that computing Factor 3 using data from three
cost reporting periods would best stabilize hospitals' uncompensated
care payments while maintaining the recency of the data used in the
Factor 3 calculation. We believe that using data from two cost
reporting periods would not be as stable while using data from more
than three cost reporting periods could result in using overly dated
information.
Therefore, for FY 2017, we are proposing to use an average of data
derived from three cost reporting periods instead of one cost reporting
period to compute Factor 3. That is, we would calculate a Factor 3 for
each cost reporting period and calculate the average. We would
calculate their average by adding these amounts together, and dividing
the sum by three, in order to calculate Factor 3 for FY 2017.
Consistent with the policy adopted in the FY 2016 IPPS/LTCH PPS final
rule, we would advance the most recent cost report years used to obtain
Medicaid days and Medicare SSI days in FY 2017 by one year and continue
to extract Medicaid days data from the most recent update of HCRIS,
which for FY 2017 would be the March 2015 update of HCRIS. If the
hospital does not have data for one or more of the three cost reporting
periods, we compute Factor 3 for the periods available and average
those. In other words, we would divide the sum of the individual Factor
3s by the number of cost reporting periods for which there are data. If
a hospital has merged, we would combine data from both hospitals for
the cost reporting periods in which the merger is not reflected in the
surviving hospital's cost report data to compute Factor 3 for the
surviving hospital. Moreover, to further reduce undue fluctuations in a
hospital's uncompensated care payments, if a hospital filed multiple
cost reports beginning in the same fiscal year, we are proposing to
combine data from the multiple cost reports so that a hospital may have
a Factor 3 calculated using more than one cost report within a cost
reporting period. We are proposing to codify these changes for FY 2017
by amending the regulations at Sec. 412.106(g)(1)(iii)(C). We are
inviting public comments on this proposal, which we describe more fully
below.
For the FY 2016 IPPS/LTCH PPS final rule, we used the most recent
of hospitals' 12-month 2012 or 2011 cost reports and 2012 cost report
data submitted to CMS by IHS hospitals to obtain the Medicaid days to
calculate Factor 3. In addition, we used Medicare SSI days from the FY
2013 SSI ratios published on the following CMS Web site to calculate
Factor 3: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.
Under our proposal to calculate Factor 3 for FY 2017 using data
from three cost reporting periods, we would use data from hospitals' FY
2011, FY 2012, and FY 2013 cost reporting periods extracted from the
most recent update of the hospital cost report data in the HCRIS
database and the FY 2011 and FY 2012 cost report data submitted to CMS
by IHS hospitals to obtain the Medicaid days to calculate Factor 3. (We
note that, starting with the FY 2013 cost reports, data for IHS
hospitals will be included in the HCRIS database and will no longer be
submitted separately.) In addition, to calculate Factor 3 for FY 2017,
we anticipate that, under our proposal discussed earlier to use the
most recent available 3 years of data on Medicare SSI utilization, we
would obtain Medicare SSI days from the FY 2012, FY 2013, and FY 2014
SSI ratios (or, for Puerto Rico hospitals, substitute Medicare SSI days
with a proxy as described earlier). We expect the FY 2014 SSI ratios to
be published on the CMS Web site when available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.
Under this proposal, we would calculate Factor 3 as follows:

Step 1: Calculate Factor 3 for FY 2011 by summing a hospital's
FY 2011 Medicaid days and FY 2012 SSI days and dividing by all DSH
eligible hospitals' FY 2011 Medicaid days and FY 2012 SSI days.
Step 2: Calculate Factor 3 for FY 2012 by summing a hospital's
FY 2012 Medicaid days and FY 2013 SSI days and dividing by all DSH
eligible hospitals' FY 2012 Medicaid days and FY 2013 SSI days.
Step 3: Calculate Factor 3 for FY 2013 by summing a hospital's
FY 2013 Medicaid days and FY 2014 SSI days and dividing by all DSH
eligible hospitals' FY 2013 Medicaid days and FY 2014 SSI days.
Step 4: Sum the Factor 3 calculated for FY 2011, FY 2012, and FY
2013 and divide by the number of cost reporting periods with data to
compute an average Factor 3.

For illustration purposes, in Table 18 associated with the FY 2017
proposed rule (which is available via the Internet on the CMS Web
site), we compute Factor 3 using hospitals' FY 2011, FY 2012, and FY
2013 cost reports from the December 2015 update of HCRIS to obtain
Medicaid days and the FY 2012 and FY 2013 SSI ratios published on the
following CMS Web site to determine Medicare SSI days: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. Because the FY 2014 SSI ratios are not yet
available, for purposes of this proposed rule, we computed Factor 3 for
FY 2013 using FY 2013 Medicaid days and FY 2013 SSI days. However, we
expect that the FY 2014 SSI ratios will be available to calculate
Factor 3 for the FY 2017 IPPS/LTCH PPS final rule.
For subsequent years, we are proposing to continue to use the most
recent HCRIS database extract at the time of the annual rulemaking
cycle and to advance the three cost reporting periods used to determine
Factor 3 by 1 year as appropriate. For instance, if we were to finalize
a proposal to continue using the proxy in FY 2018, we would use FY
2012, FY 2013, and FY 2014 cost reports from the most recent available
extract of HCRIS for Medicaid days and FY 2013, FY 2014, and FY 2015
SSI ratios to obtain the Medicare SSI days and follow the same
methodology outlined earlier to determine Factor 3. However, as
discussed earlier, we believe that it is possible to begin
incorporating data from Worksheet S-10 into the computation of Factor 3
starting in FY 2018 and outline a proposal for doing so using data from
three cost reporting periods in the following section.
d. Proposed Calculation of Factor 3 for FY 2018 and Subsequent Years
(1) Background
In response to commenters' requests for a timeline and transition
for

[[Page 25090]]

introducing Worksheet S-10 data into the calculation of Factor 3, in
this section, we discuss our proposed plans on how to begin
incorporating hospitals' Worksheet S-10 data into the calculation of
Factor 3, in order to allocate payments based on a hospital's share of
overall uncompensated care costs reported on Worksheet S-10. When we
first discussed using Worksheet S-10 to allocate hospitals' shares of
uncompensated care costs in the FY 2014 IPPS/LTCH PPS final rule (78 FR
50638), we explained why we believed that it was premature to use
uncompensated care costs reported on Worksheet S-10 for FY 2014.
Specifically, at that time, the most recent available cost reports
would have been from FYs 2010 and 2011, which were submitted on or
after May 1, 2010, when the new Worksheet S-10 went into effect. We
believed that ``[c]oncerns about the standardization and completeness
of the Worksheet S-10 data could be more acute for data collected in
the first year of the Worksheet's use'' (78 FR 50635). In addition, we
believed that it would be most appropriate to use data elements that
have been historically publicly available, subject to audit, and used
for payment purposes (or that the public understands will be used for
payment purposes) to determine the amount of uncompensated care for
purposes of Factor 3 (78 FR 50635). At the time we issued the FY 2014
IPPS/LTCH PPS final rule, we did not believe that the available data
regarding uncompensated care from Worksheet S-10 met these criteria
and, therefore, we believed they were not reliable enough to use for
determining FY 2014 uncompensated care payments. Accordingly, for FY
2014, we concluded that utilization of insured low-income patients
would be a better proxy for the costs of hospitals in treating the
uninsured. For FYs 2015, 2016, and 2017, the cost reports used for
calculating uncompensated care payments (that is, FYs 2011, 2012, and
2013) were also submitted prior to the time that hospitals were on
notice that Worksheet S-10 could be the data source for calculating
uncompensated care payments. Therefore, we believe it is also
appropriate to use proxy data to calculate Factor 3 for these years.
We believe that, for FY 2018, many of these concerns would no
longer be relevant. That is, as described more fully below regarding
the use of Worksheet S-10 from FY 2014, hospitals were on notice as of
FY 2014 that Worksheet S-10 could eventually become the data source for
CMS to calculate uncompensated care payments. Hospitals' cost reports
from FY 2014 have been publically available for some time now.
Furthermore, MedPAC has provided analyses that found that current
Worksheet S-10 data are a better proxy for predicting audited
uncompensated care costs than Medicaid/Medicare SSI days. Specifically,
MedPAC submitted a public comment discussed in the FY 2016 IPPS/LTCH
PPS final rule that cited its 2007 analysis of data from the Government
Accountability Office (GAO) and data from the American Hospital
Association (AHA), which suggests that Medicaid days and low-income
Medicare days are not a good proxy for uncompensated care costs (80 FR
49525). Analysis performed by MedPAC showed that the correlation
between audited uncompensated care data from 2009 and the data from FY
2011 Worksheet S-10 was over 0.80, as compared to a correlation of
approximately 0.50 for 2011 Medicare SSI and Medicaid days. MedPAC
concluded that use of Worksheet S-10 data was already better than using
Medicare SSI and Medicaid days as a proxy for uncompensated care costs,
and that the data on Worksheet S-10 would improve over time as the data
are actually used to make payments.
We also have undertaken an extensive analysis of the Worksheet S-10
data, benchmarking it against the data on uncompensated care costs
reported to the Internal Revenue Service (IRS) on Form 990 by not-for-
profit hospitals. The purpose of this analysis, performed by Dobson
DaVanzo & Associates, LLC, under contract to CMS, was to determine if
Worksheet S-10 uncompensated care data are becoming more stable over
time. (This analysis, included in a report entitled ``Improvements to
Medicare Disproportionate Share Hospital (DSH) Payments Report:
Benchmarking S-10 Data Using IRS Form 990 Data and Worksheet S-10 Trend
Analyses,'' is available on the CMS Web site at: https://www.cms/gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html
under the Downloads section.) Although we acknowledge that the analysis
was limited to not-for-profit hospitals, we believe it is relevant to
our assessment of the overall quality of the data reported on Worksheet
S-10. Because many not-for-profit hospitals are eligible for
empirically justified Medicare DSH payments and, therefore,
uncompensated care payments, they represent a suitable standard of
comparison. We conducted an analysis of 2010, 2011, and 2012 Worksheet
S-10 data and IRS Form 990 data from the same years. Using IRS Form 990
data for tax years 2010, 2011, and 2012 (the latest available years) as
a benchmark, we compared key variables derived from Worksheet S-10 and
IRS Form 990 data, such as charity care and bad debt. The analysis was
completed using data from hospitals that had completed both Worksheet
S-10 and IRS Form 990 across all study years, yielding a sample of 788
not-for-profit hospitals (representing 668 unique Taxpayer
Identification Numbers). Because Factor 3 is used to determine the
Medicare uncompensated care payment amount for each hospital, we
calculated the amounts for Factor 3 for the matched hospitals using
charity care and bad debt, and compared the Factor 3 distributions
calculated using data from IRS Form 990 and Worksheet S-10. Key
findings indicate that the amounts for Factor 3 derived using the IRS
Form 990 and Worksheet S-10 data are highly correlated. In addition,
the correlation coefficient between the amounts for Factor 3 calculated
from the IRS Form 990 and Worksheet S-10 has increased over time, from
0.71 in 2010 to 0.80 in 2012, suggesting some convergence in the data
sources over time. This strong correlation indicates that Worksheet S-
10 data would be a statistically valid source to use as part of the
calculation of the uncompensated care payments in FY 2018.
Accordingly, because hospitals have been on notice since the FY
2014 rulemaking that CMS intended eventually to use Worksheet S-10 as
the data source for calculating uncompensated care payments, and in
light of growing evidence that Worksheet S-10 data are improving over
time, we believe it would be appropriate to use Worksheet S-10 as a
data source for determining Factor 3 starting in FY 2018. We discuss
our proposed methodology below for how we would begin to incorporate
Worksheet S-10 data into the calculation of Factor 3 of the
uncompensated care payment methodology.
(2) Proposed Data Source and Time Period for FY 2018 and Subsequent
Years, Including Methodology for Incorporating Worksheet S-10 Data
For the reasons explained earlier, we believe that, starting with
Worksheet S-10 data reported for FY 2014, it is appropriate to begin to
incorporate Worksheet S-10 data into the computation of Factor 3 and
the allocation of uncompensated care payments. Specifically, we are
proposing to continue to use low-income insured patient days as a proxy

[[Page 25091]]

for uncompensated care for cost reporting periods before FY 2014 and to
use Worksheet S-10 data for FY 2014 and subsequent fiscal years to
calculate uncompensated care payments for FY 2018 and subsequent fiscal
years, which, when combined with our proposal to use data from three
cost reporting periods to calculate Factor 3, would have the effect of
transitioning toward exclusive use of Worksheet S-10 data. Under this
proposed approach, we would use only Worksheet S-10 data to calculate
Factor 3 for FY 2020 and subsequent fiscal years.
As discussed previously, for FY 2017, we are proposing to calculate
a hospital's share of uncompensated care based on the proxy of its
share of low-income insured days using a time period that includes
three cost reports (that is, FY 2011, FY 2012, and FY 2013 cost
reports). For the reasons we described earlier, we believe it would not
be appropriate to use Worksheet S-10 data for periods prior to FY 2014.
For cost reporting periods prior to FY 2014, we believe it would be
appropriate to continue to use low-income insured days for the reasons
we have previously described. Accordingly, with a time period that
includes three cost reporting periods consisting of FY 2014 and two
preceding periods, we are proposing to use Worksheet S-10 data for the
FY 2014 cost reporting period and the low-income insured day proxy data
for the two earlier cost reporting periods, drawing three sets of data
from the most recently available HCRIS extract. That is, for FY 2018,
to compute Factor 3, we are proposing to continue to advance the 3-year
time period we are using by 1 year and therefore to use FY 2012, FY
2013, and FY 2014 cost report data from the most recent update of
HCRIS. In addition, for FY 2018, we are proposing to use Medicaid days
from FY 2012 and FY 2013 cost reports and FY 2014 and FY 2015 SSI
ratios. We believe this approach would have a transitioning effect of
incorporating data from Worksheet S-10 into the calculation of Factor 3
starting in FY 2018.
Consistent with our proposal to determine Factor 3 using data over
a period of 3 cost reporting periods, we are proposing to calculate a
Factor 3 for each of the three cost reporting periods. Specifically, we
are proposing to calculate Factor 3 for FY 2018 based on an average of
Factor 3 calculated using low-income insured days (proxy data)
determined using Medicaid days from FY 2012 and FY 2013 cost reports
and FY 2014 and FY 2015 SSI ratios, and Factor 3 calculated using
uncompensated care data based on FY 2014 Worksheet S-10. We are
proposing to compute this average for each hospital by--
Step 1: Calculating Factor 3 using the low-income insured
days proxy based on FY 2012 cost report data and the FY 2014 SSI ratio;
Step 2: Calculating Factor 3 using the insured low-income
days proxy based on FY 2013 cost report data and the FY 2015 SSI ratio;
Step 3: Calculating Factor 3 based on the FY 2014
Worksheet S-10 data; and
Step 4: Averaging the Factor 3 values that are computed in
Steps 1, 2, and 3; that is, adding the Factor 3 values from FY 2012, FY
2013, and FY 2014 for each hospital, and dividing that amount by the
number of cost reporting periods with data to compute an average Factor
3.
The denominator would be the sum of the averages of the FY 2012, FY
2013, and FY 2014 amounts from Step 4 for each hospital that is
estimated to be eligible for Medicare DSH payments in FY 2018. For
example, assuming there are only three hospitals in the IPPS and
Hospitals A and B are estimated to be eligible for Medicare DSH
payments in FY 2018, while Hospital C is estimated as ineligible for
Medicare DSH payments in FY 2018, each hospital's proposed share of the
overall amount available for uncompensated care payments would be
calculated as follows:

[(Hospital A FY 2012 Factor 3 proxy) + (Hospital A FY 2013 Factor 3
proxy) + (Hospital A FY 2014 Factor 3 S-10)] / 3 = X
[(Hospital B FY 2012 Factor 3 proxy) + (Hospital B FY 2013 Factor 3
proxy) + (Hospital B FY 2014 Factor 3 S-10)] / 3 = Y
[(Hospital C FY 2012 Factor 3 proxy) + (Hospital C FY 2013 Factor 3
proxy) + (Hospital C FY 2014 Factor 3 S-10)] / 3 = Z
Hospital A's Factor 3 or proposed share of the overall uncompensated
care amount in FY 2018 would be equal to (X) / (X+Y).
Hospital B's Factor 3 or proposed share of the overall uncompensated
care amount in FY 2018 would be equal to (Y) / (X+Y).
Hospital C's Factor 3 or proposed share of the overall uncompensated
care amount in FY 2018 would be equal to (Z) / (X+Y).

We note that, under this proposal, the methodology for calculating
Factor 3 for each subsequent year would remain unchanged (such as using
all cost reports for eligible hospitals that begin during the relevant
cost reporting years, including cost reporting periods that are not 12
months in length, and using a proxy for Medicare SSI days for hospitals
in Puerto Rico, as described earlier for the calculation of Factor 3
for FY 2017). With regard to FY 2019 and subsequent years, we believe
it would continue to be appropriate to advance the 3-year time period
we are using by 1 year to compute Factor 3. Accordingly, we are
proposing to use FY 2013, FY 2014, and FY 2015 cost report data from
the most recent available update of HCRIS to compute Factor 3 and
allocate uncompensated care payments for FY 2019. As we stated earlier,
with regard to the data used to compute Factor 3, we believe that it
would be appropriate to use Worksheet S-10 data from FY 2014 and
subsequent periods to calculate Factor 3 and hospitals' uncompensated
care payments for FY 2018 and subsequent fiscal years. Because we are
proposing to use FY 2013, FY 2014, and FY 2015 cost reports to
determine Factor 3 for FY 2019, we are proposing to calculate Factor 3
with a proxy calculated based on FY 2013 cost report data and FY 2015
SSI ratios and based on Worksheet S-10 uncompensated care costs from FY
2014 and FY 2015 cost reports. We are proposing to calculate Factor 3
for FY 2019 based on an average of Factor 3 amounts calculated using
data from the three cost reporting periods in the manner described
earlier for FY 2018. For FY 2020, we are proposing to continue to
advance the three cost reports used by 1 year, and we are proposing to
calculate Factor 3 using only data from the Worksheet S-10, from cost
reports from FY 2014, FY 2015, and FY 2016. For FY 2021 and subsequent
fiscal years, we would continue to base our estimates of the amount of
hospital uncompensated care on uncompensated care costs, using three
cost reporting periods from the most recently available HCRIS database,
and in each fiscal year, the cost reporting periods would be advanced
forward by 1 year (for example, for FY 2021, FY 2015, FY 2016, and FY
2017 cost reports would be used). We are soliciting comments on the
proposed data sources, time periods, and method for calculating
uncompensated care costs in FY 2018 and subsequent years.
Although our proposal for FY 2018 is to calculate Factor 3 based on
an average of the Factor 3 amounts calculated using 2 years of proxy
data and 1 year of data from the FY 2014 Worksheet S-10, readers may
find it useful to review a file posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html

[[Page 25092]]

under the Downloads section, which shows preliminary uncompensated care
costs calculated by hospital using only Worksheet S-10 data from FY
2014 cost reports extracted from the December 2015 update of HCRIS. To
the extent that hospitals have either not submitted a Worksheet S-10
with their FY 2014 cost report or find errors on a submitted Worksheet
S-10, we encourage hospitals to work with MACs to complete and revise,
as appropriate, their FY 2014 Worksheet S-10 as soon as possible.
(3) Proposed Definition of Uncompensated Care for FY 2018 and
Subsequent Fiscal Years
In the FY 2014 IPPS/LTCH PPS rulemaking, we considered three
potential definitions of uncompensated care: Charity care; charity care
+ bad debt; and charity care + bad debt + Medicaid shortfalls. As we
explained in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634), we
considered proposing to define the amount of uncompensated care for a
hospital as the uncompensated care costs of that hospital and
considered potential data sources for those costs. We examined the
literature on uncompensated care and the concepts of uncompensated care
used in various public and private programs, and considered input from
stakeholders and public comments in various forums, including the
national provider call that we held in January 2013. Our review of the
information from these sources indicated that there is some variation
in how different States, provider organizations, and Federal programs
define ``uncompensated care.'' However, a common theme of almost all
these definitions is that they include both ``charity care'' and ``bad
debt'' as components of ``uncompensated care.'' Therefore, a definition
that incorporates the most commonly used factors within uncompensated
care as reported by stakeholders would include charity care costs and
bad debt costs. Worksheet S-10 employs the definition of charity care
plus non-Medicare bad debt. Specifically:
[GRAPHIC] [TIFF OMITTED] TP27AP16.003

Where:

Cost of charity care = Cost of initial obligation of
patients approved for charity care (line 21) minus partial payment
by patients approved for charity care (line 22).
Cost of non-Medicare bad debt expense = Cost to charge
ratio (line 1) times non-Medicare and nonreimbursable bad debt
expense (line 28).

We believe a definition that incorporates the most commonly used
factors within uncompensated care as reported by stakeholders would
include charity care costs and non-Medicare bad debt costs which
correlates to line 30 of Worksheet S-10. Therefore, we are proposing
that, for purposes of calculating Factor 3 and uncompensated care costs
beginning in FY 2018, ``uncompensated care'' would be defined as the
amount on line 30 of Worksheet S-10, which is the cost of charity care
and the cost of non-Medicare bad debt.
We have received many comments and questions from hospitals and
hospital associations regarding whether Medicaid payment shortfalls
should be included in the definition of uncompensated care. Some
stakeholders argue that such payment shortfalls are unreimbursed care
for low-income patients and that the definition of uncompensated care
should be consistent across Medicare and Medicaid (where the
longstanding Medicaid definition of uncompensated care used for
Medicaid hospital-specific DSH limits includes Medicaid payment
shortfalls). Proponents of including Medicare shortfalls advance two
arguments:
Medicaid payment shortfalls represent non-covered care;
therefore, hospitals have unmet costs when treating these patients.
The goal of Medicare DSH payments is to provide partial
relief from charity care that is provided to (primarily) low-income
patients. Because Medicaid enrollees are low-income persons, the
underpayments associated with their care are a form of charity care.
In contrast, there are several arguments to support excluding
Medicaid shortfalls from the definition of uncompensated care:
Several government agencies and key stakeholders define
uncompensated care as bad debt plus charity care, without consideration
for Medicaid payment shortfalls. Specifically, MedPAC, GAO, and the AHA
exclude Medicaid underpayments from the definition of uncompensated
care.
Including Medicaid shortfalls in the calculation of
Medicare uncompensated care payments would represent a form of cross-
subsidization from Medicare to cover Medicaid costs. In the past, CMS
and MedPAC have not supported such action.
Excluding Medicaid shortfalls from the uncompensated care
definition allows Medicare DSH payments to better target hospitals with
a disproportionate share of uncompensated care for patients with no
insurance coverage.
We believe these arguments for excluding Medicare shortfalls from
the definition of uncompensated care are compelling. In addition, we
believe that it is advisable to adopt a definition that is used by
several government agencies and key stakeholders. Therefore, we are
proposing that, for purposes of calculating Factor 3 and the amount of
uncompensated care for a hospital beginning in FY 2018, ``uncompensated
care'' would be defined as the cost of charity care and the cost of
non-Medicare bad debt. We also are proposing to exclude Medicaid
shortfalls reported on Worksheet S-10 from the definition of
uncompensated care for purposes of calculating Factor 3. We are
proposing to codify this definition in the regulation at Sec.
412.106(g)(1)(iii)(C) and are inviting public comment on our proposed
definition. We believe that uncompensated care costs as reported on
line 30 of Worksheet S-10 best reflect our proposed definition of
uncompensated care at this time, but we welcome public input on this
issue.
(4) Other Methodological Considerations for FY 2018 and Subsequent
Fiscal Years
In the past several years, we also have received technical comments
from stakeholders regarding the timing of reporting charity care and
the CCRs used in determining uncompensated care costs. We discuss these
issues and

[[Page 25093]]

how we are proposing to incorporate them into the calculation of
uncompensated care costs for purposes of determining uncompensated care
payments for FY 2018 and subsequent fiscal years below.
Timing of Reporting Charity Care. The determination and
write-off of charity care often happens outside of the hospital fiscal
year in which the services are provided. Some commenters have requested
that the charity care captured on Line 20 of Worksheet S-10 include
only the charity care that was written off in the particular cost
reporting year, regardless of when the services were provided,
consistent with charity write-offs that hospitals report in accordance
with GAAP. In addition, hospitals currently report non-Medicare bad
debt without regard to when the services were provided. The current
Worksheet S-10 does not follow this hospital practice, and specifies
that charity care provided (not necessarily written off) during the
period should to be recorded on Line 20. (Instructions for Line 20 of
Worksheet S-10 of the Medicare cost report CMS-Form-2552-10, ``Enter
the total initial payment obligation of patients who are given a full
or partial discount based on the hospital's charity care criteria
(measured at full charges), for care delivered during this cost
reporting period for the entire facility . . .'' (emphasis added) are
included in CMS Pub. 15-2, Chapter 40, Section 4012).) While these
differences in reporting should average out over time for a hospital,
consistency in reporting has been requested by some stakeholders. We
acknowledge these concerns, and we intend to revise the current
Worksheet S-10 cost report instructions for Line 20 concerning the
timing of reporting charity care, such that charity care will be
reported based on date of write-off, and not based on date of service.
Revisions to the CCR on Line 1 of Worksheet S-10. Many
commenters have requested that the CCR used to convert charges to costs
should include the cost of training residents (direct GME costs). The
CCR on line 1 of Worksheet S-10 currently does not include GME costs,
while the charges of teaching hospitals do include charges for GME.
Thus, the CCR excludes GME costs in the cost component (or numerator),
but includes GME costs in the charge component (or denominator).
Commenters have requested that CMS consider using the GME costs
reported in Worksheet B Part I (column 24, line 118) to capture these
additional costs. Unless these GME costs are included, commenters
maintained that the CCRs of teaching hospitals are artificially low,
not capturing true uncompensated care costs, thereby disadvantaging
teaching hospitals in the calculation of their uncompensated care
costs.
Using data from FY 2011 and 2012 cost reports, we analyzed the
effect on all hospitals' uncompensated care costs when GME costs are
included in the numerator. Specifically, instead of calculating the
CCRs as specified currently on line 1 of Worksheet S-10 (which pulls
the CCR from Worksheet C, Part I, column 3, line 202/Worksheet C,
column 8, line 202), we calculated the CCRs using Worksheet B, Part I,
column 24, line 118/Worksheet C, Part I, column 8, line 202. As can be
seen on the file posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html
under the Downloads section, and as expected, including GME costs in
the numerator of the CCR results in an increased share of uncompensated
care payments being made to teaching hospitals. Of the more than 1,000
teaching hospitals included in the analysis, the CCRs of 830 hospitals
increase by less than 5 percent, 178 hospitals' CCRs increase by more
than 5 percent but less than 10 percent, and 71 hospitals' CCRs
increase by 10 percent or more. Thirty-three hospitals experience a
decrease in their CCRs, with 32 hospitals experiencing a decrease of
less than 5 percent, and 1 hospital experiencing a decrease of more
than 5 percent, but less than 10 percent. As we have stated previously
in response to this issue, we believe that the purpose of uncompensated
care payments is to provide additional payment to hospitals for
treating the uninsured, not for the costs incurred in training
residents. In addition, because the CCR on line 1 of Worksheet S-10
pulled from Worksheet C, Part I, is also used in other IPPS ratesetting
contexts (such as high-cost outliers and the calculation of the MS-DRG
relative weights) from which it is appropriate to exclude GME because
GME is paid separately from the IPPS, we hesitate to adjust the CCRs in
the narrower context of calculating uncompensated care costs.
Therefore, at this time, we do not believe it is appropriate to modify
the calculation of the CCR on line 1 of Worksheet S-10 to include GME
costs in the numerator.
Trims to Apply to CCRs on Line 1 of Worksheet S-10.
Commenters also have suggested that uncompensated care costs reported
on Worksheet S-10 should be audited due to extremely high values
consistently reported by some hospitals. We believe that, just as we
apply trims to hospitals' CCRs used to calculate high-cost outlier
payments to eliminate anomalies in payment determinations (Sec.
412.84(h)(3)(ii)), it is appropriate to apply statistical trims to the
CCRs that are considered anomalies on Worksheet S-10, Line 1.
Specifically, Sec. 412.84(h)(3)(ii) states that the Medicare
contractor may use a statewide CCR for hospitals whose operating or
capital CCR is in excess of 3 standard deviations above the
corresponding national geometric mean (that is, the CCR ``ceiling'').
This mean is recalculated annually by CMS and published in the proposed
and final IPPS rules each year. To control for data anomalies, we are
considering proposals which would trim hospitals' CCRs to ensure
reasonable CCRs are used to convert charges to costs for purposes of
determining uncompensated care costs.
One approach we are considering as a possible proposal for FY 2018
and subsequent years would be a ``double trim'' methodology as follows:
First Trim
Step 1: Prior to calculating the statewide average CCRs, all
hospitals with a CCR reported on Worksheet S-10, line 1, of greater
than the corresponding CCR ``ceiling'' (that is, the CCR ``ceiling''
published in the final rule of the fiscal year that is contemporaneous
to the particular Worksheet S-10 data) would be removed from the
calculation. We are proposing to remove the hospitals with a CCR of
greater than 3 standard deviations above the corresponding national
geometric mean in order to calculate the statewide average CCRs so that
these aberrant CCRs do not skew the statewide average CCR.
Step 2: Using the CCRs for the remaining hospitals in Step 1,
determine the statewide average CCRs using line 1 of Worksheet S-10 for
hospitals within each State (including non-DSH eligible hospitals).
Step 3: Calculate the simple average CCR (not weighted by hospital
size) for each State.
Step 4: First CCR Trim--Assign the statewide average CCR calculated
in Step 3 to all hospitals with a CCR greater than 3 standard
deviations above the corresponding national geometric mean (that is,
the CCR ``ceiling'').
Second Trim
Step 5: Calculate the natural logarithm of the CCR for all
hospitals (including those with replaced CCRs and those not eligible
for Medicare DSH payments).
Step 6: Calculate the geometric mean and standard deviation of the
log values

[[Page 25094]]

across all hospitals (including those not eligible for Medicare DSH
payments).
Step 7: Second CCR Trim--Assign the statewide average CCR
calculated in Step 3 to each Medicare DSH eligible hospital with a CCR
greater than 3.0 standard deviations above the geometric mean. All
hospitals not eligible for Medicare DSH payments should be excluded
from further analyses.
Analysis we performed under this ``double trim'' approach was based
on CCRs from FY 2012 Worksheet S-10, Line 1. Under Step 1, we used the
FY 2013 CCR ``ceiling'' of 1.146 published in the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53697). (We used the FY 2013 CCR ``ceiling'' because
it was computed from the March 2012 update of the Provider Specific
File, which contained CCRs that are relatively contemporaneous to the
CCRs in the FY 2012 cost reports.) Our analysis shows that 27 hospitals
would receive their respective statewide average CCR. (We refer readers
to our analysis posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Servie-Payment/AcuteInpatientPPS/dsh.html
under the Downloads section.)
Alternatively, we are considering proposing for FY 2018 and
subsequent years to use the same trim process that is used for high-
cost outliers under Sec. 412.84(i), under which we calculate separate
urban and rural average CCRs for each state. Thus, the CCR of an urban
or rural hospital above the applicable CCR ``ceiling'' for a given
fiscal year would be replaced by its respective urban or rural
statewide average CCR. As a reference, the FY 2013 IPPS statewide
average urban and rural CCRs are in Table 8A included on the CMS Web
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/FY2013-FinalRule-CorrectionNotice-Files.html.
After applying the applicable trims to a hospital's CCR as
appropriate, we would calculate a hospital's uncompensated care costs
as being equal to line 30, which is the sum of line 23 and line 29, as
follows:

Hospital Uncompensated Care Costs = line 30 (=line 23 + line 29), which
is equal to--
[(Line 1 CCR adjusted by trim if applicable x charity care line 20) -
(Payments received for charity care line 22)]
+
[(Line 1 CCR adjusted by trim if applicable x Non-Medicare and non-
reimbursable Bad Debt line 28)].

We are inviting public comments on these methodological
considerations.

G. Hospital Readmissions Reduction Program: Proposed Updates and
Changes (Sec. Sec. 412.150 Through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program
Section 3025 of the Affordable Care Act, as amended by section
10309 of the Affordable Care Act, added section 1886(q) to the Act,
which establishes the ``Hospital Readmissions Reduction Program''
effective for discharges from ``applicable hospitals'' beginning on or
after October 1, 2012. Under the Hospital Readmissions Reduction
Program, payments to applicable hospitals may be reduced to account for
certain excess readmissions. We refer readers to section IV.E.1. of the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through 49531) for a
detailed discussion and additional information on of the statutory
history of the Hospital Readmissions Reduction Program.
2. Regulatory Background
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 through
51676), we addressed the issues of the selection of readmission
measures and the calculation of the excess readmissions ratio, which
will be used, in part, to calculate the readmissions adjustment factor.
Specifically, in that final rule, we finalized policies that relate to
the portions of section 1886(q) of the Act that address the selection
of and measures for the applicable conditions, the definitions of
``readmission'' and ``applicable period,'' and the methodology for
calculating the excess readmissions ratio. We also established policies
with respect to measures for readmission for the applicable conditions
and our methodology for calculating the excess readmissions ratio.
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through
53401), we finalized policies that relate to the portions of section
1886(q) of the Act that address the calculation of the hospital
readmission payment adjustment factor and the process by which
hospitals can review and correct their data. Specifically, in that
final rule, we addressed the base operating DRG payment amount,
aggregate payments for excess readmissions and aggregate payments for
all discharges, the adjustment factor, applicable hospital, limitations
on review, and reporting of hospital-specific information, including
the process for hospitals to review readmission information and submit
corrections. We also established a new Subpart I under 42 CFR part 412
(Sec. Sec. 412.150 through 412.154) to codify rules for implementing
the Hospital Readmissions Reduction Program.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50649 through
50676), we finalized our policies that relate to refinement of the
readmissions measures and related methodology for the current
applicable conditions, expansion of the ``applicable conditions'' for
FY 2015 and subsequent fiscal years, and clarification of the process
for reporting hospital-specific information, including the opportunity
to review and submit corrections. We also established policies related
to the calculation of the adjustment factor for FY 2014.
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50024 through
50048), we made refinements to the readmissions measures and related
methodology for applicable conditions for FY 2015 and subsequent fiscal
years, discussed the maintenance of technical specifications for
quality measures, and described a waiver from the Hospital Readmissions
Reduction Program for hospitals formerly paid under section 1814(b)(3)
of the Act (Sec. 412.154(d)). We also specified the ``applicable
period'' for FY 2015 and made changes to the calculation of the
aggregate payments for excess readmissions so as to include two
additional applicable conditions for the FY 2015 payment determination.
Finally, we expanded the list of applicable conditions for the FY 2017
payment determination to include the Hospital-Level, 30-Day, All-Cause,
Unplanned Readmission Following Coronary Artery Bypass Graft (CABG)
Surgery measure.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530 through
49543), we made a refinement to the pneumonia readmissions measure that
expanded the measure cohort for the FY 2017 payment determination and
subsequent years (80 FR 49532 through 49536); adopted an extraordinary
circumstance exception policy to address hospitals that experience a
disaster or other extraordinary circumstance beginning in FY 2016 and
for subsequent years (80 FR 49542 through 49543); specified the
adjustment factor floor for FY 2016 (80 FR 49537); and specified the
calculation of aggregate payments for excess readmissions for FY 2016
(80 FR 49537 through 49542).
3. Proposed Policies for the FY 2017 Hospital Readmissions Reduction
Program
In this proposed rule, we are proposing to--

[[Page 25095]]

Clarify that public reporting of excess readmission ratios
will be posted on an annual basis to the Hospital Compare Web site as
soon as is feasible following the preview period.
Discuss the proposed methodology to include the addition
of the CABG applicable condition in the calculation of the readmissions
payment adjustment for FY 2017.
4. Maintenance of Technical Specifications for Quality Measures
We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR
50039) for a discussion of the maintenance of technical specifications
for quality measures for the Hospital Readmissions Reduction Program.
Technical specifications of the readmission measures are provided on
our Web site in the Measure Methodology Reports at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Additional resources
about the Hospital Readmissions Reduction Program and measure technical
specifications are on the QualityNet Web site on the Resources page at:
http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772412995.
We want to remind readers that, in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49532), we discussed our policies regarding the use of
sociodemographic factors in quality measures. We understand the
important role that sociodemographic status plays in the care of
patients. However, we continue to have concerns about holding hospitals
to different standards for the outcomes of their patients of diverse
sociodemographic status because we do not want to mask potential
disparities or minimize incentives to improve the outcomes of
disadvantaged populations. We routinely monitor the impact of
sociodemographic status on hospitals' results on our measures.
The NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
encouraged to submit information such as analyses and interpretations
as well as performance scores with and without sociodemographic factors
in the risk adjustment model.
Furthermore, the Office of the Assistant Secretary for Planning and
Evaluation (ASPE) is conducting research to examine the impact of
sociodemographic status on quality measures, resource use, and other
measures under the Medicare program as directed by the IMPACT Act. We
will closely examine the findings of the ASPE reports and related
Secretarial recommendations and consider how they apply to our quality
programs at such time as they are available.
5. Proposed Applicable Period for FY 2017
Under section 1886(q)(5)(D) of the Act, the Secretary has the
authority to specify the applicable period with respect to a fiscal
year under the Hospital Readmissions Reduction Program. In the FY 2012
IPPS/LTCH PPS final rule (76 FR 51671), we finalized our policy to use
3 years of claims data to calculate the readmission measures. In the FY
2013 IPPS/LTCH PPS final rule (77 FR 53675), we codified the definition
of ``applicable period'' in the regulations at 42 CFR 412.152 as the 3-
year period from which data are collected in order to calculate excess
readmissions ratios and adjustments for the fiscal year, which includes
aggregate payments for excess readmissions and aggregate payments for
all discharges used in the calculation of the payment adjustment.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49537), for FY 2016,
consistent with the definition specified at Sec. 412.152, we
established an ``applicable period'' for the Hospital Readmissions
Reduction Program of the 3-year period from July 1, 2011 through June
30, 2014. In other words, the excess readmissions ratios and the
payment adjustment (including aggregate payments for excess
readmissions and aggregate payments for all discharges) for FY 2016
were determined using data from the 3-year time period of July 1, 2011
through June 30, 2014.
In this proposed rule, for FY 2017, consistent with the definition
specified at Sec. 412.152, we are proposing that the ``applicable
period'' for the Hospital Readmissions Reduction Program will be the 3-
year period from July 1, 2012 through June 30, 2015. In other words, we
are proposing that the excess readmissions ratios and the payment
adjustment (including aggregate payments for excess readmissions and
aggregate payments for all discharges) for FY 2017 would be calculated
using data from the 3-year time period of July 1, 2012 through June 30,
2015.
6. Proposed Calculation of Aggregate Payments for Excess Readmissions
for FY 2017
Section 1886(q)(3)(B) of the Act specifies the ratio used to
calculate the adjustment factor under the Hospital Readmissions
Reduction Program. It states that the ratio is equal to 1 minus the
ratio of--(i) The aggregate payments for excess readmissions and (ii)
the aggregate payments for all discharges. The definition of
``aggregate payments for excess readmissions'' and ``aggregate payments
for all discharges,'' as well as a methodology for calculating the
numerator of the ratio (aggregate payments for excess readmissions) and
the denominator of the ratio (aggregate payments for all discharges)
are codified at Sec. 412.154(c)(2).
Section 1886(q)(4) of the Act sets forth the definitions of
``aggregate payments for excess readmissions'' and ``aggregate payments
for all discharges'' for an applicable hospital for the applicable
period. The term ``aggregate payments for excess readmissions'' is
defined in section 1886(q)(4)(A) of the Act and Sec. 412.152 of our
regulations as, for a hospital for an applicable period, the sum, for
applicable conditions of the product, for each applicable condition,
of: (i) The base operating DRG payment amount for such hospital for
such applicable period for such condition; (ii) the number of
admissions for such condition for such hospital for such applicable
period; and (iii) the excess readmissions ratio for such hospital for
such applicable period minus 1.
The excess readmissions ratio is a hospital-specific ratio
calculated for each applicable condition. Specifically, section
1886(q)(4)(C) of the Act defines the excess readmissions ratio as the
ratio of ``risk-adjusted readmissions based on actual readmissions''
for an applicable hospital for each applicable condition, to the
``risk-adjusted expected readmissions'' for the applicable hospital for
the applicable condition. We refer readers to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51673) for additional information on the methodology
for the calculation of the excess readmissions ratio. ``Aggregate
payments for excess readmissions'' is the numerator of the ratio used
to calculate the adjustment factor under the Hospital Readmissions
Reduction Program.
The term ``aggregate payments for all discharges'' is defined at
section 1886(q)(4)(B) of the Act as for a hospital for an applicable
period, the sum of the base operating DRG payment amounts

[[Page 25096]]

for all discharges for all conditions from such hospital for such
applicable period. We codified this definition of ``aggregate payments
for all discharges'' under the regulations at Sec. 412.152.
``Aggregate payments for all discharges'' is the denominator of the
ratio used to calculate the adjustment factor under the Hospital
Readmissions Reduction Program.
The Hospital Readmissions Reduction Program currently includes the
following five applicable conditions: acute myocardial infarction
(AMI), heart failure (HF), pneumonia (PN), total hip arthroplasty/total
knee arthroplasty (THA/TKA), and chronic obstructive pulmonary disease
(COPD). In the FY 2015 IPPS/LTCH PPS final rule effective for FY 2017
(79 FR 50033 through 50039), we finalized the inclusion of an
additional applicable condition, Hospital-Level, 30-Day, All-Cause,
Unplanned Readmission Following Coronary Artery Bypass Graft (CABG)
Surgery.
In this section, we discuss the proposed methodology to include
this additional measure in the calculation of the readmissions payment
adjustment for FY 2017. Specifically, we are proposing how the addition
of CABG applicable conditions would be included in the calculation of
the aggregate payments for excess readmissions (the numerator of the
readmissions payment adjustment). We note that this proposal does not
alter our established methodology for calculating aggregate payments
for all discharges; that is, the denominator of the ratio.
When calculating the numerator (aggregate payments for excess
readmissions), we determine the base operating DRG payments for the
applicable period. ``Aggregate payments for excess readmissions'' (the
numerator) is defined as the sum, for applicable conditions, of the
product, for each applicable condition, of: (i) The base operating DRG
payment amount for such hospital for such applicable period for such
condition; (ii) the number of admissions for such condition for such
hospital for such applicable period; and (iii) the excess readmissions
ratio for such hospital for such applicable period minus 1.
When determining the base operating DRG payment amount for an
individual hospital for such applicable period for such condition, we
use Medicare inpatient claims from the MedPAR file with discharge dates
that are within the same applicable period to calculate the excess
readmissions ratio. We use MedPAR claims data as our data source for
determining aggregate payments for excess readmissions and aggregate
payments for all discharges, as this data source is consistent with the
claims data source used in IPPS rulemaking to determine IPPS rates.
For FY 2017, we are proposing to use MedPAR claims with discharge
dates that are on or after July 1, 2012, and no later than June 30,
2015, consistent with our historical use of a 3-year applicable period.
Under our established methodology, we use the update of the MedPAR file
for each Federal fiscal year, which is updated 6 months after the end
of each Federal fiscal year within the applicable period, as our data
source (that is, the March updates of the respective Federal fiscal
year MedPAR files) for the final rules.
The FY 2012 through FY 2015 MedPAR data files can be purchased from
CMS. Use of these files allows the public to verify the readmissions
adjustment factors. Interested individuals may order these files
through the CMS Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by
clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web
page describes the files and provides directions and detailed
instructions for how to order the data sets.
In this proposed rule, for FY 2017, we are proposing to determine
aggregate payments for excess readmissions and aggregate payments for
all discharges using data from MedPAR claims with discharge dates that
are on or after July 1, 2012, and no later than June 30, 2015. However,
we note that, for the purpose of modeling the proposed FY 2017
readmissions payment adjustment factors for this proposed rule, we use
excess readmissions ratios for applicable hospitals from the FY 2016
Hospital Readmissions Reduction Program applicable period. For the FY
2017 final rule, applicable hospitals will have had the opportunity to
review and correct data from the proposed FY 2017 applicable period of
July 1, 2012 to June 30, 2015, before they are made public under our
policy regarding the preview and reporting of hospital-specific
information, which we discussed in the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53374 through 53401).
In this proposed rule, for FY 2017, we are proposing to use MedPAR
data from July 1, 2012 through June 30, 2015. Specifically, for this
proposed rule, we are using the March 2013 update of the FY 2012 MedPAR
file to identify claims within FY 2012 with discharges dates that are
on or after July 1, 2012, the March 2014 update of the FY 2013 MedPAR
file to identify claims within FY 2013, the March 2015 update of the FY
2014 MedPAR file to identify claims within FY 2014, and the December
2015 update of the FY 2015 MedPAR file to identify claims within FY
2015 with discharge dates no later than June 30, 2015. For the final
rule, we are proposing to use the same MedPAR files as listed above for
claims within FY 2012, FY 2013 and FY 2014, and for claims within FY
2015, we are proposing to use the March 2016 update of the FY 2015
MedPAR file.
For a discussion of how we identified the applicable conditions to
calculate the aggregate payments for excess readmissions for FY 2016,
we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49538
through 49541). For FY 2017, with the addition of the CABG measure to
the applicable conditions under the Hospital Readmissions Reduction
Program, we are proposing to follow this same approach.
In this proposed rule, for FY 2017, we are proposing to continue to
apply the same exclusions to the claims in the MedPAR file as we
applied for FY 2016 for the AMI, HF, PN, THA/TKA, and COPD applicable
conditions. We refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49539) for a list of these exclusions. Updates to these
exclusions will be posted on the QualityNet Web site at: http://www.QualityNet.org > Hospital-Inpatient > Claims-Based Measures >
Readmission Measures > Measure Methodology.
In addition to the exclusions described above, for FY 2017, we are
proposing the following steps to identify admissions specifically for
CABG for the purposes of calculating aggregate payments for excess
readmissions. These exclusions were previously finalized in the FY 2015
IPPS/LTCH PPS final rule (79 FR 50037):
Admissions for patients who are discharged against medical
advice (excluded because providers do not have the opportunity to
deliver full care and prepare the patient for discharge);
Admissions for patients who die during the initial
hospitalization (these patients are not eligible for readmission);
Admissions for patients with subsequent qualifying CABG
procedures during the measurement period (a repeat CABG procedure
during the measurement period very likely represents a complication of
the original CABG procedure and is a clinically more complex and higher
risk surgery; therefore, we select the first CABG admission for
inclusion in the measure and exclude subsequent CABG admissions from
the cohort); and
Admissions for patients without at least 30 days post-
discharge enrollment in Medicare FFS (excluded because the

[[Page 25097]]

30-day readmission outcome cannot be assessed in this group).
As noted previously, these exclusions are consistent with our
current methodology, and any updates to these exclusions will be posted
on the QualityNet Web site at: http://www.QualityNet.org > Hospital-
Inpatient > Claims-Based Measures > Readmission Measures > Measure
Methodology.
Furthermore, we would only identify Medicare FFS claims that meet
the criteria (that is, claims paid for under Medicare Part C, Medicare
Advantage, would not be included in this calculation), consistent with
the methodology to calculate excess readmissions ratios based solely on
admissions and readmissions for Medicare FFS patients. Therefore,
consistent with our established methodology, for FY 2017, we would
exclude admissions for patients enrolled in Medicare Advantage as
identified in the Medicare Enrollment Database. This policy is
consistent with how admissions for Medicare Advantage patients are
identified in the calculation of the excess readmissions ratios under
our established methodology.
In order to identify the admissions for each applicable condition
for FY 2017 to calculate the aggregate payments for excess readmissions
for an individual hospital, we are proposing to identify each
applicable condition, including the CABG condition, using the
appropriate ICD-9-CM codes. (Although the compliance date for the ICD-
10-CM and ICD-10-PCS code sets was October 1, 2015, these proposed
policies apply to data submitted prior to this compliance date.) Under
our existing policy, we identify eligible hospitalizations and
readmissions of Medicare patients discharged from an applicable
hospital having a principal diagnosis for the measured condition in an
applicable period (76 FR 51669). The discharge diagnoses for each
applicable condition are based on a list of specific ICD-9-CM codes for
that condition. The ICD-9-CM codes for the AMI, HF, PN, THA/TKA, COPD,
and CABG applicable conditions can be found on the QualityNet Web site
at: http://www.QualityNet.org > Hospital-Inpatient > Claims-Based
Measures > Readmission Measures > Measure Methodology. Consistent with
our established policy (76 FR 51673 through 51676), we are proposing to
use the ICD-9-CM codes to identify the applicable conditions in
calculation of the excess readmissions ratios, which are provided in
the measure methodology reports on the QualityNet Web site, to identify
each applicable condition to calculate the aggregate payments for the
excess readmissions ratios for FY 2017. For a complete list of the ICD-
9-CM codes we are proposing to use to identify the applicable
conditions, we refer readers to the following tables of those reports:
2015 Measure Updates: AMI, HF, Pneumonia, COPD, Stroke
Readmission (AMI-Version 8.0, HF-Version 8.0, Pneumonia-Version 8.0,
COPD-Version 4.0, and Stroke-Version 4.0: 2015 Condition-Specific
Readmission Measures Updates and Specifications Report)--
++ Table D.1.1--ICD-9-CM Codes for AMI Cohort (page 74).
++ Table D.2.1--ICD-9-CM Codes for HF Cohort (page 78).
++ Table D.3.1--ICD-9-CM Codes for Pneumonia Cohort (page 82).
++ Table D.4.1--ICD-9-CM Codes for COPD Cohort (page 87).
2015 Measure Updates: THA/TKA and CABG Readmission (THA
and/or TKA-Version 4.0, CABG-Version 2.0: 2015 Procedure-Specific
Readmission Measures Updates and Specifications Report,)--
++ Table D.1.1--ICD-9-CM Codes Used to Identify Eligible THA/TKA
Procedures (page 45).
++ Table D.2.1--ICD-9-CM Codes Used to Identify Eligible CABG
Procedures (page 53).
For FY 2017, we are proposing to calculate aggregate payments for
excess readmissions, using MedPAR claims from July 1, 2012 to June 30,
2015, to identify applicable conditions based on the same ICD-9-CM
codes used to identify the conditions for the readmissions measures,
and to apply the proposed exclusions for the types of admissions (as
previously discussed). To calculate aggregate payments for excess
readmissions for each hospital, we are proposing to calculate the base
operating DRG payment amounts for all claims in the 3-year applicable
period for each applicable condition (AMI, HF, PN, COPD, THA/TKA, and
CABG) based on the claims we have identified as described above. Once
we have calculated the base operating DRG amounts for all the claims
for the six applicable conditions, we are proposing to sum the base
operating DRG payments amounts by each condition, resulting in six
summed amounts, one amount for each of the six applicable conditions.
We are proposing to then multiply the amount for each condition by the
respective excess readmissions ratio minus 1 when that excess
readmissions ratio is greater than 1, which indicates that a hospital
has performed, with respect to readmissions for that applicable
condition, worse than the average hospital with similar patients. Each
product in this computation represents the payments for excess
readmissions for that condition. We are proposing to then sum the
resulting products which represent a hospital's proposed ``aggregate
payments for excess readmissions'' (the numerator of the ratio).
Because this calculation is performed separately for each of the six
conditions, a hospital's excess readmissions ratio must be less than or
equal to 1 on each measure to avoid CMS' determination that there were
payments made by CMS for excess readmissions (resulting in a payment
reduction under the Hospital Readmissions Reduction Program). In other
words, in order to avoid a payment reduction a hospital's excess
readmissions ratio must be less than or equal to 1 on each measure. We
note that we are not proposing any changes to our existing methodology
to calculate ``aggregate payments for all discharges'' (the denominator
of the ratio).
Section 1886(q)(3)(A) of the Act defines the ``adjustment factor''
for an applicable hospital for a fiscal year as equal to the greater of
(i) The ratio described in subparagraph (B) for the hospital for the
applicable period (as defined in paragraph (5)(D)) for such fiscal
year; or (ii) the floor adjustment factor specified in subparagraph
(C). Section 1886(q)(3)(B) of the Act, in turn, describes the ratio
used to calculate the adjustment factor. Specifically, it states that
the ratio is equal to 1 minus the ratio of--(i) the aggregate payments
for excess readmissions and (ii) the aggregate payments for all
discharges. The calculation of this ratio is codified at Sec.
412.154(c)(1) of the regulations and the floor adjustment factor is
codified at Sec. 412.154(c)(2) of the regulations. Section
1886(q)(3)(C) of the Act specifies the floor adjustment factor at 0.97
for FY 2015 and subsequent fiscal years.
Consistent with section 1886(q)(3) of the Act, codified at Sec.
412.154(c)(2), for FY 2017, the adjustment factor is either the greater
of the ratio or the floor adjustment factor of 0.97. Under our
established policy, the ratio is rounded to the fourth decimal place.
In other words, for FY 2017, a hospital subject to the Hospital
Readmissions Reduction Program will have an adjustment factor that is
between 1.0 (no reduction) and 0.9700 (greatest possible reduction).
We are proposing the following methodology for FY 2017 as displayed
in the chart below.

[[Page 25098]]

Formulas to Calculate the Readmissions Adjustment Factor for FY 2017
------------------------------------------------------------------------

-------------------------------------------------------------------------
Aggregate payments for excess readmissions = [sum of base operating DRG
payments for AMI x (Excess Readmissions Ratio for AMI-1)] + [sum of
base operating DRG payments for HF x (Excess Readmissions Ratio for HF-
1)] + [sum of base operating DRG payments for PN x (Excess Readmissions
Ratio for PN-1)] + [sum of base operating DRG payments for COPD) x
(Excess Readmissions Ratio for COPD-1)] + [sum of base operating DRG
payments for THA/TKA x (Excess Readmissions Ratio for THA/TKA-1)] +
[sum of base operating DRG payments for CABG x (Excess Readmissions
Ratio for CABG-1)].
* We note that if a hospital's excess readmissions ratio for a condition
is less than/equal to 1, there are no aggregate payments for excess
readmissions for that condition included in this calculation.
Aggregate payments for all discharges = sum of base operating DRG
payments for all discharges.
Ratio = 1 - (Aggregate payments for excess readmissions/Aggregate
payments for all discharges).
Proposed Readmissions Adjustment Factor for FY 2017 is the higher of the
ratio or 0.9700.
* Based on claims data from July 1, 2012 to June 30, 2015 for FY 2017.
------------------------------------------------------------------------

We are inviting public comment on these proposals.
7. Extraordinary Circumstance Exception Policy
We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR
49542 through 49543) for a detailed discussion of our Extraordinary
Circumstance Exception policy for the Hospital Readmissions Reduction
Program.
During the review of a hospital's request for an extraordinary
circumstance exception, we maintain the general principle that
providing high quality of care and ensuring patient safety is of
paramount importance. We intend to provide relief only for hospitals
whose ability to accurately or timely submit all of their claims (from
which readmission measures data are derived) has been negatively
impacted as a direct result of experiencing a significant disaster or
other extraordinary circumstance beyond the control of the hospital. In
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49542 through 49543) we
finalized that the request process for an extraordinary circumstance
exception begins with the submission of an extraordinary circumstance
exception request form by a hospital within 90 calendar days of the
natural disaster or other extraordinary circumstance. Under this
policy, a hospital is able to request a Hospital Readmissions Reduction
Program extraordinary circumstance exception at the same time it may
request a similar exception under the Hospital IQR Program, the
Hospital VBP Program, and the HAC Reduction Program. The extraordinary
circumstance exception request form is available on the QualityNet Web
site.
The following information is required to submit the request:
Hospital CCN;
Hospital name;
Hospital Chief Executive Officer (CEO) and any other
designated personnel contact information, including name, email
address, telephone number, and mailing address (must include a physical
address; a post office box address is not acceptable);
Hospital's reason for requesting an exception, including:
++ CMS program name (for example, the Hospital Readmissions
Reduction Program, the Hospital VBP Program, or the Hospital IQR
Program);
++ The measure(s) and submission quarters affected by the
extraordinary circumstance that the hospital is seeking an exception
for should be accompanied with the specific reasons why the exception
is being sought; and
++ How the extraordinary circumstance negatively impacted
performance on the measure(s) for which an exception is being sought;
Evidence of the impact of the extraordinary circumstances,
including but not limited to, photographs, newspaper, and other media
articles; and
The request form must be signed by the hospital's CEO or
designated non-CEO contact and submitted to CMS.
The same set of information is currently required under the
Hospital IQR Program and the Hospital VBP Program on the request form
from a hospital seeking an extraordinary circumstance exception with
respect to these programs. The specific list of required information is
subject to change from time to time at the discretion of CMS.
Following receipt of the request form, CMS will: (1) Provide a
written acknowledgement of receipt of the request using the contact
information provided in the request form to the CEO and any additional
designated hospital personnel; and (2) provide a formal response to the
CEO and any additional designated hospital personnel using the contact
information provided in the request notifying them of our decision. We
review each request for an extraordinary circumstance exception on a
case-by-case basis at our discretion. To the extent feasible, we also
review requests in conjunction with any similar requests made under
other IPPS quality reporting and payment programs, such as the Hospital
IQR Program and the Hospital VBP Program.
This policy does not preclude CMS from granting extraordinary
circumstance exceptions to hospitals that do not request them if we
determine at our discretion that a disaster or other extraordinary
circumstance has affected an entire region or locale. If CMS makes such
a determination to grant an extraordinary circumstance exception to
hospitals in an affected region or locale, we would convey this
decision through routine communication channels to hospitals, vendors,
and QIOs, including, but not limited to, issuing memos, emails, and
notices on the QualityNet Web site. This provision aligns with the
Hospital IQR Program's extraordinary circumstances extensions or
exemptions policy.
8. Timeline for Public Reporting of Excess Readmission Ratios on
Hospital Compare for the FY 2017 Payment Determination
Section 1886(q)(6) of the Act requires the Secretary to make
information available to the public regarding readmission rates of each
subsection (d) hospital under the program, and states that such
information shall be posted on the Hospital Compare Internet Web site
in an easily understandable format. Accordingly, in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53401), we indicated that public reporting
for excess readmission ratios could be available on the Hospital
Compare Web site as early as mid-October. In this proposed rule, we are
clarifying that public reporting of excess readmission ratios will be
posted on an annual basis to the Hospital Compare Web site as soon as
is feasible following the review period. This may occur as early as
October, but it could occur later for a particular year in order to
streamline reporting and align with other hospital quality reporting
and performance programs.

[[Page 25099]]

H. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy
Changes for the FY 2018 Program Year and Subsequent Years

1. Background
a. Statutory Background and Overview of Past Program Years
Section 1886(o) of the Act, as added by section 3001(a)(1) of the
Affordable Care Act, requires the Secretary to establish a hospital
value-based purchasing program (the Hospital VBP Program) under which
value-based incentive payments are made in a fiscal year to hospitals
that meet performance standards established for a performance period
for such fiscal year. Both the performance standards and the
performance period for a fiscal year are to be established by the
Secretary.
For more of the statutory background and descriptions of our
current policies for the Hospital VBP Program, we refer readers to the
Hospital Inpatient VBP Program final rule (76 FR 26490 through 26547);
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660); the
CY 2012 OPPS/ASC final rule with comment period (76 FR 74527 through
74547); the FY 2013 IPPS/LTCH PPS final rule (77 FR 53567 through
53614); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50676 through
50707); the CY 2014 OPPS/ASC final rule (78 FR 75120 through 75121);
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50048 through 50087); and
the FY 2016 IPPS/LTCH PPS final rule with comment period (80 FR 49544
through 49570).
We also have codified certain requirements for the Hospital VBP
Program at 42 CFR 412.160 through 412.167.
b. FY 2017 Program Year Payment Details
Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce
the base operating DRG payment amount for a hospital for each discharge
in a fiscal year by an applicable percent. Under section 1886(o)(7)(A)
of the Act, the sum total of these reductions in a fiscal year must
equal the total amount available for value-based incentive payments for
all eligible hospitals for the fiscal year, as estimated by the
Secretary. We finalized details on how we would implement these
provisions in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through
53573) and refer readers to that rule for further details.
Under section 1886(o)(7)(C)(iv) of the Act, the applicable percent
for the FY 2017 program year is 2.00 percent. Using the methodology we
adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through
53573), we estimate that the total amount available for value-based
incentive payments for FY 2017 is approximately $1.7 billion, based on
the December 2015 update of the FY 2015 MedPAR file. We intend to
update this estimate for the FY 2017 IPPS/LTCH PPS final rule, using
the March 2016 update of the FY 2015 MedPAR file.
As finalized in the FY 2013 IPPS/LTCH PPS final rule, we will
utilize a linear exchange function to translate this estimated amount
available into a value-based incentive payment percentage for each
hospital, based on its Total Performance Score (TPS) (77 FR 53573
through 53576). We will then calculate a value-based incentive payment
adjustment factor that will be applied to the base operating DRG
payment amount for each discharge occurring in FY 2017, on a per-claim
basis. We are publishing proxy value-based incentive payment adjustment
factors in Table 16 associated with this proposed rule (which is
available via the Internet on the CMS Web site). The proxy factors are
based on the TPSs from the FY 2016 program year. These FY 2016
performance scores are the most recently available performance scores
that hospitals have been given the opportunity to review and correct.
The slope of the linear exchange function used to calculate those proxy
value-based incentive payment adjustment factors is 2.7714997322. This
slope, along with the estimated amount available for value-based
incentive payments, is also published in Table 16.
We intend to update this table as Table 16A in the final rule
(which will be available via the Internet on the CMS Web site) to
reflect changes based on the March 2016 update to the FY 2015 MedPAR
file. We also intend to update the slope of the linear exchange
function used to calculate those updated proxy value-based incentive
payment adjustment factors. The updated proxy value-based incentive
payment adjustment factors for FY 2017 will continue to be based on
historic FY 2016 program year TPSs because hospitals will not have been
given the opportunity to review and correct their actual TPSs for the
FY 2017 program year until after the FY 2017 IPPS/LTCH PPS final rule
is published. After hospitals have been given an opportunity to review
and correct their actual TPSs for FY 2017, we will add Table 16B (which
will be available via the Internet on the CMS Web site) to display the
actual value-based incentive payment adjustment factors, exchange
function slope, and estimated amount available for the FY 2017 program
year. We expect that Table 16B will be posted on the CMS Web site in
October 2016.
2. PSI 90 Measure in the FY 2018 Program and Future Program Years
a. Proposed PSI 90 Measure Performance Period Change for the FY 2018
Program Year
We previously finalized the performance period for the PSI 90:
Patient Safety for Selected Indicators (Composite Measure) (then
referred to as both the ``PSI-90 measure'' and the ``AHRQ PSI Composite
Measure'') for the FY 2018 program year (78 FR 50694). We have
calculated and finalized performance standards for the FY 2018 program
year based on a baseline period that uses ICD-9-CM claims data. The
previously finalized performance period for the FY 2018 program year
runs from July 1, 2014 through June 30, 2016. Because hospitals began
ICD-10-CM/PCS implementation on October 1, 2015, the performance period
as currently finalized for the FY 2018 program year would necessitate
using both ICD-9 and ICD-10 claims data to calculate performance
standards for the PSI 90 measure.
Since the ICD-10 transition was implemented on October 1, 2015, we
have been monitoring our systems, and claims are processing normally.
Currently, the measure steward, AHRQ, is reviewing any potential issues
related to ICD-10 conversion of coded operating room procedures
(https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which
directly impact the AHRQ PSI 90 component indicators. Nevertheless,
given the complexity of converting the PSI 90 component indicators from
ICD-9 to ICD-10 and considering that there are approximately 70,000
\22\ ICD-10 codes, the measure steward has recommended against
combining measure performance data that use both ICD-9 and ICD-10 data
at this time. In addition, to meet program requirements and
implementation schedules, our system requires an ICD-10 risk-adjusted
version of the AHRQ QI PSI software \23\ by December 2016 for use in
the FY 2018 payment year. At this time, a risk adjusted ICD-10 version

[[Page 25100]]

of the PSI 90 software is not expected to be available until late CY
2017.
---------------------------------------------------------------------------

\22\ International Classification of Diseases (ICD-10-CM/PCS)
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
\23\ The AHRQ QI Software is the software used to calculate PSIs
and the composite measure. More information is available at: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
---------------------------------------------------------------------------

To address the above issues, we are proposing to shorten the
performance period for the FY 2018 program year. We are proposing to
use a 15-month performance period from July 1, 2014 through September
30, 2015 for the FY 2018 program year. The 15-month performance period
would only apply to the FY 2018 program year and would only use ICD-9
data. For the FY 2018 program year, the performance standards that were
previously established and announced in past rules would not change
because they were calculated based on the baseline period of July 1,
2010 through June 30, 2012, which would remain the same. In order to
align the use of this measure with other hospital quality programs, we
are proposing similar modifications to the FY 2018 reporting period for
the PSI 90 measure for the HAC Reduction Program, as set forth in
section IV.I. of the preamble of this proposed rule, and for the
Hospital IQR Program, as set forth in section VIII.A. of the preamble
of this proposed rule.
We are aware that the FY 2019 program year also has a performance
period that contains ICD-9 and ICD-10 data (79 FR 50072 through 50073).
We will continue to review our options for calculating the performance
period for the FY 2019 program year and further address this in next
year's rulemaking. Therefore, we are not proposing to make any changes
to the FY 2019 program year, which runs from July 1, 2015 through June
30, 2017.
We note that in proposing a shortened performance period for the
PSI 90 measure, a prior reliability analysis of the PSI 90 measure
shows that the majority of hospitals attain a moderate or high level of
reliability for the PSI 90 measure after a 12-month period.\24\ We do
not anticipate any delay for hospitals to review their TPS for the FY
2018 program year during the review and correction period.
---------------------------------------------------------------------------

\24\ Mathematica Policy Research (November 2011). Reporting
period and reliability of AHRQ, CMS 30-day and HAC Quality
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
---------------------------------------------------------------------------

Prior to deciding to propose an abbreviated performance period for
the FY 2018 program year, we took several factors into consideration,
including the recommendations of the measure steward, the feasibility
of using a combination of ICD-9 and ICD-10 data without the
availability of the appropriate measure software, minimizing provider
burden, program implementation timelines, and the reliability of using
shortened performance periods, as well as the importance of continuing
to publicly report this measure. We believe that using a 15-month
performance period for FY 2018 best serves the need to provide
important information on hospital patient safety and adverse events by
allowing sufficient time to process the claims data and calculate the
measures, while minimizing the reporting burden and program disruption.
Furthermore, we plan to propose to adopt the modified PSI 90
measure, which includes several substantive measure updates, for the
Hospital VBP Program in subsequent rulemaking, as soon as it is
feasible. We discuss this future proposed adoption in section IV.H.2.b.
of the preamble of this proposed rule.
We are inviting public comments on this proposed plan to shorten
the performance period for the PSI 90 measure for the FY 2018 program
year.
b. Intent To Propose in Future Rulemaking To Adopt the Modified PSI 90
Measure
The PSI 90 measure underwent NQF maintenance review in 2014. The
2014 NQF maintenance review process has been completed and has led to
several changes to the measure.\25\ Due to statutory requirements \26\
in the Hospital VBP Program, we would not be able to adopt the NQF-
endorsed modified PSI 90 measure, now known as Patient Safety and
Adverse Events Composite, until a future program year. We refer readers
to section VIII.A. of the preamble of this proposed rule relating to
the Hospital IQR Program for a discussion of the modified PSI 90
measure update.
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\25\ National Quality Forum QPS Measure Description for
``Patient Safety for Selected Indicators (modified version of PSI90)
(Composite Measure)'' found at https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
\26\ First, section 1886(o)(2)(A) of the Act requires the
Program to select measures that have been specified for the Hospital
IQR Program. Second, section 1886(o)(2)(C)(i) of the Act requires
the Hospital VBP Program to refrain from beginning the performance
period for a new measure until data on the measure have been posted
on Hospital Compare for at least one year. Finally, section
1886(o)(3)(C) of the Act requires that the Hospital VBP Program
establish performance standards for each measure not later than 60
days prior to the beginning of the performance period.
---------------------------------------------------------------------------

3. Retention Policy, Domain Name Proposal, and Updating of Quality
Measures for the FY 2019 Program Year
a. Retention of Previously Adopted Hospital VBP Program Measures
Since the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592), we have
retained measures from prior program years for each successive program
year, unless otherwise proposed and finalized. We are not proposing any
changes to this policy.
b. Proposed Domain Name Change
We strive to align quality measurement and value-based purchasing
programs with the NQS priority and the CMS Quality Strategy. Value-
based purchasing programs in particular allow us to link the CMS
Quality Strategy with Medicare payments to providers and suppliers on a
national scale. Given this objective, as well as our objective to focus
quality measurement on the patient-centered outcome of interest to the
extent possible, we proposed to reclassify the Hospital VBP Program
measures into domains based on the six priorities of the CMS Quality
Strategy. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50702), we
proposed to combine the priorities of Care Coordination and Patient-
and Caregiver-Centered Experience of Care into one domain for purposes
of aligning the Hospital VBP Program domains with the CMS Quality
Strategy. The domain name is often shortened to say PCCEC/CC. The
HCAHPS measure, which includes the care transitions measure (CTM-3),
currently comprises the Patient- and Caregiver-Centered Experience of
Care/Care Coordination domain.
This domain name has proven to be long and unwieldy. Therefore, we
are proposing to change the domain name from Patient- and Caregiver-
Centered Experience of Care/Care Coordination to, more simply, Person
and Community Engagement beginning with the FY 2019 program year. We
believe that this domain name captures two goals of the CMS Quality
Strategy, as shown in the table below:

------------------------------------------------------------------------
Hospital VBP program domain CMS Quality strategy goal
------------------------------------------------------------------------
Safety................................. Make Care Safer by Reducing
Harm Caused in the Delivery of
Care.

[[Page 25101]]

Efficiency and Cost Reduction.......... Make Care Affordable.
Clinical Care.......................... Promote Effective Prevention
and Treatment of Chronic
Disease.
Person and Community Engagement........ Promote Effective Communication
and Coordination of Care.
Strengthen Persons and Their
Families as Partners in Their
Care.
N/A.................................... Work with Communities to
Promote Best Practices of
Healthy Living.
------------------------------------------------------------------------

We are inviting public comments on this proposal.
c. Proposed Inclusion of Selected Ward Non-Intensive Care Unit (ICU)
Locations in Certain NHSN Measures Beginning With the FY 2019 Program
Year
The Hospital VBP Program has used the CLABSI measure since the FY
2015 program year and has used the CAUTI measure since the FY 2016
program year. Both measures use adult, pediatric, and neonatal
intensive care unit (ICU) data to calculate performance standards and
measure scores (79 FR 50061). In the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50787), we expanded the CAUTI and CLABSI measures to selected
ward (non-ICU) settings for the Hospital IQR Program, effective January
1, 2015 (78 FR 50787). Data were first posted on Hospital Compare in
December 2015. Selected ward (non-ICU) locations are defined as adult
or pediatric medical, surgical, and medical/surgical wards (78 FR
50787; 79 FR 50061). More information on the CLABSI and CAUTI measures
can be found at: http://www.cdc.gov/nhsn/pdfs/pscmanual/4psc_clabscurrent.pdf and http://www.cdc.gov/nhsn/pdfs/pscmanual/7psccauticurrent.pdf, respectively.
In the FY 2015 and FY 2016 IPPS/LTCH PPS final rules, we discussed
our intent to consider using data from selected ward (non-ICU)
locations for the Hospital VBP Program beginning in the FY 2019 program
year for purposes of calculating performance standards for the CAUTI
and CLABSI measures (79 FR 50061; 80 FR 49556). Several public
commenters supported our proposal to include performance data from non-
ICU locations in the CLABSI and CAUTI measures beginning in the FY 2019
program year, noting that CLABSI and CAUTI measures are important
targets for dedicated surveillance and prevention efforts outside the
ICU setting (80 FR 49566).
Based on the public comments we have received in prior rulemaking,
we are proposing to include the selected ward (non-ICU) locations in
the CAUTI and CLABSI measures for the Hospital VBP Program beginning
with the FY 2019 program year, with a baseline period of January 1,
2015 through December 31, 2015 and a performance period of January 1,
2017 through December 31, 2017. This expansion of the CAUTI and CLABSI
measures aligns with the Hospital IQR Program. It also aligns with the
HAC Reduction Program, which adopted the expansion of the CAUTI and
CLABSI measures beginning with its FY 2018 program year (80 FR 49576
through 49578). This expansion is also consistent with the NQF
reendorsement update to these measures, which allows application of the
measures beyond ICU locations (78 FR 50787). The MAP conditionally
supported the expansion of the CAUTI (MUC-S0138) and CLABSI (MUC-S0139)
measures for the Hospital VBP Program on the condition of gaining
experience publicly reporting these measure data, as detailed in the
``Spreadsheet of MAP 2015 Final Recommendations.'' \27\ We continue to
believe this expansion of the measures would allow all hospitals,
including hospitals that do not have ICU locations, to use the tools
and resources of the NHSN for quality improvement and public reporting
efforts.
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\27\ ``Spreadsheet of MAP 2015 Final Recommendations'' available
at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78711 and ``Process and
Approach for MAP Pre-Rulemaking Deliberations 2015'' available at:
http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations_2015.aspx.
---------------------------------------------------------------------------

We are inviting public comments on this proposal.
d. Summary of Previously Adopted Measures and Newly Proposed Measure
Refinements for the FY 2019 Program Year
In summary, for the FY 2019 program year, we have finalized the
following measure set and are proposing the refinement of certain NHSN
measures, as indicated:

Previously Adopted Measures and Newly Proposed Measure Refinements for the FY 2019 Program Year
----------------------------------------------------------------------------------------------------------------
Short name Domain/Measure name NQF #
----------------------------------------------------------------------------------------------------------------
Person and Community Engagement Domain *
----------------------------------------------------------------------------------------------------------------
HCAHPS........................................ HCAHPS + 3-Item Care Transition Measure......... 0166
0228
----------------------------------------------------------------------------------------------------------------
Clinical Care Domain
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................... Hospital 30-Day, All-Cause, Risk-Standardized 0230
Mortality Rate (RSMR) Following Acute
Myocardial Infarction (AMI) Hospitalization.
MORT-30-HF.................................... Hospital 30-Day, All-Cause, Risk-Standardized 0229
Mortality Rate (RSMR) Following Heart Failure
(HF) Hospitalization.
MORT-30-PN.................................... Hospital 30-Day, All-Cause, Risk-Standardized 0468
Mortality Rate (RSMR) Following Pneumonia
Hospitalization.
THA/TKA....................................... Hospital-Level Risk-Standardized Complication 1550
Rate (RSCR) Following Elective Primary Total
Hip Arthroplasty (THA) and/or Total Knee
Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
Safety Domain
----------------------------------------------------------------------------------------------------------------
CAUTI **...................................... National Healthcare Safety Network (NHSN) 0138
Catheter[dash]Associated Urinary Tract
Infection (CAUTI) Outcome Measure.

[[Page 25102]]

CLABSI **..................................... National Healthcare Safety Network (NHSN) 0139
Central Line[dash]Associated Bloodstream
Infection (CLABSI) Outcome Measure.
Colon and Abdominal Hysterectomy SSI.......... American College of Surgeons--Centers for 0753
Disease Control and Prevention (ACS-CDC)
Harmonized Procedure Specific Surgical Site
Infection (SSI) Outcome Measure.
MRSA Bacteremia............................... National Healthcare Safety Network (NHSN) 1716
Facility-wide Inpatient Hospital-onset
Methicillin-resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure.
CDI........................................... National Healthcare Safety Network (NHSN) 1717
Facility[dash]wide Inpatient Hospital-onset
Clostridium difficile Infection (CDI) Outcome
Measure.
PSI 90........................................ Patient Safety for Selected Indicators 0531
(Composite Measure).
PC-01......................................... Elective Delivery............................... 0469
----------------------------------------------------------------------------------------------------------------
Efficiency and Cost Reduction Domain
----------------------------------------------------------------------------------------------------------------
MSPB.......................................... Payment-Standardized Medicare Spending Per 2158
Beneficiary (MSBP).
----------------------------------------------------------------------------------------------------------------
We are changing some of the short names for measures from previous years' rulemakings to align
these names with the usage in the Hospital IQR Program, and we are changing some measure names from previous
years' rulemakings to use complete NQF-endorsed measure names.
* We are proposing, in section IV.H.3.b. of the preamble of this proposed rule, to change the name of this
domain from Patient- and Caregiver-Centered Experience of Care/Care Coordination domain to Person and
Community Engagement domain beginning with the FY 2019 program year.
** Proposed to include selected ward (non-ICU) locations in the measure as discussed in section IV.H.3.c. of the
preamble of this proposed rule.

4. Newly Proposed Measures and Measure Refinements for the FY 2021
Program Year and Subsequent Years
We consider measures for adoption based on the statutory
requirements, including specification under the Hospital IQR Program,
posting dates on the Hospital Compare Web site, and our priorities for
quality improvement as outlined in the current CMS Quality Strategy,
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
Due to the time necessary to adopt measures, we often adopt
policies for the Hospital VBP Program well in advance of the program
year for which they will be applicable (for example, 76 FR 26490
through 26547; 76 FR 51653 through 51660; 76 FR 74527 through 74547; 77
FR 53567 through 53614; 78 FR 50676 through 50707; 78 FR 75120 through
75121; 79 FR 50048 through 50087; 80 FR 49556 through 49559).
a. Condition-Specific Hospital Level, Risk-Standardized Payment
Measures
Providing high-value care is an essential part of our mission to
provide better health care for individuals, better health for
populations, and lower healthcare costs. Our aim is to encourage higher
value care where there is the most opportunity for improvement, the
greatest number of patients to benefit from improvements, and the
largest sample size to ensure reliability. In order to incentivize
innovation that promotes high-quality care at high value, we believe it
is critical to examine measures of resource use, efficiency, and cost
reduction.
In prior rules we have discussed our interest in expanding the
Hospital VBP Program's Efficiency and Cost Reduction domain to include
condition-specific or treatment-specific Medicare payment measures, and
we have sought public comments (78 FR 50688; 79 FR 50066). In response
to comments, we have stated that risk-adjusted standardized Medicare
payments, viewed in light of other quality measures in a program, are
an appropriate indicator of efficiency because they allow us to compare
hospitals without regard to factors such as geography and teaching
status. This comparison is particularly important with clinically
coherent episodes because it distinguishes the degree to which practice
pattern variation influences the cost of care. In addition, we have
stated that the granularity of condition-specific or treatment-specific
payment measures may provide specific actionable feedback to hospitals
to implement targeted improvements. The observed differences in episode
payments revealed by these measures may also encourage hospitals to
assess local, postacute health care services (for example, SNF and home
health services) to ensure that efficient services are available to all
patients. Given these factors, we believe that the addition of
condition-specific or treatment-specific payment measures to the
Hospital VBP Program is necessary not only to facilitate a better
understanding of service utilization and costs associated with
conditions or treatments, but also as an important next step in the
evolution of value-based purchasing to transform how Medicare pays for
care and services.
We recognize that high or low payments to hospitals are difficult
to interpret in isolation. Some high payment hospitals may produce
better clinical outcomes when compared with low payment hospitals,
while other high payment hospitals may not produce better outcomes. For
this reason, payment measure results viewed in isolation are not
necessarily an indication of quality. However, by viewing such
information along with quality measure results, we believe that
consumers, payers, and providers would be able to better assess the
value of care. We believe that adopting condition-specific or
treatment-specific payment measures for the Hospital VBP Program that
can be more directly paired with clinical outcome measures, aligned by
comparable populations, performance periods, or risk-adjustment
methodologies, help move toward achievement of this goal. We also
believe that adopting condition-specific or treatment-specific payment
measures would create stronger incentives for appropriately reducing
practice pattern variation to achieve the aim of lowering the cost of
care and creating better coordinated care for Medicare beneficiaries.
In the Hospital VBP Program, we adopted the Medicare Spending per
Beneficiary (MSPB) measure beginning with the FY 2015 program year to
incentivize hospitals to redesign care systems in order to provide
coordinated,

[[Page 25103]]

high-quality, and cost-efficient care (77 FR 53590). Currently, the
Hospital VBP Program measures efficiency by weighting and combining the
MSPB measure with other quality measures in order to calculate each
hospital's TPS. However, we have previously expressed our interest in
expanding the Efficiency and Cost Reduction domain and continue to
believe that additional supplemental measures would create incentives
for greater coordination between hospitals and physicians to optimize
the care they provide to Medicare beneficiaries (78 FR 50688; 79 FR
50066).
We believe that when examining variation in payments, an episode-
of-care triggered by admission is meaningful for several reasons.
First, hospitalizations represent brief periods of illness that require
ongoing management post-discharge, and decisions made at the admitting
hospital affect payments for care in the immediate postdischarge
period. Second, attributing payments for a continuous episode-of-care
to admitting hospitals may reveal variations in care decision-making
and resource utilization. Third, an episode-of-care with a specified
time period (30 days in the case of the measures proposed below)
provides a standard observation period by which to compare all
hospitals. For all of the reasons described above, we are proposing to
add two condition-specific payment measures in the Hospital VBP Program
that can be directly paired with existing clinical outcome measures in
the program.
We are inviting public comments on the proposed measures as
detailed below. We are further inviting public comment on the addition
of other condition-specific or treatment-specific payment measures that
are directly paired with quality measures, as well as episode-based
payment measures not directly paired with quality measures, for future
program years.
(1) Proposed New Measure for the FY 2021 Program Year: Hospital-Level,
Risk-Standardized Payment Associated With a 30-Day Episode-of-Care for
Acute Myocardial Infarction (AMI) (NQF #2431)
Hospital-Level, Risk-Standardized Payment Associated with a 30-Day
Episode-of-Care for AMI (NQF #2431) (AMI Payment) is an NQF-endorsed
measure assessing hospital risk-standardized payment associated with a
30-day episode-of-care for AMI. We adopted this measure in the Hospital
IQR Program in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50802
through 50805). The measure includes Medicare FFS patients aged 65 or
older admitted for an AMI and calculates payments for these patients
over a 30-day episode-of-care, beginning with the index admission,
using administrative claims data. In general, the measure uses the same
approach to risk-adjustment as our 30-day outcome measures previously
adopted for the Hospital VBP Program, including the AMI mortality
measure. Initial measure data were posted on Hospital Compare in
December 2014 and the full measure specifications are available at:
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
AMI remains a high-volume condition that is one of the top 20
conditions contributing to Medicare costs.\28\ There is evidence of
variation in payment for AMI patients among hospitals; median 30-day
risk-standardized payment (in 2013 dollars) for AMI was $21,620 and
ranged from $12,862 to $29,802 for the July 2011 through June 2014
reporting period in the Hospital IQR Program.\29\ This variation in
payment suggests there is opportunity for improvement.
---------------------------------------------------------------------------

\28\ Torio, C.M. and Andrews, R.M., 2013. National inpatient
hospital costs: The most expensive conditions by payer, 2011. In
Agency for Healthcare Research and Quality, Healthcare Cost and
Utilization Project Statistical Brief# 160. Available at: https://www.hcup-us.ahrq.gov/reports/statbriefs/sb160.pdf.
\29\ 2015 Condition-Specific Measure Updates and Specifications
Report Hospital-Level 30-Day Risk Standardized Payment Measures.
AMI, HF, PN Payment Updates (zip file). Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

We believe it is important to adopt the AMI Payment measure because
variation in payment may reflect differences in care decision-making
and resource utilization (for example, treatment, supplies, or
services) for patients with AMI both during hospitalization and
immediately post-discharge. The AMI Payment measure also addresses the
NQS priority and CMS Quality Strategy goal to make quality care more
affordable. Lastly, the AMI Payment measure is intended to be paired
with our 30-day AMI mortality measure, MORT-30-AMI, thereby directly
linking payment to quality by the alignment of comparable populations
and risk-adjustment methodologies to facilitate the assessment of
efficiency and value of care.
We are proposing the AMI Payment measure beginning with the FY 2021
program year. The AMI Payment measure would be added to the Efficiency
and Cost Reduction domain. The proposed measure fulfills all statutory
requirements for the Hospital VBP Program based on our adoption of the
measure in the Hospital IQR Program, and our posting of measure data on
Hospital Compare for at least one year before the beginning of the
performance period. The AMI Payment measure (MUC15-369) was reviewed by
the MAP in December 2015 and did not receive support for adoption into
the Hospital VBP Program.\30\ The result of the MAP vote was 27 percent
support, 15 percent conditional support, and 58 percent do not support.
MAP members expressed concern that treatment-specific or condition-
specific payment measures may overlap and double count services that
are already captured in the MSPB measure. In addition, stakeholders
expressed a desire to have more experience with the measure in the
Hospital IQR Program to understand whether there may be unintended
consequences or a need to adjust for sociodemographic status (SDS).
---------------------------------------------------------------------------

\30\ ``Spreadsheet of MAP 2015-2016 Final Recommendations''
available at: http://www.qualityforum.org/map/ and ``Process and
Approach for MAP Pre-Rulemaking Deliberations 2016'' found at:
http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
---------------------------------------------------------------------------

With respect to MAP stakeholder concerns that treatment-specific or
condition-specific payment measures may overlap and double count
services, we note that these measures cover topics of critical
importance to quality improvement in the inpatient hospital setting. As
discussed above, we selected these measures because we believe that it
is appropriate to provide stronger incentives for hospitals to provide
high-value and efficient care. We believe that even if some services
were double counted, hospitals that offer quality service and maintain
better results on the MSPB and condition-specific payment measures
relative to other hospitals in the Hospital VBP Program could receive
an increased benefit by performing well on both quality measures and
payment measures. Furthermore, because hospitals would have bigger
financial incentives, they would strive to perform better, which would
lead to better quality. At the same time, however, we are proposing
that the Efficiency and Cost Reduction domain remain weighted at 25
percent of the TPS even as additional payment measures may be adopted
for this domain in the FY 2021 program year; therefore, the impact of
poor performance on the MSPB measure or on any other particular payment
measure would be reduced.

[[Page 25104]]

In regard to MAP stakeholder concerns regarding the need to adjust
for SDS, we note that the AMI Payment measure already incorporates a
risk-adjustment methodology that accounts for age and comorbidities. We
understand the important role that sociodemographic status plays in the
care of patients. However, we continue to have concerns about holding
hospitals to different standards for the outcomes of their patients of
diverse sociodemographic status because we do not want to mask
potential disparities or minimize incentives to improve the outcomes of
disadvantaged populations. We routinely monitor the impact of
sociodemographic status on hospitals' results on our measures.
NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
expected to submit information such as analyses and interpretations as
well as performance scores with and without sociodemographic factors in
the risk-adjustment model.
Furthermore, ASPE is conducting research to examine the impact of
sociodemographic status on quality measures, resource use, and other
measures under the Medicare program as directed by the IMPACT Act. We
will closely examine the findings of the ASPE reports and related
Secretarial recommendations and consider how they apply to our quality
programs at such time as they are available.
Finally, we note that some MAP members did express support for the
AMI Payment measure and other condition-specific payment measures.
Members agreed that the increased granularity provided by condition-
specific payment measures will provide valuable feedback to hospitals
for targeted improvement. A recent NQF-commissioned white paper also
supports the position that cost or payment measures should be
interpreted in the context of quality measures and that measures that
link cost and quality are the preferred method of assessing hospital
efficiency.\31\ We believe that the condition-specific payment measures
we are proposing, which directly pair with clinical outcome measures
already in the Hospital VBP Program, follow this recommended approach.
Based on our analysis of the issues surrounding condition-specific
payment measures, we believe that the benefits of adopting this measure
into the Hospital VBP Program outweigh any potential risks; however, we
remain committed to monitoring for unintended consequences.
---------------------------------------------------------------------------

\31\ Ryan A.M., Tompkins C.P. Efficiency and Value in
Healthcare: Linking Cost and Quality Measures. Washington, DC: NQF;
2014.
---------------------------------------------------------------------------

We are inviting public comments on this proposal.
(2) Proposed New Measure for the FY 2021 Program Year: Hospital-Level,
Risk-Standardized Payment Associated With a 30-Day Episode-of-Care for
Heart Failure (HF) (NQF #2436)
Hospital-Level, Risk-Standardized Payment Associated with a 30-Day
Episode-of-Care for HF (NQF #2436) (HF Payment) is an NQF-endorsed
measure assessing hospital risk-standardized Medicare payment
associated with a 30-day episode-of-care for heart failure. The measure
includes Medicare FFS patients aged 65 or older admitted for heart
failure and calculates payments for these patients over a 30-day
episode-of-care, beginning with the index admission, using
administrative claims data. In general, the measure uses the same
approach to risk-adjustment as our 30-day outcome measures previously
adopted for the Hospital VBP Program, including the HF mortality
measure. We adopted this measure in the Hospital IQR Program in the FY
2015 IPPS/LTCH PPS final rule (79 FR 50231 through 50235). Initial
measure data were posted on Hospital Compare in July 2015 and the full
measure specifications are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Heart failure is one of the leading causes of hospitalization for
Americans 65 and over and costs roughly $34 billion
annually.^{32 33} There is evidence of variation in Medicare
payments at hospitals for heart failure patients; median 30-day risk-
standardized payment (in 2013 dollars) among Medicare FFS patients aged
65 or older was $15,139, and ranged from $11,086 to $21,867 for the
July 2011 through June 2014 reporting period in the Hospital IQR
Program.\34\ This variation in payment suggests there is opportunity
for improvement.
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\32\ Russo C.A., Elixhauser, A. Hospitalizations in the Elderly
Population, 2003. Agency for Healthcare Research and Quality. 2006.
\33\ Heidenriech P.A., Trogdon J.G., Khavjou O.A., Butler J,
Dracup K., Ezekowitz M.D., et al. Forecasting the future of
cardiovascular disease in the United States: A policy statement from
the American Heart Association. Circulation. 2011;123(8):933-44.
\34\ 2015 Condition-Specific Measure Updates and Specifications
Report Hospital-Level 30-Day Risk-Standardized Payment Measures.
AMI, HF, PN Payment Updates (zip file). Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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We believe it is important to adopt the HF Payment measure because
variation in payment may reflect differences in care decision making
and resource utilization (for example, treatment, supplies, or
services) for patients with heart failure both during hospitalization
and immediately post-discharge. The HF Payment measure also addresses
the NQS priority and CMS Quality Strategy goal to make quality care
more affordable. Lastly, the HF Payment measure is intended to be
paired with our 30-day HF mortality measure, MORT-30-HF, thereby
directly linking payment to quality by the alignment of comparable
populations and risk-adjustment methodologies to facilitate the
assessment of efficiency and value of care.
We are proposing the HF Payment measure beginning with the FY 2021
program year. The HF Payment measure would be added to the Efficiency
and Cost Reduction domain. The measure fulfills all statutory
requirements for the Hospital VBP Program based on our adoption of the
measure in the Hospital IQR Program and our posting of measure data on
Hospital Compare for at least one year before the beginning of the
performance period for this measure. The HF Payment measure (MUC15-322)
was reviewed by the MAP in December 2015 and did not receive support
for adoption into the Hospital VBP Program, due to the same concerns
that we noted in our discussion of the AMI Payment measure.\35\ The
result of the MAP vote was 27 percent support, 8 percent conditional
support, and 65 percent do not support. Although the final MAP decision
was ``do not support,'' we continue to believe that the NQF-endorsed HF
Payment measure provides beneficiaries and hospitals with valuable
information about relative value for an episode-of-care. We support

[[Page 25105]]

the HF Payment measure for the same reasons that we noted in our
general discussion of condition-specific payment measures in section
IV.H.4.a. of the preamble of this proposed rule and in our discussion
of the AMI Payment measure in section IV.H.4.a.(2) of the preamble of
this proposed rule.
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\35\ ``Spreadsheet of MAP 2015-2016 Final Recommendations''
available at: http://www.qualityforum.org/map/ and ``Process and
Approach for MAP Pre-Rulemaking Deliberations 2016'' found at:
http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
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We note that some MAP members did express support for the HF
Payment measure and other condition-specific payment measures. Members
agreed that the increased granularity provided by condition-specific
payment measures will provide valuable feedback to hospitals for
targeted improvement. In addition, we believe that the condition-
specific payment measures we are proposing, which directly pair with
clinical outcome measures already in the Hospital VBP Program, follow
the recommended approach outlined in the NQF white paper on how best to
measure efficiency.\36\ Based on our analysis of the issues surrounding
condition-specific payment measures, we believe that the benefits of
adopting this measure into the Hospital VBP program outweigh any
potential risks. However, we remain committed to monitoring for
unintended consequences.
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\36\ Ryan A.M., Tompkins C.P. Efficiency and Value in
Healthcare: Linking Cost and Quality Measures. Washington, DC: NQF;
2014.
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We are inviting public comments on this proposal.
(3) Proposed Scoring Methodology for the Proposed AMI Payment and HF
Payment Measures
We are proposing to score the proposed AMI Payment and HF Payment
measures using the same methodology we use to score the MSPB measure,
so that all measures in the Efficiency and Cost Reduction domain are
scored in the same manner and have the same case minimum threshold.
For achievement points, we are proposing to calculate a spending
ratio of AMI spending and HF spending for each hospital to the median
AMI spending and median HF spending, respectively, across all hospitals
during the performance period. We would then use each hospital's AMI
spending ratio and HF spending ratio to calculate between 0 and 10
achievement points. We are proposing to set the achievement thresholds
at the median AMI spending ratio and HF spending ratio across all
hospitals during the performance period. We are proposing to set the
benchmarks at the mean of the lowest decile of the AMI spending ratios
and the HF spending ratios during the performance period. Therefore, a
hospital whose individual AMI spending or HF spending ratios fall above
the achievement threshold would score 0 achievement points on the
measure. A hospital for which individual AMI spending or HF spending
ratios fall at or below the benchmark would score the maximum 10
achievement points on the measure. A hospital for which individual AMI
spending or HF spending ratios fall at or below the achievement
threshold but above the benchmark would score between 1 and 9 points
according to the following formula:

[9 * ((achievement threshold-Hospital's performance period ratio)/
(achievement threshold-benchmark))] + 0.5

For improvement points, we are proposing to calculate a spending
ratio of AMI spending and HF spending for each hospital to the median
AMI spending and median HF spending, respectively, across all hospitals
during the performance period. We would then use each hospital's AMI
spending ratio and the HF spending ratio to calculate between 0 and 9
improvement points by comparing each hospital's ratio to its own
performance during the baseline period. We are proposing to set the
improvement benchmark as the mean of the lowest decile of AMI spending
and HF spending ratios across all hospitals. Therefore, a hospital for
which AMI spending or HF spending ratios are equal to or higher than
its baseline period ratios would score 0 improvement points on the
measure. If a hospital's score on the measure during the performance
period is less than its baseline period score but above the benchmark,
the hospital would receive a score of 0 to 9 according to the following
formula:

[10 * ((Hospital baseline period ratio-Hospital performance period
ratio)/(Hospital baseline period ratio-benchmark))] -0.5

For more information about the proposed scoring methodology for the
AMI Payment and HF Payment measures, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51654 through 51656) and to 42 CFR
412.160 where we discuss the MSPB measure's identical scoring
methodology in detail.
In order to codify this scoring methodology for the proposed
payment measures, we are proposing to amend our regulations at 42 CFR
412.160 to revise the definitions of ``Achievement threshold'' and
``Benchmark'' to reflect this methodology, not just for the MSPB
measure, but more generally for all measures in the Efficiency and Cost
Reduction domain.
We also considered and seek public feedback on scoring the AMI
Payment and HF Payment measures using the same methodology that we use
to score most other measures, including the MORT-30-AMI and MORT-30-HF
measures. Under that scoring methodology, hospitals receive achievement
points along an achievement range, which is a scale between the
achievement threshold (the minimum level of hospital performance
required to receive achievement points) and the benchmark (the mean of
the top decile of hospital performance during the baseline period). A
hospital receives improvement points for a measure if the hospital
improves upon its measure score from its own baseline period measure
score (76 FR 26514). We decided to propose the scoring methodology that
more closely aligns with the MSPB measure because we believe it would
be helpful for hospitals to be compared against performance standards
constructed from more current performance period data, given potential
changes in Medicare payment policy, changes in market forces, and
changes in utilization practices.
We are inviting public comment on the proposed scoring methodology
in the calculation of achievement and improvement points for the AMI
Payment and HF Payment measures beginning with the FY 2021 program
year.
In addition, we are considering adopting a scoring methodology for
a future program year that would assess quality measures and efficiency
measures in tandem to produce a composite score reflective of value. To
support the goals of value-based purchasing and to provide consumers
and purchasers with information about value of care provided by
hospitals, we are soliciting public comments on ways we can incorporate
scoring value into the Hospital VBP Program. The concept of value
reflects highest quality achieved with most efficiency or least costs.
Currently, the Hospital VBP Program assesses quality and efficiency
separately through distinct performance measures and domains. Because
each domain is weighted and combined to determine each hospital's TPS,
a hospital could earn a higher payment adjustment relative to other
hospitals by performing well on the quality-related domains but without
performing well in the Efficiency and Cost Reduction domain, or vice
versa. Without a measure or score for value that reflects both quality
and costs, our ability to assess value is limited.

[[Page 25106]]

There are various different ways value could be incorporated into
the Hospital VBP Program. We are seeking public comments on two general
approaches. First, specific measures of value could be developed by
measure developers and incorporated into the Hospital IQR Program and
then the Hospital VBP Program through the measure development process.
This may be a lengthy process and will depend upon interest from
measure developers. However, specific measures of value could be more
interpretable by consumers, and would have rates that could be trended,
benchmarked, and scored using the current Hospital VBP Program scoring
methodology for assessing achievement and improvement.
A second potential approach is for the Hospital VBP Program to use
the Program's scoring methodology to incorporate value based on the
performance of hospitals by either: (a) Comparing scores on specific
quality and cost measures; or (b) comparing quality and efficiency
domain scores. First, the measure-specific approach could target high-
cost, high clinical-impact conditions by pairing condition-specific
quality and cost measures, such as by assessing a ratio of a hospital's
reported quality over costs. A value score based on the paired clinical
outcome and cost measures could be incorporated into the existing
Efficiency and Cost Reduction domain (or Clinical Care or Safety
domains) or included in a separate new `Value' domain. Alternatively, a
domain-based value scoring approach could be similar to the current
quality/cost tiering approach in the Physician Value-Based Modifier
Program, which tiers providers into nine high, average, or low cost and
quality (or ``value'') categories to determine payments. The domain-
based value score could be weighted and incorporated into the
calculation of a hospital's overall Hospital VBP Program TPS along with
the other existing domains, or potentially as a multiplier or adjuster
to additionally reward higher value hospitals.
We welcome the public's feedback and suggestions on how to
appropriately incorporate the concept of value in the Hospital VBP
Program, and we are inviting specific suggestions on how to measure or
score value that will be meaningful to consumers, purchasers, and
providers.
b. Proposed Update to an Existing Measure for the FY 2021 Program Year:
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Pneumonia Hospitalization (NQF #0468) (Updated Cohort)
The Hospital 30-Day, All-Cause, RSMR Following Pneumonia
Hospitalization (NQF #0468) (MORT-30-PN (updated cohort)) measure is a
risk-adjusted, NQF-endorsed mortality measure monitoring mortality
rates following PN hospitalizations. As part of the CMS measure
reevaluation process, the MORT-30-PN measure underwent a substantive
revision, which expanded the measure cohort to include: (1) Patients
with a principal discharge diagnosis of pneumonia (the current reported
cohort); (2) patients with a principal discharge diagnosis of
aspiration pneumonia; and (3) patients with a principal discharge
diagnosis of sepsis (excluding severe sepsis) with a secondary
diagnosis of pneumonia coded as present on admission. For the purposes
of describing the refinement of this measure, we note that ``cohort''
is defined as the hospitalizations, or ``index admissions,'' that are
included in the measure and evaluated to ascertain whether the patient
subsequently died within 30 days of the index admission. This cohort is
the set of hospitalizations that meet all of the inclusion and
exclusion criteria.
The Hospital IQR Program adopted this measure refinement of MORT-
30-PN (updated cohort) in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49653 through 49660), with initial MORT-30-PN (updated cohort) data to
be posted on Hospital Compare on or around July 21, 2016. The MORT-30-
PN (updated cohort) measure (MUC-E0468) was included on the ``List of
Measures Under Consideration for December 1, 2014'' and received
conditional support from the MAP, pending NQF endorsement of the
updated cohort as detailed in the ``Spreadsheet of MAP 2015 Final
Recommendations.'' \37\ The full measure specifications are available
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

\37\ ``Spreadsheet of MAP 2015 Final Recommendations'' available
at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78711 and ``Process and
Approach for MAP Pre-Rulemaking Deliberations 2015'' available at:
http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations_2015.aspx.
---------------------------------------------------------------------------

This refinement to the MORT-30-PN measure was adopted to more
accurately reflect quality and outcomes for patients with pneumonia.
Recent evidence has shown an increase in the use of sepsis as a
principal diagnosis code among patients hospitalized with
pneumonia.\38\ In response to this emerging evidence, we examined
coding patterns across hospitals caring for Medicare patients and
sought to forecast the impact of enhancing or broadening the measure
cohort to include the complete patient population, at each hospital,
who are receiving clinical management and treatment for pneumonia. Our
findings were consistent with a published study.\39\ That is, our
results suggested that there is: (1) An increasing use of sepsis as a
principal discharge diagnoses for pneumonia patients; and (2) wide
variation across hospitals in the use of these codes. These published
studies and CMS analyses also show that hospitals that use sepsis codes
for the principal diagnosis frequently have better performance on the
currently adopted MORT-30-PN measure. This coding practice improves
performance on the measure because patients with greatest severity of
illness (for example, those with sepsis) are systematically excluded
from the measure under current measure specifications, leaving only
patients with less severity of illness in the cohort.
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\38\ Lindenauer P.K., Lagu T., Shieh M.S., Pekow P.S., Rothberg
M.B. Association of diagnostic coding with trends in
hospitalizations and mortality of patients with pneumonia, 2003-
2009. Journal of the American Medical Association. Apr 4
2012;307(13):1405-1413.
\39\ Rothberg M.B., Pekow P.S., Priya A., Lindenauer P.K.
Variation in diagnostic coding of patients with pneumonia and its
association with hospital risk-standardized mortality rates: A
cross-sectional analysis. Annals of Internal Medicine. Mar 18
2014;160(6):380-388.
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In addition to assessing the use of the principal diagnosis codes
of sepsis, we also analyzed coding patterns and the impact of expanding
the pneumonia measure to include patients with the principal diagnosis
of aspiration pneumonia. We noted after our analyses that aspiration
pneumonia: (1) Is a common reason for pneumonia hospitalization,
particularly among the elderly; (2) is currently not included in the
CMS hospital outcome measure specifications for pneumonia patients; and
(3) appears to be similarly subject to variation in diagnosis,
documentation, and coding. The findings of published studies and CMS
analyses suggested that a MORT-30-PN measure with an enhanced or
broader cohort would ensure that the population of patients with
pneumonia is more complete and comparable across hospitals.
We are proposing this measure refinement for the Hospital VBP

[[Page 25107]]

Program based on our adoption of the measure refinement in the Hospital
IQR Program, and our posting of measure data on Hospital Compare for at
least 1 year prior to the start of the measure performance period. In
addition, the MORT-30-PN (updated cohort) measure addresses a high
volume, high cost condition. The measure aligns with the NQS priority
and CMS Quality Strategy Goal of ``Effective Prevention and Treatment
of Chronic Disease.'' Based on the continued high risk of mortality
after pneumonia hospitalizations, we are proposing to add it to the
Clinical Care domain beginning with the FY 2021 program year.
We are inviting public comments on this proposal.
5. Proposed New Measure for the FY 2022 Program Year: Hospital 30-Day,
All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary
Artery Bypass Graft (CABG) Surgery (NQF #2558)
The Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate
(RSMR) Following CABG Surgery (NQF #2558) (MORT-30-CABG) measure is a
risk-adjusted, NQF-endorsed mortality measure monitoring mortality
rates following CABG hospitalizations. This measure includes Medicare
FFS patients aged 65 or older who receive a qualifying CABG procedure
and assesses hospitals' 30-day, all-cause risk-standardized rate of
mortality, beginning with the date of the index procedure. The measure
is calculated using administrative claims data. In general, the measure
uses the same approach to risk adjustment as our 30-day outcome
measures previously adopted for the Hospital VBP Program. We adopted
this measure in the Hospital IQR Program in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50224 through 50227). Initial measure data were
posted on Hospital Compare in July 2015 and the full measure
specifications are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
CABG is a priority area because it is a common procedure associated
with considerable morbidity, mortality, and healthcare spending. In the
United States, over 200,000 CABG procedures are performed annually, and
the majority of procedures are performed on Medicare beneficiaries.\40\
In 2012, Medicare beneficiaries had 121,744 CABG surgery admissions,
with or without percutaneous coronary intervention or valve
surgery.\41\ CABG surgeries are costly procedures that account for a
large percentage of cardiac surgeries performed nationally. For
example, isolated CABG surgeries accounted for almost half (40.02
percent) of all cardiac surgery hospital admissions in Massachusetts in
FY 2012.\42\ This provides an example of the frequency in which a CABG
is performed for a patient admitted for cardiac surgery. The average
Medicare payment was $32,564 for CABG without valve and $48,461 for
CABG plus valve surgeries in 2011.\43\
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\40\ Fingar, K.R., Stocks, C., Weiss, A.J. and Steiner, C.A.,
2014. Most frequent operating room procedures performed in U.S.
hospitals, 2003-2012. In Agency for Healthcare Research and Quality,
Healthcare Cost and Utilization Project Statistical Brief #186.
Available at: https://www.hcup-us.ahrq.gov/reports/statbriefs/sb186-Operating-Room-Procedures-United-States-2012.pdf.
\41\ Culler S.D., Kugelmass A.D., Brown P.P., Reynolds M.R.,
Simon A.W. Trends in coronary revascularization procedures among
Medicare beneficiaries between 2008 and 2012. Circulation. 2014 Dec
22: CIRCULATIONAHA-114.
\42\ Massachusetts Data Analysis Center. Adult Coronary Artery
Bypass Graft Surgery in the Commonwealth of Massachusetts: Hospital
and Surgeons Risk-Standardized 30-Day Mortality Rates. Fiscal Year
2012 Report. Available at: http://www.massdac.org/wp-content/uploads/CABG-FY2012-Update.pdf.
\43\ Pennsylvania Health Care Cost Containment Council. Cardiac
Surgery in Pennsylvania 2011-2013. Harrisburg; 2013:60.
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Mortality rates following CABG surgery are not insignificant and
vary across hospitals. For the July 2011 through June 2014 Hospital IQR
Program reporting period, the median hospital-level risk-standardized
mortality rate after CABG was 3.1 percent and ranged from 1.6 percent
to 9.2 percent.\44\ Variation in mortality rates following CABG surgery
can be seen not only nationally, but also within a single State. Within
the State of New York, the risk-adjusted mortality rate among patients
who were discharged after CABG surgery (without any other major heart
surgery earlier in the hospital stay) ranged from 0.0 percent to 4.58
percent in 2011.\45\ Variation in risk-standardized mortality rates
among U.S. hospitals suggests that there is room for improvement.
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\44\ September 2015 Medicare Hospital Performance Report on
Outcome Measures: Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
\45\ New York State Department of Health. Adult Cardiac Surgery
in New York State 2009-2011. Available at: https://www.health.ny.gov/statistics/diseases/cardiovascular/heart_disease/docs/2009-2011_adult_cardiac_surgery.pdf.
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An all-cause, risk-adjusted mortality measure for patients who
undergo CABG surgery would provide hospitals with an incentive to
reduce mortality through improved coordination of perioperative care
and discharge planning. This is further supported by the success of
registry-based mortality measures in reducing CABG mortality rates. For
example, CABG mortality in California declined from 2.9 percent in
2003, the first year that the State implemented a mandatory CABG
mortality reporting measure, to 2.1 percent in 2012.\46\
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\46\ California Office of Statewide Health Planning and
Development. CABG Outcomes Reporting Program. The California Report
on Coronary Artery Bypass Graft Surgery: 2003-2012 Trendlines.
Available at: http://www.oshpd.ca.gov/hid/Products/Clinical_Data/CABG/03-12_Trends.html or http://www.oshpd.ca.gov/HID/Products/Clinical_Data/CABG/2012/ExecutiveSummary.pdf.
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We are proposing the MORT-30-CABG measure for the Hospital VBP
Program beginning with the FY 2022 program year because it addresses a
high-volume, high-cost procedure with variation in performance. The
measure also aligns with the CMS Quality Strategy Goal of Effective
Prevention and Treatment of Chronic Disease. The measure fulfills all
statutory requirements for the Hospital VBP Program based on our
adoption of the measure in the Hospital IQR Program and our posting of
measure data on Hospital Compare for at least one year before the
beginning of the measure performance period. The MAP supported the
inclusion of the MORT-30-CABG measure (MUC15-395) in the Hospital VBP
Program as detailed in the ``Spreadsheet of MAP 2016 Final
Recommendations.'' \47\ Based on the continued high risk of mortality
after CABG hospitalizations, we are proposing to add this measure to
the Clinical Care domain beginning with the FY 2022 program year.
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\47\ ``Spreadsheet of MAP 2015-2016 Final Recommendations''
available at: http://www.qualityforum.org/map/ and ``Process and
Approach for MAP Pre-Rulemaking Deliberations 2016'' found at http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
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We are inviting public comments on this proposal.
6. Previously Adopted and Newly Proposed Baseline and Performance
Periods
a. Background
Section 1886(o)(4) of the Act requires the Secretary to establish a
performance period for the Hospital VBP Program that begins and ends
prior to the beginning of such fiscal year. We refer readers to the FY
2016 IPPS/LTCH PPS final rule (80 FR 49561 through 49562) for the
baseline and performance periods for the Clinical Care, Person and
Community Engagement, Safety, and

[[Page 25108]]

Efficiency and Cost Reduction domains that we have adopted for the FY
2018 program year. In past final rules, we have proposed and adopted a
new baseline and performance period for each program year for each
domain in each final rule. This year, we are proposing to adopt the
following baseline and performance periods for all future program
years, unless otherwise noted in future rulemaking.
b. Patient- and Caregiver-Centered Experience of Care/Care Coordination
Domain (Proposed Person and Community Engagement Domain)
Since the FY 2015 program year, we have adopted a 12-month baseline
period and a 12-month performance period for measures in the proposed
Person and Community Engagement domain (currently referred to as the
Patient- and Caregiver-Centered Experience of Care/Care Coordination
domain) (77 FR 53598; 78 FR 50692; 79 FR 50072; 80 FR 49561). We
continue to believe that a 12-month period provides us sufficient data
on which to score hospital performance.
Therefore, we are proposing to adopt this baseline and performance
period length for the FY 2019 program year and all future program
years, unless otherwise noted in future rulemaking. Therefore, for the
FY 2019 program year and future program years, we are proposing to
adopt a performance period that runs on the calendar year 2 years prior
to the applicable program year. We are proposing to adopt a baseline
period that runs on the calendar year 4 years prior to the applicable
program year. Applying these proposed new policies, for the FY 2019
program year, the baseline period for the Person and Community
Engagement domain (proposed name change) would run from January 1, 2015
through December 31, 2015. The performance period would run from
January 1, 2017 through December 31, 2017.
c. Efficiency and Cost Reduction Domain
(1) MSPB Measure
Since the FY 2016 program year, we have adopted a 12-month baseline
period and a 12-month performance period for the MSPB measure in the
Efficiency and Cost Reduction domain (78 FR 50692; 79 FR 50072; 80 FR
49562). We continue to believe that a 12-month period for this measure
provides sufficient data on which to score hospital performance. We are
proposing to adopt this baseline and performance period length for the
FY 2019 program year and all future program years, unless otherwise
noted in future rulemaking. Therefore, for the FY 2019 program year and
future program years, we are proposing to adopt a performance period
that runs on the calendar year 2 years prior to the applicable program
year. We are proposing to adopt a baseline period that runs on the
calendar year 4 years prior to the applicable program year. Applying
these proposed new policies, for the FY 2019 program year, the baseline
period for the MSPB measure would run from January 1, 2015 through
December 31, 2015. The performance period would run from January 1,
2017 through December 31, 2017.
(2) AMI Payment and HF Payment Measures in the FY 2021 Program Year
We are also proposing to adopt the AMI Payment and HF Payment
measures as two new measures for the Efficiency and Cost Reduction
domain beginning in the FY 2021 program year. In order to adopt the
measures as early as feasible into the Hospital VBP Program, we are
proposing to adopt a 36-month baseline period and a 24-month
performance period. Therefore, for the FY 2021 program year, we are
proposing to adopt a 24-month performance period that runs from July 1,
2017 to June 30, 2019. We are proposing to adopt a 36-month baseline
period that runs from July 1, 2012 to June 30, 2015.
We believe that using a 24-month performance period for the AMI
Payment and HF Payment measures, rather than a 36-month performance
period, in the FY 2021 program year would accurately assess the quality
of care provided by hospitals and would not substantially change
hospitals' performance on the measure. To determine the viability of
using a 24-month performance period to calculate the AMI Payment and HF
Payment measures' scores, we compared the measure score reliability for
a 24-month and 36-month performance period. We calculated the
Intraclass Correlation Coefficient (ICC) to determine the extent to
which assessments of a hospital using different but randomly selected
subsets of patients produces similar measures of hospital
performance.\48\ We calculated the risk-standardized payment (RSP)
using a random split-sample of a 36-month performance period (we used
July 1, 2012 through June 30, 2015).
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\48\ Shrout P., Fleiss J. Intraclass Correlations: Uses in
Assessing Rater Reliability. Pyschol Bull. Mar 1979;86(2):420-428.
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For both the 36-month and the 24-month performance periods, we
obtained two RSPs for each hospital, using an entirely distinct set of
patients from the same time period. If the RSPs for both the 36-month
and the 24-month performance periods agree, we can demonstrate that the
measure assesses the quality of the hospital rather than the types of
patients treated. To calculate agreement between these measure subsets,
we calculated the ICC (2,1) \49\ for both the 36-month and 24-month
performance periods.
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\49\ Shrout P., Fleiss J. Intraclass Correlations: Uses in
Assessing Rater Reliability. Pyschol Bull. Mar 1979;86(2):420-428.
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For the AMI Payment measure, there were 459,874 index admissions
and 2,342 hospitals that met the minimum threshold for reporting a
measure result (at least 25 cases) in the 36-month performance period.
We also calculated the RSP using a random split-sample of the combined
24-month performance period (we used July 1, 2012 through June 30,
2014). There were 309,067 index admissions and 2,141 hospitals that met
the minimum threshold for reporting a measure result in the 24-month
performance period.
For the 36-month performance period, the ICC for the two
independent assessments of each hospital was 0.775. For the 24-month
performance period, the ICC for the two independent assessments of each
hospital was 0.742. Therefore, the data subsets showcase
``substantial'' agreement of hospital performance, and we can
demonstrate that, even with a 24-month performance period, the measure
assesses the quality of care provided at the hospital rather than the
types of patients that these hospitals treat.\50\
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\50\ Landis J, Koch G. The Measurement of Observer Agreement for
Categorical Data. Biometrics. Mar 1997 1977;33(1):159-174.
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To assess whether using 24 months of data instead of 36 months of
data changes the performance in the same hospital, we compared the
percent change in a hospital's predicted/expected (P/E) ratio. For
hospitals that met the minimum case threshold in the 24-month
performance period, the median percent change was -0.06 percent (with
an interquartile range of -1.7 percent to 1.5 percent). These results
suggest minimal difference in same-hospital performance when using a
24-month measurement period.
To determine the viability of using a 24-month performance period
for the HF Payment measure, we assessed reliability and change in
hospital performance for a 24-month and 36-month performance period
using the same process as the AMI Payment measure. For the HF Payment
measure, there were 877,856 index admissions and 2,981 hospitals that
met the

[[Page 25109]]

minimum threshold for reporting a measure result (at least 25 cases) in
the 36-month performance period. We also calculated the RSP using a
random split-sample of a 24-month performance period (we used July 1,
2012 through June 30, 2014). There were 580,741 index admissions and
2,883 hospitals that met the minimum threshold for reporting a measure
result in the 24-month performance period.
For the 36-month performance period, the ICC for the two
independent assessments of each hospital was 0.83. For the 24-month
performance period, the ICC for the two independent assessments of each
hospital was 0.81. Therefore, the data subsets showcase ``almost
perfect'' agreement of hospital performance, and we can demonstrate
that, even with a 24-month performance period, the measure assesses the
quality of care provided at the hospital rather than the types of
patients that these hospitals treat.\51\
---------------------------------------------------------------------------

\51\ Landis J., Koch G. The Measurement of Observer Agreement
for Categorical Data. Biometrics. Mar 1997 1977;33(1):159-174.
---------------------------------------------------------------------------

To assess whether using a 24-month performance period instead of a
36-month performance period changes the performance in the same
hospital, we compared the percent change in a hospital's P/E ratio. For
hospitals that met the minimum case threshold in the 24-month
performance period, the median percent change for hospitals' P/E ratio
using 24-month performance periods compared with 36-month performance
periods was -0.02 percent (with an interquartile range of -1.9 percent
to 1.8 percent). These results suggest minimal difference in same-
hospital performance when using a 24-month measurement period.
Therefore, we believe that using a 24-month performance period
rather than a 36-month performance period would not substantially
change hospitals' performance on the AMI Payment and HF Payment
measures. In sum, based on the analyses described earlier, we believe
that using 24-month performance periods, rather than 36-month
performance periods, for the initial performance period for this
measure would accurately assess the quality of care provided by that
hospital and would not substantially change that hospital's performance
on the measure.
(3) AMI Payment and HF Payment Measures in the FY 2022 Program Year
For the FY 2022 program year, we are proposing to adopt a 36-month
performance period and a 36-month baseline period for the AMI Payment
and HF Payment measures. We have stated in past rules that we would
strive to adopt 36-month performance periods and baseline periods when
possible to accommodate the time needed to process measure data and to
ensure that we collect enough measure data for reliable performance
scoring for all mortality measures (80 FR 49588; 79 FR 50057; 78 FR
50074). Therefore, for the FY 2022 program year, we are proposing to
adopt a 36-month performance period that runs from July 1, 2017 to June
30, 2020. We are proposing to adopt a 36-month baseline period that
runs from July 1, 2012 to June 30, 2015.
d. Safety Domain
Since the FY 2016 program year, we have adopted a 12-month baseline
period and 12-month performance period for all measures in the Safety
domain, with the exception of the PSI 90 measure (78 FR 50692; 79 FR
50071; 80 FR 49562). We continue to believe that a 12-month period for
these measures provides us sufficient data on which to score hospital
performance.
Therefore, we are proposing to adopt a 12-month baseline period and
a 12-month performance period for all measures in the Safety domain,
with the exception of the PSI 90 measure for the FY 2019 program year
and all future program years, unless otherwise noted in future
rulemaking. Under this proposed policy, for the FY 2019 program year
and future program years, we are proposing to adopt a performance
period that runs on the calendar year 2 years prior to the applicable
program year. We are proposing to adopt a baseline period that runs on
the calendar year 4 years prior to the applicable program year.
Applying these proposed new policies, for the FY 2019 program year, the
baseline period for all measures in the Safety domain except for the
PSI 90 measure would run from January 1, 2015 through December 31,
2015. The performance period would run from January 1, 2017 through
December 31, 2017.
As discussed in section IV.H.2.a. of the preamble of this proposed
rule, we are proposing to shorten the performance period for the PSI 90
measure in the FY 2018 program year. Under this proposal, the
performance period for the PSI 90 measure for the FY 2018 program year
would be July 1, 2014 through September 30, 2015. As stated earlier,
the baseline period for the measure for FY 2018 that we previously
established would not change.
e. Clinical Care Domain
(1) Currently Adopted Measures in the Clinical Care Domain
For the FY 2019, FY 2020, and FY 2021 program years, we have
adopted a 36-month baseline period and a 36-month performance period
for currently adopted measures in the Clinical Care domain (78 FR 50692
through 50694; 79 FR 50073; 80 FR 49563).\52\ For the FY 2022 program
year, we are proposing to adopt a 36-month performance period and a 36-
month baseline period for each of the other measures in the Clinical
Care domain, the MORT-30-AMI, MORT-30-HF, and MORT-30-COPD measures, as
well as the newly proposed MORT-30-CABG measure. The performance
periods for these measures would run for 36-months from July 1, 2017
through June 30, 2020. The baseline period would run from July 1, 2012
through June 30, 2015. We are proposing that the THA/TKA measure
performance period would run from April 1, 2017 through March 31, 2020.
The baseline period would run from April 1, 2012 through March 31,
2015.
---------------------------------------------------------------------------

\52\ The currently adopted measures in the Clinical Care domain
include: MORT-30-AMI, MORT-30-HF, MORT-30-PN, and THA/TKA. The THA/
TKA measure was added for the FY 2019 program year with a 36-month
baseline period and a 24-month performance period (79 FR 50072), but
we have since adopted 36-month baseline and performance periods for
the FY 2021 program year (80 FR 49563). We intend to continue having
36-month baseline periods and 36-month performance periods in the
future for all measures in the Clinical Care domain.
---------------------------------------------------------------------------

(2) MORT-30-PN (Updated Cohort) Measure in the FY 2021 Program Year
In order to adopt the newly proposed MORT-30-PN (updated cohort)
measure into the Hospital VBP Program as early as feasible, we are
proposing to adopt a 36-month baseline period and a 23-month
performance period for the FY 2021 program year. We are proposing to
adopt a 23-month performance period because the measure will not be
posted on Hospital Compare for one year until July 21, 2017. We are
proposing to begin the performance period on August 1, 2017 to
accommodate this statutory requirement.
We believe that using a 23-month performance period for the MORT-
30-PN (updated cohort) measure, rather than a 36-month performance
period, in the FY 2021 program year would accurately assess the quality
of care provided by hospitals and would not substantially change
hospitals' performance on the measure. To determine the viability of
using a 23-month performance period to calculate the MORT-30-PN
(updated cohort)

[[Page 25110]]

measure score, we compared the measure score reliability for a 23-month
and a 36-month performance period. We calculated the ICC to determine
the extent to which assessments of a hospital using different but
randomly selected subsets of patients produces similar measures of
hospital performance. We calculated the RSMR using a random split-
sample of the combined 36-month performance period (we used July 1,
2012 through June 30, 2015). There were 1,292,701 index admissions and
3,103 hospitals that met the minimum threshold for reporting a measure
result (at least 25 cases) in the 36-month performance period. We also
calculated the RSMR using a random split-sample of the combined 23-
month performance period (we used July 1, 2012 through May 31, 2014).
There were 798,746 index admissions and 3,043 hospitals that met the
minimum threshold for reporting a measure result in the 23-month
performance period.
For both the 36-month data and the 23-month performance periods, we
obtained two RSMRs for each hospital, using an entirely distinct set of
patients from the same time period. If the RSMRs for both the 36-month
subset and the 23-month performance periods agree, we can demonstrate
that the measure assesses the quality of the hospital rather than the
types of patients treated. To calculate agreement between these measure
subsets, we calculated the ICC for both the 36-month and 23-month
performance periods.
For the 36-month data performance period, the agreement between the
two independent assessments of each hospital was 0.69. For the 23-month
data performance period, the agreement between the two independent
assessments of each hospital was 0.58. Therefore, the data subsets
showcase ``moderate'' agreement of hospital performance, and we can
demonstrate that, even with a 23-month performance period, the measure
moderately assesses the quality of care provided at the hospital rather
than the types of patients that these hospitals treat.\53\
---------------------------------------------------------------------------

\53\ Landis J, Koch G. The Measurement of Observer Agreement for
Categorical Data. Biometrics. Mar 1997 1977;33(1):159-174.
---------------------------------------------------------------------------

To assess whether using a 23-month performance period instead of a
36-month performance period changes the performance in the same
hospital, we compared the percent change in a hospital's RSMR. In some
cases, changing the performance period from 36 months to 23 months
resulted in hospitals failing to meet the case threshold to report a
measure score; therefore, these hospitals were removed from the
measure. For the remaining hospitals, the median percent change was
1.52 percent (with an interquartile range of 2.32 percent to 5.32
percent). These results suggest minimal difference in hospital
performance when using a 23-month measurement period.
Therefore, we believe that using 23 months of data rather than 36
months of data would not substantially change hospitals' performance on
this measure. In summary, based on the analyses further described
earlier, we believe that using 23 months of data, rather than 36 months
of data, for the initial performance period for this measure would,
with moderate accuracy, assess the quality of care provided by that
hospital. In addition, it would not substantially change that
hospital's performance on the measure.
Further, adopting this proposed performance period would enable us
to include the updated measure cohort in the FY 2021 Hospital VBP
Program, which would ensure that MORT-30-PN more accurately reflects
quality and outcomes for patients with pneumonia. Therefore, for the
MORT-30-PN (updated cohort) measure, we are proposing a performance
period that would run from August 1, 2017 through June 30, 2019 for the
FY 2021 program year. The baseline period would run from July 1, 2012
through June 30, 2015.
(3) MORT-30-PN (Updated Cohort) Measure in the FY 2022 Program Year
For the FY 2022 program year and subsequent years, we are proposing
to lengthen the MORT-30-PN (updated cohort) performance period to
nearly a 36-month performance period (35 months) and continue to adopt
a 36-month baseline period. For the FY 2022 program year, we are
proposing a performance period that would run from August 1, 2017
through June 30, 2020. The baseline period would run from July 1, 2012
through June 30, 2015.
f. Summary of Previously Adopted and Newly Proposed Baseline and
Performance Periods for the FY 2018, FY 2019, FY 2020, FY 2021, and FY
2022 Program Years
The tables below summarize the baseline and performance periods
that we are proposing to adopt (and include previously adopted baseline
and performance periods for the Clinical Care domain).

Newly Proposed Baseline and Performance Periods for the FY 2018 Program
Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Safety:
PSI 90 *........... July 1, 2010-June July 1, 2014-
30, 2012. September 30,
2015.
------------------------------------------------------------------------
* We are proposing to shorten the performance period for the PSI 90
measure for the FY 2018 program year as discussed in section IV.H.2.a.
of the preamble of this proposed rule.

Previously Adopted and Newly Proposed Baseline and Performance Periods
for the FY 2019 Program Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Person and Community Engagement:
HCAHPS + 3-Item January 1, 2015- January 1, 2017-
Care Transition. December 31, 2015. December 31,
2017.
Clinical Care:
Mortality (MORT-30- July 1, July 1,
AMI, MORT-30-HF, MORT-30- 2009-June 30, 2014-June 30,
PN) *. 2012. 2017.
THA/TKA *.......... July 1, January
2010-June 30, 1, 2015-June 30,
2013. 2017.
Safety:

[[Page 25111]]

PSI 90............. July 1, July 1,
2011-June 30, 2015 through June
2013. 30, 2017.
PC-01 and NHSN January January
measures (CAUTI, CLABSI, 1, 2015-December 1, 2017-December
SSI, CDI, MRSA). 31, 2015. 31, 2017.
Efficiency and Cost Reduction:
MSPB............... January 1, 2015- January 1, 2017-
December 31, 2015. December 31,
2017.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
unchanged (80 FR 49562 through 49563).

Previously Adopted Baseline and Performance Periods for the FY 2020
Program Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Clinical Care:
Mortality (MORT-30- July 1, July 1,
AMI, MORT-30-HF, MORT-30- 2010-June 30, 2015-June 30,
PN) *. 2013. 2018.
THA/TKA *.......... July 1, July 1,
2010-June 30, 2015-June 30,
2013. 2018.
Safety:
PSI 90 *........... July 1, 2012-June July 1, 2016-June
30, 2014. 30, 2018.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
unchanged (80 FR 49562 through 49563).

Previously Adopted and Newly Proposed Baseline and Performance Periods
for the FY 2021 Program Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Clinical Care:
Mortality (MORT-30- July 1, July 1,
AMI, MORT-30-HF, MORT-30- 2011-June 30, 2016-June 30,
COPD) *. 2014. 2019.
THA/TKA *.......... April 1, April 1,
2011-March 31, 2016-March 31,
2014. 2019.
MORT-30-PN (updated July 1, August 1,
cohort). 2012-June 30, 2017-June 30,
2015. 2019.
Efficiency and Cost Reduction:
Payment (AMI July 1, 2012 to July 1, 2017 to
Payment and HF Payment). June 30, 2015. June 30, 2019.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
unchanged (80 FR 49562 through 49563).

Newly Proposed Baseline and Performance Periods for the FY 2022 Program
Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Clinical Care:
Mortality (MORT-30- July 1, July 1,
AMI, MORT-30-HF, MORT-30- 2012-June 30, 2017-June 30,
COPD, MORT-30-CABG). 2015. 2020.
THA/TKA............ April 1, April 1,
2012-March 31, 2017-March 31,
2015. 2020.
MORT-30-PN (updated July 1, August 1,
cohort). 2012-June 30, 2017-June 30,
2015. 2020.
Efficiency and Cost Reduction:
Payment (AMI July 1, 2012-June July 1, 2017-June
Payment, HF Payment). 30, 2015. 30, 2020.
------------------------------------------------------------------------

We are inviting public comments on these proposals.
7. Proposed Immediate Jeopardy Policy Changes
a. Background
Section 1886(o)(1)(C) of the Act states that the Hospital VBP
Program applies to subsection (d) hospitals (as defined in section
1886(d)(1)(B) of the Act), but excludes from the definition of the term
``hospital'' with respect to a fiscal year a hospital ``for which,
during the performance period for such fiscal year, the Secretary has
cited deficiencies that pose immediate jeopardy to the health or safety
of patients.''
In 42 CFR 412.160 of our Hospital VBP Program regulations, we
define the term ``Cited for deficiencies that pose immediate jeopardy''
to mean that ``during the applicable performance period, the Secretary
cited the hospital for immediate jeopardy on at least two surveys using
the Form CMS-2567, Statement of Deficiencies and Plan of Correction''
(OMB Control Number 0938-0391). In 42 CFR 412.160, we also adopted the
definition of ``immediate jeopardy'' found in 42 CFR 489.3 of our
regulations.
Our current interpretation of the Hospital VBP Program's statute is
that a hospital cited for deficiencies that pose immediate jeopardy
during any part of the finalized performance period for the applicable
program year does not meet the definition of the term ``hospital,'' and
thus is excluded from the Hospital VBP Program for that program year.
Because the Hospital VBP Program currently uses measures with 12-month,
24-month, and 36-month performance periods, a hospital's immediate
jeopardy citations could result in its exclusion from the Hospital VBP
Program for multiple program years.
b. Proposed Increase of Immediate Jeopardy Citations From Two to Three
Surveys
We are proposing to amend our regulations at 42 CFR 412.160 to
change the definition of the term ``Cited for

[[Page 25112]]

deficiencies that pose immediate jeopardy'' to increase the number of
surveys on which a hospital must be cited for immediate jeopardy before
being excluded from the Hospital VBP Program pursuant to section
1886(o)(1)(C) of the Act from two to three. In other words, we are
proposing that a hospital must be cited on Form CMS-2567, Statement of
Deficiencies and Plan of Correction, for immediate jeopardy on at least
three surveys during the performance period in order to meet the
standard for exclusion from the Hospital VBP Program under section
1886(o)(1)(C)(ii)(II) of the Act. Beginning on the effective date of
this change, hospitals would be excluded from the Hospital VBP Program
for a particular program year if, during the performance period for
that fiscal year, they were cited three times by the Secretary for
deficiencies that pose immediate jeopardy to the health or safety of
patients.
Because we expect that the effective date of this change will be
October 1, 2016 (the first day of the FY 2017 Hospital VBP program
year), only hospitals that were cited three times during the
performance period that applies to the FY 2017 program year would be
excluded from the Hospital VBP Program. Hospitals that were, as of
October 1, 2016, cited for immediate jeopardy on two surveys during the
performance period that applies to the FY 2017 program year could
participate in the Hospital VBP Program for the FY 2017 program year.
We are proposing this change to be more inclusive of hospitals and
to ensure that we are not too quickly excluding a hospital from
participation in the Hospital VBP Program. After reviewing the survey
and certification data, we have determined that limiting exclusion to
those hospitals that have been cited for immediate jeopardy three or
more times during the applicable performance period, rather than two,
would continue to appropriately exclude hospitals that are cited for
jeopardizing patient safety while allowing hospitals with a lower
number of immediate jeopardy citations over significantly longer
performance periods to continue to participate in the Hospital VBP
Program. Many immediate jeopardy citations involve systematic issues of
patient safety, and we believe that hospitals that are, during the
performance period, cited by the Secretary for three or more
deficiencies that pose immediate jeopardy should be excluded from the
Hospital VBP Program. This proposal would ensure that we continue to
assure high quality care while being as inclusive of hospitals as
possible.
c. EMTALA-Related Immediate Jeopardy Citations
Hospitals are often alerted to immediate jeopardy situations when a
surveyor or team of surveyors is in the process of conducting a survey
of compliance with the Medicare condition of participation (CoPs) at
the hospital and identifies those situations that immediately
jeopardize the health and safety of patients (77 FR 53610). Following
the survey, the Form CMS-2567, Statement of Deficiencies and Plan of
Correction, is sent to the hospital, which contains the survey
findings, including any immediate jeopardy situations. For EMTALA-
related immediate jeopardy situations, however, the CMS Regional Office
determines whether there was an EMTALA violation after reviewing the
State Survey Agency's report and an expert physician review's findings,
and, if so, whether it constituted an immediate jeopardy (77 FR 53610).
The CMS Regional Office then sends the Form CMS-2567 to the hospital.
Currently, the Automated Survey Processing Environment (ASPEN) system,
an electronic system that supports our survey and certification
activity, catalogs deficient practices (that is, noncompliance)
identified during a survey and generates the Form CMS-2567 that is sent
to the hospital after the survey. The survey end date generated in
ASPEN is currently used as the date for assignment of the immediate
jeopardy citation to a particular performance period (77 FR 53613). The
additional processes for EMTALA-related immediate jeopardy citations
can result in significant notification delays to hospitals (often
several months or longer).
In the case of EMTALA-related immediate jeopardy citations only, we
are proposing to change our policy regarding the date of the immediate
jeopardy citation for possible exclusion from the Hospital VBP Program
from the survey end date generated in ASPEN to the date of CMS' final
issuance of Form CMS-2567 to the hospital. Form CMS-2567 is not
considered final until it is transmitted to the healthcare facility,
either by the State Survey Agency, or, in all EMTALA cases and certain
other cases, by the CMS Regional Office. The date of final issuance is
also tracked in ASPEN. The date the Form CMS-2567 is sent by the CMS
Regional Office to the hospital (via mail, electronically, or both) is
the date of final issuance recorded in ASPEN. We believe this change
would accurately reflect the date hospitals receive official
notification of an immediate jeopardy citation based on the issuance
date of Form CMS-2567 as this date will be weeks, if not months, after
the survey end date. Hospitals may continue to receive preliminary
notice during the onsite EMTALA investigation survey that they may
receive an immediate jeopardy citation based on survey findings.
However, because the decision-making responsibility in EMTALA
investigations always rests with the CMS Regional Office, the final
determination and notification of immediate jeopardy citations will
always be delayed. The Form CMS-2567 constitutes the official notice to
a healthcare facility of the survey findings.
Finally, in instances where one onsite hospital survey resulted in
both hospital CoP immediate jeopardy citation(s) as well as EMTALA
immediate jeopardy citation(s), the survey end date would be the
default date for potential exclusion from the Hospital VBP Program. CMS
recognizes the hospital will receive notification of the EMTALA
immediate jeopardy citation(s) at a later date than the CoP immediate
jeopardy citation(s). However, because the hospital was notified of the
CoP immediate jeopardy citation(s) at the time of survey, this date
will be used for the performance period for potential exclusion from
the Hospital VBP Program. Even though there may be separate enforcement
actions resulting from the same survey, we will consider each Form CMS-
2567 with immediate jeopardy findings to be one citation for purposes
of the Hospital VBP Program (77 FR 53613).
We are proposing to revise our regulations at 42 CFR 412.160 to
reflect the above proposal and specify use of the date of CMS' issuance
of Form CMS-2567 to the hospital for EMTALA immediate jeopardy
citation(s). We also specify that in instances where one onsite
hospital survey resulted in both hospital CoP immediate jeopardy
citation(s) as well as EMTALA immediate jeopardy citation(s), the
survey end date would be the date we use for purposes of assigning the
citations to a performance period to determine whether the hospital
should be excluded from the Hospital VBP Program for a particular
program year.
We are inviting public comments on this proposal.

[[Page 25113]]

8. Proposed Performance Standards for the Hospital VBP Program
a. Background
Section 1886(o)(3)(A) of the Act requires the Secretary to
establish performance standards for the measures selected under the
Hospital VBP Program for a performance period for the applicable fiscal
year. The performance standards must include levels of achievement and
improvement, as required by section 1886(o)(3)(B) of the Act, and must
be established no later than 60 days before the beginning of the
performance period for the fiscal year involved, as required by section
1886(o)(3)(C) of the Act. We refer readers to the Hospital Inpatient
VBP Program final rule (76 FR 26511 through 26513) for further
discussion of achievement and improvement standards under the Hospital
VBP Program.
In addition, when establishing the performance standards, section
1886(o)(3)(D) of the Act requires the Secretary to consider appropriate
factors, such as: (1) Practical experience with the measures, including
whether a significant proportion of hospitals failed to meet the
performance standard during previous performance periods; (2)
historical performance standards; (3) improvement rates; and (4) the
opportunity for continued improvement.
We refer readers to the FY 2013, FY 2014, and FY 2015 IPPS/LTCH PPS
final rules (77 FR 53604 through 53605; 78 FR 50694 through 50698; and
79 FR 50077 through 50079) for a more detailed discussion of the
general scoring methodology used in the Hospital VBP Program.
We note that the performance standards for the following measures
are calculated with lower values representing better performance:
The NHSN measures (the CLABSI, CAUTI, CDI and MRSA
Bacteremia measures);
The PSI 90 measure;
The Colon and Abdominal Hysterectomy SSI measure;
The THA/TKA measure;
The MSPB measure; and,
The proposed HF and AMI Payment measures.
This distinction is made in contrast to other measures for which
higher values indicate better performance. As discussed further in the
FY 2014 IPPS/LTCH PPS final rule (78 FR 50684), the performance
standards for the Colon and Abdominal Hysterectomy SSI measure are
computed separately for each procedure stratum, and we will first award
achievement and improvement points to each stratum separately, then
compute a weighted average of the points awarded to each stratum by
predicted infections.
b. Previously Adopted and Newly Proposed Performance Standards for the
FY 2019 Program Year
In accordance with our finalized methodology for calculating
performance standards (discussed more fully in the Hospital Inpatient
VBP Program final rule (76 FR 26511 through 26513)), we are proposing
to adopt the following additional performance standards for the FY 2019
program year. We note that the numerical values for the performance
standards displayed below represent estimates based on the most
recently available data, and we intend to update the numerical values
in the FY 2017 IPPS/LTCH PPS final rule. We note further that the MSPB
measure's performance standards are based on performance period data;
therefore, we are unable to provide numerical equivalents for the
standards at this time.

Previously Adopted and Newly Proposed Performance Standards for the FY 2019 Program Year: Safety, Clinical Care,
and Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
Measure ID Description Achievement threshold Benchmark
----------------------------------------------------------------------------------------------------------------
Safety Measures
----------------------------------------------------------------------------------------------------------------
CAUTI *............................ National Healthcare Safety 0.438000.............. 0.000000.
Network (NHSN) Catheter-
associated Urinary Tract
Infection (CAUTI) Outcome
Measure.
CLABSI *........................... National Healthcare Safety 0.465000.............. 0.000000.
Network (NHSN) Central
line-associated
Bloodstream Infection
(CLABSI) Outcome Measure.
CDI *.............................. National Healthcare Safety 0.823000.............. 0.013000.
Network (NHSN) Facility-
wide Inpatient Hospital-
onset Clostridium
difficile Infection (CDI)
Outcome Measure.
MRSA Bacteremia *.................. National Healthcare Safety 0.812000.............. 0.000000.
Network (NHSN) Facility-
wide Inpatient Hospital-
onset Methicillin-
resistant Staphylococcus
aureus (MRSA) Bacteremia
Outcome Measure.
PSI 90 * .............. Patient Safety for Selected 0.084034.............. 0.058946.
Indicators (Composite
Measure).
Colon and Abdominal Hysterectomy American College of 0.856000..... 0.000000.
SSI *. Surgeons--Centers for 0.682000..... 0.000000.
Disease Control and
Prevention (ACS-CDC)
Harmonized Procedure
Specific Surgical Site
Infection (SSI) Outcome
Measure.
PC-01.............................. Elective Delivery.......... 0.012384.............. 0.000000.
----------------------------------------------------------------------------------------------------------------
Clinical Care Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI ........... Hospital 30-Day, All-Cause, 0.850671.............. 0.873263.
Risk-Standardized
Mortality Rate (RSMR)
Following Acute Myocardial
Infarction (AMI)
Hospitalization.
MORT-30-HF ............ Hospital 30-Day, All-Cause, 0.883472.............. 0.908094.
Risk-Standardized
Mortality Rate (RSMR)
Following Heart Failure
(HF) Hospitalization.
MORT-30-PN ............ Hospital 30-Day, All-Cause, 0.882334.............. 0.907906.
Risk-Standardized
Mortality Rate (RSMR)
Following Pneumonia
Hospitalization.

[[Page 25114]]

THA/TKA * ............. Hospital-Level 0.032229.............. 0.023178.
Risk[dash]Standardized
Complication Rate (RSMR)
Following Elective Primary
Total Hip Arthroplasty
(THA) and/or Total Knee
Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
Efficiency and Cost Reduction Measure
----------------------------------------------------------------------------------------------------------------
MSPB *............................. Payment-Standardized Median Medicare Mean of the lowest
Medicare Spending Per Spending per decile Medicare
Beneficiary (MSPB). Beneficiary ratio Spending per
across all hospitals Beneficiary ratios
during the across all hospitals
performance period. during the
performance period.
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.
Previously adopted performance standards.

In the past, we have used the ``normalization'' approach to scoring
the Patient- and Caregiver-Centered Experience of Care/Care
Coordination domain (which we are proposing, in section IV.H.3.b. of
the preamble of this proposed rule, to rename the Person and Community
Engagement domain beginning with the FY 2019 program year). The nine
dimensions of the HCAHPS measure, one of which is the CTM-3 measure,
are calculated to generate the HCAHPS Base Score. For each of the nine
dimensions, Achievement Points (0-10 points) and Improvement Points (0-
9 points) are calculated, the larger of which is summed across the nine
dimensions to create a prenormalized HCAHPS Base Score (0-90 points).
The prenormalized HCAHPS Base Score is then multiplied by 8/9 (0.88888)
and rounded according to standard rules (values of 0.5 and higher are
rounded up, values below 0.5 are rounded down) to create the normalized
HCAHPS Base Score. Each of the nine dimensions is of equal weight, so
that the normalized HCAHPS Base Score would range from 0 to 80 points.
HCAHPS Consistency Points are then calculated and range from 0 to 20
points. The Consistency Points now consider scores across all nine of
the Person and Community Engagement dimensions. The final element of
the scoring formula is the sum of the HCAHPS Base Score and the HCAHPS
Consistency Points and will range from 0 to 100 points.

Proposed Performance Standards for the FY 2019 Program Year Proposed Person and Community Engagement Domain *
----------------------------------------------------------------------------------------------------------------
Achievement
HCAHPS survey dimension Floor threshold Benchmark
(percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses....................................... 16.32 78.59 86.81
Communication with Doctors...................................... 22.56 80.33 88.55
Responsiveness of Hospital Staff................................ 21.91 65.00 80.27
Pain Management................................................. 16.02 70.04 78.60
Communication about Medicines................................... 6.19 63.18 73.51
Hospital Cleanliness & Quietness................................ 13.78 65.64 79.12
Discharge Information........................................... 60.58 86.88 91.73
3-Item Care Transition.......................................... 4.26 51.35 62.73
Overall Rating of Hospital...................................... 30.52 70.58 84.68
----------------------------------------------------------------------------------------------------------------
* We are proposing, in section IV.H.3.b. of the preamble of this proposed rule, to change the name of this
domain from Patient- and Caregiver-Centered Experience of Care/Care Coordination domain to Person and
Community Engagement domain beginning with the FY 2019 program year.

We are inviting public comments on these proposed performance
standards.
c. Previously Adopted Performance Standards for Certain Measures for
the FY 2020 Program Year
As discussed above, we have adopted certain Safety and Clinical
Care domain measures for future program years in order to ensure that
we can adopt baseline and performance periods of sufficient length for
performance scoring purposes. In the FY 2015 IPPS/LTCH PPS final rule
(79 FR 50062 through 50065), we adopted the PSI 90 measure in the
Safety domain and the THA/TKA measure in the Clinical Care domain for
the FY 2019 program year and subsequent years. In the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50077), we adopted performance standards for the
MORT-30-AMI, MORT-30-HF, MORT-30-PN, and THA/TKA for the FY 2020
program year. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49566), we
also adopted performance standards for the PSI-90 measure.

[[Page 25115]]

Previously Adopted Performance Standards for Certain Clinical Care Domain and Safety Domain Measures for the FY
2020 Program Year
----------------------------------------------------------------------------------------------------------------
Achievement
Measure ID Description threshold Benchmark
----------------------------------------------------------------------------------------------------------------
Safety Domain
----------------------------------------------------------------------------------------------------------------
PSI 90 *................................... Patient Safety for Selected 0.778761 0.545903
Indicators (Composite Measure).
----------------------------------------------------------------------------------------------------------------
Clinical Care Domain
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................ Hospital 30-Day, All-Cause, Risk- 0.853715 0.875869
Standardized Mortality Rate (RSMR)
Following Acute Myocardial
Infarction (AMI) Hospitalization.
MORT-30-HF................................. Hospital 30-Day, All-Cause, Risk- 0.881090 0.906068
Standardized Mortality Rate (RSMR)
Following Heart Failure (HF)
Hospitalization.
MORT-30-PN................................. Hospital 30-Day, All-Cause, Risk- 0.882266 0.909532
Standardized Mortality Rate (RSMR)
Following Pneumonia
Hospitalization.
THA/TKA *.................................. Hospital-Level Risk-Standardized 0.032229 0.023178
Complication Rate (RSCR) Following
Elective Primary Total Hip
Arthroplasty (THA) and/or Total
Knee Arthroplasty (TKA).
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.

d. Previously Adopted and Newly Proposed Performance Standards for
Certain Measures for the FY 2021 Program Year
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49567), we adopted
performance standards for the FY 2021 program year for the Clinical
Care domain measures (THA/TKA, MORT-30-HF, MORT-30-AMI, MORT-30-PN, and
MORT-30-COPD). We are proposing to add two measures, AMI Payment and HF
Payment, beginning with the FY 2021 program year. The previously
adopted and proposed performance standards for these measures are set
out below.

Previously Adopted and Proposed Performance Standards for the FY 2021 Program Year
----------------------------------------------------------------------------------------------------------------
Measure ID Description Achievement threshold Benchmark
----------------------------------------------------------------------------------------------------------------
Clinical Care Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI ........... Hospital 30-Day, All-Cause, 0.860355.............. 0.879714.
Risk-Standardized
Mortality Rate (RSMR)
Following Acute Myocardial
Infarction (AMI)
Hospitalization.
MORT-30-HF ............ Hospital 30-Day, All-Cause, 0.883803.............. 0.906144.
Risk-Standardized
Mortality Rate (RSMR)
Following Heart Failure
(HF) Hospitalization.
MORT-30-PN ............ Hospital 30-Day, All-Cause, 0.886443.............. 0.910670.
Risk-Standardized
Mortality Rate (RSMR)
Following Pneumonia
Hospitalization.
MORT-30-COPD .......... Hospital 30-Day, All-Cause, 0.923253.............. 0.938664.
Risk-Standardized
Mortality Rate (RSMR)
Following Chronic
Obstructive Pulmonary
Disease (COPD)
Hospitalization.
THA/TKA * ............. Hospital-Level Risk- 0.030890.............. 0.022304.
Standardized Complication
Rate (RSCR) Following
Elective Primary Total Hip
Arthroplasty (THA) and/or
Total Knee Arthroplasty
(TKA).
----------------------------------------------------------------------------------------------------------------
Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
AMI Payment *..................... Hospital-Level, Risk- Median Hospital-Level, Mean of the lowest
Standardized Payment Risk-Standardized decile Hospital-
Associated with a 30-Day Payment Associated Level, Risk-
Episode-of-Care for Acute with a 30[dash]Day Standardized Payment
Myocardial Infarction Episode-of-Care Associated with a 30-
(AMI). across all hospitals Day Episode-of-Care
during the across all hospitals
performance period. during the
performance period.
HF Payment *...................... Hospital-Level, Risk- Median Hospital-Level, Mean of the lowest
Standardized Payment Risk-Standardized decile Hospital-
Associated with a 30-Day Payment Associated Level, Risk-
Episode-of-Care for Heart with a 30-Day Episode- Standardized Payment
Failure (HF). of-Care across all Associated with a 30-
hospitals during the Day Episode-of-Care
performance period. across all hospitals
during the
performance period.
----------------------------------------------------------------------------------------------------------------
Previously adopted performance standards.

[[Page 25116]]

* Lower values represent better performance.
Proposed to be scored the same as the MSPB measure.

e. Proposed Performance Standards for Certain Measures for the FY 2022
Program Year
We are proposing the following performance standards for the FY
2022 program year for the Clinical Care domain measures (THA/TKA, MORT-
30-AMI, MORT-30-HF, MORT-30-PN, MORT-30-COPD), and the newly proposed
MORT-30-CABG:

Proposed Performance Standards for the FY 2022 Program Year
----------------------------------------------------------------------------------------------------------------
Measure ID Description Achievement threshold Benchmark
----------------------------------------------------------------------------------------------------------------
Clinical Care Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI........................ Hospital 30-Day, All-Cause, 0.861793.............. 0. 881305.
Risk-Standardized
Mortality Rate Following
(RSMR) Acute Myocardial
Infarction (AMI)
Hospitalization.
MORT-30-HF......................... Hospital 30-Day, All-Cause, 0.879869.............. 0.903608.
Risk-Standardized
Mortality Rate (RSMR)
Following Heart Failure
(HF) Hospitalization.
MORT-30-PN (updated cohort)........ Hospital 30-Day, All-Cause, 0.836122.............. 0.870506.
Risk-Standardized
Mortality Rate (RSMR)
Following Pneumonia
Hospitalization.
MORT-30-COPD....................... Hospital 30-Day, All-Cause, 0.920058.............. 0.936962.
Risk-Standardized
Mortality Rate (RSMR)
Following Chronic
Obstructive Pulmonary
Disease (COPD)
Hospitalization.
THA/TKA *.......................... Hospital-Level Risk- 0.029599.............. 0.021439.
Standardized Complication
Rate (RSCR) Following
Elective Primary Total Hip
Arthroplasty (THA) and/or
Total Knee Arthroplasty
(TKA).
MORT-30-CABG....................... Hospital 30-Day, All-Cause, 0.979000.............. 0.968210.
Risk-Standardized
Mortality Rate (RSMR)
Following Coronary Artery
Bypass Graft (CABG)
Surgery.
----------------------------------------------------------------------------------------------------------------
Efficiency and Cost Reduction Measures
----------------------------------------------------------------------------------------------------------------
AMI Payment * .................... Hospital-Level, Risk- Median Hospital-Level, Mean of the lowest
Standardized Payment Risk-Standardized decile Hospital-
Associated with a 30-Day Payment Associated Level, Risk-
Episode-of-Care for Acute with a 30-Day Episode- Standardized Payment
Myocardial Infarction of-Care across all Associated with a 30-
(AMI). hospitals during the Day Episode-of-Care
performance period.. across all hospitals
during the
performance period
HF Payment * ..................... Hospital-Level, Risk- Median Hospital-Level, Mean of the lowest
Standardized Payment Risk-Standardized decile Hospital-
Associated with a 30-Day Payment Associated Level, Risk-
Episode-of-Care for Heart with a 30-Day Episode- Standardized Payment
Failure (HF). of-Care across all Associated with a 30-
hospitals during the Day Episode-of-Care
performance period. across all hospitals
during the
performance period.
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.
Proposed to be scored the same as the MSPB measure.

[[Page 25117]]

9. FY 2019 Program Year Scoring Methodology
a. Domain Weighting for the FY 2019 Program Year for Hospitals That
Receive a Score on All Domains
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49568 through
49570), we adopted equal weight of 25 percent for each of the four
domains in the FY 2018 program year for hospitals that receive a score
in all domains. For the FY 2019 program year, we are not proposing to
remove any measures nor are we proposing to adopt any new measures. We
also are not proposing any changes to the domain weighting for
hospitals receiving a score on all domains.

Domain Weights for the FY 2019 Program Year for Hospitals Receiving a
Score on All Domains
------------------------------------------------------------------------
Weight
Domain (percent)
------------------------------------------------------------------------
Safety...................................................... 25
Clinical Care............................................... 25
Efficiency and Cost Reduction............................... 25
Person and Community Engagement *........................... 25
------------------------------------------------------------------------
* We are proposing, in section IV.H.3.b. of the preamble of this
proposed rule, to change the name of this domain from Patient- and
Caregiver-Centered Experience of Care/Care Coordination domain to
Person and Community Engagement domain beginning with the FY 2019
program year.

b. Domain Weighting for the FY 2019 Program Year and Future Years for
Hospitals Receiving Scores on Fewer Than Four Domains
For the FY 2017 program year and subsequent years, we adopted a
policy that hospitals must receive domain scores on at least three of
four quality domains in order to receive a TPS, and hospitals with
sufficient data on only three domains will have their TPSs
proportionately reweighted (79 FR 50084 through 50085).
Under these policies, in order to receive a TPS for the FY 2019
program year and future years:
Hospitals must report a minimum number of 100 completed
HCAHPS surveys for a hospital to receive a Patient- and Caregiver-
Centered Experience of Care/Care Coordination domain (which we are
proposing, in section IV.H.3.b. of the preamble of this proposed rule,
to rename the Person and Community Engagement domain beginning with the
FY 2019 program year) score.
Hospitals must meet the requirements to receive a MSPB
measure score in order to receive an Efficiency and Cost Reduction
domain score. Hospitals must report a minimum number of 25 cases for
the MSPB measure (77 FR 53609 through 53610) and the AMI Payment and HF
Payment measures.
Hospitals must receive a minimum of two measure scores
within the Clinical Care domain. Hospitals must report a minimum number
of 25 cases for each of the mortality measures (77 FR 53609 through
53610) and the THA/TKA measure.
Hospitals must receive a minimum of three measure scores
within the Safety domain.
++ Hospitals must report a minimum of three cases for any
underlying indicator for the PSI 90 measure based on AHRQ's measure
methodology (77 FR 53608 through 53609).
++ Hospitals must report a minimum of one predicted infection for
NHSN-based surveillance measures based on CDC's minimum case criteria
(77 FR 53608 through 53609).
++ Hospitals must report a minimum of 10 cases for the PC-01
measure (76 FR 26530).
We are not proposing any changes to the minimum numbers of domain
scores, cases, and measures outlined above. We continue to believe that
these requirements appropriately balance our desire to enable as many
hospitals as possible to participate in the Hospital VBP Program and
the need for TPSs to be sufficiently reliable to provide meaningful
distinctions between hospitals' performance on quality measures. We are
inviting public comment on these proposals.

I. Proposed Changes to the Hospital-Acquired Condition (HAC) Reduction
Program

1. Background
We refer readers to section V.I.1.a. of the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50707 through 50708) for a general overview of the
HAC Reduction Program.
2. Statutory Basis for the HAC Reduction Program
We refer readers to section V.I.2. of the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50708 through 50709) for a detailed discussion of the
statutory basis of the HAC Reduction Program.
3. Overview of Previous HAC Reduction Program Rulemaking
For a further description of our policies for the HAC Reduction
Program, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78
FR 50707 through 50729), the FY 2015 IPPS/LTCH PPS final rule (79 FR
50087 through 50104) and the FY 2016 IPPS/LTCH PPS final rule (80 FR
49570 through 49581). These policies describe the general framework for
implementation of the HAC Reduction Program, including: (a) The
relevant definitions applicable to the program; (b) the payment
adjustment under the program; (c) the measure selection and conditions
for the program, including a risk-adjustment and scoring methodology;
(d) performance scoring; (e) the process for making hospital-specific
performance information available to the public, including the
opportunity for a hospital to review the information and submit
corrections; and (f) limitation of administrative and judicial review.
We also have codified certain requirements of the HAC Reduction
Program at 42 CFR 412.170 through 412.172.
4. Implementation of the HAC Reduction Program for FY 2017
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized
the following measures for use in the FY 2017 Program: PSI 90 measure
for Domain 1 and the CDC NHSN measures CLABSI, CAUTI, Colon and
Abdominal Hysterectomy SSI, MRSA Bacteremia, and CDI for Domain 2. We
are not proposing any changes to this measure set for FY 2017. We also
are not proposing to make any changes to the measures that were
finalized for use in the FY 2016 program (CAUTI, CLABSI, and Colon and
Abdominal Hysterectomy SSI) or the FY 2017 program (MRSA Bacteremia and
CDI).

HAC Reduction Program Measures for FY 2017
------------------------------------------------------------------------
Short name Measure name NQF No.
------------------------------------------------------------------------
Domain 1
------------------------------------------------------------------------
PSI 90......................... Patient Safety for 0531
Selected Indicators
(Composite Measure).
------------------------------------------------------------------------

[[Page 25118]]

Domain 2
------------------------------------------------------------------------
CAUTI.......................... National Healthcare 0138
Safety Network (NHSN)
Catheter-associated
Urinary Tract
Infection (CAUTI)
Outcome Measure.
CDI............................ National Healthcare 1717
Safety Network (NHSN)
Facility-wide
Inpatient Hospital-
onset Clostridium
difficile Infection
(CDI) Outcome Measure.
CLABSI......................... National Healthcare 0139
Safety Network (NHSN)
Central Line-
Associated Bloodstream
Infection (CLABSI)
Outcome Measure.
Colon and Abdominal American College of 0753
Hysterectomy SSI. Surgeons--Centers for
Disease Control and
Prevention (ACS-CDC)
Harmonized Procedure
Specific Surgical Site
Infection (SSI)
Outcome Measure.
MRSA Bacteremia................ National Healthcare 1716
Safety Network (NHSN)
Facility-wide
Inpatient Hospital-
onset Methicillin-
resistant
Staphylococcus aureus
(MRSA) Bacteremia
Outcome Measure.
------------------------------------------------------------------------

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized
and codified at 42 CFR 412.170 a 2-year period during which we collect
data used to calculate the Total HAC Score. In the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49574), we finalized the 2-year time periods for
the calculation of HAC Reduction Program measure results for FY 2017.
For the Domain 1 measure (PSI 90 measure), we will use the 24-month
period from July 1, 2013 through June 30, 2015. The claims for all
Medicare FFS beneficiaries discharged during this period would be
included in the calculations of measure results for FY 2017. For the
CDC NHSN measures previously finalized for use in the FY 2017 HAC
Reduction Program (CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI,
MRSA Bacteremia, and CDI), we will use data from CYs 2014 and 2015.
We also note that we anticipate we will be able to provide
hospitals with their confidential hospital-specific reports and
discharge level information used in the calculation of their FY 2017
Total HAC Score in late summer 2016 via the QualityNet Secure
Portal.\54\ In order to access their hospital-specific reports,
hospitals must register for a QualityNet Secure Portal account. We did
not make any changes to the review and correction policies for FY 2016.
Hospitals have a period of 30 days after the information is posted to
the QualityNet Secure Portal to review and submit corrections for the
calculation of their HAC Reduction Program measure scores, domain
scores, and Total HAC Score for the fiscal year.
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\54\ Available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&cid=1228773343598.
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For FY 2017, we are proposing updates to the following HAC
Reduction Program policies: (1) A proposal to clarify data requirements
for Domain 1; and (2) a proposal for NHSN CDC HAI data submission
requirements for newly opened hospitals. Each policy is described in
more detail below.
a. Clarification of Complete Data Requirements for Domain 1
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50722) we finalized
our plan to use the PSI 90 measure for Domain 1. Because hospitals may
not have complete data for every AHRQ indicator in the PSI 90 measure,
we decided to use the same methodology used for the Hospital VBP
Program to determine the minimum number of indicators with complete
data to be included in the calculation of the Domain 1 measure. In
addition, we finalized the following rules to determine the number of
AHRQ indicators to be included in the calculation for a hospital's
Domain 1 score. For Domain 1, we defined ``complete data'' as whether a
hospital has enough eligible discharges to calculate a rate for a
measure. In order to have complete data for the PSI 90 measure, a
hospital must have three or more eligible discharges for at least one
component indicator.
In establishing the performance period for the PSI 90 measure, we
relied upon an analysis by Mathematica Policy Research, a CMS
contractor, which found the measure was most reliable with a 24-month
performance period. This analysis also indicated the measure was
unreliable with a performance period of less than 12 months.\55\ We
have since determined that the current definition for ``complete data''
may result in facilities with less than 12 months of data being
eligible to receive a score on the PSI 90 measure, and that the
resulting score may not be reflective of the hospital's clinical
performance. While the PSI 90 measure continues to play a vital role in
patient safety and is an integral part of the HAC Reduction Program, we
believe that reliable data is a critical component of accurately
assessing hospital performance.
---------------------------------------------------------------------------

\55\ Mathematica Policy Research (November 2011). Reporting
period and reliability of AHRQ, CMS 30-day and HAC Quality
Measures--Revised. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
---------------------------------------------------------------------------

To address this concern, we are proposing to clarify the term
``complete data'' for the PSI 90 measure within Domain 1 to require
that hospitals have three or more eligible discharges for at least one
component indicator and 12 months or more of data to receive a Domain 1
score. Under this proposal, hospitals with less than 12 months of PSI
90 data would not receive a Domain 1 score, regardless of the number of
eligible discharges at the hospital. If a hospital has 12 months or
more of PSI 90 data, the hospital would have to have three or more
eligible discharges for at least one component indicator to receive a
Domain 1 score. We believe this is the most favorable method for
scoring measure results for hospitals.
We believe, after weighing the considerations, that this additional
policy should be incorporated into the HAC Reduction Program for FY
2017 and subsequent years, primarily because this approach greatly
improves the measure's assessment of quality and, therefore, its
implementation should not be unnecessarily delayed. This clarification
would be a change to the Domain 1 criteria and would not change our
current scoring policy for Domain 2. As previously finalized in the FY
2014 IPPS/LTCH PPS final rule (78 FR 50722 through 50723), if a
hospital does not have enough data to calculate the PSI 90 measure
score for Domain 1 but has ``complete data'' for at least one measure
in Domain 2, its Total HAC Score will depend entirely on its Domain 2
score. Similarly, if a hospital has ``complete data'' to calculate the
PSI 90 measure

[[Page 25119]]

score in Domain 1 but none of the measures in Domain 2, its Total HAC
Score will be based entirely on its Domain 1 score. If a hospital does
not have ``complete data'' to calculate the PSI 90 measure score for
Domain 1 or any of the measures in Domain 2, we will not calculate a
Total HAC Score for this hospital. We refer readers to the FY 2014
IPPS/LTCH PPS final rule (78 FR 50722 through 50723) for a detailed
discussion of Domain 2 scoring.
We are inviting public comments on our proposal to require that
hospitals have three or more eligible discharges for at least one
component indicator and 12 months or more of data to receive a Domain 1
score beginning in the FY 2017 HAC Reduction Program.
b. Clarification of NHSN CDC HAI Data Submission Requirements for Newly
Opened Hospitals
We have encountered issues with some newly opened hospitals that do
not appear to understand that they must submit CDC NHSN HAI data for
the HAC Reduction Program, even when they may not be required to report
under the Hospital IQR Program. As set forth in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50098), a hospital that does not have an ICU
waiver or other waiver for the CDC NHSN HAI measures and does not
submit data will receive the maximum of 10 points for that measure. We
noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723) that, for
Domain 2, we will obtain measure results that hospitals submitted to
the CDC NHSN from the Hospital IQR Program.\56\ However, we note that
participation in the Hospital IQR Program is voluntary, while
participation in the HAC Reduction Program is mandatory for almost all
IPPS hospitals (we refer readers to section 1886(d)(1)(B) of the Act;
42 CFR 412.170 (definition of the term ``applicable hospital''); and 42
CFR 412.172(e)). The HAC Reduction Program does not apply to hospitals
and hospital units that are excluded from the IPPS, such as LTCHs,
cancer hospitals, children's hospitals, IRFs, IPFs, CAHs, and Puerto
Rico hospitals (79 FR 50087 through 50088).
---------------------------------------------------------------------------

\56\ For a further discussion of CDC NHSN HAI Data submission
requirements for the Hospital IQR Program, we refer readers to the
FY 2013 IPPS/LTCH PPS final rule (77 FR 53536) and 42 CFR
412.140(a)(3)(i) and 412.140(b).
---------------------------------------------------------------------------

We believe that it is important to establish data submission
requirements for all applicable hospitals under the HAC Reduction
Program. We are proposing the following requirements for newly opened
hospitals for CDC NHSN HAI data submissions. We note that these
requirements do not affect any requirements for facilities in States
that are required by law to report HAI data to NHSN.
If a hospital files a notice of participation (NOP) with
the Hospital IQR Program within 6 months of opening, the hospital would
be required to begin submitting data for the CDC NHSN HAI measures no
later than the first day of the quarter following the NOP.
If a hospital does not file a NOP with the Hospital IQR
Program within 6 months of opening, the hospital would be required to
begin submitting data for the CDC NHSN HAI measures on the first day of
the quarter following the end of the 6-month period to file the NOP.
For example, if a subsection (d) hospital opens on January 1 and it
intends to participate in the Hospital IQR Program, the hospital would
be required to file a Hospital IQR Program NOP no later than July 1,
and begin submitting data to NHSN no later than October 1. If a
subsection (d) hospital opens on January 1 and it does not intend to
participate in the Hospital IQR Program (that is, no NOP is filed), it
must begin submitting data to NHSN no later than July 1 of that year.
We believe that these data submission requirements are clear, align
with the Hospital IQR Program, and are fair and equitable for all newly
opened hospitals. Hospitals that are not required to submit data within
the respective HAC Reduction Program year will not receive a score.
These hospitals will receive a designation of ``NEW,'' and will not
receive any points for CDC NHSN HAI measures.
We further note that this clarification does not affect the
narrative rules used in calculation of the Domain 2 Score. We will
continue to follow all Domain 2 scoring procedures as previously
finalized, and we refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49575) for further discussion of the narrative rules used in
calculation of the Domain 2 Score. We believe that this proposal should
be incorporated into the HAC Reduction Program for FY 2017 and
subsequent years.
We are inviting public comments on our proposal to adopt these
policies related to the data submission requirements beginning in the
FY 2017 HAC Reduction Program.
5. Implementation of the HAC Reduction Program for FY 2018
For FY 2018, we are proposing the following HAC Reduction Program
policies: (1) Adoption of the modified version of the NQF-endorsed PSI
90: Patient Safety and Adverse Events Composite; (2) defining the
applicable time periods for the FY 2018 HAC Reduction Program and the
FY 2019 HAC Reduction Program; (3) changes to the scoring methodology;
and (4) a request for comments on additional measures for potential
future adoption.
a. Proposed Adoption of Modified PSI 90: Patient Safety and Adverse
Events Composite (NQF #0531)
(1) Background
We are proposing to adopt refinements to the Agency for Healthcare
Research and Quality (AHRQ) Patient Safety and Adverse Events Composite
(NQF #0531) for the HAC Reduction Program beginning with the FY 2018
payment determination and subsequent years. In summary, the PSI 90
measure was refined to reflect the relative importance and harm
associated with each component indicator to provide a more reliable and
valid signal of patient safety events. We believe refining PSI 90 will
provide strong incentives for hospitals to ensure that patients are not
harmed by the medical care they receive, a critical consideration in
quality improvement.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50712 through
50717), we adopted the PSI 90 measure (NQF #0531) in the HAC Reduction
Program as an important measure of patient safety and adverse events.
As previously adopted, PSI 90 consisted of eight component indicators:
(1) PSI 3 Pressure Ulcer Rate; (2) PSI 6 Iatrogenic Pneumothorax Rate;
(3) PSI 7 Central Venous Catheter-Related Blood Stream Infections Rate;
(4) PSI 8 Postoperative Hip Fracture Rate; (5) PSI 12 Perioperative
Pulmonary Embolism/Deep Vein Thrombosis Rate; (6) PSI 13 Postoperative
Sepsis Rate; (7) PSI 14 Postoperative Wound Dehiscence Rate; and (8)
PSI 15 Accidental Puncture and Laceration Rate.\57\
---------------------------------------------------------------------------

\57\ NQF-Endorsed Measures for Patient Safety, Final Report.
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety_Final_Report.aspx.
---------------------------------------------------------------------------

The currently adopted eight-indicator version of the measure
underwent extended NQF maintenance reendorsement in the 2014 NQF
Patient Safety Committee due to concerns with the underlying component
indicators and their composite weights. In the NQF-Endorsed Measures
for Patient Safety, Final Report,\58\ the NQF Patient Safety Committee
deferred its final decision for the PSI 90 measure until

[[Page 25120]]

the following measure evaluation cycle. In the meantime, AHRQ worked to
address many of the NQF stakeholders' concerns about PSI 90, which
subsequently completed NQF maintenance re-review and received
reendorsement on December 10, 2015.
---------------------------------------------------------------------------

\58\ NQF-Endorsed Measures for Patient Safety, Final Report
available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
---------------------------------------------------------------------------

The PSI 90 measure's extended NQF reendorsement led to several
changes to the measure.\59\ First, the name of the PSI 90 measure has
changed to ``Patient Safety and Adverse Events Composite'' (NQF #0531)
(herein referred to as the ``modified PSI 90''). Second, the modified
PSI 90 measure includes the addition of three indicators: (1) PSI 09
Perioperative Hemorrhage or Hematoma Rate; (2) PSI 10 Physiologic and
Metabolic Derangement Rate; and (3) PSI 11 Postoperative Respiratory
Failure Rate. Third, PSI 12 Perioperative Pulmonary Embolism (PE) or
Deep Vein Thrombosis (DVT) Rate and PSI 15 Accidental Puncture or
Laceration Rate have been respecified in the modified PSI 90. Fourth,
PSI 07 Central Venous Catheter-Related Blood Stream Infection Rate has
been removed in the modified PSI 90. Fifth, the weighting of component
indicators in the modified PSI 90 is based not only on the volume of
each of the patient safety and adverse events, but also the harms
associated with the events.
---------------------------------------------------------------------------

\59\ National Quality Forum QPS Measure Description for
``Patient Safety for Selected Indicators (modified version of PSI90)
(Composite measure)'' found at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
---------------------------------------------------------------------------

We consider these changes to the modified PSI 90 to be substantive
changes to the measure. Therefore, we are proposing to adopt the
modified PSI 90 for the HAC Reduction Program beginning with the FY
2018 payment determination and subsequent years. We explain the
modified PSI 90 more fully below, and also refer readers to the measure
description on the NQF Web site at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
We note that the proposed modified PSI 90 (MUC15-604) was included
on a publicly available document entitled ``2015 Measures Under
Consideration for December 1, 2015'' \60\ in compliance with section
1890A(a)(2) of the Act, and was reviewed by the MAP. The MAP supported
this measure, stating that ``the PSI measures were developed to
identify harmful healthcare related events that are potentially
preventable. Three additional PSIs have been added to this updated
version of the measure. PSIs were better linked to important changes in
clinical status with `harm weights' that are based on diagnoses that
were assigned after the complication. This is intended to allow the
measure to more accurately reflect the impact of the events.'' \61\ The
measure received support for inclusion in the HAC Reduction Program as
referenced in the MAP Final Recommendations Report.\62\
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\60\ 2015 Measures Under Consideration List available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\61\ MAP Final Recommendations available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_Hospitals.aspx.
\62\ Ibid.
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(2) Overview of the Measure Changes
First, the name of the PSI 90 measure has changed from the
``Patient Safety for Selected Indicators Composite Measure'' to the
``Patient Safety and Adverse Events Composite'' (NQF #0531) to more
accurately capture the indicators included in the measure.
Second, the PSI 90 measure has expanded from 8 to 10 component
indicators. The modified PSI 90 is a weighted average of the following
10 risk-adjusted and reliability-adjusted individual component PSI
rates:
PSI 03 Pressure Ulcer Rate;
PSI 06 Iatrogenic Pneumothorax Rate;
PSI 08 Postoperative Hip Fracture Rate;
PSI 09 Postoperative Hemorrhage or Hematoma Rate;*
PSI 10 Physiologic and Metabolic Derangement Rate;*
PSI 11 Postoperative Respiratory Failure Rate;*
PSI 12 Perioperative Pulmonary Embolism (PE) or Deep Vein
Thrombosis (DVT) Rate;
PSI 13 Postoperative Sepsis Rate,
PSI 14 Postoperative Wound Dehiscence Rate; and
PSI 15 Accidental Puncture or Laceration Rate.\63\
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\63\ http://www.qualityforum.org/QPS/0531.
---------------------------------------------------------------------------

(* Denotes new component for the modified PSI 90 measure.)
As stated above, the modified PSI 90 measure also removed PSI 07,
Central Venous Catheter-Related Blood Stream Infection Rate, because of
potential overlap with the CLABSI measure (NQF #0139) which has been
included in the Hospital IQR Program since the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50201 through 50202), the HAC Reduction Program since
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), and the Hospital
VBP Program since the FY 2013 IPPS/LTCH PPS final rule (77 FR 53597
through 53598).
In response to stakeholder concerns, highlighted in the NQF 2014
Patient Safety Report,\64\ the modified PSI 90 also respecified two
component indicators, PSI 12 and PSI 15. Specifically, for PSI 12
Perioperative PE or DVT rate, the NQF received public comments
concerning the inclusion of: (1) Extracorporeal membrane oxygenation
(ECMO) procedures in the denominator; and (2) intra-hospital
variability in the documentation of calf vein thromboses (which have
uncertain clinical significance). As such, the revised PSI 12 component
indicator no longer includes ECMO procedures in the denominator or
isolated deep vein thrombosis of the calf veins in the numerator. PSI
15 was also respecified further to focus on the most serious
intraoperative injuries--those that were unrecognized until they
required a subsequent reparative procedure. The modified denominator of
PSI 15 now is limited to discharges with an abdominal/pelvic operation,
rather than including all medical and surgical discharges. In addition,
to identify events that are more likely to be clinically significant
and preventable, the PSI 15 numerator was modified to require both: (1)
A diagnosis of an accidental puncture and/or laceration; and (2) an
abdominal/pelvic reoperation one or more days after the index surgery.
---------------------------------------------------------------------------

\64\ NQF Endorsed Measures for Patient Safety, Final Report.
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
---------------------------------------------------------------------------

[[Page 25121]]

indicators in an all-payer reference population.
For more information on the modified PSI 90 measure and component
indicators, we refer readers to the Quality Indicator Empirical Methods
available online at: www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
The risk adjustment and statistical modeling approaches of the
models remain unchanged in the modified PSI 90. In summary, the
predicted value for each case is computed using a modeling approach
that includes, but is not limited to, applying a Generalized Estimating
Equation (GEE) hierarchical model (logistic regression with hospital
random effect) and covariates for gender, age, Modified MS-DRG (MDRG),
Major Diagnostic Category, transfer in, point of origin not available,
procedure days not available, and AHRQ comorbidity (COMORB).
The expected rate for each of the indicators is computed as the sum
of the predicted value for each case divided by the number of cases for
the unit of analysis of interest (that is, hospital). The risk-adjusted
rate for each of the indicators is computed using indirect
standardization as the observed rate divided by the expected rate,
multiplied by the reference population rate. For more details about
risk adjustment, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
(4) Adoption of the NQF-Endorsed Version of the Modified PSI 90
In summary, the PSI 90 measure was revised to reflect the relative
importance and harm associated with each component indicator to provide
a more reliable and valid signal of patient safety events. We believe
that adopting the modified PSI 90 would continue to provide strong
incentives for hospitals to ensure that patients are not harmed by the
medical care they receive, which is a critical consideration in quality
improvement. We are proposing to adopt the modified PSI 90 for the HAC
Reduction Program for FY 2018 and subsequent years. We will continue to
use the currently adopted eight-indicator version of the PSI 90 measure
for the HAC Reduction Program for FY 2017. We are inviting public
comment on our proposal to adopt the modified PSI 90 measure (NQF
#0531) for the HAC Reduction Program for FY 2018.
b. Applicable Time Periods for the FY 2018 HAC Reduction Program and
the FY 2019 HAC Reduction Program
Section 1886(p)(4) of the Act gives the Secretary the statutory
authority to determine the applicable period for the HAC Reduction
Program. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we
finalized and codified at 42 CFR 412.170 that we would use a 2-year
time period of performance data to calculate the Total HAC Score. We
believe the 24-month performance period provides hospitals and the
public with the most current data available, while allowing sufficient
time to complete the complex calculation process for these measures.
The 24-month performance period was chosen because it tended to show
that between 50 to 90 percent of hospitals attained a moderate or high
level of reliability for AHRQ measures (78 FR 50717). Although we
believe the 24-month time is the preferred length of time for
performance data, there may be situations, discussed in more detail
below, where the collection of 24 months of data is not operationally
feasible.
Therefore, we are proposing, beginning in FY 2017 and for
subsequent years, to permit flexibility to use a period other the 2
years from which data are collected in order to calculate the Total HAC
Score under the HAC Reduction Program. We also are proposing to change
the definition of ``applicable period,'' in 42 CFR 412.170, to reflect
this proposed change.
Since the ICD-10 transition was implemented on October 1, 2015, we
have been monitoring our systems and so far claims are processing
normally. The measure steward, AHRQ, has been reviewing the measure for
any potential issues related to the conversion of approximately 70,000
ICD-10 coded operating room procedures \65\ (https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which could directly affect the
modified PSI 90 component indicators. In addition, to meet program
requirements and implementation schedules, our system would require an
ICD-10 risk-adjusted version of the AHRQ QI PSI software \66\ by
December 2016 for the FY 2018 payment determination year. At this time,
a risk-adjusted ICD-10 version of the PSI 90 Patient Safety and Adverse
Events Composite software is not expected to be available until late CY
2017.
---------------------------------------------------------------------------

\65\ International Classification of Diseases, (ICD-10-CM/PCS)
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
\66\ The AHRQ QI Software is the software used to calculate PSIs
and the composite measure. More information is available at: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
---------------------------------------------------------------------------

To address these issues, for the current Domain 1 measure (PSI 90
Patient Safety and Adverse Events Composite), we are proposing to use
the 15-month performance period from July 1, 2014 through September 30,
2015, for the FY 2018 HAC Reduction Program. This 15-month performance
period would utilize only ICD-9-CM data and only apply to the FY 2018
payment year. The claims for all Medicare FFS beneficiaries discharged
during this period would be included in the calculations of measure
results for FY 2018. For the FY 2019 HAC Reduction Program, we are
proposing to use the 21-month performance period from October 1, 2015
through September 30, 2017. This 21-month performance period would
utilize only ICD-10 data and only apply to the FY 2019 payment year.
The claims for all Medicare FFS beneficiaries discharged during this
period would be included in the calculations of measure results for FY
2019.
Prior to deciding to propose abbreviated data collection periods
for the FY 2018 and the FY 2019 payment determinations, we took several
factors into consideration. These included the recommendations of the
measure steward, the feasibility of using a combination of ICD-9 and
ICD-10 data, minimizing provider burden, program implementation
timelines, and the reliability of using shortened data collection
periods, as well as the importance of continuing to publicly report
this measure. We believe that using a 15-month data collection period
for FY 2018 and a 21-month data collection period for FY 2019 best
serve the need to provide important information on hospital patient
safety and adverse events by allowing sufficient time to process the
claims data and calculate the measures, while minimizing reporting
burden and program disruption.
Because this issue only impacts the PSI 90 Patient Safety and
Adverse Events Composite in Domain 1, for the CDC NHSN measures
previously finalized for use in the FY 2017 HAC Reduction Program
(CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia,
and CDI), we would use the 24-month performance period from January 1,
2015 through December 31, 2016 (CYs 2015 and 2016) for the FY 2018 HAC
Reduction Program. For the FY 2019 HAC Reduction Program, we are
proposing to use the 24-month performance period

[[Page 25122]]

from January 1, 2016 through December 31, 2017 (CYs 2016 and 2017).
We believe that using a 15-month period and a 21-month performance
period for Domain 1 and a 24-month performance period for Domain 2
balance the needs of the HAC Reduction Program and allow sufficient
time to process the claims data and calculate the measures. We will
continue to test ICD-10 data that are submitted in order to ensure the
accuracy of measure calculations and to monitor and assess the
translation of measure specifications to ICD-10, potential coding
variation, and impacts on measure performance and payment incentive
programs.
We are inviting public comment on the proposals to update the
definition of ``applicable period'' codified at 42 CFR 412.170 for FY
2017 and subsequent years and to use these updated performance periods
for calculation of measure results for the FY 2018 and the FY 2019 HAC
Reduction Programs.
c. Proposed Changes to the HAC Reduction Program Scoring Methodology
(1) Current Scoring Policy
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50721), we finalized
a scoring methodology that aligns with the achievement scoring
methodology currently used in the Hospital VBP Program. Our intent was
to reduce confusion associated with multiple scoring methodologies by
aligning the scoring for the Hospital VBP Program and the HAC Reduction
Program. We note that alignment benefits the hospital stakeholders who
have prior experience with the Hospital VBP Program. Accordingly, we
implemented a methodology for assessing the top quartile of applicable
hospitals for HACs based on performance standards.
We indicated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50720
through 50725) that points will be assigned to hospitals' performance
for each measure. We finalized a decile-based methodology for assigning
points, depending on the specific measures.
For Domain 1, point assignment is based on a hospital's
score for the PSI 90 measure.
For the Domain 1 score, 1 to 10 points are assigned to the
hospital.
For the measures in Domain 2, point assignment for each
measure is based on the SIR for that measure.
For each SIR, 1 to 10 points are assigned to the hospital
for each measure.
The Domain 2 score consists of the average of points
assigned to each measure.
To calculate a Total HAC Score for each hospital, we multiply each
domain score by a weighting and add together the weighted domain scores
to determine the Total HAC Score (Sec. 412.172(e)(3)). We use each
hospital's Total HAC Score to determine the top quartile of subsection
(d) hospitals that are subject to the payment adjustment beginning with
discharges on or after October 1, 2014.
(2) Program Evaluation Efforts
As part of our ongoing efforts to evaluate the HAC Reduction
Program, we recently conducted a review of our scoring methodology and
assessed opportunities to strengthen the program. As part of that
review, our Hospital Quality Reporting Program Support (HQRPS)
contractors convened a technical expert panel (TEP) on October 19-20,
2015, with a follow-up call on December 11, 2015. The TEP examined
multiple areas of the HAC Reduction Program and focused on identifying
a scoring methodology that provides an incentive to hospitals to reduce
HACs and distinguishes top performers from low performers. The TEP
identified concerns with the current decile-based scoring methodology
that included: Ties at the penalty threshold; hospitals with a limited
amount of data being identified as poor performers; and situations in
which hospitals with no adverse events and no Domain 2 data nonetheless
become eligible for penalty.
During the FY 2016 HAC Reduction Program, a small subset of
hospitals that had zero adverse events in Domain 1 and no Domain 2
score were identified as part of the worst-performing quartile. These
hospitals received Domain 1 scores of 7.0, meaning they were in the 7th
decile of hospitals for the PSI 90 measure despite being close to the
PSI 90 measure mean value. As this subset of hospitals had no Domain 2
scores, they received a Total HAC Score equal to their Domain 1 score
of 7.0. This Total HAC Score was greater than the 75th percentile
cutoff for penalty determination of 6.75. CMS waived the penalty for
these zero adverse event hospitals so they would not be treated as poor
performers. These hospitals were potentially disadvantaged because
their Total HAC Scores were determined solely on their Domain 1 Score.
Because Domain 2 scores tend to be lower on average than Domain 1
scores,\67\ other hospitals without Domain 2 scores are potentially
treated the same as low performers in the same decile.
---------------------------------------------------------------------------

\67\ This is because hospitals are assigned the minimum of one
point for any measure for which they have a measure result of zero.
For example, for the CAUTI measure, if 13 percent of hospitals have
an SIR of zero, one point is assigned to each of these hospitals,
even though the decile approach is intended to assign 10 percent of
hospitals to each decile. Two points would be assigned to the
remaining seven percent of hospitals that would fall in the second
decile. This phenomenon does not affect Domain 1 scores, since the
reliability-adjusted PSI 90 measure result is not equal to zero in
any hospital.
---------------------------------------------------------------------------

In addition, scoring using deciles can make it more difficult to
distinguish top performers from low performers by creating a large
number of ties on measure scores. For example, two hospitals with
meaningfully different measure results may fall into the same decile
bin and therefore be ultimately indistinguishable under the current
scoring methodology. Conversely, two hospitals with performance that is
not statistically distinguishable may fall into different decile bins.
Furthermore, ties at the penalty threshold complicate the adjudication
of payment adjustments; in both the FY 2015 and FY 2016 programs, less
than 25 percent of all hospitals had Total HAC Scores above the
threshold for penalties. Specifically, only 21.9 percent of hospitals
in FY 2015 and 23.7 percent of hospitals in FY 2016 were subject to a
payment adjustment.
To address stakeholder concerns regarding the current scoring
methodology, we evaluated a number of alternatives and recommendations
from the TEP. We refer readers to the Project Title: Hospital-Acquired
Condition (HAC) Reduction Program Scoring Methodology Reevaluation
located at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/TechnicalExpertPanels.html for a summary of
the TEP's discussion. These alternatives included replacement of the
current decile-based scoring approach with the use of Winsorized \68\
z-scores.
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\68\ Winsorized measure results are truncated to the 5th and
95th percentiles, replacing values between the minimum and the 5th
percentile with the 5th percentile value and replacing values
between the 95th percentile and the maximum with the 95th percentile
value. Z-scores are then calculated based on these values.
---------------------------------------------------------------------------

(3) Winsorized Z-Score Method
The Winsorized z-score method (z-score) uses a continuous measure
score rather than forcing measure results into deciles. Z-scores
represent a hospital's distance from the national mean for a measure in
units of standard deviations. Under the z-score approach, poor-
performing hospitals earn a positive z-score, reflecting measure values
above the national mean, and better-performing hospitals earn a
negative z-score, reflecting measure values below the national mean.
For each measure, a

[[Page 25123]]

hospital's z-score is based on the following equation that expresses
the hospital's measure value minus the average value for that measure,
divided by the standard deviation of the measure values across all
hospitals:
[GRAPHIC] [TIFF OMITTED] TP27AP16.000

To form the Total HAC Score, we would use the z-scores as
hospitals' measure scores. In accordance with the current scoring
methodology, we would then average the z-scores across measures within
Domain 2 and assign the z-score for PSI 90 for Domain 1 to determine
the domain scores. We would then multiply each domain score by the
appropriate weighting and add together the weighted domain scores to
determine the Total HAC Score. We would use each hospital's Total HAC
Score to determine the top quartile of subsection (d) hospitals that
are subject to the payment adjustment.
(4) Impact and Implementation
This z-score approach is straightforward to implement, easily
adapted as measures are added or removed from the HAC Reduction
Program, transparent, and familiar to a wide range of stakeholders.
Continuous values address the limitations of decile scoring and
preserve the magnitude of differences among hospitals' measure results.
Thus, hospitals that differ meaningfully on their measure results will
also differ meaningfully on their Total HAC Scores. Unlike the decile
approach, continuous measure scores would substantially reduce ties of
Total HAC Scores, which have prevented CMS from penalizing exactly 25
percent of hospitals in previous program years. The use of z-scores
also improves alignment between Domains 1 and 2 and creates a more
level playing field for hospitals with data in only Domain 1.
Based on FY 2016 data supplemented with MRSA Bacteremia and CDI
results,\69\ the z-score approach affects the penalty status of
slightly more than 200 hospitals, relative to the decile approach. This
approach brings 114 hospitals into the penalty zone and 103 hospitals
out of the penalty zone and reduces the HAC Reduction Program's impact
on the largest and smallest hospitals. Most importantly, because of the
improvements in precision and standardization gained by implementing
this approach, there is no penalization of hospitals that had zero
adverse events and no Domain 2 score in either the actual results from
FY 2016 or in the results based on the FY 2016 data supplemented with
MRSA Bacteremia and CDI results.
---------------------------------------------------------------------------

\69\ Results are a based on actual FY 2016 measure data with the
addition of MRSA Bacteremia and CDI data for the reporting period
spanning October 2012 through December 2014.
---------------------------------------------------------------------------

Among the 184 hospitals with fewer than 25 beds, the proportion of
hospitals penalized would fall from 33 percent to 18 percent. Among the
213 hospitals with more than 500 beds, the proportion of hospitals
penalized would fall from 50 percent to 42 percent. The approach leaves
the proportion of teaching, urban, and high-DSH hospitals penalized
largely unchanged, with one exception. The z-score approach slightly
increases the penalization rate among moderately high (50 to 64
percent) DSH hospitals, from 28 percent to 35 percent. Only 172
hospitals fall into this group; therefore, the increase reflects only
11 additional hospitals in that group being penalized.
We believe that differences in performance scores must reflect true
differences in performance. In addition, hospitals must be able to
clearly understand performance scoring methods and performance
expectations to maximize their quality improvement efforts. Therefore,
we are inviting public comments on our proposal to adopt the z-score
method for calculating measure results beginning in the FY 2018 HAC
Reduction Program.
6. Request for Comments on Additional Measures for Potential Future
Adoption
We view the addition of other quality measures as a critical
component of value-based purchasing, and we are seeking public comments
on what additional measures we should consider adopting in the future.
We believe that our continued efforts to reduce HACs are vital to
improving patients' quality of care and reducing complications and
mortality, while simultaneously decreasing costs. The reduction of HACs
is an important marker of quality of care and has a positive impact on
both patient outcomes and cost of care. Our goal for the HAC Reduction
Program is to heighten the awareness of HACs and reduce the number of
incidences that occur. We seek to adopt measures for the HAC Reduction
Program that promote better, safer, and more efficient care. Our
overarching purpose is to support the NQS' three-part aim of better
health care for individuals, better health for populations, and lower
costs for health care.
To the extent practicable, all HAC Reduction Program measures
should be nationally endorsed by a multi-stakeholder organization.
Measures should be aligned with best practices among other payers and
the needs of the end users of the measures. Measures should take into
account widely accepted criteria established in medical literature. We
note that all measures proposed for the HAC Reduction Program should
follow the criteria established by the DRA of 2005 in that they consist
of high-volume or high-cost conditions that could be prevented by the
use of evidence-based guidelines.
We welcome public comment and suggestions for additional HAC
Reduction Program measures that will help achieve the Program goals in
these or other measurement areas.
7. Maintenance of Technical Specifications for Quality Measures
Technical specifications for AHRQ's PSI-90 measure in Domain 1 can
be found at AHRQ's Web site at: http://qualityindicators.ahrq.gov/Modules/PSI_TechSpec.aspx. Technical specifications for the CDC NHSN
HAI measures in Domain 2 can be found at CDC's NHSN Web site at: http://www.cdc.gov/nhsn/acute-care-hospital/index.html. Both Web sites
provide measure updates and other information necessary to guide
hospitals participating in the collection of HAC Reduction Program
data.
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50100), we described
a policy under which we use a subregulatory process to make
nonsubstantive updates to measures used for the HAC Reduction Program.
We are not proposing any changes to this policy at this time.
8. Extraordinary Circumstance Exception Policy for the HAC Reduction
Program Beginning in FY 2016 and for Subsequent Years
We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR
49579 through 49581) for a detailed discussion of the exception policy
for hospitals located in areas that experience disasters or other
extraordinary circumstances for the HAC Reduction

[[Page 25124]]

Program. We are not proposing any changes to this policy for FY 2017.

J. Payment for Graduate Medical Education (GME) and Indirect Medical
Education (IME) Costs (Sec. Sec. 412.105, 413.75 Through 413.83)

1. Background
Section 1886(h) of the Act, as added by section 9202 of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L.
99-272) and as currently implemented in the regulations at 42 CFR
413.75 through 413.83, establishes a methodology for determining
payments to hospitals for the direct costs of approved graduate medical
education (GME) programs. Section 1886(h)(2) of the Act sets forth a
methodology for the determination of a hospital-specific base-period
per resident amount (PRA) that is calculated by dividing a hospital's
allowable direct costs of GME in a base period by its number of full-
time equivalent (FTE) residents in the base period. The base period is,
for most hospitals, the hospital's cost reporting period beginning in
FY 1984 (that is, October 1, 1983 through September 30, 1984). The base
year PRA is updated annually for inflation. In general, Medicare direct
GME payments are calculated by multiplying the hospital's updated PRA
by the weighted number of FTE residents working in all areas of the
hospital complex (and at nonprovider sites, when applicable), and the
hospital's Medicare share of total inpatient days.
Section 1886(d)(5)(B) of the Act provides for a payment adjustment
known as the indirect medical education (IME) adjustment under the IPPS
for hospitals that have residents in an approved GME program, in order
to account for the higher indirect patient care costs of teaching
hospitals relative to nonteaching hospitals. The regulations regarding
the calculation of this additional payment are located at 42 CFR
412.105. The hospital's IME adjustment applied to the DRG payments is
calculated based on the ratio of the hospital's number of FTE residents
training in either the inpatient or outpatient departments of the IPPS
hospital to the number of inpatient hospital beds.
The calculation of both direct GME payments and the IME payment
adjustment is affected by the number of FTE residents that a hospital
is allowed to count. Generally, the greater the number of FTE residents
a hospital counts, the greater the amount of Medicare direct GME and
IME payments the hospital will receive. In an attempt to end the
implicit incentive for hospitals to increase the number of FTE
residents, Congress, through the Balanced Budget Act of 1997 (Pub. L.
105-33), established a limit on the number of allopathic and
osteopathic residents that a hospital may include in its FTE resident
count for direct GME and IME payment purposes. Under section
1886(h)(4)(F) of the Act, for cost reporting periods beginning on or
after October 1, 1997, a hospital's unweighted FTE count of residents
for purposes of direct GME may not exceed the hospital's unweighted FTE
count for direct GME in its most recent cost reporting period ending on
or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act,
a similar limit based on the FTE count for IME during that cost
reporting period is applied, effective for discharges occurring on or
after October 1, 1997. Dental and podiatric residents are not included
in this statutorily mandated cap.
The Affordable Care Act made a number of statutory changes relating
to the determination of a hospital's FTE resident limit for direct GME
and IME payment purposes and the manner in which FTE resident limits
are calculated and applied to hospitals under certain circumstances.
Section 5503(a)(4) of the Affordable Care Act added a new section
1886(h)(8) to the Act to provide for the reduction in FTE resident caps
for direct GME under Medicare for certain hospitals training fewer
residents than their caps, and to authorize the redistribution of the
estimated number of excess FTE resident slots to other qualified
hospitals. In addition, section 5503(b) amended section
1886(d)(5)(B)(v) of the Act to require the application of the section
1886(h)(8) of the Act provisions in the same manner to the IME FTE
resident caps. The policy implementing section 5503 of the Affordable
Care Act was included in the November 24, 2010 final rule with comment
period (75 FR 72147 through 72212) and the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53424 through 53434). Section 5506(a) of the Affordable
Care Act amended section 1886(h)(4)(H) of the Act to add a new clause
(vi) that instructs the Secretary to establish a process by regulation
under which, in the event a teaching hospital closes, the Secretary
will permanently increase the FTE resident caps for hospitals that meet
certain criteria up to the number of the closed hospital's FTE resident
caps. The policy implementing section 5506 of the Affordable Care Act
was included in the November 24, 2010 final rule with comment period
(75 FR 72212 through 72238) and the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53434 through 53448).
2. Change in New Program Growth From 3 Years to 5 Years
a. Urban and Rural Hospitals
Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules
for calculating the direct GME caps of teaching hospitals training
residents in new programs established on or after January 1, 1995.
Under section 1886(d)(5)(B)(viii) of the Act, these rules also apply to
the establishment of a hospital's IME cap. CMS implemented these
statutory requirements in the August 29, 1997 Federal Register (62 FR
46005) and in the May 12, 1998 Federal Register (63 FR 26333).
Generally, when CMS (then HCFA) implemented the regulations at 42 CFR
413.79(e)(1) and 42 CFR 412.105(f)(1)(vii), these regulations provided
that if a hospital did not train any allopathic or osteopathic
residents in its most recent cost reporting period ending on or before
December 31, 1996, and it begins to participate in training residents
in a new residency program (allopathic or osteopathic) on or after
January 1, 1995, the hospital's unweighted FTE resident cap (which
would otherwise be zero) may be adjusted based on the sum of the
product of the highest number of FTE residents in any program year
during the third year of the first new program, for each new residency
training program established during that 3-year period, and the minimum
accredited length for each type of program. This 3-year period, which
we will refer to as the ``3-year window'' for ease of reference in this
proposed rule, started when a new program began, and the teaching
hospital first began to train residents for the first time in that new
program, typically on July 1, and ending when the third program year of
that first new program ends.
Prior to development of the FY 2013 IPPS/LTCH PPS proposed rule,
the teaching hospital community expressed concerns that 3 years do not
provide for a sufficient amount of time for a hospital to ``grow'' its
new residency programs and to establish FTE resident caps that are
properly reflective of the number of FTE residents that it will
actually train, once the programs are fully grown. Hospitals explained
that 3 years is an insufficient amount of time primarily because a
period of 3 years is not compatible with program accreditation
requirements, particularly in instances where the qualifying teaching
hospital wishes to start more than one new program. Therefore, in the
FY 2013 IPPS/LTCH PPS proposed rule

[[Page 25125]]

and final rule, we proposed and finalized changes to the regulations at
42 CFR 413.79(e) for direct GME and at 42 CFR 412.105(f)(1)(vii) for
IME that revised the ``3-year window'' to a ``5-year window,'' for a
new teaching hospital to establish and grow a new program, and thus
begin training residents for the first time in new programs that are
started on or after October 1, 2012. Thus, for urban hospitals that
begin to train residents in a new medical residency training program
for the first time on or after October 1, 2012, the cap will not be
adjusted for new programs established more than 5 years after residents
begin training in the first new program. However, rural hospitals are
permitted to receive new cap adjustments for participating in training
residents in new medical residency training programs at any time, and
therefore, under Sec. 413.79(e)(3), if a rural hospital participates
in new medical residency training programs on or after October 1, 2012,
the hospital's cap is adjusted for each new program based on a 5-year
growth window. We refer readers to the FY 2013 IPPS/LTCH PPS final rule
for more details on this change in the regulations regarding the 5-year
window for urban hospitals training residents in new medical residency
training programs for the first time and for rural hospitals
participating in new medical residency training programs (77 FR 53416
through 53424).
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50111), we changed
our policy regarding implementation of the FTE resident caps for new
programs to be effective with the beginning of the applicable
hospital's cost reporting period that coincides with or follows the
start of the sixth program year of the first new program started for
hospitals for which the FTE cap may be adjusted in accordance with
Sec. 413.79(e)(1), and beginning with the applicable hospital's cost
reporting period that coincides with or follows the start of the sixth
program year of each individual new program started for rural hospitals
for which the FTE cap may be adjusted in accordance with Sec.
413.79(e)(3). In the same final rule, we also made the effective dates
of the 3-year rolling average and IME IRB ratio cap consistent with the
effective date of the new program FTE resident caps. That is, beginning
with the applicable hospital's cost reporting period that coincides
with or follows the start of the sixth program year of the first new
program started for hospitals for which the FTE cap may be adjusted in
accordance with Sec. 413.79(e)(1), and beginning with the applicable
hospital's cost reporting period that coincides with or follows the
start of the sixth program year of each individual new program started
for rural hospitals for which the FTE cap may be adjusted in accordance
with Sec. 413.79(e)(3), FTE residents participating in new medical
residency training programs are included in the hospital's IRB ratio
cap and the 3-year rolling average.
b. Proposed Policy Changes Relating to Rural Training Tracks at Urban
Hospitals
To encourage the training of residents in rural areas, section
407(c) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement
Act of 1999 (Pub. L. 106-113) amended section 1886(h)(4)(H) of the Act
to add a provision (subsection (iv)) that, in the case of a hospital
that is not located in a rural area (an urban hospital) that
establishes separately accredited approved medical residency training
programs (or rural tracks) in a rural area or has an accredited
training program with an integrated rural track, the Secretary shall
adjust the urban hospital's cap on the number of FTE residents under
subsection (F), in an appropriate manner in order to encourage training
of physicians in rural areas. Section 407(c) of Public Law 106-113 was
made effective for direct GME payments to hospitals for cost reporting
periods beginning on or after April 1, 2000, and for IME payments
applicable to discharges occurring on or after April 1, 2000. We refer
readers to the August 1, 2000 interim final rule with comment period
(65 FR 47033 through 47037) and the FY 2002 IPPS final rule (66 FR
39902 through 39909) where we implemented section 407(c) of Public Law
106-113. The regulations for establishing rural track FTE limitations
are located at 42 CFR 413.79(k) for direct GME and at 42 CFR
412.105(f)(1)(x) for IME.
In the August 1, 2003 IPPS final rule (68 FR 45456 through 45457),
we clarified our existing policy that although the rural track
provision allows an increase to the urban hospital's FTE cap, sections
1886(h)(4)(H)(iv) and 1886(d)(5)(B) of the Act do not provide for an
exclusion from the rolling average for the urban hospital for those FTE
residents training in a rural track. These provisions are interpreted
to mean that, except for new rural track programs begun by urban
teaching hospitals that are establishing an FTE cap for the first time,
when an urban hospital with an FTE resident cap establishes a new rural
track program or expands an existing rural track program, FTE residents
in the rural track that are counted by the urban hospital are included
in the hospital's rolling average calculation immediately. This policy
is reflected in the regulation at Sec. 412.105(f)(1)(v)(F) for IME and
Sec. 413.79(d)(7) for direct GME, and applies for IME and direct GME
to cost reporting periods beginning on or after April 1, 2000.
We received questions asking whether the change in the 3-year
window to the 5-year window for new programs also applies to the
establishment of rural training tracks. In the FY 2013 IPPS/LTCH PPS
final rule, when we amended the regulations to provide for a 5-year new
program growth window at Sec. 413.79(e) for direct GME and at Sec.
412.105(f)(1)(vii) for IME, and in the FY 2015 IPPS/LTCH PPS final rule
when we made the FTE resident caps of new programs to be effective with
the applicable hospital's cost reporting period that coincides with or
follows the start of the sixth program year, we inadvertently did not
also change the growth window and effective date of FTE limitations for
rural training tracks, which, under existing Sec. 413.79(k) for direct
GME and Sec. 412.105(f)(1)(x) for IME, is 3 program years, and is
effective after 3 program years, respectively.
In this FY 2017 IPPS/LTCH PPS proposed rule, we are proposing to
revise the regulations at Sec. 413.79(k) (and which, in turn, would
affect IME adjustments under Sec. 412.105(f)(1)(x)) to permit that, in
the first 5 program years (rather than the first 3 program years) of
the rural track's existence, the rural track FTE limitation for each
urban hospital will be the actual number of FTE residents training in
the rural training track at the urban hospital, and beginning with the
urban hospital's cost reporting period that coincides with or follows
the start of the sixth program year of the rural training track's
existence, the rural track FTE limitation would take effect. This
proposed change addresses concerns expressed by the hospital community
that rural training tracks, like any program, should have a sufficient
amount of time for a hospital to ``grow'' and to establish a rural
track FTE limitation that reflects the number of FTE residents that it
will actually train, once the program is fully grown.
However, as stated above, due to the statutory language at sections
1886(d)(5)(B) and 1886(h)(4)(H)(iv) of the Act as implemented in our
regulations at Sec. Sec. 412.105(f)(1)(v)(F) and 413.79(d)(7), except
for new rural track programs begun by urban teaching hospitals that are
establishing an FTE cap for the first time, FTE residents in a rural
track training program at the

[[Page 25126]]

urban hospital are subject immediately to the 3-year rolling average
for direct GME and IME. In addition, under the regulations at Sec.
412.105(a)(1)(i), no exception to the IME intern- and resident-to-bed
(IRB) ratio cap is provided for residents in a rural track training
program (except for new rural track programs begun by urban teaching
hospitals that are establishing an FTE cap for the first time).
Accordingly, while we are proposing that the urban hospital's rural
track FTE limitation would first be effective beginning with the urban
hospital's cost reporting period that coincides with or follows the
start of the sixth program year of the rural track training program's
existence, the rural track training program's FTEs are included in the
3-year rolling average and are subject to the IME IRB ratio cap for
hospitals with established FTE caps, even within the first 5 program
years prior to the beginning of the urban hospital's cost reporting
period that coincides with or follows the start of the sixth program
year of the rural track training program's existence.
We note that, for programs with cost reporting periods beginning on
or after October 1, 2003, our regulations at Sec. Sec. 413.79(k)(1)
through (k)(4) are divided between rural track FTE limitation
adjustments for urban hospitals where the residents rotate to a rural
area for more than one half of the duration of the program (Sec. Sec.
413.79(k)(1) and (k)(2)), and where the residents rotate to a rural
area for less than one-half of the duration of the program (Sec. Sec.
413.79(k)(3) and (k)(4)). As we explained in the August 1, 2003 IPPS
final rule (68 FR 45456 through 45458), ``duration of the program''
refers to the minimum accredited length of the particular specialty of
the rural track training program. We are clarifying under this proposal
that, although the urban hospital's rural track FTE limitation would
not be effective until the beginning of the urban hospital's cost
reporting period that coincides with or follows the start of the sixth
program year of the rural track training program's existence, the rural
track FTE limitation that would be provided, if any, is still subject
to whether or not the urban hospital rotates the residents in the rural
track training program to a rural area(s) for more than one-half of the
``duration of the program,'' and whether or not the urban hospital
complies with existing Sec. Sec. 413.79(k)(5) and (k)(6), and the
proposed revised Sec. 413.79(k)(7). We are proposing to revise Sec.
413.79(k)(7), which specifies the effect on rural track FTE limitations
when previously rural statistical areas become urban statistical areas
due to updates in the OMB standards for delineating urban and rural
statistical areas, because the existing paragraphs under Sec.
413.79(k)(7) discuss the ``3-year'' growth period. Consequently, we
need to make conforming changes by revising paragraphs (k)(7)(ii) and
(iii) to account for rural track training programs started prior to
October 1, 2012. (For more information regarding the effect on rural
track FTE limitations when OMB makes changes to its standards for
delineating statistical areas, we refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50113 through 50117).)
c. Proposed Effective Date
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50111), when we
provided that the policy regarding the effective dates of the FTE
residency caps, the 3-year rolling average, and the IRB ratio cap for
FTE residents in new medical residency training programs would be
effective with the applicable hospital's cost reporting period that
coincides with or follows the start of the sixth program year of the
first new program started, we stated that this policy would be
effective for urban hospitals that first begin to participate in
training residents in their first new medical residency training
program, and for rural hospitals, on or after October 1, 2012. We
finalized this as the effective date because the policy providing a 5-
year growth period for establishing the FTE resident caps (Sec. Sec.
413.79(e)(1) and (e)(3)) was also effective for new programs started on
or after October 1, 2012. Because we inadvertently did not also amend
the separate regulations at Sec. 412.105(f)(1)(x) and Sec. 413.79(k)
regarding the growth window and effective date of FTE limitations for
rural track training programs when we amended the regulations regarding
the 5-year growth window in the FY 2013 IPPS/LTCH PPS final rule and
regarding the additional changes we made in the FY 2015 IPPS/LTCH PPS
final rule, we are proposing that the effective date regarding the
change in the growth window for rural track training programs from 3
years to 5 years also be effective for rural track training programs
started on or after October 1, 2012. We acknowledge that there could be
urban hospitals that started a rural track training program after
October 1, 2012 (likely on July 1, 2013) for which rural track FTE
limitations would become effective under current policy after 3 years
(likely on July 1, 2016). We are proposing that, if our proposal is
finalized, we would not actually apply the rural track FTE limitations
that would have become effective for these hospitals after 3 program
years. Instead, the rural track FTE limitations for these hospitals
would be the actual number of FTE residents training in the rural track
(subject to the rolling average at Sec. 413.79(d)(7) and the IME IRB
ratio cap at Sec. 412.105(a)(1)(i), if applicable) for an additional 2
years (from July 1, 2016 through June 30, 2018), and the rural track
FTE limitations would become effective with the cost reporting period
that coincides with or follows the start of the sixth program year,
which in this example would be July 1, 2018.
In summary, we are proposing to revise the direct GME regulations
at Sec. 413.79(k) (and which, in turn, would affect IME adjustments
under Sec. 412.105(f)(1)(x)) to permit that, effective with rural
track training programs started on or after October 1, 2012, in the
first 5 program years of the rural track's existence, the rural track
FTE limitation for each urban hospital will be the actual number of FTE
residents (subject to the rolling average at Sec. 413.79(d)(7) and the
IME IRB ratio cap at Sec. 412.105(a)(1)(i), if applicable), training
in the rural track training program at the urban hospital, and the
rural track FTE limitation would take effect beginning with the urban
hospital's cost reporting period that coincides with or follows the
start of the sixth program year of the rural track training program's
existence.
We are inviting public comment on this proposal.

K. Rural Community Hospital Demonstration Program

1. Background
Section 410A(a) of Public Law 108-173 required the Secretary to
establish a demonstration program to test the feasibility and
advisability of establishing ``rural community'' hospitals to furnish
covered inpatient hospital services to Medicare beneficiaries. The
demonstration pays rural community hospitals under a reasonable cost-
based methodology for Medicare payment purposes for covered inpatient
hospital services furnished to Medicare beneficiaries. A rural
community hospital, as defined in section 410A(f)(1), is a hospital
that--
Is located in a rural area (as defined in section
1886(d)(2)(D) of the Act) or is treated as being located in a rural
area under section 1886(d)(8)(E) of the Act;
Has fewer than 51 beds (excluding beds in a distinct part
psychiatric or rehabilitation unit) as reported in its most recent cost
report;
Provides 24-hour emergency care services; and

[[Page 25127]]

Is not designated or eligible for designation as a CAH
under section 1820 of the Act.
Section 410A(a)(4) of Public Law 108-173 specified that the
Secretary was to select for participation no more than 15 rural
community hospitals in rural areas of States that the Secretary
identified as having low population densities. Using 2002 data from the
U.S Census Bureau, we identified the 10 States with the lowest
population density in which rural community hospitals were to be
located in order to participate in the demonstration: Alaska, Idaho,
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota,
Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of
the United States: 2003.)
CMS originally solicited applicants for the demonstration in May
2004; 13 hospitals began participation with cost reporting periods
beginning on or after October 1, 2004. In 2005, 4 of these 13 hospitals
withdrew from the program and converted to CAH status. This left 9
hospitals participating at that time. In 2008, we announced a
solicitation for up to 6 additional hospitals to participate in the
demonstration program. Four additional hospitals were selected to
participate under this solicitation. These 4 additional hospitals began
under the demonstration payment methodology with the hospital's first
cost reporting period starting on or after July 1, 2008. At that time,
13 hospitals were participating in the demonstration.
Five hospitals (3 of the hospitals were among the 13 hospitals that
were original participants in the demonstration program and 2 of the
hospitals were among the 4 hospitals that began the demonstration
program in 2008) withdrew from the demonstration program during CYs
2009 and 2010. (Three of these hospitals indicated that they would be
paid more for Medicare inpatient hospital services under the rebasing
option allowed under the SCH methodology provided for under section 122
of the Medicare Improvements for Patients and Providers Act of 2008
(Pub. L. 110-275). One hospital restructured to become a CAH, and one
hospital closed.) In CY 2011, one hospital that was among the original
set of hospitals that participated in the demonstration withdrew from
the demonstration. These actions left seven of the originally
participating hospitals (that is, hospitals that were selected to
participate in either 2004 or 2008) participating in the demonstration
program as of June 1, 2011.
Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-
148) amended section 410A of Public Law 108-173, changing the rural
community hospital demonstration program in several ways. First, the
Secretary is required to conduct the demonstration program for an
additional 5-year period, to begin on the date immediately following
the last day of the initial 5-year period. Further, the Affordable Care
Act requires, in the case of a rural community hospital that is
participating in the demonstration program as of the last day of the
initial 5-year period, the Secretary to provide for the continued
participation of such rural hospital in the demonstration program
during the 5-year extension period, unless the hospital makes an
election to discontinue participation.
In addition, the Affordable Care Act provides that, during the 5-
year extension period, the Secretary shall expand the number of States
with low population densities determined by the Secretary to 20.
Further, the Secretary is required to use the same criteria and data
that the Secretary used to determine the States for purposes of the
initial 5-year period. The Affordable Care Act also allows not more
than 30 rural community hospitals in such States to participate in the
demonstration program during the 5-year extension period.
We published a solicitation for applications for additional
participants in the rural community hospital demonstration program in
the Federal Register on August 30, 2010 (75 FR 52960). Applications
were due on October 14, 2010. The 20 States with the lowest population
density that were eligible for the demonstration program are: Alaska,
Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota,
Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota,
Oklahoma, Oregon, South Dakota, Utah, and Wyoming (Source: U.S. Census
Bureau, Statistical Abstract of the United States: 2003). We approved
19 new hospitals for participation in the demonstration program. We
determined that each of these new hospitals would begin participating
in the demonstration with its first cost reporting period beginning on
or after April 1, 2011.
Three of these 19 hospitals declined participation prior to the
start of the cost reporting periods for which they would have begun the
demonstration. In addition to the 7 hospitals that were selected in
either 2004 or 2008, the new selection led to a total of 23 hospitals
in the demonstration. During CY 2013, one additional hospital among the
set selected in 2011 withdrew from the demonstration, similarly citing
a relative financial advantage to returning to the customary SCH
payment methodology, which left 22 hospitals participating in the
demonstration, effective July 1, 2013. In October 2015, another
hospital among those selected in 2011 closed, leaving 14 among this
cohort still participating. (By this date, as described below, the 7
hospitals that were selected in either 2004 or 2008 had completed the
5-year extension period mandated by the Affordable Care Act).
Section 410A(c)(2) of Public Law 108-173 required that, in
conducting the demonstration program under this section, the Secretary
shall ensure that the aggregate payments made by the Secretary do not
exceed the amount which the Secretary would have paid if the
demonstration program under this section was not implemented. This
requirement is commonly referred to as ``budget neutrality.''
Generally, when we implement a demonstration program on a budget
neutral basis, the demonstration program is budget neutral in its own
terms; in other words, the aggregate payments to the participating
hospitals do not exceed the amount that would be paid to those same
hospitals in the absence of the demonstration program. Typically, this
form of budget neutrality is viable when, by changing payments or
aligning incentives to improve overall efficiency, or both, a
demonstration program may reduce the use of some services or eliminate
the need for others, resulting in reduced expenditures for the
demonstration program's participants. These reduced expenditures offset
increased payments elsewhere under the demonstration program, thus
ensuring that the demonstration program as a whole is budget neutral or
yields savings. However, the small scale of this demonstration program,
in conjunction with the payment methodology, makes it extremely
unlikely that this demonstration program could be viable under the
usual form of budget neutrality.
Specifically, cost-based payments to participating small rural
hospitals are likely to increase Medicare outlays without producing any
offsetting reduction in Medicare expenditures elsewhere. Therefore, a
rural community hospital's participation in this demonstration program
is unlikely to yield benefits to the participant if budget neutrality
were to be implemented by reducing other payments for these same
hospitals. In the past 12 IPPS final rules, spanning the period for
which the demonstration program has been implemented, we have adjusted
the national inpatient PPS rates by an amount sufficient to account

[[Page 25128]]

for the added costs of this demonstration program, thus applying budget
neutrality across the payment system as a whole rather than merely
across the participants in the demonstration program. As we discussed
in the FYs 2005 through 2016 IPPS final rules (69 FR 49183; 70 FR
47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343,
76 FR 51698, 77 FR 53449, 78 FR 50740, 77 FR 50145, and 80 FR 49585,
respectively), we believe that the language of the statutory budget
neutrality requirements permits the agency to implement the budget
neutrality provision in this manner.
2. Budget Neutrality Offset Adjustments: Fiscal Years 2005 Through 2016
a. Fiscal Years 2005 Through 2013
In general terms, in each of these previous years from FYs 2005
through 2016, we used available cost reports for the participating
hospitals to derive an estimate of the additional costs attributable
for the demonstration. For FYs 2005 through 2012, we used finalized, or
settled, cost reports, as available, and ``as submitted'' cost reports
for hospitals for which finalized cost reports were not available to
derive this estimate of the additional costs attributable to the
demonstration. Annual market basket percentage increase amounts
provided by the CMS Office of the Actuary reflecting the growth in the
prices of inputs for inpatient hospitals were applied to cost amounts
obtained from these cost reports. In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53452), we initiated two general changes to the methodology
for estimating the costs of the demonstration (which we have continued
to apply through FY 2016). First, we used ``as submitted'' cost reports
for each hospital participating in the demonstration in estimating the
costs of the demonstration (for FY 2013, we used cost reports for cost
reporting periods ending in CY 2010). Second, in FY 2013, we
incorporated different update factors (the market basket percentage
increase and the applicable percentage increase, as applicable, to
several years of data as opposed to solely using the market basket
percentage increase) for the calculation of the budget neutrality
offset amount. We refer readers to the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53449 through 53453) for a detailed discussion of the
methodology initiated in FY 2013.
In each of these fiscal years, an annual update factor provided by
the CMS Office of the Actuary reflecting growth in the volume of
inpatient operating services was also applied to update the estimated
costs. For the budget neutrality calculations in the IPPS final rules
for FYs 2005 through 2011, the annual volume adjustment applied was 2
percent; for the IPPS final rules for FYs 2012 through 2016, it was 3
percent. For a detailed discussion of our budget neutrality offset
calculations, we refer readers to the IPPS final rule applicable to the
fiscal year involved.
In general, for FYs 2005 through 2013, we based the budget
neutrality offset estimate on the estimated cost of the demonstration
in an earlier given year. For these periods, we derived that estimated
cost by subtracting the estimated amount that would otherwise be paid
without the demonstration in an earlier given year from the estimated
amount for the same year that would be paid under the demonstration
under the reasonable cost-based methodology authorized by section 410A
of Public Law 108-173. (We ascertained the estimated amount that would
be paid in an earlier given year under the reasonable cost methodology
and the estimated amount that would otherwise be paid without the
demonstration in an earlier given year from finalized or ``as
submitted'' cost reports as discussed earlier.) For FYs 2005 through
2012, we then updated the estimated costs described earlier to the
upcoming year by multiplying them by the market basket percentage
increases applicable to the years involved and the applicable annual
volume adjustment. Beginning in FY 2013, as discussed earlier, we began
incorporating different update factors--we used the IPPS market basket
percentage increases applicable to the years involved to update the
estimated amount that would be paid under the demonstration under the
reasonable cost-based methodology, and the applicable percentage
increases applicable to the years involved to update the amounts that
would otherwise be paid without the demonstration. We continued to
apply the annual volume adjustment as discussed earlier.
For the FY 2010 IPPS/RY 2010 LTCH PPS final rule, data from
finalized cost reports reflecting the participating hospitals'
experience under the demonstration were available. Specifically, the
finalized cost reports for the first 2 years of the demonstration, that
is, cost reports for cost reporting years beginning in FYs 2005 and
2006 (CYs 2004, 2005, and 2006) were available. These data showed that
the actual costs of the demonstration for these years exceeded the
amounts originally estimated in the respective final rules for the
budget neutrality adjustment. In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule, we included an additional amount in the budget neutrality
offset amount in that fiscal year. This additional amount was based on
the amount that the costs of the demonstration for FYs 2005 and 2006
exceeded the budget neutrality offset amounts finalized in the IPPS
rules applicable for those years.
In the final rules for FYs 2011 through 2013, we continued to use a
methodology for calculating the budget neutrality offset amount
consisting of two components: (1) The estimated demonstration costs in
the upcoming fiscal year; and (2) the amount by which the actual
demonstration costs corresponding to an earlier, given year (which
would be known once finalized cost reports became available for that
year) exceeded the budget neutrality offset amount finalized in the
corresponding year's IPPS final rule. However, we noted in the FYs
2011, 2012, and 2013 IPPS final rules that, because of a delay
affecting the settlement process for cost reports for IPPS hospitals
occurring on a larger scale than merely for the demonstration, we were
unable to finalize this component of the budget neutrality offset
amount accounting for the amount by which the actual demonstration
costs in an earlier given year exceeded the budget neutrality offset
amount finalized in the corresponding year's IPPS final rule for cost
reports of demonstration hospitals dating to those beginning in FY
2007.
b. Fiscal Years 2014 and 2015
In the final rules for FYs 2014 and 2015, we continued to apply the
general methodology discussed earlier (with the modifications initiated
in FY 2013) in estimating the costs of the demonstration for the
specific fiscal year, using the set of ``as submitted'' cost reports
from the most recent calendar year for which they are available (cost
reporting periods ending in 2011 and 2012, respectively), and updating
the cost amounts according to the factors discussed earlier. In
addition, in these final rules, because finalized cost reports for FYs
2007 and 2008 had become available, we were able to include in the
budget neutrality offset adjustment the amount by which the actual
demonstration costs in each of those years exceeded the budget
neutrality offset amounts finalized in the IPPS final rules for these
years.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR through 50744), we
determined the final budget neutrality offset amount to be applied to
the FY 2014 IPPS rates to be $52,589,741. This

[[Page 25129]]

amount was comprised of the two distinct components identified earlier:
(1) The final resulting difference between the total estimated FY 2014
reasonable cost amount to be paid under the demonstration to the 22
participating hospitals for covered inpatient hospital services, and
the total estimated amount that would otherwise be paid to such
hospitals without the demonstration (this amount was $46,549, 861); and
(2) the amount by which the actual costs for the demonstration for FY
2007 (as shown in the finalized cost reports for cost reporting periods
beginning in FY 2007 for the nine hospitals that participated in the
demonstration during FY 2007) exceeded the budget neutrality offset
amount that was finalized in the FY 2007 IPPS final rule (this amount
was $6,039,880).
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50141 through
50145), we determined the final budget neutrality offset amount to be
applied to the FY 2015 IPPS rates to be $64,566,915. This amount was
also comprised of the two earlier referenced components: (1) The final
resulting difference between the total estimated FY 2015 reasonable
cost amount to be paid under the demonstration to the 22 participating
hospitals for covered inpatient hospital services, and the total
estimated amount that would otherwise be paid to such hospitals in FY
2015 without the demonstration (this amount was $54,177,144); and (2)
the amount by which the actual costs of the demonstration for FY 2008
(as shown in the finalized cost reports for the hospitals that
participated in the demonstration during FY 2008) exceeded the budget
neutrality offset amount that was finalized in the FY 2008 IPPS final
rule (this amount was $10,389,771).
c. Fiscal Year 2016
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49586 through
49591), we continued to apply the general methodology discussed earlier
for FYs 2014 and 2015 in estimating the costs of the demonstration for
FY 2016, with some modifications. For FY 2016, we used the set of ``as
submitted'' cost reports from the most recent calendar year for which
they were available (cost reporting periods ending in CY 2013), and
updated the cost amounts using the IPPS market basket percentage
increase and applicable percentage increase applicable to the years
involved as discussed earlier. Although the methodology for FY 2016 was
similar to that for the previous several rules, because the
demonstration began to phase out prior to the beginning of FY 2016,
appropriate changes to the calculations were made. The 7 ``originally
participating hospitals,'' that is, those hospitals that were selected
for the demonstration in either 2005 or 2008, were scheduled to end
their participation in the 5-year extension period authorized by the
Affordable Care Act prior to the start of FY 2016. Therefore, we did
not include the financial experience of these hospitals in the
calculation of either the estimated reasonable cost amount or the
estimated amount that otherwise would be paid without the demonstration
for FY 2016. In addition, 8 hospitals that entered the demonstration in
2011 and 2012 through the solicitation that followed the Affordable
Care Act amendments expanding the demonstration, and that were still
participating in the demonstration at the time of the FY 2016 IPPS/LTCH
PPS final rule, were scheduled to end their participation on a rolling
basis before September 30, 2016. As discussed in the FY 2016 IPPS/LTCH
PPS final rule, for these 8 hospitals, the estimated reasonable cost
amount and the estimated amount that would otherwise be paid without
the demonstration were prorated according to the ratio of the number of
months between October 1, 2015, and the end of the hospital's cost
reporting period in relation to the entire 12-month period. We refer
readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49586 through
49588) for a discussion of these additional calculations.
The resulting estimate of costs of the demonstration for FY 2016
for the 15 hospitals participating in the demonstration for FY 2016 was
$26,044,620.
In addition, in the FY 2016 IPPS/LTCH PPS final rule, we were able
to finalize the amounts by which the actual demonstration costs for FYs
2009 and 2010 differed from the budget neutrality offset amount
finalized in the corresponding final rules for these years using the
following approach:
We identified the difference between the actual cost of the
demonstration for FY 2009 as indicated in the finalized cost reports
for hospitals that participated in FY 2009 and that had cost reporting
periods beginning in FY 2009 (this amount was $14,332,936), and the
budget neutrality offset amount that was identified in the FY 2009 IPPS
final rule (73 FR 48671) (this amount was $22,790,388). Analysis of
this set of cost reports showed that the budget neutrality offset
amount that was finalized to account for the demonstration costs in FY
2009 (as set forth in the FY 2009 IPPS final rule) exceeded the actual
cost of the demonstration for FY 2009 by $8,457,452.
We included the amount by which the actual costs of the
demonstration for FY 2010 (as shown in the finalized cost reports for
the nine hospitals that completed a cost reporting period beginning in
FY 2010) ($16,817,922) differed from the amount that was finalized as
the costs of the demonstration for FY 2010 as set forth in the FY 2010
IPPS/RY 2010 LTCH PPS final rule and the FY 2011 IPPS/LTCH PPS final
rule ($21,569,472). Analysis of this set of cost reports showed that
the budget neutrality offset amount that was finalized to account for
the demonstration costs in FY 2010 (as set forth in the FY 2010 IPPS/RY
2010 LTCH PPS final rule and the FY 2011 IPPS/LTCH PPS final rule)
exceeded the actual cost of the demonstration for FY 2010 by
$4,751,550.
Unlike in previous years, because the budget neutrality offset
amount identified in the corresponding final rules for each of FYs 2009
and 2010 exceeded the actual costs of the demonstration, we subtracted
the differences between these amounts for each fiscal year (that is,
$8,457,452 applicable to FY 2009 and $4,751,550 applicable to FY 2010)
from the estimated amount of the costs of the demonstration for FY 2016
(that is, $26,044,620). Thus, the final budget neutrality offset amount
for which the adjustment to the national IPPS rates was calculated was
$12,835,618.
3. Proposed Budget Neutrality Methodology for FY 2017
As described earlier, we have generally incorporated two components
into the budget neutrality offset amounts identified in the final IPPS
rules in previous years. First, we have estimated the costs of the
demonstration for the upcoming fiscal year, generally determined from
historical, ``as submitted'' cost reports for the hospitals
participating in that year. Update factors representing nationwide
trends in cost and volume increases have been incorporated into these
estimates, as specified in the methodology described in the final rule
for each fiscal year. Second, as finalized cost reports have become
available, we have determined the amount by which the actual costs of
the demonstration for an earlier, given year differed from the
estimated costs for the demonstration set forth in the final IPPS rule
for the corresponding fiscal year, and we incorporated that amount into
the budget neutrality offset amount for the upcoming fiscal year. If
the actual costs for the demonstration

[[Page 25130]]

for the earlier fiscal year exceeded the estimated costs of the
demonstration identified in the final rule for that year, this
difference was added to the estimated costs of the demonstration for
the upcoming fiscal year when determining the budget neutrality
adjustment for the upcoming fiscal year. Conversely, if the estimated
costs of the demonstration set forth in the final rule for a prior
fiscal year exceeded the actual costs of the demonstration for that
year, this difference was subtracted from the estimated cost of the
demonstration for the upcoming fiscal year when determining the budget
neutrality adjustment for the upcoming fiscal year. We note that we
have calculated this difference between the actual costs of the
demonstration for FYs 2005 through 2010, as determined from finalized
cost reports once available, and estimated costs of the demonstration
as identified in the applicable IPPS final rules for these years.
In this FY 2017 proposed rule, we are proposing a different
methodology as compared to previous years for analyzing the costs
attributable to the demonstration for FY 2017. We note that the
demonstration will have substantially phased out by the beginning of FY
2017. The 7 ``originally participating hospitals,'' that is, those that
were selected for the demonstration in 2004 and 2008, ended their
participation in the 5-year extension period authorized by the
Affordable Care Act prior to the start of FY 2016. In addition, the
participation period for the 14 hospitals that entered the
demonstration following upon the mandate of the Affordable Care Act and
that are still participating will end on a rolling basis according to
the end dates of the hospitals' cost report periods, respectively, from
April 30, 2016 through December 31, 2016. (As noted earlier, 1 hospital
among this cohort closed in October 2015). Of these 14 hospitals, 10
will end participation on or before September 30, 2016, leaving 4
hospitals participating for the last 3 months of CY 2016 (that is, the
first 3 months of FY 2017). We believe that, given the small number of
participating hospitals and the limited time of participation for such
hospitals during FY 2017, a revised methodology is appropriate for
determining the costs of the demonstration during this period as
discussed below.
We note that estimating the costs of the demonstration for these 4
hospitals for their extent of participation in the demonstration in FY
2017 would entail a prorating calculation if we followed the
methodology we used for FY 2016 as described earlier, as well as
application of update factors to project increases in cost. We further
note that, for the 4 hospitals that will end their participation in the
demonstration effective December 31, 2016, the financial experience of
the last 3 months of the calendar year (that is, the first 3 months of
FY 2017) will be included in the finalized cost reports for FY 2016.
(Consistent with the methodology used for the final rules for previous
years, a hospital's cost report is included in the analysis of a given
fiscal year if the cost reporting period begins in that fiscal year).
We believe that examining the finalized cost reports for FY 2016 for
these hospitals would lead to a more accurate and administratively
feasible calculation of budget neutrality for the demonstration in FY
2017 than conducting an estimate of the costs of the demonstration for
this 3-month period based on ``as submitted cost reports'' (as would
occur according to the budget neutrality methodology currently in
effect).
In addition, given that the extent of covered services for FY 2017
subject to the payment methodology under the demonstration is a small
fraction of that in previous fiscal years, we believe that it is
appropriate to forego the process of estimating the costs attributable
to the demonstration for 2017 and to instead analyze the set of
finalized cost reports for cost reporting periods beginning in FY 2016,
which will reflect the actual cost of the demonstration, when they
become available. Such an approach also would eliminate the need to
perform for FY 2017 the second component of the budget neutrality
methodology discussed earlier (that is, determining the amount by which
the actual costs of the demonstration for the fiscal year, as
determined in finalized cost reports once available, differed from the
estimated costs for the demonstration set forth in the final IPPS rule
for the corresponding fiscal year). Thus, for the reasons discussed
earlier, we are proposing to calculate the costs of the demonstration
and the resulting budget neutrality adjustment factor for the
demonstration for FY 2017 once the finalized cost reports for cost
reporting periods beginning in FY 2016 become available. We are
inviting public comments on this proposal.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49591), we stated
that we intended to discuss in this FY 2017 IPPS/LTCH PPS proposed rule
how we would reconcile the budget neutrality offset amounts identified
in the IPPS final rules for FYs 2011 through 2016 with the actual costs
of the demonstration for those years, considering the fact that the
demonstration will end December 31, 2016. We believe it would be
appropriate to conduct this analysis for FYs 2011 through 2016 at one
time, when all of the finalized cost reports for cost reporting periods
beginning in FYs 2011 through 2016 are available. Such an aggregate
analysis encompassing the cost experience through the end of the period
of performance of the demonstration represents an administratively
streamlined method, allowing for the determination of any appropriate
adjustment to the IPPS rates and obviating the need for multiple
fiscal-year-specific calculations and regulatory actions. Given the
general lag of 3 years in finalizing cost reports, we expect any such
analysis to be conducted in FY 2020.
We also note that, in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49591), we indicated that we were considering whether to propose in
future rulemaking that the calculation of the final costs of the
demonstration for a fiscal year reflect that some of the participating
hospitals would otherwise have been eligible for the payment adjustment
for low-volume hospitals in that fiscal year if they had not
participated in the demonstration. Our policy under the demonstration
is that hospitals participating in the demonstration are not able to
receive the low-volume adjustment in addition to the reasonable cost-
based payment authorized by section 410A of Public Law 108-173. We
refer readers to Change Request 7505 dated July 22, 2011, available on
the CMS Web site at: http://www.cms.gov. Section 1886(d)(12) of the Act
provides for a payment adjustment to account for the higher costs per
discharge for low-volume hospitals under the IPPS, effective FY 2005
(69 FR 49099 through 49102). We note that sections 3125 and 10314 of
the Affordable Care Act provided for temporary changes in the
qualifying criteria and payment adjustment for low-volume hospitals for
FYs 2011 and 2012, which have been extended through subsequent
legislation: Through FY 2013, by the American Taxpayer Relief Act of
2012 (ATRA) (Pub. L. 112-240) (78 FR 50610 through 50613), through
March 31, 2014, by the Pathway for SGR Reform Act (Pub. L. 113-67) (79
FR 15022 through 15025); through March 21, 2015, by the Protecting
Access to Medicare Act of 2014 (Pub. L. 113-93) (79 FR 49998 through
50001); and most recently through September 30, 2017, by section 204 of
the Medicare Access and CHIP Reauthorization Act of 2015 (Pub.

[[Page 25131]]

L. 114-110). These temporary changes have increased the number of
hospitals that are eligible to receive the low-volume hospital payment
adjustment.
We further stated in the FY 2016 IPPS/LTCH PPS final rule that
taking the low-volume hospital payment adjustment into account in
determining the costs of the demonstration would require detailed
consideration of the data sources and methodology that would be used to
determine which among the demonstration hospitals would have otherwise
been eligible for the low-volume payment adjustment and to estimate the
amount of the adjustment. In the FY 2016 IPPS/LTCH PPS final rule (80
FR 24521), we invited public comments on this issue.
We are continuing to examine this issue and are considering whether
to incorporate the low-volume payment adjustment amounts that would
have otherwise been made into the calculation of the difference between
the actual costs of the demonstration and budget neutrality offset
amounts for FYs 2011 through 2016. We note that applying such a
methodology may lower the calculated amounts of the actual costs of the
demonstration compared to not applying such a methodology, making it
more likely that the actual costs of the demonstration for a year will
not exceed the estimated costs of the demonstration identified in the
final rule for that year. We again are inviting public comments on this
issue.

L. Proposed Hospital and CAH Notification Procedures for Outpatients
Receiving Observation Services

1. Background
a. Statutory Authority
On August 6, 2015, the Notice of Observation Treatment and
Implication for Care Eligibility Act (the NOTICE Act), Public Law 114-
42 was enacted. Section 2 of the NOTICE Act amended section 1866(a)(1)
of the Act by adding new subparagraph (Y) that requires hospitals and
critical access hospitals (CAHs) to provide written notification and an
oral explanation of such notification to individuals receiving
observation services as outpatients for more than 24 hours at the
hospitals or CAHs. Section 1866(a)(1) of the Act lists requirements for
providers of services to participate in the Medicare program and be
eligible for payments under Medicare pursuant to provider agreements.
Section 1866(a)(1)(Y) of the Act, as added by section 2 of the
NOTICE Act, specifies that the notification process must consist of a
written notification as specified by the Secretary through rulemaking
and containing such language as the Secretary prescribes consistent
with the statutory provision, and an oral explanation of the written
notification and documentation of the provision of the explanation, as
the Secretary determines to be appropriate. Notification to each
individual who receives observation services as an outpatient for more
than 24 hours must be provided no later than 36 hours after observation
services are initiated (or sooner, if upon release from the hospital or
CAH). Section 1866(a)(1)(Y)(ii) of the Act provides that the written
notice must explain that the individual is an outpatient receiving
observation services, and is not an inpatient of a hospital or CAH. In
addition, the written notice must include the reason(s) the individual
is an outpatient receiving observation services and must explain the
implications of being an outpatient receiving observation services,
such as cost-sharing requirements and post-hospitalization eligibility
for coverage of skilled nursing facility (SNF) services under Medicare.
The written notification also must include any additional information
as deemed appropriate by the Secretary. Moreover, the written
notification must either be signed by the individual receiving
observation services as an outpatient, or a person acting on the
individual's behalf, to acknowledge receipt of the notification. In
cases where a signature by the individual or the person acting on the
individual's behalf is refused, section 1866(a)(1)(Y)(ii)(IV)(bb) of
the Act stipulates that the notification be signed by the staff member
of the hospital or CAH who presented the written notification and
include the name and title of the staff member, a certification
statement that the notification was presented, and the date and time
that the notification was presented. Finally, section
1866(a)(1)(Y)(ii)(V) of the Act provides that the notification be
written and formatted using plain language and is made available in
appropriate languages as determined by the Secretary.
b. Proposed Effective Date
Section 2 of the NOTICE ACT provides the effective date for this
notification requirement as effective beginning 12 months after the
date of enactment of the NOTICE Act; that is, effective on August 6,
2016. Since the date the NOTICE Act was enacted, CMS has been working
to implement the statutory requirement in a timely manner. On December
14, 2015, CMS released an electronic mailbox address for individuals
who wished to submit email comments on the provisions of the NOTICE
Act. In addition, CMS announced a December 21, 2015 listening session
to provide individuals further opportunity to provide comment on the
NOTICE Act. We thank those individuals who shared their input. The
agency reviewed all comments submitted by email as well as those
comments provided during the public listening session in developing the
provisions of this proposed rule.
2. Proposed Implementation of the NOTICE Act Provisions
a. Proposed Notice Process
In this proposed rule, we are proposing to implement section
1866(a)(1)(Y) of the Act by revising the requirements that providers
agree to as part of participating in Medicare under a provider
agreement by establishing regulations (at proposed 42 CFR 489.20(y))
that would specify a process for hospitals and CAHs to notify an
individual, orally and in writing, regarding the individual's receipt
of observation services as an outpatient and the implications of
receiving such services as set forth below. Under this proposed
process, hospitals and CAHs would be required to furnish notice to such
an individual entitled to Medicare benefits if the individual receives
observation services as an outpatient for more than 24 hours. We are
proposing the use of a standardized notice, referred to as the Medicare
Outpatient Observation Notice (MOON), to be used by all applicable
hospitals and CAHs. The MOON would include all of the informational
elements required by section 1866(a)(1)(Y)(ii) of the Act to fulfill
the written notice requirement of the NOTICE Act.
b. Proposed Notification Recipients
Section 1866(a)(1)(Y) of the Act requires hospitals or CAHs to
furnish notice to each individual who receives observation services as
an outpatient at such hospital or CAH for more than 24 hours.
Throughout section 1866 of the Act, ``individual'' generally refers to
a person entitled to have payment made for services under Title XVIII
of the Act, or a person not entitled to have payment made for services
under Title XVIII if certain conditions are met. The provisions of the
NOTICE Act specify that notice must be provided to individuals
receiving observation services as an outpatient for more than 24 hours;
the provisions do not specify qualifications related to payment for
such services as a condition of notice. Accordingly, we are proposing
under the new Sec. 489.20(y) that the notification required by section
1866(a)(1)(Y) of the

[[Page 25132]]

Act must be provided to individuals entitled to benefits under Title
XVIII of the Act, whether or not the services furnished are payable
under Title XVIII, when individuals receive observation services as an
outpatient for more than 24 hours. For example, an individual receiving
Medicare Part A benefits who has not enrolled in Part B would still
receive notice even though the observation services the individual
receives as an outpatient would not be covered under Medicare for him
or her, as such observation services received as an outpatient would
fall under the Part B benefit and would be subject to payment under
Medicare Part B.
A beneficiary enrolled in a Medicare Advantage or other Medicare
health plan would receive the required notice under the existing rules
that apply to hospitals and CAHs under a provider agreement governed by
the provisions of section 1866(a)(1)(Y) of the Act. The Medicare
Advantage regulations related to selection and credentialing of
contract providers at 42 CFR 422.204(b)(3) require that, with respect
to providers that meet the definition of ``provider of services'' as
defined in section 1861(u) of the Act, basic benefits may only be
provided by these providers if they have a provider agreement with CMS
permitting them to provide services under original Medicare. Under
section 1861(u) of the Act, the term ``provider of services'' means a
hospital, critical access hospital, skilled nursing facility,
comprehensive outpatient rehabilitation facility, home health agency,
hospice program, or, for purposes of section 1814(g) and section
1835(e) of the Act, a fund.
Observation services are always provided under a physician's order
that specifies the initiation of observation services. As a general
matter, hospital observation services are defined in the Medicare
Benefits Policy Manual (Pub. 100-02), Chapter 6, Section 20.6, as
services that are medically reasonable and necessary, specifically
ordered by a physician or other nonphysician practitioner authorized by
State licensure law and hospital staff bylaws to admit patients to the
hospital or to order outpatient services, and meet other published
Medicare criteria for payment. The term ``physician'' will encompass
these authorized qualified nonphysician practitioners for the purposes
of this proposed rule. Individuals receiving observation services will
always be registered as outpatients; however, not all outpatients
receive observation services. ``Outpatient,'' as defined in the
Medicare Claims Processing Manual (Pub. 100-04), Chapter 1, Section
50.3.1, means ``a person who has not been admitted as an inpatient but
who is registered on the hospital or critical access hospital (CAH)
records as an outpatient and receives services (rather than supplies
alone) directly from the hospital or CAH.'' We are proposing that the
provisions in this proposed rule would apply to the subset of
individuals entitled to benefits under Title XVIII of the Act who are
receiving treatment as outpatients and are receiving observation
services for more than 24 hours. For outpatients who are not receiving
observation services, or who are receiving observation services but not
for more than 24 hours, hospitals and CAHs would not be required to
deliver notice.
c. Proposed Timing of Notice Delivery
As provided at section 1866(a)(1)(Y) of the Act, we are proposing
under proposed new Sec. 489.20(y) that hospitals and CAHs must provide
notice to an individual who receives observation services as an
outpatient for more than 24 hours and that such notice must be
furnished no later than 36 hours after observation services are
initiated, or sooner if the individual is transferred, discharged, or
admitted as an inpatient.
For purposes of this proposed rule, consistent with existing
billing rules, observation services are initiated when a physician
orders such services. According to the Medicare Claims Processing
Manual (Pub. 100-04), Chapter 4, Section 290.2.2, hospital reporting
for observation services ``begins at the clock time documented in the
patient's medical record, which coincides with the time that
observation services are initiated in accordance with a physician's
order.'' Because valid medical documentation for observation services
will always contain the time when observation services are initiated,
we believe hospitals and CAHs will be able to readily determine the
timeframe within which the notice must be delivered. We expect that
there will be cases where an individual receives more than 24 hours of
observation services and has not yet received the MOON, but there are
imminent plans for discharge to home or another facility, transfer to
another unit or facility to receive care that does not include
observation services, or admission to the hospital or another facility
as an inpatient. In these cases, pursuant to section 1866(a)(1)(Y) of
the Act, which provides that notice be provided not later than 36 hours
after the time such an individual begins receiving such services (or,
if sooner, upon release), we are proposing that the MOON must be given
sooner than the 36-hour time limit for delivery because the MOON must
be delivered before the individual is discharged, transferred, or
admitted. When there are no plans to transfer, discharge, or admit an
individual who receives observation services for more than 24 hours, we
are proposing that the MOON must be provided within 36 hours of the
initiation of observation services.
In rare circumstances where a physician initially orders inpatient
services, but following internal utilization review (UR) performed
while the patient is hospitalized, the hospital determines that the
services do not meet its inpatient criteria and the physician concurs
with UR, orders the discontinuation of inpatient services and
initiation of outpatient observation services (that is, a Condition
Code 44 situation), the MOON would be delivered as required by the
NOTICE Act (when outpatient observation services have been ordered and
furnished for more than 24 hours). If observation services are ordered
when Condition Code 44 applies, the 24-hour time period for observation
notification commences at the same time that observation services are
initiated under a physician's order, consistent with existing policy
for observation services furnished to outpatients. (We refer readers to
the Medicare Claims Processing Manual, (Pub. 100-04), Chapter 1,
Section 50.3.)
As stated in the notice announcing CMS Ruling CMS-1455-R (78 FR
16614), the Part B Inpatient Billing Ruling, in cases where CMS
reviewers find that an inpatient admission was not medically reasonable
and necessary after the beneficiary is discharged, and thus, not
appropriate for payment under Medicare Part A, the beneficiary's
patient status remains ``inpatient'' as of the time of the inpatient
admission. The patient's status is not changed to outpatient because
the beneficiary was formally admitted as an inpatient, and there is no
provision to change a beneficiary's status after he or she is
discharged from the hospital. Where CMS denies a claim after the
beneficiary has been discharged because the inpatient admission was not
medically reasonable and necessary, there would be no need to issue the
MOON because the individual's status remains inpatient, despite the
fact that the inpatient admission was improper. Similarly, where a
hospital determines through UR after a beneficiary is discharged that
his or her inpatient admission was not reasonable and necessary and the
hospital bills the services that were provided on a Medicare Part B
claim, the NOTICE Act

[[Page 25133]]

notification requirements would not apply for these individuals because
their status would also remain inpatient.
d. Proposed Requirements for Written Notice
We are proposing to implement section 1866(a)(1)(Y)(ii) of the Act,
the requirement for written notification, under proposed new Sec.
489.20(y)(1) by proposing the basic requirements for the written notice
that hospitals and CAHs must use to notify individuals receiving
outpatient observation services. Specifically, we are proposing that
hospitals and CAHs would be required to use a proposed standardized
notice (the MOON) for written notification to an individual who
receives observation services as an outpatient under the appropriate
circumstances. By requiring use of a standardized notice, hospitals and
CAHs would be assured that they are providing all of the statutorily
required elements in a manner that is understandable to individuals
receiving the notice. As provided at section 1866(a)(1)(Y)(ii)(I) of
the Act, we are proposing at Sec. 489.20(y)(1)(i) that the proposed
MOON would explain to individuals that they are outpatients receiving
observation services and not inpatients of the hospital or CAH, and the
reason(s) for such status as an outpatient receiving observation
services. By definition (as specified in the Medicare Benefits Policy
Manual, (Pub. 100-02), Chapter 6, Section 20.6), the reason for
ordering observation services will always be the result of a
physician's decision that the individual does not currently require
inpatient services and observation services are needed for the
physician to make a decision regarding whether the individual needs
further treatment as a hospital inpatient or if the individual is able
to be discharged from the hospital. We are proposing at Sec.
489.20(y)(1)(ii) that the proposed MOON also would provide an
explanation of the implications of receiving observation services
furnished by a hospital or CAH as an outpatient, including services
furnished on an inpatient basis, such as those related to cost-sharing
requirements for the patient under Medicare, and post-hospitalization
eligibility for Medicare-covered SNF care, in standardized language to
ensure that all Medicare eligible individuals receive accurate
information. We are proposing the inclusion of a blank ``Additional
Information'' section on the MOON so that hospitals and CAHs may
include additional information. Finally, as required by section
1866(a)(1)(Y)(ii)(V) of the Act, the proposed MOON would include this
information in plain language written for beneficiary comprehension.
e. Outpatient Observation Services and Beneficiary Financial Liability
Section 20.6, Chapter 6, of the Medicare Benefit Policy Manual
(Pub. 100-2) specifies that observation services furnished by hospitals
and CAHs are ``a well-defined set of specific, clinically appropriate
services, which include ongoing short-term treatment, assessment, and
reassessment before a decision can be made regarding whether patients
will require further treatment as hospital inpatients or if they are
able to be discharged from the hospital.'' Typically, observation
services are ordered for individuals who present to the emergency
department (ED) and who then require a significant period of treatment
and monitoring to determine whether or not their condition warrants
inpatient admission or discharge. Individuals also may receive
outpatient observation services in other areas of a hospital or CAH
when necessary. For example, a patient who receives a drug infusion in
a hospital's outpatient infusion center and then experiences post-
infusion hypertension may require observation services. In the majority
of cases, the decision whether to discharge a patient from the hospital
following resolution of the reason for the observation care or to admit
the patient as an inpatient can be made in less than 48 hours, usually
in less than 24 hours. In only rare and exceptional cases do reasonable
and necessary outpatient observation services span more than 48 hours.
All hospital observation services, regardless of duration of care, that
are medically reasonable and necessary are covered by Medicare.
In some cases, Medicare beneficiaries receiving observation
services while in a hospital or CAH may not be aware of their status as
an inpatient or an outpatient, and thus may not be aware that there are
significant differences in financial liability between inpatient status
and outpatient status. CMS has published educational materials for
Medicare beneficiaries to help inform them of financial and coverage
liabilities associated with inpatient and outpatient services.\70\ As
an outpatient receiving observation services, a beneficiary may incur
financial liability for Medicare Part B copayments,\71\ the cost of
self-administered drugs that are not covered under Part B, and the cost
of post-hospital SNF care because section 1861(i) of the Act requires a
prior 3-day hospital inpatient consecutive stay to be eligible for
coverage of post-hospital SNF care under Medicare Part A. In contrast,
as a hospital inpatient under Medicare Part A, a beneficiary pays an
annual deductible ($1,288 in CY 2016) for all inpatient services
provided during the first 60 days in the hospital of each benefit
period for the year. Cost-sharing requirements for individuals enrolled
in Medicare Part C, known as Medicare Advantage, health plans are
dependent on the particular plan's policies. In addition, Medicare
beneficiaries qualified through their State Medicaid program (QMBs)
have different cost-sharing rules. For example, QMBs cannot be billed
for Medicare Part A or Part B deductibles, coinsurance, and copayments
and may have different rules regarding qualifying for SNF services. CMS
has produced informational publications for beneficiaries that advise
Medicare Advantage enrollees to check with their plans for information
on coverage of observation services furnished to an outpatient.
---------------------------------------------------------------------------

\70\ ``Are You a Hospital Inpatient or Outpatient? If You Have
Medicare--Ask!'' CMS Product No. 11435. May 2014.
\71\ A beneficiary who receives hospital outpatient services
typically pays 20 percent of the Medicare payment amount for
outpatient items and services after paying the annual Part B
deductible ($166 in CY 2016). The coinsurance amount for an
outpatient CAH service is based on 20 percent of charges. In most
cases, the cost-sharing for each individual outpatient service
should not be more than the inpatient deductible. However, Medicare
beneficiaries who receive several outpatient services, or are
treated for extended periods of time as hospital outpatients, may
have greater cost-sharing liabilities as an outpatient under
observation than they may have if they were admitted as an inpatient
to the hospital.
---------------------------------------------------------------------------

As mentioned earlier, a beneficiary's liability for medication
costs also is likely affected by whether the individual is hospitalized
as an inpatient or receiving care as an outpatient. When an individual
is hospitalized under a covered Medicare Part A inpatient stay, payment
for medically reasonable and necessary medications that are provided by
the hospital are covered under Medicare Part A. Generally, Medicare
Part B covers drugs that are usually not self-administered. Based on
the statutory prohibition at section 1861(s)(2) of the Act and its
implementing regulation at 42 CFR 410.29(a), Medicare Part B generally
does not cover or pay for any drug or biological that can be self-
administered. ``Self-administered drugs'' are considered prescription
and over-the-counter medications that beneficiaries routinely take on
their own. For safety reasons, many hospitals do not allow patients to
take medications brought from home.

[[Page 25134]]

Medicare prescription drug plans (Part D) may help pay for drugs
provided by the hospital. Individuals with Medicare Part D will likely
need to pay out-of-pocket costs to the hospital for these drugs and
request reimbursement from their Part D plan.
In addition, whether an individual is receiving treatment or care
as an inpatient admitted to the hospital or is receiving observation
services as an outpatient pursuant to a doctor's orders may impact
Medicare coverage for post-hospital SNF services. Section 1861(i) of
the Act requires a beneficiary to be an inpatient of a hospital for not
less than 3 consecutive days before discharge from the hospital in
order to be eligible for coverage of post-hospital extended care
services in a SNF under Medicare. For purposes of Medicare SNF
coverage, the time spent receiving observation services as an
outpatient does not count towards the requirement of a 3-day hospital
inpatient stay because these services are outpatient.
f. Delivering the Medicare Outpatient Observation Notice
An English language version of the proposed MOON was submitted to
OMB for approval. Once we receive OMB approval, a Spanish language
version of the MOON will be made available. If the individual receiving
the notice is unable to read its written contents and/or comprehend the
required oral explanation, we expect hospitals and CAHs to employ their
usual procedures to ensure notice comprehension. (We refer readers, for
example, to the Medicare Claims Processing Manual (Pub. 100-4), Chapter
30, Section 40.3.4.3., for similar existing procedures related to
notice comprehension for the Advance Beneficiary Notice of Noncoverage
(ABN).) Usual procedures may include, but are not limited to, the use
of translators, interpreters, and assistive technologies. Hospitals and
CAHs are reminded that recipients of Federal financial assistance have
an independent obligation to provide language assistance services to
individuals with limited English proficiency (LEP) consistent with
section 1557 of the Affordable Care Act and Title VI of the Civil
Rights Act of 1964. In addition, recipients of Federal financial
assistance have an independent obligation to provide auxiliary aids and
services to individuals with disabilities free of charge, subject to
section 1557 of the Affordable Care Act and section 504 of the
Rehabilitation Act of 1973.
g. Proposed Oral Notice
Pursuant to the statutory requirement at section 1866(a)(1)(Y)(i)
of the Act, we are proposing under proposed new Sec. 489.20(y)(2) that
hospitals and CAHs provide an oral explanation of the written notice
furnished to individuals who receive observation services as
outpatients. We will provide guidance for oral notification in our
forthcoming Medicare manual provisions. Hospitals and CAHs are familiar
with providing oral explanations of written notices (for example,
surgical and procedural consent notices and the Important Message from
Medicare), and we expect that oral notification will occur in
conjunction with delivery of the MOON. Again, hospitals and CAHs are
reminded that recipients of Federal financial assistance have an
independent obligation to provide language assistance services to
individuals with LEP consistent with section 1557 of the Affordable
Care Act and Title VI of the Civil Rights Act of 1964. In addition,
recipients of Federal financial assistance have an independent
obligation to provide auxiliary aids and services to individuals with
disabilities free of charge, subject to section 1557 of the Affordable
Care Act and section 504 of the Rehabilitation Act of 1973.
h. Proposed Signature Requirements
As set forth at section 1866(a)(1)(Y)(ii)(IV) of the Act, the
written notification must be either signed by the individual receiving
observation services as an outpatient or a person acting on such
individual's behalf to acknowledge receipt of notification. Moreover,
the statute provides that if such individual or person refuses to
provide a signature, the written notification is to be signed by the
staff member of the hospital or CAH who presented the written
notification and certain information needs to be included with such
signature. Accordingly, we are proposing under proposed new Sec.
489.20(y)(3), that the written notice be signed, as described above, in
order to acknowledge receipt and understanding of the notice. The MOON
would include a dedicated signature area for this purpose. In cases
where the individual receiving the MOON refuses to sign the notice, we
are proposing that the MOON must be signed by the staff member who
presents the notice to the individual. The staff signature would
include the staff member's name and title, a certification statement
that the notice was presented, and the date and time that the notice
was presented.
i. No Appeal Rights Under the NOTICE Act
Section 1866(a)(1)(Y) of the Act, as added by the NOTICE Act, does
not afford appeal rights to beneficiaries regarding the notice provided
pursuant to that statutory provision. To provide clarity to this point,
we are proposing to amend the regulations at 42 CFR 405.926 relating to
actions that are not initial determinations, by adding new paragraph
(u) to explain that issuance of the MOON by a hospital or CAH does not
constitute an initial determination and therefore does not trigger
appeal rights under 42 CFR part 405, subpart I.

M. Proposed Technical Changes and Correction of Typographical Errors in
Certain Regulations Under 42 CFR Part 413 Relating to Costs to Related
Organizations and Medicare Cost Reports

1. General Background
As part of our ongoing review of the Medicare regulations, we have
identified a number of technical changes or corrections of
typographical errors in 42 CFR part 413 relating to costs to related
organizations and Medicare cost reports that need to be made. Below we
are summarizing these proposed changes or corrections.
2. Proposed Technical Change to Regulations at 42 CFR 413.17(d)(1) on
Cost to Related Organizations
Prior to the enactment of section 911(b) of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L.
108-173), a provider had the right to nominate a fiscal intermediary
(currently known as a Medicare Administrative Contractor (MAC) and
referred to in this section as a ``contractor'') of its choice. Public
Law 108-173 repealed the nomination provisions formerly found in
section 1816 of the Act and added section 1874A (Contracts with
Medicare Administrative Contractors). Currently, a provider will be
assigned to the contractor that covers the geographic locale where the
provider is located, as specified in the regulations at 42 CFR
421.404(b).
Because a provider is no longer permitted to select a contractor of
its choice, and a contractor is now assigned to a provider, the
parenthetical language of the regulation text at 42 CFR 413.17(d)(1)
referring to a provider's nomination of a contractor is obsolete.
Therefore, we are proposing to revise Sec. 413.17(d)(1) to remove the
parenthetical reference to a provider's nomination of a contractor.

[[Page 25135]]

3. Proposed Changes to 42 CFR 413.24(f)(4)(i) Relating to Electronic
Submission of Cost Reports
In Sec. 413.24(f)(4)(i), we incorrectly refer to a ``Federally
qualified health clinic.'' The correct entity title under section
1861(aa) of the Act is ``Federally qualified health center.'' In this
proposed rule, we are proposing to correct this error.
In addition, Sec. 413.200(c)(1)(i) requires a histocompatibility
laboratory to file a Medicare cost report in accordance with the
regulations at Sec. 413.24(f). For cost reporting periods ending on or
after March 31, 2005, organ procurement organizations (OPOs) and
histocompatibility laboratories are required to submit Medicare cost
reports in a standardized electronic format, but histocompatibility
laboratories were inadvertently omitted from the list of providers in
the regulations text at Sec. 413.24(f). As evidenced by the reference
in the August 22, 2003 Federal Register document (68 FR 50720) to the
Office of Management and Budget (OMB) approval number 0938-0102 of the
Paperwork Reduction Act request for the cost reporting form entitled
``Organ Procurement Agency/Laboratory Statement of Reimbursable
Costs,'' histocompatibility laboratories were intended to be included
in the regulation text. Both OPOs and histocompatibility laboratories
have used that Medicare cost report form to report their statements of
reimbursable costs since its approval by OMB for use for cost reporting
periods ending on or after March 31, 2005. To correct this omission, we
are proposing a technical change to Sec. 413.24(f)(4)(i) to add
``histocompatibility laboratories'' to the list of providers required
to submit cost reports in a standardized electronic format.
4. Proposed Technical Changes to 42 CFR 413.24(f)(4)(ii) Relating to
Electronic Submission of Cost Reports and Due Dates
In this proposed rule, we are proposing a technical correction in
Sec. 413.24(f)(4)(ii) to the effective date for the submission of
Medicare cost reports in a standardized electronic format for skilled
nursing facilities (SNFs) and home health agencies (HHAs) from cost
reporting periods ending on or after December 31, 1996 to cost
reporting periods ending on or after February 1, 1997 to accurately
reflect the regulation text finalized in the January 2, 1997 final
rule, ``Medicare Program: Electronic Cost Reporting for Skilled Nursing
Facilities and Home Health Agencies,'' published in Federal Register at
62 FR 26 through 31.
For the same reasons articulated in section IV.M.3. of the preamble
of this proposed rule, we also are proposing to revise Sec.
413.24(f)(4)(ii) by adding histocompatibility laboratories to the list
of providers required to file electronic cost reports. To correct a
typographic error, we are proposing to remove the duplicate word
``contractor'' from the second sentence of this paragraph.
5. Proposed Technical Changes to 42 CFR 413.24(f)(4)(iv) Relating to
Reporting Entities, Cost Report Certification Statement, Electronic
Submission and Cost Reports Due Dates
In this proposed rule, we are proposing to revise Sec.
413.24(f)(4)(iv) to make a technical correction to the effective date
for SNFs and HHAs to submit hard copies of a settlement summary, a
statement of certain worksheet totals found within the electronic file,
and a certifying statement signed by its administrator or chief
financial officer, from cost reporting periods ending on or after
December 31, 1996, to cost reporting periods ending on or after
February 1, 1997, to accurately reflect the regulation text finalized
in the January 2, 1997 final rule (62 FR 26 through 31).
We are proposing to revise Sec. 413.24(f)(4)(iv) by adding
histocompatibility laboratories to the list of providers required to
file electronic cost reports for the same reasons provided in section
IV.M.3. of the preamble of this proposed rule. In addition, we are
proposing to add histocompatibility laboratories to the list of
providers required to submit hard copies of a settlement summary, a
statement of certain worksheet totals found within the electronic file,
and a certifying statement signed by its administrator or chief
financial officer, for cost reporting periods ending on or after March
31, 2005, for the same reasons.
We also are proposing to correct a typographical error that
occurred in the Medicare cost report certification statement set forth
in Sec. 413.24(f)(4)(iv) by adding the word ``and'' between the words
``Sheet'' and ``Statement'' to denote the two separate financial
documents required to be submitted with the cost report; that is, the
Balance Sheet and the Statement of Revenue and Expenses. The cost
report certification statement historically correctly denoted the two
separate and distinct financial forms, the Balance Sheet and the
Statement of Revenue and Expenses on Worksheet S (Form CMS-2552-92) of
the Medicare cost report since the Worksheet S was first used in 1993.
The Medicare cost report certification statement was later incorporated
into Sec. 413.24(f)(4)(iv) in a final rule with comment period (59 FR
26964 through 26965) issued in response to public comments received
following the Uniform Electronic Cost Reporting System for Hospitals
proposed rule (56 FR 41110). A typographical error excluding the word
``and'' occurred during the incorporation of the certification
statement into the regulations text at Sec. 413.24(f)(4)(iv).
6. Proposed Technical Correction to 42 CFR 413.200(c)(1)(i) Relating to
Medicare Cost Report Due Dates for Organ Procurement Organizations and
Histocompatibility Laboratories
In this proposed rule, we are proposing to make a technical
correction to the reference in Sec. 413.200(c)(1)(i) to the due date
for the Medicare cost report for organ procurement organizations (OPOs)
and histocompatibility laboratories from ``three months'' to ``5
months'' after the end of the fiscal year. Section 413.200(c)(1)(i)
requires independent OPOs and histocompatibility laboratories to file a
cost report in accordance with Sec. 413.24(f). In the 1995 final rule
(60 FR 33137), we revised Sec. 413.24(f) to extend the Medicare cost
report due date for all providers required to file a cost report from 3
months to 5 months after the end of a provider's fiscal year end, but
inadvertently neglected to make a conforming change to Sec.
413.200(c)(1)(i), which we are proposing to correct in this proposed
rule.

N. Clarification Regarding the Medicare Utilization Requirement for
Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec. 412.108)

1. Background
Section 1886(d)(5)(G) of the Act provides special payment
protections under the IPPS to Medicare-dependent, small rural hospitals
(MDHs). (For additional information on the MDH program and the payment
methodology, we refer readers to the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51683 through 51684).) As we discussed in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50287) and in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51683 through 51684), section 3124 of the Affordable Care
Act extended the expiration of the MDH program from the end of FY 2011
(that is, for discharges occurring before October 1, 2011) to the end
of FY 2012 (that is, for discharges

[[Page 25136]]

occurring before October 1, 2012). Under prior law, as specified in
section 5003(a) of Public Law 109-171 (DRA 2005), the MDH program was
to be in effect through the end of FY 2011 only.
Since the extension of the MDH program through FY 2012 provided by
section 3124 of the Affordable Care Act, the MDH program has been
further extended multiple times. First, section 606 of the ATRA (Public
L. 112-240) extended the MDH program through FY 2013 (that is, for
discharges occurring before October 1, 2013). Second, section 1106 of
the Pathway for SGR Reform Act of 2013 (Public L. 113-67) extended the
MDH program through the first half of FY 2014 (that is, for discharges
occurring before April 1, 2014). Third, section 106 of the PAMA (Public
L. 113-93) extended the MDH program through the first half of FY 2015
(that is, for discharges occurring before April 1, 2015). Fourth and
most recently, section 205 of the MACRA (Public L. 114-10) extended the
MDH program through FY 2017 (that is, for discharges occurring before
October 1, 2017). For additional information on the extensions of the
MDH program after FY 2012, we refer readers to the following Federal
Register documents: The FY 2013 IPPS/LTCH PPS final rule (77 FR 53404
through 53405 and 53413 through 53414); the FY 2013 IPPS notice (78 FR
14689); the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through
50649); the FY 2014 IPPS interim final rule with comment period (79 FR
15025 through 15027); the FY 2014 IPPS notice (79 FR 34446 through
34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 through
50024); and the FY 2016 interim final rule with comment period (80 FR
49596 through 49597).
2. Clarification of Medicare Utilization Criterion for MDH
Classification
Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital
that is located in a rural area, has not more than 100 beds, is not an
SCH, and has a high percentage of Medicare discharges (that is, not
less than 60 percent of its inpatient days or discharges during the
cost reporting period beginning in FY 1987 or two of the three most
recently audited cost reporting periods for which the Secretary has a
settled cost report were attributable to inpatients entitled to
benefits under Part A). The regulations at 42 CFR 412.108 set forth the
criteria that a hospital must meet to be classified as an MDH.
The Medicare utilization requirement is set forth at section
1886(d)(5)(G)(iv)(IV) of the Act and implemented by regulation at 42
CFR 412.108(a)(1)(iii). Consistent with the policy noted in the FY 1991
IPPS final rule (55 FR 35995) and further discussed in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50287), in order to not disadvantage
hospitals that receive payment from a Medicare Advantage (MA)
organization under Medicare Part C for inpatient care provided to
Medicare beneficiaries enrolled in Medicare Part C plans, we count the
days and discharges for those stays toward the 60-percent Medicare
utilization requirement for MDH classification.
In accordance with the regulations at Sec. 412.108(b)(5), Medicare
contractors (MACs) evaluate, on an ongoing basis, whether or not a
hospital continues to qualify for MDH status. For hospitals that
qualify for MDH status under Sec. 412.108(a)(1)(iii)(C) and in
accordance with the regulations at Sec. 412.108(b)(5), at each cost
report settlement, the MAC will determine whether the hospital has a
Medicare utilization of at least 60 percent in at least two of the last
three most recent audited cost reports for which the Secretary has a
settled cost report by including the newly settled cost report in the
evaluation.
Medicare policy requires hospitals that receive certain additional
payments such as IME, direct GME, and DSH, to submit claims for
services furnished to individuals enrolled in a MA plan under Medicare
Part C. Specifically, teaching hospitals that provide services to
individuals enrolled in a MA plan under Medicare Part C must submit
timely claims in order to receive the supplemental IME and direct GME
payments for services provided to these individuals. Likewise,
hospitals that operate nursing or allied health education programs and
incur costs associated with individuals enrolled in a MA plan under
Medicare Part C also must submit timely claims in order to receive the
additional payment amount for those MA enrollees. In addition,
hospitals that are eligible for DSH payments are required to submit
claims in a timely manner for individuals enrolled in a MA plan under
Medicare Part C in order for these days to be captured in the DSH
calculation. We refer readers to the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53409) for more information and background on the requirements
for filing no pay bills for services furnished to individuals enrolled
in a MA plan under Medicare Part C.
Consistent with this policy, for a hospital that is eligible for
IME, direct GME, or DSH payments, CMS only includes MA days or
discharges as reported on the cost report and verified by the properly
and timely submitted claims for the services furnished to individuals
enrolled in a MA plan under Medicare Part C associated with those days
or discharges in calculating Medicare utilization for MDH purposes. CMS
verifies the accuracy of the MA days and discharges reported on the
cost report using claims data; once verified, the cost report data can
then be properly applied in the Medicare utilization calculation.
For a hospital that is not eligible for IME, direct GME, or DSH
payments and is not required to submit bills for services furnished to
individuals enrolled in a MA plan under Medicare Part C, we are
clarifying that CMS will include the MA days or discharges associated
with those services in the Medicare utilization calculation, regardless
of whether the hospital submitted claims for services associated with
those days or discharges provided that the hospital submits proper
documentation, such as provider logs, that allow the MAC to verify the
MA days or discharges as reported on the hospital's cost report.
However, we note that, while not required, timely submission of claims
for the services furnished to individuals enrolled in a MA plan under
Medicare Part C allows CMS to establish whether the hospital meets the
MDH classification criteria in an expeditious and timely manner.

O. Adjustment to IPPS Rates Resulting From 2-Midnight Policy

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50906 through
50954), we adopted the 2-midnight policy, effective for dates of
admission on or after October 1, 2013. Under the 2-midnight policy, an
inpatient admission is generally appropriate for Medicare Part A
payment if the physician (or other qualified practitioner) admits the
patient as an inpatient based upon the reasonable expectation that the
patient will need hospital care that crosses at least 2 midnights. In
assessing the expected duration of necessary care, the physician (or
other qualified practitioner) may take into account outpatient hospital
care received prior to inpatient admission. If the patient is expected
to need less than 2 midnights of care in the hospital, the services
furnished should generally be billed as outpatient services. We note
that revisions were made to this policy in the CY 2016 OPPS/ASC final
rule with comment period (80 FR 70545). Our actuaries estimated that
the 2-midnight policy would increase expenditures by approximately $220
million in FY 2014 due to an expected net increase in inpatient
encounters. We used our

[[Page 25137]]

authority under section 1886(d)(5)(I)(i) of the Act to make a reduction
of 0.2 percent to the standardized amount, the Puerto Rico standardized
amount, and the hospital-specific payment rates, and we used our
authority under section 1886(g) of the Act to make a reduction of 0.2
percent to the national capital Federal rate and the Puerto Rico-
specific capital rate, in order to offset this estimated $220 million
in additional IPPS expenditures in FY 2014. We indicated that although
our exceptions and adjustments authority should not be routinely used
in the IPPS system, we believed that the systemic and widespread nature
of this issue justified an overall adjustment to the IPPS rates and
such an adjustment is authorized under section 1886(d)(5)(I)(i) of the
Act.
In Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-263
(D.D.C.) and consolidated cases, hospitals challenged the 0.2 percent
reduction in IPPS rates to account for the estimated $220 million in
additional FY 2014 expenditures resulting from the 2-midnight policy.
In its Memorandum Opinion, issued September 21, 2015, the Court found
that the ``Secretary's interpretation of the exceptions and adjustments
provision is a reasonable one'' for this purpose. However, the Court
also ordered the 0.2 percent reduction remanded back to the Secretary,
without vacating the rule, to correct certain procedural deficiencies
in the promulgation of the 0.2 percent reduction and reconsider the
adjustment. The Court did not believe it would be appropriate to vacate
the rule because such action would, in effect, dictate a substantive
outcome based on a procedural error and concluded that the disruptive
consequences would be considerable.
In accordance with the Court's order, we published a notice with
comment period that appeared in the December 1, 2015 Federal Register
(80 FR 75107), which discussed the basis for the 0.2 percent reduction
and its underlying assumptions and invited comments on the same in
order to facilitate our further consideration of the FY 2014 reduction.
We received numerous public comments on the notice with comment period.
In considering these public comments, and those on the same topic
received in response to the CY 2016 OPPS/ASC proposed rule, we continue
to recognize that the 0.2 percent reduction issue is unique in many
ways. The underlying question of patient status, which resulted in the
creation of the 2-midnight policy, is a complex one with a long
history, including large improper payment rates in short-stay hospital
inpatient claims, requests to provide additional guidance regarding the
proper billing of those services, and concerns about increasingly long
stays of Medicare beneficiaries as outpatients due to hospital
uncertainties about payment. (For further discussion of this history,
we refer readers to the FY 2014 IPPS/LTCH PPS proposed and final rules
(78 FR 27644 through 27649 and 78 FR 50906 through 50954,
respectively).)
The 2-midnight policy itself and our implementation and enforcement
of it have also evolved over time as a result of a combination of
statutory, regulatory, and operational changes. For example, as part of
our efforts to provide education to stakeholders on the new 2-midnight
policy, CMS hosted numerous ``Open Door Forums,'' conducted national
provider calls, and shared information and answers to frequently asked
questions on the CMS Web site. In addition, we instructed MACs to
conduct a ``Probe and Educate'' process for inpatient claims with dates
of admission on or after October 1, 2013 through September 30, 2014, to
assess provider understanding and compliance with the new 2-midnight
policy. We also prohibited Recovery Auditor's post-payment medical
reviews of inpatient hospital patient status for claims with dates of
admission between October 1, 2013 and September 30, 2014.
On April 1, 2014, the Protecting Access to Medicare Act of 2014
(Pub. L. 113-93) was enacted. Section 111 of Public Law 113-93
permitted CMS to continue medical review activities under the Inpatient
Probe and Educate process through March 31, 2015. The same law also
extended the prohibition on Recovery Auditor reviews of inpatient
hospital patient status for claims with dates of admission through
March 31, 2015, absent evidence of systematic gaming, fraud, abuse, or
delays in the provision of care by a provider of services. On April 16,
2015, the Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L.
114-10) was enacted. Section 521 of Public Law 114-10 permitted CMS to
further extend the medical review activities under the Inpatient Probe
and Educate process for inpatient claims through September 30, 2015,
and extended the prohibition of Recovery Auditor reviews of inpatient
hospital patient status for claims with dates of admission through
September 30, 2015. CMS then announced in August 2015 that it would not
approve Recovery Auditors to conduct patient status reviews for dates
of admission of October 1, 2015 through December 31, 2015.
As we indicated in the CY 2016 OPPS/ASC final rule with comment
period, throughout the Probe and Educate process, we saw positive
effects and improved provider understanding of the 2-midnight policy.
We also discussed in the CY 2016 OPPS/ASC final rule with comment
period (80 FR 70545 through 70549) a number of additional changes we
had made and were continuing to make to the Recovery Audit Program and
changes to the medical review responsibilities for Quality Improvement
Organizations (QIOs) in regard to short hospital stay claims.
With respect to the 2-midnight policy itself, in light of
stakeholder concerns and in our continued effort to develop the most
appropriate and applicable framework for determining when payment under
Medicare Part A is appropriate for inpatient admissions, in the CY 2016
OPPS/ASC final rule with comment period (80 FR 70545), we modified the
original ``rare and unusual'' exceptions policy under the 2-midnight
policy to allow for Medicare Part A payment on a case-by-case basis for
inpatient admissions that do not satisfy the 2-midnight benchmark, if
the documentation in the medical record supports the admitting
physician's determination that the patient requires inpatient hospital
care despite an expected length of stay that is less than 2 midnights.
We also recognized in reviewing the public comments we received on
the 0.2 percent reduction in response to the December 1, 2015 notice
with comment period and the CY 2016 OPPS/ASC proposed rule that, in
addition to the long history of the question of patient status
underlying the 2-midnight policy and the statutory, regulatory, and
operational changes that have occurred since its initial
implementation, the original estimate for the 0.2 percent reduction had
a much greater degree of uncertainty than usual. As indicated in the
Office of the Actuary's August 19, 2013 memorandum (which was included
as Appendix A of the December 1, 2015 notice with comment period (80 FR
75112 through 75114)), the estimate depended critically on the assumed
utilization changes in the inpatient and outpatient hospital settings,
relatively small changes would have a disproportionate effect on the
estimated net costs, the estimate was subject to a much greater degree
of uncertainty than usual, and the actual results could differ
significantly from the estimate.
Lastly, in reviewing the public comments we received on the
December 1, 2015 notice with comment period, we

[[Page 25138]]

also considered the fact that our actuaries' most recent estimate of
the impact of the 2-midnight policy varies between a savings and a cost
over the FY 2014 to FY 2015 time period. The memorandum describing this
new analysis is available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
We still believe the assumptions underlying the 0.2 percent
reduction to the rates put in place beginning in FY 2014 were
reasonable at the time we made them in 2013. Nevertheless, taking all
the foregoing factors into account, in the context of this case, we
believe it would be appropriate to use our authority under sections
1886(d)(5)(I)(i) and 1886(g) of the Act to prospectively remove,
beginning in FY 2017, the 0.2 percent reduction to the rates put in
place beginning in FY 2014. The 0.2 percent reduction was implemented
by including a factor of 0.988 in the calculation of the FY 2014
standardized amount, the hospital-specific payment rates, and the
national capital Federal rate, permanently reducing the rates for FY
2014 and future years until the 0.988 is removed. We are proposing to
permanently remove the 0.988 reduction beginning in FY 2017 by
including a factor of (1/0.998) in the calculation of the FY 2017
standardized amount, the hospital-specific payment rates, and the
national capital Federal rate.
In addition, taking all the foregoing factors into account, and
given the unique nature of this situation in which the court has
ordered us to further explain the assumptions underlying an adjustment
applicable to past years, we believe it would be appropriate to use our
authority under sections 1886(d)(5)(I)(i) and 1886(g) of the Act to
temporarily increase the rates, only for FY 2017, to address the effect
of the 0.2 percent reduction to the rates in effect for FY 2014, the
0.2 reduction to the rates in effect for FY 2015 (recall the 0.988
factor included in the calculation of the FY 2014 rates permanently
reduced the rates for FY 2014 and future years until it is removed),
and the 0.2 reduction to the rates in effect for FY 2016. We believe
that the most transparent, expedient, and administratively feasible
method to accomplish this is a temporary one-time prospective increase
to the FY 2017 rates of 0.6 percent (= 0.2 percent + 0.2 percent + 0.2
percent). Specifically, we are proposing to include a factor of 1.006
in the calculation of the standardized amount, the hospital-specific
payment rates, and the national capital Federal rate in FY 2017 and
then remove this temporary one-time prospective increase by including a
factor of (1/1.006) in the calculation of the rates for FY 2018. While
we generally do not believe it is appropriate in a prospective system
to retrospectively adjust rates even where we believe a prospective
change in policy is warranted, we take this action in the specific
context of this unique situation, in which we have been ordered by a
Federal court to further explain the basis of an adjustment we have
imposed for past years.
In summary, for the reasons described above, we are proposing to
include a permanent factor of (1/0.998) and a temporary one-time factor
of (1.006) in the calculation of the FY 2017 standardized amount, the
hospital-specific payment rates, and the national capital Federal rate.
We also are proposing to include a factor of (1/1.006) in the
calculation of the FY 2018 standardized amount, the hospital-specific
payment rates, and the national capital Federal rate to remove the
temporary one-time factor of 1.006.
We are inviting public comments on all aspects these proposals. The
foregoing discussion and proposals constitute the final notice required
by the Court in the Shands Jacksonville Medical Center, Inc. v.
Burwell, No. 14-263 (D.D.C.) and consolidated cases.

V. Proposed Changes to the IPPS for Capital-Related Costs

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient acute hospital services in
accordance with a prospective payment system established by the
Secretary. Under the statute, the Secretary has broad authority in
establishing and implementing the IPPS for acute care hospital
inpatient capital-related costs. We initially implemented the IPPS for
capital-related costs in the Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358). In that final rule, we established a 10-year
transition period to change the payment methodology for Medicare
hospital inpatient capital-related costs from a reasonable cost-based
payment methodology to a prospective payment methodology (based fully
on the Federal rate).
FY 2001 was the last year of the 10-year transition period that was
established to phase in the IPPS for hospital inpatient capital-related
costs. For cost reporting periods beginning in FY 2002, capital IPPS
payments are based solely on the Federal rate for almost all acute care
hospitals (other than hospitals receiving certain exception payments
and certain new hospitals). (We refer readers to the FY 2002 IPPS final
rule (66 FR 39910 through 39914) for additional information on the
methodology used to determine capital IPPS payments to hospitals both
during and after the transition period.)
The basic methodology for determining capital prospective payments
using the Federal rate is set forth in the regulations at 42 CFR
412.312. For the purpose of calculating capital payments for each
discharge, the standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment
Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1
+ Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if
applicable).
In addition, under Sec. 412.312(c), hospitals also may receive
outlier payments under the capital IPPS for extraordinarily high-cost
cases that qualify under the thresholds established for each fiscal
year.

B. Additional Provisions

1. Exception Payments
The regulations at 42 CFR 412.348 provide for certain exception
payments under the capital IPPS. The regular exception payments
provided under Sec. Sec. 412.348(b) through (e) were available only
during the 10-year transition period. For a certain period after the
transition period, eligible hospitals may have received additional
payments under the special exceptions provisions at Sec. 412.348(g).
However, FY 2012 was the final year hospitals could receive special
exceptions payments. For additional details regarding these exceptions
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76
FR 51725).
Under Sec. 412.348(f), a hospital may request an additional
payment if the hospital incurs unanticipated capital expenditures in
excess of $5 million due to extraordinary circumstances beyond the
hospital's control. Additional information on the exception payment for
extraordinary circumstances in Sec. 412.348(f) can be found in the FY
2005 IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
Under the capital IPPS, the regulations at 42 CFR 412.300(b) define
a new hospital as a hospital that has operated (under previous or
current ownership) for less than 2 years and lists examples of
hospitals that are not considered new hospitals. In accordance

[[Page 25139]]

with Sec. 412.304(c)(2), under the capital IPPS, a new hospital is
paid 85 percent of its allowable Medicare inpatient hospital capital-
related costs through its first 2 years of operation, unless the new
hospital elects to receive full prospective payment based on 100
percent of the Federal rate. We refer readers to the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51725) for additional information on payments to
new hospitals under the capital IPPS.
3. Proposed Changes in Payments for Hospitals Located in Puerto Rico
The regulations at 42 CFR 412.374 provide for the use of a blended
payment amount for prospective payments for capital-related costs to
hospitals located in Puerto Rico. Accordingly, under the capital IPPS,
we currently compute a separate payment rate specific to Puerto Rico
hospitals using the same methodology used to compute the national
Federal rate for capital-related costs. The capital-related payment
rate for hospitals located in Puerto Rico is derived using only the
costs of hospitals located in Puerto Rico, while the national Federal
rate for capital-related costs is derived using the costs of all acute
care hospitals participating in the IPPS (including hospitals located
in Puerto Rico). In general, hospitals located in Puerto Rico are paid
a blend of the applicable capital IPPS Puerto Rico rate and the
applicable capital IPPS Federal rate. Historically, we have established
a capital IPPS blended payment rate structure for hospitals located in
Puerto Rico that parallels the statutory calculation of operating IPPS
payments to hospitals located in Puerto Rico. Capital IPPS payments to
hospitals located in Puerto Rico are currently computed based on a
blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent
of the capital IPPS Federal rate. (For additional details on capital
IPPS payments to hospitals located in Puerto Rico, we refer readers to
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).)
As noted in section IV.A. of the preamble of this proposed rule,
section 601 of the Consolidated Appropriations Act, 2016 (Public L.
114-113) increased the applicable Federal percentage of the operating
IPPS payment for hospitals located in Puerto Rico from 75 percent to
100 percent and decreased the applicable Puerto Rico percentage of the
operating IPPS payments for hospitals located in Puerto Rico from 25
percent to zero percent, applicable to discharges occurring on or after
January 1, 2016. Consistent with historical practice, under the broad
authority of the Secretary granted under section 1886(g) of the Act, we
are proposing to revise the calculation of capital IPPS payments to
hospitals located in Puerto Rico to parallel the change in the
statutory calculation of operating IPPS payments to hospitals located
in Puerto Rico, beginning in FY 2017. Accordingly, we are proposing to
revise Sec. 412.374 of the regulations to provide that, for discharges
occurring on or after October 1, 2016, capital IPPS payments to
hospitals located in Puerto Rico would be based on 100 percent of the
capital Federal rate; that is, payments would no longer be derived from
a blend of the capital Puerto Rico rate and the capital Federal rate.
As discussed in section I.I. of Appendix A (Economic Analyses) of this
proposed rule, this proposed change would result in a slight increase
in capital IPPS payments to hospitals located in Puerto Rico because
adjusted capital IPPS payments based on the capital Federal rate are
generally higher than capital IPPS payments based on the capital Puerto
Rico rate. In addition, we note that this proposed change is similar to
the changes in capital IPPS payments to hospitals located in Puerto
Rico beginning in FY 1998 and FY 2005 that paralleled the corresponding
statutory changes in the blended payment amount calculation required
for operating IPPS payments to hospitals located in Puerto Rico, as
provided by section 4406 of Public Law 105-33 (62 FR 46048) and section
504 of Public Law 108-173 (69 FR 49185), respectively.

C. Proposed Annual Update for FY 2017

The proposed annual update to the capital PPS Federal rate, as
provided for at Sec. 412.308(c), for FY 2017 is discussed in section
III. of the Addendum to this proposed rule. Consistent with our
proposal to revise the calculation of capital IPPS payments to
hospitals located in Puerto Rico to be based on 100 percent of the
capital Federal rate (and no longer based on a blend of the capital
Puerto Rico rate and the capital Federal rate), we would discontinue
use of the Puerto Rico capital rate in the calculation of capital IPPS
payments to hospitals located in Puerto Rico.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50906 through
50954), we adopted the 2-midnight policy effective for dates of
admission on or after October 1, 2013, under which an inpatient
admission is generally appropriate for Medicare Part A payment if the
physician (or other qualified practitioner) admits the patient as an
inpatient based upon the reasonable expectation that the patient will
need hospital care that crosses at least 2 midnights. At that time, our
actuaries estimated that the 2-midnight policy would increase
expenditures by approximately $220 million in FY 2014 due to an
expected net increase in inpatient encounters. In that same final rule,
consistent with the approach taken for the operating IPPS standardized
amount, the Puerto Rico-specific standardized amount, and the hospital-
specific payment rates, and using our authority under section 1886(g)
of the Act, we made a reduction of 0.2 percent (an adjustment factor of
0.998) to the national capital Federal rate and the Puerto Rico-
specific capital rate to offset the estimated increase in capital IPPS
expenditures associated with the projected increase in inpatient
encounters that was expected to result from the new inpatient admission
guidelines (78 FR 50746 through 50747).
As discussed in section IV.O. of the preamble of this proposed
rule, in Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-
263 (D.D.C.) and consolidated cases, hospitals challenged the 0.2
percent reduction in IPPS rates to account for the estimated $220
million in additional FY 2014 expenditures resulting from the 2-
midnight policy. In accordance with the Court's order, we published a
notice with comment period that appeared in the December 1, 2015
Federal Register (80 FR 75107), which discussed the basis for the 0.2
percent reduction and its underlying assumptions and invited comments
on the same in order to facilitate our further consideration of the FY
2014 reduction. In section IV.O. of the preamble of this proposed rule,
we discuss that, in considering the public comments we received on that
notice with comment period and those on the same topic we received in
response to the CY 2016 OPPS/ASC proposed rule, we continue to
recognize that the 0.2 percent reduction issue is unique in many ways.
As we discuss in that section, the 2-midnight policy itself and our
implementation and enforcement of it have also evolved over time as a
result of a combination of statutory, regulatory, and operational
changes. Finally, in reviewing the public comments received on the
December 1, 2015 notice with comment period, we also considered the
fact that our actuaries' most recent estimate of the impact of the 2-
midnight policy varies between a savings and a cost over the FY 2014 to
FY 2015 time period. (For additional details, we refer readers to
section IV.O. of the preamble of this proposed rule.)
We still believe the assumptions underlying the 0.2 percent
reduction to the rates put in place beginning in FY 2014 were
reasonable at the time we

[[Page 25140]]

made them in 2013. Nevertheless, taking all of these factors into
account and in the context of this case, as we discuss in more detail
in section IV.O. of the preamble of this proposed rule, consistent with
the approach proposed for the operating IPPS rates, we believe it would
be appropriate to use our authority under section 1886(g) of the Act to
permanently remove the 0.2 percent reduction to the capital IPPS rate
beginning in FY 2017. (As explained previously, we are proposing to
discontinue use of the Puerto Rico capital rate in the calculation of
capital IPPS payments to hospitals located in Puerto Rico beginning in
FY 2017.) Specifically, we are proposing to make an adjustment of (1/
0.998) to the national capital Federal rate to remove the 0.2 percent
reduction, consistent with the proposed adjustment to the operating
IPPS standardized amount and the hospital-specific payment rates. In
addition, consistent with the approach proposed for the operating IPPS
standardized amount and hospital-specific payment rates and for the
reasons discussed in section IV.O. of the preamble of this proposed
rule, we believe it would be appropriate to use our authority under
section 1886(g) of the Act to adjust the FY 2017 capital IPPS rate to
address the effects of the 0.2 percent reduction to the national
capital Federal rates in effect for FY 2014, FY 2015, and FY 2016 by
proposing a one-time prospective adjustment of 1.006 in FY 2017 to the
national capital Federal rate. For FY 2018, we also are proposing to
remove the effects of this one-time prospective adjustment through an
adjustment of (1/1.006) to the national capital Federal rate,
consistent with the approach proposed for the operating IPPS
standardized amount and hospital-specific payment rates (as discussed
in section IV.O. of the preamble of this proposed rule). We are
inviting public comments on these proposals.
We also note that, in section II.D. of the preamble of this
proposed rule, we present a discussion of the MS-DRG documentation and
coding adjustment, including previously finalized policies and
historical adjustments, as well as the recoupment adjustment to the
standardized amounts under section 1886(d) of the Act that we are
proposing for FY 2017 in accordance with the amendments made to section
7(b)(1)(B) of Public Law 110-90 by section 631 of the ATRA. Because
section 631 of the ATRA requires us to make a recoupment adjustment
only to the operating IPPS standardized amount, we are not proposing to
make a similar adjustment to the capital IPPS rate (or to the operating
IPPS hospital-specific rates). This approach is consistent with our
historical approach regarding the application of the recoupment
adjustment authorized by section 7(b)(1)(B) of Public Law 110-90.

VI. Proposed Changes for Hospitals Excluded From the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY
2017

Certain hospitals excluded from a prospective payment system,
including children's hospitals, 11 cancer hospitals, and hospitals
located outside the 50 States, the District of Columbia, and Puerto
Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and American Samoa) receive payment for
inpatient hospital services they furnish on the basis of reasonable
costs, subject to a rate-of-increase ceiling. A per discharge limit
(the target amount as defined in Sec. 413.40(a) of the regulations) is
set for each hospital based on the hospital's own cost experience in
its base year, and updated annually by a rate-of-increase percentage.
For each cost reporting period, the updated target amount is multiplied
by total Medicare discharges during that period and applies as an
aggregate upper limit (the ceiling as defined in Sec. 413.40(a)) of
Medicare reimbursement for total inpatient operating costs for a
hospital's cost reporting period. In accordance with Sec. 403.752(a)
of the regulations, RNHCIs also are subject to the rate-of-increase
limits established under Sec. 413.40 of the regulations discussed
previously.
As explained in the FY 2006 IPPS final rule (70 FR 47396 through
47398), beginning with FY 2006, we have used the percentage increase in
the IPPS operating market basket to update the target amounts for
children's hospitals, cancer hospitals, and RNHCIs. Consistent with
Sec. Sec. 412.23(g), 413.40(a)(2)(ii)(A), and 413.40(c)(3)(viii), we
also have used the percentage increase in the IPPS operating market
basket to update the target amounts for short-term acute care hospitals
located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands,
and American Samoa. As we finalized in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50156 through 50157), for FY 2017, we will continue to use
the percentage increase in the FY 2010-based IPPS operating market
basket to update the target amounts for children's hospitals, cancer
hospitals, RNHCIs, and short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American
Samoa. Accordingly, for FY 2017, the rate-of-increase percentage to be
applied to the target amount for these children's hospitals, cancer
hospitals, RNHCIs, and short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American
Samoa is the FY 2017 percentage increase in the FY 2010-based IPPS
operating market basket.
For this FY 2017 proposed rule, based on IHS Global Insight, Inc.'s
2016 first quarter forecast, we estimate that the FY 2010-based IPPS
operating market basket update for FY 2017 is 2.8 percent (that is, the
estimate of the market basket rate-of-increase). Therefore, the FY 2017
rate-of-increase percentage that would be applied to the FY 2016 target
amounts in order to calculate the FY 2017 target amounts for children's
hospitals, cancer hospitals, RNHCIs, and short-term acute care
hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa is 2.8 percent, in accordance with
the applicable regulations at 42 CFR 413.40. We are proposing that if
more recent data become available for the final rule, we would use them
to calculate the IPPS operating market basket update for FY 2017.

B. Critical Access Hospitals (CAHs)

1. Background
Section 1820 of the Act provides for the establishment of Medicare
Rural Hospital Flexibility Programs (MRHFPs), under which individual
States may designate certain facilities as critical access hospitals
(CAHs). Facilities that are so designated and meet the CAH conditions
of participation under 42 CFR part 485, subpart F, will be certified as
CAHs by CMS. Regulations governing payments to CAHs for services to
Medicare beneficiaries are located in 42 CFR part 413.
2. Frontier Community Health Integration Project (FCHIP) Demonstration
Section 123 of the Medicare Improvements for Patients and Providers
Act of 2008 (Pub. L. 110-275), as amended by section 3126 of the
Affordable Care Act of 2010, authorizes a demonstration project to
allow eligible entities to develop and test new models for the delivery
of health care services in eligible counties in order to improve access
to and better integrate the delivery of acute care, extended care and
other health care services to

[[Page 25141]]

Medicare beneficiaries. The demonstration is titled ``Demonstration
Project on Community Health Integration Models in Certain Rural
Counties,'' and is commonly known as the Frontier Community Health
Integration Project (FCHIP) demonstration.
The authorizing statute states the eligibility criteria for
entities to be able to participate in the demonstration. An eligible
entity, as defined in section 123(d)(1)(B) of Public Law 110-275, as
amended, is an MRHFP grantee under section 1820(g) of the Act (that is,
a CAH); and is located in a State in which at least 65 percent of the
counties in the State are counties that have 6 or less residents per
square mile.
The authorizing statute stipulates several other requirements for
the demonstration. Section 123(d)(2)(B) of Public. L. 110-275, as
amended, limits participation in the demonstration to eligible entities
in not more than 4 States. Section 123(f)(1) of Public. L. 110-275
requires the demonstration project to be conducted for a 3-year period.
In addition, section 123(g)(1)(B) of Public. L. 110-275 requires that
the demonstration be budget neutral. Specifically, this provision
states that in conducting the demonstration project, the Secretary
shall ensure that the aggregate payments made by the Secretary do not
exceed the amount which the Secretary estimates would have been paid if
the demonstration project under the section were not implemented.
Furthermore, section 123(i) of Public. L. 110-275 states that the
Secretary may waive such requirements of titles XVIII and XIX of the
Act as may be necessary and appropriate for the purpose of carrying out
the demonstration project, thus allowing the waiver of Medicare payment
rules encompassed in the demonstration.
In January 2014, CMS released a request for applications (RFA) for
the FCHIP demonstration. We refer readers to the RFA on the CMS Web
site at: https://innovation.cms.gov/initiatives/Frontier-Community-Health-Integration-Project-Demonstration/. Using 2013 data from the
U.S. Census Bureau, CMS identified Alaska, Montana, Nevada, North
Dakota, and Wyoming as meeting the statutory eligibility requirement
for participation in the demonstration. The RFA solicited CAHs in these
five States to participate in the demonstration, stating that
participation would be limited to CAHs in four of the States. To apply,
CAHs were required to meet the eligibility requirements in the
authorizing legislation, and, in addition, to describe a proposal to
enhance health-related services that would complement those currently
provided by the CAH and better serve the community's needs. In
addition, in the RFA, CMS interpreted the eligible entity definition in
the statute as meaning a CAH that receives funding through the Rural
Hospital Flexibility Program. The RFA identified four intervention
prongs, under which specific waivers of Medicare payment rules would
allow for enhanced payment for telemedicine, nursing facility,
ambulance, and home health services, respectively. These waivers were
formulated with the goal of increasing access to care with no net
increase in costs.
Since the due date for applications on May 5, 2014, we have
assessed the feasibility of the applying CAHs' service delivery
proposals, as well as the potential impacts of the payment enhancement
interventions on the overall expenditures for Medicare services. We are
selecting CAHs to participate in the demonstration, with the period of
performance for each CAH expected to start August 1, 2016.
We have specified the payment enhancements for the demonstration,
and are basing our selection of CAHs for participation, with the goal
of maintaining the budget neutrality of the demonstration on its own
terms (that is, the demonstration will produce savings from reduced
transfers and admissions to other health care providers, thus
offsetting any increase in payments resulting from the demonstration).
However, because of the small size of this demonstration and
uncertainty associated with projected Medicare utilization and costs,
we are proposing a contingency plan to ensure that the budget
neutrality requirement in section 123 of Public. L 110-275 is met.
Accordingly, if analysis of claims data for Medicare beneficiaries
receiving services at each of the participating CAHs, as well as of
other data sources, including cost reports for these CAHs, shows that
increases in Medicare payments under the demonstration during the 3-
year period are not sufficiently offset by reductions elsewhere, we
will recoup the additional expenditures attributable to the
demonstration through a reduction in payments to all CAHs nationwide.
Because of the small scale of the demonstration, we do not believe it
would be feasible to implement budget neutrality by reducing payments
to only the participating CAHs. Therefore, in the event that this
demonstration is found to result in aggregate payments in excess of the
amount that would have been paid if this demonstration were not
implemented, we are proposing to comply with the budget neutrality
requirement by reducing payments to all CAHs, not just those
participating in the demonstration. We believe it is appropriate to
make any payment reductions across all CAHs because the FCHIP
demonstration is specifically designed to test innovations that affect
delivery of services by the CAH provider category. We believe that the
language of the statutory budget neutrality requirement at section
123(g)(1)(B) of Public. L. 110-275 permits the agency to implement the
budget neutrality provision in this manner. The statutory language
merely refers to ensuring that aggregate payments made by the Secretary
do not exceed the amount which the Secretary estimates would have been
paid if the demonstration project was not implemented, and does not
identify the range across which aggregate payments must be held equal.
Based on actuarial analysis using cost report settlements for FYs
2013 and 2014, the demonstration is projected to satisfy the budget
neutrality requirement and likely yield a total net savings. We
estimate that the total impact of the payment recoupment would be no
greater than 0.03 percent of CAHs' total Medicare payments within 1
fiscal year (that is, Medicare Part A and Part B). For the FCHIP
demonstration, the final budget neutrality estimates will be based on
the demonstration period, which is August 1, 2016 through July 31,
2019. The demonstration is projected to impact payments to
participating CAHs under both Medicare Part A and Part B. Thus, in the
event that we determine that aggregate payments under the demonstration
exceed the payments that would otherwise have been made, we are
proposing that CMS would recoup payments through reductions of Medicare
payments to all CAHs under both Medicare Part A and Part B.
Given the 3-year period of performance of the FCHIP demonstration
and the time needed to conduct the budget neutrality analysis, we
anticipate that, in the event the demonstration is found not to have
been budget neutral, any excess costs would be recouped over a period
of 3 cost reporting years, beginning in CY 2020. We are proposing a 3-
year period for recoupment to allow for a reasonable timeframe for the
payment reduction and to minimize any impact on CAHs' operations.

[[Page 25142]]

VII. Proposed Changes to the Long-Term Care Hospital Prospective
Payment System (LTCH PPS) for FY 2017

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority
Section 123 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals that are described in section 1886(d)(1)(B)(iv) of the
Act, effective for cost reporting periods beginning on or after October
1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines an LTCH as a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days. Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (as determined by the Secretary of Health and
Human Services (the Secretary)) of greater than 20 days and has 80
percent or more of its annual Medicare inpatient discharges with a
principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in FY 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002 Federal Register, we issued a final rule
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR
55954). For the initial implementation of the LTCH PPS (FYs 2003
through FY 2007), the system used information from LTCH patient records
to classify patients into distinct long-term care diagnosis-related
groups (LTC-DRGs) based on clinical characteristics and expected
resource needs. Beginning in FY 2008, we adopted the Medicare severity
long-term care diagnosis-related groups (MS-LTC-DRGs) as the patient
classification system used under the LTCH PPS. Payments are calculated
for each MS-LTC-DRG and provisions are made for appropriate payment
adjustments. Payment rates under the LTCH PPS are updated annually and
published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by an
LTCH with a cost reporting period beginning on or after October 1,
2002. (The regulations implementing the TEFRA reasonable cost-based
payment provisions are located at 42 CFR part 413.) With the
implementation of the PPS for acute care hospitals authorized by the
Social Security Amendments of 1983 (Pub. L. 98-21), which added section
1886(d) to the Act, certain hospitals, including LTCHs, were excluded
from the PPS for acute care hospitals and were paid their reasonable
costs for inpatient services subject to a per discharge limitation or
target amount under the TEFRA system. For each cost reporting period, a
hospital-specific ceiling on payments was determined by multiplying the
hospital's updated target amount by the number of total current year
Medicare discharges. (Generally, in this section of the preamble of
this proposed rule, when we refer to discharges, we describe Medicare
discharges.) The August 30, 2002 final rule further details the payment
policy under the TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we provided for a 5-year
transition period from payments under the TEFRA system to payments
under the LTCH PPS. During this 5-year transition period, an LTCH's
total payment under the PPS was based on an increasing percentage of
the Federal rate with a corresponding decrease in the percentage of the
LTCH PPS payment that is based on reasonable cost concepts, unless an
LTCH made a one-time election to be paid based on 100 percent of the
Federal rate. Beginning with LTCHs' cost reporting periods beginning on
or after October 1, 2006, total LTCH PPS payments are based on 100
percent of the Federal rate.
In addition, in the August 30, 2002 final rule, we presented an in-
depth discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
budget neutrality requirements mandated by section 123 of the BBRA. The
same final rule that established regulations for the LTCH PPS under 42
CFR part 412, subpart O, also contained LTCH provisions related to
covered inpatient services, limitation on charges to beneficiaries,
medical review requirements, furnishing of inpatient hospital services
directly or under arrangement, and reporting and recordkeeping
requirements. We refer readers to the August 30, 2002 final rule for a
comprehensive discussion of the research and data that supported the
establishment of the LTCH PPS (67 FR 55954).
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through
49623), we implemented the provisions of the Pathway for Sustainable
Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), which mandated
the application of the ``site neutral'' payment rate under the LTCH PPS
for discharges that do not meet the statutory criteria for exclusion
beginning in FY 2016. For cost reporting periods beginning on or after
October 1, 2015, discharges that do not meet certain statutory criteria
for exclusion are paid based on the site neutral payment rate.
Discharges that do meet the statutory criteria continue to receive
payment based on the LTCH PPS standard Federal payment rate. For more
information on the statutory requirements of the Pathway for SGR Reform
Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49601 through 49623).
Section 231 of Consolidated Appropriations Act, 2016 (Pub. L. 114-
113), enacted December 18, 2015, provides for a temporary exception to
the application of the site neutral payment rate for certain discharges
representing severe wound care cases from specific LTCHs. We will
address this statutory provision in a separate rulemaking.
2. Criteria for Classification as an LTCH
a. Classification as an LTCH
Under the regulations at Sec. 412.23(e)(1), to qualify to be paid
under the LTCH PPS, a hospital must have a provider agreement with
Medicare. Furthermore, Sec. 412.23(e)(2)(i), which implements section
1886(d)(1)(B)(iv)(I) of the Act, requires that a hospital have an
average Medicare inpatient length of stay of greater than 25 days to be
paid under the LTCH PPS. Alternatively, Sec. 412.23(e)(2)(ii) states

[[Page 25143]]

that, for cost reporting periods beginning on or after August 5, 1997,
a hospital that was first excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of its annual Medicare inpatient
discharges in the 12-month cost reporting period ending in FY 1997 have
a principal diagnosis that reflects a finding of neoplastic disease
must have an average inpatient length of stay for all patients,
including both Medicare and non-Medicare inpatients, of greater than 20
days (referred to as ``subclause (II)'' LTCHs).
b. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c) and, therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject
to the rate-of-increase test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). This discussion was further clarified in the RY 2005
LTCH PPS final rule (69 FR 25676). In keeping with those discussions,
if the Medicare payment to the LTCH is the full LTC-DRG payment amount,
consistent with other established hospital prospective payment systems,
Sec. 412.507 currently provides that an LTCH may not bill a Medicare
beneficiary for more than the deductible and coinsurance amounts as
specified under Sec. Sec. 409.82, 409.83, and 409.87 and for items and
services specified under Sec. 489.30(a). However, under the LTCH PPS,
Medicare will only pay for days for which the beneficiary has coverage
until the short-stay outlier (SSO) threshold is exceeded. If the
Medicare payment was for a SSO case (Sec. 412.529), and that payment
was less than the full LTC-DRG payment amount because the beneficiary
had insufficient remaining Medicare days, the LTCH is currently also
permitted to charge the beneficiary for services delivered on those
uncovered days (Sec. 412.507). In the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49623), we amended our regulations to limit the charges that may
be imposed on beneficiaries whose discharges are paid at the site
neutral payment rate under the LTCH PPS. In section VII.G. of the
preamble of this proposed rule, we are proposing to amend the existing
regulations relating to the limitation on charges to address
beneficiary charges for LTCH services provided by subclause (II) LTCHs
as part of our proposed refinement of the payment adjustment for
subclause II LTCHs under Sec. 412.526. We also are proposing to amend
the regulations under Sec. 412.507 to clarify our existing policy that
blended payments made to an LTCH during its transitional period (that
is, payment for discharges occurring in cost reporting periods
beginning in FY 2016 or 2017) are considered to be a site neutral
payment rate payment.
4. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance
Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and the Health Insurance Portability and Accountability Act of 1996
(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the
Medicare Program deny payment under Part A or Part B for any expenses
incurred for items or services for which a claim is submitted other
than in an electronic form specified by the Secretary. Section 1862(h)
of the Act (as added by section 3(a) of the ASCA) provides that the
Secretary shall waive such denial in two specific types of cases and
may also waive such denial in such unusual cases as the Secretary finds
appropriate (68 FR 48805). Section 3 of the ASCA operates in the
context of the HIPAA regulations, which include, among other
provisions, the transactions and code sets standards requirements
codified under 45 CFR parts 160 and 162 (generally known as the
Transactions Rule). The Transactions Rule requires covered entities,
including covered health care providers, to conduct certain electronic
health care transactions according to the applicable transactions and
code sets standards.
The Department of Health and Human Services (HHS) has a number of
initiatives designed to encourage and support the adoption of health
information technology and promote nationwide health information
exchange to improve health care. The Office of the National Coordinator
for Health Information Technology (ONC) leads these efforts in
collaboration with other agencies, including CMS and the Office of the
Assistant Secretary for Planning and Evaluation (ASPE). Through a
number of activities, including several open government initiatives,
HHS is promoting the adoption of electronic health record (EHR)
technology certified under the ONC Health Information Technology (HIT)
Certification Program (https://www.healthit.gov/policy-researchers-implementers/2015-edition-final-rule) developed to support secure,
interoperable, health information exchange. We believe that the use of
certified EHRs by LTCHs (and other types of providers that are
ineligible for the Medicare and Medicaid EHR Incentive Programs) can
effectively and efficiently help providers improve internal care
delivery practices, support the exchange of important information
across care partners and during transitions of care, and enable the
reporting of electronically specified clinical quality measures (eCQMs)
(as described elsewhere in this proposed rule). In 2015, ONC released a
document entitled ``Connecting Health and Care for the Nation: A Shared
Nationwide Interoperability Roadmap'' (available at: https://www.healthit.gov/sites/default/files/hie-interoperability/nationwide-interoperability-roadmap-final-version-1.0.pdf). In the near term, the
Roadmap focuses on actions that will enable individuals and providers
across the care continuum to send, receive, find and use a common set
of electronic clinical information at the nationwide level by the end
of 2017. The Roadmap's goals also align with the Improving Medicare
Post-Acute Care Transformation Act of 2014 (Pub. L. 113-185) (IMPACT
Act), which requires assessment data to be standardized and
interoperable to allow for exchange of the data. Moreover, the vision
described in the Roadmap significantly expands the types of electronic
health information, information sources, and information users well
beyond clinical information derived from EHRs. The Roadmap identifies
four critical pathways that health IT stakeholders should focus on now
in order to create a foundation for long-term success: (1) Improve
technical standards and implementation guidance for priority data
domains and associated elements; (2) rapidly shift and align Federal,
State, and commercial payment policies from fee-for-service to value-
based models to stimulate the demand for

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interoperability; (3) clarify and align Federal and State privacy and
security requirements that enable interoperability; and (4) align and
promote the use of consistent policies and business practices that
support interoperability and address those that impede
interoperability, in coordination with stakeholders. To support of the
goals of the Roadmap, ONC released the 2016 Interoperability Standards
Advisory (available at: https://www.healthit.gov/standards-advisory/2016), which suggests some of the best available standards,
terminology, and implementation guides as well as emerging standards to
enable priority health information exchange functions. Providers,
payers, and vendors are encouraged to take these ``best available
standards'' into account as they implement interoperable health
information exchange across the continuum of care.

B. Proposed Modifications to the Application of the Site Neutral
Payment Rate (Sec. 412.522)

1. Background
Section 1206 of Pathway for SGR Reform Act (Pub. L. 113-67)
mandated significant changes to the LTCH PPS beginning with LTCH
discharges occurring in cost reporting periods beginning on or after
October 1, 2015. Specifically, section 1206 required the establishment
of a site neutral payment rate (as an alternative to the LTCH PPS
standard Federal payment rate) for Medicare inpatient discharges from
an LTCH that fail to meet certain statutorily defined criteria.
Discharges that meet the statutory criteria for exclusion from the site
neutral payment rate continue to be paid based on the LTCH PPS standard
Federal payment rate. Discharges that do not meet the statutory
criteria for exclusion are paid based on the site neutral payment rate.
We implemented the application of the site neutral payment rate in the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through 49623) and
codified the requirements in the regulations at 42 CFR 412.522. The
criteria for exclusion from the site neutral payment rate specified
under section 1886(m)(6)(A)(ii) of the Act and as implemented at Sec.
412.522(b) are as follows: (1) The discharge from the LTCH does not
have a principal diagnosis relating to a psychiatric diagnosis or to
rehabilitation; (2) admission to the LTCH was immediately preceded by
discharge from a subsection (d) hospital; and (3) the immediately
preceding stay in a subsection (d) hospital included at least 3 days in
an intensive care unit (ICU) (referred to as the ICU criterion) or the
discharge from the LTCH is assigned to a MS-LTC-DRG based on the
patient's receipt of ventilator services of at least 96 hours (referred
to as the ventilator criterion). (We note that, for the remainder of
this section VII. of this preamble, the phrase ``LTCH PPS standard
Federal payment rate case'' refers to an LTCH PPS case that meets the
criteria for exclusion from the site neutral payment rate as specified
under Sec. 412.522(a)(2), and the phrase ``site neutral payment rate
case'' refers to an LTCH PPS case that does not meet the statutory
patient-level criteria as specified under Sec. 412.522(a)(1) and,
therefore, is paid the applicable site neutral payment rate.)
2. Technical Correction of Definition of ``Subsection (d) Hospital''
for the Site Neutral Payment Rate (Sec. 412.503)
In the FY 2016 IPPS/LTCH PPS final rule, we implemented section
1206(a) of Public Law 113-67, which established the new dual payment
rate structure under the LTCH PPS that began with LTCH discharges
occurring in cost reporting periods beginning on or after October 1,
2015. Section 1206(a) required the establishment of a site neutral
payment rate (as an alternate to the LTCH PPS standard Federal payment
rate) under the LTCH PPS for Medicare inpatient LTCH discharges that
fail to meet certain statutorily defined criteria for exclusion.
Discharges that meet the statutory criteria for exclusion from the site
neutral payment rate continue to be paid based on the LTCH PPS standard
Federal payment rate. Discharges that do not meet the statutory
criteria for exclusion are paid based on the new site neutral payment
rate. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through
49623), we codified the requirements for the application of the site
neutral payment rate under the LTCH PPS under the regulations at Sec.
412.522. The statutory criteria for exclusion from the site neutral
payment rate include a criterion that requires that the admission to
the LTCH was immediately preceded by discharge from a ``subsection (d)
hospital.'' To implement this criterion for purposes of the application
of the site neutral payment rate under Sec. 412.522, we added a
definition of a ``subsection (d) hospital'' under Sec. 412.503 of the
regulations. However, we made an inadvertent cross-reference error
under Sec. 412.503 by referencing ``Sec. 412.526'' (payment
provisions to a subclause II LTCH) instead of referencing ``Sec.
412.522'' (application of site neutral payment) (80 FR 49767). That is,
currently Sec. 412.503 specifies that a subsection (d) hospital means
``for purposes of Sec. 412.526,'' when the language should have read
``for purposes of Sec. 412.522''. Therefore, we are proposing to
revise Sec. 412.503 to correct this cross-reference error.

C. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group
(MS-LTC-DRG) Classifications and Relative Weights for FY 2017

1. Background
Section 123 of the BBRA required that the Secretary implement a PPS
for LTCHs to replace the cost-based payment system under TEFRA. Section
307(b)(1) of the BIPA modified the requirements of section 123 of the
BBRA by requiring that the Secretary examine the feasibility and the
impact of basing payment under the LTCH PPS on the use of existing (or
refined) hospital DRGs that have been modified to account for different
resource use of LTCH patients.
When the LTCH PPS was implemented for cost reporting periods
beginning on or after October 1, 2002, we adopted the same DRG patient
classification system utilized at that time under the IPPS. As a
component of the LTCH PPS, we refer to this patient classification
system as the ``long-term care diagnosis-related groups (LTC-DRGs).''
Although the patient classification system used under both the LTCH PPS
and the IPPS are the same, the relative weights are different. The
established relative weight methodology and data used under the LTCH
PPS result in relative weights under the LTCH PPS that reflect the
differences in patient resource use of LTCH patients, consistent with
section 123(a)(1) of the BBRA (Pub. L. 106-113).
As part of our efforts to better recognize severity of illness
among patients, in the FY 2008 IPPS final rule with comment period (72
FR 47130), the MS-DRGs and the Medicare severity long-term care
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY
2008). For a full description of the development, implementation, and
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through
47175 and 47277 through 47299). (We note that, in that same final rule,
we revised the regulations at Sec. 412.503 to specify that for LTCH
discharges occurring on or after October 1, 2007, when applying

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the provisions of 42 CFR part 412, subpart O applicable to LTCHs for
policy descriptions and payment calculations, all references to LTC-
DRGs would be considered a reference to MS-LTC-DRGs. For the remainder
of this section, we present the discussion in terms of the current MS-
LTC-DRG patient classification system unless specifically referring to
the previous LTC-DRG patient classification system that was in effect
before October 1, 2007.)
The MS-DRGs adopted in FY 2008 represent an increase in the number
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG
classifications are updated annually. There are currently 758 MS-DRG
groupings. For FY 2017, there are 757 MS-DRG groupings that we are
proposing in conjunction with all of the changes discussed in section
II.F. of the preamble of this proposed rule. Consistent with section
123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec.
412.515 of the regulations, we use information derived from LTCH PPS
patient records to classify LTCH discharges into distinct MS-LTC-DRGs
based on clinical characteristics and estimated resource needs. We then
assign an appropriate weight to the MS-LTC-DRGs to account for the
difference in resource use by patients exhibiting the case complexity
and multiple medical problems characteristic of LTCHs. In this section
of the proposed rule, we provide a general summary of our existing
methodology for determining the proposed FY 2017 MS-LTC-DRG relative
weights under the LTCH PPS.
In this proposed rule, in general, for FY 2017, we are using our
existing methodology to determine the MS-LTC-DRG relative weights (as
discussed in greater detail in section VII.C.3. of the preamble of this
proposed rule). As we established when we implemented the dual rate
LTCH PPS payment structure codified under Sec. 412.522, beginning with
FY 2016, the annual recalibration of the MS-LTC-DRG relative weights
are determined: (1) Using only data from available LTCH PPS claims that
would have qualified for payment under the new LTCH PPS standard
Federal payment rate if that rate were in effect when claims data from
time periods before the dual rate LTCH PPS payment structure applies
were used to calculate the relative weights; and (2) using only data
from available LTCH PPS claims that qualify for payment under the new
LTCH PPS standard Federal payment rate when claims data from time
periods after the dual rate LTCH PPS payment structure applies are used
to calculate the relative weights (80 FR 49624). That is, under our
current methodology, the MS-LTC-DRG relative weights are not used to
determine the LTCH PPS payment for cases paid at the site neutral
payment rate under Sec. 412.522(c)(1) and data from cases paid at the
site neutral payment rate or that would have been paid at the site
neutral payment rate if the dual rate LTCH PPS payment structure had
been in effect are not used to develop the relative weights. For the
remainder of this discussion, we use the phrase ``applicable LTCH
cases'' or ``applicable LTCH data'' when referring to the resulting
claims data set used to calculate the relative weights (as described
later in greater detail in section VII.C.3.c. of the preamble of this
proposed rule). In addition, we are proposing to continue to exclude
the data from all-inclusive rate providers and LTCHs paid in accordance
with demonstration projects, as well as any Medicare Advantage claims
from the MS-LTC-DRG relative weight calculations for the reasons
discussed in section VII.C.3.c. of the preamble of this proposed rule.
Furthermore, for FY 2017, in using data from applicable LTCH cases
to establish proposed MS-LTC-DRG relative weights, we are proposing to
continue to establish low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs with
less than 25 cases) using our quintile methodology in determining the
proposed MS-LTC-DRG relative weights because LTCHs do not typically
treat the full range of diagnoses as do acute care hospitals.
Therefore, for purposes of determining the proposed relative weights
for the large number of low-volume MS-LTC-DRGs, we are proposing to
group all of the low-volume MS-LTC-DRGs into five quintiles based on
average charges per discharge. Then, under our existing methodology, we
are proposing to account for adjustments made to LTCH PPS standard
Federal payments for short-stay outlier (SSO) cases (that is, cases
where the covered length of stay at the LTCH is less than or equal to
five-sixths of the geometric average length of stay for the MS-LTC-
DRG), and we are proposing to make adjustments to account for
nonmonotonically increasing weights, when necessary. The methodology is
premised on more severe cases under the MS-LTC-DRG system requiring
greater expenditure of medical care resources and higher average
charges such that, in the severity levels within a base MS-LTC-DRG, the
relative weights should increase monotonically with severity from the
lowest to highest severity level. (We discuss each of these components
of our MS-LTC-DRG relative weight methodology in greater detail in
section VII.C.3.g. of the preamble of this proposed rule.)
2. Patient Classifications Into MS-LTC-DRGs
a. Background
The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under
the LTCH PPS) are based on the CMS DRG structure. As noted previously
in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs
although they are structurally identical to the MS-DRGs used under the
IPPS.
The MS-DRGs are organized into 25 major diagnostic categories
(MDCs), most of which are based on a particular organ system of the
body; the remainder involve multiple organ systems (such as MDC 22,
Burns). Within most MDCs, cases are then divided into surgical DRGs and
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy
that orders operating room (O.R.) procedures or groups of O.R.
procedures by resource intensity. The GROUPER software program does not
recognize all ICD-10-PCS procedure codes as procedures affecting DRG
assignment. That is, procedures that are not surgical (for example,
EKGs), or minor surgical procedures (for example, a biopsy of skin and
subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-
DRG assignment based on their presence on the claim.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge and that payment varies
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis;
Additional or secondary diagnoses;
Surgical procedures;
Age;
Sex; and
Discharge status of the patient.
Currently, for claims submitted on the 5010 format, up to 25
diagnosis codes and 25 procedure codes are considered for an MS-DRG
assignment. This includes one principal diagnosis and up to 24
secondary diagnoses for severity of illness determinations. (For
additional information on the processing of up to 25 diagnosis codes
and 25 procedure codes on hospital inpatient claims, we refer readers
to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50127).)
Under HIPAA transactions and code sets regulations at 45 CFR parts
160 and

[[Page 25146]]

162, covered entities must comply with the adopted transaction
standards and operating rules specified in Subparts I through S of Part
162. Among other requirements, by January 1, 2012, covered entities
were required to use the ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3--Health Care Claim: Institutional
(837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care
Claim: Institutional (837) ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3, October 2007, ASC X12N/
005010X233A1 for the health care claims or equivalent encounter
information transaction (45 CFR 162.1102(c)).
HIPAA requires covered entities to use the applicable medical data
code set requirements when conducting HIPAA transactions (45 CFR
162.1000). Currently, upon the discharge of the patient, the LTCH must
assign appropriate diagnosis and procedure codes from the most current
version of the Internal Classification of Diseases, 10th Revision,
Clinical Modification (ICD-10-CM) for diagnosis coding and the
International Classification of Diseases, 10th Revision, Procedure
Coding System (ICD-10-PCS) for inpatient hospital procedure coding,
both of which became effective October 1, 2015 (45 CFR 162.1002(c)(2)
and (3)). For additional information on the implementation of the ICD-
10 coding system, we refer readers to section II.F.1. of the preamble
of this proposed rule. Additional coding instructions and examples are
published in the AHA's Coding Clinic for ICD-10-CM/PCS.
To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base
DRGs were subdivided according to the presence of specific secondary
diagnoses designated as complications or comorbidities (CCs) into one,
two, or three levels of severity, depending on the impact of the CCs on
resources used for those cases. Specifically, there are sets of MS-DRGs
that are split into 2 or 3 subgroups based on the presence or absence
of a CC or a major complication or comorbidity (MCC). We refer readers
to section II.D. of the FY 2008 IPPS final rule with comment period for
a detailed discussion about the creation of MS-DRGs based on severity
of illness levels (72 FR 47141 through 47175).
MACs enter the clinical and demographic information submitted by
LTCHs into their claims processing systems and subject this information
to a series of automated screening processes called the Medicare Code
Editor (MCE). These screens are designed to identify cases that require
further review before assignment into a MS-LTC-DRG can be made. During
this process, certain cases are selected for further development (74 FR
43949).
After screening through the MCE, each claim is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the
basis of diagnosis and procedure codes and other demographic
information (age, sex, and discharge status). The GROUPER software used
under the LTCH PPS is the same GROUPER software program used under the
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor
determines the prospective payment amount by using the Medicare PRICER
program, which accounts for hospital-specific adjustments. Under the
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG
assignments made by the Medicare contractor and to submit additional
information within a specified timeframe as provided in Sec.
412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the MS-LTC-DRG
relative weights and to classify current cases for purposes of
determining payment. The records for all Medicare hospital inpatient
discharges are maintained in the MedPAR file. The data in this file are
used to evaluate possible MS-DRG and MS-LTC-DRG classification changes
and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during
our annual update under both the IPPS (Sec. 412.60(e)) and the LTCH
PPS (Sec. 412.517), respectively.
b. Proposed Changes to the MS-LTC-DRGs for FY 2017
As specified by our regulations at Sec. 412.517(a), which require
that the MS-LTC-DRG classifications and relative weights be updated
annually, and consistent with our historical practice of using the same
patient classification system under the LTCH PPS as is used under the
IPPS, we are proposing to update the MS-LTC-DRG classifications
effective October 1, 2016, through September 30, 2017 (FY 2017),
consistent with the proposed changes to specific MS-DRG classifications
presented in section II.F. of the preamble of this proposed rule.
Accordingly, the proposed MS-LTC-DRGs for FY 2017 presented in this
proposed rule are the same as the proposed MS-DRGs that would be used
under the IPPS for FY 2017. In addition, because the proposed MS-LTC-
DRGs for FY 2017 are the same as the proposed MS-DRGs for FY 2017, the
other proposed changes that affect proposed MS-DRG (and by extension
proposed MS-LTC-DRG) assignments under GROUPER Version 34.0 as
discussed in section II.G. of the preamble of this proposed rule,
including the proposed changes to the MCE software and the ICD-10-CM/
PCS coding system, also would be applicable under the LTCH PPS for FY
2017. (We note the GROUPER Version 34 is based on ICD-10-CM/PCS
diagnoses and procedure codes, consistent with the requirement to use
ICD-10 beginning October 1, 2015.)
3. Development of the Proposed FY 2017 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative
Weights
One of the primary goals for the implementation of the LTCH PPS is
to pay each LTCH an appropriate amount for the efficient delivery of
medical care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly (67 FR 55984). To
accomplish these goals, we have annually adjusted the LTCH PPS standard
Federal prospective payment system rate by the applicable relative
weight in determining payment to LTCHs for each case. In order to make
these annual adjustments under the dual rate LTCH PPS payment
structure, beginning with FY 2016, we recalibrate the MS-LTC-DRG
relative weighting factors annually using data from applicable LTCH
cases (80 FR 49614 through 49617). Under this policy, the resulting MS-
LTC-DRG relative weights would continue to be used to adjust the LTCH
PPS standard Federal payment rate when calculating the payment for LTCH
PPS standard Federal payment rate cases.
The established methodology to develop the proposed MS-LTC-DRG
relative weights is generally consistent with the methodology
established when the LTCH PPS was implemented in the August 30, 2002
LTCH PPS final rule (67 FR 55989 through 55991). However, there have
been some modifications of our historical procedures for assigning
relative weights in cases of zero volume and/or nonmonotonicity
resulting from the adoption of the MS-LTC-DRGs, along with the change
made in conjunction with the implementation of the dual rate LTCH PPS
payment structure beginning in FY 21016 to use LTCH claims data from
only LTCH PPS standard Federal payment rate cases (or LTCH PPS cases
that would have qualified for payment under the LTCH PPS standard
Federal payment rate if

[[Page 25147]]

the dual rate LTCH PPS payment structure were in effect at the time of
the discharge) that began in FY 2016. (For details on the modifications
to our historical procedures for assigning relative weights in cases of
zero volume and/or nonmonotonicity, we refer readers to the FY 2008
IPPS final rule with comment period (72 FR 47289 through 47295) and the
FY 2009 IPPS final rule (73 FR 48542 through 48550). For details on the
change in our historical methodology to use LTCH claims data only from
LTCH PPS standard Federal payment rate cases to determine the MS-LTC-
DRG relative weights, we refer readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49614 through 49617). Under the LTCH PPS, relative
weights for each MS-LTC-DRG are a primary element used to account for
the variations in cost per discharge and resource utilization among the
payment groups (Sec. 412.515). To ensure that Medicare patients
classified to each MS-LTC-DRG have access to an appropriate level of
services and to encourage efficiency, we calculate a relative weight
for each MS-LTC-DRG that represents the resources needed by an average
inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-
LTC-DRG with a relative weight of 2 would, on average, cost twice as
much to treat as cases in an MS-LTC-DRG with a relative weight of 1.
b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2017
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49625 through
49634), we presented our policies for the development of the MS-LTC-DRG
relative weights for FY 2016.
In this proposed rule, we are proposing to continue to use our
current methodology to determine the MS-LTC-DRG relative weights for FY
2017, including the application of established policies related to, the
hospital-specific relative value methodology, the treatment of severity
levels in the MS-LTC-DRGs, low-volume and no-volume MS-LTC-DRGs,
adjustments for nonmonotonicity, the steps for calculating the MS-LTC-
DRG relative weights with a budget neutrality factor, and only using
data from applicable LTCH cases (which includes our policy of only
using cases that would meet the criteria for exclusion from the site
neutral payment rate (or, for discharges occurring prior to the
implementation of the dual rate LTCH PPS payment structure, would have
met the criteria for exclusion had those criteria been in effect at the
time of the discharge)).
In this section, we present our proposed methodology for
determining the proposed MS-LTC-DRG relative weights for FY 2017, and
we discuss the effects of our proposed policies concerning the data
used to determine the proposed FY 2017 MS-LTC-DRG relative weights on
the various components of our existing methodology in the discussion
that follows.
c. Data
For this proposed rule, to calculate the proposed MS-LTC-DRG
relative weights for FY 2017, we obtained total charges from FY 2015
Medicare LTCH claims data from the December 2015 update of the FY 2015
MedPAR file, which are the best available data at this time, and we are
proposing to use Version 34 of the GROUPER to classify LTCH cases.
Consistent with our historical practice, we use those data and the
proposed Version 34 of the MS-LTC-DRGs in establishing the proposed FY
2017 MS-LTC-DRG relative weights in this proposed rule. To calculate
the proposed FY 2017 MS-LTC-DRG relative weights under the dual rate
LTCH PPS payment structure, we are proposing to continue to use
applicable LTCH data, which includes our policy of only using cases
that meet the criteria for exclusion from the site neutral payment rate
(or would have met the criteria had they been in effect at the time of
the discharge) (80 FR 49624). Specifically, we are proposing to begin
by first evaluating the LTCH claims data in the December 2015 update of
the FY 2015 MedPAR file to determine which LTCH cases would meet the
criteria for exclusion from the site neutral payment rate under Sec.
412.522(b) had the dual rate LTCH PPS payment structure been in effect
at the time of discharge. We identified the FY 2015 LTCH cases that
were not assigned to proposed MS-LTC-DRGs 876, 880, 881, 882, 883, 884,
885, 886, 887, 894, 895, 896, 897, 945 and 946, which identify LTCH
cases that do not have a principal diagnosis relating to a psychiatric
diagnosis or to rehabilitation; and that either--
The admission to the LTCH was ``immediately preceded'' by
discharge from a subsection (d) hospital and the immediately preceding
stay in that subsection (d) hospital included at least 3 days in an
ICU, as we define under the ICU criterion; or
The admission to the LTCH was ``immediately preceded'' by
discharge from a subsection (d) hospital and the claim for the LTCH
discharge includes the applicable procedure code that indicates at
least 96 hours of ventilator services were provided during the LTCH
stay, as we define under the ventilator criterion. Claims data from the
FY 2015 MedPAR file that reported ICD-9-CM procedure code 96.72 were
used to identify cases involving at least 96 hours of ventilator
services in accordance with the ventilator criterion (as FY 2015
discharges occurred prior to the adoption of ICD-10-CM/PCS). (We note
that the corresponding ICD-10-PCS code for cases involving at least 94
hours of ventilation services is 5A1955Z, effective October 1, 2016)
(80 FR 49626 through 49627). We note that, for purposes of developing
the proposed FY 2017 MS-LTC-DRG relative weights using our current
methodology, we did not identify any cases that would have been
excluded from the site neutral payment rate under the temporary
statutory provision for certain wound care discharges from certain
LTCHs provided by Public Law 114-113 had the dual rate LTCH PPS payment
structure been in effect at the time of the discharge. At this time, it
is uncertain how many LTCHs and how many cases in the claims data we
are using for this proposed rule would have met the statutory criteria
to be excluded from the site neutral payment rate under that statutory
provision (had the dual rate LTCH PPS payment structure been in effect
at the time of the discharge). Therefore, for the remainder of this
section, when we refer to LTCH claims only from cases that meet the
criteria for exclusion from the site neutral payment rate (or would
meet the criteria had they been in effect at the time of the
discharge), such data do not include any cases that would have been
paid based on the LTCH PPS standard Federal payment rate under the
provisions of section 231 of Public Law 114-113, had the dual rate LTCH
PPS payment structure been in effect at the time of the discharge.
Then, consistent with our historical methodology, we are proposing
to exclude any claims in the resulting data set that were submitted by
LTCHs that are all-inclusive rate providers and LTCHs that are
reimbursed in accordance with demonstration projects authorized under
section 402(a) of Public Law 90-248 or section 222(a) of Public Law 92-
603. In addition, consistent with our historical practice, we would
exclude the Medicare Advantage (Part C) claims that were in the
resulting data set based on the presence of a GHO Paid indicator value
of ``1'' in the MedPAR files. The claims that remained after these
three trims (that is, the applicable LTCH data) were then used to
calculate the proposed MS-LTC-DRG relative weights for FY 2017.
In summary, in general, in identifying the claims data for the
development of

[[Page 25148]]

the proposed FY 2017 MS-LTC-DRG relative weights in this proposed rule,
we are proposing to use claims data after we trim the claims data of 10
all-inclusive rate providers reported in the December 2015 update of
the FY 2015 MedPAR file, as well as any Medicare Advantage claims data
for cases that would meet the criteria for exclusion from the site
neutral payment rate under Sec. 412.522(b) if the dual rate LTCH PPS
payment structure were in effect at the time of discharge. (We note
that there were no data from any LTCHs that are paid in accordance with
a demonstration project reported in the December 2015 update of the FY
2015 MedPAR file. However, had there been we would trim the claims data
from those LTCHs as well, in accordance with our established policy.)
We would use the remaining data (that is, the applicable LTCH data) to
calculate the proposed relative weights for FY 2017.

d. Hospital-Specific Relative Value (HSRV) Methodology

By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients. Some case types (MS-LTC-DRGs) may be
treated, to a large extent, in hospitals that have, from a perspective
of charges, relatively high (or low) charges. This nonrandom
distribution of cases with relatively high (or low) charges in specific
MS-LTC-DRGs has the potential to inappropriately distort the measure of
average charges. To account for the fact that cases may not be randomly
distributed across LTCHs, consistent with the methodology we have used
since the implementation of the LTCH PPS, we are proposing to continue
to use a hospital-specific relative value (HSRV) methodology to
calculate the proposed MS-LTC-DRG relative weights for FY 2017. We
believe that this method removes this hospital-specific source of bias
in measuring LTCH average charges (67 FR 55985). Specifically, under
this methodology, we are reducing the impact of the variation in
charges across providers on any particular MS-LTC-DRG relative weight
by converting each LTCH's charge for an applicable LTCH case to a
relative value based on that LTCH's average charge for such cases.
Under the HSRV methodology, we standardize charges for each LTCH by
converting its charges for each applicable LTCH case to hospital-
specific relative charge values and then adjusting those values for the
LTCH's case-mix. The adjustment for case-mix is needed to rescale the
hospital-specific relative charge values (which, by definition, average
1.0 for each LTCH). The average relative weight for a LTCH is its case-
mix; therefore, it is reasonable to scale each LTCH's average relative
charge value by its case-mix. In this way, each LTCH's relative charge
value is adjusted by its case-mix to an average that reflects the
complexity of the applicable LTCH cases it treats relative to the
complexity of the applicable LTCH cases treated by all other LTCHs (the
average LTCH PPS case-mix of all applicable LTCH cases across all
LTCHs).
In accordance with our established methodology, for FY 2017, we are
proposing to continue to standardize charges for each applicable LTCH
case by first dividing the adjusted charge for the case (adjusted for
SSOs under Sec. 412.529 as described in section VII.C.3.g. (Step 3) of
the preamble of this proposed rule) by the average adjusted charge for
all applicable LTCH cases at the LTCH in which the case was treated.
SSO cases are cases with a length of stay that is less than or equal to
five-sixths the average length of stay of the MS-LTC-DRG (Sec. 412.529
and Sec. 412.503). The average adjusted charge reflects the average
intensity of the health care services delivered by a particular LTCH
and the average cost level of that LTCH. The resulting ratio would be
multiplied by that LTCH's case-mix index to determine the standardized
charge for the case.
Multiplying the resulting ratio by the LTCH's case-mix index
accounts for the fact that the same relative charges are given greater
weight at a LTCH with higher average costs than they would at a LTCH
with low average costs, which is needed to adjust each LTCH's relative
charge value to reflect its case-mix relative to the average case-mix
for all LTCHs. By standardizing charges in this manner, we count
charges for a Medicare patient at a LTCH with high average charges as
less resource intensive than they would be at a LTCH with low average
charges. For example, a $10,000 charge for a case at a LTCH with an
average adjusted charge of $17,500 reflects a higher level of relative
resource use than a $10,000 charge for a case at a LTCH with the same
case-mix, but an average adjusted charge of $35,000. We believe that
the adjusted charge of an individual case more accurately reflects
actual resource use for an individual LTCH because the variation in
charges due to systematic differences in the markup of charges among
LTCHs is taken into account.
e. Treatment of Severity Levels in Developing the Proposed MS-LTC-DRG
Relative Weights
For purposes of determining the proposed MS-LTC-DRG relative
weights, under our historical methodology, there are three different
categories of MS-DRGs based on volume of cases within specific MS-LTC-
DRGs: (1) MS-LTC-DRGs with at least 25 applicable LTCH cases in the
data used to calculate the relative weight, which are each assigned a
unique relative weight; (2) low-volume MS-LTC-DRGs (that is, MS-LTC-
DRGs that contain between 1 and 24 applicable LTCH cases that are
grouped into quintiles (as described later in this section of the
proposed rule) and assigned the relative weight of the quintile; and
(3) no-volume MS-LTC-DRGs that are cross-walked to other MS-LTC-DRGs
based on the clinical similarities and assigned the relative weight of
the cross-walked MS-LTC-DRG (as described in greater detail below). For
FY 2017, we are proposing to continue to use applicable LTCH cases to
establish the same volume-based categories to calculate the proposed FY
2017 MS-LTC-DRG relative weights.
In determining the proposed FY 2017 MS-LTC-DRG relative weights,
when necessary, we are proposing to make adjustments to account for
nonmonotonicity, as discussed in greater detail later in Step 6 of
section VII.C.3.g. of the preamble of this proposed rule. We refer
readers to the discussion in the FY 2010 IPPS/RY 2010 LTCH PPS final
rule for our rationale for including an adjustment for nonmonotonicity
(74 FR 43953 through 43954).
f. Proposed Low-Volume MS-LTC-DRGs
In order to account for MS-LTC-DRGs with low-volume (that is, with
fewer than 25 applicable LTCH cases), consistent with our existing
methodology, we are proposing to continue to employ the quintile
methodology for proposed low-volume MS-LTC-DRGs, such that we grouped
the ``low-volume MS-LTC-DRGs'' (that is, proposed MS-LTC-DRGs that
contained between 1 and 24 applicable LTCH cases into one of five
categories (quintiles) based on average charges (67 FR 55984 through
55995; 72 FR 47283 through 47288; and 80 FR 49628). In cases where the
initial assignment of a low-volume MS-LTC-DRG to a quintile resulted in
nonmonotonicity within a base-DRG, we are proposing to make adjustments
to the resulting low-volume

[[Page 25149]]

MS-LTC-DRGs to preserve monotonicity, as discussed in detail in section
VII.C.3.g. (Step 6) of the preamble of this proposed rule.
In this proposed rule, based on the best available data (that is,
the December 2015 update of the FY 2015 MedPAR files), we identified
259 proposed MS-LTC-DRGs that contained between 1 and 24 applicable
LTCH cases. This list of proposed MS-LTC-DRGs was then divided into one
of the 5 low-volume quintiles, each containing 51 proposed MS-LTC-DRGs
(259/5 = 51, with a remainder of 4). We assigned the proposed low-
volume MS-LTC-DRGs to specific low-volume quintiles by sorting the
proposed low-volume MS-LTC-DRGs in ascending order by average charge in
accordance with our established methodology. Based on the data
available for the proposed rule, the number of proposed MS-LTC-DRGs
with less than 25 applicable LTCH cases is not evenly divisible by 5.
Therefore, we are proposing to employ our historical methodology for
determining which of the low-volume quintiles contain the additional
proposed low-volume MS-LTC-DRG. Specifically for this proposed rule,
after organizing the proposed MS-LTC-DRGs by ascending order by average
charge, we assigned the first 51st (1st through 51st) of proposed low-
volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1.
The 51 proposed MS-LTC-DRGs with the highest average charge cases were
assigned into Quintile 5. Because the average charge of the 52nd
proposed low-volume MS-LTC-DRG in the sorted list was closer to the
average charge of the 51st proposed low-volume MS-LTC-DRG (assigned to
Quintile 1) than to the average charge of the 53rd proposed low-volume
MS-LTC-DRG (assigned to Quintile 2), we assigned it to Quintile 1 (such
that Quintile 1 contains 52 proposed low-volume MS-LTC-DRGs before any
adjustments for nonmonotonicity, as discussed below). This results in 4
of the 5 proposed low-volume quintiles containing 52 proposed MS-LTC-
DRGs (Quintiles 1, 2, 3 and 4) and one proposed low-volume quintile
containing 51 proposed MS-LTC-DRGs (Quintile 5). Table 13A, listed in
section VI. of the Addendum to this proposed rule and available via the
Internet on the CMS Web site, lists the composition of the proposed
low-volume quintiles for MS-LTC-DRGs for FY 2017.
In order to determine the proposed FY 2017 relative weights for the
proposed low-volume MS-LTC-DRGs, we are proposing to use the five
proposed low-volume quintiles described previously. We determined a
proposed relative weight and (geometric) average length of stay for
each of the five proposed low-volume quintiles using the methodology
described in section VII.C.3.g. of the preamble of this proposed rule.
We are proposing to assign the same proposed relative weight and
average length of stay to each of the proposed low-volume MS-LTC-DRGs
that make up an individual low-volume quintile. We note that, as this
system is dynamic, it is possible that the number and specific type of
MS-LTC-DRGs with a low-volume of applicable LTCH cases would vary in
the future. Furthermore, we note that we continue to monitor the volume
(that is, the number of applicable LTCH cases) in the low-volume
quintiles to ensure that our quintile assignments used in determining
the MS-LTC-DRG relative weights result in appropriate payment for LTCH
cases grouped to low-volume MS-LTC-DRGs and do not result in an
unintended financial incentive for LTCHs to inappropriately admit these
types of cases.
g. Steps for Determining the Proposed FY 2017 MS-LTC-DRG Relative
Weights
In this proposed rule, we are proposing to continue to use our
current methodology to determine the proposed FY 2017 MS-LTC-DRG
relative weights.
In summary, to determine the proposed FY 2017 MS-LTC-DRG relative
weights, we are proposing to group applicable LTCH cases to the
appropriate proposed MS-LTC-DRG, while taking into account the proposed
low-volume quintiles (as described above) and proposed cross-walked no-
volume MS-LTC-DRGs (as described later in this section). After
establishing the appropriate proposed MS-LTC-DRG (or proposed low-
volume quintile), we calculate the proposed FY 2017 relative weights by
first removing cases with a length of stay of 7 days or less and
statistical outliers (Steps 1 and 2 below). Next, we adjust the number
of applicable LTCH cases in each proposed MS-LTC-DRG (or proposed low-
volume quintile) for the effect of SSO cases (Step 3 below). After
removing applicable LTCH cases with a length of stay of 7 days or less
(Step 1 below) and statistical outliers (Step 2 below), which are the
SSO-adjusted applicable LTCH cases and corresponding charges (step 3
below), we calculate ``relative adjusted weights'' for each proposed
MS-LTC-DRG (or low-volume quintile) using the HSRV method.
Step 1--Remove cases with a length of stay of 7 days or less.
The first step in our calculation of the proposed FY 2017 MS-LTC-
DRG relative weights would be to remove cases with a length of stay of
7 days or less. The MS-LTC-DRG relative weights reflect the average of
resources used on representative cases of a specific type. Generally,
cases with a length of stay of 7 days or less do not belong in a LTCH
because these stays do not fully receive or benefit from treatment that
is typical in a LTCH stay, and full resources are often not used in the
earlier stages of admission to a LTCH. If we were to include stays of 7
days or less in the computation of the proposed FY 2017 MS-LTC-DRG
relative weights, the value of many relative weights would decrease
and, therefore, payments would decrease to a level that may no longer
be appropriate. We do not believe that it would be appropriate to
compromise the integrity of the payment determination for those LTCH
cases that actually benefit from and receive a full course of treatment
at a LTCH by including data from these very short stays. Therefore,
consistent with our existing relative weight methodology, in
determining the proposed FY 2017 MS-LTC-DRG relative weights, we are
proposing to remove LTCH cases with a length of stay of 7 days or less
from applicable LTCH cases. (For additional information on what is
removed in this step of the relative weight methodology, we refer
readers to 67 FR 55989 and 74 FR 43959.)
Step 2--Remove statistical outliers.
The next step in our calculation of the proposed FY 2017 MS-LTC-DRG
relative weights would be to remove statistical outlier cases from the
LTCH cases with a length of stay of at least 8 days. Consistent with
our existing relative weight methodology, we are proposing to continue
to define statistical outliers as cases that are outside of 3.0
standard deviations from the mean of the log distribution of both
charges per case and the charges per day for each MS-LTC-DRG. These
statistical outliers are removed prior to calculating the relative
weights because we believe that they may represent aberrations in the
data that distort the measure of average resource use. Including those
LTCH cases in the calculation of the relative weights could result in
an inaccurate relative weight that does not truly reflect relative
resource use among those MS-LTC-DRGs. (For additional information on
what is removed in this step of the relative weight methodology, we
refer readers to 67 FR 55989 and 74 FR 43959.) After removing cases
with a length of stay of 7 days or less and statistical outliers, we
are left with applicable LTCH cases that have a length of stay greater
than or equal to 8 days. In this proposed rule, we refer to

[[Page 25150]]

these cases as ``trimmed applicable LTCH cases.''
Step 3--Adjust charges for the effects of SSOs.
As the next step in the calculation of the proposed FY 2017 MS-LTC-
DRG relative weights, consistent with our historical approach, we are
proposing to adjust each LTCH's charges per discharge for those
remaining cases (that is, trimmed applicable LTCH cases) for the
effects of SSOs (as defined in Sec. 412.529(a) in conjunction with
Sec. 412.503). Specifically, we are proposing to make this adjustment
by counting an SSO case as a fraction of a discharge based on the ratio
of the length of stay of the case to the average length of stay for the
MS-LTC-DRG for non-SSO cases. This has the effect of proportionately
reducing the impact of the lower charges for the SSO cases in
calculating the average charge for the MS-LTC-DRG. This process
produces the same result as if the actual charges per discharge of an
SSO case were adjusted to what they would have been had the patient's
length of stay been equal to the average length of stay of the MS-LTC-
DRG.
Counting SSO cases as full LTCH cases with no adjustment in
determining the proposed FY 2017 MS-LTC-DRG relative weights would
lower the proposed FY 2017 MS-LTC-DRG relative weight for affected
proposed MS-LTC-DRGs because the relatively lower charges of the SSO
cases would bring down the average charge for all cases within a
proposed MS-LTC-DRG. This would result in an ``underpayment'' for non-
SSO cases and an ``overpayment'' for SSO cases. Therefore, we are
proposing to continue to adjust for SSO cases under Sec. 412.529 in
this manner because it would results in more appropriate payments for
all LTCH PPS standard Federal payment rate cases. (For additional
information on this step of the relative weight methodology, we refer
readers to 67 FR 55989 and 74 FR 43959.)
Step 4--Calculate the proposed FY 2017 MS-LTC-DRG relative weights
on an iterative basis.
Consistent with our historical relative weight methodology, we are
proposing to calculate the proposed FY 2017 MS-LTC-DRG relative weights
using the HSRV methodology, which is an iterative process. First, for
each SSO-adjusted trimmed applicable LTCH case, we would calculate a
hospital-specific relative charge value by dividing the charge per
discharge after adjusting for SSOs of the LTCH case (from Step 3) by
the average charge per SSO-adjusted discharge for the LTCH in which the
case occurred. The resulting ratio was then would be multiplied by the
LTCH's case-mix index to produce an adjusted hospital-specific relative
charge value for the case. We use an initial case-mix index value of
1.0 for each LTCH.
For each proposed MS-LTC-DRG, we would calculate the proposed FY
2017 relative weight by dividing the SSO-adjusted average of the
hospital-specific relative charge values for applicable LTCH cases for
the proposed MS-LTC-DRG (that is, the sum of the hospital-specific
relative charge value from above divided by the sum of equivalent cases
from Step 3 for each proposed MS-LTC-DRG) by the overall SSO-adjusted
average hospital-specific relative charge value across all applicable
LTCH cases for all LTCHs (that is, the sum of the hospital-specific
relative charge value from above divided by the sum of equivalent
applicable LTCH cases from Step 3 for each proposed MS-LTC-DRG). Using
these recalculated MS-LTC-DRG relative weights, each LTCH's average
relative weight for all of its SSO-adjusted trimmed applicable LTCH
cases (that is, its case-mix) would be calculated by dividing the sum
of all the LTCH's MS-LTC-DRG relative weights by its total number of
SSO-adjusted trimmed applicable LTCH cases. The LTCHs' hospital-
specific relative charge values (from previous) were then multiplied by
the hospital-specific case-mix indexes. The hospital-specific case-mix
adjusted relative charge values would then be used to calculate a new
set of MS-LTC-DRG relative weights across all LTCHs. This iterative
process continues until there is convergence between the relative
weights produced at adjacent steps, for example, when the maximum
difference was less than 0.0001.
Step 5--Determine a proposed FY 2017 relative weight for MS-LTC-
DRGs with no applicable LTCH cases.
Using the trimmed applicable LTCH cases, we are proposing to
identify the proposed MS-LTC-DRGs for which there were no claims in the
December 2015 update of the FY 2015 MedPAR file and, therefore, for
which no charge data was available for these proposed MS-LTC-DRGs.
Because patients with a number of the diagnoses under those proposed
MS-LTC-DRGs may be treated at LTCHs, consistent with our historical
methodology, we would generally assign a proposed relative weight to
each of the no-volume proposed MS-LTC-DRGs based on clinical similarity
and relative costliness (with the exception of ``transplant'' proposed
MS-LTC-DRGs, ``error'' proposed MS-LTC-DRGs, and proposed MS-LTC-DRGs
that indicate a principal diagnosis related to a psychiatric diagnosis
or rehabilitation (referred to as the ``psychiatric or rehabilitation''
MS-LTC-DRGs), as discussed later in this section of the proposed rule).
(For additional information on this step of the relative weight
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through
43960.)
We are proposing to cross-walk each no-volume proposed MS-LTC-DRG
to another proposed MS-LTC-DRG for which we would calculate a proposed
relative weight (determined in accordance with the methodology
described above). Then, the ``no-volume'' proposed MS-LTC-DRG would be
assigned the same proposed relative weight (and average length of stay)
of the proposed MS-LTC-DRG to which it was cross-walked (as described
in greater detail in this section of the proposed rule).
Of the 757 proposed MS-LTC-DRGs for FY 2017, we identified 358
proposed MS-LTC-DRGs for which there are no trimmed applicable LTCH
cases (the number identified includes the 8 ``transplant'' proposed MS-
LTC-DRGs, the 2 ``error'' proposed MS-LTC-DRGs, and the 15
``psychiatric or rehabilitation'' proposed MS-LTC-DRGs, which are
discussed below). We are proposing to assign proposed relative weights
to each of the 333 no-volume proposed MS-LTC-DRGs that contained
trimmed applicable LTCH cases based on clinical similarity and relative
costliness to one of the remaining 399 (757-358 = 399) proposed MS-LTC-
DRGs for which we would calculate proposed relative weights based on
the trimmed applicable LTCH cases in the FY 2015 MedPAR file data using
the steps described previously. (For the remainder of this discussion,
we refer to the ``cross-walked'' proposed MS-LTC-DRGs as the proposed
MS-LTC-DRGs to which we cross-walked one of the 333 ``no volume''
proposed MS-LTC-DRGs.) Then, we generally assigned the 333 no-volume
proposed MS-LTC-DRG the proposed relative weight of the cross-walked
proposed MS-LTC-DRG. (As explained below in Step 6, when necessary, we
made adjustments to account for nonmonotonicity.)
We are proposing to cross-walk the no-volume proposed MS-LTC-DRG to
a proposed MS-LTC-DRG for which we would calculate proposed relative
weights based on the December 2015 update of the FY 2015 MedPAR file,
and to which it is similar clinically in intensity of use of resources
and relative costliness as determined by criteria such as care provided
during the period of time surrounding surgery, surgical

[[Page 25151]]

approach (if applicable), length of time of surgical procedure,
postoperative care, and length of stay. (For more details on our
process for evaluating relative costliness, we refer readers to the FY
2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in the
rare event that there would be a few LTCH cases grouped to one of the
no-volume proposed MS-LTC-DRGs in FY 2017, the proposed relative
weights assigned based on the cross-walked MS-LTC-DRGs would result in
an appropriate LTCH PPS payment because the crosswalks, which are based
on clinical similarity and relative costliness, would be expected to
generally require equivalent relative resource use.
We are proposing to then assign the proposed relative weight of the
cross-walked proposed MS-LTC-DRG as the proposed relative weight for
the no-volume proposed MS-LTC-DRG such that both of these proposed MS-
LTC-DRGs (that is, the no-volume proposed MS-LTC-DRG and the cross-
walked proposed MS-LTC-DRG) have the same proposed relative weight (and
average length of stay) for FY 2017. We note that, if the cross-walked
proposed MS-LTC-DRG had 25 applicable LTCH cases or more, its proposed
relative weight (calculated using the methodology described in Steps 1
through 4 above) was assigned to the no-volume proposed MS-LTC-DRG as
well. Similarly, if the proposed MS-LTC-DRG to which the no-volume
proposed MS-LTC-DRG was cross-walked had 24 or less cases and,
therefore, was designated to one of the proposed low-volume quintiles
for purposes of determining the proposed relative weights, we assigned
the proposed relative weight of the applicable proposed low-volume
quintile to the no-volume proposed MS-LTC-DRG such that both of these
proposed MS-LTC-DRGs (that is, the no-volume proposed MS-LTC-DRG and
the proposed cross-walked MS-LTC-DRG) have the same proposed relative
weight for FY 2017. (As we noted previously, in the infrequent case
where nonmonotonicity involving a no-volume proposed MS-LTC-DRG
resulted, additional adjustments as described in Step 6 are required in
order to maintain monotonically increasing relative weights.)
For this proposed rule, a list of the no-volume proposed MS-LTC-
DRGs and the proposed MS-LTC-DRGs to which each would cross-walk (that
is, the cross-walked proposed MS-LTC-DRGs) for FY 2017 is shown in
Table 13B, which is listed in section VI. of the Addendum to this
proposed rule and is available via the Internet on the CMS Web site.
To illustrate this methodology for determining the proposed
relative weights for the FY 2017 proposed MS-LTC-DRGs with no
applicable LTCH cases, we are providing the following example, which
refers to the no-volume proposed MS-LTC-DRGs crosswalk information for
FY 2017 provided in Table 13B.
Example: There were no trimmed applicable LTCH cases in the FY 2015
MedPAR file that we are using for this proposed rule for proposed MS-
LTC-DRG 61 (Acute Ischemic Stroke with Use of Thrombolytic Agent with
MCC). We determined that proposed MS-LTC-DRG 70 (Nonspecific
Cerebrovascular Disorders with MCC) is similar clinically and based on
resource use to proposed MS-LTC-DRG 61. Therefore, we assigned the same
proposed relative weight (and average length of stay) of proposed MS-
LTC-DRG 70 of 0.9156 for FY 2017 to proposed MS-LTC-DRG 61 (refer to
Table 11, which is listed in section VI. of the Addendum to this final
rule and is available via the Internet on the CMS Web site).
Again, we note that, as this system is dynamic, it is entirely
possible that the number of MS-LTC-DRGs with no volume would vary in
the future. Consistent with our historical practice, we used the most
recent available claims data to identify the trimmed applicable LTCH
cases from which we determined the proposed relative weights in this
proposed rule.
For FY 2017, consistent with our historical relative weight
methodology, we are proposing to establish a relative weight of 0.0000
for the following transplant proposed MS-LTC-DRGs: Heart Transplant or
Implant of Heart Assist System with MCC (MS-LTC-DRG 1); Heart
Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG
2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 5);
Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-
DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8);
Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG
652). This is because Medicare only covers these procedures if they are
performed at a hospital that has been certified for the specific
procedures by Medicare and presently no LTCH has been so certified. At
the present time, we include these eight transplant proposed MS-LTC-
DRGs in the GROUPER program for administrative purposes only. Because
we use the same GROUPER program for LTCHs as is used under the IPPS,
removing these proposed MS-LTC-DRGs would be administratively
burdensome. (For additional information regarding our treatment of
transplant MS-LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final
rule (74 FR 43964).) In addition, consistent with our historical policy
and we are proposing to establish a relative weight of 0.0000 for the 2
``error'' proposed MS-LTC-DRGs (that is, MS-LTC-DRG 998 (Principal
Diagnosis Invalid as Discharge Diagnosis) and MS-LTC-DRG 999
(Ungroupable)) because applicable LTCH cases grouped to these proposed
MS-LTC-DRGs cannot be properly assigned to an MS-LTC-DRG according to
the grouping logic.
In this proposed rule, for FY 2017, we are proposing to establish a
proposed relative weight equal to the respective FY 2015 relative
weight of the MS-LTC-DRGs for the following ``psychiatric or
rehabilitation'' proposed MS-LTC-DRGs: MS-LTC-DRG 876 (O.R. Procedure
with Principal Diagnoses of Mental Illness); MS-LTC-DRG 880 (Acute
Adjustment Reaction & Psychosocial Dysfunction); MS-LTC-DRG 881
(Depressive Neuroses); MS-LTC-DRG 882 (Neuroses Except Depressive); MS-
LTC-DRG 883 (Disorders of Personality & Impulse Control); MS-LTC-DRG
884 (Organic Disturbances & Mental Retardation); MS-LTC-DRG 885
(Psychoses); MS-LTC-DRG 886 (Behavioral & Developmental Disorders); MS-
LTC-DRG 887 (Other Mental Disorder Diagnoses); MS-LTC-DRG 894 (Alcohol/
Drug Abuse or Dependence, Left Ama); MS-LTC-DRG 895 (Alcohol/Drug Abuse
or Dependence, with Rehabilitation Therapy); MS-LTC-DRG 896 (Alcohol/
Drug Abuse or Dependence, without Rehabilitation Therapy with MCC); MS-
LTC-DRG 897 (Alcohol/Drug Abuse or Dependence, without Rehabilitation
Therapy without MCC); MS-LTC-DRG 945 (Rehabilitation with CC/MCC); and
MS-LTC-DRG 946 (Rehabilitation without CC/MCC). As we discussed when we
implemented the dual rate LTCH PPS payment structure, LTCH discharges
that are grouped to these 15 ``psychiatric and rehabilitation'' MS-LTC-
DRGs do not meet the criteria for exclusion from the site neutral
payment rate. As such, under the criterion for a principal diagnosis
relating to a psychiatric diagnosis or to rehabilitation, there are no
applicable LTCH cases to use in calculating a relative weight for the
``psychiatric and rehabilitation'' proposed MS-LTC-DRGs. In other
words, any LTCH PPS discharges grouped to any of the 15 ``psychiatric

[[Page 25152]]

and rehabilitation'' proposed MS-LTC-DRGs will always be paid at the
site neutral payment rate, and, therefore, those proposed MS-LTC-DRGs
will never include any LTCH cases that meet the criteria for exclusion
from the site neutral payment rate. However, section 1886(m)(6)(B) of
the Act establishes a transitional payment method for cases that would
be paid at the site neutral payment rate for LTCH discharges occurring
in cost reporting periods beginning during FY 2016 or FY 2017. Under
the transitional payment method for site neutral payment rate cases,
for LTCH discharges occurring in cost reporting periods beginning on or
after October 1, 2016, and on or before September 30, 2017, site
neutral payment rate cases are paid a blended payment rate, calculated
as 50 percent of the applicable site neutral payment rate amount for
the discharge and 50 percent of the applicable LTCH PPS standard
Federal payment rate. Because the LTCH PPS standard Federal payment
rate is based on the relative weight of the MS-LTC-DRG, in order to
determine the transitional blended payment for site neutral payment
rate cases grouped to one of the ``psychiatric or rehabilitation''
proposed MS-LTC-DRGs in FY 2017, we are proposing to assign a proposed
relative weight to these proposed MS-LTC-DRGs for FY 2017, that would
be the same as the FY 2015 relative weight (which is also the same as
the FY 2016 relative weight). We believe that using the respective FY
2015 relative weight for each of the ``psychiatric or rehabilitation''
proposed MS-LTC-DRGs results in appropriate payments for LTCH cases
that are paid at the site neutral payment rate under the transition
policy provided by the statute because there are no clinically similar
MS-LTC-DRGs for which we were able to determine relative weights based
on applicable LTCH cases in the FY 2015 MedPAR file data using the
steps described above. Furthermore, we believe that it would be
administratively burdensome and introduce unnecessary complexity to the
MS-LTC-DRG relative weight calculation to use the LTCH discharges in
the MedPAR file data to calculate a relative weight for those 15
``psychiatric and rehabilitation'' proposed MS-LTC-DRGs to be used for
the sole purpose of determining half of the transitional blended
payment for site neutral payment rate cases during the transition
period. (80 FR 49631 through 49632)
In summary, for FY 2017, we are proposing to establish a proposed
relative weight (and average length of stay thresholds) equal to the
respective FY 2015 relative weight of the proposed MS-LTC-DRGs for the
15 ``psychiatric or rehabilitation'' proposed MS-LTC-DRGs listed
previously (that is, MS-LTC-DRGs 876, 880, 881, 882, 883, 884, 885,
886, 887, 894, 895, 896, 897, 945, and 946). Table 11, which is listed
in section VI. of the Addendum to this proposed rule and is available
via the Internet on the CMS Web site, reflects this proposal.
Step 6--Adjust the proposed FY 2017 MS-LTC-DRG relative weights to
account for nonmonotonically increasing relative weights.
The MS-DRGs contain base DRGs that have been subdivided into one,
two, or three severity of illness levels. Where there are three
severity levels, the most severe level has at least one secondary
diagnosis code that is referred to as an MCC (that is, major
complication or comorbidity). The next lower severity level contains
cases with at least one secondary diagnosis code that is a CC (that is,
complication or comorbidity). Those cases without an MCC or a CC are
referred to as ``without CC/MCC.'' When data do not support the
creation of three severity levels, the base MS-DRG is subdivided into
either two levels or the base MS-DRG is not subdivided. The two-level
subdivisions could consist of the MS-DRG with CC/MCC and the MS-DRG
without CC/MCC. Alternatively, the other type of two-level subdivision
may consist of the MS-DRG with MCC and the MS-DRG without MCC.
In those base MS-LTC-DRGs that are split into either two or three
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a
three-level split). That is, theoretically, cases that are more severe
typically require greater expenditure of medical care resources and
would result in higher average charges. Therefore, in the three
severity levels, relative weights should increase by severity, from
lowest to highest. If the relative weights decrease as severity
increases (that is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC
has a higher relative weight than one with MCC, or the MS-LTC-DRG
``without CC/MCC'' has a higher relative weight than either of the
others), they are nonmonotonic. We continue to believe that utilizing
nonmonotonic relative weights to adjust Medicare payments would result
in inappropriate payments because the payment for the cases in the
higher severity level in a base MS-LTC-DRG (which are generally
expected to have higher resource use and costs) would be lower than the
payment for cases in a lower severity level within the same base MS-
LTC-DRG (which are generally expected to have lower resource use and
costs). Therefore, in determining the proposed FY 2017 MS-LTC-DRG
relative weights, consistent with our historical methodology, we are
proposing to continue to combine MS-LTC-DRG severity levels within a
base MS-LTC-DRG for the purpose of computing a proposed relative weight
when necessary to ensure that monotonicity is maintained. For a
comprehensive description of our existing methodology to adjust for
nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43964 through 43966). Any adjustments for
nonmonotonicity that were made in determining the proposed FY 2017 MS-
LTC-DRG relative weights in this proposed rule by applying this
methodology are denoted in Table 11, which is listed in section VI. of
the Addendum to this proposed rule and is available via the Internet on
the CMS Web site.
Step 7--Calculate the proposed FY 2017 MS-LTC-DRG reclassification
and recalibration budget neutrality factor.
In accordance with the regulations at Sec. 412.517(b) (in
conjunction with Sec. 412.503), the annual update to the MS-LTC-DRG
classifications and relative weights is done in a budget neutral manner
such that estimated aggregate LTCH PPS payments would be unaffected,
that is, would be neither greater than nor less than the estimated
aggregate LTCH PPS payments that would have been made without the MS-
LTC-DRG classification and relative weight changes. (For a detailed
discussion on the establishment of the budget neutrality requirement
for the annual update of the MS-LTC-DRG classifications and relative
weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR
26881 and 26882).)
The MS-LTC-DRG classifications and relative weights are updated
annually based on the most recent available LTCH claims data to reflect
changes in relative LTCH resource use (Sec. 412.517(a) in conjunction
with Sec. 412.503). To achieve the budget neutrality requirement at
Sec. 412.517(b), under our established methodology, for each annual
update, the MS-LTC-DRG relative weights are uniformly adjusted to
ensure that estimated aggregate payments under the LTCH PPS would not
be affected (that is, decreased or increased). Consistent with that
provision, we are proposing to update the MS-LTC-DRG classifications
and

[[Page 25153]]

relative weights for FY 2017 based on the most recent available LTCH
data for applicable LTCH cases, and to continue to apply a budget
neutrality adjustment in determining the FY 2017 MS-LTC-DRG relative
weights.
To ensure budget neutrality in the update to the MS-LTC-DRG
classifications and relative weights under Sec. 412.517(b), we are
proposing to continuing to use our established two-step budget
neutrality methodology. Therefore, in this proposed rule, in the first
step of our MS-LTC-DRG budget neutrality methodology, for FY 2017, we
are proposing to calculate and apply a normalization factor to the
recalibrated relative weights (the result of Steps 1 through 6
discussed previously) to ensure that estimated payments are not
affected by changes in the composition of case types or the changes to
the classification system. That is, the proposed normalization
adjustment is intended to ensure that the recalibration of the MS-LTC-
DRG relative weights (that is, the process itself) neither increases
nor decreases the average case-mix index.
To calculate the proposed normalization factor for FY 2017 (the
first step of our budget neutrality methodology), we used the following
three steps: (1.a.) Use the most recent available applicable LTCH cases
from the most recent available data (that is, LTCH discharges from the
FY 2015 MedPAR file) and grouped them using the proposed FY 2017
GROUPER (that is, proposed Version 34 for FY 2017) and the recalibrated
FY 2017 MS-LTC-DRG relative weights (determined in Steps 1 through 6
above) to calculate the average case-mix index; (1.b.) group the same
applicable LTCH cases (as are used in Step 1.a.) using the FY 2016
GROUPER (Version 33) and FY 2016 MS-LTC-DRG relative weights and
calculated the average case-mix index; and (1.c.) compute the ratio of
these average case-mix indexes by dividing the average CMI for FY 2016
(determined in Step 1.b.) by the average case-mix index for FY 2017
(determined in Step 1.a.). As a result, in determining the proposed MS-
LTC-DRG relative weights for FY 2017, each recalibrated MS-LTC-DRG
relative weight is multiplied by the proposed normalization factor of
1.28094 (determined in Step 1.c.) in the first step of the budget
neutrality methodology, which produces ``normalized relative weights.''
In the second step of our MS-LTC-DRG budget neutrality methodology,
we are proposing to calculate a second budget neutrality factor
consisting of the ratio of estimated aggregate FY 2017 LTCH PPS
standard Federal payment rate payments for applicable LTCH cases (the
sum of all calculations under Step 1.a. mentioned previously) after
reclassification and recalibration to estimated aggregate payments for
FY 2017 LTCH PPS standard Federal payment rate payments for applicable
LTCH cases before reclassification and recalibration (that is, the sum
of all calculations under Step 1.b. mentioned previously).
That is, for this proposed rule, for FY 2017, under the second step
of the budget neutrality methodology, we determined the budget
neutrality adjustment factor using the following three steps: (2.a.)
Simulate estimated total FY 2017 LTCH PPS standard Federal payment rate
payments for applicable LTCH cases using the normalized relative
weights for FY 2017 and proposed GROUPER Version 34 (as described
above); (2.b.) simulate estimated total FY 2016 LTCH PPS standard
Federal payment rate payments for applicable LTCH cases using the FY
2016 GROUPER (Version 33) and the FY 2016 MS-LTC-DRG relative weights
in Table 11 of the FY 2016 IPPS/LTCH PPS final rule available on the
Internet, as described in section VI. of the Addendum of that final
rule; and (2.c.) calculate the ratio of these estimated total payments
by dividing the value determined in Step 2.b. by the value determined
in Step 2.a. In determining the proposed FY 2017 MS-LTC-DRG relative
weights, each proposed normalized relative weight was then multiplied
by a proposed budget neutrality factor of 0.998723 (the value
determined in Step 2.c.) in the second step of the budget neutrality
methodology to achieve the budget neutrality requirement at Sec.
412.517(b).
Accordingly, in determining the proposed FY 2017 MS-LTC-DRG
relative weights in this proposed rule, consistent with our existing
methodology, we are proposing to apply a proposed normalization factor
of 1.28094 and a proposed budget neutrality factor of 0.998723. Table
11, which is listed in section VI. of the Addendum to this proposed
rule and is available via the Internet on the CMS Web site, lists the
proposed MS-LTC-DRGs and their respective proposed relative weights,
geometric mean length of stay, five-sixths of the geometric mean length
of stay (used to identify SSO cases under Sec. 412.529(a)), and the
``IPPS Comparable Thresholds'' (used in determining SSO payments under
Sec. 412.529(c)(3)), for FY 2017.

D. Proposed Rebasing of the LTCH Market Basket

1. Background
The input price index (that is, the market basket) that was used to
develop the LTCH PPS for FY 2003 was the ``excluded hospital with
capital'' market basket. That market basket was based on 1997 Medicare
cost report data and included data for Medicare-participating IRFs,
IPFs, LTCHs, cancer hospitals, and children's hospitals. Although the
term ``market basket'' technically describes the mix of goods and
services used in providing hospital care, this term is also commonly
used to denote the input price index (that is, cost category weights
and price proxies combined) derived from that mix. Accordingly, the
term ``market basket,'' as used in this section, refers to an input
price index.
Beginning with RY 2007, LTCH PPS payments were updated using a
2002-based market basket reflecting the operating and capital cost
structures for IRFs, IPFs, and LTCHs (hereafter referred to as the
rehabilitation, psychiatric, and long-term care (RPL) market basket).
We excluded cancer and children's hospitals from the RPL market basket
because their payments are based entirely on reasonable costs subject
to rate-of-increase limits established under the authority of section
1886(b) of the Act, which are implemented in regulations at 42 CFR
413.40. Those types of hospitals are not paid under a PPS. Also, the
2002 cost structures for cancer and children's hospitals are noticeably
different from the cost structures for freestanding IRFs, freestanding
IPFs, and LTCHs. A complete discussion of the 2002-based RPL market
basket can be found in the RY 2007 LTCH PPS final rule (71 FR 27810
through 27817).
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51756), we finalized
the rebasing and revising of the 2002-based RPL market basket by
creating and implementing a 2008-based RPL market basket. We also
discussed the creation of a stand-alone LTCH market basket and received
several public comments, all of which supported deriving a stand-alone
LTCH market basket (76 FR 51756 through 51757). In the FY 2013 IPPS/
LTCH PPS final rule, we finalized the adoption of a stand-alone 2009-
based LTCH-specific market basket that reflects the cost structures of
LTCHs only (77 FR 53467 through 53479).
For this FY 2017 proposed rule, we are proposing to rebase and
revise the 2009-based LTCH-specific market basket. The proposed LTCH
market basket is primarily based on Medicare cost report data for LTCHs
for 2013,

[[Page 25154]]

which are for cost reporting periods beginning on and after October 1,
2012, and before October 1, 2013. We are proposing to use data from
cost reports beginning in FY 2013 because these data are the latest
available complete data for purposes of calculating cost weights for
the market basket. In the following discussion, we provide an overview
of the proposed LTCH market basket and describe the methodologies we
are proposing to use for determining the operating and capital portions
of the proposed 2013-based LTCH market basket.
2. Overview of the Proposed 2013-Based LTCH Market Basket
Similar to the 2009-based LTCH-specific market basket, the proposed
2013-based LTCH market basket is a fixed-weight, Laspeyres-type price
index. A Laspeyres price index measures the change in price, over time,
of the same mix of goods and services purchased in the base period. Any
changes in the quantity or mix (that is, intensity) of goods and
services purchased over time are not measured.
The index itself is constructed using three steps. First, a base
period is selected (in this proposed rule, we are proposing to use 2013
as the base period) and total base period expenditures are estimated
for a set of mutually exclusive and exhaustive spending categories,
with the proportion of total costs that each category represents being
calculated. These proportions are called ``cost weights'' or
``expenditure weights.'' Second, each expenditure category is matched
to an appropriate price or wage variable, referred to as a ``price
proxy.'' In almost every instance, these price proxies are derived from
publicly available statistical series that are published on a
consistent schedule (preferably at least on a quarterly basis).
Finally, the expenditure weight for each cost category is multiplied by
the level of its respective price proxy. The sum of these products
(that is, the expenditure weights multiplied by their price levels) for
all cost categories yields the composite index level of the market
basket in a given period. Repeating this step for other periods
produces a series of market basket levels over time. Dividing an index
level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that timeframe.
As noted above, the market basket is described as a fixed-weight
index because it represents the change in price over time of a constant
mix (quantity and intensity) of goods and services needed to furnish
hospital services. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, a hospital hiring more
nurses to accommodate the needs of patients would increase the volume
of goods and services purchased by the hospital, but would not be
factored into the price change measured by a fixed-weight hospital
market basket. Only when the index is rebased would changes in the
quantity and intensity be captured, with those changes being reflected
in the cost weights. Therefore, we rebase the market basket
periodically so that the cost weights reflect a recent mix of goods and
services that hospitals purchase (hospital inputs) to furnish inpatient
care.
3. Development of the Proposed 2013-Based LTCH Market Basket Cost
Categories and Weights
We are inviting public comments on our proposed methodology,
discussed below, for deriving the proposed 2013-based LTCH market
basket.
a. Use of Medicare Cost Report Data
The proposed 2013-based LTCH market basket consists of six major
cost categories derived from the 2013 LTCH Medicare cost reports (CMS
Form 2552-10), including wages and salaries, employee benefits,
contract labor, pharmaceuticals, professional liability insurance, and
capital. After we calculate these cost categories, we are left with a
residual cost category, which reflects all other input costs other than
those captured in the six cost categories above. This is the same
number of cost categories derived for the 2009-based LTCH-specific
market basket using the 2009 Medicare cost report data (CMS Form 2552-
96). These 2013 Medicare cost reports include data for cost reporting
periods beginning on and after October 1, 2012, and before October 1,
2013. We are proposing to use 2013 as the base year because we believe
that the 2013 Medicare cost reports represent the most recent, complete
set of Medicare cost report data available to develop cost weights for
an LTCH market basket. Medicare cost report data include costs for all
patients, including Medicare, Medicaid, and private payer.
Because our goal is to measure cost shares for facilities that
serve Medicare beneficiaries, and are reflective of case-mix and
practice patterns associated with providing services to Medicare
beneficiaries in LTCHs, we are proposing to limit our selection of
Medicare cost reports to those from LTCHs that have a Medicare average
length of stay (LOS) that is within a comparable range of their total
facility average LOS. We define the Medicare average LOS based on data
reported on the Medicare cost report (CMS Form 2552-10) Worksheet S-3,
Part I, Line 14. We believe that applying the LOS edit results in a
more accurate reflection of the structure of costs for Medicare covered
days. For the 2009-based LTCH-specific market basket, we used the cost
reports submitted by LTCHs with Medicare average LOS within 15 percent
(that is, 15 percent higher or lower) of the total facility average LOS
for the hospital.
Based on our analysis of the 2013 Medicare cost reports, for the
proposed 2013-based LTCH market basket, we are proposing to use the
cost reports submitted by LTCHs with Medicare average LOS within 25
percent (that is, 25 percent higher or lower) of the total facility
average LOS for the hospital (this edit excludes 6 percent of LTCH
providers). Applying the proposed trim results in a subset of LTCH
Medicare cost reports with an average Medicare LOS of 27 days, average
facility LOS of 28 days, and aggregate Medicare utilization (as
measured by Medicare inpatient LTCH days as a percentage of total
facility inpatient LTCH days) of 66 percent. If we were to apply the
same trim as was applied for the 2009-based LTCH-specific market
basket, we would exclude 11 percent of LTCH providers, but the results
would be very similar with an average Medicare LOS of 27 days, average
facility LOS of 27 days, and aggregate Medicare utilization of 66
percent. The 6 percent of providers that are excluded from the proposed
2013-based LTCH market basket have an average Medicare LOS of 29 days,
average facility LOS of 77 days, and aggregate Medicare utilization of
12 percent. We believe that the use of this proposed trim, instead of
the trim used to develop the 2009-based LTCH-specific market basket, is
a technical improvement because data from more LTCHs are used while
still being reflective of case-mix and practice patterns associated
with providing services to Medicare beneficiaries.
Using the resulting set of Medicare cost reports, we are proposing
to calculate cost weights for seven major cost categories of the
proposed 2013-based LTCH market basket (wages and salaries, employee
benefits, contract labor, professional liability insurance,
pharmaceuticals, capital, and an ``all other'' residual cost category).
The methodology used to develop the proposed 2013-based LTCH market
basket cost weights is generally the same methodology used to develop
the 2009-based LTCH-specific market basket

[[Page 25155]]

cost weights. We describe the detailed methodology for obtaining costs
for each of these seven cost categories below.
(1) Wages and Salaries Costs
We are proposing to derive wages and salaries costs as the sum of
inpatient salaries, ancillary salaries, and a proportion of overhead
(or general service cost center) salaries as reported on Worksheet A,
Column 1. Because overhead salary costs are attributable to the entire
LTCH, we are proposing to only include the proportion attributable to
the Medicare allowable cost centers. Similar to the 2009-based LTCH-
specific market basket major cost weights, we define Medicare allowable
total costs (routine, ancillary and capital) as costs that are eligible
for payment through the LTCH PPS. We are proposing to estimate the
proportion of overhead salaries that are attributed to Medicare
allowable costs centers by multiplying the ratio of Medicare allowable
cost centers' salaries to total salaries (Worksheet A, Column 1, Line
200) by total overhead salaries. A similar methodology was used to
derive wages and salaries costs in the 2009-based LTCH-specific market
basket.
(2) Employee Benefit Costs
Similar to the 2009-based LTCH-specific market basket, we are
proposing to calculate employee benefit costs using Worksheet S3, Part
II. The completion of Worksheet S-3, Part II is only required for IPPS
hospitals. However, for 2013, we found that roughly 35 percent of all
LTCHs voluntarily reported these data (similar to prior years). We note
that this worksheet is only required to be completed by IPPS hospitals.
Our analysis of the Worksheet S-3, Part II data submitted by these
LTCHs indicates that we had a large enough sample to enable us to
produce a reasonable employee benefits cost weight. Specifically, we
found that when we recalculated the cost weight after weighting to
reflect the characteristics of the universe of LTCHs (type of control
(nonprofit, for-profit, and government) and by region), the
recalculation did not have a material effect on the resulting cost
weight. Therefore, we are proposing to use Worksheet S-3, Part II data
(as was done for the 2009-based LTCH-specific market basket) to
calculate the employee benefit cost weight in the proposed 2013-based
LTCH market basket.
We note that, effective with the implementation of CMS Form 2552-10
for cost reporting periods beginning on or after May 1, 2010, CMS began
collecting employee benefits and contract labor data on Worksheet S-3,
Part V, which is applicable to LTCHs. Only a few LTCHs reported these
data and, therefore, we were unable to use such a small sample to
accurately reflect these costs. Therefore, we encourage all LTCHs to
report employee benefit and contract labor costs on Worksheet S-3, Part
V.
(3) Contract Labor Costs
Contract labor costs are primarily associated with direct patient
care services. Contract labor costs for services such as accounting,
billing, and legal are estimated using other government data sources as
described below. As was done for the 2009-based LTCH-specific market
basket, we are proposing to derive the contract labor cost weight for
the proposed 2013-based LTCH market basket using voluntarily reported
data from Worksheet S-3, Part II. Approximately 48 percent of LTCHs
voluntarily reported contract labor cost on the Worksheet S-3, Part II.
Our analysis of these data indicates that we have a large enough sample
to enable us to produce a reasonable contract labor cost weight.
Specifically, we found that when we recalculated the cost weight after
weighting to reflect the characteristics of the universe of LTCHs (type
of control (nonprofit, for-profit, and government) and by region), the
recalculation did not have a material effect on the resulting cost
weight. Therefore, as was done for the 2009-based LTCH-specific market
basket, we are proposing to use Worksheet S-3, Part II to calculate the
contract labor cost weight in the proposed 2013-based LTCH market
basket.
(4) Pharmaceutical Costs
We are proposing to calculate pharmaceutical costs using nonsalary
costs reported on Worksheet A, Column 7, minus the amount on Worksheet
A, Column 1, for the pharmacy cost center (Line 15) and drugs charged
to patients cost center (Line 73). A similar methodology was used for
the 2009-based LTCH-specific market basket using the CMS Form 2552-96.
(5) Professional Liability Insurance Costs
We are proposing that professional liability insurance (PLI) costs
(often referred to as malpractice costs) be equal to premiums, paid
losses and self-insurance costs reported on Worksheet S2, Part I, Line
118, Columns 1 through 3. A similar methodology was used for the 2009-
based LTCH-specific market basket using the CMS Form 2552-96.
(6) Capital Costs
We are proposing that capital costs be equal to Medicare allowable
capital costs as reported on Worksheet B, Part II, Column 26. We are
proposing to define Medicare allowable costs as cost centers: 30
through 35, 50 through 76 (excluding 52, 61, and 75), 90 through 91 and
93. A similar methodology was used for the 2009-based LTCH-specific
market basket using the CMS Form 2552-96.
b. Final Major Cost Category Computation
In addition to our proposals to derive costs for the major cost
categories for each provider using the Medicare cost report data as
previously described, we are proposing to address outlier cases using
the following steps. First, for each provider, we are proposing to
divide the costs for each of the six categories by the total Medicare
allowable costs to obtain cost weights for the universe of LTCH
providers. We are proposing to define total Medicare allowable costs
reported on Worksheet B, Part I, Column 26 for cost centers: 30 Through
35, 50 through 76 (excluding 52, 61, and 75), 90 through 91 and 93.
We then are proposing to remove those providers whose derived cost
weights fall in the top and bottom 5 percent of provider-specific
derived cost weights to ensure the removal of costs for outlier cases.
After the costs for outlier cases have been removed in this manner, we
are proposing to sum the costs for each category across all remaining
providers, and then divide this by the sum of total Medicare allowable
costs across all remaining providers to obtain a cost weight for the
proposed 2013-based LTCH market basket for the given category. Finally,
we are proposing to calculate a seventh major cost weight--the residual
``All Other'' cost weight to reflect all remaining costs that are not
captured in the previous six cost categories listed. We refer readers
to Table VII-1 below for the resulting proposed cost weights for these
major cost categories.

[[Page 25156]]

Table VII-1--Major Cost Categories and Their Respective Cost Weights as
Calculated From Medicare Cost Reports
------------------------------------------------------------------------
Proposed 2013-
based LTCH 2009-based LTCH-
market basket specific market
Major cost categories cost weight basket cost
(percent of total weight (percent
costs) of total costs)
------------------------------------------------------------------------
Wages and Salaries................ 41.5 40.4
Employee Benefits................. 6.5 7.0
Contract Labor.................... 5.9 6.9
Professional Liability Insurance 0.9 0.8
(Malpractice)....................
Pharmaceuticals................... 7.6 8.9
Capital........................... 9.7 9.8
All Other......................... 27.8 26.1
------------------------------------------------------------------------

The wages and salaries cost weight calculated from the Medicare
cost reports for the proposed 2013-based LTCH market basket is
approximately 1 percentage point higher than the wages and salaries
cost weight for the 2009-based LTCH-specific market basket, while the
contract labor cost weight is approximately 1 percentage point lower.
The proposed 2013-based pharmaceuticals cost weight also is roughly 1
percentage point lower than the cost weight for the 2009-based LTCH-
specific market basket.
As we did for the 2009-based LTCH market basket, we are proposing
to allocate the contract labor cost weight to the wages and salaries
and employee benefits cost weights based on their relative proportions
under the assumption that contract labor costs are comprised of both
wages and salaries and employee benefits. The contract labor allocation
proportion for wages and salaries is equal to the wages and salaries
cost weight as a percent of the sum of the wages and salaries cost
weight and the employee benefits cost weight. This rounded percentage
is 86 percent. Therefore, we are proposing to allocate 86 percent of
the contract labor cost weight to the wages and salaries cost weight
and 14 percent to the employee benefits cost weight. We refer readers
to Table VII-2 below that shows the proposed wages and salaries and
employee benefit cost weights after contract labor cost weight
allocation for both the proposed 2013-based LTCH market basket and the
2009-based LTCH-specific market basket.

Table VII-2--Wages and Salaries and Employee Benefits Cost Weights After
Contract Labor Allocation
------------------------------------------------------------------------
Proposed 2013- 2009-based LTCH-
based LTCH cost specific cost
Major cost categories weight (percent weight (percent
of total costs) of total costs)
------------------------------------------------------------------------
Wages and Salaries................ 46.6 46.3
Employee Benefits................. 7.3 8.0
Compensation...................... 53.9 54.3
------------------------------------------------------------------------

After the allocation of the contract labor cost weight, the
proposed 2013-based wages and salaries cost weight is 0.3 percentage
point higher, while the employee benefit cost weight is 0.7 percentage
point lower, relative to the respective cost weights for the 2009-based
LTCH-specific market basket. As a result, in the proposed 2013-based
LTCH market basket, the compensation cost weight is 0.4 percentage
point lower than the compensation cost weight for the 2009-based LTCH-
specific market basket.
c. Derivation of the Detailed Operating Cost Weights
To further divide the ``All Other'' residual cost weight estimated
from the 2013 Medicare cost report data into more detailed cost
categories, we are proposing to use the 2007 Benchmark Input-Output (I-
O) ``Use Tables/Before Redefinitions/Purchaser Value'' for NAICS
622000, Hospitals, published by the Bureau of Economic Analysis (BEA).
These data are publicly available at the following Web site: http://www.bea.gov/industry/io_annual.htm.
The BEA Benchmark I-O data are scheduled for publication every 5
years with the most recent data available for 2007. The 2007 Benchmark
I-O data are derived from the 2007 Economic Census and are the building
blocks for BEA's economic accounts. Therefore, they represent the most
comprehensive and complete set of data on the economic processes or
mechanisms by which output is produced and distributed.\72\ BEA also
produces Annual I-O estimates. However, while based on a similar
methodology, these estimates reflect less comprehensive and less
detailed data sources and are subject to revision when benchmark data
becomes available. Instead of using the less detailed Annual I-O data,
we are proposing to inflate the 2007 Benchmark I-O data forward to 2013
by applying the annual price changes from the respective price proxies
to the appropriate market basket cost categories that are obtained from
the 2007 Benchmark I-O data. We repeated this practice for each year.
We then calculated the cost shares that each cost category represents
of the 2007 data inflated to 2013. These resulting 2013 cost shares
were applied to the ``All Other'' residual cost weight to obtain the
detailed cost weights for the proposed 2013-based LTCH market basket.
For example, the cost for Food: Direct Purchases represents 6.5 percent
of the sum of the ``All Other'' 2007 Benchmark I-O Hospital
Expenditures inflated to 2013. Therefore, the Food: Direct Purchases
cost weight represents

[[Page 25157]]

6.5 percent of the proposed 2013-based LTCH market basket's ``All
Other'' cost category (27.8 percent), yielding a ``final'' Food: Direct
Purchases proposed cost weight of 1.8 percent in the proposed 2013-
based LTCH market basket (0.065 x 27.8 percent = 1.8 percent).
---------------------------------------------------------------------------

\72\ http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
---------------------------------------------------------------------------

Using this methodology, we are proposing to derive 18 detailed LTCH
market basket cost category weights from the proposed 2013-based LTCH
market basket residual cost weight (27.8 percent). These categories
are: (1) Electricity; (2) Fuel, Oil, and Gasoline; (3) Water and
Sewerage; (4) Food: Direct Purchases; (5) Food: Contract Services; (6)
Chemicals; (7) Medical Instruments; (8) Rubber and Plastics; (9) Paper
and Printing Products; (10) Miscellaneous Products; (11) Professional
Fees: Labor-Related; (12) Administrative and Facilities Support
Services; (13) Installation, Maintenance, and Repair Services; (14) All
Other Labor-Related Services; (15) Professional Fees: Nonlabor-Related;
(16) Financial Services; (17) Telephone Services; and (18) All Other
Nonlabor-Related Services.
d. Derivation of the Detailed Capital Cost Weights
As described in section VII.D.3.b. of the preamble of this proposed
rule, we are proposing a capital-related cost weight of 9.7 percent as
calculated from the 2013 Medicare cost reports for LTCHs after applying
the proposed trims described above. We are proposing to then separate
this total capital-related cost weight into more detailed cost
categories.
Using 2013 Medicare cost reports, we are able to group capital-
related costs into the following categories: Depreciation, Interest,
Lease, and Other Capital-Related costs. For each of these categories,
we are proposing to determine what proportion of total capital-related
costs the category represents using the data reported by the LTCH on
Worksheet A-7, which is the same methodology used for the 2009-based
LTCH-specific market basket.
We also are proposing to allocate lease costs across each of the
remaining detailed capital-related cost categories as was done in the
2009-based LTCH-specific market basket. This would result in three
primary capital-related cost categories in the proposed 2013-based LTCH
market basket: Depreciation, Interest, and Other Capital-Related costs.
Lease costs are unique in that they are not broken out as a separate
cost category in the proposed 2013-based LTCH market basket. Rather, we
are proposing to proportionally distribute these costs among the cost
categories of Depreciation, Interest, and Other Capital-Related,
reflecting the assumption that the underlying cost structure of leases
is similar to that of capital-related costs in general. As was done for
the 2009-based LTCH-specific market basket, we are proposing to assume
that 10 percent of the lease costs as a proportion of total capital-
related costs (62.3 percent) represents overhead and to assign those
costs to the Other Capital-Related cost category accordingly.
Therefore, we are assuming that approximately 6.2 percent (62.3 percent
x 0.1) of total capital-related costs represent lease costs
attributable to overhead, and we are proposing to add this 6.2 percent
to the 5.9 percent Other Capital-Related cost category weight. We are
then proposing to distribute the remaining lease costs (56.1 percent,
or 62.3 percent-6.2 percent) proportionally across the three cost
categories (Depreciation, Interest, and Other Capital-Related) based on
the proportion that these categories comprise of the sum of the
Depreciation, Interest, and Other Capital-Related cost categories
(excluding lease expenses). For example, the Other Capital-Related
capital cost category represented 15.5 percent of all three cost
categories (Depreciation, Interest, and Other Capital-Related) prior to
any lease expenses being allocated. This 15.5 percent is applied to the
56.1 percent of remaining lease expenses so that another 8.7 percent of
lease expenses as a percent of total capital-related costs is allocated
to the Other Capital-Related cost category. Therefore, the resulting
proposed Other Capital-Related cost weight is 20.8 percent (5.9 percent
+ 6.2 percent + 8.7 percent). This is the same methodology used for the
2009-based LTCH-specific market basket. The proposed allocation of
these lease expenses are shown in Table VII-3.
Finally, we are proposing to further divide the Depreciation and
Interest cost categories. We are proposing to separate Depreciation
cost category into the following two categories: (1) Building and Fixed
Equipment and (2) Movable Equipment. We also are proposing to separate
the Interest cost category into the following two categories: (1)
Government/Nonprofit; and (2) For-profit.
To disaggregate the depreciation cost weight, we needed to
determine the percent of total depreciation costs for LTCHs (after the
allocation of lease costs) that are attributable to building and fixed
equipment, which we hereafter refer to as the ``fixed percentage.'' We
are proposing to use depreciation and lease data from Worksheet A-7 of
the 2013 Medicare cost reports, which is the same methodology used for
the 2009-based LTCH-specific market basket. Based on the 2013 LTCH
Medicare cost report data, we have determined that depreciation costs
for building and fixed equipment account for 39 percent of total
depreciation costs, while depreciation costs for movable equipment
account for 61 percent of total depreciation costs. As mentioned above,
we are proposing to allocate lease expenses among the Depreciation,
Interest, and Other Capital cost categories. We determined that leasing
building and fixed equipment expenses account for 86 percent of total
leasing expenses, while leasing movable equipment expenses account for
14 percent of total leasing expenses. We are proposing to sum the
depreciation and leasing expenses for building and fixed equipment, as
well as sum the depreciation and leasing expenses for movable
equipment. This results in the proposed building and fixed equipment
depreciation cost weight (after leasing costs are included)
representing 73 percent of total depreciation costs and the movable
equipment depreciation cost weight (after leasing costs are included)
representing 27 percent of total depreciation costs.
To disaggregate the interest cost weight, we needed to determine
the percent of total interest costs for LTCHs that are attributable to
government and nonprofit facilities, which we hereafter refer to as the
``nonprofit percentage,'' because price pressures associated with these
types of interest costs tend to differ from those for for-profit
facilities. We are proposing to use interest costs data from Worksheet
A-7 of the 2013 Medicare cost reports for LTCHs, which is the same
methodology used for the 2009-based LTCH-specific market basket. The
nonprofit percentage determined using this method is 23 percent.
Table VII-3 below provides the proposed detailed capital cost
shares obtained from the Medicare cost reports. Ultimately, if
finalized, these detailed capital cost shares would be applied to the
total capital-related cost weight determined in section VII.D.3.b. of
the preamble of this proposed rule to separate the total capital-
related cost weight of 9.7 percent into more detailed cost categories
and weights.

[[Page 25158]]

Table VII-3--Detailed Capital Cost Weights for the Proposed 2013-Based
LTCH Market Basket
------------------------------------------------------------------------
Proposed detailed
Proposed cost capital cost
shares obtained shares after
Cost categories from Medicare allocation of
cost reports lease expenses
(percent of total (percent of total
costs) costs)
------------------------------------------------------------------------
Depreciation...................... 22.0 54.8
Building and Fixed Equipment.. 16.1 40.1
Movable Equipment............. 5.9 14.7
Interest.......................... 9.8 24.4
Government/Nonprofit.......... 2.2 5.6
For-profit.................... 7.6 18.8
Lease............................. 62.3 .................
Other............................. 5.9 20.8
------------------------------------------------------------------------
Note: Total may not add to 100 due to rounding.

e. Proposed 2013-Based LTCH Market Basket Cost Categories and Weights
Table VII-4 below shows the proposed cost categories and weights
for the proposed 2013-based LTCH market basket compared to the 2009-
based LTCH-specific market basket.

Table VII-4--Proposed 2013-Based LTCH Cost Weights Compared to 2009-
Based LTCH Cost Weights
------------------------------------------------------------------------
Proposed 2013-
Cost category based LTCH cost 2009-based LTCH
weight cost weight
------------------------------------------------------------------------
Total............................. 100.0 100.0
Compensation.................. 53.9 54.3
Wages and Salaries........ 46.6 46.3
Employee Benefits......... 7.3 8.0
Utilities..................... 2.2 1.8
Electricity............... 1.0 1.4
Fuel, Oil, and Gasoline... 1.1 0.3
Water & Sewerage.......... 0.1 0.1
Professional Liability 0.9 0.8
Insurance....................
All Other Products and 33.2 33.3
Services.....................
All Other Products............ 16.3 19.5
Pharmaceuticals........... 7.6 8.9
Food: Direct Purchases.... 1.8 3.4
Food: Contract Services... 1.1 0.5
Chemicals................. 0.7 1.3
Medical Instruments....... 2.4 2.1
Rubber & Plastics......... 0.6 1.3
Paper and Printing 1.2 1.2
Products.................
Apparel................... ................. 0.3
Machinery and Equipment... ................. 0.1
Miscellaneous Products.... 0.8 0.4
All Other Services............ 16.9 13.7
Labor-Related Services........ 8.3 5.3
Professional Fees: Labor- 3.5 2.3
related..................
Administrative and 0.9 0.5
Facilities Support
Services.................
Installation, Maintenance, 2.0 .................
and Repair Services......
All Other: Labor-related 1.9 2.6
Services.................
Nonlabor-Related Services..... 8.6 8.4
Professional Fees: 3.6 5.3
Nonlabor-related.........
Financial services........ 2.9 1.0
Telephone Services........ 0.7 0.5
Postage................... ................. 0.8
All Other: Nonlabor- 1.4 0.7
related Services.........
Capital-Related Costs......... 9.7 9.8
Depreciation.................. 5.3 5.7
Fixed Assets.............. 3.9 3.8
Movable Equipment......... 1.4 1.9
Interest Costs................ 2.4 2.4
Government/Nonprofit...... 0.5 0.7
For Profit................ 1.8 1.7
Other Capital-Related Costs... 2.0 1.7
------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.

[[Page 25159]]

Similar to the 2012-based IRF and 2012-based IPF market baskets,
the proposed 2013-based LTCH market basket does not include separate
cost categories for Apparel, Machinery and Equipment, and Postage. Due
to the small weights associated with these detailed categories and
relatively stable price growth in the applicable price proxy, we are
proposing to include Apparel and Machinery and Equipment in the
Miscellaneous Products cost category and Postage in the All-Other
Nonlabor-Related Services cost category. We note that the machinery and
equipment expenses are for equipment that is paid for in a given year
and not depreciated over the asset's useful life. Depreciation expenses
for movable equipment are reflected in the capital-related cost weight
of the proposed 2013-based LTCH market basket. For the proposed 2013-
based LTCH market basket, we also are proposing to include a separate
cost category for Installation, Maintenance, and Repair Services in
order to proxy these costs by a price index that better reflects the
price changes of labor associated with maintenance-related services.
4. Selection of Proposed Price Proxies
After computing the cost weights for the proposed 2013-based LTCH
market basket, it was necessary to select appropriate wage and price
proxies to reflect the rate of price change for each expenditure
category. With the exception of the proxy for Professional Liability
Insurance, all of the proposed proxies for the operating portion of the
proposed 2013-based LTCH market basket are based on Bureau of Labor
Statistics (BLS) data and are grouped into one of the following BLS
categories:
[ssquf] Producer Price Indexes--Producer Price Indexes (PPIs)
measure price changes for goods sold in markets other than the retail
market. PPIs are preferable price proxies for goods and services that
hospitals purchase as inputs because PPIs better reflect the actual
price changes encountered by hospitals. For example, we are proposing
to use a PPI for prescription drugs, rather than the Consumer Price
Index (CPI) for prescription drugs, because hospitals generally
purchase drugs directly from a wholesaler. The PPIs that we are
proposing to use measure price changes at the final stage of
production.
[ssquf] Consumer Price Indexes--Consumer Price Indexes (CPIs)
measure change in the prices of final goods and services bought by the
typical consumer. Because they may not represent the price encountered
by a producer, we are proposing to use CPIs only if an appropriate PPI
is not available, or if the expenditures are more like those faced by
retail consumers in general rather than by purchasers of goods at the
wholesale level. For example, the CPI for food purchased away from home
is proposed to be used as a proxy for contracted food services.
[ssquf] Employment Cost Indexes--Employment Cost Indexes (ECIs)
measure the rate of change in employee wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. Appropriately, they are not affected by shifts in
employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
preferably at least once a quarter. Availability means that the proxy
is publicly available. Finally, relevance means that the proxy is
applicable and representative of the cost category weight to which it
is applied. We believe that the proposed PPIs, CPIs, and ECIs selected
meet these criteria.
Table VII-7 lists the price proxies that we are proposing to use
for the proposed 2013-based LTCH market basket. Below we present a
detailed explanation of the price proxies that we are proposing for
each cost category weight. We note that many of the proxies that we are
proposing to use for the proposed 2013-based LTCH market basket are the
same as those used for the 2009-based LTCH-specific market basket. For
further discussion on the 2009-based LTCH market basket, we refer
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 through
53479).
a. Price Proxies for the Operating Portion of the Proposed 2013-Based
LTCH Market Basket
(1) Wages and Salaries
We are proposing to use the ECI for Wages and Salaries for All
Civilian Workers in Hospitals (BLS series code CIU1026220000000I) to
measure the price growth of this cost category. This is the same price
proxy used in the 2009-based LTCH-specific market basket.
(2) Employee Benefits
We are proposing to use the ECI for Total Benefits for All Civilian
Workers in Hospitals to measure the price growth of this cost category.
This ECI is calculated using the ECI for Total Compensation for All
Civilian Workers in Hospitals (BLS series code CIU1016220000000I) and
the relative importance of wages and salaries within total
compensation. This is the same price proxy used in the 2009-based LTCH-
specific market basket.
(3) Electricity
We are proposing to use the PPI Commodity for Commercial Electric
Power (BLS series code WPU0542) to measure the price growth of this
cost category. This is the same price proxy used in the 2009-based
LTCH-specific market basket.
(4) Fuel, Oil, and Gasoline
We are proposing to change the proxy used for the Fuel, Oil, and
Gasoline cost category. The 2009-based LTCH-specific market basket uses
the PPI Industry for Petroleum Refineries (BLS series code PCU32411-
32411) to proxy these expenses.
For the proposed 2013-based LTCH market basket, we are proposing to
use a blend of the PPI Industry for Petroleum Refineries (BLS series
code PCU32411-32411) and the PPI Commodity for Natural Gas (BLS series
code WPU0531). Our analysis of the Bureau of Economic Analysis' 2007
Benchmark Input-Output data (use table before redefinitions,
purchaser's value for NAICS 622000 [Hospitals]), shows that petroleum
refineries expenses accounts for approximately 70 percent and natural
gas accounts for approximately 30 percent of the fuel, oil, and
gasoline expenses. Therefore, we are proposing a blended proxy of 70
percent of the PPI Industry for Petroleum Refineries (BLS series code
PCU32411-32411) and 30 percent of the PPI Commodity for Natural Gas
(BLS series code WPU0531). We believe that these two price proxies are
the most technically appropriate indices available to measure the price
growth of the Fuel, Oil, and Gasoline cost category in the proposed
2013-based LTCH market basket.
(5) Water and Sewage
We are proposing to use the CPI for Water and Sewerage Maintenance
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the
price growth of this cost category. This is the same price proxy used
in the 2009-based LTCH-specific market basket.
(6) Professional Liability Insurance
We are proposing to proxy price changes in hospital professional
liability

[[Page 25160]]

insurance premiums (PLI) using percentage changes as estimated by the
CMS Hospital Professional Liability Index. To generate these estimates,
we collected commercial insurance premiums for a fixed level of
coverage while holding nonprice factors constant (such as a change in
the level of coverage). This is the same price proxy used in the 2009-
based LTCH-specific market basket.
(7) Pharmaceuticals
We are proposing to use the PPI Commodity for Pharmaceuticals for
Human Use, Prescription (BLS series code WPUSI07003) to measure the
price growth of this cost category. This is the same price proxy used
in the 2009-based LTCH-specific market basket.
(8) Food: Direct Purchases
We are proposing to use the PPI Commodity for Processed Foods and
Feeds (BLS series code WPU02) to measure the price growth of this cost
category. This is the same price proxy used in the 2009-based LTCH-
specific market basket.
(9) Food: Contract Services
We are proposing to use the CPI for Food Away From Home (All Urban
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth
of this cost category. This is the same price proxy used in the 2009-
based LTCH-specific market basket.
(10) Chemicals
We are proposing to continue to use a four-part blended PPI
composed of the PPI Industry for Industrial Gas Manufacturing (BLS
series code PCU325120325120P), the PPI Industry for Other Basic
Inorganic Chemical Manufacturing (BLS series code PCU32518-32518), the
PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series
code PCU32519-32519), and the PPI Industry for Soap and Cleaning
Compound Manufacturing (BLS series code PCU32561-32561). We are
proposing to update the blended weights using 2007 Benchmark I-O data,
which we also are proposing to use for the proposed 2013-based LTCH
market basket. The 2009-based LTCH-specific market basket included the
same blended chemical price proxy, but used the 2002 Benchmark I-O data
to determine the weights of the blended chemical price index. The 2007
Benchmark I-O data shows more weight for organic chemical products and
less weight for inorganic chemical products compared to the 2002
Benchmark I-O data.
Table VII-5 below shows the proposed weights for each of the four
PPIs used to create the blended PPI.

Table VII-5--Blended Chemical PPI Weights
----------------------------------------------------------------------------------------------------------------
Proposed 2013-
Name based LTCH 2009-based LTCH NAICS
weights weights
----------------------------------------------------------------------------------------------------------------
PPI Industry for Industrial Gas Manufacturing............. 32% 35% 325120
PPI Industry for Other Basic Inorganic Chemical 17 25 325180
Manufacturing............................................
PPI Industry for Other Basic Organic Chemical 45 30 325190
Manufacturing............................................
PPI Industry for Soap and Cleaning Compound Manufacturing. 6 10 325610
----------------------------------------------------------------------------------------------------------------

(11) Medical Instruments
We are proposing to use a blend for the Medical Instruments cost
category. The 2007 Benchmark Input-Output data shows an approximate 50/
50 split between Surgical and Medical Instruments and Medical and
Surgical Appliances and Supplies for this cost category. Therefore, we
are proposing a blend composed of 50 percent of the PPI Commodity for
Surgical and Medical Instruments (BLS code WPU1562) and 50 percent of
the PPI Commodity for Medical and Surgical Appliances and Supplies (BLS
code WPU1563). The 2009-based LTCH-specific market basket used the
single, higher level PPI Commodity for Medical, Surgical, and Personal
Aid Devices (BLS series code WPU156). We believe that the proposed
price proxy better reflects the mix of expenses for this cost category
as obtained from the 2007 Benchmark I-O data.
(12) Rubber and Plastics
We are proposing to use the PPI Commodity for Rubber and Plastic
Products (BLS series code WPU07) to measure the price growth of this
cost category. This is the same price proxy used in the 2009-based
LTCH-specific market basket.
(13) Paper and Printing Products
We are proposing to use the PPI Commodity for Converted Paper and
Paperboard Products (BLS series code WPU0915) to measure the price
growth of this cost category. This is the same price proxy used in the
2009-based LTCH-specific market basket.
(14) Miscellaneous Products
We are proposing to use the PPI Commodity for Finished Goods Less
Food and Energy (BLS series code WPUFD4131) to measure the price growth
of this cost category. This is the same price proxy used in the 2009-
based LTCH-specific market basket.
(15) Professional Fees: Labor-Related
We are proposing to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this category. It
includes occupations such as legal, accounting, and engineering
services. This is the same price proxy used in the 2009-based LTCH-
specific market basket.
(16) Administrative and Facilities Support Services
We are proposing to use the ECI for Total Compensation for Private
Industry Workers in Office and Administrative Support (BLS series code
CIU2010000220000I) to measure the price growth of this category. This
is the same price proxy used in the 2009-based LTCH-specific market
basket.
(17) Installation, Maintenance, and Repair Services
We are proposing to use the ECI for Total compensation for All
Civilian Workers in Installation, Maintenance, and Repair (BLS series
code CIU1010000430000I) to measure the price growth of this new cost
category. Previously these costs were included in the All Other: Labor-
Related Services category and were proxied by the ECI for Total
Compensation for Private Industry Workers in Service Occupations (BLS
series code CIU2010000300000I). We believe that this index better
reflects the price changes of labor associated with maintenance-related
services and its incorporation represents a technical improvement to
the market basket.
(18) All Other: Labor-Related Services

[[Page 25161]]

We are proposing to use the ECI for Total Compensation for Private
Industry Workers in Service Occupations (BLS series code
CIU2010000300000I) to measure the price growth of this cost category.
This is the same price proxy used in the 2009-based LTCH-specific
market basket.
(19) Professional Fees: Nonlabor-Related
We are proposing to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this category. This
is the same price proxy that we are proposing to use for the
Professional Fees: Labor-related cost category and the same price proxy
used in the 2009-based LTCH-specific market basket.
(20) Financial Services
We are proposing to use the ECI for Total Compensation for Private
Industry Workers in Financial Activities (BLS series code
CIU201520A000000I) to measure the price growth of this cost category.
This is the same price proxy used in the 2009-based LTCH-specific
market basket.
(21) Telephone Services
We are proposing to use the CPI for Telephone Services (BLS series
code CUUR0000SEED) to measure the price growth of this cost category.
This is the same price proxy used in the 2009-based LTCH-specific
market basket.
(22) All Other: Nonlabor-Related Services
We are proposing to use the CPI for All Items Less Food and Energy
(BLS series code CUUR0000SA0L1E) to measure the price growth of this
cost category. We believe that using the CPI for All Items Less Food
and Energy avoids double counting of changes in food and energy prices
as they are already captured elsewhere in the market basket. This is
the same price proxy used in the 2009-based LTCH-specific market
basket.
b. Price Proxies for the Capital Portion of the Proposed 2013-Based
LTCH Market Basket
(1) Capital Price Proxies Prior to Vintage Weighting
We are proposing to apply the same price proxies to the detailed
capital-related cost categories as were applied in the 2009-based LTCH-
specific market basket, which are described and provided in Table VII-
7. We also are proposing to continue to vintage weight the capital
price proxies for Depreciation and Interest to capture the long-term
consumption of capital. This vintage weighting method is the same
method that was used for the 2009-based LTCH-specific market basket and
is described in section VII.D.4.b.(2) of the preamble of this proposed
rule.
We are proposing to proxy the Depreciation: Building and Fixed
Equipment cost category by BEA's Chained Price Index for Nonresidential
Construction for Hospitals and Special Care Facilities (BEA Table
5.4.4. Price Indexes for Private Fixed Investment in Structures by
Type); the Depreciation: Movable Equipment cost category by the PPI
Commodity for Machinery and Equipment (BLS series code WPU11); the
Nonprofit Interest cost category by the average yield on domestic
municipal bonds (Bond Buyer 20-bond index); the For-Profit Interest
cost category by the average yield on Moody's Aaa bonds (Federal
Reserve); and the Other Capital-Related cost category by the CPI-U for
Rent of Primary Residence (BLS series code CUUS0000SEHA). We believe
that these are the most appropriate proxies for LTCH capital-related
costs that meet our selection criteria of relevance, timeliness,
availability, and reliability.
(2) Vintage Weights for Price Proxies
Because capital is acquired and paid for over time, capital-related
expenses in any given year are determined by both past and present
purchases of physical and financial capital. The vintage-weighted
capital-related portion of the proposed 2013-based LTCH market basket
is intended to capture the long-term consumption of capital, using
vintage weights for depreciation (physical capital) and interest
(financial capital). These vintage weights reflect the proportion of
capital-related purchases attributable to each year of the expected
life of building and fixed equipment, movable equipment, and interest.
We are proposing to use vintage weights to compute vintage-weighted
price changes associated with depreciation and interest expenses.
Capital-related costs are inherently complicated and are determined
by complex capital-related purchasing decisions, over time, based on
such factors as interest rates and debt financing. In addition, capital
is depreciated over time instead of being consumed in the same period
it is purchased. By accounting for the vintage nature of capital, we
are able to provide an accurate and stable annual measure of price
changes. Annual non-vintage price changes for capital are unstable due
to the volatility of interest rate changes and, therefore, do not
reflect the actual annual price changes for LTCH capital-related costs.
The capital-related component of the proposed 2013-based LTCH market
basket reflects the underlying stability of the capital-related
acquisition process.
To calculate the vintage weights for depreciation and interest
expenses, we first needed a time series of capital-related purchases
for building and fixed equipment and movable equipment. We found no
single source that provides an appropriate time series of capital-
related purchases by hospitals for all of the above components of
capital purchases. The early Medicare cost reports did not have
sufficient capital-related data to meet this need. Data we obtained
from the American Hospital Association (AHA) did not include annual
capital-related purchases. However, we were able to obtain data on
total expenses back to 1963 from the AHA. Consequently, we are
proposing to use data from the AHA Panel Survey and the AHA Annual
Survey to obtain a time series of total expenses for hospitals. We then
are proposing to use data from the AHA Panel Survey supplemented with
the ratio of depreciation to total hospital expenses obtained from the
Medicare cost reports to derive a trend of annual depreciation expenses
for 1963 through 2013. We are proposing to separate these depreciation
expenses into annual amounts of building and fixed equipment
depreciation and movable equipment depreciation as determined earlier.
From these annual depreciation amounts, we derived annual end-of-year
book values for building and fixed equipment and movable equipment
using the expected life for each type of asset category. While data are
not available that are specific to LTCHs, we believe that this
information for all hospitals serves as a reasonable alternative for
the pattern of depreciation for LTCHs. We used the AHA data and
methodology to derive the FY 2010-based IPPS capital market basket (78
FR 50604), and the capital components of the 2012-based IRF (80 FR
47062) and 2012-based IPF market baskets (80 FR 46672).
To continue to calculate the vintage weights for depreciation and
interest expenses, we also needed to account for the expected lives for
building and fixed equipment, movable equipment, and interest for the
proposed 2013-based LTCH market basket. We are proposing to calculate
the expected lives using Medicare cost report data for LTCHs. The
expected life of any asset can be determined by dividing the value of
the asset (excluding fully depreciated assets) by its current year
depreciation amount. This calculation yields the

[[Page 25162]]

estimated expected life of an asset if the rates of depreciation were
to continue at current year levels, assuming straight-line
depreciation. Using this proposed method, we determined the average
expected life of building and fixed equipment to be equal to 18 years,
and the average expected life of movable equipment to be equal to 8
years. For the expected life of interest, we believe that vintage
weights for interest should represent the average expected life of
building and fixed equipment because, based on previous research
described in the FY 1997 IPPS final rule (61 FR 46198), the expected
life of hospital debt instruments and the expected life of buildings
and fixed equipment are similar. We note that for the 2009-based LTCH-
specific market basket, we used 2009 Medicare cost reports for LTCHs to
determine the expected life of building and fixed equipment and movable
equipment (77 FR 53467 through 53479). The 2009-based LTCH-specific
market basket was based on an expected average life of building and
fixed equipment of 20 years and an expected average life of movable
equipment of 8 years.
Multiplying these expected lives by the annual depreciation amounts
results in annual year-end asset costs for building and fixed equipment
and movable equipment. We then calculated a time series, beginning in
1964, of annual capital purchases by subtracting the previous year's
asset costs from the current year's asset costs.
For the building and fixed equipment and movable equipment vintage
weights, we are proposing to use the real annual capital-related
purchase amounts for each asset type to capture the actual amount of
the physical acquisition, net of the effect of price inflation. These
real annual capital-related purchase amounts are produced by deflating
the nominal annual purchase amount by the associated price proxy as
provided earlier in this proposed rule. For the interest vintage
weights, we are proposing to use the total nominal annual capital-
related purchase amounts to capture the value of the debt instrument
(including, but not limited to, mortgages and bonds). Using these
capital-related purchase time series specific to each asset type, we
are proposing to calculate the vintage weights for building and fixed
equipment, for movable equipment, and for interest.
The vintage weights for each asset type are deemed to represent the
average purchase pattern of the asset over its expected life (in the
case of building and fixed equipment and interest, 18 years, and in the
case of movable equipment, 8 years). For each asset type, we are
proposing to use the time series of annual capital-related purchase
amounts available from 2013 back to 1964. These data allow us to derive
thirty-three 18-year periods of capital-related purchases for building
and fixed equipment and interest, and forty-three 8-year periods of
capital-related purchases for movable equipment. For each 18-year
period for building and fixed equipment and interest, or 8-year period
for movable equipment, we are proposing to calculate annual vintage
weights by dividing the capital-related purchase amount in any given
year by the total amount of purchases over the entire 18-year or 8-year
period. This calculation was done for each year in the 18-year or 8-
year period and for each of the periods for which we have data. We then
calculated the average vintage weight for a given year of the expected
life by taking the average of these vintage weights across the multiple
periods of data.
The vintage weights for the capital-related portion of the proposed
2013-based LTCH market basket and the 2009-based LTCH-specific market
basket are presented in Table VII-6 below.

Table VII-6--Proposed 2013-Based LTCH Market Basket and 2009-Based LTCH-Specific Market Basket Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Building and fixed equipment Movable equipment Interest
-----------------------------------------------------------------------------------------------
Year \1\ 2013-based 18 2009-based 20 2013-based 8 2009-based 8 2013-based 18 2009-based 20
years years years years years years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 0.044 0.034 0.104 0.102 0.029 0.021
2....................................................... 0.046 0.037 0.110 0.108 0.031 0.024
3....................................................... 0.048 0.039 0.117 0.114 0.034 0.026
4....................................................... 0.050 0.042 0.124 0.123 0.037 0.029
5....................................................... 0.051 0.043 0.128 0.129 0.039 0.032
6....................................................... 0.051 0.045 0.132 0.134 0.042 0.035
7....................................................... 0.051 0.046 0.140 0.142 0.043 0.037
8....................................................... 0.052 0.047 0.145 0.149 0.046 0.040
9....................................................... 0.053 0.049 .............. .............. 0.049 0.043
10...................................................... 0.056 0.051 .............. .............. 0.054 0.047
11...................................................... 0.058 0.053 .............. .............. 0.059 0.050
12...................................................... 0.059 0.053 .............. .............. 0.063 0.053
13...................................................... 0.061 0.053 .............. .............. 0.068 0.055
14...................................................... 0.062 0.054 .............. .............. 0.072 0.059
15...................................................... 0.062 0.055 .............. .............. 0.076 0.062
16...................................................... 0.063 0.057 .............. .............. 0.080 0.068
17...................................................... 0.066 0.059 .............. .............. 0.086 0.073
18...................................................... 0.067 0.059 .............. .............. 0.091 0.077
19...................................................... .............. 0.061 .............. .............. .............. 0.082
20...................................................... .............. 0.062 .............. .............. .............. 0.086
-----------------------------------------------------------------------------------------------
Total............................................... 1.000 1.000 1.000 1.000 1.000 1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.
\1\ Vintage weight in the last year (for example, year 18 for the proposed 2013-based LTCH market basket) is applied to the most recent data point and
prior vintage weights are applied going back in time. For example, year 18 vintage weight would be applied to the 2017q3 price proxy level, year 17
vintage weight would be applied to the 2016q3 price proxy level, etc.

[[Page 25163]]

The process of creating vintage-weighted price proxies requires
applying the vintage weights to the price proxy index where the last
applied vintage weight in Table VII-6 is applied to the most recent
data point. We have provided on the CMS Web site an example of how the
vintage weighting price proxies are calculated, using example vintage
weights and example price indices. The example can be found under the
following CMS Web site link: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file
titled ``Weight Calculations as described in the IPPS FY 2010 Proposed
Rule.''
c. Summary of Price Proxies of the Proposed 2013-Based LTCH Market
Basket
Table VII-7 below shows both the operating and capital price
proxies that we are proposing to use for the proposed 2013-based LTCH
market basket.

Table VII-7--Proposed Price Proxies for the Proposed 2013-Based LTCH
Market Basket
------------------------------------------------------------------------
Cost description Price proxies Weight
------------------------------------------------------------------------
Total.......................... ....................... 100.0
Compensation............... ....................... 53.9
Wages and Salaries..... ECI for Wages and 46.6
Salaries for All
Civilian Workers in
Hospitals.
Employee Benefits...... ECI for Total Benefits 7.3
for All Civilian
Workers in Hospitals.
Utilities.................. ....................... 2.2
Electricity............ PPI Commodity for 1.0
Commercial Electric
Power.
Fuel, Oil, and Gasoline Blend of the PPI 1.1
Industry for Petroleum
Refineries and PPI
Commodity for Natural
Gas.
Water & Sewerage....... CPI-U for Water and 0.1
Sewerage Maintenance.
Professional Liability ....................... 0.9
Insurance.
Malpractice............ CMS Hospital 0.9
Professional Liability
Insurance Premium
Index.
All Other Products and Services ....................... 33.2
All Other Products............. ....................... 16.3
Pharmaceuticals........ PPI Commodity for 7.6
Pharmaceuticals for
human use,
prescription.
Food: Direct Purchases. PPI Commodity for 1.8
Processed Foods and
Feeds.
Food: Contract Services CPI-U for Food Away 1.1
From Home.
Chemicals.............. Blend of Chemical PPIs. 0.7
Medical Instruments.... Blend of the PPI 2.4
Commodity for Surgical
and Medical
Instruments and PPI
Commodity for Medical
and Surgical
Appliances and
Supplies.
Rubber & Plastics...... PPI Commodity for 0.6
Rubber and Plastic
Products.
Paper and Printing PPI Commodity for 1.2
Products. Converted Paper and
Paperboard Products.
Miscellaneous Products. PPI Commodity for 0.8
Finished Goods Less
Food and Energy.
All Other Services............. ....................... 16.9
Labor-Related Services..... ....................... 8.3
Professional Fees: ECI for Total 3.5
Labor-related. Compensation for
Private Industry
Workers in
Professional and
Related.
Administrative and ECI for Total 0.9
Facilities Support Compensation for
Services. Private Industry
Workers in Office and
Administrative Support.
Installation, ECI for Total 2.0
Maintenance & Repair Compensation for
Services. Civilian Workers in
Installation,
Maintenance, and
Repair.
All Other: Labor- ECI for Total 1.9
related Services. Compensation for
Private Industry
Workers in Service
Occupations.
Nonlabor-Related Services.. ....................... 8.6
Professional Fees: ECI for Total 3.6
Nonlabor-related. Compensation for
Private Industry
Workers in
Professional and
Related.
Financial services..... ECI for Total 2.9
Compensation for
Private Industry
Workers in Financial
Activities.
Telephone Services..... CPI-U for Telephone 0.7
Services.
All Other: Nonlabor- CPI-U for All Items 1.4
related Services. Less Food and Energy.
Capital-Related Costs...... ....................... 9.7
Depreciation............... ....................... 5.3
Fixed Assets........... BEA chained price index 3.9
for nonresidential
construction for
hospitals and special
care facilities--
vintage weighted (18
years).
Movable Equipment...... PPI Commodity for 1.4
machinery and
equipment--vintage
weighted (8 years).
Interest Costs............. ....................... 2.4
Government/Nonprofit... Average yield on 0.5
domestic municipal
bonds (Bond Buyer 20
bonds)--vintage
weighted (18 years).
For Profit............. Average yield on 1.8
Moody's Aaa bonds--
vintage weighted (18
years).
Other Capital-Related Costs CPI-U for Rent of 2.0
Primary Residence.
------------------------------------------------------------------------
Note: Sum of the cost weights for the detailed categories may not add to
total cost weight for subcategory or total market basket due to
rounding.

[[Page 25164]]

d. Proposed FY 2017 Market Basket Update for LTCHs
For FY 2017 (that is, October 1, 2016, through September 30, 2017),
we are proposing to use an estimate of the proposed 2013-based LTCH
market basket to update payments to LTCHs based on the best available
data. Consistent with historical practice, we estimate the LTCH market
basket update for the LTCH PPS based on IHS Global Insight, Inc.'s
(IGI's) forecast using the most recent available data. IGI is a
nationally recognized economic and financial forecasting firm that
contracts with CMS to forecast the components of the market baskets.
Based on IGI's first quarter 2016 forecast with history through the
fourth quarter of 2015, the projected market basket update for FY 2017
is 2.7 percent. Therefore, consistent with our historical practice of
estimating market basket increases based on the best available data, we
are proposing a market basket update of 2.7 percent for FY 2017.
Furthermore, because the proposed FY 2017 annual update is based on the
most recent market basket estimate for the 12-month period (currently
2.7 percent), we also are proposing that if more recent data become
subsequently available (for example, a more recent estimate of the
market basket), we would use such data, if appropriate, to determine
the FY 2017 annual update in the final rule. (As discussed in greater
detail in section V.A.2. of the Addendum to this proposed rule, we are
proposing an annual update of 2.7 percent to the LTCH PPS standard
Federal payment rate for FY 2017 under proposed Sec.
412.523(c)(3)(xiii) of the regulations.)
Using the current 2009-based LTCH-specific market basket and IGI's
first quarter 2016 forecast for the market basket components, the FY
2017 market basket update would be 2.8 percent (before taking into
account any statutory adjustment). Therefore, the update based on the
proposed 2013-based LTCH market basket is currently 0.1 percentage
point lower. This lower update is primarily due to the lower
pharmaceutical cost weight in the proposed 2013-based market basket
(7.6 percent) compared to the 2009-based LTCH-specific market basket
(8.9 percent). This is partially offset by the higher cost weights
associated with All Other Services (such as Professional Fees and
Installation, Maintenance, and Repair Services) for the proposed 2013-
based LTCH market basket relative to the 2009-based LTCH-specific
market basket. Table VII-8 below compares the proposed 2013-based LTCH
market basket and the 2009-based LTCH-specific market basket percent
changes.

Table VII-8--Proposed 2013-Based LTCH Market Basket and 2009-Based LTCH-pecific Market Basket Percentage
Changes, FY 2011 Through FY 2019
----------------------------------------------------------------------------------------------------------------
Proposed 2013-based LTCH
Fiscal year (FY) market basket index percent 2009-based LTCH market
change basket index percent change
----------------------------------------------------------------------------------------------------------------
Historical data:
FY 2011......................................... 2.3 2.6
FY 2012......................................... 1.9 2.3
FY 2013......................................... 2.1 2.3
FY 2014......................................... 1.8 1.9
FY 2015......................................... 1.8 2.2
Average 2011-2015............................... 2.0 2.3
Forecast:
FY 2016......................................... 2.0 2.2
FY 2017......................................... 2.7 2.8
FY 2018......................................... 3.0 3.1
FY 2019......................................... 3.1 3.1
Average 2016-2019............................... 2.7 2.8
----------------------------------------------------------------------------------------------------------------
Note that these market basket percent changes do not include any further adjustments as may be statutorily
required.
Source: IHS Global Insight, Inc. 1st quarter 2016 forecast.

Over the time period covering 2011 through 2015, the average growth
rate of the proposed 2013-based LTCH market basket is roughly 0.3
percentage point lower than the 2009-based LTCH-specific market basket.
The lower growth rate is primarily a result of the lower pharmaceutical
cost weight in the proposed 2013-based market basket compared to the
2009-based LTCH-specific market basket. Historically, the price growth
of pharmaceutical costs has exceeded the price growth rates for most of
the other market basket cost categories. Therefore, a lower
pharmaceutical cost weight would, all else equal, result in a lower
market basket update. As stated above, the pharmaceutical cost weights
for the proposed 2013-based LTCH market basket and the 2009-based LTCH-
specific market basket are based on the 2013 and 2009 Medicare cost
report data for LTCHs, respectively.
e. Proposed FY 2017 Labor-Related Share
As discussed in section V.B. of the Addendum to this proposed rule,
under the authority of section 123 of the BBRA as amended by section
307(b) of the BIPA, we established an adjustment to the LTCH PPS
payments to account for differences in LTCH area wage levels (Sec.
412.525(c)). The labor-related portion of the LTCH PPS standard Federal
payment rate, hereafter referred to as the labor-related share, is
adjusted to account for geographic differences in area wage levels by
applying the applicable LTCH PPS wage index.
The labor-related share is determined by identifying the national
average proportion of total costs that are related to, influenced by,
or vary with the local labor market. As discussed in more detail below
and similar to the 2009-based LTCH-specific market basket, we classify
a cost category as labor-related and include it in the labor-related
share if the cost category is defined as being labor-intensive and its
cost varies with the local labor market. As stated in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49798), the labor-related share for FY 2016
was defined as the sum of the FY 2016 relative importance of Wages and
Salaries; Employee Benefits; Professional Fees: Labor-Related Services;
Administrative and Facilities Support Services (formerly referred to as
Administrative and Business Support Services); All Other: Labor-related
Services; and a portion of the Capital

[[Page 25165]]

Costs from the 2009-based LTCH-specific market basket.
We proposed to continue to classify a cost category as labor-
related if the costs are labor-intensive and vary with the local labor
market. Given this, based on our definition of the labor-related share
and the cost categories in the proposed 2013-based LTCH market basket,
we are proposing to include in thelabor-related share for FY 2017 the
sum of the FY 2017 relative importance of Wages and Salaries; Employee
Benefits; Professional Fees: Labor-Related; Administrative and
Facilities Support Services; Installation, Maintenance, and Repair
Services; All Other: Labor-related Services; and a portion of the
Capital-Related cost weight from the proposed 2013-based LTCH market
basket. As noted in section VII.D.3.e. of the preamble of this proposed
rule, for the proposed 2013-based LTCH market basket, we have proposed
the creation of a separate cost category for Installation, Maintenance,
and Repair services. These expenses were previously included in the
``All Other'' Labor-related Services cost category in the 2009-based
LTCH-specific market basket, along with other services, including, but
not limited to, janitorial, waste management, security, and dry
cleaning/laundry services. Because these services tend to be labor-
intensive and are mostly performed at the facility (and, therefore,
unlikely to be purchased in the national market), we continue to
believe that they meet our definition of labor-related services.
For the development of the 2009-based LTCH-specific market basket,
in an effort to more accurately determine the share of professional
fees for services such as accounting and auditing services, engineering
services, legal services, and management and consulting services that
should be included in the labor-related share, we used data from a
survey of IPPS hospitals regarding the proportion of those fees that go
to companies that are located beyond their own local labor market. The
results from this survey were then used to separate a portion of the
Professional Fees cost category into labor-related and nonlabor-related
costs. These results and our allocation methodology are discussed in
more detail in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766). For
the proposed 2013-based LTCH market basket, we are proposing to apply
these survey results using this same methodology to separate the
Professional Fees cost category into Professional Fees: Labor-related
and Professional Fees: Nonlabor-related cost categories. We believe
that using the survey results serves as an appropriate proxy for the
purchasing patterns of professional services for LTCHs because they
also are providers of institutional care.
In addition to the professional services listed above, we are
proposing to classify expenses under NAICS 55, Management of Companies
and Enterprises, into the Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost categories, as was done for
the 2009-based LTCH-specific market basket. The NAICS 55 industry is
mostly comprised of corporate, subsidiary, and regional managing
offices (otherwise referred to as home offices). As stated above, we
classify a cost category as labor-related and include it in the labor-
related share if the cost category is labor-intensive and if its costs
vary with the local labor market. We believe that many of the costs
associated with NAICS 55 are labor-intensive and vary with the local
labor market. However, data indicate that not all LTCHs with home
offices have home offices located in their local labor market.
Therefore, we are proposing to include in the labor-related share only
a proportion of the NAICS 55 expenses based on the methodology
described below.
For the 2009-based LTCH-specific market basket, we used data
primarily from the Medicare cost reports and a CMS database of Home
Office Medicare Records (HOMER) (a database that provides city and
state information (addresses) for home offices) and determined that 13
percent of the total number of LTCHs that had home offices had those
home offices located in their respective local labor markets--defined
as being in the same Metropolitan Statistical Area (MSA). Therefore, we
classified 13 percent of these costs into the ``Professional Fees:
Labor-related Services'' cost category and the remaining 87 percent
into the ``Professional Fees: Nonlabor-related Services'' cost
category. For a detailed discussion of this analysis, we refer readers
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53478).
For the proposed 2013-based LTCH market basket, we conducted a
similar analysis of home office data. For consistency, we believe that
it is important for our analysis on home office data to be conducted on
the same LTCHs used to derive the proposed 2013-based LTCH market
basket cost weights. The Medicare cost report requires a hospital to
report information regarding their home office provider. Approximately
56 percent of LTCHs reported some type of home office information on
their Medicare cost report for 2013 (for example, home office number,
city, state, zip code, or name). For those providers for which we were
able to identify which MSA the LTCH's home office was located, we then
compared the home office MSA with the LTCH facility's MSA.
We found that 7 percent of the LTCHs with home offices had those
home offices located in the same MSA as their facilities. We then
concluded that these providers were located in the same local labor
market as their home office. As a result, we are proposing to apportion
the NAICS 55 expense data by this percentage. Therefore, we are
proposing to classify 7 percent of these costs into the ``Professional
Fees: Labor-related Services'' cost category and the remaining 93
percent of these costs into the ``Professional Fees: Nonlabor-related
Services'' cost category.
Using this proposed method and the IGI forecast for the first
quarter 2016 of the proposed 2013-based LTCH market basket, the
proposed LTCH labor-related share for FY 2017 would be the sum of the
FY 2017 relative importance of each labor-related cost category.
Consistent with our proposal to update the labor-related share with the
most recent available data, the labor-related share for this proposed
rule reflects IGI's first quarter 2016 forecast of the proposed 2013-
based LTCH market basket. Table VII-9 below shows the proposed FY 2017
relative importance labor-related share using the proposed 2013-based
LTCH market basket and the FY 2016 relative importance labor-related
share using the 2009-based LTCH-specific market basket.

Table VII-9--LTCH Labor-Related Share
------------------------------------------------------------------------
FY 2017 Proposed FY 2016 Final
labor- related labor related
share \1\ share \2\
------------------------------------------------------------------------
Wages and Salaries................ 46.6 44.6
Employee Benefits................. 7.3 8.1

[[Page 25166]]

Professional Fees: Labor-related.. 3.5 2.2
Administrative and Facilities 0.9 0.5
Support Services.................
Installation, Maintenance, and 2.1 --
Repair Services \3\..............
All Other: Labor-related Services. 1.9 2.5
Subtotal.......................... 62.3 57.9
Labor-related portion of capital 4.3 4.1
(46%)............................
-------------------------------------
Total Labor-Related Share..... 66.6 62.0
------------------------------------------------------------------------
\1\ Based on the proposed 2013-based LTCH Market Basket, IHS Global
Insight, Inc. 1st quarter 2016 forecast.
\2\ Federal Register, 80 FR 49478.
\3\ Installation, Maintenance, and Repair services costs were previously
included in the All Other: Labor-related Services cost weight of the
2009-based LTCH-specific market basket.

The proposed labor-related share for FY 2017 is the sum of the
proposed FY 2017 relative importance of each labor-related cost
category, and would reflect the different rates of price change for
these cost categories between the base year (2013) and FY 2017. The sum
of the proposed relative importance for FY 2017 for operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Facilities Support Services, Installation,
Maintenance, and Repair Services, All Other: Labor-related Services)
would be 62.3 percent, as shown in Table VII-9 above. We are proposing
that the portion of capital-related costs that is influenced by the
local labor market is estimated to be 46 percent, which is the same
percentage applied to the 2009-based LTCH-specific market basket (77 FR
53478). Because the relative importance for capital-related costs under
our proposals would be 9.4 percent of the proposed 2013-based LTCH
market basket in FY 2017, we are proposing to take 46 percent of 9.4
percent to determine the proposed labor-related share of capital-
related costs for FY 2017 (.46 x 9.4). The result would be 4.3 percent,
which we are proposing to add to 62.3 percent for the operating cost
amount to determine the total proposed labor-related share for FY 2017.
Therefore, the labor-related share that we are proposing to use for the
LTCH PPS in FY 2017 would be 66.6 percent. This proposed labor-related
share is determined using the same methodology as employed in
calculating all previous LTCH labor-related shares. We also are
proposing that, if more recent data become available, (for example, an
updated estimate of the labor-related share) we would use such data to
determine the FY 2017 labor-related share for the final rule.
The proposed FY 2017 labor-related share using the proposed 2013-
based LTCH market basket is 4.6 percentage points higher than the FY
2016 labor-related share using the 2009-based LTCH-specific market
basket. The primary reason for a higher labor-related share, which we
describe in more detail below, is a result of the change in the
quantity of labor, particularly for professional services, outpacing
the change in quantity of products (which are not included in the
labor-related share) between 2009 and 2013, which more than offsets the
faster relative growth in prices for products.
Roughly three-quarters of the 4.6 percentage point difference is
the result of higher base year cost weights for the Professional Fees:
Labor-Related, Administrative and Facilities Support Services, All
Other: Labor-Related services, and Installation, Maintenance, and
Repair services cost categories for the proposed 2013-based LTCH market
basket compared to the 2009-based LTCH-specific market basket. We refer
to these cost categories collectively as ``Labor-Related Services.'' As
stated earlier, installation, maintenance and repair costs were
previously classified in the All Other: Labor-Related services cost
category of the 2009-based LTCH-specific market basket.
In aggregate, the base year cost weights for the Labor-Related
Services cost categories in the proposed 2013-based LTCH market basket
are 3.0 percentage points higher than the 2009-based LTCH-specific
market basket cost weights. As described in section VII.D.3.e. of the
preamble of this proposed rule, the detailed cost categories of the
LTCH market basket (including the Labor-Related Services cost
categories) are derived by multiplying the ``All Other'' residual cost
weight (which reflects all remaining costs that are not captured in the
six major cost category weights calculated using the LTCH Medicare Cost
Report data (Wages and Salaries, Employee Benefits, Contract Labor,
Professional Liability Insurance, Pharmaceuticals, and Capital)) by the
detailed cost weights calculated from the Benchmark I-O data.
Therefore, the differences between the Labor-related Services cost
weights between the proposed 2013-based LTCH market basket and the
2009-based LTCH-specific market basket are a function of the change in
the ``All Other'' residual cost category weight and changes to the
Benchmark I-O data. Approximately 0.6 percentage point of the 3.0
percentage point difference is attributable to the higher ``All Other''
residual cost category weight of the proposed 2013-based LTCH market
basket compared to the 2009-based LTCH-specific market basket, while
the remaining 2.4 percentage points is due to the changes in the
Benchmark I-O cost weights derived from the 2007 data used in the
proposed 2013-based LTCH market basket and the 2002 data used in the
2009-based LTCH-specific market basket.
Roughly one-quarter of the 4.6 percentage point difference between
the proposed FY 2017 labor-related share using the proposed 2013-based
LTCH market basket and the FY 2016 labor-related share using the 2009-
based LTCH-specific market basket is a result of the Compensation cost
weight. There are two key factors causing this differential. First,
using the 2013 Medicare cost reports, we calculated a Compensation cost
weight that is 53.9 percent for the proposed 2013-based LTCH market
basket, which reflects both the change in price and change in quantity
of compensation. This is 0.9 percentage point higher than the FY 2013
relative importance moving average using the 2009-based LTCH-specific
market basket (53.0 percent), which only reflects relative price
changes between 2009 and 2013. Second, the relative price growth from

[[Page 25167]]

FY 2013 to the payment year between the 2009-based LTCH-specific market
basket and the proposed 2013-based LTCH market basket also contributes
to the difference. For the 2009-based LTCH-specific market basket, the
relative importance for compensation decreases from 53.0 percent in FY
2013 to 52.7 percent in FY 2016, a reduction of 0.3 percentage point.
For the proposed 2013-based LTCH market basket, the base weight of 53.9
percent in 2013 is the same as the relative importance in FY 2017.
These two factors combined produce the 1.2 percentage point difference
in the relative importance for compensation in FY 2016 and FY 2017 as
shown in Table VII-9.
As noted above, the market basket is described as a fixed-weight
index because it represents the change in price over time of a constant
mix (quantity and intensity) of goods and services needed to furnish
hospital services. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. Only when the index is rebased would
changes in the quantity and intensity be captured, with those changes
being reflected in the cost weights. Therefore, we rebase the market
basket periodically so that the cost weights reflect recent mix of
goods and services that hospitals purchase (hospital inputs) to furnish
inpatient care.

E. Proposed Changes to the LTCH PPS Payment Rates and Other Proposed
Changes to the LTCH PPS for FY 2017

1. Overview of Development of the LTCH PPS Standard Federal Payment
Rates
The basic methodology for determining LTCH PPS standard Federal
prospective payment rates is currently set forth at 42 CFR 412.515
through 412.536. In this section, we discuss the factors that we are
proposing to use to update the LTCH PPS standard Federal payment rate
for FY 2017, that is, effective for LTCH discharges occurring on or
after October 1, 2016 through September 30, 2017. Under the dual rate
LTCH PPS payment structure required by statute, beginning with FY 2016,
only LTCH discharges that meet the criteria for exclusion from the site
neutral payment rate are paid based on the LTCH PPS standard Federal
payment rate specified at Sec. 412.523. (For additional details on our
finalized policies related to the dual rate LTCH PPS payment structure
required by statute, we refer readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49601 through 49623).)
For details on the development of the initial FY 2003 standard
Federal rate, we refer readers to the August 30, 2002 LTCH PPS final
rule (67 FR 56027 through 56037). For subsequent updates to the LTCH
PPS standard Federal rate as implemented under Sec. 412.523(c)(3), we
refer readers to the following final rules: RY 2004 LTCH PPS final rule
(68 FR 34134 through 34140); RY 2005 LTCH PPS final rule (68 FR 25682
through 25684); RY 2006 LTCH PPS final rule (70 FR 24179 through
24180); RY 2007 LTCH PPS final rule (71 FR 27819 through 27827); RY
2008 LTCH PPS final rule (72 FR 26870 through 27029); RY 2009 LTCH PPS
final rule (73 FR 26800 through 26804); FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 44021 through 44030); FY 2011 IPPS/LTCH PPS final
rule (75 FR 50443 through 50444); FY 2012 IPPS/LTCH PPS final rule (76
FR 51769 through 51773); FY 2013 IPPS/LTCH PPS final rule (77 FR 53479
through 53481); FY 2014 IPPS/LTCH PPS final rule (78 FR 50760 through
50765); FY 2015 IPPS/LTCH PPS final rule (79 FR 50176 through 50180)
and FY 2016 IPPS/LTCH PPS final rule (80 FR 49634 through 49637).
In this FY 2017 proposed rule, we present our proposed policies
related to the annual update to the LTCH PPS standard Federal payment
rate for FY 2017, which includes the annual market basket update.
Consistent with our historical practice of using the best data
available, we also are proposing to use more recent data to determine
the FY 2017 annual market basket update to the LTCH PPS standard
Federal payment rate in the final rule.
The application of the proposed update to the LTCH PPS standard
Federal payment rate for FY 2017 is presented in section V.A. of the
Addendum to this proposed rule. The components of the proposed annual
market basket update to the LTCH PPS standard Federal payment rate for
FY 2017 are discussed below, including the reduction to the annual
update for LTCHs that fail to submit quality reporting data for FY 2017
as required by the statute (as discussed in section VII.E.2.c. of the
preamble of this proposed rule). In addition, we are proposing to make
an adjustment to the LTCH PPS standard Federal payment rate to account
for the estimated effect of the proposed changes to the area wage level
adjustment for FY 2017 on estimated aggregate LTCH PPS payments, in
accordance with Sec. 412.523(d)(4) (as discussed in section V.A. of
the Addendum to this proposed rule).
2. Proposed FY 2017 LTCH PPS Standard Federal Payment Rate Annual
Market Basket Update
a. Overview
Historically, the Medicare program has used a market basket to
account for input price increases in the services furnished by
providers. The market basket used for the LTCH PPS includes both
operating and capital related costs of LTCHs because the LTCH PPS uses
a single payment rate for both operating and capital-related costs. We
adopted the 2009-based LTCH-specific market basket for use under the
LTCH PPS beginning in FY 2013. For additional details on the historical
development of the market basket used under the LTCH PPS, we refer
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 through
53476). For FY 2017, we are proposing to rebase and revise the 2009-
based LTCH-specific market basket. The proposed LTCH market basket is
primarily based on Medicare cost report data for LTCHs for 2013. We
refer readers to section VII.D. of this preamble of this proposed rule
for a complete discussion of the proposed LTCH market basket and a
description of the methodologies we are proposing to use for
determining the operating and capital-related portions of the proposed
2013-based LTCH market basket.
Section 3401(c) of the Affordable Care Act provides for certain
adjustments to any annual update to the LTCH PPS standard Federal
payment rate and refers to the timeframes associated with such
adjustments as a ``rate year'' (which are discussed in more detail in
section VII.C.2.b. of the preamble of this proposed rule.) We note that
because the annual update to the LTCH PPS policies, rates, and factors
now occurs on October 1, we adopted the term ``fiscal year'' (FY)
rather than ``rate year'' (RY) under the LTCH PPS beginning October 1,
2010, to conform with the standard definition of the Federal fiscal
year (October 1 through September 30) used by other PPSs, such as the
IPPS (75 FR 50396 through 50397). Although the language of sections
3004(a), 3401(c), 10319, and 1105(b) of the Affordable Care Act refers
to years 2010 and thereafter under the LTCH PPS as ``rate year,''
consistent with our change in the terminology used under the LTCH PPS
from ``rate year'' to ``fiscal year,'' for purposes of clarity, when
discussing the annual update for the LTCH PPS standard Federal payment
rate, including the provisions of the Affordable Care Act, we use

[[Page 25168]]

``fiscal year'' rather than ``rate year'' for 2011 and subsequent
years.
b. Proposed Market Basket Under the LTCH PPS for FY 2017
Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we adopted a 2009-based LTCH-specific
market basket for use under the LTCH PPS beginning in FY 2013. The
2009-based LTCH-specific market basket is based solely on the Medicare
cost report data submitted by LTCHs and, therefore, specifically
reflects the cost structures of only LTCHs. For additional details on
the development of the 2009-based LTCH-specific market basket, we refer
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 through
53476).
For FY 2017, as noted earlier, we are proposing to rebase and
revise the 2009-based LTCH-specific market basket to reflect a 2013
base year. We are proposing to use 2013 cost reports beginning in FY
2013 because these represent the most recent, complete set of Medicare
cost report data for purposes of calculating cost weights for the LTCH
market basket.
We believe that the proposed 2013-based LTCH market basket
appropriately reflects the cost structure of LTCHs, as discussed in
greater detail in section VII.D. of the preamble of this proposed rule.
In this proposed rule, we are proposing to use the proposed 2013-based
LTCH market basket to update the LTCH PPS standard Federal payment rate
for FY 2017.
c. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of
the Affordable Care Act, specifies that, for rate year 2010 and each
subsequent rate year through 2019, any annual update to the LTCH PPS
standard Federal payment rate shall be reduced:
For rate year 2010 through 2019, by the ``other
adjustment'' specified in sections 1886(m)(3)(A)(ii) and (m)(4) of the
Act; and
For rate year 2012 and each subsequent year, by the
productivity adjustment (which we refer to as ``the multifactor
productivity (MFP) adjustment'') described in section
1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(m)(3)(B) of the Act provides that the application of
paragraph (3) of section 1886(m) of the Act may result in the annual
update being less than zero for a rate year, and may result in payment
rates for a rate year being less than such payment rates for the
preceding rate year.
Section 1886(b)(3)(B)(xi)(II) of the Act defines the MFP adjustment
as equal to the 10-year moving average of changes in annual economy-
wide, private nonfarm business multifactor productivity (as projected
by the Secretary for the 10-year period ending with the applicable
fiscal year, calendar year, cost reporting period, or other annual
period). Under our methodology, the end of the 10-year moving average
of changes in the MFP coincides with the end of the appropriate fiscal
year update period. In addition, the MFP adjustment that is applied in
determining any annual update to the LTCH PPS standard Federal payment
rate is the same adjustment that is required to be applied in
determining the applicable percentage increase under the IPPS under
section 1886(b)(3)(B)(i) of the Act, as they are both based on a fiscal
year. (We refer readers to section IV.A.1. of the preamble of FY 2016
IPPS/LTCH PPS final rule for more information on the current MFP
adjustment.)
d. Proposed Adjustment to the LTCH PPS Standard Federal Payment Rate
Under the Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
In accordance with section 1886(m)(5) of the Act, as added by
section 3004(a) of the Affordable Care Act, the Secretary established
the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). The
reduction in the annual update to the LTCH PPS standard Federal payment
rate for failure to report quality data under the LTCH QRP for FY 2014
and subsequent fiscal years is codified under Sec. 412.523(c)(4) of
the regulations. (As previously noted, although the language of section
3004(a) of the Affordable Care Act refers to years 2011 and thereafter
under the LTCH PPS as ``rate year,'' consistent with our change in the
terminology used under the LTCH PPS from ``rate year'' to ``fiscal
year,'' for purposes of clarity, when discussing the annual update for
the LTCH PPS, including the provisions of the Affordable Care Act, we
use ``fiscal year'' rather than ``rate year'' for 2011 and subsequent
years.) The LTCH QRP, as required for FY 2014 and subsequent fiscal
years by section 1886(m)(5)(A)(i) of the Act, applies a 2.0 percentage
point reduction to any update under Sec. 412.523(c)(3) for an LTCH
that does not submit quality reporting data to the Secretary in
accordance with section 1886(m)(5)(C) of the Act with respect to such a
year (that is, in the form and manner and at the time specified by the
Secretary under the LTCH QRP) (Sec. 412.523(c)(4)(i)). Section
1886(m)(5)(A)(ii) of the Act provides that the application of the 2.0
percentage points reduction may result in an annual update that is less
than 0.0 for a year, and may result in LTCH PPS payment rates for a
year being less than such LTCH PPS payment rates for the preceding year
(Sec. 412.523(c)(4)(iii)). Furthermore, section 1886(m)(5)(B) of the
Act specifies that the 2.0 percentage points reduction is applied in a
noncumulative manner, such that any reduction made under section
1886(m)(5)(A) of the Act shall apply only with respect to the year
involved, and shall not be taken into account in computing the LTCH PPS
payment amount for a subsequent year (Sec. 412.523(c)(4)(ii)). We
discuss the application of the 2.0 percentage point reduction under
Sec. 412.523(c)(4)(i) in our discussion of the proposed annual market
basket update to the LTCH PPS standard Federal payment rate for FY 2017
in section VII.E.2.e. of the preamble of this proposed rule. (For
additional information on the history of the LTCH QRP, including the
statutory authority and the selected measures, we refer readers to
section VIII.C. of the preamble of this proposed rule.)
e. Proposed Annual Market Basket Update Under the LTCH PPS for FY 2017
Consistent with our historical practice, we estimate the market
basket update and the MFP adjustment based on IGI's forecast using the
most recent available data. Based on IGI's first quarter 2016 forecast,
the FY 2017 full market basket increase for the LTCH PPS using the
proposed 2013-based LTCH market basket is 2.7 percent, as discussed in
section VII.D.4.d. of the preamble of this proposed rule. The current
estimate of the MFP adjustment for FY 2017 based on IGI's first quarter
2016 forecast is 0.5 percent, as discussed in section IV.B. of the
preamble of this proposed rule. In addition, consistent with our
historical practice, we are proposing to use a more recent estimate of
the market basket increase and the MFP adjustment to determine the FY
2017 market basket update and the MFP adjustment for FY 2017 in the
final rule.
For FY 2017, section 1886(m)(3)(A)(i) of the Act requires that any
annual update to the LTCH PPS standard Federal payment rate be reduced
by the productivity adjustment (``the MFP adjustment'') described in
section 1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute,
we are proposing to reduce the full FY 2017 market basket increase by
the proposed FY 2017 MFP adjustment. To determine

[[Page 25169]]

the proposed market basket update for LTCHs for FY 2017, as reduced by
the MFP adjustment, consistent with our established methodology, we
subtracted the proposed FY 2017 MFP adjustment from the proposed FY
2017 market basket update. Furthermore, sections 1886(m)(3)(A)(ii) and
1886(m)(4)(F) of the Act requires that any annual update to the LTCH
PPS standard Federal payment rate for FY 2017 be reduced by the ``other
adjustment'' described in paragraph (4), which is 0.75 percentage point
for FY 2017. Therefore, following application of the productivity
adjustment, we are proposing to further reduce the proposed adjusted
market basket update (that is, the proposed full market basket increase
less the proposed MFP adjustment) by the ``other adjustment'' specified
by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act. (For
additional details on our established methodology for adjusting the
market basket increase by the MFP and the ``other adjustment'' required
by the statute, we refer readers to the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51771).)
For FY 2017, section 1886(m)(5) of the Act requires that, for LTCHs
that do not submit quality reporting data as required under the LTCH
QRP, any annual update to an LTCH PPS standard Federal payment rate,
after application of the adjustments required by section 1886(m)(3) of
the Act, shall be further reduced by 2.0 percentage points. Therefore,
the proposed update to the LTCH PPS standard Federal payment rate for
FY 2017 for LTCHs that fail to submit quality reporting data under the
LTCH QRP, the full LTCH PPS market basket increase, subject to an
adjustment based on changes in economy-wide productivity (``the MFP
adjustment'') as required under section 1886(m)(3)(A)(i) of the Act and
an additional reduction required by sections 1886(m)(3)(A)(ii) and
1886(m)(4) of the Act, will also be further reduced by 2.0 percentage
points.
In this proposed rule, in accordance with the statute, we are
proposing to reduce the proposed FY 2017 full market basket increase of
2.7 percent (based on IGI's first quarter 2016 forecast of the proposed
2013-based LTCH market basket) by the proposed FY 2017 MFP adjustment
of 0.5 percentage point (based on IGI's first quarter 2016 forecast).
Following application of the proposed productivity adjustment, the
proposed adjusted market basket update of 2.2 percent (2.7 percent
minus 0.5 percentage point) was then reduced by 0.75 percentage point,
as required by sections 1886(m)(3)(A)(ii) and 1886(m)(4)(F) of the Act.
Therefore, under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we are proposing an annual market basket
update under to the LTCH PPS standard Federal payment rate for FY 2017
of 1.45 percent (that is, the most recent estimate of the proposed LTCH
PPS market basket increase of 2.7 percent, less the proposed MFP
adjustment of 0.5 percentage point, and less the 0.75 percentage point
required under section 1886(m)(4)(F) of the Act). Accordingly, we are
proposing to revise Sec. 412.523(c)(3) by adding a new paragraph
(xiii), which would specify that the LTCH PPS standard Federal payment
rate for FY 2017 is the LTCH PPS standard Federal payment rate for the
previous LTCH PPS year updated by 1.45 percent, and as further
adjusted, as appropriate, as described in Sec. 412.523(d). For LTCHs
that fail to submit quality reporting data under the LTCH QRP, under
Sec. 412.523(c)(3)(xiii) in conjunction with Sec. 412.523(c)(4), we
are proposing to further reduce the proposed annual update to the LTCH
PPS standard Federal payment rate by 2.0 percentage points in
accordance with section 1886(m)(5) of the Act. Accordingly, we are
proposing an annual update to the LTCH PPS standard Federal payment
rate of -0.55 percent (that is, 1.45 percent minus 2.0 percentage
points) for FY 2017 for LTCHs that fail to submit quality reporting
data as required under the LTCH QRP. As stated above, consistent with
our historical practice, we are proposing to use more recent estimate
of the market basket and the MFP adjustment to establish an annual
update to the LTCH PPS standard Federal payment rate for FY 2017 under
Sec. 412.523(c)(3)(xiii) in the final rule. (We note that, consistent
with historical practice, we also are proposing to adjusted the
proposed FY 2017 LTCH PPS standard Federal payment rate by an area wage
level budget neutrality factor in accordance with Sec. 412.523(d)(4)
(as discussed in section V.B.5. of the Addendum to this proposed
rule).)
3. Proposed Update Under the Payment Adjustment for ``Subclause (II)''
LTCHs
Under the LTCH PPS payment adjustment for ``subclause (II) LTCHs''
at Sec. 412.526(c)(1)(ii), we established that, for cost reporting
periods beginning during fiscal years after FY 2015, the target amount
(used to determine the adjusted payment for Medicare inpatient
operating costs under reasonable cost-based reimbursement rules) will
equal the hospital's target amount for the previous cost reporting
period updated by the applicable annual rate-of-increase percentage
specified in Sec. 413.40(c)(3) for the subject cost reporting period
(79 FR 50197). For FY 2017, in accordance with Sec. 412.526(c)(1)(ii)
of the regulations, we are proposing that, for cost reporting periods
beginning during FY 2017, the update to the target amount for the
payment adjustment for ``subclause (II)'' LTCHs would be 2.8 percent,
which is the estimated market basket update for FY 2017 to the rate-of-
increase limits for certain hospitals excluded from the IPPS that are
paid on a reasonable cost basis (that is, the applicable annual rate-
of-increase percentage under Sec. 413.40(c)(3)), which is discussed in
section VI. of the preamble of this proposed rule, is the FY 2017 rate-
of-increase percentage estimate for updating the target amounts, and is
equal to the estimated percentage increase in the FY 2010-based IPPS
operating market basket, in accordance with applicable regulations at
Sec. 413.40.
Based on IGI's 2016 first quarter forecast, with historical data
through the 2015 fourth quarter, we estimate that the FY 2010-based
IPPS operating market basket update for FY 2017 is 2.8 percent (that
is, the estimate of the market basket rate-of-increase). Therefore, the
proposed rate-of-increase percentage that would be applied to the FY
2016 target amounts in order to determine the FY 2017 target amounts
for ``subclause (II) LTCHs'' under Sec. 412.526(c)(1)(i) is 2.8
percent. This is the same applicable annual rate-of-increase percentage
that would be provided for FY 2017 under Sec. 413.40(c)(3), as
discussed in section VI. of the preamble of this proposed rule.
Consistent with our historical practice of using the best available
data, if more recent data become available (for example, a more recent
estimate of the market basket increase), we propose to use such data,
if appropriate, to determine the FY 2017 rate-of-increase percentage to
determine the FY 2017 target amounts for ``subclause (II) LTCHs'' in
the final rule.

F. Proposed Modifications to the ``25-Percent Threshold Policy''
Payment Adjustments (Sec. Sec. 412.534 and 412.536)

The ``25-percent threshold policy'' is a per discharge payment
adjustment in the LTCH PPS that is applied to payments for Medicare
patient discharges from an LTCH when the number of such patients
originating from any single referring hospital is in excess of the
applicable threshold for a given cost reporting period (such threshold
is generally set at 25 percent, with exceptions for rural and urban
single or MSA-dominant hospitals). If an LTCH exceeds the applicable

[[Page 25170]]

threshold during a cost reporting period, payment for the discharge
that puts the LTCH over its threshold and all discharges subsequent to
that discharge in the cost reporting period from the referring hospital
are adjusted at cost report settlement (discharges not in excess of the
threshold are unaffected by the 25-percent threshold policy). Each cost
reporting period begins a new threshold determination, so subsequent
cost reporting periods are unaffected by failure to meet the applicable
percentage threshold requirements in a prior period.
The adjusted payment amount for those discharges that are subject
to the current 25-percent threshold policy is calculated as the lesser
of the applicable LTCH PPS payment amount or the IPPS equivalent
amount. We note that the IPPS equivalent amount under the 25-percent
threshold policy differs somewhat from the IPPS comparable per diem
amount applicable under the site neutral payment rate policy at Sec.
412.522(c)(1)(i) and the short-stay outlier (SSO) policy at Sec.
412.529(d)(4). For a discussion of the calculation of the IPPS
comparable per diem amount under Sec. 412.529(d)(4) and the IPPS
equivalent amount under existing Sec. Sec. 412.534(f) and 412.536(e),
including details on the differences in the calculations, we refer
readers to our response to comments in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50772).
The 25-percent threshold policy was originally established in the
FY 2005 IPPS final rule for LTCH hospital-within-hospitals (HwHs) and
satellites (69 FR 49191 through 49214). It addressed patient shifting
driven by financial considerations, rather than patient benefit.
Specifically, it addressed the negative incentives that result from the
co-location of facilities which created incentives for behaviors which
result in two hospital stays, and two Medicare payments, for what was
essentially one episode of patient care--and a financial windfall for
both providers, as compared to acute care hospitals that were not co-
located with an LTCH. It also addressed statutory limits for LTCHs,
namely concerns that these LTCHs were, in essence, behaving as long-
term care ``units'' of the co-located hospitals (an arrangement
prohibited under section 1886(d)(1)(B) of the Act). In order to
discourage such activities, CMS initially established a payment
adjustment at Sec. 412.534 for discharges in which the patient was
admitted to the LTCH location from a co-located referring hospital in
excess of an applicable percentage threshold. Implementation was phased
in, but ultimately was generally set at a 25-percent threshold after
specified phase-in periods. A full discussion of the original 25-
percent threshold policy is contained in the FY 2005 IPPS final rule
(69 FR 49191 through 49214).
While initially limited to co-located facilities, in keeping with
the suggestions of MedPAC and certain other commenters, CMS noted that
it would continue to monitor claims data for signs that common
ownership between hospitals that did not share a location also
encouraged discharge and admission decisions based on reimbursement
rather than clinical considerations (69 FR 49202 through 19203). This
continued monitoring, including analysis of discharge patterns from the
FY 2005 MedPAR files, identified additional patterns of patient
shifting and worrisome admission practices between LTCHs and referring
hospitals that were not co-located that were similar to the patterns
identified in the FY 2004 MedPAR files between co-located LTCHs and
their host hospitals. In response to these findings, CMS expanded the
25-percent threshold policy in the RY 2008 LTCH PPS final rule to
include all LTCHs and LTCH satellite facilities through the amendment
of Sec. 412.534 (including those certain LTCHs which had been
grandfathered from the original policy established in the FY 2005 rule)
and the addition of Sec. 412.536 (governing patients admitted from
hospitals not co-located with the LTCH). A full discussion of this
policy can be found in the RY 2008 LTCH PPS final rule (72 FR 26919
through 26944).
The resulting 25-percent threshold policy was to have been phased
in over 3 years, and, when fully implemented, the 25-percent threshold
policy would have applied to nearly all LTCHs or LTCH satellites and
remote locations admitting patients from any hospital, regardless of
the location or ownership of the referring hospital. (For the remainder
of this section, we refer to the policies under Sec. 412.534 and Sec.
412.536 collectively as the ``25-percent threshold policy'' unless
otherwise indicated.) However, several laws mandated delayed
implementation of the policy, including, most recently, section 1206 of
the Pathway for Sustainable Growth Rate (SGR) Reform Act (Pub. L. 113-
67). Section 1206(b)(1)(B) provides a permanent exemption from the
application of the 25-percent threshold policy for co-located LTCHs
that were excluded from the original policy in the FY 2005 IPPS final
rule. Section 1206(b)(1)(A) extended prior moratoria on the full
implementation of the 25-percent threshold policy until cost reporting
periods beginning on or after either July 1, 2016 (for LTCHs subject to
42 CFR 412.534) or October 1, 2016 (for LTCHs subject to 42 CFR
412.536). For more details on the various laws that delayed the full
implementation of the 25 percent threshold policy, we refer readers to
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50356 through 50357).
With the impending expiration of the most recent statutory delay of
the full implementation of the 25-percent threshold policy and the
recent implementation of a dual rate payment system for the revised
LTCH PPS for cost reporting periods beginning on or after October 1,
2015, we have received many questions concerning the mechanics of the
revised payment system, especially in relation to the application of
the 25-percent threshold policy under Sec. 412.534 and Sec. 412.536,
and how those sections will interact. The questions generally involved
how CMS would implement the policy for LTCHs with multiple locations.
Other questions included how site neutral payment rate discharges would
be treated under the policy and how CMS would determine whether a
hospital was located in a rural or MSA-dominant area. As a result of
the confusion reflected in those questions, we are proposing to revise
our existing policies in an effort to simplify the application of the
25-percent threshold policy.
Specifically, we are proposing to sunset both Sec. Sec. 412.534
and 412.536 and adopt a unified 25-percent threshold policy at new
Sec. 412.538. If finalized, this provision would apply to payments for
discharges occurring on or after October 1, 2016. The applicable
percentage thresholds would generally remain at 25 percent. In keeping
with our current policy at Sec. 412.534(h) and Sec. 412.536(a)(2),
under proposed new Sec. 412.538(a), the adjustment would not be
applicable to ``subclause (II)'' LTCHs described at section
1886(d)(1)(B)(iv)(II) of the Act and Sec. 412.23(e)(2)(ii) or,
consistent with the statute and as codified in the regulations at Sec.
412.534(a) and Sec. 412.536(a)(1)(ii), those HwHs described in Sec.
412.23(e)(2)(i) that meet the criteria in Sec. 412.22(f)
(``grandfathered HwHs''). (Section 1206(b)(1)(B) of the Pathway for SGR
Reform Act provides for a statutory exclusion from the 25-percent
threshold policy for ``grandfathered HwHs,'' which was codified in the
regulations at Sec. 412.534(a) and Sec. 412.536(a)(1)(ii) in the FY
2015 IPPS/LTCH PPS final rule at (79 FR 50186)).
In keeping with our current policy at Sec. 412.534(c)(2) and Sec.
412.536(h)(2), we are further proposing that LTCH discharges that
reached high-cost outlier

[[Page 25171]]

status at the referring hospital would not be subject to the 25-percent
threshold policy (that is, LTCH discharges which had been high-cost
outlier cases at the referring hospital would only be included in an
LTCH's total Medicare discharges and, therefore, would not count as
having been admitted from that referring hospital. In other words, LTCH
discharges that were high-cost outlier cases at the referring hospital
would not be counted in the numerator (but would be counted in the
denominator) when determining whether the LTCH exceeded the applicable
percentage threshold from that referring hospital). As we discussed in
the FY 2005 IPPS final rule, we continue to believe that it is
appropriate to treat high-cost outlier cases as though they had come
from a different hospital because a case which reaches high-cost
outlier status has received a full complement of services and,
therefore, any transfer from a hospital to an LTCH cannot be said to be
premature or inappropriate. In addition, consistent with our current
policy, under this proposal, both the LTCH PPS standard Federal payment
rate cases and the site neutral payment rate cases would be subject to
the 25-percent threshold policy at proposed new Sec. 412.538 and,
therefore, would be included in the determination of whether an LTCH
has exceeded its threshold. In conjunction with this proposal, we are
proposing conforming changes to Sec. 412.522(c)(2) (adjustments for
payments under the site neutral payment rate) and Sec. 412.525(d)(5)
(adjustments for payments under the LTCH PPS standard Federal payment
rate) to include the proposed adjustment for the limitation on LTCH
admissions from referring hospitals (that is, the proposed revised 25-
percent threshold policy) under new Sec. 412.538. Lastly, we are also
proposing that Medicare Advantage (MA) discharges would not be
considered under the revised 25-percent threshold policy at proposed
new Sec. 412.538, consistent with our current policy. (Consistent with
these proposals, for the remainder of this section, when we refer to
``Medicare discharges,'' we mean a hospital's Medicare discharges that
were not paid under an MA plan (and in the case of an LTCH, all LTCH
PPS discharges, that is, both the LTCH PPS standard Federal payment
rate cases and the site neutral payment rate cases).)
Under our proposed revised 25-percent threshold policy at proposed
new Sec. 412.538, we are proposing to calculate the numerator and
denominator for the ``applicable percentage threshold'' by using the
CMS Certification Number (CCN) on hospital claims submitted to
Medicare. Specifically, we would determine whether the applicable
percentage threshold was exceeded based on the Medicare discharges from
the entire LTCH that were admitted from each referring hospital. The
CCN is used on Medicare claims to identify the hospital which
discharged the patient, and thus we believe that using the CCN to
identify the discharging LTCH and referring hospital is an appropriate
and administratively straight-forward process to implement this
proposed revision. We believe that this proposed approach would
simplify the application of the 25-percent threshold policy because it
provides transparency in identifying both the discharging LTCH and the
referring hospital. Under this proposed approach, an LTCH's percentage
of Medicare discharges from a given referring hospital would be
determined during settlement of a cost report by dividing the LTCH's
total number of Medicare discharges in the cost reporting period (based
on the CCN on the claims) that were admitted directly from a given
referring hospital (again determined by the CCN on the referring
hospital's claims) that did not receive a high-cost outlier payment
(based on the referring hospital's claims) by the LTCH's total number
of Medicare discharges in the cost reporting period. In other words, at
cost report settlement, each LTCH's Medicare discharges from a given
referring hospital (that did not receive a high-cost outlier payment)
during that cost reporting period would be evaluated chronologically
based on the discharge date from the LTCH, such that the Medicare
discharge that results in the LTCH exceeding or remaining in excess of
its applicable percentage threshold would be subject to the payment
adjustment at proposed new Sec. 412.538(c). Attribution of the
Medicare discharge from a specific LTCH and a specific referring
hospital would be determined according to the CCN on the Medicare claim
submitted by the provider (that is, the LTCH's CCN would be determined
from the LTCH's claim; the referring hospital's CCN by its claim),
which generally comprises all locations of a single hospital (and for a
single LTCH, includes satellite facilities and remote locations, as
applicable). For example, the CCN of an LTCH with 3 locations is
``902000'' and the CCN of a specific referring hospital with 2
locations is ``900001.'' During its cost reporting period, LTCH
``902000'' has a total of 60 Medicare discharges (10 discharges from
the first location, 20 discharges from the second location, and 30
discharges from the third location). Of those 60 Medicare discharges,
25 Medicare discharges (that did not receive a high-cost outlier
payment) came directly from hospital ``900001'' (10 discharges from the
first location, and 15 discharges from the second location). LTCH
``902000's'' percentage of Medicare discharges from referring hospital
``900001'' would be calculated as 25 divided by 60, or 41.7 percent.
The location of the discharging LTCH and the referring hospital is not
relevant, and only the aggregate Medicare discharge counts would be
used in the proposed calculation when determining if a payment
adjustment under proposed new Sec. 412.538 is applicable at cost
report settlement.
Under proposed new Sec. Sec. 412.538 (b) and (c), we are
proposing, in general, that payment would be adjusted for LTCH Medicare
discharges originating from a single referring hospital during a given
cost reporting period when that Medicare discharge results in a
percentage of Medicare discharges (that did not receive a high-cost
outlier payment) from that referring hospital that exceeds that LTCH's
applicable percentage threshold (that is, goes above ``25 percent'' of
that LTCH's total Medicare discharges). In other words, in general, we
would continue to calculate separate percentages for each hospital from
which an LTCH admits patients, and compare those referring hospitals'
percentage of Medicare discharges (excluding those cases that received
a high-cost outlier payment) to the LTCH's applicable percentage
threshold, and the payment adjustment would then be applied to any of
the Medicare discharges that cause the LTCH to exceed or remain in
excess of the applicable percentage threshold. Medicare discharges not
in excess of the threshold (which includes those that received a high-
cost outlier payment at the referring hospital) would continue to be
unaffected by the 25-percent threshold policy. As adjusted, the net
payment amount to an LTCH for each of its Medicare discharges beyond
the applicable percentage threshold would continue to be the lesser of
the applicable LTCH PPS payment amount or an IPPS equivalent amount.
The IPPS equivalent amount under the current 25-percent threshold
policy is set forth in existing regulations at Sec. 412.534(f) and
Sec. 412.536(e). As we are proposing to sunset these provisions, we
are proposing to codify the existing definition of ``IPPS equivalent
amount'' under our proposed revised 25-percent threshold policy at
proposed new Sec. 412.538(f). (For a detailed description

[[Page 25172]]

of the calculation of the IPPS equivalent amount, we refer readers to
the RY 2007 LTCH PPS proposed rule (71 FR 4698 through 4700), which was
finalized in the corresponding final rule (71 FR 27875)). As noted
previously, the IPPS equivalent amount under the 25-percent threshold
policy differs somewhat from the IPPS comparable amount applicable
under the site neutral payment rate and the SSO policy (78 FR 50772).
In addition, consistent with our existing policy at Sec.
412.534(d) and Sec. 412.536(c), under proposed new Sec. 412.538(f),
we are proposing a 50-percent threshold for rural LTCHs (as defined
under Sec. 412.503) in lieu of the generally applicable 25-percent
threshold. If finalized, payment to such LTCHs would not be adjusted
unless the rural LTCH's Medicare discharges from a single referring
hospital (excluding those that received a high-cost outlier payment),
which exceeded 50 percent of the LTCH's total Medicare discharges (that
is, we would continue to apply an applicable percentage threshold of 50
percent from any single referring hospital to rural LTCHs).
We also are proposing to maintain at proposed new Sec.
412.538(e)(3) the current special treatment of an LTCH located in an
MSA with an MSA-dominant hospital at Sec. 412.534(e) and Sec.
412.536(d). As defined in those regulations, an MSA-dominant hospital
is a hospital that has discharged more than 25 percent of the total
hospital's Medicare discharges in the MSA in which it is located. For
LTCHs located in an MSA-dominant area (that is located in an MSA with
an MSA-dominant hospital), the LTCH's applicable percentage threshold
would continue to be the percentage of total Medicare hospital
discharges in the MSA from the MSA-dominant hospital during the LTCH's
applicable cost reporting period, but in no case is less than 25
percent or more than 50 percent. (That is, as is the case under our
current policy, for an LTCH located in an MSA-dominant area, it would
have a single applicable percentage threshold for all of that LTCH's
referring hospitals under the special treatment provided under proposed
new Sec. 412.538(e)(3). We are proposing to use our existing
definition of ``MSA-dominant hospital'' under both Sec. 412.534(e) and
Sec. 412.536(d) of the regulations to also define the term under Sec.
412.103. We are further proposing to codify definitions for the terms
``MSA'' (which we are proposing to define as an Metropolitan
Statistical Area, as defined by the Executive Office of Management and
Budget) and ``MSA-dominant area'' (which we are proposing to define as
an MSA in which an MSA-dominant hospital is located) under Sec.
412.103. (Information on OMB's MSA delineations based on the 2010
standards can be found at: http://www.whitehouse.gov/sites/default/files/omb/assets/fedreg_2010/06282010_metro_standards-Complete.pdf.)
Under this proposed special treatment at Sec. Sec. 412.538(e)(2)
and (3) for LTCHs with multiple locations, we are further proposing
that all locations of the LTCH paid under the LTCH PPS must be rural or
located in an MSA-dominant area (as applicable); otherwise the special
treatment would not apply and the applicable percentage threshold would
be 25 percent. Under our existing regulations, the applicable
percentage threshold for each location is determined independently of
any other location of the hospital (meaning that, if an LTCH had one
rural and one urban location, the applicable percentage threshold for
the rural location would be 50 percent and the applicable percentage
threshold for the urban location would be 25 percent). However, under
our proposal, the applicable percentage threshold would apply to the
LTCH as a whole entity (based on its CCN). Therefore, we believe that
it would be appropriate to apply the rural and MSA-dominant ``special''
applicable percentage thresholds based on the LTCH as a whole as well.
Furthermore, we believe that LTCHs with locations that do not fall in
these special treatment categories would have sufficient access across
its locations to admit patients from multiple hospitals such that, as a
whole, the LTCH should be able to draw from a diverse enough population
to meet the proposed 25-percent threshold criteria. For these reasons,
at this time we do not believe that it would be appropriate or
necessary to apply these special percentages unless the LTCH is
exclusively rural or located exclusively in an MSA-dominant area (as
applicable). Therefore, we are proposing to require all locations of an
LTCH to be rural or located within an MSA-dominant area in order to
qualify for special treatment under proposed new Sec. Sec.
412.538(e)(2) and (3) (that is, an adjusted applicable percentage
threshold).
In summary, for discharges occurring on or after October 1, 2016,
we are proposing to establish a single consolidated admission threshold
policy (generally a 25-percent threshold policy) at proposed new Sec.
412.538, in conjunction with proposing to sunset the existing 25-
percent threshold policies at Sec. Sec. 412.534 and 412.536, effective
October 1, 2016. Under this proposed single 25-percent threshold
policy, LTCH PPS payment for LTCH discharges from a single referring
hospital in excess of the LTCH's applicable percentage threshold for
that referring hospital would be adjusted. We are proposing that the
applicable percentage threshold would generally be 25 percent (with
proposed special treatment for exclusively rural LTCHs and LTCHs
exclusively located in an MSA-dominant area). The proposed 25-percent
threshold policy would be applicable to all LTCHs except ``subclause
(II)'' LTCHs and ``grandfathered HwHs.'' Under this proposal, LTCH
discharges which reached high-cost outlier status at the referring
hospital from which the patient was discharged directly to the LTCH
would be treated as though they had come from a different referring
hospital and, therefore, would not be counted as a Medicare discharge
from that referring hospital. We also are proposing that MA discharges
would not be included in this proposed policy. In addition, the
proposed revised 25-percent policy would apply to all LTCH PPS
discharges (that is, both LTCH PPS standard Federal payment rate and
site neutral payment rate cases).
Under this proposal, we would evaluate the ``applicable percentage
threshold'' based on the sum of the locations covered by the LTCH's and
referring hospitals' Medicare provider agreement, and would implement
this policy using the LTCH's and the referring hospitals' CCN. We are
proposing that an LTCH's percentage of Medicare discharges from a given
hospital would be determined by dividing the LTCH's number of Medicare
discharges in the cost reporting period (based on the LTCH's CCN) that
were admitted directly from a given referring hospital (based on the
hospital's CCN) that did not receive a high-cost outlier payment during
the stay at that referring hospital by the LTCH's total number of
Medicare discharges in the cost reporting period (based on the LTCH's
CCN). Under proposed new Sec. 412.538, in general, the LTCH PPS
payment would be adjusted for LTCH Medicare discharges from a single
referring hospital (that did not receive a high cost-outlier payment)
that exceed the applicable percentage threshold (generally 25 percent).
If an LTCH exceeds its applicable threshold during a cost reporting
period, which would be determined at cost report settlement, we are
proposing to adjust payment for Medicare discharges in excess of the
applicable percentage threshold (including the Medicare

[[Page 25173]]

discharge which causes the LTCH to exceed the applicable percentage
threshold), and Medicare discharges not in excess of the applicable
percentage threshold would continue to be unaffected by the 25-percent
threshold policy (that is, the payment for such discharges would not be
adjusted). As adjusted, the payment amount for a LTCH Medicare
discharge that is found to be at or beyond the applicable percentage
threshold would continue to receive the lesser of the applicable LTCH
PPS payment amount or an IPPS equivalent amount.

G. Proposed Refinement to the Payment Adjustment for ``Subclause II''
LTCHs

As part of our FY 2015 IPPS/LTCH PPS rulemaking cycle, under the
authority provided by section 1206(d)(2) of the Pathway to SGR Reform
Act (Pub. L. 113-67), we adopted an adjustment to the LTCH PPS payment
for LTCHs classified under section 1886(d)(1)(B)(iv)(II) of the Act
(``subclause (II) LTCHs''), which are described in 42 CFR
412.23(e)(2)(ii). Under this adjustment, subclause (II) LTCHs receive
payment under the LTCH PPS that is generally equivalent to an amount
determined under the reasonable cost-based payment rules for both
operating and capital-related costs under 42 CFR part 413 (that is, an
amount generally equivalent to an amount determined under the TEFRA
payment system methodology, which could be called a ``TEFRA-like''
methodology). For more information on this adjustment, we refer readers
to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50193 through 50197). As
initially adopted, this ``TEFRA-like'' payment adjustment for subclause
(II) LTCHs did not incorporate the limitation on charges to Medicare
beneficiaries policies under the TEFRA payment system. Alignment of the
limitation on charges to beneficiaries and related billing requirements
would result in administrative simplification for the cost report
submission and settlement process under the payment adjustment for
subclause (II) LTCHs specified at Sec. 412.526.
In this proposed rule, we are proposing to revise the limitation on
charges to beneficiaries policy and related billing requirements for
subclause (II) LTCHs like what is done in the TEFRA payment system
context for cost reporting periods beginning on or after October 1,
2016, which would align our beneficiary charge policies (and related
billing procedures) with the reasonable cost-based ``TEFRA-like''
payment adjustment under Sec. 412.526. The adjusted LTCH PPS payment
to subclause (II) LTCHs under Sec. 412.526 is considered the full LTCH
PPS payment (that is, the LTCH PPS standard Federal payment rate or
site neutral payment rate, as applicable), and as such, under current
policy that payment applies to the LTCH's costs for services furnished
until the high-cost outlier threshold is met (existing Sec.
412.507(a)). Under this proposal, for a subclause (II) LTCH, the
Medicare payment would only apply to the LTCH's costs incurred for the
days used to calculate the Medicare payment (that is, days for which
the patient has a benefit day available). Furthermore, in addition to
the applicable Medicare deductible and coinsurance amounts (and for
items and services as specified under Sec. 489.20(a)), we would
specify that the LTCH may only charge the beneficiary for services
provided during the stay that were not the basis for the adjusted LTCH
PPS payment amount under Sec. 412.526. If finalized, subclause (II)
LTCHs would be treated the same as IPPS-excluded hospitals paid under
the TEFRA payment system for purposes of the limitation on charges to
beneficiaries and related billing requirements.
In this proposed rule, using the broad authority conferred upon the
Secretary under section 123(a)(1) of the BBRA, as amended by section
307(b) of the BIPA, in conjunction with the authority provided under
section 1206(d)(2) of Public Law 113-67, we are proposing to revise
Sec. 412.507 to limit allowable charges to beneficiaries treated at
subclause (II) LTCHs as is done under the TEFRA payment system in order
to align our beneficiary charge policies with the reasonable cost-based
``TEFRA-like'' payment adjustments under Sec. 412.526. Specifically,
we are proposing to revise Sec. 412.507 to specify that, for cost
reporting periods beginning on or after October 1, 2016, the Medicare
payment made to subclause (II) LTCHs (as defined at Sec.
412.23(e)(2)(ii)) only applies to the hospital's costs on the days used
to calculate the Medicare payment (that is, days for which the patient
has a benefit day available). Furthermore, proposed revised Sec.
412.507 would specify that, for cost reporting periods beginning on or
after October 1, 2016, the hospital may only charge the Medicare
beneficiary for the applicable deductible and coinsurance amounts
(under Sec. Sec. 409.82, 409.83 and 409.87) for items and services as
specified under Sec. 489.20(a), and for services provided during the
stay that were not the basis for the adjusted LTCH PPS payment amount
under Sec. 412.526.

VIII. Quality Data Reporting Requirements for Specific Providers and
Suppliers

We seek to promote higher quality and more efficient healthcare for
Medicare beneficiaries. This effort is supported by the adoption of
widely agreed-upon quality measures. We have worked with relevant
stakeholders to define quality measures for most settings and to
measure various aspects of care for most Medicare beneficiaries. These
measures assess structural aspects of care, clinical processes, patient
experiences with care, care coordination, and improving patient
outcomes.
We have implemented quality reporting programs for multiple care
settings, including:
Hospital inpatient services under the Hospital Inpatient
Quality Reporting (IQR) Program (formerly referred to as the Reporting
Hospital Quality Data for Annual Payment Update (RHQDAPU) Program);
Hospital outpatient services under the Hospital Outpatient
Quality Reporting (OQR) Program (formerly referred to as the Hospital
Outpatient Quality Data Reporting Program (HOP QDRP));
Care furnished by physicians and other eligible
professionals under the Physician Quality Reporting System (PQRS,
formerly referred to as the Physician Quality Reporting Program
Initiative (PQRI));
Inpatient rehabilitation facilities under the Inpatient
Rehabilitation Facility Quality Reporting Program (IRF QRP);
Long-term care hospitals under the Long-Term Care Hospital
Quality Reporting Program (LTCH QRP) (also referred to as the LTCHQR
Program);
PPS-exempt cancer hospitals under the PPS-Exempt Cancer
Hospital Quality Reporting (PCHQR) Program;
Ambulatory surgical centers under the Ambulatory Surgical
Center Quality Reporting (ASCQR) Program;
Inpatient psychiatric facilities under the Inpatient
Psychiatric Facilities Quality Reporting (IPFQR) Program;
Home health agencies under the home health quality
reporting program (HH QRP); and
Hospice facilities under the Hospice Quality Reporting
Program.
We have also implemented the End-Stage Renal Disease Quality
Incentive Program, Hospital Readmissions Reduction Program, HAC
Reduction Program, and Hospital VBP Program (described further below)
that link payment to performance.

[[Page 25174]]

In implementing the Hospital IQR Program and other quality
reporting programs, we have focused on measures that have high impact
and support CMS and HHS priorities for improved quality and efficiency
of care for Medicare beneficiaries. Our goal for the future is to align
the clinical quality measure requirements of the Hospital IQR Program
with various other Medicare and Medicaid programs, including those
authorized by the Health Information Technology for Economic and
Clinical Health (HITECH) Act, so that the reporting burden on providers
will be reduced. As appropriate, we will consider the adoption of
clinical quality measures with electronic specifications so that the
electronic collection of performance information is a seamless
component of care delivery. Establishing such a system will require
interoperability between EHRs and CMS data collection systems,
additional infrastructure development on the part of hospitals and CMS,
and adoption of standards for capturing, formatting, and transmitting
the data elements that make up the measures. However, once these
activities are accomplished, adoption of measures that rely on data
obtained directly from EHRs will enable us to expand the Hospital IQR
Program measure set with less cost and reporting burden to hospitals.
We believe that in the near future, collection and reporting of data
elements through EHRs will greatly simplify and streamline reporting
for various CMS quality reporting programs, and that hospitals will be
able to switch primarily to EHR-based data reporting for many measures
that are currently manually chart-abstracted and submitted to CMS for
the Hospital IQR Program.
We also have implemented a Hospital VBP Program under section
1886(o) of the Act, described in the Hospital Inpatient VBP Program
final rule (76 FR 26490 through 26547). We most recently adopted
additional policies for the Hospital VBP Program in section IV.I. of
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49544 through 49570). Under
the Hospital VBP Program, hospitals receive value-based incentive
payments based on their performance with respect to performance
standards for a performance period for the fiscal year involved. The
measures under the Hospital VBP Program must be selected from the
measures (other than readmission measures) specified under the Hospital
IQR Program as required by section 1886(o)(2)(A) of the Act.
In selecting measures for the Hospital IQR Program, we are mindful
of the conceptual framework we have developed for the Hospital VBP
Program. Because measures adopted for the Hospital VBP Program must
first have been adopted and reported under the Hospital IQR Program,
these two programs are linked and the reporting infrastructure for the
programs overlap. We view the Hospital VBP Program as the next step in
promoting higher quality care for Medicare beneficiaries by
transforming Medicare from a passive payer of claims into an active
purchaser of quality healthcare for its beneficiaries. Value-based
purchasing is an important step to revamping how care and services are
paid for, moving increasingly toward rewarding better value, outcomes,
and innovations.
We also view the HAC Reduction Program, authorized by section
1886(p) of the Act, as added by section 3008 of the Affordable Care
Act, and the Hospital VBP Program, as related but separate efforts to
reduce HACs. The Hospital VBP Program is an incentive program that
awards payments to hospitals based on quality performance on a wide
variety of measures, while the HAC Reduction Program creates a payment
adjustment resulting in payment reductions for poorly performing
hospitals based on their rates of HACs.
In the preamble of this proposed rule, we are proposing changes to
the following Medicare quality reporting systems:
In section VIII.A, the Hospital IQR Program.
In section VIII.B., the PCHQR Program.
In section VIII.C., the LTCH QRP.
In section VIII.D., the IPFQR Program.
In addition, in section VIII.E. of the preamble of this proposed
rule, we are proposing changes to the Medicare and Medicaid EHR
Incentive Programs for eligible hospitals and CAHs.

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. History of the Hospital IQR Program
We refer readers to the FY 2010 IPPS/LTCH PPS final rule (74 FR
43860 through 43861) and the FY 2011 IPPS/LTCH PPS final rule (75 FR
50180 through 50181) for detailed discussions of the history of the
Hospital IQR Program, including the statutory history, and to the FY
2015 IPPS/LTCH PPS final rule (79 FR 50217 through 50249) and the FY
2016 IPPS/LTCH PPS final rule (80 FR 49660 through 49692) for the
measures we have adopted for the Hospital IQR Program measure set
through the FY 2019 payment determination and subsequent years.
b. Maintenance of Technical Specifications for Quality Measures
We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR
49640 through 49641) for a discussion of the maintenance of technical
specifications for quality measures for the Hospital IQR Program. We
also refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50202
through 50203) for additional detail on the measure maintenance
process.
In addition, we believe that it is important to have in place a
subregulatory process to incorporate nonsubstantive updates to the
measure specifications for measures we have adopted for the Hospital
IQR Program so that these measures remain up-to-date. We refer readers
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 53505) and
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203) for our policy for
using a subregulatory process to make nonsubstantive updates to
measures used for the Hospital IQR Program. We recognize that some
changes made to measures undergoing maintenance review are substantive
in nature and might not be appropriate for adoption using a
subregulatory process. We will continue to use rulemaking to adopt
substantive updates made to measures we have adopted for the Hospital
IQR Program.
In this proposed rule, we are not proposing any changes to our
policies on the measures maintenance process or for using the
subregulatory process to make nonsubstantive updates to measures used
for the Hospital IQR Program.
c. Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the Act was amended by the
Deficit Reduction Act (DRA) of 2005. Section 5001(a) of the DRA
requires that the Secretary establish procedures for making information
regarding measures submitted available to the public after ensuring
that a hospital has the opportunity to review its data before they are
made public. We refer readers to the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50776 through 50778) for a more detailed discussion about public
display of quality measures.
The Hospital Compare Web site is an interactive Web tool that
assists beneficiaries by providing information on hospital quality of
care to those who need to select a hospital. For more information on
measures reported to Hospital Compare, we refer readers to the Web site
at: http://www.medicare.gov/hospitalcompare. Other information not
reported to

[[Page 25175]]

Hospital Compare may be made available on other CMS Web sites, such as
https://data.medicare.gov.
In this proposed rule, we are not proposing any changes to these
policies.
2. Process for Retaining Previously Adopted Hospital IQR Program
Measures for Subsequent Payment Determinations
We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR
53512 through 53513), for our finalized measure retention policy.
Pursuant to this policy, when we adopt measures for the Hospital IQR
Program beginning with a particular payment determination, we
automatically readopt these measures for all subsequent payment
determinations unless we propose to remove, suspend, or replace the
measures. In this proposed rule, we are not proposing any changes to
this policy.
3. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital IQR
Program
As discussed above, we generally retain measures from the previous
year's Hospital IQR Program measure set for subsequent years' measure
sets except when we specifically propose to remove, suspend, or replace
a measure. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75
FR 50185) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203 through
50204) for more information on the criteria we consider for removing
quality measures. We refer readers to the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49641 through 49643) for more information on the additional
factors we consider in removing quality measures and the factors we
consider in order to retain measures. In the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50203 through 50204), we also finalized our proposal
to clarify the criteria for determining when a measure is ``topped-
out.'' In this proposed rule, we are not proposing any changes to these
policies.
b. Proposed Removal of Hospital IQR Program Measures for the FY 2019
Payment Determination and Subsequent Years
We are proposing to remove the following 15 measures for the FY
2019 payment determination and subsequent years. Some of these measures
we are proposing to remove in their entirety; one of these measures,
VTE-6 Incidence of Potentially Preventable Venous Thromboembolism, we
are proposing to remove just in the electronic form as discussed
further below:
AMI-2: Aspirin Prescribed at Discharge for AMI (NQF
#0142);
AMI-7a: Fibrinolytic Therapy Received Within 30 minutes of
Hospital Arrival;
AMI-10: Statin Prescribed at Discharge;
HTN: Healthy Term Newborn (NQF #0716);
PN-6: Initial Antibiotic Selection for Community-Acquired
Pneumonia (CAP) in Immunocompetent Patients (NQF #0147);
SCIP-Inf-1a: Prophylactic Antibiotic Received Within One
Hour Prior to Surgical Incision (NQF #0527);
SCIP-Inf-2a: Prophylactic Antibiotic Selection for
Surgical Patients (NQF #0528);
SCIP-Inf-9: Urinary Catheter Removed on Postoperative Day
1 (POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day
Zero;
STK-4 Thrombolytic Therapy (NQF #0437);
VTE-3: Venous Thromboembolism Patients with
Anticoagulation Overlap Therapy (NQF #0373);
VTE-4: Venous Thromboembolism Patients Receiving
Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring by
Protocol (or Nomogram);
VTE-5: Venous Thromboembolism Discharge Instructions;
VTE-6: Incidence of Potentially Preventable Venous
Thromboembolism;
Participation in a Systematic Clinical Database Registry
for Nursing Sensitive Care; and
Participation in a Systematic Clinical Database Registry
for General Surgery.
Removal of these measures is discussed in more detail below.
(1) Proposed Removal of Structural Measures
We are proposing to remove two structural measures for the FY 2019
payment determination and subsequent years: (1) Participation in a
Systematic Clinical Database Registry for Nursing Sensitive Care; and
(2) Participation in a Systematic Clinical Database Registry for
General Surgery, because performance on these measures does not result
in better patient outcomes--removal factor 4 (80 FR 49641). These
measures were originally adopted in the RHQDAPU Program FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43870 through 43872) to monitor
participation in systematic clinical database registries for the
Hospital IQR Program. By design, the measures do not provide
information on patient outcomes, because hospitals are asked only
whether they participate in registries. In the future, we will consider
other more effective measures to include in the program. As a result,
we believe that the burden to retain these measures outweighs the
benefits. Therefore, we are proposing to remove these two structural
measures from the Hospital IQR Program for the FY 2019 payment
determination and subsequent years.
(2) Proposed Removal of ``Topped-Out'' Chart-Abstracted Measures
We are proposing to remove two measures in their chart-abstracted
forms: (1) STK-4: Thrombolytic Therapy (NQF #0437) and (2) VTE-5: VTE
Discharge Instructions, because measure performance among hospitals is
so high and unvarying that meaningful distinctions and improvements in
performance can no longer be made (``topped-out'' measures)--removal
factor 1 (80 FR 49641). The chart-abstracted version of STK-4 was
adopted into the program in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51634); and the chart-abstracted version of VTE-5 was adopted into the
program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51636). One
factor we consider in determining whether a measure should be retained
or removed from the program is whether the measure is ``topped-out.''
We have previously adopted two criteria for determining the ``topped-
out'' status of Hospital IQR Program measures: (1) Statistically
indistinguishable performance at the 75th and 90th percentiles; and (2)
truncated coefficient of variation <=0.10 (80 FR 49642). These measures
meet both of these criteria. We believe that the burdens of retaining
these measures outweigh the benefits, and therefore, are proposing to
remove the chart-abstracted versions of STK-4 and VTE-5 for the FY 2019
payment determination and subsequent years.
(3) Proposed Removal of Certain eCQMs
We are proposing to remove the electronic versions of AMI-7a, HTN,
PN-6, SCIP-Inf-9, VTE-3, VTE-4, VTE-5, VTE-6, STK-4, AMI-2, AMI-10,
SCIP-Inf-1a, and SCIP-Inf-2a, beginning with the FY 2019 payment
determination. Each measure is discussed in more detail below.
(a) Removal of eCQMs in Alignment With the Medicare and Medicaid EHR
Incentive Programs
We are proposing to remove 13 eCQMs from both the Hospital IQR
Program and the Medicare and Medicaid EHR Incentive Programs in order
for hospitals to focus on a smaller,

[[Page 25176]]

more specific subset of eCQMs while keeping the programs aligned.
We refer readers to section VIII.A.8.a. and section VIII.A.10.d. of
the preamble of this proposed rule for details on our proposed changes
to eCQM reporting requirements for the Hospital IQR Program to align
with the Medicare and Medicaid EHR Incentive Programs. We also refer
readers to section VIII.A.3.b.(3) of the preamble of this proposed rule
for our proposals to remove these 13 eCQMs from the Medicare and
Medicaid EHR Incentive Programs. We believe that a coordinated
reduction in the overall number of eCQMs in both programs would reduce
burden on hospitals and improve the quality of reported data by
enabling hospitals to focus on a smaller, more specific subset of
eCQMs. We are proposing these changes in response to public comments
for the Hospital IQR Program in the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49694), which recommended that CMS adopt a lesser number of
eCQMs.
(i) AMI-7a
We are proposing to remove the AMI-7a: Fibrinolytic Therapy
Received Within 30 minutes of Hospital Arrival eCQM, because
performance or improvement on this measure does not result in better
patient outcomes--removal factor 4 (80 FR 49641). In the FY 2016 IPPS/
LTCH PPS final rule, we removed the chart-abstracted version of AMI-7a
because the reporting burden outweighed the benefit of posting very few
hospitals' measure rates. This measure's specifications resulted in
very high denominator exclusion rates. Consequently, the vast majority
of abstracted AMI cases were excluded from AMI-7a measure rates. Most
acute myocardial infarction (AMI) patients receive percutaneous
coronary intervention (PCI) instead of fibrinolytic therapy (80 FR
49647). We do not believe that the mode of reporting (eCQM versus
chart-abstracted) would cause the number of cases reported to differ
since most AMI patients would still receive PCI instead of fibrinolytic
therapy. In the FY 2016 IPPS/LTCH PPS final rule, we retained the
electronic version of this measure for alignment purposes with the
Medicare and Medicaid EHR Incentive Programs (80 FR 49644). As
discussed above, we are proposing to focus on a smaller, more specific
subset of eCQMs in both the Hospital IQR and Medicare and Medicaid EHR
Incentive Programs. As a result, the burdens related to retaining this
measure outweigh the benefits. Therefore, we are proposing to remove
the AMI-7a eCQM from the Hospital IQR Program for the FY 2019 payment
determination and subsequent years.
(ii) STK-4, AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-Inf-2a
We are proposing to remove the: (1) STK-4: Thrombolytic Therapy
(NQF #0437); (2) AMI-2: Aspirin Prescribed at Discharge for AMI (NQF
#0142); (3) AMI-10: Statin Prescribed at Discharge; (4) SCIP-Inf-1a:
Prophylactic Antibiotic Received Within One Hour Prior to Surgical
Incision (NQF #0527); and (5) SCIP-Inf-2a: Prophylactic Antibiotic
Selection for Surgical Patients (NQF #0528) eCQMs, because measure
performance among hospitals is so high and unvarying that meaningful
distinctions and improvements in performance can no longer be made--
removal factor 1 (80 FR 49641). We note that the NQF has changed the
endorsement designations of the AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-
Inf-2a chart abstracted measures and eCQM versions to either ``reserve
status'' or ``endorsement removed'' (available at: http://www.qualityforum.org/QPS/QPSTool.aspx), because there is no opportunity
for improvement.
We refer readers to section VIII.A.3.b.(2) of the preamble of this
proposed rule for our proposal also to remove the chart-abstracted form
of the STK-4 measure due to ``topped-out'' status. The electronic
version of the STK-4 measure was adopted into the Hospital IQR Program
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50784) to promote
programmatic alignment, as it was a part of a measure set that was
already included in the Medicare and Medicaid EHR Incentive Programs'
Electronic Reporting Pilot for Eligible Hospitals and CAHs (75 FR 44418
and 76 FR 74489).
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50781), we removed
the chart-abstracted versions of AMI-2 and AMI-10 due to ``topped-out''
status. However, as noted in FY 2015 IPPS/LTCH PPS final rule (79 FR
50245), we readopted these measures, though only in the electronic
form, because we believed that we should continue aligning the Hospital
IQR Program and the Medicare EHR Incentive Program in order to minimize
reporting burden and to facilitate the transition to reporting of
eCQMs. We believed that voluntary reporting of these measures would
further that aim. In addition, we believed that allowing hospitals the
option to electronically report ``topped-out'' measures would provide
them with an opportunity to test the accuracy of their EHR reporting
systems.
Similarly, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50208),
we removed the chart-abstracted versions of SCIP-Inf-1a and SCIP-Inf-
2a, previously referred to as SCIP-Inf-1 and SCIP-Inf-2 respectively,
due to their ``topped-out'' status. However, as stated in that rule, we
retained the electronic versions of these measures, because we believed
this provided CMS with an opportunity to monitor ``topped-out''
measures for performance decline. It also simplified alignment between
the Hospital IQR and Medicare EHR Incentive Program for eligible
hospitals and provided a more straight-forward approach to educate
stakeholders on electronic reporting options (79 FR 50208).
As discussed above, we are proposing to focus on a smaller, more
specific subset of eCQMs for the Hospital IQR Program and both the
Medicare and Medicaid EHR Incentive Programs. Therefore, in light of
their ``topped out'' status, the burden of retaining these measures
outweighs the benefits. Thus, we are proposing to remove the STK-4,
AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-Inf-2a eCQMs from the Hospital IQR
Program for the FY 2019 payment determination and subsequent years.
(b) HTN
We are proposing to remove the HTN: Healthy Term Newborn (NQF
#0716) eCQM, because it is no longer feasible to implement the measure
specifications--removal factor 7 (80 FR 49642). In the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50249), we added HTN, only as an eCQM, not
as a claims-based measure. Although the claims-based version of the HTN
measure has never been part of the Hospital IQR Program, the claims-
based HTN measure concept was used to develop the HTN eCQM. The measure
steward has made substantial revisions to the claims-based version of
this measure such that the focus is no longer on the number of healthy
term newborns, but the number of unexpected complications in term
newborns. The numerator of the revised measure has been restructured to
assess the presence of severe or moderate complications after term
birth, while the original measure looked for the absence of several
types of complications after term birth. For the revised measure
specifications, we refer readers to: https://www.cmqcc.org/focus-areas/quality-metrics/unexpected-complications-term-newborns. In addition,
the measure steward is no longer maintaining the claims-based version
of HTN or supporting the maintenance of the original eCQM version of
HTN that was developed by CMS and adopted in the Hospital IQR Program.
Therefore, it is not feasible to

[[Page 25177]]

continue to include a measure that is no longer supported by the
steward. As a result, we are proposing to remove the HTN eCQM from the
Program for the FY 2019 payment determination and subsequent years.
(c) PN-6 and SCIP-Inf-9
We are proposing to remove the: (1) PN-6: Initial Antibiotic
Selection for Community-Acquired Pneumonia (CAP) in Immunocompetent
Patients (NQF #0147) and (2) SCIP-Inf-9: Urinary Catheter Removed on
Postoperative Day 1 (POD1) or Postoperative Day 2 ((POD2) with Day of
Surgery Being Day Zero) eCQMs, because it is no longer feasible to
implement the measure specifications--removal factor 7 (80 FR 49642).
While the electronic versions were retained, the chart-abstracted
versions of PN-6 and SCIP-Inf-9 were determined to be ``topped-out''
and were removed from the Hospital IQR Program measure set in the FY
2015 IPPS/LTCH PPS final rule (79 FR 50204 through 50208).
These two eCQMs have undergone significant changes to their logic
expression during the previous annual update.\73\ There are a number of
data capture requirements that cannot be represented adequately in the
eCQM form due to their conceptual complexity. Specifically, for PN-6,
hospital feedback has indicated difficulties with interpreting several
critical timing requirements, such as for intensive care unit
populations, emergency department and inpatient admission transitions,
steroid therapy, and pre-admission medications. In addition, hospitals
raised concern about the inability to account for variation in
recording of the interpretation of laboratory results. For SCIP-Inf-9,
feedback from hospitals has indicated that it is difficult to interpret
the appropriate timing of elements associated with both the insertion
and removal of a catheter. This is particularly problematic, because of
the variety of patient locations encountered before and after surgery,
as well as transfers among units. While these variations for both PN-6
and SCIP-Inf-9 can be accounted for through chart-based manual
abstraction, we have had great difficulties in translating and
maintaining these options for electronic reporting. Therefore, we are
proposing to remove both the PN-6 and SCIP-Inf-9 eCQMs from the
Hospital IQR Program for the FY 2019 payment determination and
subsequent years.
---------------------------------------------------------------------------

\73\ Technical Release Notes: 2015 Annual Update of 2014
Eligible Hospitals and Eligible Professionals Electronic Clinical
Quality Measures (eCQMs). Available at: https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Downloads/EHandEPTRNs.pdf.
---------------------------------------------------------------------------

(d) VTE-3, VTE-4, VTE-5, and VTE-6
We are proposing to remove the four VTE eCQMs: (1) VTE-3: Venous
Thromboembolism Patients with Anticoagulation Overlap Therapy (NQF
#0373); (2) VTE-4: Venous Thromboembolism Patients Receiving
Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring by
Protocol (or Nomogram); (3) VTE-5: Venous Thromboembolism Discharge
Instructions; and (4) VTE-6: Incidence of Potentially Preventable
Venous Thromboembolism, because it is no longer feasible to implement
the measures specifications--removal factor 7 (80 FR 49642). Many of
the chart-abstracted versions of these measures were determined to be
``topped-out''. While the electronic versions of VTE-3 and VTE-4 were
retained, the chart-abstracted versions were determined to be ``topped-
out'' and were removed from the Hospital IQR Program measure set in the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49643) and the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50205), respectively. In addition, as
described above in section VIII.A.3.b.(2) of the preamble of this
proposed rule, we are proposing to remove the chart-abstracted version
of VTE-5 for the FY 2019 payment determination and subsequent years due
to its ``topped-out'' status. The electronic version of VTE-5 was
adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50784). Finally,
the chart-abstracted version of VTE-6, however, continues to be
included in the Hospital IQR Program measure set because chart
abstractors can manually find required data elements in clinical notes
and not in structured data fields.
Nonetheless, a majority of hospitals do not have the ability to
capture required data elements, such as diagnostic study results/
reports and location of the specific vein in which deep vein thrombosis
was diagnosed, in discrete structured data fields to support these
eCQMs, because they are often found as free text in clinical notes
instead. It is exceedingly difficult for hospitals to implement the
measure specifications in the absence of these functional requirements.
Furthermore, as discussed above, we are proposing to focus on a
smaller, more specific subset of eCQMs in the Hospital IQR Program and
both the Medicare and Medicaid EHR Incentive Programs. Therefore, in
light of their ``topped out'' statuses and the infeasibility of
implementing the measure specifications, the burden of retaining these
measures outweighs the benefits. As a result, we are proposing to
remove the VTE-3, VTE-4, VTE-5, and VTE-6 eCQMs from the Hospital IQR
Program for the FY 2019 payment determination and subsequent years.
(4) Summary of Measures Proposed for Removal
The table below lists the measures we are proposing for removal. We
are inviting public comment on our proposals to remove these 15
measures (eCQMs, structural, and chart-abstracted) from the Hospital
IQR Program for the FY 2019 payment determination and subsequent years.
We note that STK-4 and VTE-5 are listed twice--once as an eCQM and
again as a chart-abstracted measure.

Measures Proposed for Removal for the FY 2019 Payment Determination and
Subsequent Years
------------------------------------------------------------------------
Electronic Clinical Quality Measures
-------------------------------------------------------------------------
AMI-2: Aspirin Prescribed at Discharge for AMI (NQF #0142)
AMI-7a: Fibrinolytic Therapy Received Within 30 Minutes of
Hospital Arrival
AMI-10: Statin Prescribed at Discharge
HTN: Healthy Term Newborn (NQF #0716)
PN-6: Initial Antibiotic Selection for Community-Acquired
Pneumonia (CAP) in Immunocompetent Patients (NQF #0147)
SCIP-Inf-1a: Prophylactic Antibiotic Received within 1 Hour
Prior to Surgical Incision (NQF #0527)
SCIP-Inf-2a: Prophylactic Antibiotic Selection for Surgical
Patients (NQF #0528)
SCIP-Inf-9: Urinary Catheter Removed on Postoperative Day 1
(POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day Zero
STK-4: Thrombolytic Therapy (NQF #0437)
VTE-3: Venous Thromboembolism Patients with Anticoagulation
Overlap Therapy (NQF #0373)
VTE-4: Venous Thromboembolism Patients Receiving Unfractionated
Heparin (UFH) with Dosages/Platelet Count Monitoring by Protocol (or
Nomogram)

[[Page 25178]]

VTE-5: Venous Thromboembolism Discharge Instructions
VTE-6: Incidence of Potentially Preventable VTE *
------------------------------------------------------------------------
Structural Measures
------------------------------------------------------------------------
Participation in a Systematic Clinical Database Registry for
Nursing Sensitive Care
Participation in a Systematic Clinical Database Registry for
General Surgery
------------------------------------------------------------------------
Chart-Abstracted Measures
------------------------------------------------------------------------
STK-4: Thrombolytic Therapy (NQF #0437)
VTE-5: VTE Discharge Instructions
------------------------------------------------------------------------
* Retained in chart-abstracted form.

4. Previously Adopted Hospital IQR Program Measures for the FY 2018 and
FY 2019 Payment Determination and Subsequent Years
The Hospital IQR Program has previously finalized 68 measures as
outlined in the table below:

Previously Adopted Hospital IQR Program Measures for the FY 2018 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
Short name Measure name NQF #
----------------------------------------------------------------------------------------------------------------
NHSN
----------------------------------------------------------------------------------------------------------------
CAUTI........................................... National Healthcare Safety Network (NHSN) 0138
Catheter-associated Urinary Tract Infection
(CAUTI) Outcome Measure.
CDI............................................. National Healthcare Safety Network (NHSN) 1717
Facility-wide Inpatient Hospital-onset
Clostridium difficile Infection (CDI) Outcome
Measure.
CLABSI.......................................... National Healthcare Safety Network (NHSN) Central 0139
Line-Associated Bloodstream Infection (CLABSI)
Outcome Measure.
Colon and Abdominal Hysterectomy SSI............ American College of Surgeons--Centers for Disease 0753
Control and Prevention (ACS-CDC) Harmonized
Procedure Specific Surgical Site Infection (SSI)
Outcome Measure.
HCP............................................. Influenza Vaccination Coverage Among Healthcare 0431
Personnel.
MRSA Bacteremia................................. National Healthcare Safety Network (NHSN) 1716
Facility-wide Inpatient Hospital-onset
Methicillin-resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure.
----------------------------------------------------------------------------------------------------------------
Chart-Abstracted
----------------------------------------------------------------------------------------------------------------
ED-1 *.......................................... Median Time from ED Arrival to ED Departure for 0495
patients Admitted ED Patients.
ED-2 *.......................................... Admit Decision Time to ED Departure Time for 0497
Admitted Patients.
Imm-2........................................... Influenza Immunization........................... 1659
PC-01 *......................................... Elective Delivery (Collected in aggregate, 0469
submitted via Web-based tool or electronic
clinical quality measure).
Sepsis.......................................... Severe Sepsis and Septic Shock: Management Bundle 0500
(Composite Measure).
STK-04 *........................................ Thrombolytic Therapy............................. 0437
VTE-5 *......................................... Venous Thromboembolism Discharge Instructions.... \+\
VTE-6 *......................................... Incidence of Potentially Preventable Venous \+\
Thromboembolism.
----------------------------------------------------------------------------------------------------------------
Claims-Based Outcome
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI..................................... Hospital 30-Day, All-Cause, Risk-Standardized 0230
Mortality Rate (RSMR) Following Acute Myocardial
Infarction (AMI) Hospitalization.
MORT-30-CABG.................................... Hospital 30-Day, All-Cause, Risk-Standardized 2558
Mortality Rate (RSMR) Following Coronary Artery
Bypass Graft (CABG) Surgery.
MORT-30-COPD.................................... Hospital 30-Day, All-Cause, Risk-Standardized 1893
Mortality Rate (RSMR) Following Chronic
Obstructive Pulmonary Disease (COPD)
Hospitalization.
MORT-30-HF...................................... Hospital 30-Day, All-Cause, Risk-Standardized 0229
Mortality Rate (RSMR) Following Heart Failure
(HF) Hospitalization.
MORT-30-PN...................................... Hospital 30-Day, All-Cause, Risk-Standardized 0468
Mortality Rate (RSMR) Following Pneumonia
Hospitalization.
MORT-30-STK..................................... Hospital 30-Day, All-Cause, Risk-Standardized N/A
Mortality Rate Following Acute Ischemic Stroke.
READM-30-AMI.................................... Hospital 30-Day All-Cause Risk-Standardized 0505
Readmission Rate (RSRR) Following Acute
Myocardial Infarction (AMI) Hospitalization.

[[Page 25179]]

READM-30-CABG................................... Hospital 30-Day, All-Cause, Unplanned, Risk- 2515
Standardized Readmission Rate (RSRR) Following
Coronary Artery Bypass Graft (CABG) Surgery.
READM-30-COPD................................... Hospital 30-Day, All-Cause, Risk-Standardized 1891
Readmission Rate (RSRR) Following Chronic
Obstructive Pulmonary Disease (COPD)
Hospitalization.
READM-30-HF..................................... Hospital 30-Day, All-Cause, Risk-Standardized 0330
Readmission Rate (RSRR) Following Heart Failure
(HF) Hospitalization.
READM-30-HWR.................................... Hospital-Wide All-Cause Unplanned Readmission 1789
Measure (HWR).
READM-30-PN..................................... Hospital 30-Day, All-Cause, Risk-Standardized 0506
Readmission Rate (RSRR) Following Pneumonia
Hospitalization.
READM-30-STK.................................... 30-Day Risk Standardized Readmission Rate N/A
Following Stroke Hospitalization.
READM-30-THA/TKA................................ Hospital-Level 30-Day, All-Cause Risk- 1551
Standardized Readmission Rate (RSRR) Following
Elective Primary Total Hip Arthroplasty (THA)
and/or Total Knee Arthroplasty (TKA).
AMI Excess Days................................. Excess Days in Acute Care after Hospitalization N/A
for Acute Myocardial Infarction.
HF Excess Days.................................. Excess Days in Acute Care after Hospitalization N/A
for Heart Failure.
Hip/knee complications.......................... Hospital-Level Risk-Standardized Complication 1550
Rate (RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and/or Total Knee
Arthroplasty (TKA).
PSI 04.......................................... Death Rate among Surgical Inpatients with Serious 0351
Treatable Complications.
PSI 90.......................................... Patient Safety for Selected Indicators (Composite 0531
Measure).
----------------------------------------------------------------------------------------------------------------
Claims-Based Payment
----------------------------------------------------------------------------------------------------------------
AMI payment..................................... Hospital-Level, Risk-Standardized Payment 2431
Associated with a 30-Day Episode-of-Care for
Acute Myocardial Infarction (AMI).
HF Payment...................................... Hospital-Level, Risk-Standardized Payment 2436
Associated with a 30-Day Episode-of-Care For
Heart Failure (HF).
PN Payment...................................... Hospital-Level, Risk-Standardized Payment 2579
Associated with a 30-day Episode-of-Care For
Pneumonia.
THA/TKA Payment................................. Hospital[hyphen]Level, Risk[hyphen]Standardized N/A
Payment Associated with an Episode-of-Care for
Primary Elective Total Hip Arthroplasty and/or
Total Knee Arthroplasty.
MSPB............................................ Payment-Standardized Medicare Spending Per 2158
Beneficiary (MSPB).
----------------------------------------------------------------------------------------------------------------
Electronic Clinical Quality Measures (eCQMs)
----------------------------------------------------------------------------------------------------------------
AMI-2........................................... Aspirin Prescribed at Discharge for AMI.......... 0142
AMI-7a.......................................... Fibrinolytic Therapy Received Within 30 Minutes \+\
of Hospital Arrival.
AMI-8a.......................................... Primary PCI Received Within 90 Minutes of 0163
Hospital Arrival.
AMI-10.......................................... Statin Prescribed at Discharge................... \+\
CAC-3........................................... Home Management Plan of Care Document Given to \+\
Patient/Caregiver.
EHDI-1a......................................... Hearing Screening Prior to Hospital Discharge.... 1354
ED-1*........................................... Median Time from ED Arrival to ED Departure for 0495
Admitted ED Patients.
ED-2 *.......................................... Admit Decision Time to ED Departure Time for 0497
Admitted Patients.
HTN............................................. Healthy Term Newborn............................. 0716
PC-01 *......................................... Elective Delivery (Collected in aggregate, 0469
submitted via Web-based tool or electronic
clinical quality measure).
PC-05........................................... Exclusive Breast Milk Feeding **................. 0480
PN-6............................................ Initial Antibiotic Selection for 0147
Community[dash]Acquired Pneumonia (CAP) in
Immunocompetent Patients.
SCIP-Inf-1a..................................... Prophylactic Antibiotic Received Within One Hour 0527
Prior to Surgical Incision.
SCIP-Inf-2a..................................... Prophylactic Antibiotic Selection for Surgical 0528
Patients.
SCIP-Inf-9...................................... Urinary Catheter Removed on Postoperative Day 1 \+\
(POD1) or Postoperative Day 2 (POD2) with Day of
Surgery Being Day Zero.
STK-02.......................................... Discharged on Antithrombotic Therapy............. 0435
STK-03.......................................... Anticoagulation Therapy for Atrial Fibrillation/ 0436
Flutter.
STK-04 *........................................ Thrombolytic Therapy............................. 0437
STK-05.......................................... Antithrombotic Therapy by the End of Hospital Day 0438
Two.
STK-06.......................................... Discharged on Statin Medication.................. 0439
STK-08.......................................... Stroke Education................................. \+\
STK-10.......................................... Assessed for Rehabilitation...................... 0441
VTE-1........................................... Venous Thromboembolism (VTE) Prophylaxis......... 0371
VTE-2........................................... Intensive Care Unit Venous Thromboembolism (VTE) 0372
Prophylaxis.
VTE-3........................................... Venous Thromboembolism Patients with 0373
Anticoagulation Overlap Therapy.
VTE-4........................................... Venous Thromboembolism Patients Receiving \+\
Unfractionated Heparin with Dosages/Platelet
Count Monitoring by Protocol (or Nomogram).
VTE-5 *......................................... Venous Thromboembolism Discharge Instructions.... \+\
VTE-6 *......................................... Incidence of Potentially Preventable Venous \+\
Thromboembolism.
----------------------------------------------------------------------------------------------------------------
Patient Survey
----------------------------------------------------------------------------------------------------------------
HCAHPS.......................................... HCAHPS + 3-Item Care Transition Measure (CTM-3).. 0166
0228
----------------------------------------------------------------------------------------------------------------

[[Page 25180]]

Structural
----------------------------------------------------------------------------------------------------------------
Registry for Nursing Sensitive Care............. Participation in a Systematic Clinical Database N/A
Registry for Nursing Sensitive Care.
Registry for General Surgery.................... Participation in a Systematic Clinical Database N/A
Registry for General Surgery.
Patient Safety Culture.......................... Hospital Survey on Patient Safety Culture........ N/A
Safe Surgery Checklist.......................... Safe Surgery Checklist Use....................... N/A
----------------------------------------------------------------------------------------------------------------
* Measure listed twice, as both chart-abstracted and electronic clinical quality measure.
** Measure name has been shortened. Please refer to annually updated measure specifications on the CMS eCQI
Resource Center Page for further information: https://www.healthit.gov/newsroom/ecqi-resource-center.
\+\ Endorsement removed.

Previously Adopted Hospital IQR Program Measures for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
Short name Measure name NQF #
----------------------------------------------------------------------------------------------------------------
Claims-Based Payment
----------------------------------------------------------------------------------------------------------------
Cellulitis Payment.............................. Cellulitis Clinical Episode-Based Payment Measure N/A
GI Payment...................................... Gastrointestinal Hemorrhage Clinical Episode- N/A
Based Payment Measure.
Kidney/UTI Payment.............................. Kidney/Urinary Tract Infection Clinical Episode- N/A
Based Payment Measure.
----------------------------------------------------------------------------------------------------------------

5. Expansion and Updating of Quality Measures
We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR
53510 through 53512) for a discussion of the considerations we use to
expand and update quality measures under the Hospital IQR Program. In
this proposed rule, we are not proposing any changes to these policies.
6. Proposed Refinements to Existing Measures in the Hospital IQR
Program
We are proposing refinements to two claims-based measures: (1) PN
Payment: Hospital-Level, Risk-Standardized 30-Day Episode-of-Care
Payment Measure for Pneumonia; and (2) PSI 90: Patient Safety and
Adverse Events Composite (previously known as the Patient Safety for
Selected Indicators Composite Measure). We discuss these proposed
refinements in more detail below. In addition, we refer readers to
section VIII.A.9.a. of the preamble of this proposed rule where we are
inviting public comment on our intent to update the MORT-30-STK measure
to include the NIH Stroke Scale as a measure of stroke severity in the
risk-adjustment in future rulemaking.
a. Proposed Expansion of the Cohort for the PN Payment Measure:
Hospital-Level, Risk-Standardized Payment Associated With a 30-Day
Episode-of-Care for Pneumonia (NQF #2579)
(1) Background
For FY 2018 payment determination and subsequent years, we are
proposing a refinement of the CMS hospital-level, risk-standardized
payment associated with a 30-day episode-of-care for pneumonia (NQF
#2579) (PN Payment). The proposed refinement expands the measure cohort
to align with the following Hospital IQR Program measures: (1) Hospital
30-day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following
Pneumonia Hospitalization (NQF #0468) (MORT-30-PN); (2) Hospital 30-
day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following
Pneumonia Hospitalization (NQF #0506) (READM-30-PN); and (3) Excess
Days in Acute Care After Hospitalization for Pneumonia (an improved
measure to the previously developed measure entitled ``30-day Post-
Hospital Pneumonia Discharge Care Transition Composite'' (NQF #0707)
(PN Excess Days).
The expansion of the measure cohort for the MORT-30-PN and the
READM-30-PN was finalized in the FY 2016 IPPS/LTCH PPS final rule (80
FR 49660) and is expected to be publicly reported beginning in July
2016. We refer readers to section VIII.A.7.b. of the preamble of this
proposed rule where we are proposing the PN Excess Days measure for
inclusion in the Hospital IQR Program for FY 2019 payment determination
and subsequent years.
For the purposes of describing the refinement of this measure, we
note that ``cohort'' is defined as the hospitalizations, or ``index
admissions,'' that are included in the measure and evaluated to
ascertain the total payments made on behalf of the Medicare beneficiary
for a 30-day episode-of-care. The cohort is the set of hospitalizations
that meets all of the inclusion and exclusion criteria. We are
proposing an expansion to this set of hospitalizations.
The previously adopted PN Payment measure (79 FR 50227 through
50231) includes hospitalizations for patients with a principal
discharge diagnosis of pneumonia using the International Classification
of Diseases, 9th Edition, Clinical Modification (ICD-9-CM), which
includes viral and bacterial pneumonia. For more cohort details on the
measure as currently implemented, we refer readers to the measure
methodology report, with the measure risk adjustment statistical model,
in the AMI, HF, PN, and Hip/Knee Arthroplasty Payment Updates zip file
on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
This proposed measure refinement would expand the measure cohort to
include hospitalizations for patients with a: (1) Principal discharge
diagnosis of pneumonia, including not only viral or bacterial
pneumonia, but also aspiration pneumonia; and (2) principal discharge
diagnosis of sepsis (but not severe sepsis) with a secondary diagnosis
of pneumonia (including viral or bacterial pneumonia and aspiration
pneumonia) coded as present on admission (POA). This refinement to the
pneumonia cohort was proposed for several reasons, which were
previously

[[Page 25181]]

discussed in the FY 2016 IPPS/LTCH PPS final rule for the MORT-30-PN
and READM-30-PN measures (80 FR 49653 through 49660). We believe that
refining this measure is appropriate for the following reasons. First,
recent evidence has shown an increase in the use of sepsis as principal
discharge diagnosis codes among patients hospitalized with
pneumonia.\74\ Pneumonia patients with this principal diagnosis code
were not included in the original MORT-30-PN and READM-30-PN measure
cohorts, and including them would better capture the complete patient
population of a hospital with patients receiving clinical management
and treatment for pneumonia. In addition, because patients with a
principal diagnosis of sepsis are not included in the original MORT-30-
PN and READM-30-PN measure specifications, efforts to evaluate changes
over time in pneumonia outcomes could be biased as coding practices
change. Lastly, a published article\75\ also demonstrated wide
variation in the use of sepsis codes as principal discharge diagnosis
for pneumonia patients across hospitals, which can potentially bias
efforts to compare hospital performance on the MORT-30-PN and READM-30-
PN measures.
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\74\ Lindenauer PK, Lagu T, Shieh MS, Pekow PS, Rothberg MB.
Association of diagnostic coding with trends in hospitalizations and
mortality of patients with pneumonia, 2003-2009. Journal of the
American Medical Association. Apr 4 2012;307(13):1405-1413.
\75\ Rothberg MB, Pekow PS, Priya A, Lindenauer PK. Variation in
diagnostic coding of patients with pneumonia and its association
with hospital risk-standardized mortality rates: a cross-sectional
analysis. Annals of Internal Medicine. Mar 18 2014;160(6):380-388.
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The proposal to align the PN Payment measure cohort with those of
the MORT-30-PN, READM-30-PN, and proposed PN Excess Days measures would
address the changing coding patterns in which patients with pneumonia
are increasingly given a principal discharge diagnosis code of sepsis
in combination with a secondary discharge diagnosis of pneumonia that
is POA. Moreover, expanding the PN Payment measure cohort would ensure
that the measure captures the broader population of patients admitted
for pneumonia that may have been excluded from the previously adopted
measure. Finally, the expansion of the cohort for the PN Payment
measure harmonizes the cohort of this measure with the MORT-30-PN, the
READM-30-PN, and the proposed PN Excess Days measures.
The proposed PN Payment measure (MUC15-378), which includes this
expanded measure cohort was included on a publicly available document
entitled ``2015 Measures Under Consideration List'' for December 1,
2015 (available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367) and has been reviewed by the NQF
Measure Applications Partnership (MAP) Hospital Workgroup. The revised
measure was conditionally supported pending the examination of
sociodemographic status (SDS) factors and NQF review and endorsement of
the measure update, as referenced in the MAP 2016 Final Recommendations
Report (available at: http://www.qualityforum.org/map/).\76\
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\76\ Spreadsheet of MAP 2016 Final Recommendations Available at:
http://www.qualityforum.org/map/.
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In regard to MAP stakeholder concerns that the proposed PN Payment
measure may need to be adjusted for SDS, we understand the important
role that sociodemographic status plays in the care of patients.
However, we continue to have concerns about holding hospitals to
different standards for the outcomes of their patients of diverse
sociodemographic status, because we do not want to mask potential
disparities or minimize incentives to improve the outcomes of
disadvantaged populations. We routinely monitor the impact of
sociodemographic status on hospitals' results on our measures.
The NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
expected to submit information such as analyses and interpretations as
well as performance scores with and without sociodemographic factors in
the risk adjustment model.
Furthermore, the Office of the Assistant Secretary for Planning and
Evaluation (ASPE) is conducting research to examine the impact of
sociodemographic status on quality measures, resource use, and other
measures under the Medicare program as directed by the IMPACT Act. We
will closely examine the findings of the ASPE reports and related
Secretarial recommendations and consider how they apply to our quality
programs at such time as they are available.
The refined PN Payment measure will be submitted to NQF for
reendorsement as part of the next Cost and Resource Use project which
is expected in the first quarter of 2017. We will work to minimize any
potential confusion when publicly reporting the updated measure to
ensure that the refined measure would not be confused with the
originally adopted measure.
(2) Overview of Measure Change
The proposed measure refinement expands the cohort. As the measure
is currently specified, the cohort includes hospitalizations for
patients with a principal discharge diagnosis of pneumonia using the
ICD-9-CM, which includes viral and bacterial pneumonia (79 FR 50227
through 50231). This refinement would expand the cohort to also include
hospitalizations for patients with a: (1) Principal discharge diagnosis
of pneumonia, including not only viral or bacterial pneumonia, but also
aspiration pneumonia; and (2) principal discharge diagnosis of sepsis
(but not severe sepsis) with a secondary diagnosis of pneumonia
(including viral or bacterial pneumonia and aspiration pneumonia) coded
as POA.
For the ICD-9-CM and ICD-10-CM codes that define the expanded PN
Payment cohort, we refer readers to the 2016 Reevaluation and Re-
specifications Report of the Hospital-Level 30-Day Risk-Standardized
Pneumonia Payment Measure--Pneumonia Payment Version 3.1 in the AMI,
HF, PN, and Hip/Knee Arthroplasty Payment Updates zip file on our Web
site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
The data sources, exclusion criteria, assessment of the total
payment outcome, and 3 year reporting period all remain unchanged.
(3) Risk Adjustment
The statistical modeling approach as well as the measure
calculation remains unchanged from the previously adopted measure. The
risk adjustment approach also remains unchanged; however, to maintain
model performance, we conducted variable reselection, or reevaluation
of the variables used, to ensure the model risk variables are
appropriate for the discharge diagnoses included in the expanded
cohort.
The previously adopted pneumonia payment risk-adjustment model

[[Page 25182]]

includes 48 variables.\77\ As a result of the variable reselection
process, the revised risk-adjustment model includes a total of 57
variables--37 of the same variables that are in the previously adopted
model as well as 20 additional variables. However, there are 11
variables from the previously adopted model that are not included in
the revised model. For details on variable reselection and the full
measure specifications of the proposed change to the measure, we refer
readers to the 2016 Reevaluation and Re-specifications Report of the
Hospital-Level 30-Day Risk-Standardized Pneumonia Payment Measure--
Pneumonia Payment Version 3.1 in the AMI, HF, PN, and Hip/Knee
Arthroplasty Payment Updates zip file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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\77\ Kim N, Ott L, Hsieh A, et al. 2015 Condition-Specific
Measure Updates and Specifications Report, Hospital-Level 30-Day
Risk-Standardized Payment Measures--Acute Myocardial Infarction
(Version 4.0), Heart Failure (Version 2.0), Pneumonia (Version 2.0).
Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Accessed Date: March 16, 2016.
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(4) Estimated Effects of the Cohort Expansion
Using administrative claims data for the FY 2016 payment
determination (which included discharges between July 2011 and June
2014), we simulated and analyzed the effects of the proposed cohort
refinements on the PN Payment measure (NQF #2579) as if these changes
had been applied for FY 2016 payment determination. We note that these
statistics are for illustrative purposes only, and we are not proposing
to revise measure calculations for the FY 2016 payment determination.
In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43881), we
established that if a hospital has fewer than 25 eligible cases
combined over a measure's reporting period, we would replace the
hospital's data with a footnote indicating that the number of cases is
too small to reliably determine how well the hospital is performing.
These cases are still used to calculate the measure; however, for
hospitals with fewer than 25 eligible cases, the hospital's Risk
Standardization Payment (RSP) and RSP interval estimates are not
publicly reported for the measure. We refer readers to the FY 2011
IPPS/LTCH PPS final rule (75 FR 50221), the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51641), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537),
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50819), and the FY 2016
IPPS/LTCH PPS final rule (80 FR 24588) for details on our sampling and
case thresholds for the FY 2016 payment determination and subsequent
years. Expanding the measure cohort to include a broader population of
patients as proposed would add a large number of patients, as well as
additional hospitals (which would now meet the minimum threshold of 25
eligible cases for public display), to the PN Payment measure (NQF
#2579). The increase in the size of the measure cohort proposed in this
rule also is estimated to change results for some hospitals as detailed
below.
The previously adopted PN Payment measure cohort includes 901,764
patients and 4,685 hospitals for the FY 2016 payment determination
(administrative claims from July 2011-June 2014). We noted the
following effects for the PN Payment measure if the proposed expanded
cohort is applied for FY 2016 payment determinations: (1) The cohort
would increase to include an additional 386,143 patients across all
hospitals (creating a total measure cohort size of 1,287,907 patients);
(2) an additional 81 hospitals would meet the minimum 25 patient case
volume threshold over the 3-year reporting period and, as a result,
would be publicly reported for the measure; and (3) 31.7 percent of the
refined measure cohort would consist of patients who fall into the
expanded set of hospitalizations.
The expansion of the cohort leads to an overall increase in the
mean national payment of $16,116 when compared to the mean national
payment of $14,294 for the previously adopted cohort. This leads to an
increase in the RSP outcome of $1,822 or 12.7 percent due to the higher
mean payments for patients added to the cohort. An individual
hospital's average payment category or reclassification of outlier
status of ``higher than the U.S. national payment,'' ``no different
than the U.S. national payment,'' or ``less than the U.S. national
payment'' may change as demonstrated in the 2016 Reevaluation and Re-
specifications Report of the Hospital-Level 30-Day Risk-Standardized
Pneumonia Payment measure--Pneumonia Payment Version 3.1, which can be
found in the AMI, HF, PN, and Hip/Knee Arthroplasty Payment Updates zip
file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Overall, we estimate that 1.4 percent of hospitals included in the
previously adopted measure would change categorization from greater
than average to average payment, 9.3 percent would change from average
to greater than average payment, and 8.5 percent would change from
average to less than average payment. Finally, 1.8 percent of hospitals
would change from less than average to average payment. Therefore,
there would be an increase in the number of hospitals considered
outliers and a shift in some hospitals' outlier status classification.
We reiterate that these statistics are for illustrative purposes only,
and we are not proposing to revise measure calculations for the FY 2016
payment determination; our proposal would affect the FY 2018 payment
determination and subsequent years.
A detailed description of the refinements to the PN Payment measure
(NQF #2579) and the estimated effects of the change are available in
the 2016 Reevaluation and Re-specifications Report of the Hospital-
Level 30-Day Risk-Standardized Pneumonia Payment Measure--Pneumonia
Payment Version 3.1 in the AMI, HF, PN, and Hip/Knee Arthroplasty
Payment Updates zip file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
We are inviting public comment on our proposal to refine the
Hospital-Level, Risk-Standardized Payment Associated with a 30-day
Episode-of-Care For Pneumonia (NQF #2579) (PN Payment) measure for the
FY 2018 payment determination and subsequent years as described above.
b. Proposed Adoption of Modified PSI 90: Patient Safety and Adverse
Events Composite Measure (NQF #0531)
(1) Background
We are proposing to adopt refinements to the Agency for Healthcare
Research and Quality (AHRQ) Patient Safety and Adverse Events Composite
(NQF #0531) for the Hospital IQR Program beginning with the FY 2018
payment determination and subsequent years. In summary, the PSI 90
measure was refined to reflect the relative importance and harm
associated with each component indicator to provide a more reliable and
valid signal of patient safety events. We believe refining the PSI 90
measure will provide strong incentives for hospitals to ensure that
patients are not harmed by the medical care they receive, a critical
consideration in quality improvement.
In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48607 through
48610), we

[[Page 25183]]

adopted the Complication/Patient Safety for Selected Indicators
Composite Measure (NQF #0531) in the Hospital IQR Program beginning
with the FY 2010 payment determination as an important measure of
patient safety and adverse events. In the FY 2015 IPPS/LTCH PPS final
rule, we updated the title of the measure to Patient Safety for
Selected Indicators Composite Measure (NQF #0531), to be consistent
with the NQF (79 FR 50211). As previously adopted, the PSI 90 measure
consisted of eight component indicators: (1) PSI 3 Pressure Ulcer Rate;
(2) PSI 6 Iatrogenic Pneumothorax Rate; (3) PSI 7 Central Venous
Catheter-Related Blood Stream Infections Rate; (4) PSI 8 Postoperative
Hip Fracture Rate; (5) PSI 12 Perioperative Pulmonary Embolism/Deep
Vein Thrombosis Rate; (6) PSI 13 Postoperative Sepsis Rate; (7) PSI 14
Postoperative Wound Dehiscence Rate; and (8) PSI 15 Accidental Puncture
and Laceration Rate.\78\
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\78\ NQF-Endorsed Measures for Patient Safety, Final Report.
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
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The currently adopted eight-indicator version of the measure
underwent an extended NQF maintenance reendorsement in the 2014 NQF
Patient Safety Committee due to concerns with the underlying component
indicators and their composite weights. In the NQF-Endorsed Measures
for Patient Safety, Final Report,\79\ the NQF Patient Safety Committee
deferred their final decision for the PSI 90 measure until the
following measure evaluation cycle. In the meantime, AHRQ worked to
address many of the NQF stakeholders' concerns about the PSI 90
measure, which subsequently completed NQF maintenance re-review and
received reendorsement on December 10, 2015.
---------------------------------------------------------------------------

\79\ NQF-Endorsed Measures for Patient Safety, Final Report
available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
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The PSI 90 measure's extended NQF reendorsement led to several
changes to the measure.\80\ First, the name of the PSI 90 measure has
changed to ``Patient Safety and Adverse Events Composite'' (NQF #0531)
(herein referred to as the ``modified PSI 90''). Second, the modified
PSI 90 measure includes the addition of three indicators: (1) PSI 09
Perioperative Hemorrhage or Hematoma Rate; (2) PSI 10 Physiologic and
Metabolic Derangement Rate; and (3) PSI 11 Postoperative Respiratory
Failure Rate. Third, PSI 12, Perioperative Pulmonary Embolism (PE) or
Deep Vein Thrombosis (DVT) Rate, and PSI 15, Accidental Puncture or
Laceration Rate, have been respecified in the modified PSI 90 measure.
Fourth, PSI 07 Central Venous Catheter-Related Blood Stream Infection
Rate has been removed in the modified PSI 90 measure. Fifth, the
weighting of component indicators in the modified PSI 90 measure is
based not only on the volume of each of the patient safety and adverse
events, but also the harms associated with the events. We consider
these changes to the modified PSI 90 measure to be substantive changes
to the measure. Therefore, we are proposing to adopt refinements to the
PSI 90 measure for the Hospital IQR Program beginning with the FY 2018
payment determination and subsequent years. We explain the modified PSI
90 measure more fully below, and also refer readers to the measure
description on the NQF Web site at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3. We are also
proposing to modify the reporting periods for FYs 2018 and 2019 payment
determinations and subsequent years as detailed further below.
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\80\ National Quality Forum QPS Measure Description for
``Patient Safety for Selected Indicators (modified version of PSI90)
(Composite measure)'' found at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
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We note that the proposed modified PSI 90 measure (MUC15-604) was
included on a publicly available document entitled 2015 Measures Under
Consideration for December 1, 2015 \81\ in compliance with section
1890A(a)(2) of the Act, and was reviewed by the MAP. The MAP supported
this measure stating that, ``the PSI measures were developed to
identify harmful healthcare related events that are potentially
preventable. Three additional PSIs have been added to this updated
version of the measure. PSIs were better linked to important changes in
clinical status with `harm weights' that are based on diagnoses that
were assigned after the complication. This is intended to allow the
measure to more accurately reflect the impact of the events.'' \82\ The
measure received support for inclusion in the Hospital IQR Program as
referenced in the MAP Final Recommendations Report.\83\
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\81\ 2015 Measures Under Consideration List Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\82\ MAP Final Recommendations. Available at: http://www.qualityforum.org/map/.
\83\ MAP Final Recommendations. Available at: http://www.qualityforum.org/map/.
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(2) Overview of the Measure Changes
First, the name of the PSI 90 measure has changed from the
``Patient Safety for Selected Indicators Composite Measure'' to the
``Patient Safety and Adverse Events Composite'' (NQF #0531) to more
accurately capture the indicators included in the measure.
Second, the PSI 90 measure has expanded from eight to 10 component
indicators. The modified PSI 90 measure is a weighted average of the
following 10 risk-adjusted and reliability-adjusted individual
component PSI rates:
PSI 03 Pressure Ulcer Rate;
PSI 06 Iatrogenic Pneumothorax Rate;
PSI 08 Postoperative Hip Fracture Rate;
PSI 09 Postoperative Hemorrhage or Hematoma Rate; *
PSI 10 Physiologic and Metabolic Derangement Rate; *
PSI 11 Postoperative Respiratory Failure Rate; *
PSI 12 Perioperative Pulmonary Embolism (PE) or Deep Vein
Thrombosis (DVT) Rate;
PSI 13 Postoperative Sepsis Rate;
PSI 14 Postoperative Wound Dehiscence Rate; and
PSI 15 Accidental Puncture or Laceration Rate.\84\
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\84\ http://www.qualityforum.org/QPS/0531.
---------------------------------------------------------------------------

(* Denotes new component for the modified PSI 90 measure)
As stated above, the modified PSI 90 measure also removed PSI 07
Central Venous Catheter-Related Blood Stream Infection Rate, because of
potential overlap with the CLABSI measure (NQF #0139), which has been
included in the Hospital IQR Program since the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50201 through 50202), the HAC Reduction Program since
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), and the Hospital
VBP Program since the FY 2013 IPPS/LTCH PPS final rule (77 FR 53597
through 53598).
In response to stakeholder concerns, highlighted in the NQF 2014
Patient Safety Report,\85\ the modified PSI 90 measure also respecified
two component indicators, PSI 12 and PSI 15. Specifically, for PSI 12
Perioperative PE or DVT Rate, the NQF received public comments
concerning the inclusion of: (1) Extracorporeal membrane oxygenation
(ECMO) procedures in the denominator; and (2) intra-hospital
variability in the

[[Page 25184]]

documentation of calf vein thrombosis (which has uncertain clinical
significance). As such, the modified PSI 12 component indicator no
longer includes ECMO procedures in the denominator or isolated deep
vein thrombosis of the calf veins in the numerator. PSI 15 also was
respecified further to focus on the most serious intraoperative
injuries--those that were unrecognized until they required a subsequent
reparative procedure. The modified denominator of PSI 15 now is limited
to discharges with an abdominal/pelvic operation, rather than including
all medical and surgical discharges. In addition, to identify events
that are more likely to be clinically significant and preventable, the
PSI 15 numerator was modified to require both: (1) A diagnosis of an
accidental puncture and/or laceration; and (2) an abdominal/pelvic
reoperation one or more days after the index surgery.
---------------------------------------------------------------------------

\85\ NQF Endorsed Measures for Patient Safety, Final Report.
Available at: http://www.qualityforum.org/Publications/2015/01/NQF-Endorsed_Measures_for_Patient_Safety,_Final_Report.aspx.
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Finally, the NQF Patient Safety Review Committee raised concerns
about the weighting scheme of the component indicators. In prior
versions of the measure, the weights of each component PSI were based
solely on volume (numerator rates). In the modified PSI 90 measure, the
rates of each component PSI are weighted based on statistical and
empirical analyses of volume, excess clinical harm associated with the
PSI, and disutility (individual preference for a health state linked to
a harm, such as death or disability. The final weight for each
component indicator is the product of harm weights and volume weights
(numerator weights). Harm weights are calculated by multiplying
empirical estimates of excess harms associated with the patient safety
event by the utility weights linked to each of the harms. Excess harms
are estimated using statistical models comparing patients with a safety
event to those without a safety event in a Medicare fee-for-service
sample. Volume weights are calculated based on the number of safety
events for the component indicators in an all-payer reference
population. For more information on the modified PSI 90 measure and
component indicators, we refer readers to Quality Indicator Empirical
Methods available online at: www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
The risk adjustment and statistical modeling approaches of the
models remain unchanged in the modified PSI 90 measure. In summary, the
predicted value for each case is computed using a modeling approach
that includes, but is not limited to, applying a Generalized Estimating
Equation (GEE) hierarchical model (logistic regression with hospital
random effect) and covariates for gender, age, Modified MS-DRG (MDRG),
Major Diagnostic Category, transfer in, point of origin not available,
procedure days not available, and AHRQ comorbidity (COMORB).
The expected rate for each of the indicators is computed as the sum
of the predicted value for each case divided by the number of cases for
the unit of analysis of interest (that is, the hospital). The risk-
adjusted rate for each of the indicators is computed using indirect
standardization as the observed rate divided by the expected rate,
multiplied by the reference population rate. For more details about
risk adjustment, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf. As stated above, we are not proposing any
changes to the risk adjustment for this measure.
(4) Proposed Reporting Periods
The PSI 90 measure is a claims-based measure that has been
calculated using 24-months of data. For the FY 2018 and FY 2019 payment
determinations, measure rates would be calculated using reporting
periods of July 1, 2014 through June 30, 2016 and July 1, 2015 through
June 30, 2017, respectively. However, because hospitals began ICD-10-
CM/PCS implementation on October 1, 2015, these reporting periods for
the FY 2018 and FY 2019 payment determinations would require using both
ICD-9 and ICD-10 claims data to calculate measure performance.
Since the ICD-10 transition was implemented on October 1, 2015, we
have been monitoring our systems, and so far, claims are processing
normally. The measure steward, AHRQ, has been reviewing the measure for
any potential issues related to the conversion of approximately 70,000
ICD-10 coded operating room procedures \86\ (https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which could directly affect the
modified PSI 90 component indicators. In addition, to meet program
requirements and implementation schedules, our system would require an
ICD-10 risk-adjusted version of the AHRQ QI PSI software \87\ by
December 2016 for the FY 2018 payment determination year. At this time,
a risk adjusted ICD-10 version of the modified PSI 90 Patient Safety
and Adverse Events Composite software is not expected to be available
until late CY 2017.
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\86\ International Classification of Diseases, (ICD-10-CM/PCS)
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
\87\ The AHRQ QI Software is the software used to calculate PSIs
and the composite measure. More information is available at: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
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To address the above issues, we are proposing to modify the
reporting periods for the FYs 2018 and 2019 payment determinations and
beyond. For the FY 2018 payment determination, we are proposing to use
a 15-month reporting period spanning July 1, 2014 through September 30,
2015. The 15-month reporting period would only apply to the FY 2018
payment determination and would only use ICD-9 data. For the FY 2019
payment determination, we are proposing to use a 21-month reporting
period spanning October 1, 2015 through June 30, 2017. The 21-month
reporting period would only apply to the FY 2019 payment determination
and would only use ICD-10 data. For all subsequent payment
determinations after FY 2019, we are proposing to use the standard 24-
month reporting period, which would only use ICD-10 data. In order to
align the modified PSI 90 measure and the use of ICD-9 and ICD-10 data
across CMS hospital quality programs, we are proposing similar
modifications for FYs 2018 and 2019 payment determinations and beyond
in the HAC Reduction Program, as set forth in section IV.I.5.b. of the
preamble of this proposed rule, and similar modifications to the
performance period for the Hospital VBP Program FY 2018 program year,
as set forth in section IV.H.2. of the preamble of this proposed rule.
Prior to deciding to propose abbreviated reporting periods for the
FY 2018 and FY 2019 payment determinations, we took several factors
into consideration, including the recommendations of the measure
steward, the feasibility of using a combination of ICD-9 and ICD-10
data without the availability of the appropriate measure software,
minimizing provider burden, program implementation timelines, and the
reliability of using shortened reporting periods, as well as the
importance of continuing to publicly report this measure. We believe
that using a 15-month reporting period for the FY 2018 payment
determination and a 21-month reporting period for the FY 2019 payment
determination best serves the need to provide important information on
hospital patient safety and adverse events by allowing sufficient time
to process the claims data and calculate the measures, while minimizing

[[Page 25185]]

reporting burden and program disruption. We will continue to test ICD-
10 data that are submitted in order to ensure the accuracy of measure
calculations, to monitor and assess the translation of measure
specifications to ICD-10 as well as potential coding variation, and to
assess any impacts on measure performance.
We note that a prior reliability analysis of the PSI 90 measure
(not the modified PSI 90 measure) showed that the majority of hospitals
attain a moderate or high level of reliability after a 12-month
reporting period.\88\ Although the modified PSI 90 measure has
undergone substantial changes since this analysis, we believe that
measure scores would continue to be reliable for the above proposed
reporting periods, because the NQF, which reendorsed the modified
version, found it to be reliable using 12 months of data.\89\ In
establishing the revised reporting periods for the modified PSI 90
measure, we also relied upon an analysis by Mathematica Policy
Research, a CMS contractor, which found that the measure was most
reliable with a 24-month reporting period and unreliable with a
reporting period of less than 12 months.\90\ Therefore, we believe that
the proposed abbreviated reporting periods for the modified PSI 90
measure would produce reliable data because the reporting periods are
still greater than 12 months.
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\88\ Mathematica Policy Research (November 2011). Reporting
period and reliability of AHRQ, CMS 30-day and HAC Quality
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
\89\ ``Patient Safety 2015 Final Report'' is available at:
http://www.qualityforum.org/Publications/2016/02/Patient_Safety_2015_Final_Report.aspx.
\90\ Mathematica Policy Research (November 2011). Reporting
period and reliability of AHRQ, CMS 30- day and HAC Quality
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/Downloads/HVBP_Measure_Reliability-.pdf.
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(5) Proposed Adoption of the Modified PSI 90 Measure
In summary, the PSI 90 measure was revised to reflect the relative
importance and harm associated with each component indicator to provide
a more reliable and valid signal of patient safety events. We believe
that adopting the modified PSI 90 measure would continue to provide
strong incentives for hospitals to ensure that patients are not harmed
by the medical care they receive, which is a critical consideration in
quality improvement.
We are inviting public comment on our proposal to adopt the
modified PSI 90 measure (NQF #0531) for the Hospital IQR Program
beginning with the FY 2018 payment determination. We will continue to
use the currently adopted eight-indicator version of the PSI 90 measure
in the Hospital IQR Program for FY 2017. We also are inviting public
comment on the proposals to revise the reporting periods for this
measure as described above: (1) A 15-month reporting period using only
ICD-9 data for the FY 2018 payment determination; (2) a 21-month
reporting period using only ICD-10 data for the FY 2019 payment
determination; and (3) a 24-month reporting period using only ICD-10
data for the FY 2020 payment determination and subsequent years.
7. Proposed Additional Hospital IQR Program Measures for the FY 2019
Payment Determination and Subsequent Years
We are proposing to add four new measures to the Hospital IQR
Program for the FY 2019 payment determination and subsequent years. We
are proposing to adopt three clinical episode-based payment measures:
Aortic Aneurysm Procedure Clinical Episode-Based Payment
(AA Payment) Measure;
Cholecystectomy and Common Duct Exploration Clinical
Episode-Based Payment (Chole and CDE Payment) Measure; and
Spinal Fusion Clinical Episode-Based Payment (SFusion
Payment) Measure.
In addition, we are proposing to adopt one required outcome
measure: Excess Days in Acute Care After Hospitalization for Pneumonia.
The proposed measures were included on a publicly available
document entitled ``2015 Measures Under Consideration'' \91\ in
compliance with section 1890A(a)(2) of the Act, and they were reviewed
by the MAP as discussed in its MAP Pre-Rulemaking Report and
Spreadsheet of MAP 2016 Final Recommendations.\92\
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\91\ Measure Applications Partnership: List of Measures Under
Consideration (MUC) for December 1, 2015. Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\92\ Spreadsheet of MAP 2016 Final Recommendations Available at:
http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

Below, we discuss each of the above measures in more detail.
a. Proposed Adoption of Three Clinical Episode-Based Payment Measures
(1) Background
Clinical episode-based payment measures are clinically coherent
groupings of healthcare services that can be used to assess providers'
resource use. Combined with other clinical quality measures, they
contribute to the overall picture of providers' clinical effectiveness
and efficiency. Episode-based performance measurement allows meaningful
comparisons between providers based on resource use for certain
clinical conditions or procedures, as noted in the NQF report for the
``Episode Grouper Evaluation Criteria'' project available at: http://www.qualityforum.org/Publications/2014/09/Evaluating_Episode_Groupers__A_Report_from_the_National_Quality_Forum.aspx and in various peer-reviewed articles.\93\ We are proposing three
clinical episode-based payment measures for inclusion in the Hospital
IQR Program beginning with the FY 2019 payment determination: (1)
Aortic Aneurysm Procedure Clinical Episode-Based Payment (AA Payment)
Measure; (2) Cholecystectomy and Common Duct Exploration Clinical
Episode-Based Payment (Chole and CDE Payment) Measure; and (3) Spinal
Fusion Clinical Episode-Based Payment (SFusion Payment) Measure. The
proposed measures capture Medicare payment for services related to the
episode procedure and take into account beneficiaries' clinical
complexity as well as geographic payment differences.
---------------------------------------------------------------------------

\93\ For example: Hussey, P. S., Sorbero, M. E.,Mehrotra, A.,
Liu, H., & Damberg, S. L.: (2009). Episode-Based Performance
Measurement and Payment: Making It a Reality. Health Affairs, 28(5),
1406-1417. Doi:10.1377/hlthaff.28.5.1406.
---------------------------------------------------------------------------

We are proposing these clinical episode-based measures to
supplement the Hospital IQR Program's Medicare Spending per Beneficiary
(MSPB) Measure. The proposed measures also support our mission to
provide better healthcare for individuals, better health for
populations, and lower costs for healthcare. We note that these
measures were reviewed by the MAP and did not receive support for
adoption into the Hospital IQR Program, as discussed in its MAP Pre-
Rulemaking Report and Spreadsheet of MAP 2016 Final
Recommendations.\94\ The result of the MAP vote for the proposed
measures was as follows: (1) Aortic Aneurysm Procedure Clinical
Episode-Based Payment Measure: 8 percent support, 32 percent
conditional support, and 60 percent do not support; (2) Cholecystectomy
and Common Duct Exploration Clinical Episode-Based Payment Measure: 20
percent support, 28 percent conditional support, and 52 percent do not
support; and (3) Spinal

[[Page 25186]]

Fusion Clinical Episode-Based Payment Measure: 16 percent support, 36
percent conditional support, and 48 percent do not support. MAP
stakeholders expressed concerns that the proposed measures: (1) Overlap
with the Medicare Spending per Beneficiary (MSPB) Measure; \95\ (2) are
not NQF-endorsed; (3) may need to be adjusted for sociodemographic
status (SDS); and (4) fail to link outcomes to quality because they do
not reflect appropriateness of care.
---------------------------------------------------------------------------

\94\ Spreadsheet of MAP 2016 Final Recommendations. Available
at: http://www.qualityforum.org/map/.
\95\ MSPB measure specifications can be found in the ``Medicare
Spending Per Beneficiary (MSPB) Measure Overview,'' available at:
http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
---------------------------------------------------------------------------

In response to MAP stakeholder concerns that the clinical episode-
based payment measures overlap with the MSPB measure, we note that
unlike the overall MSPB measure, the clinical episode-based payment
measures assess payment variation at the procedure level and only
include services that are clinically related to the named episode
procedure (for example, the spinal fusion measure includes inpatient
admissions for ``medical back problems'' that occur following the
initial spinal fusion procedure since the admission is likely a result
of complications from the initial procedure).
With respect to MAP stakeholder concerns that the clinical episode-
based payment measures are not NQF-endorsed, section
1886(b)(3)(B)(IX)(bb) of the Act provides that in the case of a
specified area or medical topic determined appropriate by the Secretary
for which a feasible and practical measure has not been endorsed by the
entity with a contract under section 1890(a) of the Act, the Secretary
may specify a measure that is not so endorsed as long as due
consideration is given to measures that have been endorsed or adopted
by a consensus organization identified by the Secretary. We considered
other existing measures related to payment that have been endorsed by
the NQF and other consensus organizations, but we were unable to
identify any NQF-endorsed (or other consensus organization endorsed)
payment measures that assess the aortic aneurysm procedure,
cholecystectomy and common duct exploration, or spinal fusion. However,
these proposed clinical episode-based payment measures will be
submitted to NQF for endorsement as part of the next Cost and Resource
Use project.
In regard to MAP stakeholder concerns that the clinical episode-
based payment measures may need to be adjusted for SDS, we refer
readers to section VIII.A.6.a.(1) of the preamble of this proposed rule
for a discussion of our policy on SDS factors. Finally, regarding MAP
stakeholder concerns that the clinical episode-based payment measures
fail to link outcomes to quality because they do not reflect
appropriateness of care, we believe that the proposed measures cover
topics of critical importance to quality in the inpatient hospital
setting. Hospitals have a significant influence on Medicare spending
during the episode surrounding a hospitalization, through the provision
of appropriate, high-quality care before and during inpatient
hospitalization and through proper hospital discharge planning, care
coordination, and care transitions. While we recognize that high or low
payments to hospitals are difficult to interpret in isolation, high
payments for services may implicitly be associated with poor quality of
care (for example, preventable readmissions, procedure complications,
or emergency room usage).
Although the MAP did not support inclusion of these clinical
episode-based payment measures in the Hospital IQR Program,\96\
stakeholders have requested to have more condition-specific and
procedure-specific measures, similar to the MSPB measure included in
the Hospital IQR Program, as described in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51623). We believe that including condition- and
procedure-specific payment measures will provide hospitals with
actionable feedback that will better equip them to implement targeted
improvements in comparison to an overall payment measure alone.
Further, we believe that supplementing the MSPB measure with condition-
specific and procedure-specific measures will provide both overall
hospital-level and detailed information on high-cost and high-
prevalence conditions and procedures to better inform their future
spending plans. Moreover, the payment measures will help consumers and
other payers and providers identify hospitals involved in the provision
of efficient care for certain procedures.
---------------------------------------------------------------------------

\96\ Spreadsheet of MAP 2016 Final Recommendations. Available
at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

The three procedures selected for the clinical episode-based
payment measures were chosen based on the following criteria: (1) The
condition constitutes a significant share of Medicare payments and
potential savings for hospitalized patients during and surrounding a
hospital stay; (2) there was a high degree of agreement among clinical
experts consulted for this project that standardized Medicare payments
for services provided during this episode can be linked to the care
provided during the hospitalization; (3) episodes of care for the
condition are comprised of a substantial proportion of payments and
potential savings for post-acute care, indicating episode payment
differences are driven by utilization outside of the MS-DRG payment;
(4) episodes of care for the condition reflect high variation in post
discharge payments, enabling differentiation among hospitals; and (5)
the medical condition is managed by general medicine physicians or
hospitalists and the surgical conditions are managed by surgical
subspecialists, enabling comparison between similar practitioners.
These selection criteria were also used for the three clinical episode-
based payment measures finalized in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49664 through 49665).
The measures follow the general construction of episode-based
measures previously adopted in the Hospital IQR Program: The NQF-
endorsed MSPB measure finalized in the FY 2012 IPPS/LTCH PPS final rule
for the Hospital IQR Program (76 FR 51626 through 74529); and the three
clinical episode-based payment measures for kidney/UTI, cellulitis, and
gastrointestinal hemorrhage finalized in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49674). Similar to these previously adopted measures,
the proposed measures include standardized payments for Medicare Part A
and Part B services and are risk adjusted for individual patient
characteristics and other factors (for example, the MS-DRG of the index
inpatient stay). However, unlike the MSPB measure, the clinical
episode-based payment measures only include Medicare Part A and Part B
services that are clinically related to the named episode procedure.
The clinical episode-based payment measures are price-standardized,
risk-adjusted ratios that compare a provider's resource use against the
resource use of other providers within a reporting period (that is, the
measure calculation includes eligible episodes occurring within a 1-
year timeframe). Similar to the MSPB measure though, the ratio allows
for ease of comparison over time as it obviates the need to adjust for
inflation.
Each clinical episode-based payment measure is calculated as the
ratio of the Episode Amount for each provider divided by the episode-
weighted median Episode Amount across all providers. To calculate the
Episode

[[Page 25187]]

Amount for each provider, one calculates the average of the ratio of
the observed episode payment over the expected episode payment (as
predicted in risk adjustment), and then multiplies this quantity by the
average observed episode payment level across all providers nationally.
The denominator for a provider's measure is the episode weighted
national median \97\ of Episode Amounts across all providers. A
clinical episode-based payment measure of less than 1 indicates that a
given provider's resource use is less than that of the national median
provider during a reporting period. Mathematically, this is represented
in equation (A) below.
---------------------------------------------------------------------------

\97\ Example of episode weighted median: If there are 2
hospitals and one hospital had an measure score of 1.5 and another
had one of 0.5, but the first had 4 episodes and the second only 1,
then the episode-weighted median would be 1.5 (that is, 0.5, 1.5,
1.5, 1.5, 1.5).
[GRAPHIC] [TIFF OMITTED] TP27AP16.001

---------------------------------------------------------------------------
Where:

Oij = observed episode payment for episode i in provider j,
Eij = expected episode payment for episode i in provider j,
Oi[isin]I = average observed episode payment across all episodes i
nationally, and
nj = total number of episodes for provider j.

Each of the three measures we are proposing is described further
below, followed by explanations of payment standardization and risk
adjustment. For detailed measure specifications, we refer readers to
the clinical episode-based payment measures report entitled, ``Measure
Specifications: Hospital Clinical Episode-Based Payment Measures for
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration,
and Spinal Fusion'' available at: http://www.qualitynet.org > Hospital-
Inpatient > Claims-Based Measures > Episode-Based Payment Measures.
(2) Proposed Aortic Aneurysm Procedure Clinical Episode-Based Payment
(AA Payment) Measure
(a) Background
Inpatient hospital stays and associated services assessed by the
proposed Aortic Aneurysm Procedure Clinical Episode-Based Payment (AA
Payment) measure have high payments with substantial variation. In CY
2014, Medicare FFS beneficiaries experienced more than 22,000 aortic
aneurysm procedure episodes triggered by related inpatient stays.
Payment-standardized, risk-adjusted episode payment for these episodes
(payment for the hospitalization plus payment for clinically related
services in the episode window) totaled nearly $760 million in CY 2014,
with a mean episode payment of over $33,000. There is substantial
variation in aortic aneurysm procedure episode payment--ranging from
approximately $21,000 at the 5th percentile to approximately $62,000 at
the 95th percentile--that is partially driven by variation in
postdischarge payment clinically-related to the inpatient
hospitalization.\98\ These clinically-related postdischarge payments
may be an indicator of the quality of care provided during the
hospitalization. Specifically, higher quality hospital treatment may
yield lower postdischarge payment.
---------------------------------------------------------------------------

\98\ Statistics based on Acumen's testing of episode definition
on Medicare FFS population using Medicare Parts A and B claims.
---------------------------------------------------------------------------

(b) Overview of Measure
The proposed AA Payment measure includes the set of medical
services related to a hospital admission for an aortic aneurysm
procedure, including treatment, follow-up, and postacute care. The
measure includes two clinical subtypes: (1) Abdominal Aortic Aneurysm
Procedure; and (2) Thoracic Aortic Aneurysm Procedure. Clinical
subtypes are included in the measure construction to distinguish
relatively homogeneous subpopulations of patients whose health
conditions significantly influence the form of treatment and the
expected post-discharge outcomes and risks. The risk adjustment model
is estimated separately for each clinical subtype, such that the
measure compares observed spending for an episode of a given clinical
subtype only to expected spending among episodes of that subtype. This
measure, like the NQF-endorsed MSPB measure (NQF #2158), assesses the
payment for services initiated during an episode that spans the period
immediately prior to, during, and following a beneficiary's hospital
stay (the ``episode window'', discussed in more detail below). In
contrast to the MSPB measure, however, this proposed measure includes
Medicare payments for services during the episode window only if they
are clinically related to the aortic aneurysm procedure that was
performed during the index hospital stay.
(c) Data Sources
The proposed AA Payment measure is a claims-based measure. It uses
Part A and Part B Medicare administrative claims data from Medicare FFS
beneficiaries hospitalized for an aortic aneurysm procedure. The
reporting period for the measure is 1 year (that is, the measure
calculation includes eligible episodes occurring within a 1-year
timeframe). For example, for the FY 2019 payment determination, the
reporting period would be CY 2017.
(d) Measure Calculation
The proposed AA Payment measure sums the Medicare payment amounts
for clinically related Part A and Part B services provided during the
episode window and attributes them to the hospital at which the index
hospital stay occurred. Medicare payments included in this episode-
based measure are standardized and risk-adjusted. Similar to the MSPB
measure's construction, this measure is expressed as a risk-adjusted
ratio, which allows for ease of comparison over time, without the need
to adjust for inflation. The numerator is the Episode Amount,
calculated as the average of the ratios of the observed episode payment
over the expected episode payment (as predicted in risk adjustment),
multiplied by the average observed episode payment level across all
providers nationally. The denominator for a provider's measure is the
episode weighted national median of Episode Amounts across all
providers. An aortic aneurysm procedure episode begins 3 days prior to
the initial (index) admission and extends 30 days following the
discharge from the index hospital stay. For detailed measure
specifications, we refer readers to the clinical episode-

[[Page 25188]]

based payment measures report entitled, ``Measure Specifications:
Hospital Clinical Episode-Based Payment Measures for Aortic Aneurysm
Procedure, Cholecystectomy and Common Duct Exploration, and Spinal
Fusion'' and available at: http://www.qualitynet.org > Hospital-
Inpatient > Claims-Based Measures > Episode-Based Payment Measures.
(e) Cohort
The proposed AA Payment measure cohort includes Medicare FFS
beneficiaries hospitalized for an aortic aneurysm procedure. Measure
exclusions are discussed in more detail in section VIII.A.7.a.(5) of
the preamble of this proposed rule.
We are inviting public comment on our proposal to adopt the Aortic
Aneurysm Procedure Clinical Episode-Based Payment (AA Payment) measure
to the Hospital IQR Program measure set for the FY 2019 payment
determination and subsequent years as discussed in this section.
(3) Proposed Cholecystectomy and Common Duct Exploration Clinical
Episode-Based Payment (Chole and CDE Payment) Measure
(a) Background
Inpatient hospital stays and associated services assessed by the
proposed Cholecystectomy and Common Duct Exploration Clinical Episode-
Based Payment (Chole and CDE Payment) measure have high payments with
substantial variation. In CY 2014, Medicare FFS beneficiaries
experienced more than 48,000 cholecystectomy and common duct
exploration episodes triggered by related inpatient stays. Payment-
standardized, risk-adjusted episode payment for these episodes (payment
for the hospitalization plus the payment for clinically related
services in the episode window) totaled nearly $690 million in CY 2014,
with a mean episode payment of over $14,000. There is substantial
variation in cholecystectomy and common duct exploration episode
payment--ranging from approximately $11,000 at the 5th percentile to
approximately $22,000 at the 95th percentile--that is partially driven
by variation in postdischarge payment clinically-related to the
inpatient hospitalization.\99\ These clinically-related postdischarge
payments may be an indicator of the quality of care provided during the
hospitalization. Specifically, higher quality hospital treatment may
yield lower postdischarge payment.
---------------------------------------------------------------------------

\99\ Statistics based on Acumen's testing of episode definition
on Medicare FFS population using Medicare Parts A and B claims.
---------------------------------------------------------------------------

(b) Overview of Measure
The proposed Chole and CDE Payment measure includes the set of
medical services related to a hospital admission for a cholecystectomy
and common duct exploration, including treatment, follow-up, and
postacute care. This measure, like the NQF-endorsed MSPB measure (NQF
#2158), assesses the payment for services initiated during an episode
that spans the period immediately prior to, during, and following a
beneficiary's hospital stay (the ``episode window'', discussed in more
detail below). In contrast to the MSPB measure, however, this measure
includes Medicare payments for services during the episode window only
if they are clinically related to the cholecystectomy and common duct
exploration that was performed during the index hospital stay.
(c) Data Sources
The proposed Chole and CDE Payment measure is a claims-based
measure. It uses Part A and Part B Medicare administrative claims data
from Medicare FFS beneficiaries hospitalized for a cholecystectomy and
common duct exploration. The reporting period for the measure is 1 year
(that is, the measure calculation includes eligible episodes occurring
within a 1-year timeframe). For example, for the FY 2019 payment
determination, the reporting period would be CY 2017.
(d) Measure Calculation
The proposed Chole and CDE Payment measure sums the Medicare
payment amounts for clinically related Part A and Part B services
provided during the episode window and attributes them to the hospital
at which the index hospital stay occurred. Medicare payments included
in this episode-based measure are standardized and risk-adjusted.
Similar to the MSPB measure's construction, this measure is expressed
as a risk-adjusted ratio, which allows for ease of comparison over
time, without need to adjust for inflation. The numerator is the
Episode Amount, calculated as the average of the ratios of the observed
episode payment over the expected episode payment (as predicted in risk
adjustment), multiplied by the average observed episode payment level
across all providers nationally. The denominator for a provider's
measure is the episode weighted national median of Episode Amounts
across all providers. A cholecystectomy and common duct exploration
episode begins 3 days prior to the initial (index) admission and
extends 30 days following the discharge from the index hospital stay.
For detailed measure specifications, we refer readers to the clinical
episode-based payment measures report entitled, ``Measure
Specifications: Hospital Clinical Episode-Based Payment Measures for
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration,
and Spinal Fusion'' and available at: http://www.qualitynet.org >
Hospital-Inpatient > Claims-Based Measures > Episode-Based Payment
Measures.
(e) Cohort
The proposed Chole and CDE Payment measure cohort includes Medicare
FFS beneficiaries hospitalized for cholecystectomy and common duct
exploration. Measure exclusions are discussed in more detail in section
VIII.A.7.a.(5) of the preamble of this proposed rule below.
We are inviting public comment on our proposal to adopt the
Cholecystectomy and Common Duct Exploration Clinical Episode-Based
Payment (Chole and CDE Payment) measure to the Hospital IQR Program
measure set for the FY 2019 payment determination and subsequent years
as discussed in this section.
(4) Proposed Spinal Fusion Clinical Episode-Based Payment (SFusion
Payment) Measure
(a) Background
Inpatient hospital stays and associated services assessed by the
proposed Spinal Fusion Clinical Episode-Based Payment (SFusion Payment)
measure have high payments with substantial variation. In CY 2014,
Medicare FFS beneficiaries experienced nearly 60,000 spinal fusion
episodes triggered by related inpatient stays. Payment-standardized,
risk-adjusted episode payment for these episodes (payment for the
hospitalization plus the payment for clinically related services in the
episode window) totaled over $2 billion in CY 2014, with a mean episode
payment of over $35,000. There is substantial variation in spinal
fusion episode payment--ranging from approximately $27,000 at the 5th
percentile to approximately $56,000 at the 95th percentile--that is
partially driven by variation in postdischarge payment clinically-
related to the inpatient hospitalization.\100\ These clinically-related
postdischarge

[[Page 25189]]

payments may be an indicator of the quality of care provided during the
hospitalization. Specifically, higher quality hospital treatment may
yield lower postdischarge payment.
---------------------------------------------------------------------------

\100\ Statistics based on Acumen's testing of episode definition
on Medicare FFS population using Medicare Parts A and B claims.
---------------------------------------------------------------------------

(b) Overview of Measure
The proposed SFusion Payment measure includes the set of medical
services related to a hospital admission for a spinal fusion, including
treatment, follow-up, and postacute care. The measure includes five
clinical subtypes: (1) Anterior Fusion--Single; (2) Anterior Fusion--2
Levels; (3) Posterior/Posterior-Lateral Approach Fusion--Single; (4)
Posterior/Posterior-Lateral Approach Fusion--2 or 3 Levels; and (5)
Combined Fusions. The clinical subtypes are included in the measure
construction to distinguish relatively homogeneous subpopulations of
patients whose health conditions significantly influence the form of
treatment and the expected outcomes and risks. The risk adjustment
model is estimated separately for each clinical subtype, such that the
measure compares observed spending for an episode of a given clinical
subtype only to expected spending among episodes of that subtype. A
similar measure, the Lumbar Spinal Fusion/Refusion Clinical Episode-
Based Payment Measure, was proposed for inclusion in the Hospital IQR
Program in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24570-24571).
Based on public comment regarding the heterogeneity of the spinal
fusion patient population, we decided not to finalize the measure for
the Hospital IQR Program at that time (80 FR 49668 through 49674). We
have since refined the measure by including more granular subtypes of
fusions of the lumbar spine to create more homogenous patient cohorts.
This proposed measure, like the NQF-endorsed MSPB measure (NQF
#2158), assesses the payment for services initiated during an episode
that spans the period immediately prior to, during, and following a
beneficiary's hospital stay (the ``episode window'', discussed in more
detail below). In contrast to the MSPB measure, however, this measure
includes Medicare payments for services during the episode window only
if they are clinically related to the spinal fusion procedure that was
performed during the index hospital stay.
(c) Data Sources
The proposed SFusion Payment measure is a claims-based measure. It
uses Part A and Part B Medicare administrative claims data from
Medicare FFS beneficiaries hospitalized for spinal fusion. The
reporting period for the measure is 1 year (that is, the measure
calculation includes eligible episodes occurring within a 1-year
timeframe). For example, for the FY 2019 payment determination, the
reporting period would be CY 2017.
(d) Measure Calculation
The proposed SFusion Payment measure sums the Medicare payment
amounts for clinically related Part A and Part B services provided
during the episode window and attributes them to the hospital at which
the index hospital stay occurred. Medicare payments included in this
episode-based measure are standardized and risk-adjusted. Similar to
the MSPB measure's construction, this measure is expressed as a risk-
adjusted ratio, which allows for ease of comparison over time, without
need to adjust for inflation. The numerator is the Episode Amount,
calculated as the average of the ratios of the observed episode payment
over the expected episode payment (as predicted in risk adjustment),
multiplied by the average observed episode payment level across all
providers nationally. The denominator for a provider's measure is the
episode weighted national median of Episode Amounts across all
providers. A spinal fusion episode begins 3 days prior to the initial
(index) admission and extends 30 days following the discharge from the
index hospital stay.
For detailed measure specifications, we refer readers to the
clinical episode-based payment measures report entitled, ``Measure
Specifications: Hospital Clinical Episode-Based Payment Measures for
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration,
and Spinal Fusion'' available at: http://www.qualitynet.org > Hospital-
Inpatient > Claims-Based Measures > Episode-Based Payment Measures.
(e) Cohort
The proposed SFusion Payment measure cohort includes Medicare FFS
beneficiaries hospitalized for spinal fusion. Measure exclusions are
discussed in more detail in section VIII.A.7.a.(5) of the preamble of
this proposed rule below.
We are inviting public comment on our proposal to adopt the Spinal
Fusion Clinical Episode-Based Payment (SFusion Payment) measure to the
Hospital IQR Program measure set for the FY 2019 payment determination
and subsequent years as discussed in this section.
(5) Exclusion Criteria
For a full list of the MS-DRG, procedure, and diagnosis codes used
to identify beneficiaries included in the final cohort for each of the
proposed episode-based payment measures, we refer readers to the report
entitled, ``Measure Specifications: Hospital Clinical Episode-Based
Payment Measures for Aortic Aneurysm Procedure, Cholecystectomy and
Common Duct Exploration, and Spinal Fusion'' available at: http://
www.qualitynet.org > Hospital-Inpatient > Claims-Based Measures >
Episode-Based Payment Measures.
Episodes for beneficiaries that meet any of the following criteria
are excluded from all three measures: (1) Lack of continuous enrollment
in Medicare Part A and Part B from 90 days prior to the episode through
the end of the episode with traditional Medicare fee-for-service as the
primary payer; (2) Death date during episode window; or (3) Enrollment
in Medicare Advantage anytime from 90 days prior to the episode through
the end of the episode.
In addition, claims that meet any of the following criteria do not
trigger, or open, an episode for all three measures: (1) Claims with
data coding errors, including missing date of birth or death dates
preceding the date of the trigger event; (2) Claims with standardized
payment <= 0; (3) Admissions to hospitals that Medicare does not
reimburse through the IPPS system (for example, cancer hospitals,
critical access hospitals, hospitals in Maryland); or (4) Transfers (by
which a transfer is defined based on the claim discharge code) are not
considered index admissions. In other words, these cases do not
generate new episodes; neither the hospital that transfers a patient to
another hospital, nor the receiving hospital will have an index
admission or associated admission attributed to them.
(6) Standardization
Standardization, or payment standardization, is the process of
adjusting the allowed charge for a Medicare service to facilitate
comparisons of resource use across geographic areas. Medicare payments
included in these proposed episode-based measures would be standardized
according to the standardization methodology previously finalized for
the MSPB measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51627).
The methodology removes geographic payment differences, such as wage
index and geographic practice cost

[[Page 25190]]

index, incentive payment adjustments, and other add-on payments that
support broader Medicare program goals, such as add-on payments for
indirect graduate medical education (IME) and add-ons for serving a
disproportionate share of uninsured patients.\101\
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\101\ An overview of payment standardization can be found in the
``CMS Price (Payment) Standardization--Basics'' document available
at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPages%2FQnetTier4&cid=1228772057350.
---------------------------------------------------------------------------

(7) Risk Adjustment
Risk adjustment uses patient claims history to account for case-mix
variation and other factors. The steps used to calculate risk-adjusted
payments align with the NQF-endorsed MSPB measure (NQF #2158) method as
specified in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51624 through
51626). For more details on the specifications for the risk adjustment
employed in the proposed episode-based payment measures, we refer
readers to the report entitled, ``Measure Specifications: Hospital
Clinical Episode-Based Payment Measures for Aortic Aneurysm Procedure,
Cholecystectomy and Common Duct Exploration, and Spinal Fusion''
available at: http://www.qualitynet.org > Hospital-Inpatient > Claims-
Based Measures > Episode-Based Payment Measures.
We are inviting public comment on our proposals to add three
clinical episode-based payment measures as stated above for the FY 2019
payment determination and subsequent years.
b. Proposed Adoption of Excess Days in Acute Care After Hospitalization
for Pneumonia (PN Excess Days) Measure
(1) Background
Pneumonia is a priority area for outcomes measurement because it is
a common condition associated with considerable morbidity, mortality,
and healthcare spending. Pneumonia was the third most common principal
discharge diagnosis among patients with Medicare in 2011.\102\
Pneumonia also accounts for a large fraction of hospitalization costs,
and it was the seventh most expensive condition billed to Medicare,
accounting for 3.7 percent of the total national costs for all Medicare
hospitalizations in 2011.\103\
---------------------------------------------------------------------------

\102\ Agency for Healthcare Research and Quality (AHRQ).
Healthcare Cost and Utilization Project (HCUP) http://hcupnet.ahrq.gov/.
\103\ Torio CM, Andrews RM. National Inpatient Hospital Costs:
The Most Expensive Conditions by Payer, 2011. HCUP Statistical Brief
#160. 2013; http://hcup-us.ahrq.gov/reports/statbriefs/sb160.jsp.
---------------------------------------------------------------------------

Some of the costs for pneumonia can be attributed to high acute
care utilization for post-discharge pneumonia patients in the form of
readmissions, observation stays, and emergency department (ED) visits.
Patients admitted for pneumonia have disproportionately high
readmission rates, and that readmission rates following discharge for
pneumonia are highly variable across hospitals in the United
States.^{104 105}
---------------------------------------------------------------------------

\104\ Lindenauer PK, Bernheim SM, Grady JN, et al. The
performance of US hospitals as reflected in risk-standardized 30-day
mortality and readmission rates for medicare beneficiaries with
pneumonia. J Hosp Med. 2010;5(6):E12-18.
\105\ Dharmarajan K, Hsieh AF, Lin Z, et al. Hospital
readmission performance and patterns of readmission: retrospective
cohort study of Medicare admissions. BMJ. 2013;347:f6571.
---------------------------------------------------------------------------

For the previously adopted Hospital IQR Program measure, Hospital
30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) following
Pneumonia Hospitalization (NQF #0506) (hereinafter referred to as
READM-30-PN) (80 FR 49654 through 49660), publicly reported 30-day
risk-standardized readmission rates for pneumonia ranged from 12.9
percent to 24.8 percent for the time period between July 2012 and June
2015.\106\ However, during the post-discharge period, patients are not
only at risk of requiring readmission. Emergency Department (ED) visits
represent a significant proportion of post-discharge acute care
utilization. Two recent studies conducted in patients of all ages have
shown that 9.5 percent of patients return to the ED within 30 days of
hospital discharge and approximately 12 percent of these patients are
discharged from the ED, and thus are not captured by the READM-30-PN
Measure.^{107 108}
---------------------------------------------------------------------------

\106\ Dorsey K, Grady J, Desai N, Lindenauer P, et al. 2016
Condition-Specific Measures Updates and Specifications Report:
Hospital-Level Risk-Standardized Readmission Measures for Acute
Myocardial Infarction, Heart Failure, and Pneumonia. 2016.
\107\ Rising KL, White LF, Fernandez WG, Boutwell AE.: Emergency
Department Visits After Hospital Discharge: A Missing Part of the
Equation. Annals of Emergency Medicine. 2013(0).
\108\ Vashi AA, Fox JP, Carr BG, et al.: Use of hospital-based
acute care among patients recently discharged from the hospital.
JAMA: the journal of the American Medical Association. Jan 23
2013;309(4):364-371.
---------------------------------------------------------------------------

In addition, over the past decade, the use of observation stays has
rapidly increased. Specifically, between 2001 and 2008, the use of
observation services increased nearly three-fold,\109\ and significant
variation has been demonstrated in the use of observation services.
---------------------------------------------------------------------------

\109\ Venkatesh AK GB, Gibson Chambers JJ, Baugh CW, Bohan JS,
Schuur JD. Use of Observation Care in US Emergency Departments, 2001
to 2008. PLoS One. September 2011;6(9):e24326.
---------------------------------------------------------------------------

Thus, in the context of the previously adopted and publicly
reported READM-30-PN measure, the increasing use of ED visits and
observation stays has raised concerns that the READM-30-PN measure does
not capture the full range of unplanned acute care in the post-
discharge period. In particular, some policymakers and stakeholders
have expressed concern that high use of observation stays in some cases
could replace readmissions, and hospitals with high rates of
observation stays in the post-discharge period may therefore have low
readmission rates that do not more fully reflect the quality of
care.\110\
---------------------------------------------------------------------------

\110\ Carlson J. Readmissions are down, but observational-status
patients are up and that could skew Medicare numbers. Modern
Healthcare. 2013.
---------------------------------------------------------------------------

In response to these concerns, we improved on a previously
developed measure, which is not currently part of the Hospital IQR
Program measure set, titled, ``30-Day Post-Hospital Pneumonia Discharge
Care Transition Composite'' (NQF #0707--NQF endorsement removed). The
improved measure entitled Excess Days in Acute Care after
Hospitalization for Pneumonia (PN Excess Days) is a risk-adjusted
outcome measure for pneumonia that incorporates the full range of acute
care use that patients may experience post-discharge: Hospital
readmissions, observation stays, and ED visits. We are proposing this
PN Excess Days measure for inclusion in the Hospital IQR Program for
the FY 2019 payment determination and subsequent years.
The proposed PN Excess Days measure assesses all-cause acute care
utilization for post-discharge pneumonia patients for several reasons.
First, from the patient perspective, acute care utilization for any
cause is undesirable. It is costly, exposes patients to additional
risks of medical care, interferes with work and family care, and
imposes significant burden on caregivers. Second, limiting the measure
to inpatient utilization may make it susceptible to gaming. Finally,
this measure includes all-cause acute care utilization because it is
often hard to exclude quality concerns and accountability based on the
documented cause of a hospital visit.
Although the original measure was NQF-endorsed, this improved
measure has not yet been NQF-endorsed. Section 1886(b)(3)(B)(IX)(bb) of
the Act provides that in the case of a specified area or medical topic
determined appropriate by the Secretary for which a feasible and
practical measure has not been endorsed by the entity with a contract
under section 1890(a) of the Act, the Secretary

[[Page 25191]]

may specify a measure that is not so endorsed as long as due
consideration is given to measures that have been endorsed or adopted
by a consensus organization identified by the Secretary. While we
considered other existing measures related to care transitions and
post-discharge acute care utilization that have been endorsed by NQF or
other consensus organizations, but we were unable to identify any NQF-
endorsed (or other consensus organization endorsed) measures that
assess the full range of post-discharge acute care use that patients
may experience. Existing process measures capture many important
domains of care transitions such as education, medication
reconciliation, and follow-up, but all require chart review and manual
abstraction. Existing outcome measures are focused entirely on
readmissions or complications and do not include observation stays or
ED visits. We are not aware of any other measures that assess the
quality of transitional care by measuring 30-day risk-standardized days
in acute care (hospital readmissions, observation stays, and ED visits)
following hospitalization for pneumonia that have been endorsed or
adopted by a consensus organization, and we have not found any other
feasible and practical measures on this topic. However, we note that
this measure has been submitted to NQF for endorsement proceedings as
part of the All-Cause Admissions and Readmissions project in January
2016.
The proposed PN Excess Days measure was developed in conjunction
with the previously adopted Hospital IQR Program measures, Excess Days
in Acute Care after Hospitalization for Acute Myocardial Infarction
(AMI Excess Days) (80 FR 49690) and Hospital 30-Day Excess Days in
Acute Care after Hospitalization for Heart Failure (HF Excess Days) (80
FR 49690). All three measures assess the same outcome and use the same
risk-adjustment methodology. They differ only in the target population
and the specific risk variables included.
When we finalized the AMI Excess Days and HF Excess Days measures
for the FY 2018 payment determination and subsequent years,
stakeholders expressed concern about the interaction between Medicare
payment policy regarding admissions spanning two midnights and the AMI
Excess Days and HF Excess Days measures (80 FR 49686 through 49687). We
continue to believe that the ``2-midnight'' policy or any changes to
such policy will not influence the outcome of Excess Days in Acute Care
measures, as all postdischarge days in acute care are captured whether
they are billed as inpatient or outpatient days (80 FR 49686 through
49687).
The proposed PN Excess Days measure (MUC15-391) was included on a
publicly available document entitled ``2015 Measures Under
Consideration List'' for December 1, 2015 (available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367) and has
been reviewed by the NQF Measure Applications Partnership (MAP)
Hospital Workgroup. The measure was conditionally supported pending the
examination of sociodemographic status (SDS) factors and NQF review and
endorsement of the measure update, as referenced in the MAP 2016 Final
Recommendations Report (available at: http://www.qualityforum.org/map/
).\111\ We refer readers to section VIII.A.6.a.(1) of the preamble of
this proposed rule for a discussion of our policy on SDS factors. As
stated above, we note that this measure has been submitted to NQF for
endorsement proceedings as part of the All-Cause Admissions and
Readmissions project in January 2016.
---------------------------------------------------------------------------

\111\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

(2) Overview of Measure
The proposed PN Excess Days measure is a risk-standardized outcome
measure that compares the number of days that patients, discharged from
a hospital for pneumonia, are predicted to spend in acute care across
the full spectrum of possible events (hospital readmissions,
observation stays, and ED visits) to the days that patients are
expected to spend based on their degree of illness as defined using
principal diagnosis and comorbidity data from administrative claims.
(3) Data Sources
The proposed PN Excess Days measure is claims-based. It uses Part A
and Part B Medicare administrative claims data from Medicare FFS
beneficiaries hospitalized for pneumonia. To determine eligibility for
inclusion in the measure, we also use Medicare enrollment data. As
proposed, the measure would use 3 years of data. For example, for the
FY 2019 payment determination, the reporting period would be July 2014
through June 2017.
(4) Outcome
The outcome of the proposed PN Excess Days measure is the excess
number of days patients spend in acute care (hospital readmissions,
observation stays, and ED visits) per 100 discharges during the first
30 days after discharge from the hospital, relative to the number spent
by the same patients discharged from an average hospital. The measure
defines days in acute care as days spent: (1) In an ED; (2) admitted to
observation status; or (3) admitted as an unplanned readmission for any
cause within 30 days from the date of discharge from the index
pneumonia hospitalization. Readmission days are calculated as the
discharge date minus the admission date. Admissions that extend beyond
the 30-day follow-up period are truncated on day 30. Observation days
are calculated by the hours in observation, rounded up to the nearest
half day. Based on the recommendation of our technical expert panel
convened as part of developing this measure, an ED treat-and-release
visit is counted as one half day. ED visits are not counted as a full
day because the majority of treat-and-release visits last fewer than 12
hours.
``Planned'' readmissions are those planned by providers for
anticipated medical treatment or procedures that must be provided in
the inpatient setting. This measure excludes planned readmissions using
the planned readmission algorithm previously developed for the READM-
30-PN measure (78 FR 50786 through 50787). The planned readmission
algorithm is a set of criteria for classifying admissions as planned
among the general Medicare population using Medicare administrative
claims data. The algorithm identifies admissions that are typically
planned and may occur within 30 days of discharge from the hospital.
The planned readmission algorithm has three fundamental principles: (1)
A few specific, limited types of care are always considered planned
(transplant surgery, maintenance chemotherapy/immunotherapy,
rehabilitation); (2) otherwise, a planned readmission is defined as a
non-acute readmission for a scheduled procedure; and (3) admissions for
acute illness or for complications of care are never planned. A more
detailed discussion of exclusions follows in section VIII.A.7.b.(6) of
the preamble of this proposed rule.
The measure counts all use of acute care occurring in the 30-day
post-discharge period. For example, if a patient returns to the ED
three times, the measure counts each ED visit as a half-day. Similarly,
if a patient has two hospitalizations within 30 days, the days spent in
each are counted. We take this approach to capture the full patient
experience of need for acute care in the post-discharge period.

[[Page 25192]]

(5) Cohort
We defined the eligible cohort using the same criteria as the
previously adopted Hospital IQR Program measure, READM-30-PN (80 FR
49654 through 49660). The READM-30-PN cohort criteria are included in a
report posted on our Measure Methodology Web page, under the
``Downloads'' section in the ``AMI, HF, PN, COPD, and Stroke
Readmission Updates'' zip file on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
The cohort includes Medicare FFS patients aged 65 years or older:
(1) With a principal discharge diagnosis of pneumonia, a principal
discharge diagnosis of aspiration pneumonia, or a principal discharge
diagnosis of sepsis (not including severe sepsis) who also have a
secondary diagnosis of pneumonia present on admission; (2) enrolled in
Part A and Part B Medicare for the 12 months prior to the date of
admission, and enrolled in Part A during the index admission; (3) who
were discharged from a non-Federal acute care hospital; (4) who were
not transferred to another acute care facility; and (5) who were alive
at discharge.
The measure cohort is also harmonized with the previously adopted
Hospital IQR Program measure, the MORT-30-PN measure (80 FR 49837), and
the proposed refined cohort for the PN Payment measure proposed in
section VIII.A.6.a. of the preamble of this proposed rule.
For the ICD-9-CM and ICD-10-CM codes that define the measure
development cohort, we refer readers to the ``Excess Days in Acute Care
after Hospitalization for Pneumonia Version 1.0'' in the Pneumonia
Excess Days in Acute Care zip file on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(6) Exclusion Criteria
The proposed PN Excess Days measure excludes the following
admissions from the measure cohort: (1) Hospitalizations without at
least 30 days of post-discharge enrollment in Part A and Part B FFS
Medicare, because the 30-day outcome cannot be assessed in this group
since claims data are used to determine whether a patient was
readmitted, was placed under observation, or visited the ED; (2)
discharged against medical advice, because providers did not have the
opportunity to deliver full care and prepare the patient for discharge;
and (3) hospitalizations for patients with an index admission within 30
days of a previous index admission, because additional pneumonia
admissions within 30 days are part of the outcome, and we choose not to
count a single admission both as an index admission and a readmission
for another index admission.
(7) Risk-Adjustment
The proposed PN Excess Days measure adjusts for variables that are
clinically relevant and have strong relationships with the outcome. The
measure seeks to adjust for case-mix differences among hospitals based
on the clinical status of the patient at the time of the index
admission. Accordingly, only comorbidities that convey information
about the patient at that time or in the 12 months prior, and not
complications that arise during the course of the index
hospitalization, are included in the risk adjustment. The measure does
not adjust for patients' admission source or their discharge
disposition (for example, skilled nursing facility) because these
factors are associated with the structure of the healthcare system, not
solely patients' clinical comorbidities. Patients' admission source and
discharge disposition may be influenced by regional differences in the
availability of post-acute care providers and practice patterns. These
regional differences might exert undue influence on results. In
addition, patients' admission source and discharge disposition are not
audited and are not as reliable as diagnosis codes. The proposed PN
Excess Days measure uses the same risk-adjustment variables as the
READM-30-PN (73 FR 48614).
The outcome is risk adjusted using a two-part random effects model.
This statistical model, often referred to as a ``hurdle'' model,
accounts for the structure of the data (patients clustered within
hospitals) and the observed distribution of the outcome. Specifically,
it models the number of acute care days for each patient as: (1) a
probability that they have a non-zero number of days; and (2) a number
of days, given that this number is non-zero. The first part is
specified as a logit model, and the second part is specified as a
Poisson model, with both parts having the same risk-adjustment
variables and each part having a random effect. This is an accepted
statistical method that explicitly estimates how much of the variation
in acute care days is accounted for by patient risk factors, how much
by the hospital where the patient is treated, and how much is explained
by neither. This model is used to calculate the predicted (including
random effects) and expected (assuming random effects are zero) number
of days for each patient. The average difference between the predicted
and expected number of days for each patient for each hospital is used
to construct the risk-standardized Excess Days in Acute Care. For more
details about risk-adjustment for this proposed measure, we refer
readers to the ``Pneumonia Excess Days in Acute Care'' zip file on our
Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(8) Calculating Excess Acute Care Days
The proposed PN Excess Days measure is calculated as the difference
between the average of the predicted number of days spent in acute care
for patients discharged from each hospital and the average number of
days that would have been expected if those patients had been cared for
at an average hospital, and then the difference is multiplied by 100 so
that the measure result represents PN Excess Days per 100 discharges.
We multiply the final measure by 100 to be consistent with the
reporting of the previously adopted READM-30-PN measure that is
reported as a rate (that is, a 25 percent rate is equivalent to 25 out
of 100 discharges) (80 FR 49654 through 49660), as well as the AMI
Excess Days (80 FR 49690) and HF Excess Days (80 FR 49685) measures. A
positive result indicates that patients spend more days in acute care
post-discharge than expected if admitted to an average performing
hospital with a similar case mix; a negative result indicates that
patients spend fewer days in acute care than expected if admitted to an
average performing hospital with a similar case mix. A negative PN
Excess Days measure score reflects better quality.
We are inviting public comment on our proposal to adopt the PN
Excess Days measure for the FY 2019 payment determination and
subsequent years as described above.
c. Summary of Previously Adopted and Newly Proposed Hospital IQR
Program Measures for the FY 2019 Payment Determination and Subsequent
Years
The table below outlines the proposed Hospital IQR Program measure
set for the FY 2019 payment determination and subsequent years, and
includes both previously adopted measures and measures newly proposed
in this proposed rule. Measures proposed for removal in section
VIII.A.3.b. of the

[[Page 25193]]

preamble of this proposed rule are not included in this chart.

Proposed Hospital IQR Program Measure Set for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
Short name Measure name NQF No.
----------------------------------------------------------------------------------------------------------------
NHSN
----------------------------------------------------------------------------------------------------------------
CAUTI........................................... National Healthcare Safety Network (NHSN) 0138
Catheter-associated Urinary Tract Infection
(CAUTI) Outcome Measure.
CDI............................................. National Healthcare Safety Network (NHSN) 1717
Facility-wide Inpatient Hospital-onset
Clostridium difficile Infection (CDI) Outcome
Measure.
CLABSI.......................................... National Healthcare Safety Network (NHSN) Central 0139
Line-Associated Bloodstream Infection (CLABSI)
Outcome Measure.
Colon and Abdominal Hysterectomy SSI............ American College of Surgeons--Centers for Disease 0753
Control and Prevention (ACS-CDC) Harmonized
Procedure Specific Surgical Site Infection (SSI)
Outcome Measure.
HCP............................................. Influenza Vaccination Coverage Among Healthcare 0431
Personnel.
MRSA Bacteremia................................. National Healthcare Safety Network (NHSN) 1716
Facility-wide Inpatient Hospital-onset
Methicillin-resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure.
----------------------------------------------------------------------------------------------------------------
Chart-abstracted
----------------------------------------------------------------------------------------------------------------
ED-1 *.......................................... Median Time from ED Arrival to ED Departure for 0495
Admitted ED Patients.
ED-2 *.......................................... Admit Decision Time to ED Departure Time for 0497
Admitted Patients.
Imm-2........................................... Influenza Immunization........................... 1659
PC-01 *......................................... Elective Delivery (Collected in aggregate, 0469
submitted via Web-based tool or electronic
clinical quality measure).
Sepsis.......................................... Severe Sepsis and Septic Shock: Management Bundle 0500
(Composite Measure).
VTE-6........................................... Incidence of Potentially Preventable Venous \+\
Thromboembolism.
----------------------------------------------------------------------------------------------------------------
Claims-based Outcome
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI..................................... Hospital 30-Day, All-Cause, Risk-Standardized 0230
Mortality Rate (RSMR) Following Acute Myocardial
Infarction (AMI) Hospitalization.
MORT-30-CABG.................................... Hospital 30-Day, All-Cause, Risk-Standardized 2558
Mortality Rate (RSMR) Following Coronary Artery
Bypass Graft (CABG) Surgery.
MORT-30-COPD.................................... Hospital 30-Day, All-Cause, Risk-Standardized 1893
Mortality Rate (RSMR) Following Chronic
Obstructive Pulmonary Disease (COPD)
Hospitalization.
MORT-30-HF...................................... Hospital 30-Day, All-Cause, Risk-Standardized 0229
Mortality Rate (RSMR) Following Heart Failure
(HF) Hospitalization.
MORT-30-PN...................................... Hospital 30-Day, All-Cause, Risk-Standardized 0468
Mortality Rate Following Pneumonia
Hospitalization.
MORT-30-STK..................................... Hospital 30-Day, All-Cause, Risk-Standardized N/A
Mortality Rate Following Acute Ischemic Stroke.
READM-30-AMI.................................... Hospital 30-Day All-Cause Risk-Standardized 0505
Readmission Rate (RSRR) Following Acute
Myocardial Infarction (AMI) Hospitalization.
READM-30-CABG................................... Hospital 30-Day, All-Cause, Unplanned, Risk- 2515
Standardized Readmission Rate (RSRR) Following
Coronary Artery Bypass Graft (CABG) Surgery.
READM-30-COPD................................... Hospital 30-Day, All-Cause, Risk-Standardized 1891
Readmission Rate (RSRR) Following Chronic
Obstructive Pulmonary Disease (COPD)
Hospitalization.
READM-30-HF..................................... Hospital 30-Day, All-Cause, Risk-Standardized 0330
Readmission Rate (RSRR) Following Heart Failure
(HF) Hospitalization.
READM-30-HWR.................................... Hospital-Wide All-Cause Unplanned Readmission 1789
Measure (HWR).
READM-30-PN..................................... Hospital 30-Day, All-Cause, Risk-Standardized 0506
Readmission Rate (RSRR) Following Pneumonia
Hospitalization.
READM-30-STK.................................... 30-Day Risk Standardized Readmission Rate N/A
Following Stroke Hospitalization.
READM-30-THA/TKA................................ Hospital-Level 30-Day, All-Cause Risk- 1551
Standardized Readmission Rate (RSRR) Following
Elective Primary Total Hip Arthroplasty (THA)
and/or Total Knee Arthroplasty (TKA).
AMI Excess Days................................. Excess Days in Acute Care after Hospitalization N/A
for Acute Myocardial Infarction.
HF Excess Days.................................. Excess Days in Acute Care after Hospitalization N/A
for Heart Failure.
PN Excess Days **............................... Excess Days in Acute Care after Hospitalization N/A
for Pneumonia.
Hip/knee complications.......................... Hospital-Level Risk-Standardized Complication 1550
Rate (RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and/or Total Knee
Arthroplasty (TKA).
PSI 04.......................................... Death Rate among Surgical Inpatients with Serious 0351
Treatable Complications.
PSI 90.......................................... Patient Safety for Selected Indicators Composite 0531
Measure, Modified PSI 90 (Updated Title: Patient
Safety and Adverse Events Composite).
----------------------------------------------------------------------------------------------------------------
Claims-based Payment
----------------------------------------------------------------------------------------------------------------
AMI Payment..................................... Hospital-Level, Risk-Standardized Payment 2431
Associated with a 30-Day Episode-of-Care for
Acute Myocardial Infarction (AMI).
HF Payment...................................... Hospital-Level, Risk-Standardized Payment 2436
Associated with a 30-Day Episode-of-Care For
Heart Failure (HF).
PN Payment...................................... Hospital-Level, Risk-Standardized Payment 2579
Associated with a 30-day Episode-of-Care For
Pneumonia.

[[Page 25194]]

THA/TKA Payment................................. Hospital[hyphen]Level, Risk[hyphen]Standardized N/A
Payment Associated with an Episode-of-Care for
Primary Elective Total Hip Arthroplasty and/or
Total Knee Arthroplasty.
MSPB............................................ Payment-Standardized Medicare Spending Per 2158
Beneficiary (MSPB).
Cellulitis Payment.............................. Cellulitis Clinical Episode-Based Payment Measure N/A
GI Payment...................................... Gastrointestinal Hemorrhage Clinical Episode- N/A
Based Payment Measure.
Kidney/UTI Payment.............................. Kidney/Urinary Tract Infection Clinical Episode- N/A
Based Payment Measure.
AA Payment **................................... Aortic Aneurysm Procedure Clinical Episode-Based N/A
Payment Measure.
Chole and CDE Payment **........................ Cholecystectomy and Common Duct Exploration N/A
Clinical Episode-Based Payment Measure.
SFusion Payment **.............................. Spinal Fusion Clinical Episode-Based Payment N/A
Measure.
----------------------------------------------------------------------------------------------------------------
Electronic Clinical Quality Measures (eCQMs)
----------------------------------------------------------------------------------------------------------------
AMI-8a.......................................... Primary PCI Received Within 90 Minutes of 0163
Hospital Arrival.
----------------------------------------------------------------------------------------------------------------
CAC-3........................................... Home Management Plan of Care Document Given to \+\
Patient/Caregiver.
ED-1 *.......................................... Median Time from ED Arrival to ED Departure for 0495
Admitted ED Patients.
ED-2 *.......................................... Admit Decision Time to ED Departure Time for 0497
Admitted Patients.
EHDI-1a......................................... Hearing Screening Prior to Hospital Discharge.... 1354
PC-01 *......................................... Elective Delivery (Collected in aggregate, 0469
submitted via Web-based tool or electronic
clinical quality measure).
PC-05........................................... Exclusive Breast Milk Feeding ***................ 0480
STK-02.......................................... Discharged on Antithrombotic Therapy............. 0435
STK-03.......................................... Anticoagulation Therapy for Atrial Fibrillation/ 0436
Flutter.
STK-05.......................................... Antithrombotic Therapy by the End of Hospital Day 0438
Two.
STK-06.......................................... Discharged on Statin Medication.................. 0439
STK-08.......................................... Stroke Education................................. \+\
STK-10.......................................... Assessed for Rehabilitation...................... 0441
VTE-1........................................... Venous Thromboembolism Prophylaxis............... 0371
VTE-2........................................... Intensive Care Unit Venous Thromboembolism 0372
Prophylaxis.
----------------------------------------------------------------------------------------------------------------
Patient Survey
----------------------------------------------------------------------------------------------------------------
HCAHPS.......................................... HCAHPS + 3-Item Care Transition Measure 0166
(CTM[dash]3). 0228
----------------------------------------------------------------------------------------------------------------
Structural Measures
----------------------------------------------------------------------------------------------------------------
Patient Safety Culture.......................... Hospital Survey on Patient Safety Culture........ N/A
----------------------------------------------------------------------------------------------------------------
Safe Surgery Checklist.......................... Safe Surgery Checklist Use....................... N/A
----------------------------------------------------------------------------------------------------------------
* Measure listed twice, as both chart-abstracted and electronic clinical quality measure.
** Newly proposed measures for the FY 2019 payment determination and for subsequent years.
*** Measure name has been shortened. Please refer to annually updated electronically clinical quality measure
specifications on the CMS eCQI Resource Center Page for further information: https://www.healthit.gov/newsroom/ecqi-resource-center.
\+\ NQF endorsement has been removed.

8. Proposed Changes to Policies on Reporting of eCQMs
For a discussion of our previously finalized eCQMs and policies, we
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50807
through 50810; 50811 through 50819), the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50241 through 50253; 50256 through 50259; and 50273 through
50276), and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49692 through
49698; and 49704 through 49709).
We are proposing two changes to our policies with respect to eCQMs
reporting to require that hospitals: (1) Submit data for an increased
number of eCQMs as further detailed below; and (2) report a full year
of data. These proposals are made in conjunction with our proposals in
section VIII.A.3.b.(3) of the preamble of this proposed rule to remove
13 eCQMs from the Hospital IQR Program and proposals in sections
VIII.A.10.d. and VIII.E.2.b. of the preamble of this proposed rule to
align requirements for the Hospital IQR and the Medicare and Medicaid
EHR Incentive Programs.
In addition, we are clarifying that for three measures (ED-1, ED-2,
and PC-01), our previously finalized policy that hospitals must submit
a full year of chart-abstracted data regardless of whether data also
are submitted electronically continues to apply.
a. Proposed Requirement That Hospitals Report on All eCQMs in the
Hospital IQR Program Measure Set for the CY 2017 Reporting Period/FY
2019 Payment Determination and Subsequent Years
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49698), we finalized
our policy to require hospitals to submit one quarter of data (either
Q3 or Q4) for 4 self-selected eCQMs for the CY 2016 reporting period/FY
2018 payment determination by February 28, 2017. Furthermore, in that
final rule (80 FR 49694), we signaled our intent to propose increasing
the reporting requirement to 16 eCQMs in future rulemaking. In this
proposed rule, we are proposing to require reporting of a full calendar
year of data for all eCQMs in the Hospital IQR Program measure set

[[Page 25195]]

for the CY 2017 reporting period/FY 2019 payment determination and
subsequent years.
Requiring hospitals to electronically report a greater number of
eCQMs furthers our goal of expanding electronic reporting in the
Hospital IQR Program, which we believe will improve patient outcomes by
providing more robust data to support quality improvement efforts. As
stated above, this proposal is made in conjunction with our proposals
in section VIII.A.3.b.(3) of the preamble of this proposed rule to
remove thirteen eCQMs from the Hospital IQR Program and proposals in
sections VIII.A.10.d. and VIII.E.2.b. of the preamble of this proposed
rule to align requirements for the Hospital IQR and the Medicare and
Medicaid EHR Incentive Programs. In addition, as discussed in section
VIII.A.3.b.(3) of the preamble of this proposed rule, we believe that
removing certain eCQMs for which the chart-abstracted versions have
been determined to be ``topped-out'' will reduce certification burden
and implementation hurdles, enabling hospitals to focus efforts on
successfully implementing a smaller subset of eCQMs. If our proposals
to remove 13 eCQMs in section VIII.A.3.b.(3) of the preamble of this
proposed rule is finalized as proposed, hospitals would be required to
report on a total 15 eCQMs for the CY 2017 reporting period/FY 2019
payment determination. While the number of required eCQMs would
increase as compared to that required for the CY 2016 reporting period/
FY 2018 payment determination (that is, from 4 to 15 eCQMs), we believe
that a coordinated reduction in the overall number of eCQMs (from 28 to
15 eCQMs) in both the Hospital IQR and Medicare and Medicaid EHR
Incentive Programs will reduce certification burden on hospitals and
improve the quality of reported data by enabling hospitals to focus on
a smaller, more specific subset of eCQMs.
In crafting this proposal, we also considered proposing to require
a lesser number of eCQMs--that hospitals submit eight of the available
eCQMs (that is, in other words, 8 of the proposed 15 eCQMs as discussed
above) for the CY 2017 reporting period/FY 2019 payment determination.
Specifically, hospitals would submit a full calendar year of data on an
annual basis for eight of the available eCQMs whether reporting only
for the Hospital IQR Program or if reporting for both the Medicare and
Medicaid EHR Incentive Programs and the Hospital IQR Program for the CY
2017 reporting period/FY 2019 payment determination. Reporting on all
eCQMs in the Hospital IQR Program measure set would begin with the CY
2018 reporting period/FY 2020 payment determination and subsequent
years.
Ultimately we chose to propose to require reporting on all the
proposed eCQMs for the CY 2017 reporting period/FY 2019 payment
determination, because we believe that requiring hospitals to report
measures electronically is in line with our goals to move towards eCQM
reporting and to align with the Medicare and Medicaid EHR Incentive
Programs. We believe that the CY 2017/FY 2019 payment determination is
the appropriate time to require eCQM reporting because hospitals have
had several years to report data electronically for the Medicare and
Medicaid EHR Incentive Programs and Hospital IQR Program (3 years of
voluntary reporting and 2 years of reporting as part of a pilot). Based
upon data collected by CMS, currently, 95 percent of hospitals attest
to successful eCQM reporting under the Medicare and Medicaid EHR
Incentive Programs.
b. Proposed Requirement That Hospitals Report a Full Year of eCQM Data
In the FY 2016 IPPS/LTCH PPS final rule, we finalized our policy to
require hospitals to submit one quarter of data (either Q3 or Q4) for 4
self-selected eCQMs for the CY 2016 reporting period/FY 2018 payment
determination by February 28, 2017 (80 FR 49698). As previously stated,
we believe that the CY 2017/FY 2019 payment determination is the
appropriate time to require eCQM reporting because hospitals have had
several years to report data electronically for the Medicare and
Medicaid EHR Incentive Programs and for the Hospital IQR Program. As
such, we are proposing that for the CY 2017 reporting period/FY 2019
payment determination and subsequent years, hospitals must submit one
year's worth of eCQM data for each required eCQM. For example, for the
ED-1 eCQM, hospitals would be required to submit one year of data
(covering Q1, Q2, Q3, and Q4), instead of just one quarter of data
(either Q3 or Q4) as previously required.
We hope to address stakeholder concerns associated with increasing
the number of eCQMs for which reporting will be required proactively by
reducing burden on hospitals by aligning data submission deadlines
between the Hospital IQR Program and the Medicare EHR Incentive
Program. We note that deadlines for the Medicaid EHR Incentive Program
differ by State, and therefore our proposal to align data submission
deadlines for eCQMs applies only to the Hospital IQR Program and the
Medicare EHR Incentive Program and not to the Medicaid EHR Incentive
Program. For more details on Hospital IQR Program reporting
requirements and eCQM submission deadlines, we refer readers to section
VIII.A.10.d.(5) of the preamble of this proposed rule.
c. Clarification Regarding Data Submission for ED-1, ED-2, PC-01, STK-
4, VTE-5, and VTE-6
In the FY 2016 IPPS/LTCH PPS final rule, we finalized our policy
that hospitals must continue to submit data on ED-1, ED-2, PC-01, STK-
4, VTE-5, and VTE-6 via chart abstraction as previously required and
that the results would be publicly displayed (80 FR 49695-49698). We
also finalized, however, that hospitals may choose to submit electronic
data on any of these 6 measures in addition to the chart-abstraction
requirements to meet the requirement to report 4 of 28 eCQMs (80 FR
49695-49698). As discussed in section VIII.A.3.b.(3)(a)(ii) of the
preamble of this proposed rule, we are proposing to remove the
electronic version of the STK-4 measure. As discussed in section
VIII.A.3.b.(3)(d) of the preamble of this proposed rule, we are
proposing to remove the electronic version of the VTE-5 and VTE-6
measure. Lastly, in section VIII.A.3.b.(2) of the preamble of this
proposed rule, we are proposing to remove the chart-abstracted versions
of the STK-4 and VTE-5 measures. If these proposals are finalized as
proposed, the STK-4 and VTE-5 measures will be completely removed from
the Hospital IQR Program measure set, but the VTE-6 measure would
continue to be included in its chart-abstracted form.
For the FY 2019 payment determination and subsequent years, we are
clarifying that requirements for the chart-abstracted versions of ED-1,
ED-2, PC-01, and VTE-6 remain the same as previously finalized.
Hospitals must submit a full calendar year of data (covering Q1, Q2,
Q3, and Q4) via chart-abstraction regardless of whether data also are
submitted electronically in accordance with the applicable submission
requirements. However, we note that if our proposal that hospitals
submit a full calendar year of eCQM data for each required eCQM is
finalized as proposed above, data submission for the chart-abstracted
version of these measures will differ from those submitted
electronically (quarterly basis for chart-abstracted measures versus
annual basis for electronic measures).

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We are inviting public comment on our proposals to require that
hospitals: (1) Submit data for all eCQMs included in the Hospital IQR
Program measure set; and (2) report a full year of data for the CY 2017
reporting period/FY 2019 payment determination and subsequent years, as
discussed above.
9. Possible New Quality Measures and Measure Topics for Future Years
We are providing information about new quality measures and measure
topics under consideration for future inclusion in the Hospital IQR
Program. We are considering to propose in future rulemaking: (1) A
refined version of the Stroke Scale for the Hospital 30-Day Mortality
Following Acute Ischemic Stroke Hospitalization Measure; (2) a new
measure, the National Healthcare Safety Network (NHSN) Antimicrobial
Use Measure (NQF #2720); and (3) one or more potential measures of
behavioral health for the inpatient hospital setting, including
measures previously adopted for the IPFQR Program (80 FR 46694), for
adoption into the Hospital IQR Program measure set. Also, we are
considering public reporting of Hospital IQR Program data stratified by
race, ethnicity, sex, and disability on Hospital Compare. These topics
are further discussed below.
a. Potential Inclusion of the National Institutes of Health (NIH)
Stroke Scale for the Hospital 30-Day Mortality Following Acute Ischemic
Stroke Hospitalization Measure Beginning as Early as the FY 2022
Payment Determination
(1) Background
Mortality following stroke is an important adverse outcome that can
be measured reliably and objectively and is influenced by the quality
of care provided to patients during their initial hospitalization;
therefore, mortality is an appropriate measure of quality of care
following stroke hospitalization.^{112 113} Specifically, post-
stroke mortality rates have been shown to be influenced by critical
aspects of care such as response to complications, speediness of
delivery of care, organization of care, and appropriate
imaging.^{114 115 116 117} Therefore, we are refining the
previously adopted CMS Hospital 30-Day, All-Cause, Risk-Standardized
Mortality Rate (RSMR) following Acute Ischemic Stroke Hospitalization
Measure (hereafter referred to as the Stroke 30-day Mortality Rate) (78
FR 50802) by changing the measure's risk adjustment to include stroke
severity. We are considering proposing this refinement to the measure
in the future.
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\112\ Weir NU, Sandercock PA, Lewis SC, Signorini DF, Warlow CP.
Variations between countries in outcome after stroke in the
International Stroke Trial (IST). Stroke. Jun 2001;32(6):1370-1377.
\113\ DesHarnais SI, Chesney JD, Wroblewski RT, Fleming ST,
McMahon LF, Jr. The Risk-Adjusted Mortality Index. A new measure of
hospital performance. Med Care. Dec 1988;26(12):1129-1148.
\114\ Hong KS, Kang DW, Koo JS, et al. Impact of neurological
and medical complications on 3-month outcomes in acute ischaemic
stroke. European journal of neurology: the official journal of the
European Federation of Neurological Societies. Dec 2008;15(12):1324-
1331.
\115\ Lingsma HF, Dippel DW, Hoeks SE., et al. Variation between
hospitals in patient outcome after stroke is only partly explained
by differences in quality of care: results from the Netherlands
Stroke Survey.[Reprint in Ned Tijdschr Geneeskd. 2008 Sep
27;152(39):2126-32; PMID: 18856030]. Journal of Neurology,
Neurosurgery & Psychiatry. 2008;79(8):888-894.
\116\ Reeves MJ, Smith E, Fonarow G, Hernandez A, Pan W, Schwamm
LH. Off-hour admission and in-hospital stroke case fatality in the
get with the guidelines-stroke program. Stroke. Feb 2009;40(2):569-
576.
\117\ Smith MA, Liou JI, Frytak JR, Finch MD. 30-day survival
and rehospitalization for stroke patients according to physician
specialty. Cerebrovascular diseases (Basel, Switzerland).
2006;22(1):21-26.
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The previously adopted Stroke 30-day Mortality Rate (78 FR 50802)
includes 42 risk variables, but does not include an assessment of
stroke severity. For more details on the measure as currently adopted
and implemented, we refer readers to its measure methodology report and
measure risk-adjustment statistical model in the AMI, HF, PN, COPD, and
Stroke Mortality Update zip file on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
In the future, we are considering proposing a refinement to the
Stroke 30-day Mortality Rate for several reasons. First, the refined
measure would allow for more rigorous risk adjustment by incorporating
the NIH Stroke Scale (discussed in more detail below) as an assessment
of stroke severity.\118\ Second, the inclusion of the NIH Stroke Scale
is aligned with and supportive of clinical guidelines, as use of the
NIH Stroke Scale to assess stroke severity upon acute ischemic stroke
patient presentation is Class I recommended in the American Heart
Association and American Stroke Association (AHA/ASA) guidelines.\119\
Third, clinicians and stakeholders, including AHA, ASA, and other
professional organizations, highlight the importance of including an
assessment of stroke severity in risk-adjustment models of stroke
mortality. Therefore, the refined Stroke 30-day Mortality Rate is
responsive to comments received from the feedback of measure developers
during measure development, the Technical Expert Panel, and the NQF
endorsement process (78 FR 50802). Fourth, in addition to a modestly
higher c-statistic, which evaluates the measure's ability to
discriminate or differentiate between high and low performing
hospitals, the refined Stroke 30-day Mortality Rate includes a more
parsimonious risk model than the publicly reported stroke mortality
measure, with a total of 20 risk adjustment variables including the NIH
Stroke Scale, compared to the current use of 42 risk adjustment
variables.
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\118\ NIH Stroke Scale. Available at: http://www.nihstrokescale.org/.
\119\ Jauch EC, Saver JL, Adams HP, Jr., et al. Guidelines for
the early management of patients with acute ischemic stroke: a
guideline for healthcare professionals from the American Heart
Association/American Stroke Association. Stroke. Mar 2013;44(3):870-
947.
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Initial stroke severity score, such as the NIH Stroke Scale score,
is one of the strongest predictors of mortality in ischemic stroke
patients,^{120 121 122} and is part of the national guidelines
on stroke care.\123\ The NIH Stroke Scale is a 15-item neurologic
examination stroke scale used to provide a quantitative measure of
stroke-related neurologic deficit. The NIH Stroke Scale evaluates the
effect of acute ischemic stroke on a patient's level of consciousness,
language, neglect, visual-field loss, extra-ocular movement, motor
strength, ataxia (the loss of full control of bodily movements),
dysarthria (difficult or unclear articulation of speech), and sensory
loss. The NIH Stroke Scale was designed to be a simple, valid, and
reliable tool that can be administered at the bedside consistently by
neurologists, physicians, nurses, or therapists. In October 2016, codes
for the NIH Stroke Scale are expected to be added to the International
Statistical Classification of Diseases and Related Health Problems 10th
Revision (ICD-10). The currently adopted measure covers 3 years of

[[Page 25197]]

claims data using administrative claims from July 2011-June 2014. In
order to give hospitals time to adjust to reporting the NIH Stroke
Scale, we are considering this measure refinement for as early as the
July 2017 through June 2020 reporting period (3 years of data), which
would correspond to the FY 2022 payment determination in the Hospital
IQR Program.
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\120\ Fonarow GC, Saver JL, Smith EE, et al. Relationship of
national institutes of health stroke scale to 30-day mortality in
medicare beneficiaries with acute ischemic stroke. J Am Heart Assoc.
Feb 2012;1(1):42-50.
\121\ Nedeltchev K, Renz N, Karameshev A, et al. Predictors of
early mortality after acute ischaemic stroke. Swiss Medical Weekly.
2010;140(17-18):254-259.
\122\ Smith EE, Shobha N, Dai D, et al. Risk score for in-
hospital ischemic stroke mortality derived and validated within the
Get With the Guidelines-Stroke Program. Circulation. Oct 12
2010;122(15):149615041496-1504.
\123\ Jauch EC, Saver JL, Adams HP, Jr., et al. Guidelines for
the early management of patients with acute ischemic stroke: a
guideline for healthcare professionals from the American Heart
Association/American Stroke Association. Stroke. Mar 2013;44(3):870-
947.
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The measure refinement was developed in collaboration with the AHA/
ASA. We sought to update the current publicly reported measure to
include an assessment of stroke severity at this time, because it has
become feasible to do so due to both the increased use of the NIH
Stroke Scale related to the AHA/ASA guidelines that recommend
administering the NIH Stroke Scale on all stroke patients, as well as
due to the upcoming availability to obtain the scores through claims
data (incorporation into ICD-10).
The Stroke 30-day Mortality Rate (MUC15-294) with the refined risk
adjustment was included on a publicly available document entitled
``List of Measures under Consideration for December 1, 2015'' with
identification number MUC15-294, (available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367) and has
been reviewed by the MAP. The MAP conditionally supported this measure
pending NQF review and endorsement and asked that CMS consider a phased
approach in regards to implementation to avoid multiple versions of the
same measure.\124\ The MAP also noted that mortality is not the most
meaningful outcome for stroke patients and to consider cognitive or
functional outcomes such as impaired capacity.\125\ The Stroke 30-day
Mortality Rate with the refined risk adjustment was submitted to NQF
for endorsement in the neurology project on January 15, 2016.
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\124\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
\125\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
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(2) Overview of Measure Change
The measure cohort for the refined measure would not be
substantively different from the currently adopted, publicly reported
Stroke 30-day Mortality Rate. In addition, the data sources, three-year
reporting period, inclusion and exclusion criteria, as well as the
assessment of the outcome of mortality would all align with the
currently adopted measure.
(3) Risk Adjustment
The statistical modeling, measure calculation, and risk-adjustment
calculation for this refined measure would align with the currently
adopted Stroke 30-day Mortality Rate. However, we reselected risk
variables, resulting in a final model with 20 risk-adjustment variables
including the NIH Stroke Scale as an assessment of stroke severity. For
the full measure specifications of the refined measure, we refer
readers to the AMI, HF, PN, COPD, and Stroke Mortality Update zip file
on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
In summary, we are considering proposing in the future a refinement
of the Stroke 30-day Mortality Rate, which would change the risk
adjustment to include an assessment of stroke severity, in the Hospital
IQR Program for as early as the July 2017-June 2020 reporting period/FY
2022 payment determination and for subsequent years.
We are inviting comments on the possibility of a future proposal of
refinements to the previously adopted Hospital 30-Day Mortality
Following Acute Ischemic Stroke Hospitalization Measure to include the
NIH Stroke Scale beginning as early as the FY 2022 payment
determination.
b. Potential Inclusion of National Healthcare Safety Network (NHSN)
Antimicrobial Use Measure (NQF #2720)
(1) Background
The emergence of antibiotic drug resistance is a clinical and
public health problem that threatens the effective prevention and
treatment of bacterial infections. The CDC estimates that each year at
least two million people become infected with bacteria that are
resistant to antibiotics, and at least 23,000 people die as a direct
result of these drug-resistant bacterial infections. In addition,
antibiotic resistance contributes an estimated $20 billion in excess
direct healthcare costs.\126\
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\126\ Centers for Disease Control and Prevention. Antibiotic
Resistance Threats in the United States, 2013. Available from:
http://www.cdc.gov/drugresistance/threat-report-2013/.
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In order to promote the efficiency and coordination of efforts to
detect, prevent, and control antibiotic resistance, HHS announced in
2015 the establishment of the Presidential Advisory Council on
Combating Antibiotic-Resistant Bacteria (Advisory Council).\127\ The
Advisory Council makes recommendations to the Secretary regarding
policies to support the implementation of the National Strategy for
Combating Antibiotic-Resistant Bacteria \128\ and the National Action
Plan for Combating Antibiotic-Resistant Bacteria.\129\ Evidence is
accumulating that programs dedicated to optimizing inpatient antibiotic
use, known as antimicrobial stewardship programs (ASPs), may slow the
emergence of antibiotic resistance and improve appropriateness of
antimicrobial use and patient outcomes.^{130 131 132}
Therefore, the CDC and several professional societies have published
guidelines and resources to support hospitals in implementing
antimicrobial stewardship programs.\133\
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\127\ Centers for Disease Control and Prevention. Presidential
Advisory Council on Combating Antibiotic-Resistant Bacteria.
Available from: http://www.hhs.gov/ash/carb/index.html.
\128\ National Strategy for Combating Antibiotic-Resistant
Bacteria, 2014. Available from: https://www.whitehouse.gov/sites/default/files/docs/carb_national_strategy.pdf.
\129\ National Action Plan for Combating Antibiotic-Resistant
Bacteria, 2015. Available from: https://www.whitehouse.gov/sites/default/files/docs/national_action_plan_for_combating_antibotic-resistant_bacteria.pdf.
\130\ Davey P, Brown E, Charani E, Fenelon L, Gould IM, Holmes
A, et al. Interventions to improve antibiotic prescribing practices
for hospital inpatients. Cochrane Database Syst Rev.
2013;4:CD003543.
\131\ Feazel LM, Malhotra A, Perencevich EN, Kaboli P, Diekema
DJ, Schweizer ML. Effect of antibiotic stewardship programmes on
Clostridium difficile incidence: a systematic review and meta-
analysis. J Antimicrob Chemother. 2014;69(7):1748-54. http://jac.oxfordjournals.org/content/69/7/1748.full.pdf.
\132\ Kaki R, Elligsen M, Walker S, Simor A, Palmay L, Daneman
N. Impact of antimicrobial stewardship in critical care: a
systematic review. J Antimicrob Chemother. 2011;66(6):1223-30.
\133\ Centers for Disease Control and Prevention. Core Elements
of Hospital Antibiotic Stewardship Programs. Available from: http://www.cdc.gov/getsmart/healthcare/implementation/core-elements.html.
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In the future, we are considering proposing the NHSN Antimicrobial
Use measure to advance national efforts to reduce the emergence of
antibiotic resistance by enabling hospitals and CMS to assess national
trends of antibiotic use to facilitate improved stewardship by
comparing antibiotic use that hospitals report to antibiotic use that
is predicted based on nationally aggregated data. The measure was
included on a publicly available document entitled ``List of Measures
Under Consideration for December 1, 2015,'' \134\ in compliance with
section 1890A(a)(2) of the Act. The measure received conditional
support, pending CDC recommendation that the measure is ready for use
in public reporting as referenced in the MAP 2016 Final

[[Page 25198]]

Recommendations.\135\ The MAP recognized the high importance of
antimicrobial stewardship and conditionally supported the inclusion of
this measure in the Hospital IQR Program while acknowledging that
additional testing may be necessary to address feasibility issues for
public reporting, quality implications of measuring the amount of
antibiotics used versus appropriate use of antibiotics, and risk-
adjustment. Further, MAP noted these issues should be addressed before
the measure is reported on Hospital Compare.\136\ The measure received
endorsement from NQF on December 10, 2015.\137\
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\134\ 2015 Measures Under Consideration List Available at:
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\135\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
\136\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
\137\ http://www.qualityforum.org/QPS/2720.
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(2) Overview of Measure
The NHSN Antimicrobial Use measure assesses antibiotic use in
hospitals based on medication administration data that hospitals
collect electronically at the point of care. The measure compares
antibiotic use that hospitals report, via electronic file submissions
to the CDC's NHSN, to antibiotic use that is predicted based on
nationally aggregated data. Data on administered antibiotics are
required to be extracted from an electronic medication administration
record (eMAR) \138\ and/or bar coded medication administration (BCMA)
system.\139\ The antibiotic use data that are in scope for this measure
include antibiotic agents administered to adult and pediatric patients
in a specified set of ward and intensive care unit (ICU) locations.
Locations include adult and pediatric medical, medical/surgical, and
surgical wards and adult and pediatric medical, medical/surgical, and
surgical ICUs as defined by the NHSN at: http://www.cdc.gov/nhsn/PDFs/pscManual/15LocationsDescriptions_current.pdf.
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\138\ eMAR is defined as technology that automatically documents
the administration of medication into CEHRT using electronic
tracking sensors (for example, radio frequency identification
(RFID)) or electronically readable tagging such as bar coding (77 FR
54034).
\139\ Barcode Medication Administration (BCMA) System is defined
as a system that allows users to electronically document medications
at the bedside or other points-of-care using an electronically
readable format. More information. Available at: http://www.ahrq.gov/downloads/pub/advances/vol3/wideman.pdf.
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The measure is comprised of a discrete set of risk-adjusted summary
ratios, known as Standardized Antimicrobial Administration Ratios
(SAARS), which summarize observed-to-predicted antibacterial use for
one of sixteen antibiotic agent-patient care location combinations. The
specific antibiotic agent-location combinations were selected based on
extensive consultation with infectious disease physicians and
pharmacists at the forefront of ASPs. The specified categories of
antibiotic agents include:
Broad spectrum agents predominantly used for hospital-
onset/multi-drug resistant bacteria;
Broad spectrum agents predominantly used for community-
acquired infection;
Anti-MRSA agents; and
Agents predominantly used for surgical site infection
prophylaxis.
The SAARs are designed to serve as high value targets or high-level
indicators for hospital ASPs to assess hospital antimicrobial use. A
SAAR that is not significantly different from 1.0 indicates
``expected'' antibiotic use. A SAAR that is above 1.0 may indicate
excessive antibiotic use or a SAAR that is below 1.0 may indicate
antibiotic underuse. We note that the SAARs do not provide a definitive
indication of antibiotic appropriateness of use. Outlier SAAR values
should prompt hospitals to do further analysis to assess overuse,
underuse, or inappropriate use of antibacterial medications. In
addition, the SAARS may be used by hospital ASPs to identify
opportunities to improve antibiotic use and gauge the impact of
stewardship efforts.
(3) Data Sources
The data submission and reporting standard procedures for the NHSN
Antimicrobial Use measure have been set forth by the CDC for NHSN
participation, in general, and for submission of measure data. We refer
readers to the CDC's NHSN Web site (http://www.cdc.gov/nhsn) for
detailed data submission and reporting procedures. Although the NHSN
Antimicrobial Use measure is not specified as an eCQM, manual data
entry is not available. Data must be electronically extracted from an
eMAR \140\ and/or BCMA system.\141\ The format for data submission must
adhere to the data format prescribed by the CDC HL7 Clinical Data
Architecture (CDA) Implementation Guide available at: http://www.cdc.gov/nhsn/cdaportal/toolkits/guidetocdaversions.html.
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\140\ eMAR is defined as technology that automatically documents
the administration of medication into CEHRT using electronic
tracking sensors (for example, radio frequency identification
(RFID)) or electronically readable tagging such as bar coding (77 FR
54034).
\141\ Barcode Medication Administration (BCMA) System is defined
as a system that allows users to electronically document medications
at the bedside or other points-of-care using an electronically
readable format. More information available at: http://www.ahrq.gov/downloads/pub/advances/vol3/wideman.pdf.
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(4) Measure Calculation
Each SAAR is an observed to expected ratio and is calculated by
dividing the numerator, or total number of observed antimicrobial days
(days of therapy reported by a healthcare facility for a specified
category of antimicrobial agents in a specified patient care location
or group of locations), by the denominator, or expected (predicted on
the basis of nationally aggregated AU data for a healthcare facility's
use of a specified category of antimicrobial agents in a specified
patient care location or group of locations) number of antimicrobial
days, for each antibiotic agent category-patient care location
combination. The total number of observed antimicrobial days for each
patient care location is defined as the aggregated sum of days for
which any amount of a specific antibiotic agent within an antibiotic
agent category was administered as documented in the eMAR or BCMA
system. The predicted number of antimicrobial days for each patient
care location is determined by multiplying the observed days present by
the corresponding antimicrobial use rate in the standard population
obtained from the relevant regression model. Hospital patient care
locations other than adult and pediatric medical, medical/surgical, and
surgical wards and adult and pediatric medical, medical/surgical, and
surgical ICUs are excluded from this measure. For more information
regarding the specifications for the Antimicrobial Use measure, we
refer readers to the NHSN Antimicrobial Use and Resistance Module
(AUR): http://www.cdc.gov/nhsn/PDFs/pscManual/11pscAURcurrent.pdf.
We are inviting public comment on the possibility of future
inclusion of the NHSN Antimicrobial Use Measure (NQF #2720).
c. Potential Measures for Behavioral Health in the Hospital IQR Program
Although the IPFQR Program incorporates measures of inpatient
psychiatric treatment (80 FR 46694), the Hospital IQR Program does not
include any measures directly related to behavioral health. Based on
MedPAC analyses, over a third of Medicare inpatient psychiatric
admissions are treated ``in acute care hospital beds not within
distinct-part psychiatric units.'' \142\ Thus, there may be a gap in

[[Page 25199]]

understanding the quality of care given to inpatient psychiatric
patients not paid for under the IPFQR Program.
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\142\ Medicare Payment Advisory Commission (U.S.). (2010).
MedPAC June 2010 Report to the Congress: . Washington, DC: MedPAC,
available at: http://www.medpac.gov/documents/reports/Jun10_Ch06.pdf?sfvrsn=0.
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To address this gap, we are inviting public comments on potential
behavioral health quality measures appropriate to include in the
Hospital IQR Program in future years, including the possible use of one
or more measures previously adopted in the IPFQR Program (80 FR 46417).
d. Potential Public Reporting of Quality Measures Data Stratified by
Race, Ethnicity, Sex, and Disability and Future Hospital Quality
Measures That Incorporate Health Equity
We are seeking comment on the possibility of including Hospital IQR
Program measure data stratified by race, ethnicity, sex, and disability
on Hospital Compare, if feasible and appropriate (that is,
statistically appropriate, etc.) in the future. By stratification, we
mean that we would report quality measures for each group of a given
category (age, race, sex, and disability status). For example, if we
were to report the Hospital-Wide All-Cause Unplanned Readmission
Measure (HWR) (NQF #1789) stratified by sex, we would report a
hospital's measure result for females and then again separately for
males, in addition to reporting a hospital's unstratified rate, as is
currently displayed.
In addition, we are also seeking comment on potential hospital
quality measures, including composite measures, for inclusion in the
Hospital IQR Program measure set and thus, future postings on Hospital
Compare, that could help consumers and stakeholders not only assess the
measurement of the quality of care furnished by hospitals in inpatient
settings, but also monitor trends in health equity.
Any data pertaining to these areas that are recommended for
collection through measure reporting for the Hospital IQR Program and
public disclosure on Hospital Compare, would be addressed through a
separate and future notice-and-comment rulemaking.
We are inviting public comment on the possibility of future
inclusion of stratified quality measures data on Hospital Compare and
on stratification categories, including any categories not specified in
this preamble. We are also seeking comment on potential future hospital
quality measures that incorporate health equity.
10. Form, Manner, and Timing of Quality Data Submission
a. Background
Sections 1886(b)(3)(B)(viii)(I) and (b)(3)(B)(viii)(II) of the Act
state that the applicable percentage increase for FY 2015 and each
subsequent year shall be reduced by one-quarter of such applicable
percentage increase (determined without regard to sections
1886(b)(3)(B)(ix), (xi), or (xii) of the Act) for any subsection (d)
hospital that does not submit data required to be submitted on measures
specified by the Secretary in a form and manner, and at a time,
specified by the Secretary. Previously, the applicable percentage
increase for FY 2007 and each subsequent fiscal year until FY 2015 was
reduced by 2.0 percentage points for subsection (d) hospitals failing
to submit data in accordance with the description above. In accordance
with the statute, the FY 2016 payment determination began the second
year that the Hospital IQR Program will reduce the applicable
percentage increase by one-quarter of such applicable percentage
increase.
In order to participate in the Hospital IQR Program, hospitals must
meet specific procedural, data collection, submission, and validation
requirements. For each Hospital IQR Program payment determination, we
require that hospitals submit data on each specified measure in
accordance with the measure's specifications for a particular period of
time. The data submission requirements, Specifications Manual, and
submission deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/. Hospitals must register and submit quality data
through the secure portion of the QualityNet Web site. There are
safeguards in place in accordance with the HIPAA Security Rule to
protect patient information submitted through this Web site.
b. Procedural Requirements for the FY 2019 Payment Determination and
Subsequent Years
The Hospital IQR Program's procedural requirements are codified in
regulation at 42 CFR 412.140. We refer readers to these codified
regulations for participation requirements, as further explained by the
FY 2014 IPPS/LTCH PPS final rule (78 FR 50810 through 50811). In this
proposed rule, we are not proposing any changes to these procedural
requirements.
However, as discussed below in section VIII.A.11. of the preamble
of this proposed rule, we are proposing to amend Sec. 412.140(d)(2) in
connection with our proposal to modify our validation processes
beginning with the FY 2020 payment determination.
c. Data Submission Requirements for Chart-Abstracted Measures
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51640 through 51641), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53536
through 53537), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50811)
for details on the Hospital IQR Program data submission requirements
for chart-abstracted measures. In this proposed rule, we are not
proposing any changes to the data submission requirements for chart-
abstracted measures.
d. Proposed Alignment of the Hospital IQR Program With the Medicare and
Medicaid EHR Incentive Programs for Eligible Hospitals and CAHs
(1) Background
We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR
50256 through 50259) and the FY 2016 IPPS/LTCH PPS final rule (80 FR
49705 through 49709) for our policies aligning eCQM data reporting and
submission periods on a calendar year basis for both the Medicare EHR
Incentive Program for eligible hospitals and CAHs and the Hospital IQR
Program for the FY 2017 payment determination and subsequent years for
the Hospital IQR Program.
In this section, we are proposing the following changes to the
Hospital IQR Program to further align eCQM data reporting for the
Hospital IQR Program with the Medicare and Medicaid EHR Incentive
Programs: (1) Maintaining the eCQM data certification process we
previously adopted for the FY 2018 payment determination, including
requiring hospitals to report eCQM data using either the 2014 or 2015
Edition of the Office of the National Coordinator for Health
Information Technology's (ONC's) certified electronic health record
technology (CEHRT) for the CY 2017 reporting period/FY 2019 payment
determination; and (2) requiring the use of the 2015 Edition of CEHRT
beginning with the CY 2018 reporting period/FY 2020 payment
determination and subsequent years.
In addition, we are proposing to require eCQM data submission by
the end of 2 months following the close of the reporting period
calendar year for the CY 2017 reporting period/FY 2019 payment
determination and subsequent years to further align eCQM data reporting
for the Hospital IQR Program with the Medicare EHR Incentive Program.
These proposals are discussed in more detail below.

[[Page 25200]]

(2) Proposed Continuation of eCQM Certification Processes for the FY
2019 Payment Determination and Proposals for Subsequent Years
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49705 through
49708), we finalized policies regarding eCQM certification for the FY
2018 payment determination. Specifically, we finalized that: (1)
Hospitals can report using either the 2014 or 2015 Edition of CEHRT for
the CY 2016 reporting period/FY 2018 payment determination since
certification to the 2015 Edition is expected to be available in 2016;
and (2) hospitals must submit eCQM data via Quality Reporting Document
Architecture (QRDA) Category I file (80 FR 49707-49708). In addition,
hospitals may use third parties to submit QRDA I files on their behalf
(80 FR 49706) and can either use abstraction or pull the data from non-
certified sources in order to then input these data into CEHRT for
capture and reporting QRDA I (80 FR 49706).
We are proposing to continue these eCQM certification policies.
Specifically, for the CY 2017 reporting period/FY 2019 payment
determination (not subsequent years), we are proposing to require that
hospitals report using either the 2014 or 2015 Edition of CEHRT as
previously required. We note that we are proposing to change these
policies, however, for the CY 2018 reporting period/FY 2020 payment
determination as discussed in the following section.
In addition, for the CY 2017 reporting period/FY 2019 payment
determination and subsequent years, we are proposing that hospitals:
(1) Must submit eCQM data via QRDA I files as previously required; (2)
may continue to use a third party to submit QRDA I files on their
behalf; and (3) continue to either use abstraction or pull the data
from non-certified sources in order to then input these data into CEHRT
for capture and reporting QRDA I. This would align the Hospital IQR
Program with the Medicare EHR Incentive Program. We refer readers to
section VIII.E.2.c. of the preamble of this proposed rule for
discussion of the proposed certification requirements for the Medicare
EHR Incentive Program.
We are inviting comment on these proposals. In addition, we refer
readers to section VIII.A.11.b.(4) of the preamble of this proposed
rule where we encourage hospitals to take advantage of eCQM pre-
submission testing tools to help reduce submission errors related to
improperly formatted QRDA I files.
(3) Proposed Required Use of EHR Technology Certified to the 2015
Edition for the FY 2020 Payment Determination and Subsequent Years
As stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49705),
some commenters requested that hospitals be given the opportunity to
use the most recent version of the CEHRT (2015 Edition) for the CY 2016
reporting period/FY 2018 payment determination if they are able. We
believe this requirement will mitigate the existing vendor issue of
system comparability between hospitals and vendors and facilitate
consistency regarding the version of CEHRT to which vendors are
certified by establishing uniformity in the version of the product
used. Therefore, we are proposing to require the use of EHR technology
certified to the 2015 Edition beginning with the CY 2018 reporting
period for the FY 2020 payment determination and subsequent years. This
would align the Hospital IQR Program with the Medicare EHR Incentive
Program. We refer readers to section VIII.E.2.c. of the preamble of
this proposed rule for discussion of the proposed certification
requirements for the Medicare EHR Incentive Program.
We are inviting public comment on our proposal to require the use
of EHR technology certified to the 2015 Edition for the CY 2018
reporting period/FY 2020 payment determination and subsequent years as
stated above.
(4) Proposed Electronic Submission Deadlines for the FY 2019 Payment
Determination and Subsequent Years
We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR
50256 through 50259) and the FY 2016 IPPS/LTCH PPS final rule (80 FR
49705 through 49708) for our previously adopted policies to align eCQM
data reporting and submission periods for both the Medicare EHR
Incentive Program for eligible hospitals and CAHs and the Hospital IQR
Program for the FY 2018 payment determination.
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50249 through
50252), we finalized our policy that hospitals may voluntarily report
16 electronic measures by submitting one quarter of eCQM data from CY
Q1 (January 1-March 31, 2015), CY Q2 (April 1-June 30, 2015), or CY Q3
(July 1-September 30) by November 30, 2015. In the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49693 through 49698), for the FY 2018 payment
determination, we finalized a policy that hospitals must submit one
quarter of data (either Q3 or Q4 of CY 2016) for at least 4 eCQMs by
the submission deadline of February 28, 2017.
In this year's proposed rule, in order to align the Hospital IQR
Program eCQM data submission deadline with that of the Medicare EHR
Incentive Program, which requires eCQM data submission by the end of
two months following the close of the reporting period calendar year
(80 FR 62896 through 62897), we are proposing to establish an eCQM
submission deadline for the Hospital IQR Program which requires eCQM
data submission by the end of two months following the close of the
calendar year for the CY 2017 reporting period/FY 2019 payment
determination and subsequent years. For example, for the CY 2017
reporting period/FY 2019 payment determination, hospitals would be
required to submit eCQM data for the Hospital IQR Program by February
28, 2018, which is the end of 2 months following the close of the
calendar year (December 31, 2017). This would align the Hospital IQR
Program with the Medicare EHR Incentive Program deadlines. We note that
deadlines for the Medicaid (not Medicare) EHR Incentive Program differ
by State, and therefore our proposal to align data submission deadlines
for eCQMs applies only to the Hospital IQR Program and the Medicare EHR
Incentive Program and not to the Medicaid EHR Incentive Program. For
more information about the Medicaid EHR Incentive Program for eligible
hospitals and CAHs, we refer readers to: https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Eligible_Hospital_Information.html.
We are inviting public comment on our proposal to align the
Hospital IQR Program eCQM submission deadline with that of the Medicare
EHR Incentive Program for the CY 2017 reporting period/FY 2019 payment
determination and subsequent years as discussed above.
(5) Summary of Alignment
We are proposing to align the Hospital IQR Program with the
Medicare and Medicaid EHR Incentive Programs as summarized below:

------------------------------------------------------------------------
Alignment of Hospital IQR Program with both the Medicare and Medicaid
EHR Incentive Programs
-------------------------------------------------------------------------
Proposed removal of 13 eCQMs
Proposed requirement for submission of all available eCQMs

[[Page 25201]]

Proposed requirement for annual submission of four quarters of
eCQM data
Proposed continued use of 2014 or 2015 CEHRT for CY 2017
reporting period/FY2019 payment determination
Proposed use of 2015 CEHRT for CY 2018 reporting period/FY2020
payment determination
------------------------------------------------------------------------
Alignment of Hospital IQR Program with only the Medicare EHR Incentive
Program
------------------------------------------------------------------------
Proposed submission of eCQM data 2 months following the close
of the calendar year
------------------------------------------------------------------------

e. Sampling and Case Thresholds for the FY 2019 Payment Determination
and Subsequent Years
We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR
50221), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), the FY 2013
IPPS/LTCH PPS final rule (77 FR 53537), and the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50819) for details on our sampling and case
thresholds for the FY 2016 payment determination and subsequent years.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 24588), we revised our
sampling and case thresholds policy so that, for the FY 2018 payment
determination and subsequent years, hospitals will be required to
submit population and sample size data only for those measures that a
hospital submits as chart-abstracted measures under the Hospital IQR
Program.
We are not proposing any changes to our sampling and case
thresholds policy in this proposed rule.
f. HCAHPS Requirements for the FY 2019 Payment Determination and
Subsequent Years
We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR
50220), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through
51643), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537 through
53538), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50819 through
50820) for details on previously-adopted HCAHPS requirements. We also
refer hospitals and HCAHPS survey vendors to the official HCAHPS Web
site at http://www.hcahpsonline.org for new information and program
updates regarding the HCAHPS Survey, its administration, oversight, and
data adjustments. In this proposed rule, we are not proposing any
changes to the HCAHPS requirements.
g. Data Submission Requirements for Structural Measures for the FY 2019
Payment Determination and Subsequent Years
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51643 through 51644) and the FY 2013 IPPS/LTCH PPS final rule (77 FR
53538 through 53539) for details on the data submission requirements
for structural measures. In this proposed rule, we are not proposing
any changes to data submission requirements for structural measures.
h. Data Submission and Reporting Requirements for HAI Measures Reported
via NHSN
For details on the data submission and reporting requirements for
HAI measures reported via the CDC's NHSN Web site, we refer readers to
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51629 through 51633; 51644
through 51645), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), the
FY 2014 IPPS/LTCH PPS final rule (78 FR 50821 through 50822), and the
FY 2015 IPPS/LTCH PPS final rule (79 FR 50259 through 50262). The data
submission deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/ org/. In this proposed rule, we are not proposing any
changes to data submission and reporting requirements for HAI measures
reported via the NHSN.
11. Proposed Modifications to the Existing Processes for Validation of
Hospital IQR Program Data
a. Background
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 through
53553), we finalized the processes and procedures for validation of
chart-abstracted measures in the Hospital IQR Program for the FY 2015
payment determination and subsequent years; the FY 2013 IPPS/LTCH PPS
final rule also contains a comprehensive summary of all procedures
finalized in previous years that are still in effect. We refer readers
to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50822 through 50835),
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50262 through 50273), and
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49710 through 49712) for
detailed information on the modifications to these processes finalized
for the FY 2016, FY 2017, and FY 2018 payment determinations and
subsequent years.
In this proposed rule, we are proposing to update the validation
process in order to incorporate a process for validating eCQM data.
b. Proposed Modifications to the Existing Processes for Validation of
Hospital IQR Program Data
(1) Background
In this proposed rule, we are proposing to update the existing
process for validation of Hospital IQR Program data, which has
previously included up to 600 hospitals for chart-abstracted
validation, to also include eCQM validation of up to 200 hospitals, for
a total of up to 800 hospitals for validation for the FY 2020 payment
determination and subsequent years. Specifically, 200 hospitals would
be randomly selected for eCQM validation but among those hospitals some
may be granted Extraordinary Circumstances Exception (ECE) waivers or
meet other exclusion criteria (discussed in additional detail below)
potentially resulting in a number totaling less than 200 hospitals that
actually participate in eCQM validation. Furthermore, we are proposing
that hospitals would be required to submit timely and complete medical
record information from the Electronic Health Records (EHR) for at
least 75 percent of sampled records, but would not be scored on the
basis of measure accuracy for FY 2020 payment determinations.
As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53555),
determining the equivalence of eCQM data and chart-abstracted measures
data requires extensive testing given that the data for the Hospital
IQR Program support public reporting for both the Hospital IQR and the
Hospital VBP Programs; in addition, for the Hospital VBP Program, the
data are used to calculate hospitals' performance on a subset of
measures which tie payment directly to measure performance. As
described in the Hospital IQR Program discussion in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50258), we have received anecdotal comments
about performance level differences between chart-abstracted and eCQM
data. We stated that we did not have sufficient data to be able to
confirm or refute the accuracy of those comments (79 FR 50258). In
order to substantiate or refute the existence of performance-level
differences between eCQM data and

[[Page 25202]]

chart-abstracted measure data, we believe that we must collect more
eCQM data and develop a process for validating the accuracy of that
data.
As a result, we conducted a validation pilot test for eCQMs
(discussed below). Our findings from this pilot test have informed what
we believe the initial future direction of eCQM validation in the
Hospital IQR Program should be. In this proposed rule, we are proposing
to adopt a validation process for eCQM data submissions beginning in
spring of CY 2018, as further explained below.
(2) Validation Pilot Test
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50269 through
50273), we finalized a proposal to conduct a validation pilot test for
eCQMs in FY 2015. The results of the pilot test yielded measure record
matching rates (that is, the rates of medical record abstracted values
as compared to the values reported in the QRDA I file) of less than 50
percent for all of the measures reported. For all measures, the
inconsistencies between abstracted values and values reported in the
QRDA I files appear to be mainly due to missing data rather than actual
differences in reported versus abstracted values. The highest rate of
accuracy was 48 percent on both the STK-04 and VTE-1 eCQM measures. In
addition, all of the participating hospitals demonstrated significant
difficulty in reporting the ED-1 and ED-2 eCQM measures due to the ED
Admit Date/Time data element, which contributed to the ED measure
mismatch rates. Specifically, hospitals systematically reported a later
date and time for the decision to admit a patient to the hospital in
the QRDA I file than that identified by the Clinical Data Abstraction
Center (CDAC) in the review of the medical record.
Follow-up interviews conducted by CDAC revealed that low accuracy
rates and reporting difficulties were a result of a lack of targeted
outreach and education efforts at the time of the pilot to adequately
prepare participating hospitals for the specific reporting mechanisms.
In order to improve data accuracy and diminish reporting difficulties,
the CMS Outreach and Education contractor (EOC) as well as the
Validation Support Contractor (VSC) plan to continue to conduct
provider education follow-up and refine the validation process. We will
work in conjunction with the EOC and VSC to enlarge the cohort of
eligible hospitals that are able to successfully submit QRDA I files,
as well as encourage hospitals that were not able to successfully
submit QRDA I files to participate in follow-up interviews. These
follow-up interviews will inform the eCQM validation process moving
forward, and allow us to derive ``best reporting practices'' to
consider once we begin scoring the measures.
(3) Proposal To Validate eCQMs Beginning Spring CY 2018/FY 2020 Payment
Determination
In response to the findings of the pilot test and in light of our
proposal to increase the number of eCQMs on which hospitals are
required to submit data for the Hospital IQR Program in section
VIII.A.8.a. of the preamble of this proposed rule, we believe that it
is increasingly important to validate eCQM data to ensure the accuracy
of future information submitted by hospitals and reported to the
public. Therefore, we are proposing to adopt a validation process for
eCQM data submissions beginning in spring of CY 2018, as further
explained below.
(a) Number and Selection of Hospitals
We are proposing to validate eCQM data submitted by up to 200
hospitals selected via random sample. Furthermore, we are proposing
that the following hospitals be excluded from this random sample of 200
hospitals selected for eCQM validation:
Any hospital selected for chart-abstracted measure
validation; and
Any hospital that has been granted a Hospital IQR Program
``Extraordinary Circumstances Exemption'' for the applicable eCQM
reporting period.
We acknowledge that the burden associated with both the chart-
abstracted and eCQM validation processes would be significant. We do
not intend to impose an undue burden on any hospital by requiring that
it be subject to more than one of these processes in a program year.
Thus, if a hospital is selected for chart-abstracted targeted or random
validation, we are proposing that hospital would be excluded from the
eCQM validation sample.
In addition, although our targeted criteria permit that a hospital
may be selected for chart-abstracted validation even if it has been
granted an Extraordinary Circumstances Exemption with respect to one or
more chart-abstracted measures for the applicable data collection
period (77 FR 53552 through 53553), if a hospital is granted an
Extraordinary Circumstances Exemption with respect to eCQM reporting
for the applicable eCQM reporting period, we are proposing that the
hospital would be excluded from the eCQM validation sample due to its
inability to supply data for validation. We note that due to these
proposed exclusions, the total number of hospitals validated for eCQMs
might be less than 200.
Adding the proposed eCQM validation would result in a total of 800
hospitals in the validation process, as described in the below tables.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Current Validation Process Number of HospProposed Validation Process Number of Hospitals
----------------------------------------------------------------------------------------------------------------
Chart-Abstracted Random....................... 400 Chart-Abstracted Random......... 400
Chart-Abstracted Targeted..................... 200 Chart-Abstracted Targeted....... 200
eCQM: random.................... 200
---------------- ---------------
Total..................................... 600 ................................ 800
----------------------------------------------------------------------------------------------------------------

We believe that as we expand the required reporting of eCQMs in the
Hospital IQR Program, we need to validate eCQM data to ensure the
accuracy of information submitted by hospitals and reported to the
public, as well as for future consideration of eCQMs for potential use
in the Hospital VBP Program. In addition, during the first round of
eCQM validation, we could better assess strategies to offset the
resources required to conduct a scored method of eCQM validation for
future rulemaking cycles.
We are inviting public comment on our proposals for the FY 2020
payment determination and subsequent years to: (1) Validate eCQM data
submitted by up to 200 hospitals selected via random sample; and (2) to
exclude any hospital selected for chart-abstracted measure validation
as well as any hospital that has been granted a Hospital IQR Program
``Extraordinary Circumstances Exemption'' for the applicable eCQM
reporting period as discussed above.

[[Page 25203]]

(b) Number of Cases
We are proposing to randomly select 32 cases (individual patient-
level reports) from the QRDA I file submitted per hospital selected for
eCQM validation. Each randomly selected case (individual patient-level
report) contains eCQM data elements \143\ for one patient for one or
more eCQMs available in the program's eCQM measure set. The CDAC would
then request that each of the selected hospitals submit patient medical
record data for each of their 32 randomly selected cases (transmitted
by the hospital to the Clinical Data Warehouse) within 30 days of the
medical records request date. We refer readers to our discussion in
section VIII.A.11.b.(3)(c) of the preamble of this proposed rule,
below, for more information on our proposed submission requirements.
---------------------------------------------------------------------------

\143\ A data element is a representation of a clinical concept
that represents a patient state or attribute. This may be a
diagnosis, lab value, sex, etc., which is encoded using standardized
terminologies. The e-specifications for an eCQM include the data
elements, logic, and definitions for that measure, available from:
https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Electronic_Reporting_Spec.html.
---------------------------------------------------------------------------

Based on the statistical properties of estimates as discussed
below, we believe that a sample size of 32 cases is necessary to assess
hospital performance on eCQMs. More specifically, at the individual
hospital level, if we assume the average agreement rate between the
QRDA I file data and data abstracted from the patient medical record is
around 90 percent, and we want the hospital's confidence interval to
vary by no more than plus or minus 10 percentage points (80 to 100
percent), then we need to select at least 32 cases per year. Also, 32
cases aligns with the number of cases currently selected for chart-
abstracted validation of clinical process of care measures. We
currently select eight cases per quarter per hospital, which equates to
32 cases annually (79 FR 50264).
We are inviting public comment on our proposal to randomly select
32 cases from the QRDA I file submitted per hospital selected for eCQM
validation for the FY 2020 payment determination and subsequent years
as discussed above.
(c) Submission Requirements
We are proposing to require hospitals selected for eCQM validation
to submit timely and complete medical record information to CMS on
eCQMs selected for the validation sample. These are defined below.
Consistent with the Hospital IQR Program chart-abstracted and NHSN
validation submission deadline, which is 30 calendar days following the
medical records request date listed on the CDAC request form (76 FR
51645), we are proposing to require eCQM validation submission by 30
calendar days following the medical records request date listed on the
CDAC request form for the FY 2020 payment determination and subsequent
years. Also, we are proposing to require sufficient patient level
information (defined below) necessary to match the requested medical
record to the original Hospital IQR Program submitted eCQM measure data
record for the FY 2020 payment determination and subsequent years.
Sufficient patient level information is defined as the entire medical
record that sufficiently documents the eCQM measure data elements,
which would include but would not be limited to, patient arrival date
and time, inpatient admission date, and discharge date from inpatient
episode of care. Lastly, we are proposing that, if selected as part of
the random sample for eCQM validation, a hospital would be required to
submit records in PDF file format through QualityNet using the Secure
File Transfer (SFT) for the FY 2020 payment determination and
subsequent years. The data submission deadlines and additional details
about the eCQM validation procedures would be posted on the QualityNet
Web site at: http://www.QualityNet.org/.
We are inviting public comment on our proposals regarding eCQM
validation submission requirements for the FY 2020 payment
determination and subsequent years as discussed above.
(d) Scoring: Summary of Previously Adopted Chart-Abstracted Measure
Validation Scoring
We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR
50226 through 50227), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539
through 53553), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50832
through 50833), and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50268
through 50269), for a detailed description of our previously adopted
scoring methodology for chart-abstracted measure data.
We note that we are not proposing any changes to our chart-
abstracted measures validation. We are providing this information as
background for our discussion of eCQM validation scoring. Under the
current validation process for the Hospital IQR Program there are 600
hospitals (400 randomly sampled and 200 targeted) selected for
validation on a yearly basis. As stated above, those selected for
chart-abstracted measure validation would not be eligible for selection
to participate in eCQM validation. For chart-abstracted measure
validation, the CDAC contractor requests hospitals to submit 8 randomly
selected medical charts on a quarterly basis from which data were
abstracted and submitted by the hospital to the Clinical Data Warehouse
(for a total of 32 charts per year). Under the validation methodology,
once the CDAC contractor receives the charts, it reabstracts the same
data submitted by the hospitals and calculates the percentage of
matching Hospital IQR Program measure numerators and denominators for
each measure within each chart submitted by the hospital. Each selected
case has multiple measures included in the validation score. Consistent
with previous years, each quarter and clinical topic is treated as a
stratum for variance estimation purposes (70 FR 47423).
As in previous years, for the FY 2020 payment determination, the
overall validation score from the chart-abstracted measure validation
will be used to determine a hospital's overall annual payment update.
Specifically, if a hospital fails chart-abstracted validation, it would
not receive the full annual payment update. If a hospital passes chart-
abstracted validation, and also meets the other Hospital IQR Program
requirements, it would be eligible to receive the full annual payment
update. Consistent with previous years, a hospital must attain at least
a 75 percent validation score (the percentage of matching Hospital IQR
Program measure numerators and denominators for each measure within
each chart submitted by the hospital) based upon chart-abstracted data
validation to pass the validation requirement and to be eligible for a
full annual payment update, if all other Hospital IQR Program
requirements are met.
(e) Scoring: Proposals for eCQM Validation Scoring
For the FY 2020 payment determination, for hospitals selected for
eCQM validation, we are proposing to require submission of at least 75
percent of sampled eCQM measure medical records in a timely and
complete manner. However, unlike chart-abstracted validation, which
requires a hospital to attain at least a 75 percent validation score,
we are proposing that the accuracy of eCQM data (the extent to which
data abstracted for validation matches the data submitted in the QRDA I
file) submitted for validation would not affect a hospital's validation
score for the FY 2020 payment

[[Page 25204]]

determination only. This is further explained below.
Public comments on the FY 2015 IPPS/LTCH PPS final rule suggested
further refinements to the process for eCQM validation. Specifically,
several commenters urged CMS to implement the recommendations of a
March 2014 Government Accountability Office (GAO) report to develop a
comprehensive data collection strategy, which includes testing for and
mitigation of reliability issues arising from variance in certified EHR
systems tested to different CQM specifications (79 FR 50272).
Commenters in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49711)
expressed concern over the barriers hospitals encounter associated with
reporting eCQMs and encouraged CMS to ensure that a diverse group of
hospitals and certified EHRs are represented to inform an assessment of
the work required to make eCQM validation feasible, reliable, and
valid. In response to these concerns, in light of operational capacity
limitations, and due to the time necessary to analyze eCQM validation
results, we are proposing that eCQM data would be validated, but
initially (meaning for the FY 2020 payment determination only), the
measure accuracy would not affect hospitals' validation scores.
In other words, although hospitals would be required to submit eCQM
data in a timely and complete manner, we are proposing that hospitals
would not be required to attain at least a 75 percent validation score
(the percentage of matching Hospital IQR Program measure numerators and
denominators for each measure within each chart submitted by the
hospital) based upon QRDA I validation to pass the validation
requirement and to be eligible for a full annual payment update.
Hospitals that submit at least 75 percent of sampled eCQM measure
medical records (even if those records do not produce a validation
score of at least 75 percent) in a timely manner (that is, within 30
days of the date listed on the CDAC medical records request) would not
be subject to payment reduction. However, hospitals that fail to submit
timely and complete information for at least 75 percent of requested
records would not meet the eCQM validation requirement and would be
subject to payment reduction. For example, if a hospital submits timely
and complete information for at least 75 percent of requested records,
but comparison of the QRDA I file and the abstracted data results in a
validation score of 28 percent, the hospital still would pass
validation and be eligible for a full annual payment update.
Hospitals that pass either chart-abstracted or eCQM validation
requirements would receive their full annual payment update, assuming
all other Hospital IQR Program requirements are met. Hospitals that
fail to attain at least a 75-percent validation score for chart-
abstracted validation or fail to submit timely and complete data for 75
percent of requested records for eCQM validation, would not receive
their full annual payment update.
In addition, we are proposing to update our regulations at 42 CFR
412.140(d)(2) to reflect the above proposals and to specify that the 75
percent score would only apply to chart-abstracted validation.
We are inviting public comment on our eCQM validation scoring
proposals for the FY 2020 payment determination as discussed above.
(4) Reimbursement for eCQM Validation
To align with the chart-abstracted validation process, which
reimburses hospitals at a rate of $3.00 per chart (78 FR 50956) for
submitting charts electronically via Secure File Transfer (SFT), we are
proposing to similarly reimburse hospitals at a rate of $3.00 per chart
for submitting charts electronically via Secure File Transfer (SFT) for
eCQM validation for the FY 2020 payment determination and subsequent
years. We also refer readers to section X.B.6. of the preamble of this
proposed rule for more information regarding the collection of
information for eCQM validation.
We are inviting public comment on our proposal to reimburse
hospitals at a rate of $3.00 per chart for eCQM validation for the FY
2020 payment determination and subsequent years as discussed above.
(5) eCQM Pre-Submission Testing
We are encouraging hospitals to test their eCQM submissions prior
to annual reporting using an available CMS pre-submission validation
tool for electronic reporting--the Pre-submission Validation
Application (PSVA), which can be downloaded from the Secure File
Transfer (SFT) section of the QualityNet Secure Portal at https://cportal.qualitynet.org/QNet/pgm_select.jsp. The PSVA is a downloadable
tool that operates on a user's system to allow submitters to catch and
correct errors prior to data submission to CMS. It provides validation
feedback within the submitter's system and allows valid files to be
separated and submitted while identifying invalid files for error
correction.\144\ While the PSVA does not guarantee the accuracy of data
in a hospital's QRDA I file, it helps to reduce submission errors
related to improperly formatted QRDA I files. Pre-submission testing
would assist in proactively identifying inconsistencies in data
mapping, a process used in data warehousing by which different data
models are linked to each other using a defined set of methods to
characterize the data in a specific definition.\145\
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\144\ PSVA Demonstration and eCQM Question and Answer Session.
Available at: http://www.qualityreportingcenter.com/wp-content/uploads/2016/03/3-10-16-eCQM_PSVA-Demonstration_FINAL508.pdf.
\145\ Data Mapping Definition Available at: https://www.techopedia.com/definition/6750/data-mapping.
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12. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
for the FY 2019 Payment Determination and Subsequent Years
We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR
53554) for previously-adopted details on DACA requirements. We are not
proposing any changes to the DACA requirements in this proposed rule.
13. Public Display Requirements for the FY 2019 Payment Determination
and Subsequent Years
We refer readers to the FY 2008 IPPS/LTCH PPS final rule (72 FR
47364), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50230), the FY 2012
IPPS/LTCH PPS final rule (76 FR 51650), the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53554), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836),
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277), and the FY 2016
final rule (80 FR 49712 through 49713) for details on public display
requirements. The Hospital IQR Program quality measures are typically
reported on the Hospital Compare Web site at: http://www.medicare.gov/hospitalcompare, but on occasion are reported on other CMS Web sites
such as https://data.medicare.gov. We are not proposing any changes to
our public display requirements in this proposed rule.
14. Reconsideration and Appeal Procedures for the FY 2019 Payment
Determination and Subsequent Years
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51650 through 51651), the FY 2014 IPPS/LTCH PPS final rule (78 FR
50836), and 42 CFR 412.140(e) for details on reconsideration and appeal
procedures for the FY 2017 payment determination and subsequent years.
We are not

[[Page 25205]]

proposing any changes to the reconsideration and appeals procedures in
this proposed rule.
15. Proposed Changes to the Hospital IQR Program Extraordinary
Circumstances Extensions or Exemptions (ECE) Policy
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51651 through 51652), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50836
through 50837), the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277), the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49713), and 42 CFR
412.140(c)(2) for details on the Hospital IQR Program ECE policy. We
also refer readers to the QualityNet Web site at http://www.QualityNet.org/ for our current requirements for submission of a
request for an extension or exemption.
In this proposed rule, we are proposing to update our ECE policy
by: (1) Extending the general ECE request deadline for non-eCQM
circumstances from 30 to 90 calendar days following an extraordinary
circumstance; and (2) establishing a separate submission deadline for
ECE requests related to eCQM reporting circumstances to be April 1
following the end of the reporting calendar year. We are proposing that
these policies would apply beginning in FY 2017 as related to
extraordinary circumstance events that occur on or after October 1,
2016.
a. Proposal To Extend the General ECE Request Deadline for Non-eCQM
Circumstances
In the past, we have allowed hospitals to submit an ECE request
form for non-eCQM measures within 30 calendar days following an event
that causes hardship and prevents them from providing data for non-eCQM
measures (76 FR 51652). In certain circumstances, however, it may be
difficult for hospitals to timely evaluate the impact of a certain
extraordinary event within 30 calendar days. We believe that extending
the deadline to 90 calendar days would allow hospitals more time to
determine whether it is necessary and appropriate to submit an ECE
request and to provide a more comprehensive account of the ``event'' in
their ECE request form to CMS. For example, if a hospital has suffered
damage due to a hurricane on January 1, it would have until March 31 to
submit an ECE form via the QualityNet Secure Portal, mail, email, or
secure fax as instructed on the ECE form. This proposed timeframe (90
calendar days) also aligns with the ECE request deadlines for the
Hospital VBP Program (78 FR 50706), the HAC Reduction Program (80 FR
49580) and the Hospital Readmissions Reduction Program (80 FR 49542
through 49543), all of which at least partially rely on the same data
collection.
b. Proposal To Establish a Separate Submission Deadline for ECE
Requests Related to eCQMs
In addition, we are proposing to establish a separate submission
deadline for ECE requests with respect to eCQM reporting, such that
hospitals must submit a request by April 1 following the end of the
reporting calendar year. We are proposing that this deadline for ECE
requests with respect to eCQM reporting would first apply with an April
1, 2017 deadline and apply for subsequent eCQM reporting years. For
example, for data collected for the CY 2016 reporting period (through
December 31, 2016), hospitals would have until April 1, 2017 to submit
an ECE request. This timeframe also aligns with the Medicare and
Medicaid EHR Incentive Programs' typical annual hardship request
deadline (77 FR 54104 through 54109), which we believe would help
reduce burden for hospitals.
We are inviting public comment on our proposals related to the
Hospital IQR Program's ECE policy beginning FY 2017 as described above.

B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Background
Section 3005 of the Affordable Care Act added new sections
1866(a)(1)(W) and (k) to the Act. Section 1866(k) of the Act
establishes a quality reporting program for hospitals described in
section 1886(d)(1)(B)(v) of the Act (referred to as ``PPS-Exempt Cancer
Hospitals'' or ``PCHs'') that specifically applies to PCHs that meet
the requirements under 42 CFR 412.23(f). Section 1866(k)(1) of the Act
states that, for FY 2014 and each subsequent fiscal year, a PCH must
submit data to the Secretary in accordance with section 1866(k)(2) of
the Act with respect to such fiscal year. For additional background
information, including previously finalized measures and other policies
for the PCHQR Program, we refer readers to the following final rules:
FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 53561); the FY
2014 IPPS/LTCH PPS final rule (78 FR 50838 through 50846); the FY 2015
IPPS/LTCH PPS final rule (79 FR 50277 through 50288); and the FY 2016
IPPS/LTCH PPS final rule (80 FR 49713 through 49723).
2. Proposed Criteria for Removal and Retention of PCHQR Program
Measures
We have received public comments on past proposed rules asking that
we clarify our policy for measure retention and removal. We generally
retain measures from the previous year's PCHQR Program measure set for
subsequent years' measure sets, except when we specifically propose to
remove or replace a measure. With respect to measure removal, we
believe it is important to be transparent in identifying criteria that
we would use to evaluate a measure for potential removal from the PCHQR
Program. We also believe that we should align these criteria between
our programs whenever possible.
Therefore, we are proposing the following measure removal criteria
for the PCHQR Program, which are based on criteria established in the
Hospital IQR Program (80 FR 49641 through 49642):
Measure performance among PCHs is so high and unvarying
that meaningful distinctions and improvements in performance can no
longer be made (``topped-out'' measures);
A measure does not align with current clinical guidelines
or practice;
The availability of a more broadly applicable measure
(across settings or populations) or the availability of a measure that
is more proximal in time to desired patient outcomes for the particular
topic;
Performance or improvement on a measure does not result in
better patient outcomes;
The availability of a measure that is more strongly
associated with desired patient outcomes for the particular topic;
Collection or public reporting of a measure leads to
negative unintended consequences other than patient harm; and
It is not feasible to implement the measure
specifications.
For the purposes of considering measures for removal from the
program, we would consider ``topped-out'' to be that there is
statistically indistinguishable performance at the 75th and 90th
percentiles and that the truncated coefficient of variation is less
than or equal to 0.10.
However, we recognize that there are times when measures may meet
some of the outlined criteria for removal from the program, but
continue to bring value to the program. Therefore, we are proposing the
following criteria for consideration in determining whether to retain a
measure in the PCHQR Program,

[[Page 25206]]

which also are based on criteria established in the Hospital IQR
Program (80 FR 49641 through 49642):
Measure aligns with other CMS and HHS policy goals;
Measure aligns with other CMS programs, including other
quality reporting programs; and
Measure supports efforts to move PCHs towards reporting
electronic measures.
We welcome public comments on these proposed measure removal and
retention criteria.
3. Retention and Proposed Update to Previously Finalized Quality
Measures for PCHs Beginning With the FY 2019 Program Year
a. Background
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through
53561), we finalized five quality measures for the FY 2014 program year
and subsequent years. In the FY 2014 IPPS/LTCH PPS final rule (78 FR
50837 through 50847), we finalized one new quality measure for the FY
2015 program year and subsequent years and 12 new quality measures for
the FY 2016 program year and subsequent years. In the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50278 through 50280), we finalized one new
quality measure for the FY 2017 program year and subsequent years. In
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49713 through 49719), we
finalized three new CDC NHSN measures for the FY 2018 program year and
subsequent years, and finalized the removal of six previously finalized
measures for fourth quarter (Q4) 2015 discharges and subsequent years.
We refer readers to the final rules referenced in section VIII.B.1. of
the preamble of this proposed rule for more information regarding these
previously finalized measures.
We are not proposing for FY 2019 to remove any of the measures
previously finalized for the FY 2018 program year from the PCHQR
measure set. However, we are proposing to update the Oncology:
Radiation Dose Limits to Normal Tissues (NQF #0382) measure, described
below.
b. Proposed Update of Oncology: Radiation Dose Limits to Normal Tissues
(NQF #0382) Measure for FY 2019 Program Year and Subsequent Years
Beginning with the FY 2019 program year, we are proposing to update
the specifications of the Oncology: Radiation Dose Limits to Normal
Tissues (NQF #0382) measure. This measure was originally finalized in
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50841 through 50842). In
November 2014, subsequent to our adoption of the measure in the PCHQR
Program, updated specifications were endorsed by the NQF.
The updated measure specifications expand the patient cohort to
include patients receiving 3D conformal radiation therapy for breast or
rectal cancer in addition to patients receiving 3D conformal radiation
therapy for lung or pancreatic cancers (the original cohort).\146\ For
additional information about the original measure cohort, we refer
readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50842), in which
we introduced the measure to the PCHQR Program. In 2012, breast cancer
was the most common cancer among women, and the second most common
cause of cancer related deaths for women.\147\ For 2016, the National
Institutes of Health estimates that there will be approximately 135,000
new cases of colorectal cancer in the United States, with approximately
39,000 of these cases being rectal cancer.\148\
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\146\ Available at: http://www.qualityforum.org/QPS/0382.
\147\ CDC Breast Cancer Statistics. Available at: http://www.cdc.gov/cancer/breast/statistics/.
\148\ NIH Colorectal Cancer Incidence and Mortality. Available
at: http://www.cancer.gov/types/colorectal/hp/rectal-treatment-pdq.
---------------------------------------------------------------------------

As these cancer types are so prevalent, we believe that the
expansion of the measure cohort to include breast and rectal cancer
patients is important to ensuring the delivery of high quality care in
the PCH setting. In compliance with section 1890A(a)(2) of the Act,
this measure update was included in a publicly available document,
``List of Measures under Consideration for December 1, 2015.'' \149\
The MAP, a multi-stakeholder group convened by the NQF, reviews the
measures under consideration for the PCHQR Program, among other Federal
programs, and provides input on those measures to the Secretary. The
MAP's 2016 recommendations for quality measures under consideration are
captured in the following document: ``Process and Approach for MAP Pre-
Rulemaking Deliberations 2015-2016'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81599). The MAP expressed
conditional support for the update of Oncology: Radiation Dose Limits
to Normal Tissues. The MAP's conditional support was solely pending
annual NQF review, and was not based on significant concerns. We
considered the input and recommendations provided by the MAP, and the
importance of aligning with NQF-endorsed specifications of measures
whenever possible, in proposing this update for the PCHQR Program.
---------------------------------------------------------------------------

\149\ CMS List of Measures under Consideration. Available at:
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172.
---------------------------------------------------------------------------

We welcome public comments on this proposal for the Oncology:
Radiation Dose Limits to Normal Tissues measure cohort expansion for
the FY 2019 program year and subsequent years.
4. Proposed New Quality Measure Beginning With the FY 2019 Program Year
a. Considerations in the Selection of Quality Measures
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556), the FY 2014
IPPS/LTCH PPS final rule (78 FR 50837 through 50838), and the FY 2015
IPPS/LTCH PPS final rule (79 FR 50278), we indicated that we have taken
a number of principles into consideration when developing and selecting
measures for the PCHQR Program, and that many of these principles are
modeled on those we use for measure development and selection under the
Hospital IQR Program. In this proposed rule, we are not proposing any
changes to the principles we consider when developing and selecting
measures for the PCHQR Program.
Section 1866(k)(3)(A) of the Act requires that any measure
specified by the Secretary must have been endorsed by the entity with a
contract under section 1890(a) of the Act (the NQF is the entity that
currently holds this contract). Section 1866(k)(3)(B) of the Act
provides an exception under which, in the case of a specified area or
medical topic determined appropriate by the Secretary for which a
feasible and practical measure has not been endorsed by the entity with
a contract under section 1890(a) of the Act, the Secretary may specify
a measure that is not so endorsed as long as due consideration is given
to measures that have been endorsed or adopted by a consensus
organization.
Using the principles for measure selection in the PCHQR Program, we
are proposing one new measure, described below.
b. Proposed Adoption of the Admissions and Emergency Department (ED)
Visits for Patients Receiving Outpatient Chemotherapy Measure
We are proposing to adopt the Admissions and Emergency Department
(ED) Visits for Patients Receiving Outpatient Chemotherapy measure for
the FY 2019 program year and

[[Page 25207]]

subsequent years. Cancer care is a priority area for outcome
measurement because cancer is an increasingly prevalent condition
associated with considerable morbidity and mortality. In 2015, there
were more than 1.6 million new cases of cancer in the United
States.\150\ Each year, about 22 percent of cancer patients receive
chemotherapy,\151\ with Medicare payments for cancer treatment totaling
$34.4 billion in 2011 or almost 10 percent of Medicare fee-for-service
(FFS) spending.\152\ With an increasing number of cancer patients
receiving chemotherapy in a hospital outpatient department,\153\ a
growing body of peer-reviewed literature identifies unmet needs in the
care provided to these patients. This gap in care may be due to reasons
including: (1) Delayed onset of side effects that patients must manage
at home; (2) patients assuming that little can be done and not seeking
assistance; and (3) limited access to and communication with providers
who can tailor care to the individual.\154\ As a result, cancer
patients that receive chemotherapy in a hospital outpatient department
require more frequent acute care in the hospital setting and experience
more adverse events than cancer patients that are not receiving
chemotherapy.^{155 156 157}
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\150\ American Cancer Society. ``Cancer Facts & Figures 2015.''
Available at: http://www.cancer.org/acs/groups/content/@editorial/documents/document/acspc-044552.pdf.
\151\ Klodziej, M., J.R. Hoverman, J.S. Garey, J. Espirito, S.
Sheth, A. Ginsburg, M.A. Neubauer, D. Patt, B. Brooks, C. White, M.
Sitarik, R. Anderson, and R. Beveridgel. ``Benchmarks for Value in
Cancer Care: An Analysis of a Large Commercial Population.'' Journal
of Oncology Practice, Vol. 7, 2011, pp. 301-306.
\152\ Sockdale, H., K. Guillory. ``Lifeline: Why Cancer Patients
Depend on Medicare for Critical Coverage.'' Available at: http://www.acscan.org/content/wp-content/uploads/2013/06/2013-Medicare-Chartbook-Online-Version.pdf.
\153\ Vandervelde, Aaron, Henry Miller, and JoAnna Younts.
``Impact on Medicare Payments of Shift in Site of Care for
Chemotherapy Administration.'' Washington, DC: Berkeley Research
Group, June 2014. Available at: http://www.communityoncology.org/UserFiles/BRG_340B_SiteofCare_ReportF_6-9-14.pdf.
\154\ McKenzie, H., L. Hayes, K. White, K. Cox, J. Fethney, M.
Boughton, and J. Dunn. ``Chemotherapy Outpatients' Unplanned
Presentations to Hospital: A Retrospective Study.'' Supportive Care
in Cancer, Vol. 19, No. 7, 2011, pp. 963-969.
\155\ Sadik, M., K. Ozlem, M. Huseyin, B. AliAyberk, S. Ahmet,
and O. Ozgur. ``Attributes of Cancer Patients Admitted to the
Emergency Department in One Year.'' World Journal of Emergency
Medicine, Vol. 5, No. 2, 2014, pp. 85-90. Available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4129880/#ref4.
\156\ Hassett, M.J., J. O'Malley, J.R. Pakes, J.P. Newhouse, and
C.C. Earle. ``Frequency and Cost of Chemotherapy-Related Serious
Adverse Effects in a Population Sample of Women with Breast
Cancer.'' Journal of the National Cancer Institute, Vol. 98, No. 16,
2006, pp. 1108-1117.
\157\ Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora, N. Pella,
E. Iaiza, E. Poletto, SE. Lutrino, M. Mazzer, M. Giovannoni, G.G.
Cardellino, F. Puglisi, and G. Fasola. ``Risk of Unplanned Visits
for Colorectal Cancer Outpatients Receiving Chemotherapy: A Case-
Crossover Study.'' Supportive Care in Cancer, Vol. 22, No. 9, 2014,
pp. 2527-2533.
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Unmet patient needs resulting in admissions and ED visits related
to chemotherapy treatment pose a heavy financial burden and affect
patients' quality of life. Based on available commercial claims data,
in 2010 the national average cost of a chemotherapy-related admission
was $22,000, and the average cost of a chemotherapy-related ED visit
was $800.\158\ Furthermore, admissions and ED visits can reduce
patients' quality of life by affecting their physical and emotional
well-being, disrupting their schedules, decreasing their desire to
engage in work and social activities, and increasing the burden on
their family.^{159 160}
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\158\ Fitch, K., and B. Pyenson. ``Cancer Patients Receiving
Chemotherapy: Opportunities for Better Management.'' Available at:
http://us.milliman.com/uploadedFiles/insight/research/health-rr/cancer-patients-receiving-chemotherapy.pdf.
\159\ McKenzie, H., L. Hayes, K. White, K. Cox, J. Fethney, M.
Boughton, and J. Dunn. ``Chemotherapy Outpatients' Unplanned
Presentations to Hospital: A Retrospective Study.'' Supportive Care
in Cancer, Vol. 19, No. 7, 2011, pp. 963-969.
\160\ Hassett, M.J., J. O'Malley, J.R. Pakes, J.P. Newhouse, and
C.C. Earle. ``Frequency and Cost of Chemotherapy-Related Serious
Adverse Effects in a Population Sample of Women with Breast
Cancer.'' Journal of the National Cancer Institute, Vol. 98, No. 16,
2006, pp. 1108-1117.
---------------------------------------------------------------------------

Hospital admissions and ED visits among cancer patients are often
caused by manageable side effects. Chemotherapy treatment can have
severe, predictable side effects. Recent studies of cancer outpatients
show the most commonly cited symptoms and reasons for unplanned
hospital visits following chemotherapy treatment are pain, anemia,
fatigue, nausea and/or vomiting, fever and/or febrile neutropenia,
shortness of breath, dehydration, diarrhea, and anxiety/
depression.\161\ These hospital visits may be due to conditions related
to the cancer itself or to side effects of chemotherapy. However,
treatment plans and guidelines exist to support the management of these
conditions. PCHs that provide outpatient chemotherapy should implement
appropriate care to minimize the need for acute hospital care for these
adverse events. Guidelines from the American Society of Clinical
Oncology, National Comprehensive Cancer Network, Oncology Nursing
Society, Infectious Diseases Society of America, and other professional
societies recommend evidence-based interventions to prevent and treat
common side effects and complications of chemotherapy. Appropriate
outpatient care should reduce potentially avoidable hospital admissions
and ED visits for these issues and improve cancer patients' quality of
life.
---------------------------------------------------------------------------

\161\ Ibid.
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This measure aims to assess the care provided to cancer patients
and encourage quality improvement efforts to reduce the number of
unplanned inpatient admissions and ED visits among cancer patients
receiving chemotherapy in a PCH outpatient setting. Improved PCH
management of these potentially preventable symptoms--including anemia,
dehydration, diarrhea, emesis, fever, nausea, neutropenia, pain,
pneumonia, or sepsis--could reduce unplanned admissions and ED visits
for these conditions. Measuring unplanned admissions and ED visits for
cancer patients receiving outpatient chemotherapy would provide PCHs
with an incentive to improve the quality of care for these patients by
taking steps to prevent and better manage side effects and
complications from treatment. In addition, this measure meets two
National Quality Strategy priorities: (1) Promoting effective
communication and coordination of care; and (2) promoting the most
effective prevention and treatment practices for the leading causes of
mortality.
We are proposing to adopt this measure under the exception
authority in section 1866(k)(3)(B) of the Act under which, in the case
of a specified area or medical topic determined appropriate by the
Secretary for which a feasible and practical measure has not been
endorsed by the entity with a contract under section 1890(a) of the
Act, the Secretary may specify a measure that is not so endorsed as
long as due consideration is given to measures that have been endorsed
or adopted by a consensus organization. Existing measures that the NQF
has endorsed focus on processes of care related to outpatient cancer
care.
This proposed measure aligns with the intent of two process
measures we adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR
50842 through 50843) for FY 2016 and subsequent years: (1) Clinical
Process/Oncology Care--Plan of Care for Pain (NQF #0383); and (2)
Clinical Process/Oncology: Medical and Radiation--Pain Intensity
Quantified (NQF #0384). Process measures NQF #0383 and NQF #0384, which
are not risk-adjusted, support the intent of the proposed measure by
reinforcing that providers of outpatient care should

[[Page 25208]]

screen for and manage symptoms such as pain. The proposed measure
improves upon these two measures in two key ways: (1) It does not
target a specific symptom, but rather assesses the overall management
of 10 important symptoms that studies have identified as frequent
reasons for ED visits and inpatient admissions in this population; and
(2) it assesses the care outcomes that matter to patients, rather than
measuring processes to detect and treat these conditions. Also, we are
not aware of any other measures a consensus organization has endorsed
or adopted that assess the quality of outpatient cancer care by
measuring unplanned inpatient admissions and ED visits.
The MAP supported this measure on the condition that it is reviewed
and endorsed by NQF. We refer readers to the Spreadsheet of MAP 2016
Final Recommendations available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593. In particular, MAP
members recommended considering the measure for sociodemographic status
(SDS) adjustment in the ongoing NQF trial period and reviewing it to
ensure that the detailed specifications meet the intent of the measure
and align with current cancer care practice.
We understand the important role that SDS plays in the care of
patients. However, we continue to have concerns about holding hospitals
to different standards for the outcomes of their patients of diverse
sociodemographic status because we do not want to mask potential
disparities or minimize incentives to improve the outcomes of
disadvantaged populations. We routinely monitor the impact of
sociodemographic status on hospitals' results on our measures.
The NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
expected to submit information such as analyses and interpretations as
well as performance scores with and without sociodemographic factors in
the risk adjustment model. We submitted this measure to NQF with
appropriate consideration for SDS for endorsement proceedings as part
of the NQF Cancer Consensus Development Project in March 2016 and it is
currently undergoing review. However, the measure we are proposing to
adopt at this time for the PCHQR Program does not include this
adjustment.
Furthermore, the Office of the Assistant Secretary for Planning and
Evaluation (ASPE) is conducting research to examine the effect of
socioeconomic, demographic, and other characteristics on quality
measures, resource use, and other measures in the Medicare program, as
directed by the IMPACT Act. We will closely examine the findings of the
ASPE reports and related Secretarial recommendations and consider how
they apply to our quality programs at such time as they are available.
In addition, several MAP members noted the alignment of this
measure concept with other national priorities, such as improving
patient experience, and other national initiatives to improve cancer
care, as well as the importance of this measure to raise awareness and
create a feedback loop with providers.
This Admissions and Emergency Department (ED) Visits for Patients
Receiving Outpatient Chemotherapy measure is a risk-standardized
outcome measure for patients age 18 years or older who are receiving
PCH-based outpatient chemotherapy treatment for all cancer types except
leukemia; it measures inpatient admissions or ED visits within 30 days
of each outpatient chemotherapy encounter for any of the following
qualifying diagnoses: anemia, dehydration; diarrhea; emesis; fever;
nausea; neutropenia; pain; pneumonia; or sepsis, as these are
associated with commonly cited reasons for hospital visits among cancer
patients receiving chemotherapy.\162\
---------------------------------------------------------------------------

\162\ Hassett, M.J., J. O'Malley, J.R. Pakes, J.P. Newhouse, and
C.C. Earle. ``Frequency and Cost of Chemotherapy-Related Serious
Adverse Effects in a Population Sample of Women with Breast
Cancer.'' Journal of the National Cancer Institute, Vol. 98, No. 16,
2006, pp. 1108-1117.
---------------------------------------------------------------------------

The proposed measure uses 1 year of Medicare FFS Part A and Part B
administrative claims data with respect to beneficiaries receiving
chemotherapy treatment in a PCH outpatient setting. The qualifying
diagnosis on the admission or ED visit claim must be (1) the primary
diagnosis or (2) a secondary diagnosis accompanied by a primary
diagnosis of cancer.
We limited the window for identifying the outcomes of admissions
and ED visits to 30 days after PCH outpatient chemotherapy treatment
encounters, as existing literature suggests the vast majority of
adverse events occur within that time frame ^{163 164 165} and
we also observed this during testing. In addition, the technical expert
panel (TEP) supported this time window because: (1) It helps link
patients' experiences to the facilities that provided their recent
treatment while accounting for variations in time between outpatient
treatment encounters; (2) it supports the idea that the admission is
related to the management of side effects of treatment and ongoing
care, as opposed to progression of the disease or other unrelated
events; and (3) clinically, 30 days after each outpatient chemotherapy
treatment is a reasonable timeframe to observe related side effects.
---------------------------------------------------------------------------

\163\ Aprile, G., F.E. Pisa, A. Follador, L. Foltran, F. De
Pauli, M. Mazzer, S. Lutrino, C.S. Sacco, M. Mansutti, and G.
Fasola. ``Unplanned Presentations of Cancer Outpatients: A
Retrospective Cohort Study.'' Supportive Care in Cancer, Vol. 21,
No. 2, 2013, pp. 397-404.
\164\ Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora, N. Pella,
E. Iaiza, E. Poletto, SE. Lutrino, M. Mazzer, M. Giovannoni, G.G.
Cardellino, F. Puglisi, and G. Fasola. ``Risk of Unplanned Visits
for Colorectal Cancer Outpatients Receiving Chemotherapy: A Case-
Crossover Study.'' Supportive Care in Cancer, Vol. 22, No. 9, 2014,
pp. 2527-2533.
\165\ McKenzie, H., L. Hayes, K. White, K. Cox, J. Fethney, M.
Boughton, and J. Dunn. ``Chemotherapy Outpatients' Unplanned
Presentations to Hospital: A Retrospective Study.'' Supportive Care
in Cancer, Vol. 19, No. 7, 2011, pp. 963-969.
---------------------------------------------------------------------------

The measure identifies outcomes separately for the inpatient and ED
measures. A patient can qualify only once for one of the two outcomes
in each measurement period. If patients experience both an inpatient
admission and an ED visit after outpatient chemotherapy during the
measurement period, the measure counts them toward the inpatient
admission outcome because this outcome represents a more significant
deterioration in patient quality of life, and is more costly. Among
those with no qualifying inpatient admissions, the measure counts
qualifying standalone ED visits. As a result, the rates provide a
comprehensive performance estimate of quality of care. We calculate the
rates separately because the severity and cost of an inpatient
admission differ from those of an ED visit, but both adverse events are
significant quality indicators and represent outcomes of care that are
important to patients.
The measure attributes the outcome to the PCH where the patient
received chemotherapy treatment during the 30 days before the outcome.
If a patient received outpatient chemotherapy treatment from more than
one PCH in the 30 days before the outcome, the measure would attribute
the outcome to all the PCHs that provided treatment. For example, if a
patient received an

[[Page 25209]]

outpatient chemotherapy treatment at PCH A on January 1, a second
treatment at PCH B on January 10, and then experienced a qualifying
inpatient admission on January 15, the measure would count this outcome
for both PCH A and PCH B because both PCHs provided outpatient
chemotherapy treatment to the patient within the 30-day window.
However, if a patient received an outpatient chemotherapy treatment
from PCH A on January 1, and a second treatment from PCH B on March 1,
and then experienced a qualifying inpatient admission on March 3, the
measure would attribute this outcome only to PCH B. In measure testing,
using Medicare FFS claims data from July 1, 2012, to June 30, 2013,
only 5 percent of patients in the cohort received outpatient
chemotherapy treatment from more than one facility during that year.
For additional methodology details, including the code sets used to
identify the qualifying outcomes, we refer readers to the CMS Web site
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html under
``Hospital Outpatient Chemotherapy.''
This measure includes all adult Medicare FFS patients because this
would enable us to more broadly assess the quality of care provided by
the PCH.
This measure focuses on treatments in the PCH outpatient setting
because of the increase in hospital-based chemotherapy, which presents
an opportunity to coordinate care. From 2008 to 2012, the proportion of
Medicare patients receiving hospital-based outpatient chemotherapy
increased from 18 to 29 percent, and this trend is likely to continue.
As currently specified, the measure identifies chemotherapy treatment
using ICD-9-CM procedure and encounter codes and Current Procedural
Terminology (CPT)/Healthcare Common Procedure Coding System (HCPCS)
procedure and medication procedure codes. It excludes procedure codes
for oral chemotherapy because it is challenging to identify oral
chemotherapy without using pharmacy claims data and, according to our
TEP, most oral chemotherapies have fewer adverse reactions that result
in admissions. We have developed a ``coding crosswalk'' between the
ICD-9-CM codes and the ICD-10 codes that became effective beginning on
October 1, 2015, and we will test this crosswalk prior to
implementation. For detailed information on the cohort definition,
including the ICD-9-CM, ICD-10, CPT, and HCPCS codes that identify
chemotherapy treatment, we refer readers to the Data Dictionary
appendix to the measure Technical Report at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html under ``Hospital
Outpatient Chemotherapy.''
The measure excludes three groups of patients: (1) Patients with a
diagnosis of leukemia at any time during the measurement period because
of the high toxicity of treatment and recurrence of disease, and
because inpatient admissions and ED visits may reflect a relapse,
rather than poorly managed outpatient care; (2) patients who were not
enrolled in Medicare FFS Parts A and B in the year before the first
outpatient chemotherapy treatment encounter during the measurement
period (because the risk-adjustment model uses claims data for the year
before the first chemotherapy treatment encounter during the period to
identify comorbidities); and (3) patients who do not have at least one
outpatient chemotherapy treatment encounter followed by continuous
enrollment in Medicare FFS Parts A and B in the 30 days after the
encounter (because the measure cannot assess the 30-day outcome in this
group since it uses claims data to determine whether a patient had an
ED visit or a hospital inpatient admission).
Risk adjustment takes into account important demographic and
clinically-relevant patient characteristics that have strong
relationships with the outcome. It seeks to adjust for differences in
patient demographics, clinical comorbidities, and treatment exposure,
which vary across patient populations and influence the outcome but do
not relate to quality. Specifically, the measure adjusts for: (1) The
patient's age at the start of the measurement period; (2) sex; (3)
comorbidities that convey information about the patient in the 12
months before his or her first outpatient chemotherapy treatment
encounter during the measurement period; (4) cancer type; and (5) the
number of outpatient chemotherapy treatments the patient received at
the reporting PCH during the measurement period.
We developed two risk-adjustment models, one for each dependent
variable described above--qualifying inpatient admissions and
qualifying ED visits. The separate models are necessary to enable the
use of the most parsimonious model with variables tailored to those
that are most predictive for each of the measure's two mutually
exclusive outcomes. The measure algorithm first searches for a
qualifying inpatient admission, and for those patients that do not have
a qualifying inpatient admission, searches for a qualifying ED visit.
Therefore, the patient-mix and predictive risk factors for each outcome
is slightly different. The statistical risk-adjustment model for
inpatient admissions includes 20 clinically relevant risk-adjustment
variables that are strongly associated with the risk of one or more
hospital admissions within 30 days following an outpatient chemotherapy
treatment encounter in a hospital outpatient setting; the statistical
risk-adjustment model for ED visits includes 15 clinically relevant
risk-adjustment variables that are strongly associated with risk of one
or more ED visits within 30 days following an outpatient chemotherapy
treatment encounter in a hospital outpatient setting (3 comorbidities
and 2 cancer types significant for inpatient admissions are not
significant for ED visits).
The measure uses hierarchical logistic modeling, similar to the
approach used in the CMS inpatient hospital 30-day risk-standardized
mortality and readmission outcome measures, such as the Hospital 30-
Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute
Myocardial Infarction (AMI) Hospitalization.\166\ This approach
appropriately accounts for both differences in patient-mix and the
clustering of observations within PCHs. The measure calculates the PCH-
specific risk-adjusted rate as the ratio of the PCH's ``predicted''
number of outcomes to ``expected'' number of outcomes multiplied by the
national observed outcome rate. It estimates the expected number of
outcomes for each PCH using the PCH's patient-mix and the average PCH-
specific intercept (that is, the average intercept among all PCHs in
the sample). The measure estimates the predicted number of outcomes for
each PCH using the same patient-mix, but an estimated PCH-specific
intercept.
---------------------------------------------------------------------------

\166\ Methodology reports for these measures are available at
the following link: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

The measure calculates two rates, one for each mutually exclusive
outcome (qualifying inpatient admissions and qualifying ED visits). It
derives the two rates (also referred to as the PCH-level risk-
standardized admission rate (RSAR) and risk-standardized ED visit rate
(RSEDR)), from the ratio of the numerator to the denominator multiplied
by the national observed rate. The numerator is the number of predicted
(meaning adjusted actual) patients with the measured adverse outcome.
The denominator is the

[[Page 25210]]

number of patients with the measured adverse outcome the PCH is
expected to have based on the national performance with the PCH's case
mix. The national observed rate is the national unadjusted number of
patients who have an adverse outcome among all the qualifying patients
who had at least one chemotherapy treatment encounter in a PCH. If the
``predicted'' number of outcomes is higher (or lower) than the
``expected'' number of outcomes for a given hospital, the risk-
standardized rate will be higher (or lower) than the national observed
rate.
For more detailed information on the calculation methodology, we
refer readers to the methodology report at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html under ``Hospital
Outpatient Chemotherapy.''
We would publicly report the RSAR and RSEDR for all participating
PCHs with 25 or more eligible patients per measurement period to
maintain a reliability of at least 0.4 (as measured by the interclass
correlation coefficient, ICC). If a PCH does not meet the 25 eligible
patient threshold, we would include a footnote on the Hospital Compare
Web site indicating that the number of cases is too small to reliably
measure that PCH's rate. These patients and PCHs would still be
included when calculating the national rates for both the RSAR and
RSEDR.
To prepare PCHs for public reporting, we would conduct a
confidential national reporting (dry run) of measure results prior to
public reporting. The objectives of the dry run are to: (1) Educate
PCHs and other stakeholders about the measure; (2) allow PCHs to review
their measure results and data prior to public reporting; (3) answer
questions from PCHs and other stakeholders; (4) test the production and
reporting process; and (5) identify potential technical changes to the
measure specifications that might be needed. We have not yet determined
the measurement period to use for the dry run calculations, but
acknowledge the importance of including some data based on ICD-10 codes
to evaluate the success of the ``coding crosswalk.''
We are inviting public comment on our proposal to adopt the
Admissions and Emergency Department (ED) Visits for Patients Receiving
Outpatient Chemotherapy measure for the FY 2019 program year and
subsequent years.
In summary, the previously finalized and newly proposed measures
for the PCHQR Program for the FY 2019 program year and subsequent years
are listed in the table below.

Previously Finalized and Proposed PCHQR Measures for the FY 2019 Program
Year and Subsequent Years
------------------------------------------------------------------------
Short name NQF No. Measure name
------------------------------------------------------------------------
Safety and Healthcare-Associated Infection (HAI)
------------------------------------------------------------------------
CLABSI......................... 0139 National Healthcare
Safety Network (NHSN)
Central Line-
Associated Bloodstream
Infection Outcome
Measure.
CAUTI.......................... 0138 National Healthcare
Safety Network (NHSN)
Catheter-Associated
Urinary Tract
Infections Outcome
Measure.
SSI............................ 0753 American College of
Surgeons--Centers for
Disease Control and
Prevention (ACS-CDC)
Harmonized Procedure
Specific Surgical Site
Infection (SSI)
Outcome Measure
[currently includes
SSIs following Colon
Surgery and Abdominal
Hysterectomy Surgery].
CDI............................ 1717 National Healthcare
Safety Network (NHSN)
Facility[dash]wide
Inpatient Hospital-
onset Clostridium
difficile Infection
(CDI) Outcome Measure.
MRSA........................... 1716 National Healthcare
Safety Network (NHSN)
Facility[dash]wide
Inpatient Hospital-
onset
Methicillin[dash]resis
tant Staphylococcus
aureus Bacteremia
Outcome Measure.
HCP............................ 0431 Influenza Vaccination
Coverage Among
Healthcare Personnel.
------------------------------------------------------------------------
Clinical Process/Cancer Specific Treatment
------------------------------------------------------------------------
N/A............................ 0223 Adjuvant Chemotherapy
is Considered or
Administered Within 4
Months (120 days) of
Diagnosis to Patients
Under the Age of 80
with AJCC III (lymph
node positive) Colon
Cancer.
N/A............................ 0559 Combination
Chemotherapy is
Considered or
Administered Within 4
Months (120 days) of
Diagnosis for Women
Under 70 with AJCC
T1cN0M0, or Stage IB--
III Hormone Receptor
Negative Breast
Cancer. ***
N/A............................ 0220 Adjuvant Hormonal
Therapy.
------------------------------------------------------------------------
Clinical Process/Oncology Care Measures
------------------------------------------------------------------------
N/A............................ 0382 Oncology: Radiation
Dose Limits to Normal
Tissues. *
N/A............................ 0383 Oncology: Plan of Care
for Pain--Medical
Oncology and Radiation
Oncology.
N/A............................ 0384 Oncology: Medical and
Radiation--Pain
Intensity Quantified.
N/A............................ 0390 Prostate Cancer:
Adjuvant Hormonal
Therapy for High Risk
Prostate Cancer
Patients.
N/A............................ 0389 Prostate Cancer:
Avoidance of Overuse
of Bone Scan for
Staging Low Risk
Prostate Cancer
Patients.
------------------------------------------------------------------------
Patient Engagement/Experience of Care
------------------------------------------------------------------------
HCAHPS......................... 0166 HCAHPS.
------------------------------------------------------------------------
Clinical Effectiveness Measure
------------------------------------------------------------------------
EBRT........................... 1822 External Beam
Radiotherapy for Bone
Metastases.
------------------------------------------------------------------------

[[Page 25211]]

Claims Based Outcome Measure
------------------------------------------------------------------------
N/A............................ N/A Admissions and
Emergency Department
(ED) Visits for
Patients Receiving
Outpatient
Chemotherapy. **
------------------------------------------------------------------------
* Proposed for update in FY 2019 program year.
** Newly proposed for FY 2019 program year.
*** In previous final rules, this measure was titled ``Combination
Chemotherapy is Considered or Administered Within 4 months (120 days)
of Diagnosis for Women Under 70 with AJCC T1c, or Stage II or III
Hormones Receptor Negative Breast Cancer. This name change is
consistent with NQF updates to the measure name and reflects an update
in the AJCC staging, does not reflect a change in the measure
inclusion criteria, and is not considered substantive.

5. Possible New Quality Measure Topics for Future Years
We discussed future quality measure topics and quality measure
domain areas in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50280), and
in the FY 2016 IPPS/LTCH PPS final rule (80 FR4979), we discussed
public comment and specific suggestions for measure topics addressing
the following CMS Quality Strategy domains: Making care affordable;
communication and coordination; and working with communities to promote
best practices of healthy living. We welcome public comment and
specific suggestions for measure topics that we should consider for
future rulemaking.
6. Maintenance of Technical Specifications for Quality Measures
We maintain technical specifications for the PCHQR Program
measures, and we periodically update those specifications. The
specifications may be found on the QualityNet Web site at: https://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228774479863.
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50281), we adopted a
policy under which we use a subregulatory process to make
nonsubstantive updates to measures used for the PCHQR Program. We are
not proposing any changes to this policy in this proposed rule.
7. Public Display Requirements
a. Background
Under section 1866(k)(4) of the Act, we are required to establish
procedures for making the data submitted under the PCHQR Program
available to the public. Such procedures must ensure that a PCH has the
opportunity to review the data that are to be made public with respect
to the PCH prior to such data being made public. Section 1866(k)(4) of
the Act also provides that the Secretary must report quality measures
of process, structure, outcome, patients' perspective on care,
efficiency, and costs of care that relate to services furnished in such
hospitals on the CMS Web site. The measures that we have finalized for
public display are shown in the table below.

Previously Finalized Measures for Public Display
------------------------------------------------------------------------
Measure name First year of public display
------------------------------------------------------------------------
Adjuvant Chemotherapy is 2014
Considered or Administered Within
4 Months (120 days) of Diagnosis
to Patients Under the Age of 80
with AJCC III (lymph node
positive) Colon Cancer (NQF #0223).
Combination Chemotherapy
is Considered or Administered
Within 4 Months (120 days) of
Diagnosis for Women Under 70 with
AJCC T1c, or Stage II or III
Hormone Receptor Negative Breast
Cancer (NQF #0559).
Adjuvant Hormonal Therapy 2015
(NQF #0220).
Oncology: Radiation Dose 2016
Limits to Normal Tissues (NQF
#0382).
Oncology: Oncology: Plan
of Care for Pain--Medical Oncology
and Radiation Oncology (NQF #0383).
Oncology: Oncology:
Medical and Radiation--Pain
Intensity Quantified (NQF #0384).
Prostate Cancer: Adjuvant
Hormonal Therapy for High Risk
Prostate Cancer Patients (NQF
#0390).
Prostate Cancer: Avoidance
of Overuse of Bone Scan for
Staging Low Risk Prostate Cancer
Patients (NQF #0389).
HCAHPS (NQF #0166)........
CLABSI (NQF #0139)........ No Later Than 2017.
CAUTI (NQF #0138).........
------------------------------------------------------------------------

b. Proposed Additional Public Display Requirements
As we strive to publicly display data as soon as possible on a CMS
Web site, we are proposing the following update to our public display
polices. We believe it is best to not specify in rulemaking the exact
timeframe during the year for publication as doing so may prevent
earlier publication. We are proposing, then, to make these data
available as soon as it is feasible during the year, starting with the
first year for which we are publishing data for each measure. We will
continue to propose in rulemaking the first year for which we intend to
publish data for each measure. We intend to make the data available on
at least a yearly basis.
As stated above, we are required to give PCHs an opportunity to
review their data before the data are made public. Because we are
proposing to make the data for this program available as soon as
possible, and the timeframe for this publication may change year-to-
year, we are not proposing to specify in rulemaking the exact dates for
review. However, we are proposing that the time period for review would
be approximately 30 days in length. We are proposing to announce the
exact timeframes on a CMS Web site and/or on our applicable listservs.

[[Page 25212]]

We welcome public comments on these updates to our public display
and preview policies.
c. Proposed Public Display of Additional PCHQR Measure
We are proposing to publicly display one additional PCHQR measure
beginning with FY 2017 program year data (which is data collected
during CY 2015). This proposal would mean that we would display the
measure data during CY 2017, and that we would use a CMS Web site and/
or our applicable listservs to announce the exact timeframe. This
measure is External Beam Radiotherapy for Bone Metastases (NQF #1822),
which we adopted in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50278
through 50280). We believe that it is important to share data collected
under the PCHQR Program with healthcare consumers through publication
on public Web sites to help inform healthcare choices. We intend to
make this data publicly available at the first opportunity.
We welcome public comment on our proposal to display this measure
beginning with the FY 2017 program year data and for subsequent years.
d. Proposed Public Display of Updated Measure
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49720 through
49722), we finalized public display of the Oncology: Radiation Dose
Limits to Normal Tissues measure in 2016 and subsequent years. If our
proposal to update this measure (described in section VIII.B.3.b. of
the preamble of this proposed rule) is finalized, we are proposing to
begin displaying on Hospital Compare data using the updated measure
cohort as soon as feasible after the updated data is collected in CY
2017. We intend to denote the cohort expansion on Hospital Compare to
ensure that consumers are informed about the expansion.
We welcome public comment on our proposals regarding public display
of this updated measure.
e. Proposed Postponement of Public Display of Two Measures
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50281 through
50282), we finalized public display of the CLABSI and CAUTI measures
beginning no later than 2017 and subsequent years. However, at this
time, we are proposing to defer the public reporting of these two
measures' data. At present, all PCHs are reporting CLABSI and CAUTI
data to the NHSN under the PCHQR Program; however, due to the low
volume of data produced and reported by this small number of
facilities, we need additional time to work with CDC to identify an
appropriate timeframe for public reporting and collaborate on the
analytic methods that will be used to summarize the CLABSI and CAUTI
data for public reporting purposes.
We are inviting public comment on our proposal to defer the public
reporting of the CLABSI and the CAUTI measures.
Our previously finalized and proposed public display requirements
are summarized in the table below.

Previously Finalized and Proposed Public Display Requirements
------------------------------------------------------------------------
Measures Public reporting
------------------------------------------------------------------------
Summary of Finalized and Proposed Public Display Requirements
------------------------------------------------------------------------
Adjuvant Chemotherapy is 2014 and subsequent years.
Considered or Administered Within
4 Months (120 days) of Diagnosis
to Patients Under the Age of 80
with AJCC III (lymph node
positive) Colon Cancer (NQF #0223).
Combination Chemotherapy
is Considered or Administered
Within 4 Months (120 days) of
Diagnosis for Women Under 70 with
AJCC T1cN0M0, or Stage IB--III
Hormone Receptor Negative Breast
Cancer (NQF #0559).
Adjuvant Hormonal Therapy 2015 and subsequent years.
(NQF #0220).
Oncology: Radiation Dose
Limits to Normal Tissues (NQF
#0382).*
Oncology: Plan of Care for
Pain--Medical Oncology and
Radiation Oncology (NQF #0383).
Oncology: Medical and 2016 and subsequent years.
Radiation--Pain Intensity
Quantified (NQF #0384).
Prostate Cancer: Adjuvant
Hormonal Therapy for High Risk
Prostate Cancer Patients (NQF
#0390).
Prostate Cancer: Avoidance
of Overuse of Bone Scan for
Staging Low Risk Prostate Cancer
Patients (NQF #0389).
HCAHPS (NQF #0166)........
CLABSI (NQF #0139).**
CAUTI (NQF #0138) **...... Deferred.
External Beam Radiotherapy Beginning at the first opportunity
for Bone Metastases (NQF #1822) in 2017 and for subsequent years.
***.
------------------------------------------------------------------------
* Update proposed for display for the FY 2019 program year and
subsequent years in this proposed rule--expanded cohort will be
displayed as soon as feasible.
** Deferral proposed in this proposed rule.
*** Measure newly proposed for public display in this proposed rule.

8. Form, Manner, and Timing of Data Submission
Section 1866(k)(2) of the Act requires that, beginning with the FY
2014 PCHQR program year, each PCH must submit to the Secretary data on
quality measures specified under section 1866(k)(3) of the Act in a
form and manner, and at a time, as specified by the Secretary.
Data submission requirements and deadlines for the PCHQR Program
are generally posted on the QualityNet Web site at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772864228.
The newly proposed measure for FY 2019 (Admissions and Emergency
Department (ED) Visits for Patients Receiving Outpatient Chemotherapy)
is a claims-based measure; therefore, there are no additional data
submission requirements for this measure. As this measure uses 1 year
of Medicare administrative claims data, we are proposing to calculate
this measure on a yearly basis, beginning with data from July 1, 2016
through June 30, 2017, and then to calculate the measure for

[[Page 25213]]

subsequent years using data from July 1 through June 30.
We are not proposing any changes to previously finalized data
submission requirements in this proposed rule.
9. Exceptions From PCHQR Program Requirements
In our experience with other quality reporting and performance
programs, we have noted occasions when providers have been unable to
submit required quality data due to extraordinary circumstances that
are not within their control (for example, natural disasters). We do
not wish to increase their burden unduly during these times. Therefore,
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50848), we finalized our
policy that, for the FY 2014 program rear and subsequent years, PCHs
may request and we may grant exceptions (formerly referred to as
waivers) with respect to the reporting of required quality data when
extraordinary circumstances beyond the control of the PCH warrant. When
exceptions are granted, we will notify the respective PCH.
We are not proposing any changes to this PCHQR exception process in
this proposed rule.

C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

1. Background and Statutory Authority
We seek to promote higher quality and more efficient health care
for Medicare beneficiaries, and our efforts are furthered by quality
reporting programs coupled with public reporting of that information.
Section 3004(a) of the Affordable Care Act amended section
1886(m)(5) of the Act, requiring the Secretary to establish the Long-
Term Care Hospital Quality Reporting Program (LTCH QRP). The LTCH QRP
applies to all hospitals certified by Medicare as LTCHs. Beginning with
the FY 2014 payment determination and subsequent years, the Secretary
is required to reduce any annual update to the LTCH PPS standard
Federal rate for discharges occurring during such fiscal year by 2
percentage points for any LTCH that does not comply with the
requirements established by the Secretary. Section 1886(m)(5) of the
Act requires that for the FY 2014 payment determination and subsequent
years, each LTCH submit data on quality measures specified by the
Secretary in a form and manner, and at a time, specified by the
Secretary. For more information on the statutory history of the LTCH
QRP, we refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR
50286).
The Improving Medicare Post-Acute Care Transformation Act of 2014
(IMPACT Act) imposed new data reporting requirements for certain post-
acute care (PAC) providers, including LTCHs. For information on the
statutory background of the IMPACT Act, we refer readers to the FY 2016
IPPS/LTCH PPS final rule (80 FR 49723 through 49724).
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49723 through
49728), we reviewed and finalized the activities and the timeline and
sequencing of such activities that would occur under the LTCH QRP. In
addition, we established our approach for identifying cross-cutting
measures and process for the adoption of measures, including the
application and purpose of the Measures Application Partnership (MAP)
and the notice-and-comment rulemaking process. For information on these
topics, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR
49723).
2. General Considerations Used for Selection of Quality, Resource Use,
and Other Measures for the LTCH QRP
For a detailed discussion of the considerations we use for the
selection of LTCH QRP quality measures, such as alignment with the CMS
Quality Strategy,\167\ which incorporates the three broad aims of the
National Quality Strategy,\168\ we refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50286 through 50287) and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49728). Overall, we strive to promote high
quality and efficiency in the delivery of health care to the
beneficiaries we serve. Performance improvement leading to the highest
quality health care requires continuous evaluation to identify and
address performance gaps and reduce the unintended consequences that
may arise in treating a large, vulnerable, and aging population.
Quality reporting programs, coupled with public reporting of quality
information, are critical to the advancement of health care quality
improvement efforts. Valid, reliable, relevant quality measures are
fundamental to the effectiveness of our quality reporting programs.
Therefore, selection of quality measures is a priority for CMS in all
of its quality reporting programs.
---------------------------------------------------------------------------

\167\ http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
\168\ http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm.
---------------------------------------------------------------------------

In this proposed rule, we are proposing to adopt for the LTCH QRP
one measure that we are specifying under section 1899B(c)(1) of the Act
to meet the Medication Reconciliation domain, that is, Drug Regimen
Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP.
Further, we are proposing for the LTCH QRP to adopt three measures in
order to meet the resource use and other measure domains identified in
section 1899B(d)(1) of the Act. These measures consist of: (1) Total
Estimated Medicare Spending Per Beneficiary (MSPB): MSPB-PAC LTCH QRP;
(2) Discharge to Community: Discharge to Community-PAC LTCH QRP; and
(3) Measures to reflect all-condition risk-adjusted potentially
preventable hospital readmission rates: Potentially Preventable 30-Day
Post-Discharge Readmission Measure for LTCH QRP.
In our selection and specification of measures, we employ a
transparent process in which we seek input from stakeholders and
national experts and engage in a process that allows for pre-rulemaking
input on each measure, as required by section 1890A of the Act. To meet
this requirement, we provided the following opportunities for
stakeholder input: Our measure development contractor convened
technical expert panels (TEPs) that included stakeholder experts and
patient representatives on July 29, 2015, for the Drug Regimen Review
Conducted with Follow-Up for Identified Issues measures; on August 25,
2015, September 25, 2015, and October 5, 2015, for the Discharge to
Community measures; on August 12 and 13, 2015, and October 14, 2015 for
the Potentially Preventable 30-Day Post-Discharge Readmission Measures;
and on October 29 and 30, 2015, for the Medicare Spending Per
Beneficiary measures. In addition, we released draft quality measure
specifications for public comment for the Drug Regimen Review Conducted
with Follow-Up for Identified Issues measures from September 18, 2015,
to October 6, 2015; for the Discharge to Community measures from
November 9, 2015, to December 8, 2015; for the Potentially Preventable
30-Day Post-Discharge Readmission Measures from November 2, 2015 to
December 1, 2015; and for the Medicare Spending Per Beneficiary
measures from January 13, 2016 to February 5, 2016. We implemented a
public mailbox, [email protected], for the submission of
public comments. This PAC mailbox is accessible on our post-acute care
quality initiatives Web site at: https://www.cms.gov/Medicare/Quality-
Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-
Initiatives/IMPACT-

[[Page 25214]]

Act-of-2014-and-Cross-Setting-Measures.html.
In addition, we sought public input from the MAP Post-Acute Care,
Long-Term Care Workgroup during the annual in-person meeting held
December 14 and 15, 2015. The MAP is composed of multi-stakeholder
groups convened by the NQF, our current contractor under section
1890(a) of the Act, tasked to provide input on the selection of quality
and efficiency measures described in section 1890(b)(7)(B) of the Act.
The MAP reviewed each IMPACT Act-related measure proposed in this
proposed rule for use in the LTCH QRP. For more information on the
MAP's recommendations, we refer readers to the MAP 2016 Final
Recommendations to HHS and CMS public report at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
For measures that do not have NQF endorsement, or which are not
fully supported by the MAP for use in the LTCH QRP, we are proposing
for the LTCH QRP for the purposes of satisfying the measure domains
required under the IMPACT Act measures that closely align with the
national priorities identified in the National Quality Strategy (http://www.ahrq.gov/workingforquality/) and for which the MAP supports the
measure concept. Further, discussion as to the importance and high-
priority status of these proposed measures in the LTCH setting is
included under each quality measure proposal in this proposed rule.
3. Policy for Retention of LTCH QRP Measures Adopted for Previous
Payment Determinations
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through
53615), for the purpose of streamlining the rulemaking process, we
adopted a policy that, when we initially adopt a measure for the LTCH
QRP for a payment determination and all subsequent years, it would
remain in effect until the measure was actively removed, suspended, or
replaced. For further information on how measures are considered for
removal, suspension, or replacement, we refer readers to the FY 2013
IPPS/LTCH PPS final rule (77 FR 53614 through 53615).
We are not proposing any changes to the policy for retaining LTCH
QRP measures adopted for previous payment determinations.
4. Policy for Adopting Changes to LTCH QRP Measures
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through
53616), we adopted a subregulatory process to incorporate NQF updates
to LTCH quality measure specifications that do not substantively change
the nature of the measure. Substantive changes will be proposed and
finalized through rulemaking. For further information on what
constitutes a substantive versus a nonsubstantive change and the
subregulatory process for nonsubstantive changes, we refer readers to
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 53616). We
are not proposing any changes to the policy for adopting changes to
LTCH QRP measures.
5. Quality Measures Previously Finalized for and Currently Used in the
LTCH QRP
A history of the LTCH QRP quality measures adopted for the FY 2014
payment determinations and subsequent years is presented in the table
below. The year in which each quality measure was first adopted and
implemented, and then subsequently readopted or revised, if applicable,
is displayed. The initial and subsequent annual payment determination
years are also shown in this table. For more information on a
particular measure, we refer readers to the IPPS/LTCH PPS final rule
and associated page numbers referenced in this table.

Quality Measures Previously Finalized for and Currently Used in the LTCH QRP
----------------------------------------------------------------------------------------------------------------
Annual payment
Measure title IPPS/LTCH PPS Final rule Data collection determination: initial and
start date subsequent APU Years
----------------------------------------------------------------------------------------------------------------
National Healthcare Safety Adopted an application of October 1, 2012.... FY 2014 and subsequent years.
Network (NHSN) Catheter- the measure in the FY
Associated Urinary Tract 2012 IPPS/LTCH PPS final
Infection (CAUTI) Outcome rule (76 FR 51745
Measure (NQF #0138). through 51747).
Adopted the January 1, 2013.... FY 2015 and subsequent years.
NQF[dash]endorsed
version and expanded
measure (with
standardized infection
ratio [SIR]) in the FY
2013 IPPS/LTCH PPS final
rule (77 FR 53616
through 53619).
National Healthcare Safety Adopted an application of October 1, 2012.... FY 2014 and subsequent years.
Network (NHSN) Central Line- the measure in the FY
Associated Bloodstream Infection 2012 IPPS/LTCH PPS final
(CLABSI) Outcome Measure (NQF rule (76 FR 51747
#0139). through 51748).
Adopted the January 1, 2013.... FY 2015 and subsequent years.
NQF[dash]endorsed and
expanded measure (with
SIR) in the FY 2013 IPPS/
LTCH PPS final rule (77
FR 53616 through 53619).
Percent of Residents or Patients Adopted an application of October 1, 2012.... FY 2014 and subsequent years.
with Pressure Ulcers That Are the measure in the FY
New or Worsened (Short Stay) 2012 IPPS/LTCH PPS final
(NQF #0678). rule (76 FR 51748
through 51750).
Adopted the January 1, 2013.... FY 2015 and subsequent years.
NQF[dash]endorsed
version in the FY 2014
IPPS/LTCH PPS final rule
(78 FR 50861 through
50863).
Adopted in the FY 2016 January 1, 2016.... FY 2018 and subsequent years.
IPPS/LTCH PPS final rule
(80 FR 49731 through
49736) to fulfill IMPACT
Act requirements.

[[Page 25215]]

Percent of Residents or Patients Adopted in the FY 2013 January 1, 2014.... FY 2016 and subsequent years.
Who Were Assessed and IPPS/LTCH PPS final rule
Appropriately Given the Seasonal (77 FR 53624 through
Influenza Vaccine (Short Stay) 53627).
(NQF #0680).
Revised data collection October 1, 2014.... FY 2016 and subsequent years.
timeframe in the FY 2014
IPPS/LTCH PPS final rule
(78 FR 50858 through
50861).
Revised data collection October 1, 2014.... FY 2016 and subsequent years.
timeframe in the FY 2015
IPPS/LTCH PPS final rule
(79 FR 50289 through
50290).
Influenza Vaccination Coverage Adopted in the FY 2013 October 1, 2014.... FY 2016 and subsequent years.
among Healthcare Personnel (NQF IPPS/LTCH PPS final rule
#0431). (77 FR 53630 through
53631).
Revised data collection October 1, 2014.... FY 2016 and subsequent years.
timeframe in the FY 2014
IPPS/LTCH PPS final rule
(78 FR 50857 through
50858).
All-Cause Unplanned Readmission Adopted in FY 2014 IPPS/ N/A................ FY 2017 and subsequent years.
Measure for 30-Days Post- LTCH PPS final rule (78
Discharge from Long-Term Care FR 50868 through 50874).
Hospitals (NQF #2512).
Adopted the NQF-endorsed N/A................ FY 2018 and subsequent years.
version in the FY 2016
IPPS/LTCH PPS final rule
(80 FR 49730 through
49731).
National Healthcare Safety Adopted in the FY 2014 January 1, 2015.... FY 2017 and subsequent years.
Network (NHSN) Facility-wide IPPS/LTCH PPS final rule
Inpatient Hospital-onset (78 FR 50863 through
Methicillin-resistant 50865).
Staphylococcus aureus (MRSA)
Bacteremia Outcome Measure (NQF
#1716).
National Healthcare Safety Adopted in the FY 2014 January 1, 2015.... FY 2017 and subsequent years.
Network (NHSN) Facility-wide IPPS/LTCH PPS final rule
Inpatient Hospital-onset (78 FR 50865 through
Clostridium difficile Infection 50868).
(CDI) Outcome Measure (NQF
#1717).
National Healthcare Safety Adopted in the FY 2015 January 1, 2016.... FY 2018 and subsequent years.
Network (NHSN) Ventilator- IPPS/LTCH PPS final rule
Associated Event (VAE) Outcome (79 FR 50301 through
Measure (NQF #N/A). 50305).
Application of Percent of Adopted in the FY 2014 January 1, 2016.... FY 2018 and subsequent years.
Residents Experiencing One or IPPS/LTCH PPS final rule
More Falls with Major Injury (78 FR 50874 through
(Long Stay) (NQF #0674). 50877).
Revised data collection April 1, 2016...... FY 2018 and subsequent years.
timeframe in the FY 2015
IPPS/LTCH PPS final rule
(79 FR 50290 through
50291).
Adopted an application of April 1, 2016...... FY 2018 and subsequent years.
the measure in the FY
2016 IPPS/LTCH PPS final
rule (80 FR 49736
through 49739) to
fulfill IMPACT Act
requirements.
Percent of Long-Term Care Adopted in the FY 2015 April 1, 2016...... FY 2018 and subsequent years.
Hospital Patients with an IPPS/LTCH PPS final rule
Admission and Discharge (79 FR 50291 through
Functional Assessment and a Care 50298).
Plan That Addresses Function
(NQF #2631).
Application of Percent of Long- Adopted an application of April 1, 2016...... FY 2018 and subsequent years.
Term Care Hospital Patients with the measure in the FY
an Admission and Discharge 2016 IPPS/LTCH PPS final
Functional Assessment and a Care rule (80 FR 49739
Plan That Addresses Function through 49747) to
(NQF #2631). fulfill IMPACT Act
requirements.
Functional Outcome Measure: Adopted in the FY 2015 April 1, 2016...... FY 2018 and subsequent years.
Change in Mobility among Long- IPPS/LTCH PPS final rule
Term Care Hospital Patients (79 FR 50298 through
Requiring Ventilator Support 50301).
(NQF #2632).
----------------------------------------------------------------------------------------------------------------

6. LTCH QRP Quality, Resource Use and Other Measures Proposed for the
FY 2018 Payment Determination and Subsequent Years
For the FY 2018 payment determinations and subsequent years, in
addition to the quality measures we are retaining under our policy
described in section VIII.C.3. of the preamble of this proposed rule,
we are proposing three new measures. These measures were developed to
meet the requirements of the IMPACT Act. They are:
MSPB-PAC LTCH QRP;
Discharge to Community-PAC LTCH QRP, and
Potentially Preventable 30-Day Post-Discharge Readmission
Measure for LTCH QRP.
The measures are described in more detail below.
For the risk-adjustment of the resource use and other measures, we
understand the important role that sociodemographic status plays in the

[[Page 25216]]

care of patients. However, we continue to have concerns about holding
providers to different standards for the outcomes of their patients of
diverse sociodemographic status because we do not want to mask
potential disparities or minimize incentives to improve the outcomes of
disadvantaged populations. We routinely monitor the impact of
sociodemographic status on providers' results on our measures.
The NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
expected to submit information such as analyses and interpretations as
well as performance scores with and without sociodemographic factors in
the risk adjustment model.
Furthermore, the Office of the Assistant Secretary for Planning and
Evaluation (ASPE) is conducting research to examine the impact of
sociodemographic status on quality measures, resource use, and other
measures under the Medicare program as directed by the IMPACT Act. We
will closely examine the findings of the ASPE reports and related
Secretarial recommendations and consider how they apply to our quality
programs at such time as they are available.
We are inviting public comment on how socioeconomic and demographic
factors should be used in risk adjustment for the resource use
measures.
a. Proposal To Address the IMPACT Act Domain of Resource Use and Other
Measures: Total Estimated MSPB-PAC LTCH QRP
We are proposing an MSPB-PAC LTCH QRP measure for inclusion in the
LTCH QRP for the FY 2018 payment determination and subsequent years.
Section 1899B(d)(1)(A) of the Act requires the Secretary to specify
resource use measures, including total estimated Medicare spending per
beneficiary, on which PAC providers, consisting of LTCHs, Inpatient
Rehabilitation Facilities (IRFs), Skilled Nursing Facilities (SNFs),
and Home Health Agencies (HHAs), are required to submit necessary data
specified by the Secretary.
Rising Medicare expenditures for post-acute care as well as wide
variation in spending for these services underlines the importance of
measuring resource use for providers rendering these services. Between
2001 and 2013, Medicare PAC spending grew at an annual rate of 6.1
percent and doubled to $59.4 billion, while payments to inpatient
hospitals grew at an annual rate of 1.7 percent over this same
period.\169\ A study commissioned by the Institute of Medicine found
that variation in PAC spending explains 73 percent of variation in
total Medicare spending across the United States.\170\
---------------------------------------------------------------------------

\169\ MedPAC, ``A Data Book: Health Care Spending and the
Medicare Program,'' (2015). 114.
\170\ Institute of Medicine, ``Variation in Health Care
Spending: Target Decision Making, Not Geography,'' (Washington, DC:
National Academies 2013). 2.
---------------------------------------------------------------------------

We reviewed the NQF's consensus-endorsed measures and were unable
to identify any NQF-endorsed resource use measures for PAC settings.
Therefore, we are proposing this MSPB-PAC LTCH QRP measure under the
Secretary's authority to specify non-NQF-endorsed measures under
section 1899B(e)(2)(B) of the Act. Because of the current lack of
resource use measures for PAC settings, our proposed MSPB-PAC LTCH QRP
measure has the potential to provide valuable information to LTCHs on
their relative Medicare spending in delivering services to
approximately 122,000 Medicare beneficiaries.\171\
---------------------------------------------------------------------------

\171\ Figures for 2013. MedPAC, ``Medicare Payment Policy,''
Report to the Congress (2015). xvii-xviii.
---------------------------------------------------------------------------

The proposed MSPB-PAC LTCH QRP episode-based measure will provide
actionable and transparent information to support LTCHs' efforts to
promote care coordination and deliver high quality care at a lower cost
to Medicare. The MSPB-PAC LTCH QRP measure holds LTCHs accountable for
the Medicare payments within an ``episode of care'' (episode), which
includes the period during which a patient is directly under the LTCH's
care, as well as a defined period after the end of the LTCH treatment,
which may be reflective of and influenced by the services furnished by
the LTCH. MSPB-PAC LTCH QRP episodes, constructed according to the
methodology described below, have high levels of Medicare spending with
substantial variation. In FY 2013 and FY 2014, Medicare FFS
beneficiaries experienced 178,538 MSPB-PAC LTCH QRP episodes triggered
by admission to an LTCH. The mean payment-standardized, risk-adjusted
episode spending for these episodes is $67,181. There is substantial
variation in the Medicare payments for these MSPB-PAC LTCH QRP
episodes--ranging from approximately $27,502 at the 5th percentile to
approximately $115,291 at the 95th percentile. This variation is
partially driven by variation in payments occurring following LTCH
treatment.
Evaluating Medicare payments during an episode creates a continuum
of accountability between providers and has the potential to improve
post-treatment care planning and coordination. While some stakeholders
throughout the measure development process supported the measures and
believed that measuring Medicare spending was critical for improving
efficiency, other stakeholders believed that resource use measures did
not reflect quality of care in that they do not take into account
patient outcomes or experience beyond those observable in claims data.
However, LTCHs involved in the provision of high quality PAC care as
well as appropriate discharge planning and post-discharge care
coordination would be expected to perform well on this measure since
beneficiaries would likely experience fewer costly adverse events (for
example, avoidable hospitalizations, infections, and emergency room
usage). Further, it is important that the cost of care be explicitly
measured so that, in conjunction with other quality measures, we can
recognize providers that are involved in the provision of high quality
care at lower cost.
We have undertaken development of MSPB-PAC measures for each of the
four PAC settings. We intend to propose IRF-, SNF-, and HHA-specific
MSBP-PAC measures through future notice-and-comment rulemaking. The
four setting-specific MSPB-PAC measures are closely aligned in terms of
episode construction and measure calculation. Each of the MSPB-PAC
measures assess Medicare Part A and Part B spending during an episode,
and the numerator and denominator are defined similarly for each of the
MSPB-PAC measures. However, developing setting-specific measures allows
us to account for differences between settings in payment policy, the
types of data available, and the underlying health characteristics of
beneficiaries. For example, the MSPB-PAC LTCH QRP measure reflects the
dual payment rate of the LTCH PPS by comparing episodes triggered by
each payment rate case only with episodes of the same type, as detailed
below.
The MSPB-PAC measures mirror the general construction of the
Hospital IQR Program MSPB measure that was finalized in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51618 through 51627). That measure was
endorsed by

[[Page 25217]]

the NQF on December 6, 2013, and has been used in the Hospital VBP
Program (NQF #2158) since FY 2015.\172\ The Hospital IQR Program MSPB
measure was originally established under the authority of section
1886(o)(2)(B)(ii) of the Act. The hospital MSPB measure evaluates
hospitals' Medicare spending relative to the Medicare spending for the
national median hospital during a hospital MSPB episode. It assesses
Medicare Part A and Part B payments for services performed by hospitals
and other healthcare providers during a hospital MSPB episode, which is
comprised of the periods immediately prior to, during, and following a
patient's hospital stay.^{173 174}
---------------------------------------------------------------------------

\172\ QualityNet, ``Measure Methodology Reports: Medicare
Spending Per Beneficiary (MSPB) Measure,'' (2015). http://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
\173\ QualityNet, ``Measure Methodology Reports: Medicare
Spending Per Beneficiary (MSPB) Measure,'' (2015). http://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
\174\ FY 2012 IPPS/LTCH PPS final rule (76 FR 51619).
---------------------------------------------------------------------------

Similarly, the MSPB-PAC measures assess all Medicare Part A and
Part B payments for FFS claims with a start date during the episode
window (which, as discussed below, is the time period during which
Medicare FFS Part A and Part B services are counted towards the MSPB-
PAC LTCH QRP episode). However, there are differences between the MSPB-
PAC measures, as proposed, and the hospital MSPB measure to reflect
differences in payment policies and the nature of care provided in each
PAC setting. For example, the MSPB-PAC measures exclude a limited set
of services (for example, for clinically unrelated services) provided
to a beneficiary during the episode window while the hospital MSPB
measure does not exclude any services.\175\
---------------------------------------------------------------------------

\175\ FY 2012 IPPS/LTCH PPS final rule (76 FR 51620).
---------------------------------------------------------------------------

MSPB-PAC episodes may begin within 30 days of discharge from an
inpatient hospital as part of a patient's trajectory from an acute to a
PAC setting. An LTCH stay beginning within 30 days of discharge from an
inpatient hospital will therefore be included once in the hospital's
MSPB measure, and once in the LTCH's MSPB-PAC measure. Aligning the
hospital MSPB and MSPB-PAC measures in this way creates continuous
accountability and aligns incentives to improve care planning and
coordination across inpatient and PAC settings.
We have sought and considered the input of stakeholders throughout
the measure development process for the MSPB-PAC measures. We convened
a TEP consisting of 12 panelists with combined expertise in all of the
PAC settings on October 29 and 30, 2015, in Baltimore, Maryland. A
follow-up email survey was sent to TEP members on November 18, 2015, to
which 7 responses were received by December 8, 2015. The MSPB-PAC TEP
Summary Report is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/Technical-Expert-Panel-on-Medicare-Spending-Per-Beneficiary.pdf. The measures were also presented to the NQF MAP Post-
Acute Care/Long-Term Care (PAC/LTC) Workgroup on December 15, 2015. As
the MSPB-PAC measures were under development, there were three voting
options for members: Encourage continued development, do not encourage
further consideration, and insufficient information.\176\ The MAP PAC/
LTC Workgroup voted to ``encourage continued development'' for each of
the MSPB-PAC measures.\177\ The MAP PAC/LTC Workgroup's vote of
``encourage continued development'' was affirmed by the MAP
Coordinating Committee on January 26, 2016.\178\ The MAP's concerns
about the MSPB-PAC measures, as outlined in their final report, ``MAP
2016 Considerations for Implementing Measures in Federal Programs:
Post-Acute Care and Long-Term Care,'' and Spreadsheet of Final
Recommendations were taken into consideration during the measure
development process and are discussed as part of our responses to
public comments, described below.^{179 180}
---------------------------------------------------------------------------

\176\ National Quality Forum, Measure Applications Partnership,
``Process and Approach for MAP Pre-Rulemaking Deliberations, 2015-
2016'' (February 2016) http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81693.
\177\ National Quality Forum, Measure Applications Partnership
Post-Acute Care/Long-Term Care Workgroup, ``Meeting Transcript--Day
2 of 2'' (December 15, 2015) 104-106 http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81470.
\178\ National Quality Forum, Measure Applications Partnership,
``Meeting Transcript--Day 1 of 2'' (January 26, 2016) 231-232 http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81637.
\179\ National Quality Forum, Measure Applications Partnership,
``MAP 2016 Considerations for Implementing Measures in Federal
Programs: Post-Acute Care and Long-Term Care'' Final Report,
(February 2016) http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
\180\ National Quality Forum, Measure Applications Partnership,
``Spreadsheet of MAP 2016 Final Recommendations'' (February 1, 2016)
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
---------------------------------------------------------------------------

Since the MAP's review and recommendation of continued development,
CMS has continued to refine risk adjustment models and conduct measure
testing for the IMPACT Act measures in compliance with the MAP's
recommendations. The proposed IMPACT Act measures are both consistent
with the information submitted to the MAP and support the scientific
acceptability of these measures for use in quality reporting programs.
In addition, a public comment period, accompanied by draft measures
specifications, was originally open from January 13 to 27, 2016 and
twice extended to January 29 and February 5. A total of 45 comments on
the MSPB-PAC measures were received during this comment period. The
comments received also covered each of the MAP's concerns as outlined
in their Final Recommendations.\181\ The MSPB-PAC Public Comment
Summary Report is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html and
contains the public comments (summarized and verbatim), along with our
responses including statistical analyses. If finalized, the proposed
MSPB-PAC LTCH QRP measure, along with the other MSPB-PAC measures, as
applicable, will be submitted for NQF endorsement.
---------------------------------------------------------------------------

\181\ National Quality Forum, Measure Applications Partnership,
``Spreadsheet of MAP 2016 Final Recommendations'' (February 1, 2016)
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
---------------------------------------------------------------------------

To calculate the MSPB-PAC LTCH QRP measure for each LTCH, we first
define the construction of the MSPB-PAC LTCH QRP episode, including the
length of the episode window as well as the services included in the
episode. Next, we apply the methodology for the measure calculation.
The specifications are discussed further below. More detailed
specifications for the proposed MSPB-PAC measures, including the MSPB-
PAC LTCH QRP measure in this proposed rule, are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
(1) Episode Construction
An MSPB-PAC LTCH QRP episode begins at the episode trigger, which
is defined as the patient's admission to an LTCH. This admitting
facility is the attributed provider, for whom the

[[Page 25218]]

MSPB-PAC LTCH QRP measure is calculated. The episode window is the time
period during which Medicare FFS Part A and Part B services are counted
towards the MSPB-PAC LTCH QRP episode. Because Medicare FFS claims are
already reported to the Medicare program for payment purposes, LTCHs
will not be required to report any additional data to CMS for
calculation of this measure. Thus, there will be no additional data
collection burden from the implementation of this measure.
Our proposed MSPB-PAC LTCH QRP episode construction methodology
differentiates between episodes triggered by standard payment rate
cases and site neutral payment rate cases, reflecting the LTCH dual-
payment policy detailed in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49601 through 49623). Standard and site neutral episodes would be
compared only with standard and site neutral episodes respectively.
Differences in episode construction between standard and site neutral
episodes are noted below; they otherwise share the same definition.
The episode window is comprised of a treatment period and an
associated services period. The treatment period begins at the trigger
(that is, on the day of admission to the LTCH) and ends on the day of
discharge from that LTCH. Readmissions to the same facility occurring
within 7 or fewer days do not trigger a new episode, and instead are
included in the treatment period of the original episode. When two
sequential stays at the same LTCH occur within 7 or fewer days of one
another, the treatment period ends on the day of discharge for the
latest LTCH stay. The treatment period includes those services that are
provided directly or reasonably managed by the LTCH that are directly
related to the beneficiary's care plan. The associated services period
is the time during which Medicare Part A and Part B services (with
certain exclusions) are counted towards the episode. The associated
services period begins at the episode trigger and ends 30 days after
the end of the treatment period. The distinction between the treatment
period and the associated services period is important because clinical
exclusions of services may differ for each period.
Certain services are excluded from the MSPB-PAC LTCH QRP episodes
because they are clinically unrelated to LTCH care, and/or because
LTCHs may have limited influence over certain Medicare services
delivered by other providers during the episode window. These limited
service-level exclusions are not counted towards a given LTCH's
Medicare spending to ensure that beneficiaries with certain conditions
and complex care needs receive the necessary care. Certain services
that have been determined by clinicians to be outside of the control of
an LTCH include planned hospital admissions, management of certain
preexisting chronic conditions (for example, dialysis for end-stage
renal disease (ESRD), and enzyme treatments for genetic conditions),
treatment for preexisting cancers, organ transplants, and preventive
screenings (for example, colonoscopy and mammograms). Exclusion of such
services from the MSPB-PAC LTCH QRP episode ensures that facilities do
not have disincentives to treat patients with certain conditions or
complex care needs.
An MSPB-PAC episode may begin during the associated services period
of an MSPB-PAC LTCH QRP episode in the 30 days post-treatment. One
possible scenario occurs where an LTCH discharges a beneficiary who is
then admitted to a HHA within 30 days. The HHA claim would be included
once as an associated service for the attributed provider of the first
MSPB-PAC LTCH QRP episode and once as a treatment service for the
attributed provider of the second MSPB-PAC HHA episode. As in the case
of overlap between hospital and PAC episodes discussed earlier, this
overlap is necessary to ensure continuous accountability between
providers throughout a beneficiary's trajectory of care, as both
providers share incentives to deliver high quality care at a lower cost
to Medicare.
Even within the LTCH setting, one MSPB-PAC LTCH QRP episode may
begin in the associated services period of another MSPB-PAC LTCH QRP
episode in the 30 days post-treatment. The second LTCH claim would be
included once as an associated service for the attributed LTCH of the
first MSPB-PAC LTCH QRP episode and once as a treatment service for the
attributed LTCH of the second MSPB-PAC LTCH QRP episode. Again, this
ensures that LTCHs have the same incentives throughout both MSPB-PAC
LTCH QRP episodes to deliver quality care and engage in patient-focused
care planning and coordination. If the second MSPB-PAC LTCH QRP episode
were excluded from the second LTCH's MSPB-PAC LTCH QRP measure, that
LTCH would not share the same incentives as the first LTCH of the first
MSPB-PAC LTCH QRP episode. The MSPB-PAC LTCH QRP measure is designed to
benchmark the resource use of each attributed provider against what
their spending is expected to be as predicted through risk adjustment.
As discussed further below, the measure takes the ratio of observed
spending to expected spending for each episode and then takes the
average of those ratios across all of the attributed provider's
episodes. The measure is not a simple sum of all costs across a
provider's episodes, thus mitigating concerns about double counting.
(2) Measure Calculation
Medicare payments for Part A and Part B claims for services
included in MSPB-PAC LTCH episodes, defined according to the
methodology above, are used to calculate the MSPB-PAC LTCH QRP measure.
Measure calculation involves determination of the episode exclusions,
the approach for standardizing payments for geographic payment
differences, the methodology for risk adjustment of episode spending to
account for differences in patient case mix, and the specifications for
the measure numerator and denominator. The measure calculation is
performed separately for MSPB-PAC LTCH QRP standard and site neutral
episodes to ensure that they are compared only to other standard and
site neutral episodes, respectively. The final MSPB-PAC LTCH QRP
measure would combine the two ratios to construct one LTCH score as
described below.
(a) Exclusion Criteria
In addition to service-level exclusions that remove some payments
from individual episodes, we exclude certain episodes in their entirety
from the MSPB-PAC LTCH QRP measure to ensure that the MSPB-PAC LTCH QRP
measure accurately reflects resource use and facilitates fair and
meaningful comparisons between LTCHs. The proposed episode-level
exclusions are as follows:
Any episode that is triggered by an LTCH claim outside the
50 States, DC, Puerto Rico, and U.S. territories.
Any episode where the claim(s) constituting the attributed
LTCH's treatment have a standard allowed amount of zero or where the
standard allowed amount cannot be calculated.
Any episode in which a beneficiary is not enrolled in
Medicare FFS for the entirety of a 90-day lookback period (that is, a
90-day period prior to the episode trigger) plus episode window
(including where a beneficiary dies), or is enrolled in Part C for any
part of the lookback period plus episode window.
Any episode in which a beneficiary has a primary payer
other than Medicare for any part of the 90-day lookback period plus
episode window.
Any episode where the claim(s) constituting the attributed
LTCH's

[[Page 25219]]

treatment include at least one related condition code indicating that
it is not a prospective payment system bill.
(b) Standardization and Risk Adjustment
Section 1899B(d)(2)(C) of the Act requires that the MSPB-PAC
measures are adjusted for the factors described under section
1886(o)(2)(B)(ii) of the Act, which include adjustment for factors such
as age, sex, race, severity of illness, and other factors that the
Secretary determines appropriate. Medicare payments included in the
proposed MSPB-PAC LTCH QRP measure are payment-standardized and risk-
adjusted. Payment standardization removes sources of payment variation
not directly related to clinical decisions and facilitates comparisons
of resource use across geographic areas. We are proposing to use the
same payment standardization methodology as that used in the NQF-
endorsed hospital MSPB measure. This methodology removes geographic
payment differences, such as wage index and geographic practice cost
index (GPCI), incentive payment adjustments, and other add-on payments
that support broader Medicare program goals including indirect graduate
medical education (IME) and hospitals serving a disproportionate share
of uninsured patients (DSH).\182\
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\182\ QualityNet, ``CMS Price (Payment) Standardization--
Detailed Methods'' (Revised May 2015) https://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772057350.
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Risk adjustment uses patient claims history to account for case-mix
variation and other factors that affect resource use but are beyond the
influence of the attributed LTCH. To assist with risk adjustment for
MSPB-PAC LTCH QRP episodes, we create mutually exclusive and exhaustive
clinical case-mix categories using the most recent institutional claim
in the 60 days prior to the start of the MSPB-PAC LTCH QRP episode. The
beneficiaries in these clinical case-mix categories have a greater
degree of clinical similarity than the overall LTCH patient population,
and allow us to more accurately estimate Medicare spending. Our
proposed MSPB-PAC LTCH QRP model, adapted for the LTCH setting from the
NQF-endorsed hospital MSPB measure, uses a regression framework with a
90-day hierarchical condition category (HCC) lookback period and
covariates including the clinical case mix categories, MS-LTC-DRGs, HCC
indicators, age brackets, indicators for originally disabled, ESRD
enrollment, and long-term care status, and selected interactions of
these covariates where sample size and predictive ability make them
appropriate. We sought and considered public comment regarding the
treatment of hospice services occurring within the MSPB-PAC LTCH QRP
episode window. After consideration of the comments received, we are
proposing to include the Medicare spending for hospice services but
risk adjust for them, so that MSPB-PAC LTCH QRP episodes with hospice
are compared to a benchmark reflecting other MSPB-PAC LTCH QRP episodes
with hospice. We believe that this strikes a balance between the
measure's intent of evaluating Medicare spending and ensuring that
providers do not have incentives against the appropriate use of hospice
services in a patient-centered continuum of care.
We understand the important role that sociodemographic status,
beyond age, plays in the care of patients. However, we continue to have
concerns about holding hospitals to different standards for the
outcomes of their patients of diverse sociodemographic status because
we do not want to mask potential disparities or minimize incentives to
improve the outcomes of disadvantaged populations. We routinely monitor
the impact of sociodemographic status on hospitals' results on our
measures.
The NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
expected to submit information such as analyses and interpretations as
well as performance scores with and without sociodemographic factors in
the risk adjustment model.
Furthermore, the Office of the Assistant Secretary for Planning and
Evaluation (ASPE) is conducting research to examine the impact of
sociodemographic status on quality measures, resource use, and other
measures under the Medicare program as directed by the IMPACT Act. We
will closely examine the findings of the ASPE reports and related
Secretarial recommendations and consider how they apply to our quality
programs at such time as they are available.
While we conducted analyses on the impact of age by sex on the
performance of the MSPB-PAC LTCH QRP risk-adjustment model, we are not
proposing to adjust the MSPB-PAC LTCH measure for socioeconomic and
demographic factors at this time. As this MSPB-PAC LTCH QRP measure
will be submitted for NQF endorsement, we prefer to await the results
of this trial and study before deciding whether to risk adjust for
socioeconomic and demographic factors. We will monitor the results of
the trial, studies, and recommendations. We are inviting public comment
on how socioeconomic and demographic factors should be used in risk
adjustment for the MSPB-PAC LTCH QRP measure.
(c) Measure Numerator and Denominator
The MPSB-PAC LTCH measure is a payment-standardized, risk-adjusted
ratio that compares a given LTCH's Medicare spending against the
Medicare spending of other LTCHs within a performance period. Similar
to the hospital MSPB measure, the ratio allows for ease of comparison
over time as it obviates the need to adjust for inflation or policy
changes.
The MSPB-PAC LTCH QRP measure is calculated as the ratio of the
MSPB-PAC Amount for each LTCH divided by the episode-weighted median
MSPB-PAC Amount across all LTCHs. To calculate the MSPB-PAC Amount for
each LTCH, one calculates the average of the ratio of the standardized
spending for LTCH standard episodes over the expected spending (as
predicted in risk adjustment) for LTCH standard episodes, and the
average of the ratio of the standardized spending for LTCH site neutral
episodes over the expected spending (as predicted in risk adjustment)
for LTCH site neutral episodes. This quantity is then multiplied by the
average episode spending level across all LTCHs nationally for standard
and site neutral episodes. The denominator for an LTCH's MSPB-PAC LTCH
QRP measure is the episode-weighted national median of the MSPB-PAC
Amounts across all LTCHs. An MSPB-PAC LTCH QRP measure of less than 1
indicates that a given LTCH's Medicare spending is less than that of
the national median LTCH during a performance period. Mathematically,
this is represented in equation (A) below:

[[Page 25220]]

[GRAPHIC] [TIFF OMITTED] TP27AP16.002

where

Yij = attributed standardized spending for episode i
and provider j
Yij = expected standardized spending for episode i and
provider j, as predicted from risk adjustment
nj = number of episodes for provider j
n = total number of episodes nationally
i [isin] {Ij{time} = all episodes i in the set of
episodes attributed to provider j.
(3) Data Sources
The MSPB-PAC LTCH QRP resource use measure is an administrative
claims-based measure. It uses Medicare Part A and Part B claims from
FFS beneficiaries and Medicare eligibility files.
(4) Cohort
The measure cohort includes Medicare FFS beneficiaries with an LTCH
treatment period ending during the data collection period.
(5) Reporting
If this proposed measure is finalized, we intend to provide initial
confidential feedback to providers, prior to public reporting of this
measure, based on Medicare FFS claims data from discharges in CY 2015
and CY 2016. We intend to publicly report this measure using claims
data from discharges in CY 2016 and CY 2017.
We are proposing a minimum of 20 episodes for reporting and
inclusion in the LTCH QRP. For the reliability calculation, as
described in the measure specifications identified and for which a link
has been provided above, we used two years of data (FY 2013 and FY
2014) to increase the statistical reliability of this measure. The
reliability results support the 20 episode case minimum, and 98.83
percent of LTCHs had moderate or high reliability (above 0.4).
We are inviting public comment on our proposal to adopt the MSPB-
PAC LTCH QRP measure for the LTCH QRP.
b. Proposal To Address the IMPACT Act Domain of Resource Use and Other
Measures: Discharge to Community-Post Acute Care (PAC) Long-Term Care
Hospital Quality Reporting Program
Sections 1899B(d)(1)(B) and 1899B(a)(2)(E)(ii) of the Act require
the Secretary to specify a measure to address the domain of discharge
to community by SNFs, LTCHs, and IRFs by October 1, 2016, and HHAs by
January 1, 2017. We are proposing to adopt the measure, Discharge to
Community-PAC LTCH QRP, for the LTCH QRP for the FY 2018 payment
determination and subsequent years as a Medicare FFS claims-based
measure to meet this requirement.
This proposed measure assesses successful discharge to the
community from an LTCH setting, with successful discharge to the
community including no unplanned rehospitalizations and no death in the
31 days following discharge from the LTCH. Specifically, this proposed
measure reports an LTCH's risk-standardized rate of Medicare FFS
patients who are discharged to the community following an LTCH stay,
and do not have an unplanned readmission to an acute care hospital or
LTCH in the 31 days following discharge to community, and who remain
alive during the 31 days following discharge to community. The term
``community,'' for this measure, is defined as home/self-care, with or
without home health services, based on Patient Discharge Status Codes
01, 06, 81, and 86 on the Medicare FFS claim.^{183 184} This
measure is conceptualized uniformly across the PAC settings, in terms
of the definition of the discharge to community outcome, the approach
to risk adjustment, and the measure calculation.
---------------------------------------------------------------------------

\183\ Further description of patient discharge status codes can
be found, for example, at the following Web page: https://med.noridianmedicare.com/web/jea/topics/claim-submission/patient-status-codes.
\184\ This definition is not intended to suggest that board and
care homes, assisted living facilities, or other settings included
in the definition of ``community'' for the purpose of this measure
are the most integrated setting for any particular individual or
group of individuals under the Americans with Disabilities Act (ADA)
and Section 504.
---------------------------------------------------------------------------

Discharge to a community setting is an important health care
outcome for many patients for whom the overall goals of post-acute care
include optimizing functional improvement, returning to a previous
level of independence, and avoiding institutionalization. Returning to
the community is also an important outcome for many patients who are
not expected to make functional improvement during their LTCH stay, and
for patients who may be expected to decline functionally due to their
medical condition. The discharge to community outcome offers a multi-
dimensional view of preparation for community life, including the
cognitive, physical, and psychosocial elements involved in a discharge
to the community.^{185 186}
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\185\ El-Solh AA, Saltzman SK, Ramadan FH, Naughton BJ. Validity
of an artificial neural network in predicting discharge destination
from a postacute geriatric rehabilitation unit. Archives of physical
medicine and rehabilitation. 2000;81(10):1388-1393.
\186\ Tanwir S, Montgomery K, Chari V, Nesathurai S. Stroke
rehabilitation: availability of a family member as caregiver and
discharge destination. European journal of physical and
rehabilitation medicine. 2014;50(3):355-362.
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In addition to being an important outcome from a patient and family
perspective, patients discharged to community settings, on average,
incur lower costs over the recovery episode, compared with those
discharged to institutional settings.^{187 188} Given the high
costs of care in institutional settings, encouraging LTCHs to prepare
patients for discharge to community, when clinically appropriate, may
have cost-saving implications for the Medicare program.\189\ Also,
providers have discovered that successful discharge to community was a
major driver of their ability to achieve savings, where capitated
payments for post-acute care were in place.\190\ For patients who
require long-term care due to persistent disability, discharge to
community could result in lower long-term care

[[Page 25221]]

costs for Medicaid and for patients' out-of-pocket expenditures.\191\
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\187\ Dobrez D, Heinemann AW, Deutsch A, Manheim L, Mallinson T.
Impact of Medicare's prospective payment system for inpatient
rehabilitation facilities on stroke patient outcomes. American
journal of physical medicine & rehabilitation/Association of
Academic Physiatrists. 2010;89(3):198-204.
\188\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute
Care Relationships in an Integrated Hospital System. Final Report.
RTI International;2009.
\189\ Ibid.
\190\ Doran JP, Zabinski SJ. Bundled payment initiatives for
Medicare and non-Medicare total joint arthroplasty patients at a
community hospital: bundles in the real world. The journal of
arthroplasty. 2015;30(3):353-355.
\191\ Newcomer RJ, Ko M, Kang T, Harrington C, Hulett D, Bindman
AB. Health Care Expenditures After Initiating Long-term Services and
Supports in the Community Versus in a Nursing Facility. Medical
Care. 2016;54(3):221-228.
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Analyses conducted for ASPE on PAC episodes, using a 5 percent
sample of 2006 Medicare claims, revealed that relatively high average,
unadjusted Medicare payments are associated with discharge to
institutional settings from IRFs, SNFs, LTCHs or HHAs, as compared with
payments associated with discharge to community settings.\192\ Average,
unadjusted Medicare payments associated with discharge to community
settings ranged from $0 to $4,017 for IRF discharges, $0 to $3,544 for
SNF discharges, $0 to $4,706 for LTCH discharges, and $0 to $992 for
HHA discharges. In contrast, payments associated with discharge to non-
community settings were considerably higher, ranging from $11,847 to
$25,364 for IRF discharges, $9,305 to $29,118 for SNF discharges,
$12,465 to $18,205 for LTCH discharges, and $7,981 to $35,192 for HHA
discharges.\193\
---------------------------------------------------------------------------

\192\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute
Care Relationships in an Integrated Hospital System. Final Report.
RTI International;2009.
\193\ Ibid.
---------------------------------------------------------------------------

Measuring and comparing facility-level discharge to community rates
is expected to help differentiate among facilities with varying
performance in this important domain, and to help avoid disparities in
care across patient groups. Variation in discharge to community rates
has been reported within and across post-acute settings; across a
variety of facility-level characteristics, such as geographic location
(for example, regional location, urban or rural location), ownership
(for example, for-profit or nonprofit), and freestanding or hospital-
based units; and across patient-level characteristics, such as race and
gender.^{194 195 196 197 198 199} Discharge to community rates
in the IRF setting have been reported to range from about 60 to 80
percent.^{200 201 202 203 204 205} Longer-term studies show
that rates of discharge to community from IRFs have decreased over time
as IRF length of stay has decreased.^{206 207} Greater
variation in discharge to community rates is seen in the SNF setting,
with rates ranging from 31 to 65 percent.^{208 209 210 211} A
multi-center study of 23 LTCHs demonstrated that 28.8 percent of 1,061
patients who were ventilator-dependent on admission were discharged to
home.\212\ A single-center study revealed that 31 percent of LTCH
hemodialysis patients were discharged to home.\213\ In the LTCH
Medicare FFS population, using CY 2012-2013 national data, we found
that approximately 25 percent of patients were discharged to the
community. One study noted that 64 percent of beneficiaries who were
discharged from the home health episode did not use any other acute or
post-acute services paid by Medicare in the 30 days after
discharge.\214\ However, significant numbers of patients were admitted
to hospitals (29 percent) and lesser numbers to SNFs (7.6 percent),
IRFs (1.5 percent), home health (7.2 percent) or hospice (3.3
percent).\215\
---------------------------------------------------------------------------

\194\ Reistetter TA, Karmarkar AM, Graham JE, et al. Regional
variation in stroke rehabilitation outcomes. Archives of physical
medicine and rehabilitation. 2014;95(1):29-38.
\195\ El-Solh AA, Saltzman SK, Ramadan FH, Naughton BJ. Validity
of an artificial neural network in predicting discharge destination
from a postacute geriatric rehabilitation unit. Archives of physical
medicine and rehabilitation. 2000;81(10):1388-1393.
\196\ March 2015 Report to the Congress: Medicare Payment
Policy. Medicare Payment Advisory Commission;2015.
\197\ Bhandari VK, Kushel M, Price L, Schillinger D. Racial
disparities in outcomes of inpatient stroke rehabilitation. Archives
of physical medicine and rehabilitation. 2005;86(11):2081-2086.
\198\ Chang PF, Ostir GV, Kuo YF, Granger CV, Ottenbacher KJ.
Ethnic differences in discharge destination among older patients
with traumatic brain injury. Archives of physical medicine and
rehabilitation. 2008;89(2):231-236.
\199\ Berges IM, Kuo YF, Ostir GV, Granger CV, Graham JE,
Ottenbacher KJ. Gender and ethnic differences in rehabilitation
outcomes after hip-replacement surgery. American journal of physical
medicine & rehabilitation/Association of Academic Physiatrists.
2008;87(7):567-572.
\200\ Galloway RV, Granger CV, Karmarkar AM, et al. The Uniform
Data System for Medical Rehabilitation: report of patients with
debility discharged from inpatient rehabilitation programs in 2000-
2010. American journal of physical medicine & rehabilitation/
Association of Academic Physiatrists. 2013;92(1):14-27.
\201\ Morley MA, Coots LA, Forgues AL, Gage BJ. Inpatient
rehabilitation utilization for Medicare beneficiaries with multiple
sclerosis. Archives of physical medicine and rehabilitation.
2012;93(8):1377-1383.
\202\ Reistetter TA, Graham JE, Deutsch A, Granger CV, Markello
S, Ottenbacher KJ. Utility of functional status for classifying
community versus institutional discharges after inpatient
rehabilitation for stroke. Archives of physical medicine and
rehabilitation. 2010;91(3):345-350.
\203\ Gagnon D, Nadeau S, Tam V. Clinical and administrative
outcomes during publicly-funded inpatient stroke rehabilitation
based on a case-mix group classification model. Journal of
rehabilitation medicine. 2005;37(1):45-52.
\204\ DaVanzo J, El-Gamil A, Li J, Shimer M, Manolov N, Dobson
A. Assessment of patient outcomes of rehabilitative care provided in
inpatient rehabilitation facilities (IRFs) and after discharge.
Vienna, VA: Dobson DaVanzo & Associates, LLC;2014.
\205\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating
Siebens Domain Management Model for Inpatient Rehabilitation to
Increase Functional Independence and Discharge Rate to Home in
Geriatric Patients. Archives of physical medicine and
rehabilitation. 2015;96(7):1310-1318.
\206\ Galloway RV, Granger CV, Karmarkar AM, et al. The Uniform
Data System for Medical Rehabilitation: report of patients with
debility discharged from inpatient rehabilitation programs in 2000-
2010. American journal of physical medicine & rehabilitation/
Association of Academic Physiatrists. 2013;92(1):14-27.
\207\ Mallinson T, Deutsch A, Bateman J, et al. Comparison of
discharge functional status after rehabilitation in skilled nursing,
home health, and medical rehabilitation settings for patients after
hip fracture repair. Archives of physical medicine and
rehabilitation. 2014;95(2):209-217.
\208\ El-Solh AA, Saltzman SK, Ramadan FH, Naughton BJ. Validity
of an artificial neural network in predicting discharge destination
from a postacute geriatric rehabilitation unit. Archives of physical
medicine and rehabilitation. 2000;81(10):1388-1393.
\209\ Hall RK, Toles M, Massing M, et al. Utilization of acute
care among patients with ESRD discharged home from skilled nursing
facilities. Clinical journal of the American Society of Nephrology:
CJASN. 2015;10(3):428-434.
\210\ Stearns SC, Dalton K, Holmes GM, Seagrave SM. Using
propensity stratification to compare patient outcomes in hospital-
based versus freestanding skilled-nursing facilities. Medical care
research and review: MCRR. 2006;63(5):599-622.
\211\ Wodchis WP, Teare GF, Naglie G, et al. Skilled nursing
facility rehabilitation and discharge to home after stroke. Archives
of physical medicine and rehabilitation. 2005;86(3):442-448.
\212\ Scheinhorn DJ, Hassenpflug MS, Votto JJ, et al. Post-ICU
mechanical ventilation at 23 long-term care hospitals: a multicenter
outcomes study. Chest. 2007;131(1):85-93.
\213\ Thakar CV, Quate-Operacz M, Leonard AC, Eckman MH.
Outcomes of hemodialysis patients in a long-term care hospital
setting: a single-center study. American journal of kidney diseases:
the official journal of the National Kidney Foundation.
2010;55(2):300-306.
\214\ Wolff JL, Meadow A, Weiss CO, Boyd CM, Leff B. Medicare
home health patients' transitions through acute and post-acute care
settings. Medical care. 2008;46(11):1188-1193.
\215\ Ibid.
---------------------------------------------------------------------------

Discharge to community is an actionable health care outcome, as
targeted interventions have been shown to successfully increase
discharge to community rates in a variety of post-acute
settings.^{216 217 218 219} Many of these interventions involve
discharge planning or specific rehabilitation strategies, such as
addressing discharge barriers and improving medical and

[[Page 25222]]

functional status.^{220 221 222 223} The effectiveness of these
interventions suggests that improvement in discharge to community rates
among post-acute care patients is possible through modifying provider-
led processes and interventions.
---------------------------------------------------------------------------

\216\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating
Siebens Domain Management Model for Inpatient Rehabilitation to
Increase Functional Independence and Discharge Rate to Home in
Geriatric Patients. Archives of physical medicine and
rehabilitation. 2015;96(7):1310-1318.
\217\ Wodchis WP, Teare GF, Naglie G, et al. Skilled nursing
facility rehabilitation and discharge to home after stroke. Archives
of physical medicine and rehabilitation. 2005;86(3):442-448.
\218\ Berkowitz RE, Jones RN, Rieder R, et al. Improving
disposition outcomes for patients in a geriatric skilled nursing
facility. Journal of the American Geriatrics Society.
2011;59(6):1130-1136.
\219\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating use of
the Siebens Domain Management Model during inpatient rehabilitation
to increase functional independence and discharge rate to home in
stroke patients. PM & R: the journal of injury, function, and
rehabilitation. 2015;7(4):354-364.
\220\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating
Siebens Domain Management Model for Inpatient Rehabilitation to
Increase Functional Independence and Discharge Rate to Home in
Geriatric Patients. Archives of physical medicine and
rehabilitation. 2015;96(7):1310-1318.
\221\ Wodchis WP, Teare GF, Naglie G, et al. Skilled nursing
facility rehabilitation and discharge to home after stroke. Archives
of physical medicine and rehabilitation. 2005;86(3):442-448.
\222\ Berkowitz RE, Jones RN, Rieder R, et al. Improving
disposition outcomes for patients in a geriatric skilled nursing
facility. Journal of the American Geriatrics Society.
2011;59(6):1130-1136.
\223\ Kushner DS, Peters KM, Johnson-Greene D. Evaluating use of
the Siebens Domain Management Model during inpatient rehabilitation
to increase functional independence and discharge rate to home in
stroke patients. PM & R: the journal of injury, function, and
rehabilitation. 2015;7(4):354-364.
---------------------------------------------------------------------------

A TEP convened by our measure development contractor was strongly
supportive of the importance of measuring discharge to community
outcomes, and implementing the proposed measure, Discharge to
Community-PAC LTCH QRP in the LTCH QRP. The panel provided input on the
technical specifications of this proposed measure, including the
feasibility of implementing the measure, as well as the overall measure
reliability and validity. A summary of the TEP proceedings is available
on the PAC Quality Initiatives Downloads and Videos Web site at:
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
We also solicited stakeholder feedback on the development of this
measure through a public comment period held from November 9, 2015,
through December 8, 2015. Several stakeholders and organizations,
including the MedPAC, among others, supported this measure for
implementation. The public comment summary report for the proposed
measure is available on the CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
The NQF-convened MAP met on December 14 and 15, 2015, and provided
input on the use of this proposed Discharge to Community-PAC LTCH QRP
measure in the LTCH QRP. The MAP encouraged continued development of
the proposed measure to meet the mandate of the IMPACT Act. The MAP
supported the alignment of this proposed measure across PAC settings,
using standardized claims data. More information about the MAP's
recommendations for this measure is available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
Since the MAP's review and recommendation of continued development,
we have continued to refine risk-adjustment models and conduct measure
testing for this measure, as recommended by the MAP. This proposed
measure is consistent with the information submitted to the MAP and is
scientifically acceptable for current specification in the LTCH QRP. As
discussed with the MAP, we fully anticipate that additional analyses
will continue as we submit this measure to the ongoing measure
maintenance process.
We reviewed the NQF's consensus-endorsed measures and were unable
to identify any NQF-endorsed resource use or other measures for post-
acute care focused on discharge to community. In addition, we are
unaware of any other post-acute care measures for discharge to
community that have been endorsed or adopted by other consensus
organizations. Therefore, we are proposing the measure, Discharge to
Community-PAC LTCH QRP, under the Secretary's authority to specify non-
NQF-endorsed measures under section 1899B(e)(2)(B) of the Act.
We are proposing to use data from the Medicare FFS claims and
Medicare eligibility files to calculate this proposed measure. We are
proposing to use data from the ``Patient Discharge Status Code'' on
Medicare FFS claims to determine whether a patient was discharged to a
community setting for calculation of this proposed measure. In all PAC
settings, we tested the accuracy of determining discharge to a
community setting using the ``Patient Discharge Status Code'' on the
PAC claim by examining whether discharge to community coding based on
PAC claim data agreed with discharge to community coding based on PAC
assessment data. We found excellent agreement between the two data
sources in all PAC settings, ranging from 94.6 percent to 98.8 percent.
Specifically, in the LTCH setting, using 2013 data, we found 95.6
percent agreement in coding of community and non-community discharges
when comparing discharge status codes on claims and the Discharge
Location (item A2100) codes on the LTCH Continuity Assessment Record
and Evaluation (CARE) Data Set Version 1.01. We further examined the
accuracy of the ``Patient Discharge Status Code'' on the PAC claim by
assessing how frequently discharges to an acute care hospital were
confirmed by follow-up acute care claims. We discovered that 88 percent
to 91 percent of IRF, LTCH, and SNF claims with acute care discharge
status codes were followed by an acute care claim on the day of, or day
after, PAC discharge. We believe these data support the use of the
claims ``Patient Discharge Status Code'' for determining discharge to a
community setting for this measure. In addition, this measure can
feasibly be implemented in the LTCH QRP because all data used for
measure calculation are derived from Medicare FFS claims and
eligibility files, which are already available to CMS.
Based on the evidence discussed above, we are proposing to adopt
the measure, Discharge to Community-PAC LTCH QRP, for the LTCH QRP for
FY 2018 payment determination and subsequent years. This proposed
measure is calculated using 2 years of data. We are proposing a minimum
of 25 eligible stays in a given LTCH for public reporting of the
proposed measure for that LTCH. Since Medicare FFS claims data are
already reported to the Medicare program for payment purposes, and
Medicare eligibility files are also available, LTCHs will not be
required to report any additional data to CMS for calculation of this
measure. The proposed measure denominator is the risk-adjusted expected
number of discharges to community. The proposed measure numerator is
the risk-adjusted estimate of the number of patients who are discharged
to the community, do not have an unplanned readmission to an acute care
hospital or LTCH in the 31-day post-discharge observation window, and
who remain alive during the post-discharge observation window. The
measure is risk-adjusted for variables such as age and sex, principal
diagnosis, comorbidities, ventilator status, ESRD status, and dialysis,
among other variables. For technical information about this proposed
measure, including information about the measure calculation, risk
adjustment, and denominator exclusions, we refer readers to the
document titled, Proposed Measure Specifications for Measures Proposed
in the FY 2017 LTCH QRP NPRM, available at: https://www.cms.gov/
Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-

[[Page 25223]]

Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
If this proposed measure is finalized, we intend to provide initial
confidential feedback to LTCHs, prior to public reporting of this
measure, based on Medicare FFS claims data from discharges in CY 2015
and 2016. We intend to publicly report this measure using claims data
from discharges in CY 2016 and 2017. We plan to submit this proposed
measure to the NQF for consideration for endorsement.
We are inviting public comment on our proposal to adopt the
measure, Discharge to Community-PAC LTCH QRP, for the LTCH QRP.
c. Proposal To Address the IMPACT Act Domain of Resource Use and Other
Measures: Potentially Preventable 30-Day Post-Discharge Readmission
Measure for Long-Term Care Hospital Quality Reporting Program
Sections 1899B(a)(2)(E)(ii) and 1899B(d)(1)(C) of the Act require
the Secretary to specify measures to address the domain of all-
condition risk-adjusted potentially preventable hospital readmission
rates by SNFs, LTCHs, and IRFs by October 1, 2016, and HHAs by January
1, 2017. We are proposing the measure Potentially Preventable 30-Day
Post-Discharge Readmission Measure for LTCH QRP as a Medicare FFS
claims-based measure to meet this requirement for the FY 2018 payment
determination and subsequent years.
The proposed measure assesses the facility-level risk-standardized
rate of unplanned, potentially preventable hospital readmissions for
Medicare FFS beneficiaries in the 30 days post-LTCH discharge. The LTCH
admission must have occurred within up to 30 days of discharge from a
prior proximal hospital stay which is defined as an inpatient admission
to an acute care hospital (including IPPS, CAH, or a psychiatric
hospital). Hospital readmissions include readmissions to a short-stay
acute care hospital or an LTCH, with a diagnosis considered to be
unplanned and potentially preventable. This proposed measure is claims-
based, requiring no additional data collection or submission burden for
LTCHs. Because the measure denominator is based on LTCH admissions,
each Medicare beneficiary may be included in the measure multiple times
within the measurement period. Readmissions counted in this measure are
identified by examining Medicare FFS claims data for readmissions to
either acute care hospitals (IPPS or CAH) or LTCHs that occur during a
30-day window beginning two days after LTCH discharge. This measure is
conceptualized uniformly across the PAC settings, in terms of the
measure definition, the approach to risk adjustment, and the measure
calculation. Our approach for defining potentially preventable hospital
readmissions is described in more detail below.
Hospital readmissions among the Medicare population, including
beneficiaries that utilize PAC, are common, costly, and often
preventable.^{224 225} MedPAC and a study by Jencks et al.
estimated that 17 to 20 percent of Medicare beneficiaries discharged
from the hospital were readmitted within 30 days. MedPAC found that
more than 75 percent of 30-day and 15-day readmissions and 84 percent
of 7-day readmissions were considered ``potentially preventable.''
\226\ In addition, MedPAC calculated that annual Medicare spending on
potentially preventable readmissions would be $12 billion for 30-day,
$8 billion for 15-day, and $5 billion for 7-day readmissions.\227\ For
hospital readmissions from one post-acute care setting, SNFs, MedPAC
deemed 76 percent of readmissions as ``potentially avoidable''--
associated with $12 billion in Medicare expenditures.\228\ Mor et al.
analyzed 2006 Medicare claims and SNF assessment data (Minimum Data
Set), and reported a 23.5 percent readmission rate from SNFs,
associated with $4.3B in expenditures.\229\ Fewer studies have
investigated potentially preventable readmission rates from the
remaining post-acute care settings.
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\224\ Friedman, B., and Basu, J.: The rate and cost of hospital
readmissions for preventable conditions. Med. Care Res. Rev.
61(2):225-240, 2004. doi:10.1177/1077558704263799.
\225\ Jencks, S.F., Williams, M.V., and Coleman, E.A.:
Rehospitalizations among patients in the Medicare Fee-for-Service
Program. N. Engl. J. Med. 360(14):1418-1428, 2009. doi:10.1016/
j.jvs.2009.05.045
\226\ MedPAC: Payment policy for inpatient readmissions, in
Report to the Congress: Promoting Greater Efficiency in Medicare.
Washington, DC, pp. 103-120, 2007. Available from http://www.medpac.gov/documents/reports/Jun07_EntireReport.pdf.
\227\ Ibid.
\228\ Ibid.
\229\ Mor, V., Intrator, O., Feng, Z., et al.: The revolving
door of rehospitalization from skilled nursing facilities. Health
Aff. 29(1):57-64, 2010. doi:10.1377/hlthaff.2009.0629.
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We have addressed the high rates of hospital readmissions in the
acute care setting as well as in PAC. For example, we developed the
following measure: All-Cause Unplanned Readmission Measure for 30 Days
Post-Discharge from LTCHs (NQF #2512), as well as similar measures for
other PAC providers (NQF #2502 for IRFs and NQF #2510 for SNFs).\230\
These measures are endorsed by the NQF, and the NQF-endorsed LTCH
measure (NQF #2512) was adopted into the LTCH QRP in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49730 through 49731). Note that these NQF-
endorsed measures assess all-cause unplanned readmissions.
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\230\ National Quality Forum: All-Cause Admissions and
Readmissions Measures. pp. 1-319, April 2015. Available from http://www.qualityforum.org/Publications/2015/04/All-Cause_Admissions_and_Readmissions_Measures_-_Final_Report.aspx.
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Several general methods and algorithms have been developed to
assess potentially avoidable or preventable hospitalizations and
readmissions for the Medicare population. These include the Agency for
Healthcare Research and Quality's (AHRQ's) Prevention Quality
Indicators, approaches developed by MedPAC, and proprietary approaches,
such as the 3M\TM\ algorithm for Potentially Preventable
Readmissions.^{231 232 233} Recent work led by Kramer et al.
for MedPAC identified 13 conditions for which readmissions were deemed
as potentially preventable among SNF and IRF
populations.^{234 235} Although much of the existing literature
addresses hospital readmissions more broadly and potentially avoidable
hospitalizations for specific settings like long-term care, these
findings are relevant to the development of potentially preventable
readmission measures for PAC.^{236 237 238}
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\231\ Goldfield, N.I., McCullough, E.C., Hughes, J.S., et al.:
Identifying potentially preventable readmissions. Health Care Finan.
Rev. 30(1):75-91, 2008. Available from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4195042/.
\232\ National Quality Forum: Prevention Quality Indicators
Overview. 2008.
\233\ MedPAC: Online Appendix C: Medicare Ambulatory Care
Indicators for the Elderly. pp. 1-12, prepared for Chapter 4, 2011.
Available from: http://www.medpac.gov/documents/reports/Mar11_Ch04_APPENDIX.pdf?sfvrsn=0.
\234\ Kramer, A., Lin, M., Fish, R., et al.: Development of
Inpatient Rehabilitation Facility Quality Measures: Potentially
Avoidable Readmissions, Community Discharge, and Functional
Improvement. pp. 1-42, 2015. Available from http://www.medpac.gov/documents/contractor-reports/development-of-inpatient-rehabilitation-facility-quality-measures-potentially-avoidable-readmissions-community-discharge-and-functional-improvement.pdf?sfvrsn=0.
\235\ Kramer, A., Lin, M., Fish, R., et al.: Development of
Potentially Avoidable Readmission and Functional Outcome SNF Quality
Measures. pp. 1-75, 2014. Available from http://www.medpac.gov/documents/contractor-reports/mar14_snfqualitymeasures_contractor.pdf?sfvrsn=0.
\236\ Allaudeen, N., Vidyarthi, A., Maselli, J., et al.:
Redefining readmission risk factors for general medicine patients.
J. Hosp. Med. 6(2):54-60, 2011. doi:10.1002/jhm.805.
\237\ Gao, J., Moran, E., Li, Y.-F., et al.: Predicting
potentially avoidable hospitalizations. Med. Care 52(2):164-171,
2014. doi:10.1097/MLR.0000000000000041.
\238\ Walsh, E.G., Wiener, J.M., Haber, S., et al.: Potentially
avoidable hospitalizations of dually eligible Medicare and Medicaid
beneficiaries from nursing facility and home[hyphen]and
community[hyphen]based services waiver programs. J. Am. Geriatr.
Soc. 60(5):821-829, 2012. doi:10.1111/j.1532-5415.2012.03920.x.

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[[Page 25224]]

Potentially Preventable Readmission Measure Definition: We
conducted a comprehensive environmental scan, analyzed claims data, and
obtained input from a TEP to develop a definition and list of
conditions for which hospital readmissions are potentially preventable.
The Ambulatory Care Sensitive Conditions and Prevention Quality
Indicators, developed by AHRQ, served as the starting point in this
work. For patients in the 30-day post-PAC discharge period, a
potentially preventable readmission (PPR) refers to a readmission for
which the probability of occurrence could be minimized with adequately
planned, explained, and implemented post-discharge instructions,
including the establishment of appropriate follow-up ambulatory care.
Our list of PPR conditions is categorized by 3 clinical rationale
groupings:
Inadequate management of chronic conditions;
Inadequate management of infections; and
Inadequate management of other unplanned events.
Additional details regarding the definition for potentially
preventable readmissions are available in the document titled, Proposed
Measure Specifications for Measures Proposed in the FY 2017 LTCH QRP
NPRM, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
This proposed measure focuses on readmissions that are potentially
preventable and also unplanned. Similar to the All-Cause Unplanned
Readmission Measure for 30 Days Post-Discharge from LTCHs (NQF #2512),
this proposed measure uses the current version of the CMS Planned
Readmission Algorithm as the main component for identifying planned
readmissions. A complete description of the CMS Planned Readmission
Algorithm, which includes lists of planned diagnoses and procedures,
can be found on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. In addition to the CMS
Planned Readmission Algorithm, this proposed measure incorporates
procedures that are considered planned in post-acute care settings, as
identified in consultation with TEPs. Full details on the planned
readmissions criteria used, including the CMS Planned Readmission
Algorithm and additional procedures considered planned for post-acute
care, can be found in the document titled, Proposed Measure
Specifications for Measures Proposed in the FY 2017 LTCH QRP NPRM,
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
The proposed measure, Potentially Preventable 30-Day Post-Discharge
Readmission Measure for LTCH QRP, assesses potentially preventable
readmission rates while accounting for patient demographics, principal
diagnosis in the prior hospital stay, comorbidities, and other patient
factors. While estimating the predictive power of patient
characteristics, the model also estimates a facility-specific effect,
common to patients treated in each facility. This proposed measure is
calculated for each LTCH based on the ratio of the predicted number of
risk-adjusted, unplanned, potentially preventable hospital readmissions
that occur within 30 days after an LTCH discharge, including the
estimated facility effect, to the estimated predicted number of risk-
adjusted, unplanned inpatient hospital readmissions for the same
patients treated at the average LTCH. A ratio above 1.0 indicates a
higher than expected readmission rate (worse) while a ratio below 1.0
indicates a lower than expected readmission rate (better). This ratio
is referred to as the standardized risk ratio (SRR). The SRR is then
multiplied by the overall national raw rate of potentially preventable
readmissions for all LTCH stays. The resulting rate is the risk-
standardized readmission rate (RSRR) of potentially preventable
readmissions.
An eligible LTCH stay is followed until: (1) The 30-day post-
discharge period ends; or (2) the patient is readmitted to an acute
care hospital (IPPS or CAH) or LTCH. If the readmission is unplanned
and potentially preventable, it is counted as a readmission in the
measure calculation. If the readmission is planned, the readmission is
not counted in the measure rate.
This measure is risk adjusted. The risk adjustment modeling
estimates the effects of patient characteristics, comorbidities, and
select health care variables on the probability of readmission. More
specifically, the risk-adjustment model for LTCHs account for
demographic characteristics (age, sex, original reason for Medicare
entitlement), principal diagnosis during the prior proximal hospital
stay, body system specific surgical indicators, prolonged mechanical
ventilation indicator, comorbidities, length of stay during the
patient's prior proximal hospital stay, length of stay in the intensive
care and coronary care unit (ICU and CCU), and number of acute care
hospitalizations in the preceding 365 days.
The proposed measure is calculated using 2 consecutive calendar
years of FFS claims data, to ensure the statistical reliability of this
measure for facilities. In addition, we are proposing a minimum of 25
eligible stays for public reporting of the proposed measure.
A TEP convened by our measure contractor provided recommendations
on the technical specifications of this proposed measure, including the
development of an approach to define potentially preventable hospital
readmission for PAC. Details from the TEP meetings, including TEP
members' ratings of conditions proposed as being potentially
preventable, are available in the TEP summary report available on the
CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html. We also
solicited stakeholder feedback on the development of this measure
through a public comment period held from November 2 through December
1, 2015. Comments on the measure varied, with some commenters
supportive of the proposed measure, while others either were not in
favor of the measure, or suggested potential modifications to the
measure specifications, such as including standardized function data. A
summary of the public comments is also available on the CMS Web site
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
The MAP encouraged continued development of the proposed measure.
Specifically, the MAP stressed the need to promote shared
accountability and ensure effective care transitions. More information
about the MAP's recommendations for this measure is available at:
http://www.qualityforum.org/Publications/2016/02/
MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-
_PAC-

[[Page 25225]]

LTC.aspx. At the time, the risk-adjustment model was still under
development. Following completion of that development work, we were
able to test for measure validity and reliability as identified in the
measure specifications document provided above. Testing results are
within range for similar outcome measures finalized in public reporting
and value-based purchasing programs, including the All-Cause Unplanned
Readmission Measure for 30 Days Post-Discharge from LTCHs (NQF #2512)
adopted into the LTCH QRP.
We reviewed the NQF's consensus endorsed measures and were unable
to identify any NQF-endorsed measures focused on potentially
preventable hospital readmissions. We are unaware of any other measures
for this IMPACT Act domain that have been endorsed or adopted by other
consensus organizations. Therefore, we are proposing the Potentially
Preventable 30-Day Post-Discharge Readmission Measure for LTCH QRP,
under the Secretary's authority to specify non-NQF-endorsed measures
under section 1899B(e)(2)(B) of the Act, for the LTCH QRP for the FY
2018 payment determination and subsequent years, given the evidence
previously discussed above.
We plan to submit the proposed measure to the NQF for consideration
of endorsement. If this proposed measure is finalized, we intend to
provide initial confidential feedback to LTCHs, prior to public
reporting of this proposed measure, based on 2 calendar years of data
from discharges in CY 2015 and 2016. We intend to publicly report this
proposed measure using data from CY 2016 and 2017.
We are inviting public comment on our proposal to adopt the
measure, Potentially Preventable 30-Day Post-Discharge Readmission
Measure for LTCH QRP.
7. LTCH QRP Quality Measure Proposed for the FY 2020 Payment
Determination and Subsequent Years
a. Background
In addition to the measures we are retaining as described in
section VIII.C.5. of the preamble of this proposed rule under our
policy described in section VIII.C.3. of the preamble of this proposed
rule and the new quality measures proposed in section VIII.C.6. of the
preamble of this proposed rule for the FY 2018 payment determinations
and subsequent years, we are also proposing one new quality measure to
meet the requirements of the IMPACT Act for the FY 2020 payment
determination and subsequent years. The proposed measure, Drug Regimen
Review Conducted with Follow-Up for Identified Issues-Post-Acute Care
(PAC) LTCH QRP, addresses the IMPACT Act quality domain of Medication
Reconciliation.
b. Quality Measure Addressing the IMPACT Act Domain of Medication
Reconciliation: Drug Regimen Review Conducted With Follow-up for
Identified Issues-Post Acute Care LTCH QRP
Sections 1899B(a)(2)(E)(i)(III) and 1899B(c)(1)(C) of the Act
require the Secretary to specify a quality measure to address the
domain of medication reconciliation by October 1, 2018 for IRFs, LTCHs,
and SNFs, and by January 1, 2017 for HHAs. We are proposing to adopt
the quality measure, Drug Regimen Review Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP, for the LTCH QRP as a patient-
assessment based, cross-setting quality measure to meet the IMPACT Act
requirements with data collection beginning April 1, 2018 for the FY
2020 payment determinations and subsequent years.
This proposed measure assesses whether PAC providers were
responsive to potential or actual clinically significant medication
issue(s) when such issues were identified. Specifically, the proposed
quality measure reports the percentage of patient stays in which a drug
regimen review was conducted at the time of admission and timely
follow-up with a physician occurred each time potential clinically
significant medication issues were identified throughout that stay.
For this proposed quality measure, drug regimen review is defined
as the review of all medications or drugs the patient is taking to
identify any potentially clinically significant medication issues. This
proposed quality measure utilizes both the processes of medication
reconciliation and a drug regimen review, in the event an actual or
potential medication issue occurred. The proposed measure informs
whether the PAC facility identified and addressed each clinically
significant medication issue and if the facility responded or addressed
the medication issue in a timely manner. Of note, drug regimen review
in PAC settings is generally considered to include medication
reconciliation and review of the patient's drug regimen to identify
potential clinically significant medication issues.\239\ This measure
is applied uniformly across the PAC settings.
---------------------------------------------------------------------------

\239\ Institute of Medicine. Preventing Medication Errors.
Washington DC: National Academies Press; 2006.
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Medication reconciliation is a process of reviewing an individual's
complete and current medication list. Medication reconciliation is a
recognized process for reducing the occurrence of medication
discrepancies that may lead to Adverse Drug Events (ADEs).\240\
Medication discrepancies occur when there is conflicting information
documented in the medical records. The World Health Organization
regards medication reconciliation as a standard operating protocol
necessary to reduce the potential for ADEs that cause harm to patients.
Medication reconciliation is an important patient safety process that
addresses medication accuracy during transitions in patient care and in
identifying preventable ADEs.\241\ The Joint Commission added
medication reconciliation to its list of National Patient Safety Goals
(2005), suggesting that medication reconciliation is an integral
component of medication safety.\242\ The Society of Hospital Medicine
published a statement in agreement of the Joint Commission's emphasis
and value of medication reconciliation as a patient safety goal.\243\
There is universal agreement that medication reconciliation directly
addresses patient safety issues that can result from medication
miscommunication and unavailable or incorrect
information.^{244 245 246}
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\240\ Ibid
\241\ Leotsakos A., et al. Standardization in patient safety:
the WHO High 5s project. Int J Qual Health Care. 2014:26(2):109-116.
\242\ The Joint Commission. 2016 Long Term Care: National
Patient Safety Goals Medicare/Medicaid Certification-based Option.
(NPSG.03.06.01).
\243\ Greenwald, J. L., Halasyamani, L., Greene, J., LaCivita,
C., et al. (2010). Making inpatient medication reconciliation
patient centered, clinically relevant and implementable: a consensus
statement on key principles and necessary first steps. Journal of
Hospital Medicine, 5(8), 477-485.
\244\ Leotsakos A., et al. Standardization in patient safety:
the WHO High 5s project. Int J Qual Health Care. 2014:26(2):109-116.
\245\ The Joint Commission. 2016 Long Term Care: National
Patient Safety Goals Medicare/Medicaid Certification-based Option.
(NPSG.03.06.01).
\246\ IHI. Medication Reconciliation to Prevent Adverse Drug
Events [Internet]. Cambridge, MA: Institute for Healthcare
Improvement; [cited 2016 Jan 11]. Available from: http://www.ihi.org/topics/adesmedicationreconciliation/Pages/default.aspx.
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The performance of timely medication reconciliation is valuable to
the process of drug regimen review. Preventing and responding to ADEs
is of critical importance as ADEs account for significant increases in
health services

[[Page 25226]]

utilization and costs, ^{247 248 249} including subsequent
emergency room visits and re-hospitalizations.\250\ Annual health care
costs in the United States are estimated at $3.5 billion, resulting in
7,000 deaths annually.^{251 252}
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\247\ Institute of Medicine. Preventing Medication Errors.
Washington DC: National Academies Press; 2006.
\248\ Jha AK, Kuperman GJ, Rittenberg E, et al. Identifying
hospital admissions due to adverse drug events using a computer-
based monitor. Pharmacoepidemiol Drug Saf. 2001;10(2):113-119.
\249\ Hohl CM, Nosyk B, Kuramoto L, et al. Outcomes of emergency
department patients presenting with adverse drug events. Ann Emerg
Med. 2011;58:270-279.
\250\ Kohn LT, Corrigan JM, Donaldson MS. To Err Is Human:
Building a Safer Health System Washington, DC: National Academies
Press; 1999.
\251\ Greenwald, J. L., Halasyamani, L., Greene, J., LaCivita,
C., et al. (2010). Making inpatient medication reconciliation
patient centered, clinically relevant and implementable: a consensus
statement on key principles and necessary first steps. Journal of
Hospital Medicine, 5(8), 477-485.
\252\ Phillips, David P.; Christenfeld, Nicholas; and Glynn,
Laura M. Increase in US Medication-Error Deaths between 1983 and
1993. The Lancet. 351:643-644, 1998.
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Medication errors include the duplication of medications, delivery
of an incorrect drug, inappropriate drug omissions, or errors in the
dosage, route, frequency, and duration of medications. Medication
errors are one of the most common types of medical error and can occur
at any point in the process of ordering and delivering a medication.
Medication errors have the potential to result in an
ADE.^{253 254 255 256 257 258} Inappropriately prescribed
medications are also considered a major healthcare concern in the
United States for the elderly population, with costs of roughly $7.2
billion annually.\259\
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\253\ Institute of Medicine. To err is human: building a safer
health system. Washington, DC: National Academies Press; 2000.
\254\ Lesar TS, Briceland L, Stein DS. Factors related to errors
in medication prescribing. JAMA. 1997:277(4): 312-317.
\255\ Bond CA, Raehl CL, & Franke T. Clinical pharmacy services,
hospital pharmacy staffing, and medication errors in United States
hospitals. Pharmacotherapy. 2002:22(2): 134-147.
\256\ Bates DW, Cullen DJ, Laird N, Petersen LA, Small SD, et
al. Incidence of adverse drug events and potential adverse drug
events. Implications for prevention. JAMA. 1995:274(1): 29-34.
\257\ Barker KN, Flynn EA, Pepper GA, Bates DW, & Mikeal RL.
Medication errors observed in 36 health care facilities. JAMA. 2002:
162(16):1897-1903.
\258\ Bates DW, Boyle DL, Vander Vliet MB, Schneider J, & Leape
L. Relationship between medication errors and adverse drug events. J
Gen Intern Med. 1995:10(4): 199-205.
\259\ Fu, Alex Z., et al. ``Potentially inappropriate medication
use and healthcare expenditures in the US community-dwelling
elderly.'' Medical care 45.5 (2007): 472-476.
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There is strong evidence that medication discrepancies occur during
transfers from acute care facilities to post-acute care facilities.
Discrepancies occur when there is conflicting information documented in
the medical records. Almost one-third of medication discrepancies have
the potential to cause patient harm.\260\ An estimated 50 percent of
patients experienced a clinically important medication error after
hospital discharge in an analysis of two tertiary care academic
hospitals.\261\
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\260\ Wong, Jacqueline D., et al. ``Medication reconciliation at
hospital discharge: evaluating discrepancies.'' Annals of
Pharmacotherapy 42.10 (2008): 1373-1379.
\261\ Kripalani S, Roumie CL, Dalal AK, et al. Effect of a
pharmacist intervention on clinically important medication errors
after hospital discharge: A randomized controlled trial. Ann Intern
Med. 2012:157(1):1-10.
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Medication reconciliation has been identified as an area for
improvement during transfer from the acute care facility to the
receiving post-acute care facility. PAC facilities report gaps in
medication information between the acute care hospital and the
receiving post-acute care setting when performing medication
reconciliation.^{262 263} Hospital discharge has been
identified as a particularly high risk time point, with evidence that
medication reconciliation identifies high levels of
discrepancy.^{264 265 266 267 268 269} Also, there is evidence
that medication reconciliation discrepancies occur throughout the
patient stay.^{270 271} For older patients, who may have
multiple comorbid conditions and thus multiple medications, transitions
between acute and post-acute care settings can be further
complicated,\272\ and medication reconciliation and patient knowledge
(medication literacy) can be inadequate post-discharge.\273\ The
proposed quality measure, Drug Regimen Review Conducted with Follow-Up
for Identified Issues-PAC LTCH QRP, provides an important component of
care coordination for PAC settings and would affect a large proportion
of the Medicare population who transfer from hospitals into PAC
services each year. For example, in 2013, 1.7 million Medicare FFS
beneficiaries had SNF stays, 338,000 beneficiaries had IRF stays, and
122,000 beneficiaries had LTCH stays.\274\
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\262\ Gandara, Esteban, et al. ``Communication and information
deficits in patients discharged to rehabilitation facilities: an
evaluation of five acute care hospitals.'' Journal of Hospital
Medicine 4.8 (2009): E28-E33.
\263\ Gandara, Esteban, et al. ``Deficits in discharge
documentation in patients transferred to rehabilitation facilities
on anticoagulation: results of a system wide evaluation.'' Joint
Commission Journal on Quality and Patient Safety 34.8 (2008): 460-
463.
\264\ Coleman EA, Smith JD, Raha D, Min SJ. Post hospital
medication discrepancies: prevalence and contributing factors. Arch
Intern Med. 2005 165(16):1842-1847.
\265\ Wong JD, Bajcar JM, Wong GG, et al. Medication
reconciliation at hospital discharge: evaluating discrepancies. Ann
Pharmacother. 2008 42(10):1373-1379.
\266\ Hawes EM, Maxwell WD, White SF, Mangun J, Lin FC. Impact
of an outpatient pharmacist intervention on medication discrepancies
and health care resource utilization in post hospitalization care
transitions. Journal of Primary Care & Community Health. 2014;
5(1):14-18.
\267\ Foust JB, Naylor MD, Bixby MB, Ratcliffe SJ. Medication
problems occurring at hospital discharge among older adults with
heart failure. Research in Gerontological Nursing. 2012, 5(1): 25-
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\268\ Pherson EC, Shermock KM, Efird LE, et al. Development and
implementation of a post discharge home-based medication management
service. Am J Health Syst Pharm. 2014; 71(18): 1576-1583.
\269\ Pronovosta P, Weasta B, Scwarza M, et al. Medication
reconciliation: a practical tool to reduce the risk of medication
errors. J Crit Care. 2003; 18(4): 201-205.
\270\ Bates DW, Cullen DJ, Laird N, Petersen LA, Small SD, et
al. Incidence of adverse drug events and potential adverse drug
events. Implications for prevention. JAMA. 1995:274(1): 29-34.
\271\ Himmel, W., M. Tabache, and M. M. Kochen. ``What happens
to long-term medication when general practice patients are referred
to hospital?.''European journal of clinical pharmacology 50.4
(1996): 253-257.
\272\ Chhabra, P. T., et al. (2012). ``Medication reconciliation
during the transition to and from long-term care settings: a
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\273\ Kripalani S, Roumie CL, Dalal AK, et al. Effect of a
pharmacist intervention on clinically important medication errors
after hospital discharge: A randomized controlled trial. Ann Intern
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\274\ March 2015 Report to the Congress: Medicare Payment
Policy. Medicare Payment Advisory Commission; 2015.
---------------------------------------------------------------------------

A TEP convened by our measure development contractor provided input
on the technical specifications of this proposed quality measure, Drug
Regimen Review Conducted with Follow-Up for Identified Issues-PAC LTCH
QRP, including components of reliability, validity and the feasibility
of implementing the measure across PAC settings. The TEP supported the
measure's implementation across PAC settings and was supportive of our
plans to standardize this measure for cross-setting development. A
summary of the TEP proceedings is available on the PAC Quality
Initiatives Downloads and Videos Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
We solicited stakeholder feedback on the development of this
measure by means of a public comment period held from September 18
through October 6, 2015. Through public comments submitted by several
stakeholders and organizations, we received support for implementation
of this proposed measure. The public comment summary

[[Page 25227]]

report for the proposed measure is available on the CMS Web site at:
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
The NQF-convened MAP met on December 14 and 15, 2015 and provided
input on the use of this proposed measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP. The MAP
encouraged continued development of the proposed quality measure to
meet the mandate added by the IMPACT Act. The MAP agreed with the
measure gaps identified by CMS including medication reconciliation, and
stressed that medication reconciliation be present as an ongoing
process. More information about the MAP's recommendations for this
measure is available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
Since the MAP's review and recommendation of continued development,
we have continued to refine this proposed measure in compliance with
the MAP's recommendations. The proposed measure is both consistent with
the information submitted to the MAP and support its scientific
acceptability for use in quality reporting programs. Therefore, we are
proposing this measure for implementation in the LTCH QRP as required
by the IMPACT Act.
We reviewed the NQF's endorsed measures and identified one NQF-
endorsed cross-setting and quality measure related to medication
reconciliation, which applies to the SNF, LTCH, IRF, and HHA settings
of care: Care for Older Adults (COA), (NQF #0553). The quality measure,
Care for Older Adults (COA), (NQF #0553) assesses the percentage of
adults 66 years and older who had a medication review. The Care for
Older Adults (COA), (NQF #0553) measure requires at least one
medication review conducted by a prescribing practitioner or clinical
pharmacist during the measurement year and the presence of a medication
list in the medical record. This is in contrast to the proposed quality
measure, Drug Regimen Review Conducted with Follow-Up for Identified
Issues-PAC LTCH QRP, which reports the percentage of patient stays in
which a drug regimen review was conducted at the time of admission and
that timely follow-up with a physician occurred each time one or more
potential clinically significant medication issues were identified
throughout that stay.
After careful review of both quality measures, we have decided to
propose the quality measure, Drug Regimen Review Conducted with Follow-
Up for Identified Issues-PAC LTCH QRP for the following reasons:
The IMPACT Act requires the implementation of quality
measures, using patient assessment data that are standardized and
interoperable across PAC settings. The proposed quality measure, Drug
Regimen Review Conducted with Follow-Up for Identified Issues-PAC LTCH
QRP, employs three standardized patient-assessment data elements for
each of the four PAC settings so that data are standardized,
interoperable, and comparable; whereas, the Care for Older Adults
(COA), (NQF #0553) quality measure does not contain data elements that
are standardized across all four PAC settings.
The proposed quality measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, requires
the identification of potential clinically significant medication
issues at the beginning, during, and at the end of the patient's stay
to capture data on each patient's complete PAC stay; whereas, the Care
for Older Adults (COA), (NQF #0553) quality measure only requires
annual documentation in the form of a medication list in the medical
record of the target population.
The proposed quality measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, includes
identification of the potential clinically significant medication
issues and communication with the physician (or physician designee) as
well as resolution of the issue(s) within a rapid timeframe (by
midnight of the next calendar day); whereas, the Care for Older Adults
(COA), (NQF #0553) quality measure does not include any follow-up or
timeframe in which the follow-up would need to occur.
The proposed quality measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, does not
have age exclusions; whereas, the Care for Older Adults (COA), (NQF
#0553) quality measure limits the measure's population to patients aged
66 and older.
The proposed quality measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, would be
reported to LTCHs quarterly to facilitate internal quality monitoring
and quality improvement in areas such as patient safety, care
coordination, and patient satisfaction; whereas the Care for Older
Adults (COA), (NQF #0553) quality measure would not enable quarterly
quality updates, and thus data comparisons within and across PAC
providers would be difficult due to the limited data and scope of the
data collected.
Therefore, based on the evidence discussed above, we are proposing
to adopt the quality measure entitled, Drug Regimen Review Conducted
with Follow-Up for Identified Issues-PAC LTCH QRP, for the LTCH QRP for
FY 2020 payment determination and subsequent years. We plan to submit
the quality measure to the NQF for consideration for endorsement.
The calculation of the proposed quality measure would be based on
the data collection of three standardized items to be included in the
LTCH CARE Data Set. The collection of data by means of the standardized
items would be obtained at admission and discharge. For more
information about the data submission required for this proposed
measure, we refer readers to section VIII.C.9. of the preamble of this
proposed rule.
The standardized items used to calculate this proposed quality
measure do not duplicate existing items currently used for data
collection within the LTCH CARE Data Set. The proposed measure
denominator is the number of patient stays with a discharge or expired
assessment during the reporting period. The proposed measure numerator
is the number of stays in the denominator where the medical record
contains documentation of a drug regimen review conducted at: (1)
Admission; and (2) discharge with a lookback through the entire patient
stay with all potential clinically significant medication issues
identified during the course of care and followed up with a physician
or physician designee by midnight of the next calendar day. This
measure is not risk adjusted. For technical information about this
proposed measure, including information about the measure calculation
and discussion pertaining to the standardized items used to calculate
this measure, we refer readers to the document titled, Proposed Measure
Specifications for Measures Proposed in the FY 2017 LTCH QRP NPRM
available at: http://www.cms.gov/Medicare/Quality-Initiative-Patient-Assessment-Instruments/LTCH-Quality-Reporting-Program-Measures-Information-.html.
Data for the proposed quality measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP,

[[Page 25228]]

would be collected using the Long-Term Care Hospital LTCH CARE Data Set
with submission through the Quality Improvement Evaluation System
(QIES) Assessment Submission and Processing (ASAP) system.
We are inviting public comment on our proposal to adopt the quality
measure, Drug Regimen Review Conducted with Follow-Up for Identified
Issues-PAC LTCH QRP for the LTCH QRP.
8. LTCH QRP Quality Measures and Measure Concepts Under Consideration
for Future Years
We are inviting comment on the importance, relevance,
appropriateness, and applicability of each of the quality measures
listed in the table below for future years in the LTCH QRP. We are
developing a measure related to the IMPACT Act domain, ``Accurately
communicating the existence of and providing for the transfer of health
information and care preferences of an individual to the individual,
family caregiver of the individual, and providers of services
furnishing items and services to the individual, when the individual
transitions.'' We are considering the possibility of adding quality
measures that rely on the patient's perspective; that is, measures that
include patient-reported experience of care and health status data. We
recently posted a ``Request for Information to Aid in the Design and
Development of a Survey Regarding Patient and Family Member Experiences
with Care Received in Long-Term Care Hospitals'' (80 FR 72722 through
72725).
Also, we are considering a measure focused on pain that relies on
the collection of patient-reported pain data, and another that
documents whether a patient has an Advance Care Plan. Finally, we are
considering measures related to patient safety: Venous Thromboembolism
Prophylaxis, Ventilator Weaning (Liberation) Rate, Compliance with
Spontaneous Breathing Trial (SBT) (including Tracheostomy Collar Trial
(TCT) or Continuous Positive Airway Pressure (CPAP) Breathing Trial) by
Day 2 of the LTCH Stay, and Patients Who Received an Antipsychotic
Medication.

LTCH QRP Quality Measures Under Consideration for Future Years
------------------------------------------------------------------------

-------------------------------------------------------------------------
IMPACT Act Domain: Accurately communicating the existence of and
providing for the transfer of health information and care preferences
of an individual to the individual, family caregiver of the individual,
and providers of services furnishing items and services to the
individual, when the individual transitions
IMPACT Act Measure
Transfer of health information and care preferences when an
individual transitions
NQS Priority: Patient- and Caregiver-Centered Care
Measures
Patient Experience of Care
Percent of Patients with Moderate to Severe Pain
Advance Care Plan
NQS Priority: Patient Safety
Measures
Ventilator Weaning (Liberation) Rate
Compliance with Spontaneous Breathing Trial (SBT)
(including Tracheostomy Collar Trial (TCT) or Continuous Positive
Airway Pressure (CPAP) Breathing Trial) by Day 2 of the LTCH Stay
Patients Who Received an Antipsychotic Medication
Venous Thromboembolism Prophylaxis
------------------------------------------------------------------------

9. Proposed Form, Manner, and Timing of Quality Data Submission for the
FY 2018 Payment Determination and Subsequent Years
a. Background
Section 1886(m)(5)(C) of the Act requires that, for the FY 2014
payment determination and subsequent years, each LTCH submit to the
Secretary data on quality measures specified by the Secretary. In
addition, section 1886(m)(5)(F) of the Act requires that, for the
fiscal year beginning on the specified application date, as defined in
section 1899B(a)(2)(E) of the Act, and each subsequent year, each LTCH
submit to the Secretary data on measures specified by the Secretary
under section 1899B of the Act. The data required under sections
1886(m)(5)(C) and (F) of the Act must be submitted in a form and
manner, and at a time, specified by the Secretary. As required by
section 1886(m)(5)(A)(i) of the Act, for any LTCH that does not submit
data in accordance with sections 1886(m)(5)(C) and (F) of the Act for a
given fiscal year, the annual payment for discharges occurring during
the fiscal year must be reduced by 2 percentage points.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49749 through
49752), we:
Adopted timing for new LTCHs to begin reporting quality
data under the LTCH QRP for the FY 2017 payment determination and
subsequent years; and
Adopted new deadlines that allow 4.5 months (approximately
135 days) after the end of each calendar year quarter for quality data
submission, beginning with quarter 4 of 2015 (October 2015 through
December 2015). The new deadlines apply to all LTCH QRP quality
measures (except Influenza Vaccination Coverage Among Healthcare
Personnel (NQF #0431)) for the FY 2017 and FY 2018 payment
determinations and subsequent years.
b. Timeline for Data Submission Under the LTCH QRP for the FY 2018
Payment Determination and Subsequent Years
The table below presents the data collection period, data
submission (for the LTCH CARE Data Set-assessment based and CDC
measures) and data correction timelines for quality measures affecting
the FY 2018 and subsequent years payment determination.

[[Page 25229]]

Summary Details on the LTCH CARE Data Set and CDC NHSN Data Collection Period and Data Submission Timeline for
Previously Adopted Quality Measures Affecting the FY 2018 Payment Determination and Subsequent Years *
----------------------------------------------------------------------------------------------------------------
Quarterly review
Data collection/ and correction
submission period and data First APU
Quality measure Submission method quarterly submission determination
reporting deadlines for affected
period(s) payment
determination
----------------------------------------------------------------------------------------------------------------
NQF #0678: Percent of Residents LTCH CARE Data Set/ 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
or Patients with Pressure QIES ASAP. 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
Ulcers That Are New or Worsened 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
(Short Stay) (76 FR 51748 16-12/31/16; (Q4);
through 51750). Quarterly for Approximately 135
each subsequent days after the
calendar year. end of each
quarter.
NQF #0138: NHSN Catheter- CDC NHSN.......... 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
Associated Urinary Tract 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
Infection (CAUTI) Outcome 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
Measure (76 FR 51745 through 16-12/31/16; (Q4);
51747). Quarterly for Approximately 135
each subsequent days after the
calendar year. end of each
quarter.
NQF #0139: NHSN Central-Line CDC NHSN.......... 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
Associated Bloodstream 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
Infection (CLABSI) Outcome 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
Measure (76 FR 51747 through 16-12/31/16; (Q4);
51748). Quarterly for Approximately 135
each subsequent days after the
calendar year. end of each
quarter.
NQF #1716: NHSN Facility-wide CDC NHSN.......... 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
Inpatient Hospital-onset 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
Methicillin-resistant 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
Staphylococcus aureus (MRSA) 16-12/31/16; (Q4);
Bacteremia Outcome Measure (78 Quarterly for Approximately 135
FR 50863 through 50865). each subsequent days after the
calendar year. end of each
quarter.
NQF #1717: NHSN Facility-wide CDC NHSN.......... 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
Inpatient Hospital-onset 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
Clostridium difficile Infection 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
(CDI) Outcome Measure (78 FR 16-12/31/16; (Q4);
50865 through 50868). Quarterly for Approximately 135
each subsequent days after the
calendar year. end of each
quarter.
NHSN Ventilator-Associated Event CDC NHSN.......... 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
(VAE) Outcome Measure (79 FR 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
50301 through 50305). 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
16-12/31/16; (Q4);
Quarterly for Approximately 135
each subsequent days after the
calendar year. end of each
quarter.
NQF #0680: Percent of Residents LTCH CARE Data Set/ 10/1/15-12/31/15, 5/15/16, 8/15/16 FY 2018.
or Patients Who Were Assessed QIES ASAP. 1/1/16-3/31/16 **. **.
and Appropriately Given the
Seasonal Influenza Vaccine
(Short Stay) (77 FR 53624
through 53627).
NQF #0431: Influenza Vaccination CDC NHSN.......... 10/1/16-3/31/17, 5/15/17, 5/15 for FY 2018.
Coverage Among Healthcare 10/1-3/31 for subsequent years.
Personnel (77 FR 53630 through subsequent years.
53631).
NQF #2512: All[dash]Cause Medicare FFS N/A............... N/A............... FY 2018.
Unplanned Readmission Measure Claims Data.
for 30-Days Post[dash]Discharge
from Long-Term Care Hospitals
(78 FR 50868 through 50874).
NQF #0674: Application of LTCH CARE Data Set/ 4/1/16-6/30/16, 7/ 11/15/16 (Q2), 2/ FY 2018.
Percent of Residents QIES ASAP. 1/16-9/30/16, 10/ 15/17 (Q3), 5/15/
Experiencing One or More Falls 1/16-12/31/16; 17 (Q4);
with Major Injury (Long Stay) Quarterly for Quarterly
(80 FR 49736 through 49739). each subsequent approximately 135
calendar year. days after the
end of each
quarter for
subsequent years.
NQF #2631: Percent of Long-Term LTCH CARE Data Set/ 4/1/16-6/30/16, 7/ 11/15/16 (Q2), 2/ FY 2018.
Care Hospital Patients with an QIES ASAP. 1/16-9/30/16, 10/ 15/17 (Q3), 5/15/
Admission and Discharge 1/16-12/31/16; 17 (Q4);
Functional Assessment and a Quarterly for Quarterly
Care Plan That Addresses each subsequent approximately 135
Function (79 FR 50298 through calendar year. days after the
50301). end of each
quarter for
subsequent years.
NQF #2631: Application of LTCH CARE Data Set/ 4/1/16-6/30/16, 7/ 11/15/16 (Q2), 2/ FY 2018.
Percent of Long-Term Care QIES ASAP. 1/16-9/30/16, 10/ 15/17 (Q3), 5/15/
Hospital Patients with an 1/16-12/31/16; 17 (Q4);
Admission and Discharge Quarterly for Quarterly
Functional Assessment and a each subsequent approximately 135
Care Plan That Addresses calendar year. days after the
Function (80 FR 49739 through end of each
49747). quarter for
subsequent years.

[[Page 25230]]

NQF #2632: Functional Outcome LTCH CARE Data Set/ 4/1/16-6/30/16, 7/ 11/15/16 (Q2), 2/ FY 2018.
Measure: Change in Mobility QIES ASAP. 1/16-9/30/16, 10/ 15/17 (Q3), 5/15/
Among Long-Term Care Hospital 1/16-12/31/16; 17 (Q4);
Patients Requiring Ventilator Quarterly for Quarterly
Support (79 FR 50298 through each subsequent approximately 135
50301). calendar year. days after the
end of each
quarter for
subsequent years.
----------------------------------------------------------------------------------------------------------------
* We refer readers to the table below for an illustration of the CY quarterly data collection/submission
quarterly reporting periods and correction and submission deadlines for all APU years.
** For this measure, Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal
Influenza Vaccine, we refer readers to the proposals on data submission for this measure we are making in
section VIII.C.9.d. of the preamble of this proposed rule. These proposals for the FY 2019 payment
determination and for FY 2020 payment determination and subsequent years are illustrated in the tables in that
section.

Further, in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49749
through 49752), we established that the LTCH CARE Data Set-based and
CDC NHSN measures finalized for adoption into the LTCH QRP would follow
a calendar year schedule with quarterly reporting periods, followed by
quarterly review and correction periods and submission deadlines. This
pattern is illustrated in the table below and is in place for all APU
years unless otherwise specified. We also wish to illustrate that for
the measures finalized for use in the LTCH QRP that use the LTCH CARE
Data Set or CDC NHSN data sources, payment determination would
subsequently use the data collection and deadlines shown below unless
otherwise specified.

Annual CY LTCH CARE Data Set and CDC NHSN Data Collection/Submission Reporting Periods and Data Submission/
Correction Deadlines for Payment Determinations
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Proposed CY data collection quarter Data collection/ Quarterly review and correction periods and data
submission quarterly submission deadlines for payment determination
reporting period
----------------------------------------------------------------------------------------------------------------
Quarter 1........................... January 1-March 31 * ** April 1-August 15 *.... Deadline: August 15.* **
Quarter 2........................... April 1-June 30........ July 1-November 15..... Deadline: November 15.
Quarter 3........................... July 1-September 30.... October 1-February 15.. Deadline: February 15.
Quarter 4........................... October 1-December 31 * January 1-May 15 *..... Deadline: May 15.* **
**.
----------------------------------------------------------------------------------------------------------------
* The annual data submission time frame for the measure, Influenza Vaccination Coverage among Healthcare
Personnel, is October 1 through March 31 of the subsequent year with a reporting deadline of May 15 in that
subsequent year.
** For the measure, Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal
Influenza Vaccine, we refer readers to the proposals on data submission for this measure we are making in
section VIII.C.9.d. of the preamble of this proposed rule. These proposals for the FY 2019 payment
determination and for FY 2020 payment determination and subsequent years are illustrated in the tables in that
section.

c. Proposed Timeline and Data Submission Mechanisms for the FY 2018
Payment Determination and Subsequent Years for Proposed New LTCH QRP
Resource Use and Other Measures--Claims-Based Measures
The MSPB-PAC LTCH QRP measure; Discharge to Community-PAC LTCH QRP
measure and Potentially Preventable 30-Day Post-Discharge Readmission
Measure for LTCH QRP, which we have proposed in this proposed rule, are
Medicare FFS claims-based measures. Because claims-based measures can
be calculated based on data that are already reported to the Medicare
program for payment purposes, no additional information collection
would be required from LTCHs. As discussed in section VIII.C.6. of the
preamble of this proposed rule, these measures would use 2 years of
claims-based data beginning with CY 2015 and CY 2016 claims to inform
confidential feedback reports for LTCHs, and CYs 2016 and 2017 claims
data for public reporting.
We are inviting public comments on this proposal.
d. Proposal To Revise the Previously Adopted Data Collection Period and
Submission Deadlines for Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short
Stay) (NQF #0680) for the FY 2019 Payment Determination and Subsequent
Years
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through
53627), we adopted the Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short
Stay) (NQF #0680) measure for the FY 2016 payment determination and
subsequent years. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50858
through 50861), we finalized the data submission timelines and
submission deadlines for the measures for FY 2016 and FY 2017 payment
determinations. We refer readers to the FY 2013 and FY 2014 IPPS/LTCH
PPS final rules for a more detailed discussion of the measure,
timelines and deadlines.
In these previous rules, we finalized that LTCHs were required to
perform data collection in alignment with the influenza vaccination
season (IVS); that is, obtaining the vaccination status of patients who
are in an LTCH for one or more days between the dates of October 1 of a
given year through March 31 of the subsequent year, or what the CDC
terms the Influenza Vaccination Season (IVS), but for only those
patients whose

[[Page 25231]]

corresponding admissions and discharges occurred during the IVS.
Through analysis of the quality data submitted for this measure, we
discovered that only requiring LTCH providers to submit patient
Influenza vaccination data during the IVS (October 1 of a given year
through March 31 of the subsequent year) inadvertently limits the data
collection to only a subset of patients whose stays at an LTCH qualify
for inclusion in the measure calculation. This measure is structured in
such a way that all patients in an LTCH for one or more days during the
IVS are included in the measure. For those patients, an LTCH should
have the opportunity to demonstrate the Influenza vaccination status of
these patients on either their LTCH CARE Data Set (LCDS) admission
assessment or on their discharge assessment (planned, unplanned, or
expired). By limiting data collection to only those assessments
obtained during the IVS, per our previously finalized policy, CMS
inadvertently excluded the collection of Influenza vaccination status
data on those patients who were in an LTCH for at least one day during
the IVS, but for whom the associated LCDS admission and/or discharge
assessments occurred outside of the IVS (prior to October 1 or after
March 31).
For these reasons, we are proposing that beginning with the FY 2019
payment determination and subsequent years, which includes the CY 2016/
2017 IVS, data collection and submission for the measure Percent of
Residents or Patients Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay) (NQF #0680) will be required
year-round, thus including all patients in the LTCH one or more days
during the IVS (October 1 of any given CY through March 31 of the
subsequent CY), regardless of the associated LCDS admission and
discharge dates. This includes, for example, a patient that is admitted
September 15 of a given year, and discharged April 1 of the subsequent
year (thus, in the LTCH during the IVS). This proposal would enable the
important data collection necessary to indicate that a patient who had
an admission or a discharge outside of the IVS, but was in the facility
during the vaccination season, ensuring that the data collected and
submitted to CMS is representative of the status of all patients within
the IVS, rather than only a subset of those who had both admissions and
discharges within the IVS.
Further, our proposal effectively changes the data collection and
submission timeline for this measure to include 4 calendar quarters,
that is based on the influenza season (July 1 of any given year through
June 30 of the subsequent year), rather than on the calendar year. For
the purposes of APU determination and for public reporting, data
calculation and analysis uses data from an influenza vaccination season
which takes place within the influenza season itself. While the
influenza vaccination season is October 1 of a given year (or when the
vaccine becomes available) through March 31 of the subsequent year,
this timeframe rests within a greater time period of the influenza
season, which spans 12 months--that is, July 1 of a given year through
June 30 of the subsequent year, as defined by the CDC. Thus, for this
measure, we utilize data from a timeframe of 12 months that mirrors the
influenza season which is July 1 of a given year through June 30 of the
subsequent year. In addition, for the APU determination, we review data
submitted beginning on July 1 of the calendar year 2 years prior to the
calendar year of the APU effective date and ending June 30 of the
subsequent calendar year, one year prior to the calendar year of the
APU effective date. For example, and as provided in the below for the
FY 2020 (October 1, 2019) APU determination, we review data submission
beginning July 1, 2017 through June 30, 2018 for the 2017/2018
influenza vaccination season (October 1, 2017 [or when the vaccine
becomes available] through March 31, 2018), so as to capture all data
that an LTCH will have submitted with regard to the 2017/2018 influenza
vaccination season itself which resides within the associated influenza
season. We will use assessment data from the influenza season so as to
ensure full capture of vaccination status in the IVS that resides
within the influenza season period, as well for public reporting.
Further, because we enable the opportunity to review and correct data
for all assessment based LCDS measures within the LTCH QRP, we continue
to follow quarterly calendar data collection/submission quarterly
reporting period(s) and their subsequent quarterly review and
correction periods with data submission deadlines for public reporting
and payment determinations. However, rather than using a standard CY
timeframe, these quarterly data collection/submission periods and their
subsequent quarterly review and correction periods and submission
deadlines begin with CY quarter 3, July 1, of a given year and end CY
quarter 2, June 30, of the following year.
The proposed revisions to the data collection period for the
measure Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680), will ultimately have the effect of helping LTCHs capture
Influenza vaccination data on any LTCH patients that were in their
hospital for one or more days during the IVS, by ensuring that such
patient's admission and discharge assessments, regardless of the date
of those assessments, capture potential influenza vaccination data, and
allow the appropriate inclusion of patients and thus the accurate
calculation of data for this measure. Lastly, this clarification will
also remove any ambiguity and ensure that LTCHs are receiving credit
for recording the vaccination status of all patients that were in their
hospital for at least one day during any given IVS, regardless of the
date(s) of their admission and/or discharge.
We would like to note that in order to implement the newly proposed
revision to the data collection timeframes and submission deadlines for
this measure, the FY 2019 payment determination will only be based on
three CY quarters, as this policy will not go into effect until October
1, 2016, which is the start of the 2016/2017 IVS. Because of this, we
are not requiring LTCHs to respond to the Influenza vaccination items
on the LCDS admission or discharge assessments that take place during
Q3 2016 (7/1/16-9/30/16), as this quarter will occur prior to the
effective date of this policy, if finalized. This is illustrated in the
table for the FY 2019 payment determination, below. All subsequent
payment determinations will be based on four CY quarters, as discussed
above, beginning with Q3 of CY 2017 for the FY 2020 payment
determination. This is illustrated in table for the FY 2020 payment
determination and subsequent years, below.

[[Page 25232]]

FY 2019 Payment Determination: * Summary Details on Data Collection Period and Data Submission Timeline for
Previously Adopted Quality Measure, NQF #0680 Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine
----------------------------------------------------------------------------------------------------------------
Quarterly review and
Data collection/ correction periods data
Submission method submission quarterly submission deadlines APU determination
reporting period(s) for payment affected
determination *
----------------------------------------------------------------------------------------------------------------
Finalized Measure: NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (77 FR 53624 through 53627)
----------------------------------------------------------------------------------------------------------------
LTCH CARE Data Set/QIES ASAP System.. CY 16.................. 1/1/2017-5/15/17 FY 2019.
10/1/16-12/31/16....... deadline.
CY 17 Q1............... 4/1/2017-8/15/17
1/1/17-3/31/17......... deadline.
CY 17 Q2............... 7/1/17-11/15/17
4/1/17-6/30/17......... deadline.
----------------------------------------------------------------------------------------------------------------
* This table refers to the FY 2019 payment determination only. We refer readers to the table below for all
subsequent FY payment determinations for this measure.

FY 2020 Payment Determination and Subsequent Years: Summary Details on Data Collection Period and Data
Submission Timeline for Previously Adopted Quality Measure, NQF #0680 Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine
----------------------------------------------------------------------------------------------------------------
Quarterly review and
Data collection/ correction periods data
Submission method submission quarterly submission deadlines APU determination
reporting period(s) for payment affected
determination *
----------------------------------------------------------------------------------------------------------------
Finalized Measure: NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (77 FR 53624 through 53627)
----------------------------------------------------------------------------------------------------------------
LTCH CARE Data Set/QIES ASAP System.. CY 17 Q3............... 10/1/17-2/15/18 FY 2020
7/1/17-9/30/17......... deadline. .......................
Q3 (7/1-9/30).......... 10/1-2/15.............. Subsequent Years
CY 17 Q4............... 1/1/2018-5/15/18
10/1/17-12/31/17....... deadline
Q4 (10/1-12/31)........ 1/1-5/15...............
CY 18 Q1............... 4/1/2018-8/15/18
1/1/18-3/31/18......... deadline
Q1 (1/1-3/31).......... 4/1-8/15...............
CY 18 Q2............... 7/1/18-11/15/18
4/1/18-6/30/18......... deadline
Q2 (4/1-6/30).......... 7/1-11/15..............
----------------------------------------------------------------------------------------------------------------

We are inviting comment on our proposal to revise the data
collection and submission timeframe for the measure Percent of
Residents or Patients Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay) (NQF #0680), beginning with the
FY 2019 payment determination and subsequent years.
e. Proposed Timeline and Data Submission Mechanisms for the Proposed
LTCH QRP Quality Measure for the FY 2020 Payment Determination and
Subsequent Years
As discussed in section VIII.C.7. of the preamble of this proposed
rule, we are proposing that the data for the proposed quality measure,
Drug Regimen Review Conducted with Follow-Up for Identified Issues-PAC
LTCH QRP, affecting the FY 2020 payment determination and subsequent
years be collected by completing data elements that would be added to
the LTCH CARE Data Set with submission through the QIES ASAP system.
Data collection would begin on April 1, 2018. More information on LTCH
reporting using the QIES ASAP system is located at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Technical-Information.html.
For the FY 2020 payment determination, we are proposing to collect
CY 2018 Q2 through Q4 data, that is, beginning with admissions on April
1, 2018 through discharges on December 31, 2018, to remain consistent
with the usual April release schedule for the LTCH CARE Data Set, to
give LTCHs sufficient time to update their systems so that they can
comply with the new data reporting requirements, and to give CMS
sufficient time to determine compliance for the FY 2020 payment
determination. The proposed use of 3 quarters of data for the initial
year of assessment data reporting in the LTCH QRP is consistent with
the approach we used previously for the SNF, IRF, and Hospice QRPs.
The table below presents the proposed data collection period and
data submission timelines for the new proposed LTCH QRP quality measure
for the FY 2020 payment determination. We are inviting public comments
on this proposal.

[[Page 25233]]

Details on the Proposed Data Collection Period and Data Submission Timeline for Resource Use and Other Measures
Affecting the FY 2020 Payment Determination
----------------------------------------------------------------------------------------------------------------
Quarterly review
and correction
Data collection/ periods and data
Quality measure Submission method submission submission APU determination
quarterly deadlines for affected
reporting period payment
determination
----------------------------------------------------------------------------------------------------------------
Drug Regimen Review Conducted LTCH CARE Data Set/ 4/1/18-6/30/18 11/15/18 (Q2), 2/ FY 2020.
with Follow-Up for Identified QIES ASAP. (Q2), 7/1/18-9/30/ 15/19 (Q3), 5/15/
Issues-PAC LTCH QRP. 18 (Q3), 10/1/18- 19 (Q4).
12/31/18 (Q4).
----------------------------------------------------------------------------------------------------------------

Following the close of the reporting quarters for the FY 2020
payment determination, LTCHs would have the already established
additional 4.5 months to correct their quality data and that the final
deadline for correcting data for the FY 2020 payment determination
would be May 15, 2019 for these measures. We are also proposing that
for the FY 2021 payment determination and subsequent years, we would
collect data using the calendar year reporting cycle as described in
section VIII.C.9.c. of the preamble of this proposed rule, and
illustrated in the table below. We are inviting public comments on this
proposal.

Proposed Data Collection Period and Data Correction Deadlines Affecting the FY 2021 Payment Determination and
Subsequent Years
----------------------------------------------------------------------------------------------------------------
Proposed quarterly
review and
Proposed data correction periods
Proposed CY data collection/ and data
Quality measure Submission method collection quarter submission submission
quarterly deadlines for
reporting period payment
determination
----------------------------------------------------------------------------------------------------------------
Drug regimen review conducted LTCH CARE Data Set/ Quarter 1......... January 1-March 31 April 1-August 15.
with follow-up for identified QIES ASAP. Quarter 2......... April 1-June 30... July 1-November
issues PAC LTCH QRP. Quarter 3......... July 1-September 15.
Quarter 4......... 30. October 1-February
October 1-December 15.
31. January 1-May 15.
----------------------------------------------------------------------------------------------------------------

10. LTCH QRP Data Completion Thresholds for the FY 2016 Payment
Determination and Subsequent Years
In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50311 through
50314), we finalized LTCH QRP thresholds for completeness of LTCH data
submissions. To ensure that LTCHs are meeting an acceptable standard
for completeness of submitted data, we finalized the policy that,
beginning with the FY 2016 payment determination and for each
subsequent year, LTCHs must meet or exceed two separate data
completeness thresholds: One threshold set at 80 percent for completion
of quality measures data collected using the LTCH CARE Data Set
submitted through the QIES and a second threshold set at 100 percent
for quality measures data collected and submitted using the CDC's NHSN.
In addition, we stated that we would apply the same thresholds to
all measures adopted as the LTCH QRP expands and LTCHs begin reporting
data on previously finalized measure sets. That is, as we finalize new
measures through the regulatory process, LTCHs will be held accountable
for meeting the previously finalized data completion threshold
requirements for each measure until such time that updated threshold
requirements are proposed and finalized through a subsequent regulatory
cycle.
Further, we finalized the requirement that an LTCH must meet or
exceed both thresholds to avoid receiving a 2 percentage point
reduction to their annual payment update for a given fiscal year,
beginning with FY 2016 and for all subsequent payment updates. For a
detailed discussion of the finalized LTCH QRP data completion
requirements, we refer readers to the FY 2015 IPPS/LTCH PPS final rule
(79 FR 50311 through 50314). We are not proposing any changes to these
policies.
11. LTCH QRP Data Validation Process for the FY 2016 Payment
Determination and Subsequent Years
Validation is intended to provide added assurance of the accuracy
of the data that will be reported to the public as required by sections
1886(m)(5)(E) and 1899B(g) of the Act. In the FY 2015 IPPS/LTCH PPS
proposed rule (79 FR 28275 through 28276), we proposed, for the FY 2016
payment determination and subsequent years, a process to validate the
data submitted for quality purposes. However, in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50314 through 50316), we did not finalize the
proposal; instead we decided to further explore suggestions from
commenters before finalizing the LTCH data validation process that we
proposed. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49752 through
49753), we did not propose any new policies related to data accuracy
validation. In this proposed rule, we are not proposing a data
validation policy because we are developing a policy that could be
applied to several PAC quality reporting programs. We intend to propose
a data validation policy through future rulemaking.
12. Proposed Change to Previously Codified LTCH QRP Submission
Exception and Extension Policies
We refer readers to Sec. 412.560(c) for requirements pertaining to
submission exception and extension for the FY 2017 payment
determination and subsequent years. At this time, we are proposing to
revise Sec. 412.560(c) to change the timing for submission of these
exception and extension requests from 30 days to 90 days from the date
of the qualifying event which is preventing an LTCH from submitting
their quality data for the LTCH QRP. We are proposing the increased
time allotted for the submission of the requests from 30 to 90 days to
be consistent with other quality reporting programs; for example, the
Hospital Inpatient Quality Reporting (IQR) Program is also proposing to
extend the deadline to 90 days in section VIII.C.15.a. of the preamble
of this proposed rule. We believe that this increased time will assist
providers experiencing an event in having the

[[Page 25234]]

time needed to submit such a request. With the exception of this one
change, we are not proposing any additional changes to the exception
and extension policies for the LTCH QRP at this time.
We are inviting public comments on the proposal to revise Sec.
412.560(c) to change the timing for submission of these exception and
extension requests from 30 days to 90 days from the date of the
qualifying event which is preventing an LTCH from submitting their
quality data for the LTCH QRP.
13. Previously Finalized LTCH QRP Reconsideration and Appeals
Procedures
We refer readers to Sec. 412.560(d) for a summary of our finalized
reconsideration and appeals procedures for the LTCH QRP for FY 2017
payment determination and subsequent years. We are not proposing any
changes to this policy. However, we wish to clarify that in order to
notify LTCHs found to be non-compliant with the reporting requirements
set forth for a given payment determination, we may include the QIES
mechanism in addition to U.S. mail, and we may elect to utilize the
MACs to administer such notifications.
14. Proposals and Policies Regarding Public Display of Measure Data for
the LTCH QRP and Procedures for the Opportunity To Review and Correct
Data and Information
a. Public Display of Measures
Section 1886(m)(5)(E) of the Act requires the Secretary to
establish procedures for making the LTCH QRP data available to the
public. In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through
49755), we finalized our proposals to display performance data for the
LTCH QRP quality measures by fall 2016 on a CMS Web site, such as the
Hospital Compare, after a 30-day preview period, and to give providers
an opportunity to review and correct data submitted to the QIES ASAP
system or to the CDC NHSN. The procedures for the opportunity to review
and correct data are provided in the following section. In addition, we
finalized the proposal to publish a list of LTCHs that successfully
meet the reporting requirements for the applicable payment
determination on the LTCH QRP Web site at: https://www.cms.gov/medicare/quality-initiatives-patient-assessment-instruments/ltch-quality-reporting/. In the FY 2016 IPPS/LTCH PPS final rule, we also
finalized that we would update the list after the reconsideration
requests are processed on an annual basis.
Also, in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through
49755), we finalized that the display of information for fall 2016
contains performance data on four quality measures:
Percent of Residents or Patients with Pressure Ulcers That
Are New or Worsened (Short Stay) (NQF #0678);
NHSN CAUTI Outcome Measure (NQF #0138);
NHSN CLABSI Outcome Measure (NQF #0139); and
All-Cause Unplanned Readmission Measure for 30-Days Post-
Discharge from LTCHs (NQF #2512).
The measures Percent of Residents or Patients with Pressure Ulcers
That Are New or Worsened (Short Stay) (NQF #0678), NHSN CAUTI Outcome
Measure (NQF #0138), and NHSN CLABSI Outcome Measure (NQF #0139) are
based on data collected beginning with the first quarter of 2015 or
discharges beginning on January 1, 2015. With the exception of the All-
Cause Unplanned Readmission Measure for 30-Days Post-Discharge from
LTCHs (NQF #2512), rates are displayed based on 4 rolling quarters of
data and would initially use discharges from January 1, 2015 through
December 31, 2015 (CY 2015) for Percent of Residents or Patients with
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) and
data collected from January 1, 2015 through December 31, 2015 for NHSN
CAUTI Outcome Measure (NQF #0138) and NHSN CLABSI Outcome Measure (NQF
#0139). For the readmissions measure, data will be publicly reported
beginning with data collected for discharges beginning January 1, 2013,
and rates would be displayed based on 2 consecutive years of data. For
LTCHs with fewer than 25 eligible cases, we are proposing to assign the
LTCH to a separate category: ``The number of cases is too small (fewer
than 25) to reliably tell how well the LTCH is performing.'' If an LTCH
has fewer than 25 eligible cases, the LTCH's readmission rates and
interval estimates would not be publicly reported for the measure.
Calculations for all four measures are discussed in detail in the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through 49755).
Pending the availability of data, we are proposing to publicly
report data in CY 2017 on 4 additional measures beginning with data
collected on these measures for the first quarter of 2015, or
discharges beginning on January 1, 2015: (1) Facility-wide Inpatient
Hospital-onset Methicillin-resistant Staphylococcus aureus (MRSA)
Bacteremia Outcome Measure (NQF #1716); (2) Facility-wide Inpatient
Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure
(NQF #1717); and beginning with the 2015-16 influenza vaccination
season these two measures; (3) Influenza Vaccination Coverage Among
Healthcare Personnel (NQF #0431); and (4) Percent of Residents or
Patients Who Were Assessed and Appropriately Given the Seasonal
Influenza Vaccine (Short Stay) (NQF #0680).
Standardized infection ratios (SIRs) for the Facility-wide
Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure (NQF #1716) and Facility-wide
Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome
Measure (NQF #1717) would be displayed based on 4 rolling quarters of
data and would initially use MRSA Bacteremia and CDI events that
occurred from January 1, 2015 through December 31, 2015 (CY 2015), for
calculations. We are proposing that the display of these ratios would
be updated quarterly.
Rates for the Influenza Vaccination Coverage Among Healthcare
Personnel (NQF #0431) would be displayed for personnel working in the
reporting facility October 1, 2015 through March 31, 2016. Rates for
the Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680) would be displayed for patients in the LTCH during the influenza
vaccination season, from October 1, 2015, through March 31, 2016. We
are proposing that the display of these rates would be updated annually
for subsequent influenza vaccination seasons.
Calculations for the MRSA Bacteremia and CDI Healthcare Associated
Infection (HAI) measures adjust for differences in the characteristics
of hospitals and patients using a Standardized Infection Ratio (SIR).
The SIR is a summary measure that takes into account differences in the
types of patients that a hospital treats. For a more detailed
discussion about SIR, we refer readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49753). The MRSA Bacteremia and CDI SIRs may take
into account the laboratory methods, bed size of the hospital, and
other facility-level factors. It compares the actual number of HAIs in
a facility or State to a national benchmark based on previous years of
reported data and adjusts the data based on several factors. A
confidence interval with a lower and upper limit is displayed around
each SIR to indicate that there is a high degree of confidence that the
true value of the SIR lies within

[[Page 25235]]

that interval. A SIR with a lower limit that is greater than 1.0 means
that there were more HAIs in a facility or State than were predicted,
and the facility is classified as ``Worse than the U.S. National
Benchmark.'' If the SIR has an upper limit that is less than 1, the
facility had fewer HAIs than were predicted and is classified as
``Better than the U.S. National Benchmark.'' If the confidence interval
includes the value of 1, there is no statistical difference between the
actual number of HAIs and the number predicted, and the facility is
classified as ``No Different than U.S. National Benchmark.'' If the
number of predicted infections is less than 1.0, the SIR and confidence
interval are not calculated by CDC.
Calculations for the Influenza Vaccination Coverage Among
Healthcare Personnel (NQF #0431) are based on reported numbers of
personnel who received an influenza vaccine at the reporting facility
or who provided written documentation of influenza vaccination outside
the reporting facility. The sum of these two numbers is divided by the
total number of personnel working at the facility for at least 1 day
from October 1 through March 31 of the following year, and the result
is multiplied by 100 to produce a compliance percentage (vaccination
coverage). No risk adjustment is applicable to these calculations. More
information on these calculations and measure specifications is
available at: http://www.cdc.gov/nhsn/pdfs/hps-manual/vaccination/4-hcp-vaccination-module.pdf. We are proposing that this data would be
displayed on an annual basis and would include data submitted by LTCHs
for a specific, annual influenza vaccination season. A single
compliance (vaccination coverage) percentage for all eligible
healthcare personnel would be displayed for each facility.
We are inviting public comment on our proposal to begin publicly
reporting in CY 2017 pending the availability of data on Facility-wide
Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure (NQF #1716); Facility-wide Inpatient
Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure
(NQF #1717); and Influenza Vaccination Coverage Among Healthcare
Personnel (NQF #0431).
For the Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680) we are proposing to display rates annually based on the
influenza season to avoid reporting for more than one influenza
vaccination within a CY. For example, in 2017 we would display rates
for the patient vaccination measure based on discharges starting on
July 1, 2015, to June 30, 2016. We are proposing this approach because
it includes the entire influenza vaccination season (October 1, 2015,
to March 31, 2016).
Calculations for Percent of Residents or Patients Who Were Assessed
and Appropriately Given the Seasonal Influenza Vaccine (Short Stay)
(NQF #0680) would be based on patients meeting any one of the following
criteria: Patients who received the influenza vaccine during the
influenza season; patients who were offered and declined the influenza
vaccine; and patients who were ineligible for the influenza vaccine due
to contraindication(s). The facility's summary observed score would be
calculated by combining the observed counts of all the criteria. This
is consistent with the publicly reported patient influenza vaccination
measure for Nursing Home Compare. In addition, for the patient
influenza measure, we would exclude LTCHs with fewer than 20 stays in
the measure denominator. For additional information on the
specifications for this measure, we refer readers to the LTCH Quality
Reporting Measures Information Web page at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
We are inviting public comments on our proposal to begin publicly
reporting the Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680) measure on discharges from July 1 of the previous calendar year
to June 30 of the current calendar year. We are inviting comments on
the public display of the measure Percent of Residents or Patients Who
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine
(NQF #0680) in 2017 pending the availability of data.
In addition, we are requesting public comments on whether to
include in the future, public display comparison rates based on CMS
regions or U.S. census regions for Percent of Residents or Patients
with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678);
All-Cause Unplanned Readmission Measure for 30-Days Post-Discharge from
LTCHs (NQF #2512); and Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short
Stay) (NQF #0680) for CY 2017 public display.
b. Procedures for the Opportunity To Review and Correct Data and
Information
Section 1899B(g) of the Act requires the Secretary to establish
procedures for public reporting of LTCHs' performance, including the
performance of individual LTCHs, on quality measures specified under
section 1899B(c)(1) of the Act and resource use and other measures
specified under section 1899B(d)(1) of the Act (collectively, IMPACT
Act measures) beginning not later than 2 years after the applicable
specified application date under section 1899B(a)(2)(E) of the Act.
Under section 1899B(g)(2) of the Act, the procedures must ensure,
including through a process consistent with the process applied under
section 1886(b)(3)(B)(viii)(VII) of the Act, which refers to public
display and review requirements in the Hospital IQR Program, that each
LTCH has the opportunity to review and submit corrections to its data
and information that are to be made public prior to the information
being made public.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49754), and as
illustrated in the second table in section VIII.C.9.e. of the preamble
of this proposed rule, we finalized that once the provider has an
opportunity to review and correct quarterly data related to measures
submitted via the QIES ASAP system or CDC NHSN, we would consider the
provider to have been given the opportunity to review and correct this
data. We wish to clarify that although the correction of data
(including claims) can occur after the submission deadline, if such
corrections are made after a particular quarter's submission and
correction deadline, such corrections will not be captured in the file
that contains data for calculation of measures for public reporting
purposes. To have publicly displayed performance data that is based on
accurate underlying data, it will be necessary for LTCHs to review and
correct this data before the quarterly submission and correction
deadline.
In this proposed rule, we are restating and proposing additional
details surrounding procedures that would allow individual LTCHs to
review and correct their data and information on measures that are to
be made public before those measure data are made public.
For assessment-based measures, we are proposing a process by which
we would provide each LTCH with a confidential feedback report that
would

[[Page 25236]]

allow the LTCH to review its performance on such measures and, during a
review and correction period, to review and correct the data the LTCH
submitted to CMS via the CMS QIES ASAP system for each such measure. In
addition, during the review and correction period, the LTCH would be
able to request correction of any errors in the assessment-based
measure rate calculations.
We are proposing that these confidential feedback reports would be
available to each LTCH using the CASPER system. We refer to these
reports as the LTCH Quality Measure (QM) Reports. We are proposing to
provide monthly updates to the data contained in these reports as data
become available. We are proposing to provide the reports so that
providers would be able to view their data and information at both the
facility and patient level for its quality measures. The CASPER
facility level QM Reports may contain information such as the
numerator, denominator, facility rate, and national rate. The CASPER
patient-level QM Reports may contain individual patient information
which would provide information related to which patients were included
in the quality measures to identify any potential errors for those
measures in which we receive patient-level data. Currently, we do not
receive patient-level data on the CDC measure data received via the
NHSN system. In addition, we would make other reports available in the
CASPER system, such as LTCH CARE Data Set assessment data submission
reports and provider validation reports, which would disclose the
LTCH's data submission status providing details on all items submitted
for a selected assessment and the status of records submitted.
We refer providers to the CDC NHSN system Web site for information
on obtaining reports specific to NHSN submitted data at: http://www.cdc.gov/nhsn/ltach/index.html. Additional information regarding the
content and availability of these confidential feedback reports would
be provided on an ongoing basis on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
As previously finalized in the FY 2016 IPPS/LTCH PPS final rule (80
FR 49750 through 49752) and illustrated in the second table in section
VIII.C.9.c. of the preamble of this proposed rule, LTCHs would have
approximately 4.5 months after the reporting quarter to correct any
errors of their assessment-based data (that appear on the CASPER-
generated QM reports) and NHSN data used to calculate the measures.
During the time of data submission for a given quarterly reporting
period and up until the quarterly submission deadline, LTCHs could
review and perform corrections to errors in the assessment data used to
calculate the measures and could request correction of measure
calculations. However, as already established, once the quarterly
submission deadline occurs, the data is ``frozen'' and calculated for
public reporting and providers can no longer submit any corrections. We
would encourage LTCHs to submit timely assessment data during a given
quarterly reporting period and review their data and information early
during the review and correction period so that they can identify
errors and resubmit data before the data submission deadline.
As noted above, the assessment data would be populated into the
confidential feedback reports and we intend to update the reports
monthly with all data that have been submitted and are available. We
believe that the data collection/submission quarterly reporting periods
plus 4.5 months to review and correct the data is sufficient time for
LTCHs to submit, review and, where necessary, correct their data and
information. These timeframes and deadlines for review and correction
of such measures and data satisfy the statutory requirement that LTCHs
be provided the opportunity to review and correct their data and
information and are consistent with the informal process hospitals
follow in the Hospital IQR Program.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49753 through 49755)
we finalized the data submission/correction and review period. Also, we
afford LTCHs a 30-day preview period prior to public display during
which LTCHs may preview the performance information on their measures
that will be made public. We would like to clarify that we will provide
the preview report using the CASPER system, with which LTCHs are
familiar. The CASPER preview reports inform providers of their
performance on each measure which will be publicly reported. Please
note that the CASPER preview reports for the reporting quarter will be
available after the 4.5 month correction period and the applicable data
submission/correction deadline have passed and are refreshed on a
quarterly basis for those measures publicly reported quarterly, and
annually for those measure publicly reported annually. We are proposing
to give LTCHs 30 days to review the preview report beginning from the
date on which they can access the report.
As already finalized, corrections to the underlying data would not
be permitted during this time; however, LTCHs may ask for a correction
to their measure calculations during the 30-day preview period. We are
proposing that if CMS determines that the measure, as it is displayed
in the preview report, contains a calculation error, we could suppress
the data on the public reporting Web site, recalculate the measure and
publish it at the time of the next scheduled public display date. This
process would be consistent with informal processes used in the
Hospital IQR Program. If finalized, we intend to utilize a
subregulatory mechanism, such as our LTCH QRP Web site, to provide more
information about the preview reports, such as when they will be made
available and explain the process for how and when providers may ask
for a correction to their measure calculations. We are inviting public
comment on these proposals to provide preview reports using the CASPER
system, giving LTCHs 30 days review the preview report and ask for a
correction, and to use a subregulatory mechanism to explain the process
for how and when providers may ask for a correction.
In addition to assessment-based measures and CDC measure data
received via the NHSN system, we have also proposed claims-based
measures for the LTCH QRP. The claims-based measures include those
proposed to meet the requirements of the IMPACT Act as well as the All-
Cause Unplanned Readmission Measure for 30 Days Post-Discharge from
LTCHs (NQF #2512) which was finalized for public display in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49753 through 49755). As noted in
above, section 1899B(g)(2) of the Act requires prepublication provider
review and correction procedures that are consistent with those
followed in the Hospital IQR Program. Under the Hospital IQR Program's
informal procedures, for claims-based measures, we provide hospitals 30
days to preview their claims-based measures and data in a preview
report containing aggregate hospital-level data. We are proposing to
adopt a similar process for the LTCH QRP.
Prior to the public display of our claims-based measures, in
alignment with the Hospital IQR, HAC Reduction and Hospital VBP
Programs, we are proposing to make available through the CASPER system,
a confidential preview report that will contain information pertaining
to claims-based measure rate calculations, for example, facility and

[[Page 25237]]

national rates. The data and information would be for feedback purposes
only and could not be corrected. This information would be accompanied
by additional confidential information based on the most recent
administrative data available at the time we extract the claims data
for purposes of calculating the measures. Because the claims-based
measures are recalculated on an annual basis, these confidential CASPER
QM reports for claims-based measures will be refreshed annually. As
previously finalized in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49753 through 49755), LTCHs will have 30 days from the date the preview
report is made available in which to review this information.
The 30-day preview period is the only time when LTCHs would be able
to see claims-based measures before they are publicly displayed. LTCHs
would not be able to make corrections to underlying claims data during
this preview period, nor would they be able to add new claims to the
data extract. However, LTCHs may request that we correct our measure
calculation if the LTCH believes it is incorrect during the 30-day
preview period. We are proposing that if we agree that the measure, as
it is displayed in the preview report, contains a calculation error, we
could suppress the data on the public reporting Web site, recalculate
the measure, and publish it at the time of the next scheduled public
display date. This process would be consistent with informal policies
followed in the Hospital IQR Program. If finalized, we intend to
utilize a subregulatory mechanism, such as our LTCH QRP Web site, to
explain the process for how and when providers may contest their
measure calculations.
The proposed claims-based measures--The MSPB-PAC LTCH QRP;
Discharge to Community--PAC LTCH QRP and Potentially Preventable 30-Day
Post-Discharge Readmission Measure for LTCH QRP--use Medicare
administrative data from hospitalizations for Medicare FFS
beneficiaries. Public reporting of data would be based on 2 consecutive
calendar years (CY) of data, which is consistent with the
specifications of the proposed measures. We are proposing to create
data extracts using claims data for the proposed claims based
measures--The MSPB-PAC LTCH measure; Discharge to Community--PAC LTCH
QRP and Potentially Preventable 30-Day Post-Discharge Readmission
Measure for LTCH QRP--at least 90 days after the last discharge date in
the applicable period, which we will use for the calculations. For
example, if the last discharge date in the applicable period for a
measure is December 31, 2017 for data collection January 1, 2016
through December 31, 2017, we would create the data extract on
approximately March 31, 2018 at the earliest, and use that data to
calculate the claims-based measures for that applicable period. Since
LTCHs would not be able to submit corrections to the underlying claims
snapshot nor add claims (for those measures that use LTCH claims) to
this data set at the conclusion of the at least 90-day period following
the last date of discharge used in the applicable period, at that time
we would consider LTCH claims data to be complete for purposes of
calculating the claims-based measures.
We are proposing that beginning with data that will be publicly
displayed in 2018, claims-based measures will be calculated using
claims data at least 90 days after the last discharge date in the
applicable period, at which time we would create a data extract or
snapshot of the available claims data to use for the measures
calculation. This timeframe allows us to balance the need to provide
timely program information to LTCHs with the need to calculate the
claims-based measures using as complete a data set as possible. As
noted, under this proposed procedure, during the 30-day preview period,
LTCHs would not be able to submit corrections to the underlying claims
data or to add new claims to the data extract. This is for two reasons:
first, for certain measures, the claims data used to calculate the
measures may not be derived from the LTCH's claims, but are from the
claims of another provider. For example, the proposed measure
Potentially Preventable 30-Day Post-Discharge Readmission Measure for
LTCH QRP uses claims data submitted by the hospital to which the
patient was readmitted, which may not be the LTCH. For the claims that
are not those of the LTCH, the LTCH could not make corrections to them.
Second, even where the claims used to calculate the measures are those
of the LTCH, it would not be not possible to correct the data after it
is extracted for the measures calculation. This is because it is
necessary to take a static ``snapshot'' of the claims in order to
perform the necessary measure calculations.
We seek to have as complete a data set as possible. We recognize
that the proposed at least 90 day ``run-out'' period when we would take
the data extract to calculate the claims-based measures, is less than
the Medicare program's current timely claims filing policy under which
providers have up to 1 year from the date of discharge to submit
claims. We considered a number of factors in determining that the
proposed at least 90 day run-out period is appropriate to calculate the
claims-based measures. After the data extract is created, it takes
several months to incorporate other data needed for the calculations
(particularly in the case of risk-adjusted or episode-based measures).
We then need to generate and check the calculations. Because several
months lead time is necessary after acquiring the data to generate the
claims-based calculations, if we were to delay our data extraction
point to 12 months after the last date of the last discharge in the
applicable period, we would not be able to deliver the calculations to
LTCHs sooner than 18 to 24 months after the last discharge. We believe
this would create an unacceptably long delay both for LTCHs and for us
to deliver timely calculations to LTCHs for quality improvement.
We are inviting public comment on these proposals.
15. Proposed Mechanism for Providing Feedback Reports to LTCHs
Section 1899B(f) of the Act requires the Secretary to provide
confidential feedback reports to PAC providers on their performance to
the measures specified under sections 1899B(c)(1) and (d)(1) of the
Act, beginning 1 year after the specified application date that applies
to such measures and PAC providers. As discussed earlier, the reports
we are proposing to provide for use by LTCHs to review their data and
information would be confidential feedback reports that would enable
LTCHs to review their performance on the measures required under the
LTCH QRP. We are proposing that these confidential feedback reports
would be available to each LTCH using the CASPER system. Data contained
within these CASPER reports would be updated as previously described,
on a monthly basis as the data become available except for our claims-
based measures which are only updated on an annual basis.
We intend to provide detailed procedures to LTCHs on how to obtain
their confidential feedback CASPER reports on the LTCH QRP Web site at:
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
We are proposing to use the CMS QIES ASAP system to provide quality
measure reports in a manner consistent with how providers obtain
various reports to date. The QIES ASAP system is a confidential and
secure system with access granted to providers, or their designees.

[[Page 25238]]

We seek public comment on this proposal to satisfy the requirement
to provide confidential feedback reports to LTCHs.

D. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

1. Background
a. Statutory Authority
Section 1886(s)(4) of the Act, as added and amended by sections
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary
to implement a quality reporting program for inpatient psychiatric
hospitals and psychiatric units.
Section 1886(s)(4)(A)(i) of the Act requires that, for FY 2014
\275\ and each subsequent fiscal year, the Secretary must reduce any
annual update to a standard federal rate for discharges occurring
during the fiscal year by 2.0 percentage points for any inpatient
psychiatric hospital or psychiatric unit that does not comply with
quality data submission requirements with respect to an applicable
fiscal year.
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\275\ The statute uses the term ``rate year'' (RY). However,
beginning with the annual update of the inpatient psychiatric
facility prospective payment system (IPF PPS) that took effect on
July 1, 2011 (RY 2012), we aligned the IPF PPS update with the
annual update of the ICD-9-CM codes, effective on October 1 of each
year. This change allowed for annual payment updates and the ICD-9-
CM coding update to occur on the same schedule and appear in the
same Federal Register document, promoting administrative efficiency.
To reflect the change to the annual payment rate update cycle, we
revised the regulations at 42 CFR 412.402 to specify that, beginning
October 1, 2012, the RY update period would be the 12-month period
from October 1 through September 30, which we refer to as a ``fiscal
year'' (FY) (76 FR 26435). Therefore, with respect to the IPFQR
Program, the terms ``rate year,'' as used in the statute, and
``fiscal year'' as used in the regulation, both refer to the period
from October 1 through September 30. For more information regarding
this terminology change, we refer readers to section III. of the RY
2012 IPF PPS final rule (76 FR 26434 through 26435).
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As provided in section 1886(s)(4)(A)(ii) of the Act, the
application of the reduction for failure to report under section
1886(s)(4)(A)(i) of the Act may result in an annual update of less than
0.0 percent for a fiscal year, and may result in payment rates under
section 1886(s)(1) of the Act being less than the payment rates for the
preceding year. In addition, section 1886(s)(4)(B) of the Act requires
that the application of the reduction to a standard Federal rate update
be noncumulative across fiscal years. Thus, any reduction applied under
section 1886(s)(4)(A) of the Act will apply only with respect to the
fiscal year rate involved and the Secretary may not take into account
the reduction in computing the payment amount under the system
described in section 1886(s)(1) of the Act for subsequent years.
Section 1886(s)(4)(C) of the Act requires that, for FY 2014
(October 1, 2013 through September 30, 2014) and each subsequent year,
each psychiatric hospital and psychiatric unit must submit to the
Secretary data on quality measures as specified by the Secretary. The
data must be submitted in a form and manner and at a time specified by
the Secretary. Under section 1886(s)(4)(D)(i) of the Act, unless the
exception of subclause (ii) applies, measures selected for the quality
reporting program must have been endorsed by the entity with a contract
under section 1890(a) of the Act. The National Quality Forum (NQF)
currently holds this contract.
Section 1886(s)(4)(D)(ii) of the Act provides an exception to the
requirement for NQF endorsement of measures: in the case of a specified
area or medical topic determined appropriate by the Secretary for which
a feasible and practical measure has not been endorsed by the entity
with a contract under section 1890(a) of the Act, the Secretary may
specify a measure that is not so endorsed as long as due consideration
is given to measures that have been endorsed or adopted by a consensus
organization identified by the Secretary.
Section 1886(s)(4)(E) of the Act requires the Secretary to
establish procedures for making public the data submitted by inpatient
psychiatric hospitals and psychiatric units under the IPFQR Program.
These procedures must ensure that a facility has the opportunity to
review its data prior to the data being made public. The Secretary must
report quality measures that relate to services furnished by the
psychiatric hospitals and units on the CMS Web site.
b. Covered Entities
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645), we
established that the IPFQR Program's quality reporting requirements
cover those psychiatric hospitals and psychiatric units paid under
Medicare's IPF PPS (42 CFR 412.404(b)). Generally, psychiatric
hospitals and psychiatric units within acute care and critical access
hospitals that treat Medicare patients are paid under the IPF PPS.
Consistent with prior rules, we continue to use the term ``inpatient
psychiatric facility'' (IPF) to refer to both inpatient psychiatric
hospitals and psychiatric units. This usage follows the terminology in
our IPF PPS regulations at 42 CFR 412.402. For more information on
covered entities, we refer readers to the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53645).
c. Considerations in Selecting Quality Measures
Our objective in selecting quality measures is to balance the need
for information on the full spectrum of care delivery and the need to
minimize the burden of data collection and reporting. We have focused
on measures that evaluate critical processes of care that have
significant impact on patient outcomes and support CMS and HHS
priorities for improved quality and efficiency of care provided by
IPFs. We refer readers to section VIII.F.4.a. of the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53645 through 53646) for a detailed discussion of
the considerations taken into account in selecting quality measures.
Before being proposed for inclusion in the IPFQR Program, measures
are placed on a list of measures under consideration, which is
published annually by December 1 on behalf of CMS by the NQF. In
compliance with section 1890A(a)(2) of the Act, measures that we are
proposing for the IPFQR Program in this proposed rule were included in
a publicly available document: ``List of Measures under Consideration
for December 1, 2015'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172). The Measure Applications
Partnership (MAP), a multi-stakeholder group convened by the NQF,
reviews the measures under consideration for the IPFQR Program, among
other Federal programs, and provides input on those measures to the
Secretary. The MAP's 2016 recommendations for quality measures under
consideration are captured in the following document: ``Process and
Approach for MAP Pre-Rulemaking Deliberations 2015-2016--Final Report,
February 2016'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81599). We considered the input
and recommendations provided by the MAP in selecting all measures for
the IPFQR Program, including those discussed below.
2. Retention of IPFQR Program Measures Adopted in Previous Payment
Determinations
The current IPFQR Program includes 16 mandatory measures. In the FY
2013 IPPS/LTCH PPS final rule (77 FR 53646 through 53652), we adopted 6
measures for the FY 2014 payment determination and subsequent years. In
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50889 through 50895), we
added 2 measures for the FY 2016 payment determination and subsequent
years. In the FY 2015

[[Page 25239]]

IPF PPS final rule (79 FR 45963 through 45974), we adopted another 2
measures for the FY 2016 payment determination and subsequent years,
and finalized 4 quality measures for the FY 2017 payment determination
and subsequent years. In the FY 2016 IPF PPS final rule (80 FR 46694
through 46714), we removed 1 measure beginning with the FY 2017 payment
determination; we also adopted 5 measures and removed 2 measures
beginning with the FY 2018 payment determination. We are retaining 15
of these previously adopted measures and proposing to update one
measure, as discussed below.
3. Proposed Update to Previously Finalized Measure: Screening for
Metabolic Disorders
In the FY 2016 IPF PPS final rule (80 FR 46709 through 46713), we
finalized our proposal to include the Screening for Metabolic Disorders
measure in the IPFQR Program for the FY 2018 payment determination and
subsequent years. In that final rule, we described the denominator as
IPF patients discharged with one or more routinely scheduled
antipsychotic medications during the measurement period. We also listed
the following denominator exclusions: (1) Patients for whom a screening
could not be completed within the stay due to the patient's enduring
unstable medical or psychological condition; and (2) patients with a
length of stay equal to or greater than 365 days, or less than 3 days.
In the FY 2016 IPF PPS final rule (80 FR 46717 through 46718), we
finalized the CMS global sample methodology for 10 IPFQR Program
measures eligible for sampling, including the Screening for Metabolic
Disorders measure. Seven of these 10 measures have denominator
exclusions for patients with short length of stay within an IPF. Of
these 7 measures, the Screening for Metabolic Disorders measure is the
only one with an exclusion for less than 3 days; the other 6 all have
denominator exclusions for length of stay less than or equal to 3 days.
Therefore, we are proposing to update the length of stay exclusion for
the Screening for Metabolic Disorders measure to exclude patients with
a length of stay equal to or greater than 365 days, or less than or
equal to 3 days. We anticipate that this update would reduce burden on
IPFs, if it is finalized, because it would support the intent of the
global sample to allow IPFs to use the same sample for as many measures
as possible, by aligning the denominator exclusions.
We welcome public comments on this proposed denominator exclusion.
4. Proposed New Quality Measures for the FY 2019 Payment Determination
and Subsequent Years
We are proposing two new measures for the FY 2019 payment
determination and subsequent years:
SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided
or Offered at Discharge and the subset measure SUB-3a Alcohol & Other
Drug Use Disorder Treatment at Discharge (NQF #1664) (SUB3 and SUB-3a);
and
Thirty-day all-cause unplanned readmission following
psychiatric hospitalization in an IPF.
The sections below outline our rationale for proposing these
measures.
a. SUB-3 Alcohol & Other Drug Use Disorder Treatment Provided or
Offered at Discharge and the Subset Measure SUB-3a Alcohol & Other Drug
Use Disorder Treatment at Discharge (NQF #1664) (SUB-3 and SUB3a)
Individuals with mental illness experience substance use disorders
(SUDs) at a much higher rate than the general population.\276\ Nearly
18 percent of the 43.6 million adults aged 18 years and older who had a
mental illness in 2013 met the criteria for a SUD. Of those who met the
criteria for a SUD, 26.7 percent used illicit drugs.\277\ Illicit drug
use is particularly high among adults with serious mental
illnesses.\278\ Misuse and abuse of prescription drugs among
individuals with mental illnesses, in particular opioids, are also of
growing concern.
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\276\ National Institute on Drug Abuse (NIDA). ``Comorbidity:
Addiction and Other Mental Illnesses.''
\277\ SAMHSA. Results from the 2014 National Survey on Drug Use
and Health: Mental Health Findings.
\278\ Ibid.
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Individuals with co-occurring mental disorders and SUDs, the
combination of one or more mental disorders and one or more SUDs,
experience far more physical illnesses and episodes of care than
individuals with a single diagnosis.\279\ These co-occurring disorders
tend to go undetected and untreated, especially among the elderly
population, which experiences more adverse effects than the young adult
population.\280\ Treatment of only one disorder for individuals who
have two or more mental and SUDs often leads to poor functioning and
poor treatment compliance that inhibits full recovery, increases the
risk of relapse, and can lead to other high-risk illnesses, such as
coronary heart disease, diabetes, infections, and respiratory
disease.^{281 282} Furthermore, individuals with undetected,
untreated or undertreated co-occurring disorders are more likely to
experience homelessness, incarceration, additional medical illness,
suicide, and early death.\283\
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\279\ SAMHSA. ``Mental and Substance Use Disorders.''
\280\ Robert Drake. ``Dual Diagnosis and Integrated Treatment of
Mental Illness and Substance Abuse Disorder.''
\281\ SAMHSA. ``Mental and Substance Use Disorders.''
\282\ Mental Health Foundation. ``Physical Health and Mental
Health.''
\283\ SAMHSA. ``Mental and Substance Use Disorders.''
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Due to the prevalence of substance abuse among individuals with
mental illness, and the negative effects therefrom, we believe it is
imperative to assess IPFs' efforts to offer treatment options for
patients who screen positive for drug and alcohol use. As described
under the Measure Description section of the NQF Web page regarding
this measure, the SUB-3 measure includes hospitalized patients age 18
years and older ``who are identified with an alcohol or drug use
disorder who receive or refuse at discharge a prescription for FDA-
approved medications for alcohol or drug use disorder, OR who receive
or refuse a referral for addictions treatment.'' \284\ The SUB-3a
subset measure includes hospitalized patients age 18 years and older
``who receive a prescription for FDA-approved medications for alcohol
or drug use disorder OR a referral for addictions treatment.'' \285\
The numerator of the SUB-3 measure includes ``patients who received or
refused at discharge a prescription for medication for treatment of
alcohol or drug use disorder OR received or refused a referral for
addictions treatment.'' \286\ The numerator of the SUB-3a subset
measure includes ``patients who received a prescription at discharge
for medication for treatment of alcohol or drug use disorder OR a
referral for addictions treatment.'' \287\ The denominators of both the
SUB-3 measure and SUB-3a subset measure include ``hospitalized
inpatients 18 years of age and older identified with an alcohol or drug
use disorder'' subject to a list of exclusions.\288\ Further
information on this measure, including the denominator exclusions, can
be found in the measure detail sheet on the NQF's Web site (http://www.qualityforum.org/QPS/1664) or in the section of the Specifications
Manual

[[Page 25240]]

for National Hospital Inpatient Quality Measures on Substance Use
Measures at: http://www.qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1228890516540&blobheader=multipart%2Foctet-stream&blobheadername1=Content-Disposition&blobheadervalue1=attachment%3Bfilename%3D2.6.2_SUB_v5_1.pdf&blobcol=urldata&blobtable=MungoBlobs.
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\284\ NQF SUB-3 and SUB-3a Measure Specifications. Available at:
http://www.qualityforum.org/QPS/1664.
\285\ Ibid.
\286\ Ibid.
\287\ Ibid.
\288\ Ibid.
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We previously adopted the SUB-1 measure (Alcohol Use Screening (NQF
#1661)) (78 FR 50890 through 50892) and the SUB-2 (Alcohol Use Brief
Intervention Provided or Offered) and the subset measure SUB-2a
(Alcohol Use Brief Intervention (NQF #1663) (SUB-2 and SUB-2a)) measure
(80 FR 46699 through 46701). While the SUB-1 measure assesses
``hospitalized patients 18 years of age and older who are screened
during the hospital stay using a validated screening questionnaire for
unhealthy alcohol use,'' \289\ the SUB-2 and SUB-2a measure assesses
``hospitalized patients who screened positive for unhealthy alcohol use
who received or refused a brief intervention during the hospital stay''
\290\ and ``hospitalized patients 18 years and older who received the
brief intervention during the hospital stay,'' \291\ respectively. The
SUB-1 measure and the SUB-2 and SUB-2a measure combined provide a
greater understanding of the rate at which patients are screened for
potential alcohol abuse and the rate at which those who screen positive
accept the offered interventions.
---------------------------------------------------------------------------

\289\ NQF SUB-1 Measure Specifications.
\290\ NQF SUB-2 and SUB-2a Measure Specifications.
\291\ Ibid.
---------------------------------------------------------------------------

Despite the value created by the inclusion of the SUB-1 measure and
the SUB-2 and SUB-2a measure in the IPFQR Program measure set, neither
fully captures hospitalized patients 18 years of age and older with
other SUDs because these measures focus on alcohol use only. In the
past, commenters have urged CMS to include illicit and opioid drug
screening in our measure set (80 FR 46701) stating that co-occurring
substance use disorders are prevalent in many patients with psychiatric
diagnoses and the SUB-3 and SUB-3a measure will ensure that patients
continue to receive treatment after discharge.\292\ While the SUB-3 and
SUB-3a measure does not guarantee that patients would continue to
receive treatment for substance use disorders after discharge, the
addition of the SUB-3 and SUB-3a measure to the existing measure set
would encourage IPFs to offer and provide FDA-approved medication OR a
referral for addictions treatment to patients with co-occurring drug or
alcohol use disorders at discharge. This measure would also provide
information regarding the rate at which these treatment options are
accepted by patients. The SUB-3 and SUB-3a measure also provides a
fuller picture of the entire episode of care. In addition, aggregated
data from the SUB-1 measure, SUB-2 and SUB-2a measure, and the SUB-3
and SUB-3a measure from each IPF would help provide patients with
adequate consumer information to guide their decision-making process in
selecting a treatment facility, specifically for patients that are
diagnosed with a substance use disorder.
---------------------------------------------------------------------------

\292\ 80 FR 46701.
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Furthermore, we believe that this measure set promotes the National
Quality Strategy priority of Effective Prevention and Treatment for
leading causes of mortality, starting with cardiovascular disease. It
is notable that the high prevalence of SUDs among adults age 65 years
and older contributes to serious medical conditions, including
cardiovascular disease and liver disease. The proposed measure also
supports HHS' Opioid Abuse Reduction Initiative to reduce prescription
opioid and heroin related overdose, death, and dependence.\293\ We also
note that the addition of SUB-3 and SUB-3a in the measure set could
encourage interventions and promote prevention of conditions that are
associated with alcohol and drug use disorders.
---------------------------------------------------------------------------

\293\ ASPE. ``Opioid Abuse in the U.S. and HHS Actions to
Address Opioid-Drug Related Overdoses and Deaths.''
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For these reasons, we included the SUB-3 and SUB-3a measure in our
``List of Measures under Consideration for December 1, 2015'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172). The MAP provided input on
the measure and supported its inclusion in the IPFQR Program in its
report ``Process and Approach for MAP Pre-Rulemaking Deliberations
2015-2016--Final Report, February 2016'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81599. Moreover, this measure is
NQF-endorsed for the IPF setting, in conformity with the statutory
criteria for measure selection under section 1886(s)(4)(D)(i) of the
Act.
Therefore, we are proposing to adopt the SUB-3 and SUB-3a measure
for the FY 2019 payment determination and subsequent years. We welcome
public comment on this proposal.
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53657 through 53658)
and FY 2014 IPPS/LTCH PPS final rule (78 FR 50901 through 50902), we
finalized policies for population, sampling, and minimum case
thresholds. In the FY 2016 IPF PPS final rule, we made one change to
these requirements (80 FR 46717 through 46719) in finalizing a policy
in which IPFs may take one, global sample for all measures for which
sampling is permitted. This policy was adopted to decrease burden on
IPFs and streamline policies and procedures. We are proposing to allow
sampling for the SUB-3 and SUB-3a measure. Therefore, we are proposing
to include the SUB3 and SUB-3a measure in the list of measures covered
by the global sample. We welcome public comment on this proposal.
b. Thirty-Day All-Cause Unplanned Readmission Following Psychiatric
Hospitalization in an IPF
The MAP, composed of national stakeholders, identified readmissions
as a key gap area in the IPFQR Program in a January 2015 report.\294\ A
goal of the CMS Quality Strategy is to ``promote effective
communication and coordination of care'' across different care settings
and providers. In addition, readmission following discharge from IPFs
is undesirable for patients because readmissions represent a
deterioration in patients' mental and/or physical health status.
Furthermore, an analysis of Medicare claims data for calendar years
2012 and 2013 showed that among the 716,174 IPF admissions for Medicare
beneficiaries, more than 20 percent resulted in readmission to an IPF
or a short-stay acute care hospital within 30 days of discharge.\295\
Risk-standardized readmission rates ranged from 11 percent to 35
percent, indicating wide variation across IPFs and clear opportunity
for improvement. Finally, MedPAC estimates of Medicare payments to IPFs
in 2012 indicated that the average payment per discharge was

[[Page 25241]]

nearly $10,000.\296\ Therefore, reducing readmissions would
substantially reduce costs. For these reasons, we developed a facility-
level outcome measure of all-cause, unplanned readmissions following
discharge from a qualifying IPF admission. This measure would provide
an important indicator of the quality of care patients receive in the
IPF setting.
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\294\ Process and Approach for MAP Pre-Rulemaking Deliberations.
Measure Applications Partnership. 2015. Available at: http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.
\295\ Inpatient Psychiatric Facility All-Cause Unplanned
Readmission Measure: Draft Technical Report, November 23, 2015.
Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17. (On
this page, the file is listed as ``Inpatient Psychiatric Facility
(IPF) Outcome and Process Measure Development and Maintenance''
under downloads.)
\296\ Inpatient Psychiatric Facility Services Payment System.
MedPAC. 2014. Available at: http://www.medpac.gov/documents/payment-basics/inpatient-psychiatric-facility-services-payment-system-14.pdf.
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Although not all readmissions are preventable, there is evidence
that improvements in the quality of care for patients in the IPF
setting can reduce readmission rates which, in turn, would reduce costs
to Medicare and the burden to patients and their caregivers. For
example, a study of 30-day behavioral health readmissions using a
multistate Medicaid database found that connecting patients to services
they will need post-discharge can help prevent readmissions. A 1-
percent increase in the percentage of patients receiving follow-up care
within 7 days of discharge was associated with a 5 percent reduction in
the probability of being readmitted.\297\ Other studies have also found
that transitional interventions such as pre- and post-discharge patient
education, structured needs assessments, medication reconciliation/
education, transition managers, and inpatient/outpatient provider
communication have been effective in reducing early psychiatric
readmissions. A systematic review of such interventions observed
reductions of 13.6 percent to 37.0 percent of readmissions.\298\
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\297\ Mark TL, Mark T, Tomic KS, et al. Hospital readmission
among medicaid patients with an index hospitalization for mental
and/or substance use disorder. J Behav Health Serv Res. 2013;
40(2):207-221.
\298\ Vigod SN, Kurdyak PA, Dennis CL, et al. Transitional
interventions to reduce early psychiatric readmissions in adults:
Systematic review. Br J Psychiatry. 2013; 202(3):187-194.
---------------------------------------------------------------------------

The proposed readmission measure would complement the portfolio of
facility-level, risk-standardized readmission measures in the acute
care setting that CMS quality reporting and pay-for-performance
programs currently use. These programs include, among others, the
Hospital IQR Program, which requires facilities to report on condition-
specific risk-standardized readmission measures (including Acute
Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia, and
elective Hip/Knee replacements, among others).\299\ In addition, the
Hospital IQR Program requires reporting on a Hospital-Wide All-Cause
Unplanned Readmissions measure (READM-30-HWR) as finalized in the FY
2013 IPPS/LTCH PPS final rule (77 FR 53521 through 53528). The Hospital
Readmissions Reduction Program, a pay-for-performance program for
subsection (d) hospitals or hospitals paid under section 1814(b)(3) of
the Act, also uses risk-standardized condition-specific readmission
measures (including AMI, HF, and Pneumonia, among others).\300\
---------------------------------------------------------------------------

\299\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
\300\ 76 FR 51660 through 51676.
---------------------------------------------------------------------------

The proposed IPF readmission measure, 30-day all-cause unplanned
readmission following psychiatric hospitalization in an IPF, estimates
a facility-level, risk-standardized readmission rate for unplanned,
all-cause readmissions within 30 days of discharge from an IPF.
Detailed information about the development of this measure as well as
final measure specifications can be downloaded from the CMS Web site
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17 (on this page,
the file is listed as ``Inpatient Psychiatric Facility (IPF) Outcome
and Process Measure Development and Maintenance'' under downloads.).
The denominator for this measure includes Medicare FFS beneficiaries
aged 18 years and older who are admitted to and discharged alive from
an IPF with a principal diagnosis of a psychiatric disorder. Admissions
to IPFs for nonpsychiatric disorders, which account for only 1.1
percent of admissions, were not included in the measure cohort because
IPFs are expected to admit patients who need inpatient care for
psychiatric causes.\301\ Therefore, nonpsychiatric admissions could
represent either admissions that were initiated for presumed or
preliminary psychiatric diagnoses but later were changed to
nonpsychiatric primary diagnoses during the admission or admissions
with unreliable data.
---------------------------------------------------------------------------

\301\ Prospective Payment System for Inpatient Hospital
Services. In: Services DoHaH, Ed. 42, Vol. 412, U.S. Government
Publishing Office 2011:535-537.
---------------------------------------------------------------------------

Eligible index admissions require enrollment in Medicare Parts A
and B for 12 months prior to the index admission, the month of
admission, and at least 30 days post-discharge. Admissions to IPFs are
excluded from the denominator if any of the following apply:
Subsequent admission on day of discharge (Day 0) or within
2 days post-discharge (Day 1-Day 2) due to transfers to another
inpatient facility on Day 0 or 1 or billing procedures for interrupted
stays, which do not allow for identification of readmissions to the
same IPF within 3 days;
Patient discharged against medical advice (AMA) because
the provider would not have an opportunity to provide optimal care; and
Unreliable patient data (for example, has a death date but
also admission afterwards).
The numerator for the IPF readmission measure is defined as any
admission to an IPF or acute care hospital that occurs on or between
days 3 and 30 post-discharge, except those considered planned by the
CMS Planned Readmission Algorithm, Version 3.0.\302\ The all-cause,
unplanned, 30-day readmission rate is harmonized with other readmission
measures that are endorsed by NQF and in use by CMS programs. For the
timeframe for measurement, literature supports the connection between
30-day readmissions and the quality of care provided during the index
admission.^{303 304 305 306 307} This timeframe also supports
interventions that have been developed on a wide range of patient
populations that focus on reducing 30-day readmission
rates.^{308 309 310 311 312} Finally, a

[[Page 25242]]

workgroup of relevant clinical experts agreed that the 30-day time
period captures complications that may be attributable to the IPF.
---------------------------------------------------------------------------

\302\ Horwitz LI, Grady JN, Zhang W, et al. 2015 Measure Updates
and Specifications Report: Hospital-Wide All-Cause Unplanned
Readmission Measure--Version 4.0. Centers for Medicare & Medicaid
Services; 2015. Available in the Hospital Wide All Cause Readmission
Updates folder at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
\303\ Hyland M. National Mental Health Benchmarking Project. In:
Wendy Hoey, Whitecross MFaF, eds. Reducing 28 Day Readmission.
Australian Mental Health Outcomes and Classification Network
2008:38.
\304\ Boaz TL, Becker MA, Andel R, Van Dorn RA, Choi J, Sikirica
M. Risk factors for early readmission to acute care for persons with
schizophrenia taking antipsychotic medications. Psychiatric services
(Washington, DC). 2013; 64(12):1225-1229.
\305\ Zilber N, Hornik-Lurie T, Lerner Y. Predictors of early
psychiatric rehospitalization: A national case register study. Isr J
Psychiatry Relat Sci. 2011; 48(1):49-53.
\306\ Lutterman T, Ganju V, Schacht L, Shaw R, Monihan K, et.al.
Sixteen State Study on Mental Health Performance Measures. 2003.
\307\ Carr VJ, Lewin TJ, Sly KA, et al. Adverse incidents in
acute psychiatric inpatient units: rates, correlates and pressures.
Aust N Z J Psychiatry. 2008; 42(4):267-282.
\308\ Naylor M, Brooten D, Jones R, Lavizzo-Mourey R, Mezey M,
Pauly M. Comprehensive discharge planning for the hospitalized
elderly. A randomized clinical trial. Annals of internal medicine.
1994; 120(12):999-1006.
\309\ Naylor MD, Brooten D, Campbell R, et al. Comprehensive
discharge planning and home follow-up of hospitalized elders: A
randomized clinical trial. JAMA. 1999; 281(7):613-620.
\310\ van Walraven C, Seth R, Austin PC, Laupacis A. Effect of
discharge summary availability during post-discharge visits on
hospital readmission. J Gen Intern Med. 2002; 17(3):186-192.
\311\ Zhang J, Harvey C, Andrew C. Factors associated with
length of stay and the risk of readmission in an acute psychiatric
inpatient facility: a retrospective study. Aust N Z J Psychiatry.
2011; 45(7):578-585.
\312\ Silva NC, Bassani DG, Palazzo LS. A case-control study of
factors associated with multiple psychiatric readmissions.
Psychiatric services (Washington, DC). 2009; 60(6):786-791.
---------------------------------------------------------------------------

An all-cause readmission rate was selected because it promotes a
holistic approach to the treatment of patients with psychiatric
disorders, who often have comorbid medical conditions. From the patient
and caregiver perspective, these readmissions indicate a deterioration
in the patient's condition. In addition, the relationship between
principal discharge diagnosis of the index admission and the principal
discharge diagnosis of the readmission may be complex and difficult to
determine based only on principal diagnosis codes. For example, a
patient discharged with bipolar disorder may be readmitted because of a
suicide attempt or self-harm due to poorly controlled symptoms of
bipolar disorder. A measure that looks only for readmissions with
principal discharge diagnoses of bipolar disorder would miss these
readmissions.
The IPF readmission measure uses Medicare FFS claims and enrollment
data over a 24-month measurement period to calculate the measure
results. Twenty-four months was determined to provide an adequate
number of cases and reliable results. Because this measure is not
limited to a single diagnosis, a 24-month measurement period gives
sufficient sample size. The IPF measure had 4.2 percent of IPFs with
fewer than 25 cases in the 24-month measurement period from January
2012 to December 2013. For comparison, the HWR measure had 3.8 percent
of hospitals with fewer than 25 cases in the 12-month measurement
period from July 2013 to June 2014.
We recognize that the risk of readmission is influenced by patient
factors, so the measure is risk-adjusted to account for differences in
the patients served across IPFs. Hierarchical logistic regression is
used to estimate a risk standardized readmission rate for each
facility. Factors considered in the risk-adjustment model include
patient demographics, principal discharge diagnoses of the index
admission, comorbidities in claims during the 12 months prior to the
index admission or during the index admission with the exception of
complications of care, and several risk variables specific to the IPF
patient population. Risk factors were selected for inclusion in the
final risk model if they were positively selected at least 70 percent
of the time in a stepwise backward elimination process. The final risk
model includes age, gender, 13 principal discharge diagnosis Agency for
Healthcare Research and Quality (AHRQ) Clinical Classification Software
(CCS) categories, 38 comorbidity CMS Hierarchical Condition Categories
(CC), history of discharge against medical advice, history of suicide
or self-harm, history of aggression, and the hospital as a random
effect. For more information about factors used in calculating the
risk-standardized readmission rate, we refer readers to the CMS Web
site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17. (On this page,
the file is listed as ``Inpatient Psychiatric Facility (IPF) Outcome
and Process Measure Development and Maintenance'' under downloads.)
We understand the importance of the role that sociodemographic
status plays in the care of patients. However, we continue to have
concerns about holding hospitals to different standards for the
outcomes of their patients of diverse sociodemographic status because
we do not want to mask potential disparities or minimize incentives to
improve the outcomes of disadvantaged populations. We routinely monitor
the impact of sociodemographic status on hospitals' results on our
measures.
The NQF is currently undertaking a 2-year trial period in which new
measures and measures undergoing maintenance review will be assessed to
determine if risk-adjusting for sociodemographic factors is
appropriate. For 2 years, NQF will conduct a trial of temporarily
allowing inclusion of sociodemographic factors in the risk-adjustment
approach for some performance measures. At the conclusion of the trial,
NQF will issue recommendations on future permanent inclusion of
sociodemographic factors. During the trial, measure developers are
expected to submit information such as analyses and interpretations as
well as performance scores with and without sociodemographic factors in
the risk adjustment model. Measure developers must submit information
such as analyses and interpretations as well as performance scores with
and without sociodemographic factors in the risk adjustment model. When
this measure was submitted to NQF on January 29, 2016, this information
was included.
Furthermore, the Office of the Assistant Secretary for Planning and
Evaluation (ASPE) is conducting research to examine the effect of
sociodemographic status on quality measures, resource use, and other
measures under the Medicare program, as directed by the IMPACT Act. We
will closely examine the findings of the ASPE reports and related
Secretarial recommendations and consider how they apply to our quality
programs at such time as they are available.
As part of the measure development process for this measure, we
solicited public comments on the measure via the CMS Public Comment Web
page. As part of our comment solicitation, we provided the Measure
Information Form (MIF), Data Dictionary, and the Measure Technical
Report to the public to inform their review of the measure. We accepted
public comments from November 25, 2015 through December 11, 2015. The
significant majority of stakeholders who provided comments on the
measure design supported this measure because of the importance of
measuring readmissions in this population. Commenters who provided
input on the methodology agreed that it appears to be scientifically
acceptable, and those who provided input on the feasibility agreed with
our belief that the measure is feasible as designed. After review and
evaluation of all the public comments received, we did not identify any
areas in which the measure needed to be modified. For specific
information regarding the comments we received, we refer readers to the
CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17. (On
this page, the file is listed as ``Inpatient Psychiatric Facility (IPF)
Outcome and Process Measure Development and Maintenance'' under
downloads.)
While section 1886(s)(4)(D)(ii) of the Act authorizes the Secretary
to specify a measure that is not endorsed by NQF, the proposed IPF
readmission measure was submitted to NQF for endorsement on January 29,
2016, and we anticipate the measure will receive endorsement prior to
the release of the final rule. However, the exception to the
requirement to specify an endorsed measure states that in the case of a
specified area or medical topic determined appropriate by the Secretary
for which a feasible and practical measure has not been endorsed by the
entity with a contract under section 1890(a) of the Act, the Secretary
may specify a measure that is not so endorsed as long as due
consideration is given to measures that have been

[[Page 25243]]

endorsed or adopted by a consensus organization. We have reviewed NQF-
endorsed and other consensus-endorsed measures related to all-cause
unplanned readmissions and believe that none are appropriate to the
inpatient psychiatric setting. Therefore, no equivalent readmission
measure that is endorsed by a consensus organization is available for
use in the IPFQR Program.
For the reasons stated above, we are proposing the IPF readmission
measure described in this section for the FY 2019 payment determination
and subsequent years. We welcome public comment on this proposal.
5. Summary of Proposed Measures for the FY 2019 Payment Determination
and Subsequent Years
The measures that we are proposing to adopt for the IPFQR Program
for the FY 2019 payment determination and subsequent years are set
forth in the table below.

Proposed New IPFQR Program Measures for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
National quality strategy priority NQF No. Measure ID Measure
----------------------------------------------------------------------------------------------------------------
Effective Treatment and Prevention. 1664.................. SUB-3 and SUB-3a...... SUB-3 Alcohol & Other Drug
Use Disorder Treatment
Provided or Offered at
Discharge and SUB-3a
Alcohol & Other Drug Use
Disorder Treatment at
Discharge.
Communication/Care Coordination.... N/A (Under review for N/A................... Thirty-Day All-Cause
endorsement). Unplanned Readmission
Following Psychiatric
Hospitalization in an IPF.
----------------------------------------------------------------------------------------------------------------

If these measures are adopted, the number of measures for the FY
2019 IPFQR Program and subsequent years will total 18, as set forth in
the table below.

Proposed and Finalized Measures for FY 2019 Payment Determination and
Subsequent Years
------------------------------------------------------------------------
NQF No. Measure ID Measure
------------------------------------------------------------------------
0640.......................... HBIPS-2.......... Hours of physical
restraint use.
0641.......................... HBIPS-3.......... Hours of seclusion
use.
0560.......................... HBIPS-5.......... Patients discharged
on multiple
antipsychotic
medications with
appropriate
justification.
0576.......................... FUH.............. Follow-Up After
Hospitalization for
Mental Illness.
1661.......................... SUB-1............ Alcohol Use
Screening.
1663.......................... SUB-2 and SUB-2a. Alcohol Use Brief
Intervention
Provided or Offered
and the subset
measure Alcohol Use
Brief Intervention.*
1651.......................... TOB-1............ Tobacco Use
Screening.
1654.......................... TOB-2 and TOB-2a. Tobacco Use Treatment
Provided or Offered
and the subset
measure Tobacco Use
Treatment.
1656.......................... TOB-3 and TOB-3a. Tobacco Use Treatment
Provided or Offered
at Discharge and the
subset measure
Tobacco Use
Treatment at
Discharge.
1659.......................... IMM-2............ Influenza
Immunization.
0647.......................... N/A.............. Transition Record
with Specified
Elements Received by
Discharged Patients
(Discharges from an
Inpatient Facility
to Home/Self Care or
Any Other Site of
Care).
0648.......................... N/A.............. Timely Transmission
of Transition Record
(Discharges from an
Inpatient Facility
to Home/Self Care or
Any Other Site of
Care).
N/A........................... N/A.............. Screening for
Metabolic Disorders.
N/A........................... N/A.............. Influenza Vaccination
Coverage Among
Healthcare
Personnel.
N/A........................... N/A.............. Assessment of Patient
Experience of Care.
N/A........................... N/A.............. Use of an Electronic
Health Record.
1664.......................... SUB-3 and SUB-3a. Alcohol & Other Drug
Use Disorder
Treatment Provided
or Offered at
Discharge and the
subset measure
Alcohol & Other Drug
Use Disorder
Treatment at
Discharge.*
N/A (Under review for N/A.............. Thirty-Day All-Cause
endorsement). Unplanned
Readmission
Following
Psychiatric
Hospitalization in
an IPF.*
------------------------------------------------------------------------
* New measures proposed for the FY 2019 payment determination and future
years.

6. Possible IPFQR Program Measures and Topics for Future Consideration
As we have indicated in prior rulemaking (79 FR 45974 through
45975), we seek to develop a comprehensive set of quality measures to
be available for widespread use for informed decision-making and
quality improvement in the IPF setting. Therefore, through future
rulemaking, we intend to propose new measures for adoption that will
help further our goals of achieving better health care and improved
health for Medicare beneficiaries who obtain inpatient psychiatric
services through the widespread dissemination and use of quality
information.
We welcome public comments on possible new measures.
7. Public Display and Review Requirements
We are proposing to change to how we specify the timeframes for
public display of data and the associated preview period for IPFs to
review the data that will be made public.
Under section 1886(s)(4)(E) of the Act, we are required to
establish procedures for making the data submitted under the

[[Page 25244]]

IPFQR Program available to the public. Such procedures must ensure that
an IPF has the opportunity to review its data that are to be made
public prior to such data being made public. Section 1866(s)(4)(E) of
the Act also provides that the Secretary must report quality measures
of process, structure, outcome, patients' perspective on care,
efficiency, and costs of care that relate to services furnished in such
hospitals on the CMS Web site.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50897 through
50898), we stated that we would publicly display the data submitted by
IPFs for the IPFQR Program on a CMS Web site in April of each calendar
year following the start of the respective payment determination year.
For example, we publicly displayed the data for the FY 2015 payment
determination in April 2015. We strive to publicly display data as soon
as possible on a CMS Web site, as this provides consumers with
healthcare information and furthers our goal of transparency.
Therefore, we believe it is best to not specify in rulemaking the exact
timeframe for publication, as doing so may prevent earlier publication.
We are proposing, then, to make these data available as soon as it is
feasible. We intend to make the data available on Hospital Compare on
at least a yearly basis.
We also are required to give each IPF an opportunity to review its
data before the data are made public. This purpose of this preview
period is to ensure that each IPF is informed of the IPF level data
that the public will be able to see for its facility, and to submit
measure rate errors resulting from MS calculations of IPF submitted
patient level claims and Web-based measure numerator and denominator
data. It is not for the purpose of correcting an IPF's possible
submission errors. As finalized in the 2015 IPF PPS final rule (79 FR
45976), IPFs have the entire data submission period to review and
correct claims data element and Web-based measure numerator and
denominator count data they have submitted to CMS. In the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50897 through 50898), we stated that the
preview period would be 30 days and would begin approximately 12 weeks
prior to the public display of the data.
Because we are proposing to make the data for the IPFQR Program
available as soon as possible, and the timeframe for publication may
change from year-to-year, we are proposing to no longer specify the
dates for review in rulemaking, nor to specify in rulemaking that the
preview period will begin approximately 12 weeks prior to publicly
displaying the data. Instead, we are proposing to announce the exact
timeframes through subregulatory guidance, including on a CMS Web site
and/or on our applicable listservs. We also are proposing to continue
our policy that the time period for review will be approximately 30
days in length.
As noted earlier, we wish to publicly display data as early as
possible. For the FY 2017 payment determination, it may be technically
feasible for us to display the data as early as December 2016. We
previously finalized that the preview period would be 30 days and would
be approximately 12 weeks prior to the public display date. However, in
this case, 12 weeks prior to December 1, 2016 is in mid-September,
which is 2 weeks before the usual effective date of the IPPS/LTCH PPS
final rule. Therefore, for FY 2017 only, if it is technically feasible
to display the data as early as December 2016, we are proposing a 2-
week preview period that would start on October 1, 2016. However, as a
courtesy, and to give IPFs 30 days for review if they so choose, we are
proposing to provide IPFs with their data in mid-September. We believe
that this proposal complies with prior policies while still allowing us
to display data as soon as possible for the FY 2017 payment
determination.
We are inviting public comment on these proposals.
8. Form, Manner, and Timing of Quality Data Submission
a. Procedural and Submission Requirements
We are not proposing any changes to the procedural and submission
requirements for the FY 2019 payment determination and subsequent
years, and we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78
FR 50898 through 50899) for more information on these previously
finalized requirements.
b. Proposed Change to the Reporting Periods and Submission Timeframes
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50901), we finalized
requirements for reporting periods and submission timeframes for the
IPFQR Program measures. In the FY 2016 IPF PPS final rule, we made one
change to these requirements (80 FR 46715 and 46716). We refer readers
to these rules for further information.
c. Population and Sampling
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53657 through 53658)
and FY 2014 IPPS/LTCH PPS final rule (78 FR 50901 through 50902), we
finalized policies for population, sampling, and minimum case
thresholds. In the FY 2016 IPF PPS final rule, we made one change to
these requirements (80 FR 46717 through 46719). We refer readers to
these rules for further information.
d. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
We are not proposing any changes to the DACA requirements and we
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658) for
more information on these requirements.
9. Reconsideration and Appeals Procedures
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658 through
53660), we adopted a reconsideration and appeals process, later
codified at 42 CFR 412.434, by which an IPF can request a
reconsideration of its payment update reduction if an IPF believes that
its annual payment update has been incorrectly reduced for failure to
meet all IPFQR Program requirements and, if dissatisfied with a
decision made by CMS on its reconsideration request, may file an appeal
with the Provider Reimbursement Review Board. We are not proposing any
changes to the Reconsideration and Appeals Procedure and refer readers
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658 through 53660) and
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50953) for further details
on the reconsideration process.
10. Exceptions to Quality Reporting Requirements
We are not proposing any changes to the exceptions to quality
reporting requirements. For more information, we refer readers to the
FY 2013 IPPS/LTCH PPS final rule (77 FR 53659 through 53660), where we
initially finalized the policy as ``Waivers from Quality Reporting,''
and the FY 2015 IPF PPS final rule (79 FR 45978), where we renamed the
policy as ``Exceptions to Quality Reporting Requirements.''

E. Clinical Quality Measurement for Eligible Hospitals and Critical
Access Hospitals (CAHs) Participating in the EHR Incentive Programs in
2017

1. Background
The HITECH Act (Title IV of Division B of the ARRA, together with
Title XIII of Division A of the ARRA) authorizes incentive payments
under Medicare and Medicaid for the adoption and meaningful use of
certified electronic health record (EHR) technology (CEHRT). Eligible
hospitals and CAHs may qualify for these incentive payments under
Medicare (as authorized under sections 1886(n) and

[[Page 25245]]

1814(l) of the Act, respectively) if they successfully demonstrate
meaningful use of CEHRT, which includes reporting on clinical quality
measures (CQMs) using CEHRT.
Sections 1886(b)(3)(B) and 1814(l) of the Act also establish
downward payment adjustments under Medicare, beginning with FY 2015,
for eligible hospitals and CAHs that are not meaningful users of CEHRT
for certain associated reporting periods. Section 1903(a)(3)(F)(i) of
the Act establishes 100 percent Federal financial participation (FFP)
to States for providing incentive payments to eligible Medicaid
providers (described in section 1903(t)(2) of the Act) to adopt,
implement, upgrade and meaningfully use CEHRT.
Under sections 1886(n)(3)(A) and 1814(l)(3)(A) of the Act and the
definition of ``meaningful EHR user'' under 42 CFR 495.4, eligible
hospitals and CAHs must report on CQMs selected by CMS using CEHRT, as
part of being a meaningful EHR user under the Medicare EHR Incentive
Program. The set of CQMs from which eligible hospitals and CAHs will
report under the EHR Incentive Program beginning in FY 2014 is listed
in Table 10 of the EHR Incentive Program Stage 2 final rule (77 FR
54083).
In order to further align CMS quality reporting programs for
eligible hospitals and CAHs and avoid redundant or duplicative
reporting among hospital programs, the Medicare and Medicaid Programs;
Electronic Health Record Incentive Program--Stage 3 and Modifications
to Meaningful Use in 2015 Through 2017 (hereinafter referred to as the
2015 EHR Incentive Programs Final Rule) \313\ (80 FR 62890) indicated
our intent to address CQM reporting requirements for the Medicare and
Medicaid EHR Incentive Programs for eligible hospitals and CAHs for
2016, 2017, and future years in the IPPS rulemaking. We believe that
receiving and reviewing public comments for various CMS quality
programs at one time while simultaneously finalizing the requirements
for these programs would provide us with an opportunity to better align
these programs for eligible hospitals and CAHs, allow more flexibility
within the Medicare and Medicaid EHR Incentive Programs, and add
overall value and consistency. To further achieve this goal, the 2015
Edition final rule (80 FR 62652) published by ONC indicated that it
would address certification policy regarding the reporting of CQMs for
eligible hospitals and CAHs in or in conjunction with the annual IPPS
rulemaking to better align with the reporting goals of other CMS
programs.
---------------------------------------------------------------------------

\313\ Medicare and Medicaid Programs: Electronic Health Record
Incentive Program--Stage 3 and Modifications to Meaningful Use in
2015 Through 2017; final rule (80 FR 62761 through 62955) (``2015
EHR Incentive Programs Final Rule'').
---------------------------------------------------------------------------

2. CQM Reporting for the Medicare and Medicaid EHR Incentive Programs
in 2017
a. Background
In the EHR Incentive Program Stage 2 final rule, we outlined the
CQMs available for use in the EHR Incentive Programs beginning in 2014
for eligible hospitals and CAHs in Table 10 at 77 FR 54083 through
54087. For the FY 2017 IPPS/LTCH PPS proposed rule, we are proposing to
maintain the existing requirements established in earlier rulemaking
for the reporting of CQMs under the EHR Incentive Programs in 2017,
unless otherwise indicated in this proposed rule. These requirements
include reporting on 16 CQMs covering at least 3 NQS domains for
eligible hospitals and CAHs (77 FR 54079). For this section of the
preamble of this proposed rule, the following proposed policies
regarding the EHR Incentive Programs apply to both the Medicare and
Medicaid EHR Incentive Programs with the exception of the submission
period proposed policy.
As we expect to expand the current measures to align with the
National Quality Strategy and the CMS Quality Strategy \314\ and
incorporate updated standards and terminology in current CQMs,
including updating the electronic specifications for these CQMs, and
creating de novo CQMs, we plan to expand the set of CQMs available for
reporting under the EHR Incentive Programs in future years. We will
continue to engage stakeholders to provide input on future proposals
for CQMs as well as request comment on future electronic specifications
for new and updated CQMs.
---------------------------------------------------------------------------

\314\ Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
---------------------------------------------------------------------------

In addition, we are transitioning from the quality data model (QDM)
expression language to the clinical quality language (CQL)
specification, which defines a representation for the expression of
clinical knowledge that can be used within both the clinical decision
support (CDS) and CQM domains. The QDM logic is based on capabilities
of the health level 7 (HL7) reference information model (RIM), which
does not have significant ability to express mathematical logic such as
addition, subtraction, division, and multiplication. The QDM requires
multiple, often repetitious lines of logic to compare relationships
among different activities, usually by indicating the time of one
activity with the time of the other activity. Also, EHR software cannot
easily interpret QDM logic to perform calculations without significant
human interaction and interpretation. In general, the CQL is a
mathematical expression language that can be parsed by software to
calculate results. The CQL includes basic math and allows description
of relationship among activities in a simple, direct manner, which
significantly reduces the lines of logic. With a modest effort, it
represents a change that is straightforward to learn and interpret
compared to the existing QDM logic statements.
The CQL specification defines two components: CQL--author-friendly
domain specific language; and expression logical model--computable
extensible markup language (XML). The CQL leverages best practices and
lessons learned from the quality data model, health e-decisions, and
electronic CQM and clinical decision support (CDS) communities. The CQL
is designed to work with any data model, more expressive and robust
than the QDM logic, and is a HL7 draft standard for trial use (DSTU).
The CQL includes: Datatypes; data retrieval and queries; timing phrases
and operators; variable and function declaration; input parameters with
default values; conditional logic, Boolean logic, and value comparison;
simple arithmetic and aggregate functions; operations on valuesets,
lists, intervals, sets and dates/times; and shared libraries. We
anticipate the incorporation of the CQL into the CQM electronic
specifications as we support the development and testing of this
standard. We anticipate starting this work effort in 2016 with the
expectation that extensive development and testing will continue, at
minimum, through the fall of 2017. We will not implement CQL until the
development and testing phases show success for utilization with the
CQMs. We are engaging the participation of hospitals and other
providers, health IT developer, measure developer, and other
stakeholder communities as we undertake this effort at all stages of
development and testing.
b. CQM Reporting Period for the Medicare and Medicaid EHR Incentive
Programs in CY 2017
In the 2015 EHR Incentive Programs Final Rule (80 FR 62892 through
62893), beginning in CY 2017 and for subsequent years, we established a
CQM reporting period of one full calendar

[[Page 25246]]

year (consisting of four quarterly data reporting periods) for CQM
reporting for eligible hospitals and CAHs participating in the Medicare
and Medicaid EHR Incentive Programs, with a limited exception for
providers demonstrating meaningful use for the first time under the
Medicaid EHR Incentive Program, for whom the CQM reporting period is
any continuous 90-day period within the calendar year. We believe that
one full calendar year of data will result in more complete and
accurate data. Providers will be able to submit one full calendar year
of data for both the EHR Incentive Program and the Hospital IQR
Program, thereby reducing the reporting burden. We continue to assess
electronically submitted data for accuracy and reliability. If data are
determined to be flawed, such data will be identified by CMS in order
to preserve the integrity of data used for differentiating performance.
We also established a reporting period for CQMs of any continuous
90-day period within CY 2017 for eligible hospitals and CAHs that are
demonstrating meaningful use for the first time in either the Medicare
or Medicaid EHR Incentive Programs (80 FR 62892 through 62893). In
summary, the following CQM reporting periods apply for eligible
hospitals and CAHs participating in the Medicare and Medicaid EHR
Incentive Programs in CY 2017. We are proposing the following
submission periods for the Medicare EHR Incentive Program, as well as
requirements for eligible hospitals and CAHs reporting CQMs
electronically.
Eligible hospitals and CAHs Reporting CQMs by Attestation:
++ For eligible hospitals and CAHs demonstrating meaningful use for
the first time in 2017, the reporting period is any continuous 90-day
period within CY 2017. The submission period for attestation is the 2
months following the close of the calendar year, ending February 28,
2018.
++ For eligible hospitals and CAHs that demonstrated meaningful use
in any year prior to 2017, the reporting period is the full CY 2017
(consisting of four quarterly data reporting periods). The submission
period for attestation is the 2 months following the close of the
calendar year, ending February 28, 2018.
Eligible hospitals and CAHs Reporting CQMs Electronically:
For eligible hospitals and CAHs demonstrating meaningful use for the
first time in 2017 or that have demonstrated meaningful use in any year
prior to 2017, the reporting period is the full CY 2017 (consisting of
four quarterly data reporting periods). The submission period for
reporting CQMs electronically is the 2 months following the close of
the calendar year, ending February 28, 2018.
In regard to the Medicaid EHR Incentive Program, we provide States
with the flexibility to determine the submission periods for reporting
CQMs.
For the reporting period in CY 2017, we are not proposing new CQMs.
However, section 1886(n)(3)(B)(iii) of the Act requires that, in
selecting measures for eligible hospitals and CAHs for the Medicare EHR
Incentive Program, and establishing the form and manner for reporting
measures, the Secretary shall seek to avoid redundant or duplicative
reporting with reporting otherwise required, including reporting under
section 1886(b)(3)(B)(viii) of the Act, the Hospital IQR Program. In
the interest of avoiding redundant or duplicative reporting with the
Hospital IQR Program, we are proposing to remove 13 CQMs from the set
of CQMs available for eligible hospitals and CAHs to report for the EHR
Incentive Programs, beginning with the reporting periods in CY 2017. We
are proposing to remove such measures for both the Medicare and
Medicaid EHR Incentive Programs.
We believe that a coordinated reduction in the overall number of
CQMs reported electronically in both the Hospital IQR and the Medicare
and Medicaid EHR Incentive Programs would reduce burdens and challenges
associated with electronic reporting for hospitals and improve the
quality of reported data by enabling hospitals to focus on a smaller,
more specific subset of electronic CQMs. For the list of measures we
are proposing to remove from the Hospital IQR Program and the Medicare
and Medicaid EHR Incentive Programs, as well as the rationale in
support of our proposals to remove these measures, we refer readers to
section XVIII.A.3.b.(3) of the preamble of this proposed rule. All of
the remaining measures listed in Table 10 of the EHR Incentive Program
Stage 2 final rule (77 FR 54083 through 54087) would be available for
eligible hospitals and CAHs to report for the Medicare and Medicaid EHR
Incentive Programs. From that available set of measures, we are
proposing the following reporting criteria for eligible hospitals and
CAHs beginning with the reporting periods in CY 2017:
For attestation: If only participating in the EHR
Incentive Program, report on all 16 available CQMs.
For electronic reporting--
++ If only participating in the EHR Incentive Program, report on 15
of the 16 available CQMs (the Outpatient Quality Reporting (OQR)
Program CQM (Emergency Department (ED)-3, NQF 0496) among the 16
available CQMs is not required to be reported on for electronic
reporting, in which 15 of the 16 available CQMs can be selected to meet
this reporting requirement); or
++ If participating in the EHR Incentive Program and the Hospital
IQR Program, report on all 15 available CQMs (the electronic reporting
of the Outpatient Quality Reporting (OQR) Program CQM (ED-3, NQF 0496)
is not applicable when reporting on CQMs for both programs, which
results in the reporting of 15 available CQMs).
We also considered an alternative proposal to require eligible
hospitals and CAHs to select and report electronically on 8 CQMs for
the reporting periods in CY 2017 and all available CQMs beginning with
the reporting periods in CY 2018. Section VIII.A.8.a. of the preamble
of this proposed rule further outlines this considered alternative
proposal. Our intent is to align, to the extent possible, the EHR
Incentive Program reporting requirements with the Hospital IQR Program
reporting requirements established in the final rule. We believe that
the alignment of these programs will serve to reduce hospital reporting
burden and encourage the adoption and meaningful use of CEHRT by
eligible hospitals and CAHs. We are inviting public comment on these
proposals.
c. CQM Reporting Form and Method for the Medicare EHR Incentive Program
in 2017
As finalized in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759
through 40760), we removed the QRDA-III as an option for reporting
under the Medicare EHR Incentive Program for eligible hospitals and
CAHs. For the reporting periods in 2016 and future years, we are
requiring QRDA-I for CQM electronic submissions for the Medicare EHR
Incentive Program. As noted in the FY 2016 IPPS/LTCH PPS final rule (80
FR 40760), States would continue to have the option, subject to our
prior approval, to allow or require QRDA-III for CQM reporting.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49578 through
49579), we established the following options for CQM submission for
eligible hospitals and CAHs in the Medicare EHR Incentive Program for
the reporting periods in 2017:
Eligible hospital and CAH options for Medicare EHR
Incentive Program participation (single program participation)--

[[Page 25247]]

++ Option 1: Attest to CQMs through the EHR Registration &
Attestation System; or
++ Option 2: Electronically report CQMs through QualityNet Portal.
Eligible hospital and CAH options for electronic reporting
for multiple programs (for example, EHR Incentive Program plus Hospital
IQR Program participation)--electronically report through QualityNet
Portal.
As stated in the 2015 EHR Incentive Programs Final Rule (80 FR
62894), in 2017, eligible hospitals and CAHs have two options to report
CQM data, either through attestation or use of established methods for
electronic reporting where feasible. However, starting in 2018,
eligible hospitals, and CAHs participating in the Medicare EHR
Incentive Program must electronically report CQMs using CEHRT where
feasible; and attestation to CQMs will no longer be an option except in
certain circumstances where electronic reporting is not feasible.
Therefore, we encourage eligible hospitals and CAHs to begin
electronically reporting CQMs as soon as feasible.
For the Medicaid EHR Incentive Program, States will continue to be
responsible for determining whether and how electronic reporting of
CQMs would occur, or if they wish to allow reporting through
attestation. Any changes that States make to their CQM reporting
methods must be submitted through the State Medicaid Health IT Plan
(SMHP) process for CMS review and approval prior to being implemented.
We are proposing to continue our policy that electronic submission
of CQMs will require the use of the most recent version of the CQM
electronic specification for each CQM to which the EHR is certified. In
the event that an eligible hospital or CAH has certified EHR technology
that is certified to the 2014 Edition and not certified to all 16 CQMs
that would be available for reporting in 2017 under our proposals, we
are proposing to require that an eligible hospital or CAH would need to
have its EHR technology certified to all such CQMs in order to meet the
reporting requirements for 2017. For electronic reporting in 2017, this
means eligible hospitals and CAHs would be required to use the Spring
2017 version of the CQM electronic specifications available on the eCQI
Resource Center Web page (https://ecqi.healthit.gov/). We are seeking
public comment on this proposal.
As noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759), an
EHR certified for CQMs under the 2014 Edition certification criteria
does not need to be recertified each time it is updated to a more
recent version of the CQMs. We are proposing to accept the use of CEHRT
certified to ONC's 2014 or 2015 Edition for CQM reporting in 2017.
Certification to the 2015 Edition is expected to be available in 2016.
(For further information on CQM reporting, we refer readers to the EHR
Incentive Program Web site where guides and tip sheets are available
for each reporting option (http://www.cms.gov/ehrincentiveprograms).)
As noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759), we
encourage health IT developers to test any updates, including any
updates to the CQMs and CMS reporting requirements based on the CMS
Implementation Guide for Quality Reporting Document Architecture (QRDA)
Category I and Category III (CMS Implementation Guide for QRDA) for
Eligible Professional Programs and Hospital Quality Reporting (HQR), on
an annual basis.
The form and method of electronic submission are further explained
in subregulatory guidance and the certification process. For example,
the following documents are updated annually to reflect the most recent
CQM electronic specifications: The CMS Implementation Guide for QRDA;
program specific performance calculation guidance; and CQM electronic
specifications and guidance documents. These documents are located on
the eCQI Resource Center Web page: (https://ecqi.healthit.gov/).
We are inviting public comments on these proposals.

IX. MedPAC Recommendations

Under section 1886(e)(4)(B) of the Act, the Secretary must consider
MedPAC's recommendations regarding hospital inpatient payments. Under
section 1886(e)(5) of the Act, the Secretary must publish in the annual
proposed and final IPPS rules the Secretary's recommendations regarding
MedPAC's recommendations. We have reviewed MedPAC's March 2016 ``Report
to the Congress: Medicare Payment Policy'' and have given the
recommendations in the report consideration in conjunction with the
proposed policies set forth in this proposed rule. MedPAC
recommendations for the IPPS for FY 2017 are addressed in Appendix B to
this proposed rule.
For further information relating specifically to the MedPAC reports
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226,
or visit MedPAC's Web site at: http://www.medpac.gov.

X. Other Required Information

A. Requests for Data From the Public

In order to respond promptly to public requests for data related to
the prospective payment system, we have established a process under
which commenters can gain access to raw data on an expedited basis.
Generally, the data are now available on compact disc (CD) format.
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Data files and the cost for each file, if
applicable, are listed later in this section. Anyone wishing to
purchase data tapes, cartridges, or diskettes should submit a written
request along with a company check or money order (payable to CMS-PUF)
to cover the cost to the following address: Centers for Medicare &
Medicaid Services, Public Use Files, Accounting Division, P.O. Box
7520, Baltimore, MD 21207-0520, (410) 786-3691. Files on the Internet
may be downloaded without charge.
1. CMS Wage Data Public Use File
This file contains the hospital hours and salaries from Worksheet
S-3, Parts II and III from FY 2013 Medicare cost reports used to create
the proposed FY 2017 prospective payment system wage index. Multiple
versions of this file are created each year. For a complete schedule on
the release of different versions of this file, we refer readers to the
wage index schedule in section III.M. of the preamble of this proposed
rule.

------------------------------------------------------------------------
Wage data PPS fiscal
Processing year year year
------------------------------------------------------------------------
2016.......................................... 2013 2017
2015.......................................... 2012 2016
2014.......................................... 2011 2015
2013.......................................... 2010 2014
2012.......................................... 2009 2013
2011.......................................... 2008 2012
2010.......................................... 2007 2011
2009.......................................... 2006 2010
2008.......................................... 2005 2009
2007.......................................... 2004 2008
------------------------------------------------------------------------

Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
Periods Available: FY 2007 through FY 2017 IPPS Update.
2. CMS Occupational Mix Data Public Use File
This file contains the CY 2013 occupational mix survey data to be
used to compute the occupational mix adjustment wage indexes. Multiple

[[Page 25248]]

versions of this file are created each year. For a complete schedule on
the release of different versions of this file, we refer readers to the
wage index schedule in section II.M. of the preamble of this proposed
rule.
Media: Internet at: https://www.cms.gov/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
Period Available: FY 2017 IPPS Update.
3. Provider Occupational Mix Adjustment Factors for Each Occupational
Category Public Use File
This file contains each hospital's occupational mix adjustment
factors by occupational category. Two versions of these files are
created each year to support the rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-AService-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
Period Available: FY 2017 IPPS Update.
4. Other Wage Index Files
CMS releases other wage index analysis files after each proposed
and final rule.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files.html.
Periods Available: FY 2005 through FY 2017 IPPS Update.
5. FY 2017 IPPS SSA/FIPS CBSA State and County Crosswalk
This file contains a crosswalk of State and county codes used by
the Social Security Administration (SSA) and the Federal Information
Processing Standards (FIPS), county name, and a list of Core-Based
Statistical Areas (CBSAs).
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS Update.
6. HCRIS Cost Report Data
The data included in this file contain cost reports with fiscal
years ending on or after September 30, 1996. These data files contain
the highest level of cost report status.
Media: Internet at: http://www.cms.hhs.gov/CostReports/02_HospitalCostReport.asp.
(We note that data are no longer offered on a CD. All of the data
collected are now available free for download from the cited Web site.)
7. Provider-Specific File
This file is a component of the PRICER program used in the MAC's
system to compute DRG/MS-DRG payments for individual bills. The file
contains records for all prospective payment system eligible hospitals,
including hospitals in waiver States, and data elements used in the
prospective payment system recalibration processes and related
activities. Beginning with December 1988, the individual records were
enlarged to include pass-through per diems and other elements.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ProspMedicareFeeSvcPmtGen/Index.html.
Period Available: Quarterly Update.
8. CMS Medicare Case-Mix Index File
This file contains the Medicare case-mix index by provider number
as published in each year's update of the Medicare hospital inpatient
prospective payment system. The case-mix index is a measure of the
costliness of cases treated by a hospital relative to the cost of the
national average of all Medicare hospital cases, using DRG/MS-DRG
weights as a measure of relative costliness of cases. Two versions of
this file are created each year to support the rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Periods Available: FY 1985 through FY 2017.
9. MS-DRG Relative Weights (Also Table 5--MS-DRGs)
This file contains a listing of MS-DRGs, MS-DRG narrative
descriptions, relative weights, and geometric and arithmetic mean
lengths of stay for each fiscal year. Two versions of this file are
created each year to support the rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Periods Available: FY 2005 through FY 2017 IPPS Update.
10. IPPS Payment Impact File
This file contains data used to estimate payments under Medicare's
hospital impatient prospective payment systems for operating and
capital-related costs. The data are taken from various sources,
including the Provider-Specific File, HCRIS Cost Report Data, MedPAR
Limited Data Sets, and prior impact files. The data set is abstracted
from an internal file used for the impact analysis of the changes to
the prospective payment systems published in the Federal Register. Two
versions of this file are created each year to support the rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Historical-Impact-Files-for-FY-1994-through-Present.html.
Periods Available: FY 1994 through FY 2017 IPPS Update.
11. AOR/BOR Tables
This file contains data used to develop the MS-DRG relative
weights. It contains mean, maximum, minimum, standard deviation, and
coefficient of variation statistics by MS-DRG for length of stay and
standardized charges. The BOR tables are ``Before Outliers Removed''
and the AOR is ``After Outliers Removed.'' (Outliers refer to
statistical outliers, not payment outliers.)
Two versions of this file are created each year to support the
rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Periods Available: FY 2005 through FY 2017 IPPS Update.
12. Prospective Payment System (PPS) Standardizing File
This file contains information that standardizes the charges used
to calculate relative weights to determine payments under the hospital
inpatient operating and capital prospective payment systems. Variables
include wage index, cost-of-living adjustment (COLA), case-mix index,
indirect medical education (IME) adjustment, disproportionate share,
and the Core-Based Statistical Area (CBSA). The file supports the
rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS Update.
13. Hospital Readmissions Reduction Program Supplemental File
This file contains information on the calculation of the Hospital
Readmissions Reduction Program (HRRP) payment adjustment. Variables
include the proxy excess readmission ratios for acute myocardial
infarction (AMI), pneumonia (PN) and heart failure (HF), coronary
obstruction pulmonary disease (COPD), total hip arthroplasty (THA)/
total knee arthroplasty (TKA), and coronary artery bypass grafting
(CABG) and the proxy

[[Page 25249]]

readmissions payment adjustment for each provider included in the
program. In addition, the file contains information on the number of
cases for each of the applicable conditions excluded in the calculation
of the readmission payment adjustment factors. It also contains MS-DRG
relative weight information to estimate the payment adjustment factors.
The file supports the rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS Update.
14. Medicare Disproportionate Share Hospital (DSH) Supplemental File
This file contains information on the calculation of the
uncompensated care payments for FY 2017. Variables include a hospital's
SSI days and Medicaid days used to determine a hospital's share of
uncompensated care payments, total uncompensated care payments and
estimated per claim uncompensated care payment amounts. The file
supports the rulemaking.
Media: Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS Update.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
In this proposed rule, we are soliciting public comment on each of
these issues for the following sections of this document that contain
information collection requirements (ICRs).
2. ICRs for Add-On Payments for New Services and Technologies
Section II.H.1. of the preamble of this proposed rule discusses
add-on payments for new services and technologies. Specifically, this
section states that applicants for add-on payments for new medical
services or technologies for FY 2018 must submit a formal request. A
formal request includes a full description of the clinical applications
of the medical service or technology and the results of any clinical
evaluations demonstrating that the new medical service or technology
represents a substantial clinical improvement. In addition, the request
must contain a significant sample of the data to demonstrate that the
medical service or technology meets the high-cost threshold.
We believe the burden associated with this requirement is exempt
from the PRA under 5 CFR 1320.3(c), which defines the agency collection
of information subject to the requirements of the PRA as information
collection imposed on 10 or more persons within any 12-month period.
This information collection does not impact 10 or more entities in a
12-month period. For FYs 2008, 2009, 2010, 2011, 2012, 2013, 2014,
2015, 2016, and 2017, we received 1, 4, 5, 3, 3, 5, 5, 7, 9, and 9
applications, respectively.
3. ICRs for the Occupational Mix Adjustment to the Proposed FY 2017
Wage Index (Hospital Wage Index Occupational Mix Survey)
Section III.E. of the preamble of this proposed rule discusses the
occupational mix adjustment to the proposed FY 2017 wage index While
the preamble does not contain any new ICRs, we note that there is an
OMB approved information collection request associated with the
hospital wage index.
Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E)
of the Act to require us to collect data at least once every 3 years on
the occupational mix of employees for each short-term, acute care
hospital participating in the Medicare program in order to construct an
occupational mix adjustment to the wage index. We collect the data via
the occupational mix survey.
The burden associated with this information collection requirement
is the time and effort required to collect and submit the data in the
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned
burden is subject to the PRA; it is currently approved under OMB
control number 0938-0907.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
Section III.J.2. of the preamble of this proposed rule discusses
proposed changes to the wage index based on hospital reclassifications.
As stated in that section, under section 1886(d)(10) of the Act, the
MGCRB has the authority to accept short-term IPPS hospital applications
requesting geographic reclassification for wage index and to issue
decisions on these requests by hospitals for geographic
reclassification for purposes of payment under the IPPS.
The burden associated with this application process is the time and
effort necessary for an IPPS hospital to complete and submit an
application for reclassification to the MGCRB. The burden associated
with this requirement is subject to the PRA. It is currently approved
under OMB control number 0938-0573.
5. ICRs for the Notice of Observation Treatment by Hospitals and CAHs
In section IV.L. of the preamble of this proposed rule, we discuss
our proposed implementation of the NOTICE Act (Pub. L. 114-42), which
amended section 1866(a)(1) of the Act to require hospitals and CAHs to
provide written and oral notification to Medicare beneficiaries
receiving observation services as outpatients for more than 24 hours.
We have developed a standardized format for the notice (the MOON),
which would be disseminated during the normal course of related
business activities. The proposed standardized notice discussed in this
proposed rule is simultaneously being subject to public review and
comment through the Office of Management and Budget (OMB) Paperwork
Reduction Act process before implementation.
We estimate that it will take hospitals and CAHs 5 minutes (0.0833
hour) to complete and deliver each notice. In 2014, there were
approximately 977,000 claims for Medicare outpatient observation
services lasting greater than 24 hours furnished by 6,142 hospitals and
CAHs.\315\ The annual hour burden is estimated to be 81,384 (977,000
responses x 0.0833 hour). To derive average cost, we used data from the
U.S. Bureau of Labor Statistics' May 2014 National Occupational
Employment and Wage Estimates for all salary estimates (http://www.bls.gov/oes/current/oes_nat.htm). In this regard, we used the mean
hourly wage of $33.55 and the

[[Page 25250]]

cost of fringe benefits, $33.55 (calculated at 100 percent of salary),
to determine an adjusted hourly wage of $67.10. This is necessarily a
rough adjustment, both because fringe benefits and overhead costs vary
significantly from employer to employer and because methods of
estimating these costs vary widely from study to study. Nonetheless,
there is no practical alternative and we believe that doubling the
hourly wage to estimate total cost is a reasonable accurate estimation
method. The cost per response is approximately $5.59 based on an hourly
salary rate of $67.10 (U.S. Bureau of Labor Statistics' May 2013
National Occupational Employment and Wage Estimates for nursing) and
the 5-minute response estimate. By multiplying the annual responses by
$5.59, the annual cost burden estimate is $5,461,430 (977,000 responses
x $5.59) or approximately $889.19 per hospital or CAH ($5,461,430/
6,142).
---------------------------------------------------------------------------

\315\ Source: CMS Office of Enterprise and Data Analytics.
---------------------------------------------------------------------------

6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
The Hospital IQR Program (formerly referred to as the Reporting
Hospital Quality Data for Annual Payment (RHQDAPU) Program) was
originally established to implement section 501(b) of the MMA, Public
Law 108-173. This program expanded our voluntary Hospital Quality
Initiative. The Hospital IQR Program originally consisted of a
``starter set'' of 10 quality measures. The collection of information
associated with the original starter set of quality measures was
previously approved under OMB control number 0938-0918. All of the
information collection requirements previously approved under OMB
control number 0938-0918 have been combined with the information
collection request currently approved under OMB control number 0938-
1022. We no longer use OMB control number 0938-0918.
We added additional quality measures to the Hospital IQR Program
and submitted the information collection request to OMB for approval.
This expansion of the Hospital IQR Program measures was part of our
implementation of section 5001(a) of the Deficit Reduction Act of 2005
(DRA). Section 1886(b)(3)(B)(viii)(III) of the Act, added by section
5001(a) of the DRA, requires that the Secretary expand the ``starter
set'' of 10 quality measures that were established by the Secretary as
of November 1, 2003, to include measures ``that the Secretary
determines to be appropriate for the measurement of the quality of care
furnished by hospitals in inpatient settings.'' The burden associated
with these reporting requirements is currently approved under OMB
control number 0938-1022.
In section VIII.A.3.b. of the preamble of this proposed rule, we
are proposing to remove 13 eCQM versions of measures, 2 ``topped out''
chart-abstracted measures, and 2 structural measures, beginning with
the FY 2019 payment determination. However, we note that the total
number of measures proposed for removal is 15 because the STK-4 and
VTE-5 measures are being proposed for removal twice--once in the chart-
abstracted form and again in electronic form.
The 13 eCQM versions of measures we are proposing to remove are:
(1) AMI-2: Aspirin Prescribed at Discharge for AMI (NQF #0142); (2)
AMI-7a: Fibrinolytic Therapy Received Within 30 minutes of Hospital
Arrival; (3) AMI-10: Statin Prescribed at Discharge; (4) HTN: Healthy
Term Newborn (NQF #0716); (5) PN-6: Initial Antibiotic Selection for
Community-Acquired Pneumonia (CAP) in Immunocompetent Patients (NQF
#0147); (6) SCIP-Inf-1a: Prophylactic Antibiotic Received within 1 Hour
Prior to Surgical Incision (NQF #0527); (7) SCIP-Inf-2a: Prophylactic
Antibiotic Selection for Surgical Patients (NQF #0528); (8) SCIP Inf-9:
Urinary Catheter Removed on Postoperative Day 1 (POD1) or Postoperative
Day 2 (POD2) with Day of Surgery Being Day Zero; (9) STK-4:
Thrombolytic Therapy (NQF #0437); (10) VTE-3: Venous Thromboembolism
Patients with Anticoagulation Overlap Therapy (NQF #0373); (11) VTE-4:
Venous Thromboembolism Patients Receiving Unfractionated Heparin (UFH)
with Dosages/Platelet Count Monitoring by Protocol (or Nomogram); (12)
VTE-5: Venous Thromboembolism Discharge Instructions; and (13) VTE-6:
Incidence of Potentially Preventable Venous Thromboembolism.
The two chart-abstracted measures we are proposing to remove are:
(1) STK-4: Thrombolytic Therapy (NQF #0437); and (2) VTE-5: Venous
Thromboembolism Discharge Instructions. The two structural measures we
are proposing to remove are: (1) Participation in a Systematic Clinical
Database Registry for Nursing Sensitive Care; and (2) Participation in
a Systematic Clinical Database Registry for General Surgery.
We believe that removing 13 eCQMs will reduce burden for hospitals,
as they would have a smaller number of eCQMs to select from. As
finalized in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49698),
hospitals are required to select 4 out of 28 available eCQMs on which
to report data beginning with the FY 2018 payment determination. Since
the measures proposed for removal are among the list of measures
available, reducing the number of eCQMs from which hospitals choose
would decrease the burden associated with selecting and reporting data
for 4 eCQMs because hospitals would have only 15 eCQMs from which to
select instead of 28 eCQMs. However, if our proposal to require
hospitals to submit data on all of the available eCQMs included in the
Hospital IQR Program measure set is finalized as proposed, this modest
reduction in burden would be offset by the increased burden associated
with submitting data on 15 eCQMs instead of 4 eCQMs. We discuss the
burden associated with our proposal to require the submission of all
available eCQMs included in the Hospital IQR Program measure set below.
We believe that there would be a reduction in burden for hospitals
as a result of the removal of the two chart-abstracted measures listed
above (STK-4 and VTE-5). Due to the burden associated with the
collection of chart-abstracted data (based on updated measure record
abstraction time estimates from the third quarter in 2014 through the
second quarter in 2015 provided by CDAC, the number of reporting
periods in a calendar year, and the number of IPPS hospitals
reporting), we estimate that the removal of STK-4 would result in a
burden reduction of approximately 303,534 hours and approximately $9.9
million across all 3,300 IPPS hospitals participating in the Hospital
IQR Program for the FY 2019 payment determination. In addition, we
estimate that the removal of VTE-5 would result in a burden reduction
of approximately 653,565 hours and approximately $21.4 million across
all 3,300 IPPS hospitals participating in the Hospital IQR Program for
the FY 2019 payment determination. More specifically, for both the STK
and VTE measure sets, we calculated the burden hours by taking the
difference in the burden estimates from this FY 2017 IPPS/LTCH PPS
proposed rule and the burden estimates from the FY 2016 IPPS/LTCH PPS
final rule. With regard to STK-4, because it is the only STK measure
left in the Hospital IQR Program, and we are proposing in this FY 2017
IPPS/LTCH PPS proposed rule to remove it, we calculated the total
burden hours as follows: 0 hours (time required to report in CY 2017)-
303,534 hours (time required to report in CY 2016) = -303,534 hours for
the STK measure set. With regard to the VTE measure set, we used an
updated estimate from CDAC that the time per record (that is, to report
all of the VTE

[[Page 25251]]

measures in the Hospital IQR Program) is 28 minutes, and in the FY 2016
IPPS/LTCH PPS final rule, we estimated a burden reduction of 10 minutes
for removing 3 VTE measures (or approximately 3 minutes per measure).
As such, we deducted 3 minutes from the 28 minute estimate to account
for the proposed removal of VTE-5, for a total of 25 minutes to report
on the remaining VTE measure in the Hospital IQR Program. We then
calculated the estimated total burden hours per hospital for reporting
the remaining VTE measure as follows: 25 minutes per record/60 minutes
per hour x 4 reporting quarters per year x 198.05 records per hospital
per quarter = 330 burden hours per hospital. Because there are 3,300
IPPS hospitals, we then multiplied 330 hours per hospital x 3,300
hospitals to get a total annual burden estimate of 1,089,275 hours to
report the remaining measure in the VTE measure set. To demonstrate the
reduction in the total burden hours for VTE from this FY 2017 IPPS/LTCH
PPS proposed rule and the FY 2016 IPPS/LTCH PPS final rule, we
calculated as follows: 1,089,275 (FY 2017 total annual estimate)-
1,742,840 (FY 2016 total annual estimate) = -653,565 hours for the VTE
measure set.
We believe that there will be a negligible burden reduction due to
the removal of two structural measures. Consistent with previous years
(80 FR 49762), we estimate a burden of 15 minutes per hospital to
report all four previously finalized structural measures and to
complete other forms (such as the Extraordinary Circumstances
Extension/Exemption Request Form). Therefore, our burden estimate of 15
minutes per hospital remains unchanged because we believe the reduction
in burden associated with removing these two structural measures will
be sufficiently minimal that it will not substantially impact this
estimate.
In addition, in section VIII.A.6. of the preamble of this proposed
rule, we are proposing refinements to two previously adopted measures:
(1) Expanding the cohort for the Hospital-Level, Risk-standardized
Payment Associated with a 30-Day Episode-of-Care for Pneumonia (NQF
#2579); and (2) adopting the modified Patient Safety and Adverse Events
Composite (NQF #0531). Because these claims-based measures can be
calculated based on data that are already reported to the Medicare
program for payment purposes, we believe no additional burden on
hospitals will result from the proposed refinements to these two
claims-based measures.
Also, in section VIII.A.7. of the preamble of this proposed rule,
we are proposing to add four claims-based measures to the Hospital IQR
Program measure set beginning with the FY 2019 payment determination:
(1) Aortic Aneurysm Procedure Clinical Episode-Based Payment Measure;
(2) Cholecystectomy and Common Duct Exploration Clinical Episode-Based
Payment Measure; (3) Spinal Fusion Clinical Episode-Based Payment
Measure; and (4) Excess Days in Acute Care after Hospitalization for
Pneumonia. Because these claims-based measures can be calculated based
on data that are already reported to the Medicare program for payment
purposes, we believe no additional burden on hospitals will result from
the addition of these four proposed claims-based measures.
For the FY 2019 payment determination and subsequent years, in
section VIII.A.8. of the preamble of this proposed rule, we also are
proposing to require hospitals to submit data for all eCQMs included in
the Hospital IQR Program measure set in a manner that will permit
eligible hospitals to align Hospital IQR Program requirements with some
requirements under the Medicare and Medicaid EHR Incentive Programs.
Specifically, hospitals would be required to submit a full calendar
year of data on all eCQMs in the Hospital IQR Program measure set, on
an annual basis, beginning with CY 2017 reporting. We believe that the
total burden associated with the eCQM reporting proposal would be
similar to that previously outlined in the Medicare EHR Incentive
Program Stage 2 final rule (77 FR 54126 through 54133). In that final
rule, the burden estimate for a hospital to report all 16 eCQMs is 2
hours and 40 minutes (160 total minutes or 10 minutes per measure) per
submission for a 3-month period (77 FR 54127). We believe that this
estimate is accurate and appropriate to apply to the Hospital IQR
Program because we are proposing to align the eCQM reporting
requirements between both programs. As such, using the estimate of 10
minutes per measure, we anticipate that if our proposals to: (1)
Require reporting on all of the available eCQMs (15 eCQMs for the CY
2017 reporting period/FY 2019 payment determination); and (2) submit
one year of eCQM data (covering Q1, Q2, Q3, and Q4), both are finalized
as proposed, it would take a hospital 150 minutes per quarter to report
one medical record containing information on all the required eCQMs. In
total, for the FY 2019 payment determination, we expect our proposal to
require hospitals to report data on 15 eCQMs for 4 quarters (as
compared to our previously finalized requirement to report data on 4
eCQMs for 1 quarter) would represent a burden increase of 30,800 hours
across all 3,300 IPPS hospitals participating in the Hospital IQR
Program. This figure was derived by calculating the difference between
the FY 2017 burden estimate of 33,000 hours (150 minutes per record/60
minutes per hour x 4 reporting quarters per year x 1 record per
hospital per quarter x 3,300 hospitals) and the FY 2016 burden estimate
of 2,200 hours (20 minutes per record/60minutes per hour x 1 reporting
quarter per year x 1 record per hospital per quarter x 3,300 hospitals)
(80 FR 49763), for an incremental increase of 30,800 hours.
Furthermore, we estimate that reporting these eCQMs can be
accomplished by staff with a mean hourly wage of $16.42 per hour.\316\
However, obtaining data on other overhead costs is challenging.
Overhead costs vary greatly across industries and firm sizes. In
addition, the precise cost elements assigned as ``indirect'' or
``overhead'' costs, as opposed to direct costs or employee wages, are
subject to some interpretation at the firm level. Therefore, we have
chosen to calculate the cost of overhead at 100 percent of the mean
hourly wage. This is necessarily a rough adjustment, both because
fringe benefits and overhead costs vary significantly from employer to
employer and because methods of estimating these costs vary widely from
study to study. Nonetheless, there is no practical alternative, and we
believe that doubling the hourly wage to estimate total cost is a
reasonably accurate estimation method. This is a change from how we
have accounted for the cost of overhead in our previous rules regarding
the Hospital IQR Program. In calculating labor cost, we estimate an
hourly labor cost of $32.84 ($16.42 base salary + $16.42 fringe) and a
cost increase of $1,011,472.00 (30,800 additional burden hours x $32.84
per hour) across approximately 3,300 hospitals participating in the
Hospital IQR Program to report a full calendar year of data for 15
eCQMs, on an annual basis.
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We are not proposing any changes to our validation requirements
related to chart-abstracted measures, but are providing some background
information as basis for our eCQM validation proposals. As noted in the
FY 2016 IPPS/LTCH IPPS final rule (80 FR 49762 and 49763), for
validation of chart-abstracted data for the FY 2018 payment

[[Page 25252]]

determination and subsequent years, we require hospitals to provide 72
charts per hospital per year (with an average page length of 1,500),
including 40 charts for HAI validation and 32 charts for clinical
process of care validation, for a total of 108,000 pages per hospital
per year. We reimburse hospitals at 12 cents per photocopied page (79
FR 50346) for a total per hospital cost of $12,960. For hospitals
providing charts digitally via a re-writable disc, such as encrypted
CD-ROMs, DVDs, or flash drives, we will reimburse hospitals at a rate
of 40 cents per digital media (80 FR 49837), and additionally hospitals
will be reimbursed $3.00 per record (78 FR 50956). For hospitals
providing charts via secure file transfer, we will reimburse hospitals
at a rate of $3.00 per record (78 FR 50835).
In section VIII.A.11. of the preamble of this proposed rule,
beginning in spring 2018 for the FY 2020 payment determination, we are
proposing to modify the existing validation process for the Hospital
IQR Program data to include a random sample of up to 200 hospitals for
validation of eCQMs in the Hospital IQR Program. In previous years (79
FR 50347), we estimated a total burden of 16 hours (960 minutes) for
the submission of 12 records, which would equal 1 hour and 20 minutes
per record (960 minutes/12 records). Applying the time per individual
submission of 1 hour and 20 minutes (or 80 minutes) for the 32 records
we are proposing hospitals submit beginning with the FY 2020 payment
determination, we estimate a total burden of approximately 43 hours (1
hour and 20 minutes x 32 records) for each hospital selected for
participation in eCQM validation. We estimate that approximately 43
hours of work for up to 200 hospitals would increase the eCQM
validation burden hours from 0 hours (as this is the first instance
where eCQM validation is being proposed as a requirement) to 8,533
labor hours.
As previously stated, with respect to eCQMs, the labor performed
can be accomplished by staff, with a mean hourly wage of $16.42.\317\
Further, in calculating labor costs, we have chosen to calculate the
cost of overhead at 100 percent of the mean hourly wage. As such, we
estimate a fully burdened labor rate of $32.84 ($16.42 base salary +
$16.42 fringe) per hour. Therefore, using these assumptions, we
estimate an hourly labor cost of $32.84 and a cost increase of $280,224
(8,533 additional burden hours x $32.84 per hour) across the (up to)
200 hospitals selected for eCQM validation, on an annual basis.
Consistent with the chart-abstraction validation process, we will
reimburse hospitals providing records via secure file transfer, at a
rate of $3.00 per record.
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Lastly, in section VIII.A.15. of the preamble of this proposed
rule, we are proposing to update our Extraordinary Circumstances
Extensions or Exemptions (ECE) policy by: (1) Extending the general ECE
request deadline for non-eCQM circumstances from 30 to 90 calendar days
following an extraordinary circumstance; and (2) establishing a
separate submission deadline for ECE requests with respect to eCQM
reporting circumstances of April 1 following the end of the reporting
calendar year. Consistent with previous years, we estimate a burden of
15 minutes per hospital to report all forms (including the ECE request
form) and structural measures. We believe that the proposed updates to
the ECE deadlines will have no effect on burden for hospitals, because
we are not making any changes that will increase the amount of time
necessary to complete the form. In addition, the burden associated with
the completion of this form is included in the 15 minutes allocated for
all forms and structural measures.
In summary, under OMB number 0938-1022, we estimate a total burden
decrease of approximately 917,766 hours, for a total cost decrease of
approximately $30 million across approximately 3,300 hospitals
participating in the Hospital IQR Program as a result of the policies
proposed in this proposed rule.
The estimate excludes the burden associated with the NHSN and
HCAHPS measures, both of which are submitted under separate information
collection requests and are approved under OMB control numbers 0920-
0666 and 0938-0981, respectively. The burden estimates in this proposed
rule are the estimates for which we are requesting OMB approval.
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program
As discussed in sections VIII.B. of the preamble of this proposed
rule, section 1866(k)(1) of the Act requires, for purposes of FY 2014
and each subsequent fiscal year, that a hospital described in section
1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH)
submit data in accordance with section 1866(k)(2) of the Act with
respect to such fiscal year.
We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR
28124), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50957 through
50959), the FY 2015 IPPS/LTCH PPS final rule (79 FR 50347 through
50348), and the FY 2016 IPPS/LTCH PPS final rule (80 FR 49764) for a
detailed discussion of the burden for the program requirements that we
have previously adopted. Below we discuss only any changes in burden
that would result from the proposals in this proposed rule.
In section VIII.B.3.b. of the preamble of this proposed rule, we
are proposing that PCHs submit data on Oncology: Radiation Dose Limits
to Normal Tissues (NQF #0382) measure for an expanded cohort of
patients. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50285) we
finalized a sampling methodology for Clinical Process/Oncology Care
Measures, which includes the Oncology: Radiation Dose Limits to Normal
Tissues measure. Because our previous burden estimates were based on
the maximum sample for this measure, the expansion of the patient
cohort would not raise the burden for this measure beyond that which we
described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50347 through
50348).
In section VIII.B.4.b. of the preamble of this proposed rule, we
are proposing to adopt the Admissions and Emergency Department (ED)
Visits for Patients Receiving Outpatient Chemotherapy measure beginning
with the FY 2019 program year. This is a claims-based measure, and
therefore, does not require PCHs to submit any new data. Thus, this
measure would not pose any new burden on PCHs.
In summary, as a result of our proposals, we do not anticipate any
changes to previously finalized burden estimates.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
In section IV.H. of the preamble of this proposed rule, we discuss
proposed requirements for the Hospital VBP Program. Specifically, in
this proposed rule, with respect to quality measures, we are proposing
to: Include selected ward non-Intensive Care Unit (ICU) locations in
certain NHSN measures beginning with the FY 2019 program year; adopt
the Hospital-Level, Risk-Standardized Payment Associated with a 30-Day
Episode-of-Care for Acute Myocardial Infarction (AMI) and the Hospital-
Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-
Care for Heart Failure (HF) measures for the FY 2021 program year;
update the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate
(RSMR) Following Pneumonia (PN) Hospitalization (Updated Cohort)

[[Page 25253]]

measure for the FY 2021 program year; and adopt the Hospital 30-Day,
All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary
Artery Bypass Graft (CABG) Surgery measure for the FY 2022 program
year.
As required under section 1886(o)(2)(A) of the Act, the additional
and updated measures are required for the Hospital IQR Program.
Therefore, their inclusion in the Hospital VBP Program does not result
in any additional burden because the Hospital VBP Program uses data
that are required for the Hospital IQR Program.
9. ICRs for the Long-Term Care Hospital Quality Reporting Program (LTCH
QRP)
As discussed in section VIII.C.5 of the preamble of this proposed
rule, we are retaining the following 13 previously finalized quality
measures for use in the LTCH QRP:

LTCH QRP Quality Measures Previously Adopted for the FY 2014 Payment
Determinations and Subsequent Years
------------------------------------------------------------------------
Annual payment
determination:
Measure title IPPS/LTCH PPS Initial and
final rule subsequent APU
years
------------------------------------------------------------------------
National Healthcare Safety Adopted an FY 2014 payment
Network (NHSN) Catheter- application of determination and
Associated Urinary Tract the measure in subsequent years.
Infection (CAUTI) Outcome the FY 2012 IPPS/
Measure (NQF #0138). LTCH PPS final
rule (76 FR 51745
through 51747);
Adopted the
NQF[dash]endorsed
version and
expanded measure
(with
standardized
infection ratio
[SIR]) in the FY
2013 IPPS/LTCH
PPS final rule
(77 FR 53616
through 53619).
National Healthcare Safety Adopted an FY 2014 payment
Network (NHSN) Central Line- application of determination and
Associated Bloodstream the measure in subsequent years.
Infection (CLABSI) Outcome the FY 2012 IPPS/
Measure (NQF #0139). LTCH PPS final
rule (76 FR 51747
through 51748);
Adopted the
NQF[dash]endorsed
and expanded
measure (with
SIR) in the FY
2013 IPPS/LTCH
PPS final rule
(77 FR 53616
through 53619)..
Percent of Residents or Patients Adopted an FY 2014 payment
with Pressure Ulcers That Are application of determination and
New or Worsened (Short Stay) the measure in subsequent years.
(NQF #0678). the FY 2012 IPPS/
LTCH PPS final
rule (76 FR 51748
through 51750);
Adopted the
NQF[dash]endorsed
version in the FY
2014 IPPS/LTCH
PPS final rule
(78 FR 50861
through 50863);.
Adopted in the FY
2016 IPPS/LTCH
PPS final rule
(80 FR 49731
through 49736) to
fulfill IMPACT
Act requirements..
Percent of Residents or Patients Adopted in the FY FY 2016 payment
Who Were Assessed and 2013 IPPS/LTCH determination and
Appropriately Given the PPS final rule subsequent years.
Seasonal Influenza Vaccine (77 FR 53624
(Short Stay) (NQF #0680). through 53627);
Revised data
collection
timeframe in the
FY 2014 IPPS/LTCH
PPS final rule
(78 FR 50858
through 50861);.
Revised data
collection
timeframe in the
FY 2015 IPPS/LTCH
PPS final rule
(79 FR 50289
through 50290)..
Influenza Vaccination Coverage Adopted in the FY FY 2016 payment
among Healthcare Personnel (NQF 2013 IPPS/LTCH determination and
#0431). PPS final rule subsequent years.
(77 FR 53630
through 53631);
Revised data
collection
timeframe in the
FY 2014 IPPS/LTCH
PPS final rule
(78 FR 50857
through 50858)..
National Healthcare Safety Adopted in the FY FY 2017 payment
Network (NHSN) Facility-wide 2014 IPPS/LTCH determination and
Inpatient Hospital[dash]onset PPS final rule subsequent years.
Methicillin-Resistant (78 FR 50863
Staphylococcus aureus (MRSA) through 50865).
Bacteremia Outcome Measure (NQF
#1716).
National Healthcare Safety Adopted in the FY FY 2017 payment
Network (NHSN) Facility-wide 2014 IPPS/LTCH determination and
Inpatient Hospital[dash]onset PPS final rule subsequent years.
Clostridium difficile Infection (78 FR 50865
(CDI) Outcome Measure (NQF through 50868).
#1717).
All-Cause Unplanned Readmission Adopted in FY 2014 FY 2017 payment
Measure for 30 Days IPPS/LTCH PPS determination and
Post[dash]Discharge from Long- final rule (78 FR subsequent years.
Term Care Hospitals (NQF #2512). 50868 through
50874);
Adopted the NQF-
endorsed version
in the FY 2016
IPPS/LTCH PPS
final rule (80 FR
49730 through
49731)..
National Healthcare Safety Adopted in the FY FY 2018 payment
Network (NHSN) Ventilator- 2015 IPPS/LTCH determination and
Associated Event (VAE) Outcome PPS final rule subsequent years.
Measure. (79 FR 50301
through 50305).

[[Page 25254]]

Application of Percent of Adopted in the FY FY 2018 payment
Residents Experiencing One or 2014 IPPS/LTCH determination and
More Falls with Major Injury PPS final rule subsequent years.
(Long Stay) (NQF #0674). (78 FR 50874
through 50877);
Revised data
collection
timeframe in the
FY 2015 IPPS/LTCH
PPS final rule
(79 FR 50290
through 50291);.
Adopted an
application of
the measure in
the FY 2016 IPPS/
LTCH PPS final
rule (80 FR 49736
through 49739) to
fulfill IMPACT
Act requirements..
Percent of Long-Term Care Adopted in the FY FY 2018 payment
Hospital Patients with an 2015 IPPS/LTCH determination and
Admission and Discharge PPS final rule subsequent years.
Functional Assessment and a (79 FR 50291
Care Plan That Addresses through 50298).
Function (NQF #2631).
Functional Outcome Measure: Adopted in the FY FY 2018 payment
Change in Mobility among Long- 2015 IPPS/LTCH determination and
Term Care Hospital Patients PPS final rule subsequent years.
Requiring Ventilator Support (79 FR 50298
(NQF #2632). through 50301).
Application of Percent of Long- Adopted an FY 2018 payment
Term Care Hospital Patients application of determination and
with an Admission and Discharge the measure in subsequent years.
Functional Assessment and a the FY 2016 IPPS/
Care Plan That Addresses LTCH PPS final
Function (NQF #2631). rule (80 FR 49739
through 49747) to
fulfill IMPACT
Act requirements.
------------------------------------------------------------------------

As discussed in section VIII.C.6 and VIII.C.7 of the preamble of
this proposed rule, we are proposing the following four measures for
use in the LTCH QRP:

LTCH QRP Quality Measures Proposed for the FY 2018 Payment Determination
and Subsequent Years
------------------------------------------------------------------------
Annual payment determination:
Measure title Initial and subsequent APU
years
------------------------------------------------------------------------
Potentially Preventable 30-Day Post- FY 2018 payment determination
Discharge Readmission Measure for the and subsequent years.
LTCH QRP *.
Discharge to Community-PAC LTCH QRP *... FY 2018 payment determination
and subsequent years.
MSPB-PAC LTCH QRP *..................... FY 2018 payment determination
and subsequent years.
Drug Regimen Review Conducted with FY 2020 payment determination
Follow-Up for Identified Issues- PAC and subsequent years.
LTCH QRP **.
------------------------------------------------------------------------
* Proposed in this FY 2017 IPPS/LTCH PPS proposed rule for the FY 2018
payment determination and subsequent years.
** Proposed in this FY 2017 IPPS/LTCH PPS proposed rule for the FY 2020
payment determination and subsequent years.

Currently, LTCHs use two separate data collection mechanisms to
report quality data to CMS. Six of the 13 measures being retained in
this FY 2017 IPPS/LTCH PPS proposed rule are currently collected via
the CDC's NHSN. The NHSN is a secure, Internet-based HAI tracking
system maintained and managed by the CDC. The NHSN enables health care
facilities to collect and use data about HAIs, adherence to clinical
practices known to prevent HAIs, and other adverse events within their
organizations. NHSN data collection occurs via a Web-based tool hosted
by the CDC and is provided free of charge to facilities. In this
proposed rule, we are not proposing any new quality measures that would
be collected via the CDC's NHSN. Therefore, at this time, there would
be no additional burden related to this submission method. Any burden
related to NHSN-based quality measures we have retained in this
proposed rule has been previously discussed in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50443 through 50445) and FY 2016 IPPS/LTCH PPS
final rule (80 FR 49766) and has been previously approved under OMB
control number 0920-0666, with an expiration date of November, 31,
2016.
In addition to the previously finalized All-Cause Unplanned
Readmission Measure for 30 Days Post-Discharge From LTCHs (NQF #2512),
we are proposing three additional Medicare FFS claims-based measures in
this proposed rule: Potentially Preventable 30 Day Post-Discharge
Readmission Measure for LTCH QRP; Discharge to Community--PAC LTCH QRP;
and MSBP-PAC LTCH QRP. Because these proposed claims-based measures
would be calculated based on data that are already reported to the
Medicare program for payment purposes, we believe no additional
information collection would be required from the LTCHs. We are not
proposing new assessment-based quality measures in the LTCH QRP in this
proposed rule for the FY 2018 payment determination and subsequent
years.
The remaining assessment-based quality measure data are reported to
CMS by LTCHs using the LTCH CARE Data Set. In section VIII.C.9.d. of
the preamble of this of this proposed rule, we are proposing to expand
the data collection timeframe for the measure NQF #0680 Percent of
Residents or Patients Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (77 FR 53624 through 53627), beginning with
the FY 2019 payment determination. The data collection time frame and
associated data submission deadlines are currently aligned with the
Influenza Vaccination Season (IVS) (October 1 of a given year

[[Page 25255]]

through March 31 of the subsequent year), and only require data
collection during the 2 calendar year quarters that align with the IVS.
We are proposing to expand the data collection timeframe from just 2
quarters (covering the IVS) to a full four quarters or 12 months. We
refer readers to section VIII.C.9.d. of the preamble of this this
proposed rule for further details on the proposed expansion of data
collection for this measures (NQF #0680), including data collection
timeframes and associated submission deadlines. We originally finalized
this measure for use in the FY 2013 IPPS/LTCH PPS final rule (77 FR
53624 through 53627). Although we finalized data collection for this
measure to coincide with the IVS, we originally proposed year-round
data collection. The associated PRA package, which was approved under
OMB control number 0938-1163, included burden calculations that aligned
with our original proposal for year-round data collection. All
subsequent PRA packages, and the PRA package that is currently under
review, included burden calculations reflecting year-round (12 month)
data collection for this measure. Because of this, the proposed change
in the data collection timeframe for this measure, and any associated
burden related to increased data collection, has already been accounted
for in the total burden figures included in this section of the
preamble of this proposed rule.
For the FY 2020 payment determination and subsequent years, we are
proposing the use of one new assessment based quality measure in the
LTCH QRP: Drug Regimen Review Conducted with Follow-Up for Identified
Issues-PAC LTCH QRP. This is a cross-setting measure that satisfies the
required addition of a quality measure under the domain of medication
reconciliation, as mandated by section 1899B of the Act, as added by
the IMPACT Act. In addition to the proposed Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP quality
measure, the remaining six measures, outlined below, will continue to
be collected utilizing the LTCH CARE Data Set.
The LTCH CARE Data Set Version 2.01 has been approved under OMB
control number 0938-1163. The LTCH CARE Data Set Version 2.01 contains
data elements related to patient demographic data, various voluntary
questions, as well as data elements related to the following quality
measures:
Percent of Residents or Patients with Pressure Ulcers That
Are New or Worsened (Short Stay) (NQF #0678);
Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680).
We have submitted a revision to the PRA package that addressed the
changes from LTCH CARE Data Set Version 2.01 to Version 3.00. The LTCH
CARE Data Set Version 3.00, which is to be implemented April 1, 2016,
contains those data elements included in Version 2.01, as well as
additional data elements in order to allow for the collection of data
associated with the following quality measures:
Application of Percent of Residents Experiencing One or
More Falls with Major Injury (Long Stay) (NQF #0674) (previously
finalized in the FY 2016 IPPS/LTCH PPS final rule);
Percent of Long-Term Care Hospital Patients with an
Admission and Discharge Functional Assessment and a Care Plan That
Addresses Function (NQF #2631) (previously finalized in the FY 2015
IPPS/LTCH PPS final rule);
Functional Outcome Measure: Change in Mobility Among Long-
Term Care Hospital Patients Requiring Ventilator Support (NQF #2632)
(previously finalized in the FY 2015 IPPS/LTCH PPS final rule); and
Application of Percent of Long-Term Care Hospital Patients
with an Admission and Discharge Functional Assessment and a Care Plan
That Addresses Function (NQF #2631) (previously finalized in the FY
2016 IPPS/LTCH PPS final rule).
The LTCH CARE Data Set Version 4.00, effective April 1, 2018, will
contain those data elements included in Version 3.00, as well as
additional data elements in order to allow for the collection of data
associated with the proposed quality measure: Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, proposed
in this proposed rule.
Each time we add new data elements to the LTCH CARE Data Set
related to newly proposed or finalized LTCH QRP quality measures, we
are required by the PRA to submit the expanded data collection
instrument to OMB for review and approval. Section 1899B(m) of the Act,
as added by IMPACT Act, provides that the PRA requirements do not apply
to section 1899B of the Act and the sections referenced in section
1899B(a)(2)(B) of the Act that require modifications in order to
achieve the standardization of patient assessment data. We believe that
the LTCH CARE Data Set Version 3.00 falls under the PRA provisions in
1899B(m) of the Act. We believe that all additional data elements added
to the LTCH CARE Data Set Version 3.00 are for the purpose of
standardizing patient assessment data, as required under section
1899B(a)(2)(B) of the Act. As noted above, the LTCH CARE Data Set
Version 3.00 would be updated to Version 4.0, effective April 1, 2018,
to include data elements for the Drug Regimen Review Conducted with
Follow-Up for Identified Issues- PAC LTCH QRP proposed quality measure,
if the measure is finalized. For the reasons discussed above, we
believe that the LTCH CARE Data Set Version 4.00 also falls under the
PRA provisions in section 1899B(m) of the Act.
A comprehensive list of all data elements included in the LTCH CARE
Data Set Version 3.00 is available in the LTCH QRP Manual which is
accessible on the LTCH QRP Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. For a discussion of burden related to LTCH CARE
Data Set Version 3.00, we refer readers to section I.M. of Appendix A
of this proposed rule.
10. ICRs for the Inpatient Psychiatric Facility Quality Reporting
(IPFQR) Program
Section 1886(s)(4) of the Act, as added and amended by sections
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary
to implement a quality reporting program for inpatient psychiatric
hospitals and psychiatric units. We refer to this program as the
Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program.
In section VIII.D. of the preamble of this proposed rule, we are
proposing the following measure-related changes: To update a previously
finalized measure (Screening for Metabolic Disorders); and to adopt two
new measures beginning with the FY 2019 payment determination (SUB-3
Alcohol & Other Drug Use Disorder Treatment Provided or Offered at
Discharge and subset measure SUB-3a Alcohol & Other Drug Use Disorder
Treatment at Discharge (NQF #1664), and Thirty-day all-cause unplanned
readmission following psychiatric hospitalization in an IPF). We also
are proposing to no longer specify in rulemaking when measure data will
be publicly available, when the preview period will occur or that the
preview period will begin approximately 12 weeks before the public
display date, but rather to announce the timeframes using subregulatory
guidance.
We refer readers to the FY 2015 IPF PPS final rule (79 FR 45978
through

[[Page 25256]]

45980) and the FY 2016 IPF PPS final rule (80 FR 46720 through 46721)
for a detailed discussion of the burden for the IPFQR Program
requirements that we have previously adopted. Below we discuss only the
changes in burden resulting from the proposals in this proposed rule.
Although we are proposing provisions that impact policies beginning in
both the FY 2017 and FY 2019 payment determinations, IPFs must take
steps to comply with all of these policies beginning in FY 2017. For
example, data collection for the measures begins in FY 2017, and the
changes to the public display dates take effect beginning in FY 2017.
For purposes of calculating burden, we will attribute the costs to the
year in which these costs begin; for the purposes of all of the
proposals in this proposed rule, that year is FY 2017.
We believe that approximately 1,684 \318\ IPFs will participate in
the IPFQR Program for requirements occurring in FY 2017 and subsequent
years. Based on program data, we believe that each IPF will submit
measure data on approximately 848 \319\ cases per year. In prior
rulemaking, we estimated that the time required to chart-abstract data
for chart-abstracted measures is 12 minutes per case per measure.\320\
Based on the experience of other quality reporting programs, such as
the Hospital IQR Program, we are updating this estimate to 15 minutes
per case per measure. We are only proposing one chart-abstracted
measure this year: SUB-3 and subset SUB-3a. The other measure that we
are proposing, Thirty-day all-cause unplanned readmission following
Psychiatric hospitalization in an IPF, is claims-based and, therefore,
does not require IPFs to report any additional data.
---------------------------------------------------------------------------

\318\ In the FY 2016 IPF PPS final rule, we estimated 1,617 IPFs
and are adjusting that estimate by +67 to account for more recent
data.
\319\ In the FY 2016 IPF PPS final rule, we estimated 431 cases
per year and are adjusting that estimate by +417 to account for more
recent data.
\320\ 80 FR 46720.
---------------------------------------------------------------------------

We estimate that reporting data for the IPFQR Program measures can
be accomplished by staff with a mean hourly wage of $16.42.\321\
However, obtaining data on other overhead costs is challenging.
Overhead costs vary greatly across industries and firm sizes. In
addition, the precise cost elements assigned as ``indirect'' or
``overhead'' costs, as opposed to direct costs or employee wages, are
subject to some interpretation at the firm level. Therefore, we have
chosen to calculate the cost of overhead at 100 percent of the mean
hourly wage. This is necessarily a rough adjustment, both because
fringe benefits and overhead costs vary significantly from employer to
employer and because methods of estimating these costs vary widely from
study to study. Nonetheless, there is no practical alternative, and we
believe that doubling the hourly wage to estimate total cost is a
reasonably accurate estimation method. In calculating the labor cost,
we estimate an hourly labor cost of $32.84 ($16.42 base salary + $16.42
fringe). The following table presents the mean hourly wage, the cost of
fringe benefits (calculated at 100 percent of salary), and the adjusted
hourly wage.
---------------------------------------------------------------------------

\321\ http://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.html.

Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
Mean hourly Fringe benefit (at Adjusted hourly
Occupation title Occupation code wage ($/hr) 36.25% in $/hr) wage ($/hr)
----------------------------------------------------------------------------------------------------------------
Medical Records and Health 29-2071 16.42 16.42 32.84
Information Technician.............
----------------------------------------------------------------------------------------------------------------

We do not believe that our proposal to update a previously
finalized measure will affect our previous burden estimate for that
measure. As noted above, one of our proposed measures is claims-based
and would not result in increased burden. Therefore, increased burden
would occur primarily as a result of our proposed new chart-abstracted
measure. We estimate that this proposal would result in an increase in
burden of 212 hours per IPF (1 measure x (848 cases/measure x 0.25
hours/case)) or 357,008 hours across all IPFs (212 hours/IPF x 1,684
IPFs). The increase in costs would be approximately $6,962 per IPF (212
hours x $32.84/hour) or $11,724,143 across all IPFs (357,008 hours x
32.84/hour).
Consistent with our estimates in the FY 2015 IPF PPS final rule (79
FR 45979), we believe the estimated burden for training personnel on
the revised data collection and submission requirements would be 2
hours per IPF or 3,368 hours (2 hours/IPF x 1,684 IPFs) across all
IPFs. Therefore, we estimate the cost for this training would be $65.68
($32.84/hour x 2 hours) for each IPF or $110,605 ($32.84/hour x 3,368
hours) for all IPFs.
Finally, IPFs must submit to CMS aggregate population counts for
Medicare and non-Medicare discharges by age group and diagnostic group,
and sample size counts for measures for which sampling is performed.
Because the population for the SUB-3 and SUB-3a measure is nearly
identical to the population for both the SUB-1 measure and the SUB-2
and SUB-2a measure, we believe that the addition of 1 chart-abstracted
measure would lead to a negligible change in burden associated with
nonmeasure data collection.
In section VIII.D.7. of the preamble of this proposed rule, we are
proposing to no longer specify in rulemaking, but rather in
subregulatory guidance, when measure data will be publicly available,
when the preview period will occur, or that the preview period will
begin approximately 12 weeks before the public display date. We do not
believe this proposal will result in any change in burden because it
does not require IPFs to report any more or less data. Rather, if
finalized, the timeline for public display of that data is simply
shifting.
In the table below, we set out a summary of annual burden
estimates.

[[Page 25257]]

Annual Recordkeeping and Reporting Requirements Under OMB Control Number 0938-1171 (CMS-10432)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Burden per Total annual
Proposed action [preamble section] Respondents Responses per response burden Labor cost ($/ Total cost ($)
respondent (hours) * (hours) hr)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Add NQF #1664 [VIII.D.4.a.]............................. 1,684 848 0.25 357,008 32.84 11,724,143
Add Readmissions Measure [VIII.D.4.b.].................. 1,684 0 0 0 32.84 0
Training................................................ 1,684 1 2 3,368 32.84 110,605
Shift Public Display Timeline [VIII.D.7.]............... 1,684 0 0 0 32.84 0
-----------------------------------------------------------------------------------------------
1,684 .............. .............. 360,376 32.84 11,834,748
--------------------------------------------------------------------------------------------------------------------------------------------------------

11. ICRs for the Electronic Health Record (EHR) Incentive Program and
Meaningful Use
In section VIII.E. of the preamble of this proposed rule, we
discuss our proposals to align the Medicare and Medicaid EHR Incentive
Programs reporting and submission timelines for electronically
submitted clinical quality measures for eligible hospitals and CAHs
with the Hospital IQR Program's reporting and submission timelines for
the FY 2019 payment determination. Because these proposals for data
collection in this proposed rule will align with the reporting
requirements in place for the Hospital IQR Program, and eligible
hospitals and CAHs still have the option to submit their clinical
quality measures via attestation for the Medicare and Medicaid EHR
Incentive Programs for CY 2017 reporting, we do not believe there is
any additional burden for this collection of information. However,
starting with CY 2018 reporting, eligible hospitals and CAHs
participating in the Medicare EHR Incentive Programs must
electronically report CQMs using CEHRT where feasible; and attestation
to CQMs will no longer be an option except in certain circumstances
where electronic reporting is not feasible (80 FR 62894).
We are requesting public comments on these information collection
and recordkeeping requirements.
If you comment on these information collection and recordkeeping
requirements, please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget,
Attention: CMS Desk Officer, CMS-1655-P
Fax: (202) 395-6974; or
Email: [email protected].

C. Response to Public Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all public comments we
receive by the date and time specified in the DATES section of this
preamble, and, when we proceed with a subsequent document, we will
respond to the public comments in the preamble of that document.

List of Subjects

42 CFR Part 405

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping,
Rural areas, X-rays.

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.

42 CFR Part 489

Health facilities, Medicare, Reporting and recordkeeping
requirements.

For the reasons stated in the preamble of this proposed rule, the
Centers for Medicare & Medicaid Services is proposing to amend 42 CFR
Chapter IV as set forth below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

0
1. The authority citation for part 405 continues to read as follows:

Authority: Secs. 205(a), 1102, 1862(a), 1869, 1871, 1874, 1881,
and 1886(k) of the Social Security Act (42 U.S.C. 405(a), 1302,
1395x, 1395y(a), 1395ff, 1395hh, 1395kk, 1395rr, and 1395ww(k)), and
sec. 353 of the Public Health Service Act (42 U.S.C. 263a).

0
2. Section 405.926 is amended by adding paragraph (u) to read as
follows:

Sec. 405.926 Actions that are not initial determinations.

* * * * *
(u) Issuance of notice to an individual entitled to Medicare
benefits under Title XVIII of the Act when such individual received
observation services as an outpatient for more than 24 hours, as
specified under Sec. 489.20(y) of this chapter.

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

0
3. The authority citation for part 412 is revised to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), sec. 124 of Pub. L. 106-113 (113 Stat.
1501A-332), sec. 1206 of Pub. L. 113-67, and sec. 112 of Pub. L.
113-93.

0
4. Section 412.64 is amended by adding paragraph (d)(1)(vii) and
revising paragraphs (h)(4) introductory text and (h)(4)(vi)
introductory text to read as follows:

Sec. 412.64 Federal rates for inpatient operating costs for Federal
fiscal year 2005 and subsequent fiscal years.

* * * * *
(d) * * *
(1) * * *
(vii) For fiscal year 2017, the percentage increase in the market
basket index (as defined in Sec. 413.40(a)(3) of this chapter) for
prospective payment hospitals, subject to the provisions of paragraphs
(d)(2) and (3) of this section, less a multifactor productivity
adjustment (as determined by CMS) and less 0.75 percentage point.
* * * * *
(h) * * *
(4) For discharges on or after October 1, 2004 and before October
1, 2017, CMS establishes a minimum wage index for each all-urban State,
as defined in paragraph (h)(5) of this section. This minimum wage index
value is computed using the following methodology:
* * * * *
(vi) For discharges on or after October 1, 2012 and before October
1, 2017, the

[[Page 25258]]

minimum wage index value for the State is the higher of the value
determined under paragraph (h)(4)(iv) of this section or the value
computed using the following alternative methodology:
* * * * *
0
5. Section 412.103 is amended by adding paragraph (b)(6) to read as
follows:

Sec. 412.103 Special treatment: Hospitals located in urban areas and
that apply for reclassification as rural.

* * * * *
(b) * * *
(6) Lock-in date for the wage index calculation and budget
neutrality. In order for a hospital to be treated as rural in the wage
index and budget neutrality calculations under Sec. Sec.
412.64(e)(1)(ii), (e)(2) and (4), and (h) for the payment rates for the
next Federal fiscal year, the hospital's filing date must be no later
than 70 days prior to the second Monday in June of the current Federal
fiscal year and the application must be approved by the CMS Regional
Office in accordance with the requirements of this section.
* * * * *
0
6. Section 412.106 is amended by revising paragraph (g)(1)(iii)(C) to
read as follows:

Sec. 412.106 Special treatment: Hospitals that serve a
disproportionate share of low-income patients.

* * * * *
(g) * * *
(1) * * *
(iii) * * *
(C)(1) For fiscal years 2014 and 2015, CMS will base its estimates
of the amount of hospital uncompensated care on the most recent
available data on utilization for Medicaid and Medicare SSI patients,
as determined by CMS in accordance with paragraphs (b)(2)(i) and (b)(4)
of this section.
(2) For fiscal year 2016, CMS will base its estimates of the amount
of hospital uncompensated care on utilization data for Medicaid and
Medicare SSI patients, as determined by CMS in accordance with
paragraphs (b)(2)(i) and (b)(4) of this section, using data on Medicaid
utilization from 2012 or 2011 cost reports from the most recent HCRIS
database extract, the 2012 cost report data submitted to CMS by IHS
hospitals, and the most recent available data on Medicare SSI
utilization.
(3) For fiscal year 2017, CMS will base its estimates of the amount
of hospital uncompensated care on utilization data for Medicaid and
Medicare SSI patients, as determined by CMS in accordance with
paragraphs (b)(2)(i) and (b)(4) of this section, using data on Medicaid
utilization from 2011, 2012, and 2013 cost reports from the most recent
HCRIS database extract, the 2011 and 2012 cost report data submitted to
CMS by IHS hospitals, and the most recent available 3 years of data on
Medicare SSI utilization (or, for Puerto Rico hospitals, a proxy for
Medicare SSI utilization data).
(4) For fiscal year 2018, CMS will base its estimates of the amount
of hospital uncompensated care determined in part from utilization data
for Medicaid and Medicare SSI patients, as determined by CMS in
accordance with paragraphs (b)(2)(i) and (b)(4) of this section, using
data on Medicaid utilization from 2012 and 2013 cost reports from the
most recent HCRIS database extract, the 2012 cost report data submitted
to CMS by IHS hospitals, and the most recent available 2 years of data
on Medicare SSI utilization (or, for Puerto Rico hospitals, a proxy for
Medicare SSI utilization data), and determined in part on uncompensated
care costs, defined as charity care costs plus non-Medicare bad debt
costs, from 2014 cost reports also from the most recent HCRIS database
extract.
(5) For fiscal year 2019, CMS will base its estimates of the amount
of hospital uncompensated care determined in part from utilization data
for Medicaid and Medicare SSI patients, as determined by CMS in
accordance with paragraphs (b)(2)(i) and (b)(4) of this section, using
data on Medicaid utilization from 2013 cost reports from the most
recent HCRIS database extract and the most recent available year of
data on Medicare SSI utilization (or, for Puerto Rico hospitals, a
proxy for Medicare utilization data), and determined in part on
uncompensated care costs, defined as charity care costs plus non-
Medicare bad debt costs, from 2014 and 2015 cost reports also from the
most recent HCRIS database extract.
(6) For fiscal year 2020, CMS will base its estimates of the amount
of hospital uncompensated care on uncompensated care costs, defined as
charity care costs plus non-Medicare bad debt costs, from 2014, 2015,
and 2016 cost reports from the most recent HCRIS database extract.
(7) For fiscal years 2021 and subsequent years, CMS will base its
estimates of the amount of hospital uncompensated care on uncompensated
care costs, defined as charity care costs plus non-Medicare bad debt
costs, using three cost reporting periods from the most recently
available HCRIS database extract. For each fiscal year, the cost
reporting periods will be advanced forward by one year (for example,
for FY 2021, FYs 2016, 2017, and 2018 cost reports will be used).
* * * * *
0
7. Section 412.140 is amended by revising paragraph (d)(2) to read as
follows:

Sec. 412.140 Participation, data submission, and validation
requirements under the Hospital Inpatient Quality Reporting (IQR)
Program.

* * * * *
(d) * * *
(2) A hospital meets the chart-abstracted validation requirement
with respect to a fiscal year if it achieves a 75-percent score, as
determined by CMS.
* * * * *
0
8. Section 412.160 is amended by revising the definitions of
``Achievement threshold (or achievement performance standard)'',
``Benchmark'', and ``Cited for deficiencies that pose immediate
jeopardy'' to read as follows:

Sec. 412.160 Definitions for the Hospital Value-Based Purchasing
(VBP) Program.

* * * * *
Achievement threshold (or achievement performance standard) means
the median (50th percentile) of hospital performance on a measure
during a baseline period with respect to a fiscal year, for Hospital
VBP Program measures other than the measures in the Efficiency and Cost
Reduction domain, and the median (50th percentile) of hospital
performance on a measure during the performance period with respect to
a fiscal year, for the measures in the Efficiency and Cost Reduction
domain.
* * * * *
Benchmark means the arithmetic mean of the top decile of hospital
performance on a measure during the baseline period with respect to a
fiscal year, for Hospital VBP Program measures other than the measures
in the Efficiency and Cost Reduction domain, and the arithmetic mean of
the top decile of hospital performance on a measure during the
performance period with respect to a fiscal year, for the measures in
the Efficiency and Cost Reduction domain.
Cited for deficiencies that pose immediate jeopardy means that,
during the applicable performance period, the Secretary cited the
hospital for immediate jeopardy on at least three surveys using the
Form CMS-2567, Statement of Deficiencies and Plan of Correction. CMS
assigns an immediate jeopardy citation to a performance period as
follows:

[[Page 25259]]

(1) If the Form CMS-2567 only contains one or more EMTALA-related
immediate jeopardy citations, CMS uses the date that the Form CMS-2567
is issued to the hospital;
(2) If the Form CMS-2567 only contains one or more Medicare
conditions of participation immediate jeopardy citations, CMS uses the
survey end date generated in ASPEN; and
(3) If the Form CMS-2567 contains both one or more EMTALA-related
immediate jeopardy citations and one or more Medicare conditions of
participation immediate jeopardy citations, CMS uses the survey end
date generated in ASPEN.
* * * * *
0
9. Section 412.170 is amended by revising the definition of
``Applicable period'' to read as follows:

Sec. 412.170 Definitions for the Hospital-Acquired Condition
Reduction Program.

* * * * *
Applicable period is, unless otherwise specified by the Secretary,
with respect to a fiscal year, the 2-year period (specified by the
Secretary) from which data are collected in order to calculate the
total hospital-acquired condition score under the Hospital-Acquired
Condition Reduction Program.
* * * * *
0
10. Section 412.204 is amended by revising paragraph (d) introductory
text and adding paragraph (e) to read as follows:

Sec. 412.204 Payment to hospitals located in Puerto Rico.

* * * * *
(d) FY 2005 through December 31, 2015. For discharges occurring on
or after October 1, 2004 and before January 1, 2016, payments for
inpatient operating costs to hospitals located in Puerto Rico that are
paid under the prospective payment system are equal to the sum of--
* * * * *
(e) January 1, 2016 and thereafter. For discharges occurring on or
after January 1, 2016, payments for inpatient operating costs to
hospitals located in Puerto Rico that are paid under the prospective
payment system are equal to 100 percent of a national prospective
payment rate for inpatient operating costs, as determined under Sec.
412.212.
0
11. Section 412.256 is amended by revising paragraph (a)(1) to read as
follows:

Sec. 412.256 Application requirements.

(a) * * *
(1) An application must be submitted to the MGCRB according to the
method prescribed by the MGCRB, with an electronic copy of the
application sent to CMS.
* * * * *
0
12. Section 412.374 is amended by revising paragraph (b) introductory
text and adding paragraph (e) to read as follows:

Sec. 412.374 Payments to hospitals located in Puerto Rico.

* * * * *
(b) FY 2005 through FY 2016. For discharges occurring on or after
October 1, 2004 and on or before September 30, 2016, payments for
capital-related costs to hospitals located in Puerto Rico that are paid
under the prospective payment system are equal to the sum of the
following:
* * * * *
(e) FY 2016 and FYs thereafter. For discharges occurring on or
after October 1, 2016, payments for capital-related costs to hospitals
located in Puerto Rico that are paid under the prospective payment
system are based on 100 percent of the Federal rate, as determined
under Sec. 412.308.
0
13. Section 412.503 is amended by adding in alphabetical order
definitions of ``MSA'', ``MSA-dominant area'', and ``MSA-dominant
hospital'' and revising the definitions of ``Outlier payment'' and
``Subsection (d) hospital'' to read as follows:

Sec. 412.503 Definitions.

* * * * *
MSA means a Metropolitan Statistical Area, as defined by the
Executive Office of Management and Budget.
MSA-dominant area means an MSA in which an MSA-dominant hospital is
located.
MSA-dominant hospital means a hospital that has discharged more
than 25 percent of the total hospital Medicare discharges in the MSA
(subject to the provisions of Sec. 412.538(d)(2)(ii)) in which such
subsection (d) hospital is located.
* * * * *
Outlier payment means an additional payment beyond the long-term
care hospital standard Federal payment rate or the site neutral payment
rate (including, when applicable, the blended payment rate), as
applicable, for cases with unusually high costs.
* * * * *
Subsection (d) hospital means, for purposes of Sec. 412.522, a
hospital defined in section 1886(d)(1)(B) of the Social Security Act
and includes any hospital that is located in Puerto Rico and that would
be a subsection (d) hospital as defined in section 1886(d)(1)(B) of the
Social Security Act if it were located in one of the 50 States.
* * * * *
0
14. Section 412.507 is amended by revising paragraph (a) and adding
paragraph (b)(3) to read as follows:

Sec. 412.507 Limitation on charges to beneficiaries.

(a) Prohibited charges. Except as provided in paragraph (b) of this
section, a long-term care hospital may not charge a beneficiary for any
covered services for which payment is made by Medicare, even if the
hospital's costs of furnishing services to that beneficiary are greater
than the amount the hospital is paid under the prospective payment
system.
(1) If Medicare has paid at the full LTCH prospective payment
system standard Federal payment rate, that payment applies to the
hospital's costs for services furnished until the high-cost outlier
threshold is met.
(2) If Medicare pays less than the full LTCH prospective payment
system standard Federal payment rate and payment was not made at the
site neutral payment rate (including, when applicable, the blended
payment rate), that payment only applies to the hospital's costs for
those costs or days used to calculate the Medicare payment.
(3) For cost reporting periods beginning on or after October 1,
2016, for Medicare payments to a long-term care hospital described in
Sec. 412.23(e)(2)(ii), that payment only applies to the hospital's
costs for those costs or days used to calculate the Medicare payment.
(4) If Medicare has paid at the full site neutral payment rate,
that payment applies to the hospital's costs for services furnished
until the high-cost outlier is met.
(b) * * *
(3) For cost reporting periods beginning on or after October 1,
2016, a long-term care hospital described in Sec. 412.23(e)(2)(ii) may
only charge the Medicare beneficiary for the applicable deductible and
coinsurance amounts under Sec. Sec. 409.82, 409.83, and 409.87 of this
chapter, for items and services as specified under Sec. 489.20(a) of
this chapter, and for services provided during the stay for which
benefit days were not available and that were not the basis for
adjusted LTCH prospective payment system payment amount under Sec.
412.526.
0
15. Section 412.522 is amended by adding paragraph (c)(2)(v) to read as
follows:

[[Page 25260]]

Sec. 412.522 Application of site neutral payment rate.

* * * * *
(c) * * *
(2) * * *
(v) The limitation on long-term care hospital admissions from
referring hospitals specified in Sec. 412.538.
* * * * *
0
16. Section 412.523 is amended by adding paragraph (c)(3)(xiii) to read
as follows:

Sec. 412.523 Methodology for calculating the Federal prospective
payment rates.

* * * * *
(c) * * *
(3) * * *
(xiii) For long-term care hospital prospective payment system
fiscal year beginning October 1, 2016, and ending September 30, 2017.
The LTCH PPS standard Federal payment rate for the long-term care
hospital prospective payment system beginning October 1, 2016, and
ending September 30, 2017, is the standard Federal payment rate for the
previous long-term care hospital prospective payment system fiscal year
updated by 1.45 percent and further adjusted, as appropriate, as
described in paragraph (d) of this section.
* * * * *
0
17. Section 412.525 is amended by adding paragraph (d)(6) to read as
follows:

Sec. 412.525 Adjustments to the Federal prospective payment.

* * * * *
(d) * * *
(6) The limitation on long-term care hospital admissions from
referring hospitals specified in Sec. 412.538.
0
18. The section heading of Sec. 412.534 is revised to read as follows:

Sec. 412.534 Special payment provisions for long-term care hospitals-
within-hospitals and satellites of long-term care hospitals, effective
for discharges occurring on or before September 30, 2016.

* * * * *
0
19. The section heading of Sec. 412.536 is revised to read as follows:

Sec. 412.536 Special payment provisions for long-term care hospitals
and satellites of long-term care hospitals that discharge Medicare
patients admitted from a hospital not located in the same building or
on the same campus as the long-term care hospital or satellite of the
long-term care hospital, effective for discharges occurring on or
before September 30, 2016.

* * * * *
0
20. Add Sec. 412.538 to read as follows:

Sec. 412.538 Limitation on long-term care hospital admissions from
referring hospitals.

(a) Scope. (1) The provisions of this section apply to all long-
term care hospitals excluded from the hospital inpatient prospective
payment system under Sec. 412.23(e), effective for discharges
occurring on or after October 1, 2016, except as specified in
paragraphs (a)(2) and (3) of this section.
(2) The provisions of this section do not apply to a long-term care
hospital described in Sec. 412.23(e)(2)(ii).
(3) The provisions of this section do not apply to a long-term care
hospital described in Sec. 412.23(e)(2)(i) that meets the criteria in
Sec. 412.22(f).
(b) Discharges at or below the applicable percent threshold. For
any cost reporting period which includes discharges occurring on or
after October 1, 2016, in which a long-term care hospital has a
population of Medicare discharges occurring on or after October 1, 2016
of whom no more than the applicable percent threshold were admitted to
the long-term care hospital from a single referring hospital as
identified by the CCN, payments are made under the rules at Sec. Sec.
412.500 through 412.541 with no adjustment under this section.
(c) Discharges in excess of the applicable percent threshold. For
any cost reporting period which includes discharges occurring on or
after October 1, 2016, in which a long-term care hospital has a
population of Medicare discharges occurring on or after October 1, 2016
of whom more than the applicable percentage threshold (as defined in
paragraph (e) of this section) were admitted to the long-term care
hospital from a single referring hospital as identified by the CNN,
payments for the Medicare discharges who are admitted from that
referring hospital and who cause the long-term care hospital to exceed
the applicable percentage threshold (as defined in paragraph (e) of
this section) are to be paid at the lesser of the amount otherwise
payable under this subpart or the amount equivalent to the hospital
inpatient prospective payment system amount as defined in paragraph (f)
of this section. Payments for discharges not in excess of the
applicable percentage threshold (as defined in paragraph (e) of this
section) are made under the rules at Sec. Sec. 412.500 through 412.541
with no adjustment under this section.
(d) Determination of exceeding the applicable percentage
threshold.--(1) General. The determination of whether a long-term care
hospital has exceeded its applicable percentage threshold (as defined
in paragraph (e) of this section) in regard to admissions from a single
referring hospital as identified by the CNN is made by comparing the
hospital's percentage of Medicare discharges occurring on or after
October 1, 2016 admitted to the long-term care hospital (as calculated
under paragraph (d)(2) of this section) to the long-term care
hospital's applicable percentage threshold in paragraph (e) of this
section.
(2) Percentage of Medicare discharges. For each individual
referring hospital, the percentage of Medicare discharges admitted to
the long-term care hospital is calculated by dividing the amount in
paragraph (d)(2)(i) of this section by the amount in paragraph
(d)(2)(ii) of this paragraph.
(i) The number of the long-term care hospital's Medicare discharges
in the cost reporting period that were admitted from a single referring
hospital as identified by the CNN on whose behalf an outlier payment
was not made to that hospital and for whom payment was not made by a
Medicare Advantage plan.
(ii) The long-term care hospital's total number of Medicare
discharges in the long-term care hospital's cost reporting period for
whom payment was not made by a Medicare Advantage plan.
(e) Applicable percentage threshold--(1) General. For the purposes
of this section, except as provided for in paragraphs (f)(2) and (3) of
this section, ``applicable percentage threshold'' means 25 percent.
(2) Special treatment of exclusively rural long-term care
hospitals. In the case of a long-term care hospital that is located in
a rural area as defined in Sec. 412.503, the applicable percentage
threshold means 50 percent. If an LTCH has multiple locations, all
locations of the LTCH must be in a rural area (as defined in Sec.
412.503) in order to be treated as rural under this section.
(3) Special treatment for long-term care hospitals located in an
MSA with an MSA-dominant hospital. In the case of a long-term care
hospital that admits Medicare patients from a referring MSA-dominant
hospital (as defined in paragraph (h)(3)(ii) of this section), the
applicable percentage threshold means the percentage of total
subsection (d) hospital Medicare discharges in the MSA in which the
long-term care hospital is located for the cost reporting period for
which the adjustment under this section is made, but in no case is less
than 25 percent or more than 50 percent. The determination of the
applicable percentage threshold in this paragraph is subject to the
provisions of paragraph (d)(2) of this section. If an LTCH has multiple
locations payable

[[Page 25261]]

under this subpart, all locations of the LTCH must be in an MSA with an
MSA-dominant hospital in order to be treated as such under this
section.
(f) Determining the amount equivalent to the hospital inpatient
prospective payment system amount. (1) As specified in paragraphs (b)
and (c) of this section, CMS calculates an amount payable under subpart
O that is equivalent to an amount that would be paid for the services
provided if such services had been provided in an inpatient prospective
payment system hospital (that is, the amount that would be determined
under the rules at Sec. 412.1(a)). This amount is based on the sum of
the applicable hospital inpatient prospective payment system operating
standardized amount and capital Federal rate in effect (as set forth in
section Sec. 412.529(d)(4)) at the time of the long-term care hospital
discharge.
(2) In addition to the payment amount under paragraph (f)(1) of
this section, an additional payment for high-cost outlier cases is
based on the applicable fixed-loss amount established for the hospital
inpatient prospective payment system in effect at the time of the long-
term care hospital discharge.
0
21. Section 412.560 is amended by revising paragraph (c)(1) to read as
follows:

Sec. 412.560 Participation, data submission, and other requirements
under the Long-Term Care Hospital Quality Reporting (LTCHQR) Program.

* * * * *
(c) * * *
(1) A long-term care hospital that wishes to request an exception
or extension with respect to quality data reporting requirements must
submit its request to CMS within 90 days of the date that the
extraordinary circumstances occurred.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
22. The authority for part 413 is revised to read as follows:

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i),
and (n), 1861(v), 1871, 1881, 1883 and 1886 of the Social Security
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of
Pub. L. 106-113 (113 Stat. 1501A-332), sec. 3201 of Pub. L. 112-96
(126 Stat. 156), sec. 632 of Pub. L. 112-240 (126 Stat. 2354), sec.
217 of Pub. L. 113-93 (129 Stat. 1040), and sec. 204 of Pub L. 113-
295 (128 Stat. 4010).

0
23. Section 413.17 is amended by revising paragraph (d)(1) introductory
text to read as follows:

Sec. 413.17 Cost to related organizations.

* * * * *
(d) * * *
(1) An exception is provided to this general principle if the
provider demonstrates by convincing evidence to the satisfaction of the
contractor, that--
* * * * *
0
24. Section 413.24 is amended by revising paragraphs (f)(4)(i), (ii),
and (iv) to read as follows:

Sec. 413.24 Adequate cost data and cost finding.

* * * * *
(f) * * *
(4) * * *
(i) As used in this paragraph, ``provider'' means a hospital,
skilled nursing facility, home health agency, hospice, organ
procurement organization, histocompatibility laboratory, rural health
clinic, Federally qualified health center, community mental health
center, or end-stage renal disease facility.
(ii) Effective for cost reporting periods beginning on or after
October 1, 1989 for hospitals, cost reporting periods ending on or
after February 1, 1997 for skilled nursing facilities and home health
agencies, cost reporting periods ending on or after December 31, 2004
for hospices, and end-stage renal disease facilities, and cost
reporting periods ending on or after March 31, 2005 for organ
procurement organizations, histocompatibility laboratories, rural
health clinics, Federally qualified health centers, and community
mental health centers, a provider is required to submit cost reports in
a standardized electronic format. The provider's electronic program
must be capable of producing the CMS standardized output file in a form
that can be read by the contractor's automated system. This electronic
file, which must contain the input data required to complete the cost
report and to pass specified edits, must be forwarded to the contractor
for processing through its system.
* * * * *
(iv) Effective for cost reporting periods ending on or after
September 30, 1994 for hospitals, cost reporting periods ending on or
after February 1, 1997 for skilled nursing facilities and home health
agencies, cost reporting periods ending on or after December 31, 2004
for hospices and end-stage renal disease facilities, and cost reporting
periods ending on or after March 31, 2005 for organ procurement
organizations, histocompatibility laboratories, rural health clinics,
Federally qualified health centers, and community mental health
centers, a provider must submit a hard copy of a settlement summary, a
statement of certain worksheet totals found within the electronic file,
and a statement signed by its administrator or chief financial officer
certifying the accuracy of the electronic file or the manually prepared
cost report. During a transition period (first two cost-reporting
periods on or after December 31, 2004 for hospices and end-stage renal
disease facilities, and the first two cost-reporting periods on or
after March 31, 2005 for organ procurement organizations,
histocompatibility laboratories, rural health clinics, Federally
qualified health centers, community mental health centers), providers
must submit a hard copy of the completed cost report forms in addition
to the electronic file. The following statement must immediately
precede the dated signature of the provider's administrator or chief
financial officer:

I hereby certify that I have read the above certification statement
and that I have examined the accompanying electronically filed or
manually submitted cost report and the Balance Sheet and Statement of
Revenue and Expenses prepared by ______(Provider Name(s) and Number(s))
for the cost reporting period beginning ___and ending ___and that to
the best of my knowledge and belief, this report and statement are
true, correct, complete and prepared from the books and records of the
provider in accordance with applicable instructions, except as noted. I
further certify that I am familiar with the laws and regulations
regarding the provision of health care services, and that the services
identified in this cost report were provided in compliance with such
laws and regulations.
* * * * *
0
25. Section 413.79 is amended by revising paragraphs (k)(1)(i) and
(ii), (k)(2)(i) and (ii), (k)(3) and (4), and (k)(7)(ii) and (iii) to
read as follows:

Sec. 413.79 Direct GME payments: Determination of the weighted number
of FTE residents.

* * * * *
(k) * * *
(1) * * *
(i) For rural track programs started prior to October 1, 2012, for
the first 3 years of the rural track's existence, the rural track FTE
limitation for each urban hospital will be the actual number of

[[Page 25262]]

FTE residents, subject to the rolling average at paragraph (d)(7) of
this section, training in the rural track at the urban hospital. For
rural track programs started on or after October 1, 2012, prior to the
start of the urban hospital's cost reporting period that coincides with
or follows the start of the sixth program year of the rural track's
existence, the rural track FTE limitation for each urban hospital will
be the actual number of FTE residents, subject to the rolling average
at paragraph (d)(7) of this section, training in the rural track at the
urban hospital.
(ii) For rural track programs started prior to October 1, 2012,
beginning with the fourth year of the rural track's existence, the
rural track FTE limitation is equal to the product of the highest
number of residents, in any program year, who during the third year of
the rural track's existence are training in the rural track at the
urban hospital or the rural hospital(s) and are designated at the
beginning of their training to be rotated to the rural hospital(s) for
at least two-thirds of the duration of the program for cost reporting
periods beginning on or after April 1, 2000, and before October 1,
2002, or for more than one-half of the duration of the program
effective for cost reporting periods beginning on or after October 1,
2003, and the number of years those residents are training at the urban
hospital. For rural track programs started on or after October 1, 2012,
beginning with the start of the urban hospital's cost reporting period
that coincides with or follows the start of the sixth program year of
the rural track's existence, the rural track FTE limitation is equal to
the product of the highest number of residents, in any program year,
who during the fifth year of the rural track's existence are training
in the rural track at the urban hospital or the rural hospital(s) and
are designated at the beginning of their training to be rotated to the
rural hospital(s) for more than one-half of the duration of the
program, and the number of years those residents are training at the
urban hospital.
(2) * * *
(i) For rural track programs started prior to October 1, 2012, for
the first 3 years of the rural track's existence, the rural track FTE
limitation for each urban hospital will be the actual number of FTE
residents, subject to the rolling average specified in paragraph (d)(7)
of this section, training in the rural track at the urban hospital and
the rural nonhospital site(s). For rural track programs started on or
after October 1, 2012, prior to the start of the urban hospital's cost
reporting period that coincides with or follows the start of the sixth
program year of the rural track's existence, the rural track FTE
limitation for each urban hospital will be the actual number of FTE
residents, subject to the rolling average specified in paragraph (d)(7)
of this section, training in the rural track at the urban hospital and
the rural nonhospital site(s).
(ii)(A) For rural track programs started prior to October 1, 2012,
beginning with the fourth year of the rural track's existence, the
rural track FTE limitation is equal to the product of--
(1) The highest number of residents in any program year who, during
the third year of the rural track's existence, are training in the
rural track at--
(i) The urban hospital and are designated at the beginning of their
training to be rotated to a rural nonhospital site(s) for at least two-
thirds of the duration of the program for cost reporting periods
beginning on or after April 1, 2000 and before October 1, 2003, or for
more than one-half of the duration of the program for cost reporting
periods beginning on or after October 1, 2003; and
(ii) The rural nonhospital site(s); and
(2) The number of years in which the residents are expected to
complete each program based on the minimum accredited length for the
type of program.
(B) For rural track programs started on or after to October 1,
2012, beginning with the start of the urban hospital's cost reporting
period that coincides with or follows the start of the sixth program
year of the rural track's existence, the rural track FTE limitation is
equal to the product of--
(1) The highest number of residents in any program year who, during
the fifth year of the rural track's existence, are training in the
rural track at--
(i) The urban hospital and are designated at the beginning of their
training to be rotated to a rural nonhospital site(s) for more than
one-half of the duration of the program; and
(ii) The rural nonhospital site(s); and
(2) The number of years in which the residents are expected to
complete each program based on the minimum accredited length for the
type of program.
(3) For rural track programs started prior to October 1, 2012, if
an urban hospital rotates residents in the rural track program to a
rural hospital(s) for less than two-thirds of the duration of the
program for cost reporting periods beginning on or after April 1, 2000,
and before October 1, 2003, or for one-half or less than one-half of
the duration of the program for cost reporting periods beginning on or
after October 1, 2003, the rural hospital may not include those
residents in its FTE count (if the rural track is not a new program
under paragraph (e)(3) of this section, or if the rural hospital's FTE
count exceeds that hospital's FTE cap), nor may the urban hospital
include those residents when calculating its rural track FTE
limitation. For rural track programs started on or after October 1,
2012, if an urban hospital rotates residents in the rural track program
to a rural hospital(s) for one-half or less than one-half of the
duration of the program, the rural hospital may not include those
residents in its FTE count (if the rural track is not a new program
under paragraph (e)(3) of this section, or if the rural hospital's FTE
count exceeds that hospital's FTE cap), nor may the urban hospital
include those residents when calculating its rural track FTE
limitation.
(4)(i) For rural track programs started prior to October 1, 2012,
if an urban hospital rotates residents in the rural track program to a
rural nonhospital site(s) for less than two-thirds of the duration of
the program for cost reporting periods beginning on or after April 1,
2000 and before October 1, 2003, or for one-half or less than one-half
of the duration of the program for cost reporting periods beginning on
or after October 1, 2003, the urban hospital may include those
residents in its FTE count, subject to the requirements under Sec.
413.78(d). The urban hospital may include in its FTE count those
residents in the rural track, not to exceed its rural track limitation,
determined as follows:
(A) For the first 3 years of the rural track's existence, the rural
track FTE limitation for the urban hospital will be the actual number
of FTE residents, subject to the rolling average specified in paragraph
(d)(7) of this section, training in the rural track at the rural
nonhospital site(s).
(B) Beginning with the fourth year of the rural track's existence,
the rural track FTE limitation is equal to the product of--
(1) The highest number of residents in any program year who, during
the third year of the rural track's existence, are training in the
rural track at the rural nonhospital site(s) or are designated at the
beginning of their training to be rotated to the rural nonhospital
site(s) for a period that is less than two-thirds of the duration of
the program for cost reporting periods beginning on or after April 1,
2002, and before October 1, 2003, or for one-half or less than one-half
of the duration of the program for cost reporting periods beginning on
or after October 1, 2003; and

[[Page 25263]]

(2) The length of time in which the residents are training at the
rural nonhospital site(s) only.
(ii) For rural track programs started on or after October 1, 2012,
if an urban hospital rotates residents in the rural track program to a
rural nonhospital site(s) for one-half or less than one-half of the
duration of the program, the urban hospital may include those residents
in its FTE count, subject to the requirements under Sec. 413.78(d).
The urban hospital may include in its FTE count those residents in the
rural track, not to exceed its rural track limitation, determined as
follows:
(A) Prior to the start of the urban hospital's cost reporting
period that coincides with or follows the start of the sixth program
year of the rural track's existence, the rural track FTE limitation for
the urban hospital will be the actual number of FTE residents, subject
to the rolling average specified in paragraph (d)(7) of this section,
training in the rural track at the rural nonhospital site(s).
(B) Beginning with the start of the urban hospital's cost reporting
period that coincides with or follows the start of the sixth program
year of the rural track's existence, the rural track FTE limitation is
equal to the product of--
(1) The highest number of residents in any program year who, during
the fifth year of the rural track's existence, are training in the
rural track at the rural nonhospital site(s) or are designated at the
beginning of their training to be rotated to the rural nonhospital
site(s) for a period that is for one-half or less than one-half of the
duration of the program; and
(2) The length of time in which the residents are training at the
rural nonhospital site(s) only.
* * * * *
(7) * * *
(ii)(A) For rural track programs started prior to October 1, 2012,
effective October 1, 2014, if an urban hospital started a rural track
training program under the provisions of this paragraph (k) with a
hospital located in a rural area and, during the 3-year period that is
used to calculate the urban hospital's rural track FTE limit, that
rural area subsequently becomes an urban area due to the most recent
OMB standards for delineating statistical areas adopted by CMS and the
most recent Census Bureau data, the urban hospital may continue to
adjust its FTE resident limit in accordance with this paragraph (k) and
subject to paragraph (k)(7)(iii) of this section for the rural track
programs started prior to the adoption of such new OMB standards for
delineating statistical areas.
(B) For rural track programs started on or after October 1, 2012,
effective October 1, 2014, if an urban hospital started a rural track
training program under the provisions of this paragraph (k) with a
hospital located in a rural area and, during the 5-year period that is
used to calculate the urban hospital's rural track FTE limit, that
rural area subsequently becomes an urban area due to the most recent
OMB standards for delineating statistical areas adopted by CMS and the
most recent Census Bureau data, the urban hospital may continue to
adjust its FTE resident limit in accordance with this paragraph (k) and
subject to paragraph (k)(7)(iii) of this section for the rural track
programs started prior to the adoption of such new OMB standards for
delineating statistical areas.
(iii)(A) For rural track programs started prior to October 1, 2012,
effective October 1, 2014, if an urban hospital started a rural track
training program under the provisions of this paragraph (k) with a
hospital located in a rural area and that rural area subsequently
becomes an urban area due to the most recent OMB standards for
delineating statistical areas adopted by CMS and the most recent Census
Bureau data, regardless of whether the redesignation of the rural
hospital occurs during the 3-year period that is used to calculate the
urban hospital's rural track FTE limit, or after the 3-year period used
to calculate the urban hospital's rural track FTE limit, the urban
hospital may continue to adjust its FTE resident limit in accordance
with this paragraph (k) based on the rural track programs started prior
to the change in the hospital's geographic designation. In order for
the urban hospital to receive or use the adjustment to its FTE resident
cap for training FTE residents in the rural track residency program
that was started prior to the most recent OMB standards for delineating
statistical areas adopted by CMS, one of the following two conditions
must be met by the end of a period that begins when the most recent OMB
standards for delineating statistical areas are adopted by CMS and
continues through the end of the second residency training year
following the date the most recent OMB delineations are adopted by CMS:
the hospital that has been redesignated from rural to urban must
reclassify as rural under Sec. 412.103 of this chapter, for purposes
of IME only; or the urban hospital must find a new site that is
geographically rural consistent with the most recent geographical
location delineations adopted by CMS. In order to receive an adjustment
to its FTE resident cap for an additional new rural track residency
program, the urban hospital must participate in a rural track program
with sites that are geographically rural based on the most recent
geographical location delineations adopted by CMS.
(B) For rural track programs started on or after October 1, 2012,
effective October 1, 2014, if an urban hospital started a rural track
training program under the provisions of this paragraph (k) with a
hospital located in a rural area and that rural area subsequently
becomes an urban area due to the most recent OMB standards for
delineating statistical areas adopted by CMS and the most recent Census
Bureau data, regardless of whether the redesignation of the rural
hospital occurs during the 5-year period that is used to calculate the
urban hospital's rural track FTE limit, or after the 5-year period used
to calculate the urban hospital's rural track FTE limit, the urban
hospital may continue to adjust its FTE resident limit in accordance
with this paragraph (k) based on the rural track programs started prior
to the change in the hospital's geographic designation. In order for
the urban hospital to receive or use the adjustment to its FTE resident
cap for training FTE residents in the rural track residency program
that was started prior to the most recent OMB standards for delineating
statistical areas adopted by CMS, one of the following two conditions
must be met by the end of a period that begins when the most recent OMB
standards for delineating statistical areas are adopted by CMS and
continues through the end of the second residency training year
following the date the most recent OMB delineations are adopted by CMS:
The hospital that has been redesignated from rural to urban must
reclassify as rural under Sec. 412.103 of this chapter, for purposes
of IME only; or the urban hospital must find a new site that is
geographically rural consistent with the most recent geographical
location delineations adopted by CMS. In order to receive an adjustment
to its FTE resident cap for an additional new rural track residency
program, the urban hospital must participate in a rural track program
with sites that are geographically rural based on the most recent
geographical location delineations adopted by CMS.
* * * * *

Sec. 413.200 [Amended]

0
26. In Sec. 413.200, paragraph (c)(1)(i), remove the phrase ``three
months'' and add in its place the phrase ``5 months''.

[[Page 25264]]

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
27. The authority citation for part 489 is revised to read as follows:

Authority: Secs. 1102 1819, 1820(E), 1861, 1864(M), 1866, 1869,
and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x,
1395aa(m), 1395cc, 1395ff, and 1395(hh)).

0
28. Section 489.20 is amended by adding paragraph (y) to read as
follows:

Sec. 489.20 Basic commitments.

* * * * *
(y) In the case of a hospital or critical access hospital, to
provide notice, as specified in paragraphs (y)(1) and (2) of this
section, to each individual entitled to Medicare benefits under Title
XVIII of the Act when such individual receives observation services as
an outpatient for more than 24 hours. Notice must be provided to the
individual not later than 36 hours after observation services are
initiated or sooner if the individual is transferred, discharged, or
admitted.
(1) Written notice. Hospitals and critical access hospitals must
use a standardized written notice, as specified by the Secretary, which
includes the following information:
(i) An explanation of the status of the individual as an outpatient
receiving observation services and not as an inpatient of the hospital
or critical access hospital and the reason for status as an outpatient
receiving observation services; and
(ii) An explanation of the implications of such status as an
outpatient on services furnished by the hospital or critical access
hospital (including services furnished on an inpatient basis), such as
Medicare cost-sharing requirements, and subsequent eligibility for
Medicare coverage for skilled nursing facility services.
(2) Oral notice. The hospital must give an oral explanation of the
written notification described in paragraph (y)(1) of this section.
(3) Signature requirements. The written notice specified in
paragraph (y)(1) of this section must either--
(i) Be signed by the individual who receives observation services
as an outpatient or a person acting on the individual's behalf to
acknowledge receipt of such notification; or
(ii) If the individual who receives observation services as an
outpatient or the person acting on behalf of the individual refuses to
provide the signature described in paragraph (y)(1) of this section, is
signed by the staff member of the hospital or critical access hospital
who presented the written notification and includes the name and title
of the staff member, a certification that the notification was
presented, and the date and time the notification was presented.

Dated: April 1, 2016.
Andrew M. Slavitt,
Administrator, Centers for Medicare & Medicaid Services.
Dated: April 14, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.

Note: The following Addendum and Appendixes will not appear in
the Code of Federal Regulations.

Addendum--Proposed Schedule of Standardized Amounts, Update Factors,
Rate-of-Increase Percentages Effective With Cost Reporting Periods
Beginning on or After October 1, 2016, and Payment Rates for LTCHs
Effective for Discharges Occurring on or After October 1, 2016

I. Summary and Background

In this Addendum, we are setting forth a description of the
methods and data we used to determine the proposed prospective
payment rates for Medicare hospital inpatient operating costs and
Medicare hospital inpatient capital-related costs for FY 2017 for
acute care hospitals. We also are setting forth the rate-of-increase
percentage for updating the target amounts for certain hospitals
excluded from the IPPS for FY 2017. We note that, because certain
hospitals excluded from the IPPS are paid on a reasonable cost basis
subject to a rate-of-increase ceiling (and not by the IPPS), these
hospitals are not affected by the proposed figures for the
standardized amounts, offsets, and budget neutrality factors.
Therefore, in this proposed rule, we are setting forth the rate-of-
increase percentage for updating the target amounts for certain
hospitals excluded from the IPPS that will be effective for cost
reporting periods beginning on or after October 1, 2016.
In addition, we are setting forth a description of the methods
and data we used to determine the proposed standard Federal payment
rate that would be applicable to Medicare LTCHs for FY 2017.
In general, except for SCHs and MDHs, for FY 2017, each
hospital's payment per discharge under the IPPS is based on 100
percent of the Federal national rate, also known as the national
adjusted standardized amount. This amount reflects the national
average hospital cost per case from a base year, updated for
inflation.
SCHs are paid based on whichever of the following rates yields
the greatest aggregate payment: the Federal national rate
(including, as discussed in section IV.F. of the preamble of this
proposed rule, uncompensated care payments under section 1886(r)(2)
of the Act); the updated hospital-specific rate based on FY 1982
costs per discharge; the updated hospital-specific rate based on FY
1987 costs per discharge; the updated hospital-specific rate based
on FY 1996 costs per discharge; or the updated hospital-specific
rate based on FY 2006 costs per discharge.
We note that section 205 of the Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted on
April 16, 2015) extended the MDH program (which, under previous law,
was to be in effect for discharges on or before March 31, 2015 only)
for discharges occurring on or after April 1, 2015, through FY 2017
(that is, for discharges occurring on or before September 30, 2017).
Under section 1886(d)(5)(G) of the Act, MDHs historically were
paid based on the Federal national rate or, if higher, the Federal
national rate plus 50 percent of the difference between the Federal
national rate and the updated hospital-specific rate based on FY
1982 or FY 1987 costs per discharge, whichever was higher. However,
section 5003(a)(1) of Public Law 109-171 extended and modified the
MDH special payment provision that was previously set to expire on
October 1, 2006, to include discharges occurring on or after October
1, 2006, but before October 1, 2011. Under section 5003(b) of Public
Law 109-171, if the change results in an increase to an MDH's target
amount, we must rebase an MDH's hospital-specific rates based on its
FY 2002 cost report. Section 5003(c) of Public Law 109-171 further
required that MDHs be 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. Further, based on the provisions of section 5003(d) of Public
Law 109-171, MDHs are no longer subject to the 12-percent cap on
their DSH payment adjustment factor.
As discussed in section IV.A. of the preamble of this proposed
rule, prior to January 1, 2016, Puerto Rico hospitals were paid
based on 75 percent of the national standardized amount and 25
percent of the Puerto Rico-specific standardized amount. As a
result, CMS calculated the Puerto Rico-specific standardized amount.
Section 601 of the Consolidated Appropriations Act, 2016 (Pub. L.
114-113) amended section 1886(d)(9)(E) of the Act to specify that
the payment calculation with respect to operating costs of inpatient
hospital services of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after January 1, 2016, shall use
100 percent of the national standardized amount. Because Puerto Rico
hospitals are no longer paid with a Puerto Rico-specific
standardized amount under the amendments to section 1886(d)(9)(E) of
the Act, there is no longer a need for us to calculate a Puerto
Rico-specific standardized amount. For operating costs for inpatient
hospital discharges occurring in FY 2017 and subsequent fiscal
years, consistent with the provisions of section 1886(d)(9)(E) of
the Act as amended by section 601 of Public Law 114-113, subsection
(d) Puerto Rico hospitals will continue to be paid based on 100
percent of the national standardized amount. Because Puerto Rico
hospitals are now paid 100 percent of the national standardized
amount and are subject to the same national standardized amount as
subsection (d) hospitals that receive the full update, our
discussion below does not

[[Page 25265]]

include references to the Puerto Rico standardized amount or the
Puerto Rico-specific wage index.
As discussed in section II. of this Addendum, we are proposing
to make changes in the determination of the prospective payment
rates for Medicare inpatient operating costs for acute care
hospitals for FY 2017. In section III. of this Addendum, we discuss
our proposed policy changes for determining the prospective payment
rates for Medicare inpatient capital-related costs for FY 2017. In
section IV. of this Addendum, we are setting forth the rate-of-
increase percentage for determining the rate-of-increase limits for
certain hospitals excluded from the IPPS for FY 2017. In section V.
of this Addendum, we discuss proposed policy changes for determining
the standard Federal rate for LTCHs paid under the LTCH PPS for FY
2017. The tables to which we refer in the preamble of this proposed
rule are listed in section VI. of this Addendum and are available
via the Internet on the CMS Web site.

II. Proposed Changes to Prospective Payment Rates for Hospital
Inpatient Operating Costs for Acute Care Hospitals for FY 2017

The basic methodology for determining prospective payment rates
for hospital inpatient operating costs for acute care hospitals for
FY 2005 and subsequent fiscal years is set forth under Sec. 412.64.
The basic methodology for determining the prospective payment rates
for hospital inpatient operating costs for hospitals located in
Puerto Rico for FY 2005 and subsequent fiscal years is set forth
under Sec. Sec. 412.211 and 412.212. Below we discuss the factors
we are proposing to use for determining the proposed prospective
payment rates for FY 2017.
In summary, the proposed standardized amounts set forth in
Tables 1A, 1B, and 1C that are listed and published in section VI.
of this Addendum (and available via the Internet on the CMS Web
site) reflect--
Equalization of the standardized amounts for urban and
other areas at the level computed for large urban hospitals during
FY 2004 and onward, as provided for under section
1886(d)(3)(A)(iv)(II) of the Act.
The labor-related share that is applied to the
standardized amounts to give the hospital the highest payment, as
provided for under sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of
the Act. For FY 2017, depending on whether a hospital submits
quality data under the rules established in accordance with section
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital
that submits quality data) and is a meaningful EHR user under
section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a
hospital that is a meaningful EHR user), there are four possible
applicable percentage increases that can be applied to the national
standardized amount. We refer readers to section IV.B. of the
preamble of this proposed rule for a complete discussion on the
proposed FY 2017 inpatient hospital update. Below is a table with
these four options:

----------------------------------------------------------------------------------------------------------------
Hospital Hospital Hospital did Hospital did
submitted submitted NOT submit NOT submit
quality data quality data quality data quality data
FY 2017 and is a and is NOT a and is a and is NOT a
meaningful EHR meaningful EHR meaningful EHR meaningful EHR
user user user user
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket 2.8 2.8 2.8 2.8
Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit 0.0 0.0 -0.7 -0.7
Quality Data under Section 1886(b)(3)(B)(viii)
of the Act.....................................
Proposed Adjustment for Failure to be a 0.0 -2.1 0.0 -2.1
Meaningful EHR User under Section
1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section -0.6 -0.5 -0.5 -0.5
1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied 1.55 -0.55 0.85 -1.25
to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

We note that section 1886(b)(3)(B)(viii) of the Act, which
specifies the adjustment to the applicable percentage increase for
``subsection (d)'' hospitals that do not submit quality data under
the rules established by the Secretary, is not applicable to
hospitals located in Puerto Rico.
In addition, section 602 of Public Law 114-113 amended section
1886(n)(6)(B) of the Act to specify that Puerto Rico hospitals are
eligible for incentive payments for the meaningful use of certified
EHR technology, effective beginning FY 2016, and also to apply the
adjustments to the applicable percentage increase under section
1886(b)(3)(B)(ix) of the Act to Puerto Rico hospitals that are not
meaningful EHR users, effective FY 2022. Accordingly, because the
provisions of section 1886(b)(3)(B)(ix) of the Act are not
applicable to hospitals located in Puerto Rico until FY 2022, the
adjustments under this provision are not applicable for FY 2017.
An adjustment to the standardized amount to ensure
budget neutrality for DRG recalibration and reclassification, as
provided for under section 1886(d)(4)(C)(iii) of the Act.
An adjustment to ensure the wage index changes are
budget neutral, as provided for under section 1886(d)(3)(E)(i) of
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires
that when we compute such budget neutrality, we assume that the
provisions of section 1886(d)(3)(E)(ii) of the Act (requiring a 62-
percent labor-related share in certain circumstances) had not been
enacted.
An adjustment to ensure the effects of geographic
reclassification are budget neutral, as provided for under section
1886(d)(8)(D) of the Act, by removing the FY 2016 budget neutrality
factor and applying a revised factor.
As discussed below and in section III.G. of the
preamble of this proposed rule, an adjustment to offset the cost of
the 3-year hold harmless transitional wage index provisions provided
by CMS as a result of the implementation of the new OMB labor market
area delineations (beginning with FY 2015).
An adjustment to remove the FY 2016 outlier offset and
apply an offset for FY 2017, as provided for under section
1886(d)(3)(B) of the Act.
As discussed below and in section II.D. of the preamble
of this proposed rule, a recoupment to meet the requirements of
section 631 of ATRA to adjust the standardized amount to offset the
estimated amount of the increase in aggregate payments as a result
of not completing the prospective adjustment authorized under
section 7(b)(1)(A) of Public Law 110-90 until FY 2013.
As discussed below and in section IV.O. of the preamble
of this proposed rule, we are proposing a (1/0.998) adjustment to
the standardized amount using our authority under sections
1886(d)(5)(I)(i) and 1886(g) of the Act to permanently prospectively
remove the 0.2 percent reduction to the rate put in place in FY 2014
to offset the estimated increase in IPPS expenditures associated
with the projected increase in inpatient encounters that was
expected to result from the new inpatient admission guidelines under
the 2-midnight policy.
As discussed below and in section IV.O. of the preamble
of this proposed rule, we are proposing a temporary one-time
prospective increase to the FY 2017 rates of 0.6 percent or a factor
of 1.006 using our authority under sections 1886(d)(5)(I)(i) and
1886(g) of the Act to address the effects of the 0.2 percent
reduction to the rate for the 2-midnight policy in effect for FY
2014, FY 2015, and FY 2016.
For FY 2017, consistent with current law, we are applying the
rural floor budget neutrality adjustment to hospital wage indexes.
Also, consistent with section 3141 of the Affordable Care Act,
instead of applying a State-level rural floor budget neutrality
adjustment to the wage index, we are applying a uniform, national
budget neutrality adjustment to the FY 2017 wage index for the rural
floor. We note that, in section III.H.2.b. of the preamble to this
proposed rule, we are proposing to extend

[[Page 25266]]

the imputed floor policy (both the original methodology and
alternative methodology) for FY 2017. Therefore, for FY 2017, in
this proposed rule, we are proposing to continue to include the
imputed floor (calculated under the original and alternative
methodologies) in calculating the uniform, national rural floor
budget neutrality adjustment, which would be reflected in the FY
2017 wage index.
In prior fiscal years, CMS made an adjustment to ensure the
effects of the rural community hospital demonstration program
required under section 410A of Public Law 108-173, as amended by
sections 3123 and 10313 of Public Law 111-148, which extended the
demonstration program for an additional 5 years (FYs 2011 through
2016), were budget neutral as required under section 410A(c)(2) of
Public Law 108-173. As discussed in section IV.K.3. of the preamble
to this proposed rule, given the small number of participating
hospitals and the limited time of participation during FY 2017, we
are proposing to forego the process of estimating the costs
attributable to the demonstration for FY 2017 and to instead analyze
the set of finalized cost reports for reporting periods beginning in
FY 2016 when they become available. In addition, we discuss how we
would reconcile the budget neutrality offset amounts identified in
the IPPS final rules for FYs 2011 through 2016 with the actual costs
of the demonstration for those years, considering the fact that the
demonstration will end December 31, 2016. We stated that we believe
it would be appropriate to conduct this analysis for FYs 2011
through 2016 at one time, when all of the finalized cost reports for
cost reporting periods beginning in FYs 2011 through 2016 are
available. Such an aggregate analysis encompassing the cost
experience through the end of the period of performance of the
demonstration represents an administratively streamlined method,
allowing for the determination of any appropriate final adjustment
to the IPPS rates and obviating the need for multiple fiscal-year-
specific calculations and regulatory actions. Given the general lag
of 3 years in finalizing cost reports, we expect any such analysis
to be conducted in FY 2020. Therefore, for FY 2017 we are not
proposing to make any adjustment to the standardized amounts for the
rural community hospital demonstration program. We refer the reader
to section IV.K. of the preamble of this proposed rule for a
complete discussion on the rural community hospital demonstration
program.

A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

In general, the national standardized amount is based on per
discharge averages of adjusted hospital costs from a base period
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted
in accordance with the provisions of section 1886(d) of the Act. The
September 1, 1983 interim final rule (48 FR 39763) contained a
detailed explanation of how base-year cost data (from cost reporting
periods ending during FY 1981) were established for urban and rural
hospitals in the initial development of standardized amounts for the
IPPS.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act requires us
to update base-year per discharge costs for FY 1984 and then
standardize the cost data in order to remove the effects of certain
sources of cost variations among hospitals. These effects include
case-mix, differences in area wage levels, cost-of-living
adjustments for Alaska and Hawaii, IME costs, and costs to hospitals
serving a disproportionate share of low-income patients.
For FY 2017, we are proposing to continue to use the national
labor-related and nonlabor-related shares (which are based on the FY
2010-based hospital market basket) that was used in FY 2016.
Specifically, under section 1886(d)(3)(E) of the Act, the Secretary
estimates, from time to time, the proportion of payments that are
labor-related and adjusts the proportion (as estimated by the
Secretary from time to time) of hospitals' costs which are
attributable to wages and wage-related costs of the DRG prospective
payment rates. We refer to the proportion of hospitals' costs that
are attributable to wages and wage-related costs as the ``labor-
related share.'' For FY 2017, as discussed in section III. of the
preamble of this proposed rule, we are proposing to continue to use
a labor-related share of 69.6 percent for the national standardized
amounts for all IPPS hospitals (including hospitals in Puerto Rico)
that have a wage index value that is greater than 1.0000. Consistent
with section 1886(d)(3)(E) of the Act, we are proposing to apply the
wage index to a labor-related share of 62 percent of the national
standardized amount for all IPPS hospitals (including hospitals in
Puerto Rico) whose wage index values are less than or equal to
1.0000
The proposed standardized amounts for operating costs appear in
Tables 1A, 1B, and 1C that are listed and published in section VI.
of the Addendum to this proposed rule and are available via the
Internet on the CMS Web site.

2. Computing the National Average Standardized Amount

Section 1886(d)(3)(A)(iv)(II) of the Act requires that,
beginning with FY 2004 and thereafter, an equal standardized amount
be computed for all hospitals at the level computed for large urban
hospitals during FY 2003, updated by the applicable percentage
update. Accordingly, we are proposing to calculate the FY 2017
national average standardized amount irrespective of whether a
hospital is located in an urban or rural location.

3. Updating the National Average Standardized Amount

Section 1886(b)(3)(B) of the Act specifies the applicable
percentage increase used to update the standardized amount for
payment for inpatient hospital operating costs. We note that, in
compliance with section 404 of the MMA, in this proposed rule, we
are proposing to use the revised and rebased FY 2010-based IPPS
operating and capital market baskets for FY 2017 (which replaced the
FY 2006-based IPPS operating and capital market baskets in FY 2014).
As discussed in section IV.B. of the preamble of this proposed rule,
in accordance with section 1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care Act, we are proposing to
reduce the FY 2017 applicable percentage increase (which is based on
IHS Global Insight, Inc.'s (IGI's) first quarter 2016 forecast of
the FY 2010-based IPPS market basket) by the MFP adjustment (the 10-
year moving average of MFP for the period ending FY 2017) of 0.5
percentage point, which is calculated based on IGI's first quarter
2016 forecast.
In addition, in accordance with section 1886(b)(3)(B)(i) of the
Act, as amended by sections 3401(a) and 10319(a) of the Affordable
Care Act, we are proposing to further update the standardized amount
for FY 2017 by the estimated market basket percentage increase less
0.75 percentage point for hospitals in all areas. Sections
1886(b)(3)(B)(xi) and (xii) of the Act, as added and amended by
sections 3401(a) and 10319(a) of the Affordable Care Act, further
state that these adjustments may result in the applicable percentage
increase being less than zero. The percentage increase in the market
basket reflects the average change in the price of goods and
services comprising routine, ancillary, and special care unit
hospital inpatient services.
Based on IGI's 2016 first quarter forecast of the hospital
market basket increase (as discussed in Appendix B of this proposed
rule), the most recent forecast of the hospital market basket
increase for FY 2017 is 2.8 percent. As discussed earlier, for FY
2017, depending on whether a hospital submits quality data under the
rules established in accordance with section 1886(b)(3)(B)(viii) of
the Act and is a meaningful EHR user under section 1886(b)(3)(B)(ix)
of the Act, there are four possible applicable percentage increases
that could be applied to the standardized amount. We refer readers
to section IV.B. of the preamble of this proposed rule for a
complete discussion on the proposed FY 2017 inpatient hospital
update to the standardized amount. We also refer readers to the
table above for the four possible applicable percentage increases
that would be applied to update the national standardized amount.
The proposed standardized amounts shown in Tables 1A through 1C that
are published in section VI. of this Addendum and that are available
via the Internet on the CMS Web site reflect these differential
amounts.
Although the update factors for FY 2017 are set by law, we are
required by section 1886(e)(4) of the Act to recommend, taking into
account MedPAC's recommendations, appropriate update factors for FY
2017 for both IPPS hospitals and hospitals and hospital units
excluded from the IPPS. Section 1886(e)(5)(A) of the Act requires
that we publish our proposed recommendations in the Federal Register
for public comment. Our recommendation on the update factors is set
forth in Appendix B of this proposed rule.

4. Methodology for Calculation of the Average Standardized Amount

The methodology we used to calculate the proposed FY 2017
standardized amount is as follows:
To ensure we are only including hospitals paid under
the IPPS in the

[[Page 25267]]

calculation of the standardized amount, we apply the following
inclusion and exclusion criteria: include hospitals whose last four
digits fall between 0001 and 0879 (section 2779A1 of Chapter 2 of
the State Operations Manual on the CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/som107c02.pdf); exclude critical access hospitals at the time of
this proposed rule; exclude hospitals in Maryland (because these
hospitals are paid under an all payer model under section 1115A of
the Act); and remove PPS-excluded cancer hospitals that have a ``V''
in the fifth position of their provider number or a ``E'' or ``F''
in the sixth position.
As in the past, we are proposing to adjust the FY 2017
standardized amount to remove the effects of the FY 2016 geographic
reclassifications and outlier payments before applying the FY 2017
updates. We then apply budget neutrality offsets for outliers and
geographic reclassifications to the standardized amount based on
proposed FY 2017 payment policies.
We do not remove the prior year's budget neutrality
adjustments for reclassification and recalibration of the DRG
relative weights and for updated wage data because, in accordance
with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act,
estimated aggregate payments after updates in the DRG relative
weights and wage index should equal estimated aggregate payments
prior to the changes. If we removed the prior year's adjustment, we
would not satisfy these conditions.
Budget neutrality is determined by comparing aggregate IPPS
payments before and after making changes that are required to be
budget neutral (for example, changes to MS-DRG classifications,
recalibration of the MS-DRG relative weights, updates to the wage
index, and different geographic reclassifications). We include
outlier payments in the simulations because they may be affected by
changes in these parameters.
Consistent with our methodology established in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50433), because
IME Medicare Advantage payments are made to IPPS hospitals under
section 1886(d) of the Act, we believe these payments must be part
of these budget neutrality calculations. However, we note that it is
not necessary to include Medicare Advantage IME payments in the
outlier threshold calculation or the outlier offset to the
standardized amount because the statute requires that outlier
payments be not less than 5 percent nor more than 6 percent of total
``operating DRG payments,'' which does not include IME and DSH
payments. We refer readers to the FY 2011 IPPS/LTCH PPS final rule
for a complete discussion on our methodology of identifying and
adding the total Medicare Advantage IME payment amount to the budget
neutrality adjustments.
Consistent with the methodology in the FY 2012 IPPS/
LTCH PPS final rule, in order to ensure that we capture only fee-
for-service claims, we are only including claims with a ``Claim
Type'' of 60 (which is a field on the MedPAR file that indicates a
claim is an FFS claim).
In order to further ensure that we capture only FFS
claims, we are proposing to exclude claims with a ``GHOPAID''
indicator of 1 (which is a field on the MedPAR file that indicates a
claim is not an FFS claim and is paid by a Group Health
Organization).
Consistent with our methodology established in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50423), we
examine the MedPAR file and remove pharmacy charges for anti-
hemophilic blood factor (which are paid separately under the IPPS)
with an indicator of ``3'' for blood clotting with a revenue code of
``0636'' from the covered charge field for the budget neutrality
adjustments. We also remove organ acquisition charges from the
covered charge field for the budget neutrality adjustments because
organ acquisition is a pass-through payment not paid under the IPPS.
The Bundled Payments for Care Improvement (BPCI)
initiative, developed under the authority of section 3021 of the
Affordable Care Act (codified at section 1115A of the Act), is
comprised of four broadly defined models of care, which link
payments for multiple services beneficiaries receive during an
episode of care. Under the BPCI initiative, organizations enter into
payment arrangements that include financial and performance
accountability for episodes of care. On January 31, 2013, CMS
announced the first set of health care organizations selected to
participate in the BPCI initiative. Additional organizations were
selected in 2014. For additional information on the BPCI initiative,
we refer readers to the CMS Center for Medicare and Medicaid
Innovation's Web site at: http://innovation.cms.gov/initiatives/Bundled-Payments/index.html.
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through
53343), for FY 2013 and subsequent fiscal years, we finalized a
methodology to treat hospitals that participate in the BPCI
initiative the same as prior fiscal years for the IPPS payment
modeling and ratesetting process (which includes recalibration of
the MS-DRG relative weights, ratesetting, calculation of the budget
neutrality factors, and the impact analysis) without regard to a
hospital's participation within these bundled payment models (that
is, as if they are not participating in those models under the BPCI
initiative). For FY 2017, we are proposing to continue to include
all applicable data from subsection (d) hospitals participating in
BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting
calculations.
Consistent with our methodology established in the FY
2013 IPPS/LTCH PPS final rule (77 FR 53687 through 53688), we
believe that it is appropriate to include adjustments for the
Hospital Readmissions Reduction Program and the Hospital VBP Program
(established under the Affordable Care Act) within our budget
neutrality calculations.
Both the hospital readmissions payment adjustment (reduction)
and the hospital VBP payment adjustment (redistribution) are applied
on a claim-by-claim basis by adjusting, as applicable, the base-
operating DRG payment amount for individual subsection (d)
hospitals, which affects the overall sum of aggregate payments on
each side of the comparison within the budget neutrality
calculations.
In order to properly determine aggregate payments on each side
of the comparison, as we have done for the last 3 fiscal years, for
FY 2017 and subsequent years, we are proposing to continue to apply
the hospital readmissions payment adjustment and the hospital VBP
payment adjustment on each side of the comparison, consistent with
the methodology that we adopted in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53687 through 53688). That is, we are proposing to apply
the proposed readmissions payment adjustment factor and the proposed
hospital VBP payment adjustment factor on both sides of our
comparison of aggregate payments when determining all budget
neutrality factors described in section II.A.4. of this Addendum.
For the purpose of calculating the proposed FY 2017 readmissions
payment adjustment factors, we are proposing to use excess
readmission ratios and aggregate payments for excess readmissions
based on admissions from the prior fiscal year's applicable period
because hospitals have had the opportunity to review and correct
these data before the data were made public under the policy we
adopted regarding the reporting of hospital-specific readmission
rates, consistent with section 1886(q)(6) of the Act. For FY 2017,
in this proposed rule, we are proposing to calculate the
readmissions payment adjustment factors using excess readmission
ratios and aggregate payments for excess readmissions based on
admissions from the finalized applicable period for FY 2017 as
hospitals have had the opportunity to review and correct these data
under our policy regarding the reporting of hospital-specific
readmission rates consistent with section 1886(q)(6) of the Act. We
discuss our proposed policy regarding the reporting of hospital-
specific readmission rates for FY 2017 in section IV.G.3.f of the
preamble of this proposed rule. (For additional information on our
general policy for the reporting of hospital-specific readmission
rates, consistent with section 1886(q)(6) of the Act, we refer
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53399 through
53400).)
In addition, for FY 2017, in this proposed rule, for the purpose
of modeling aggregate payments when determining all budget
neutrality factors, we are proposing to use proxy hospital VBP
payment adjustment factors for FY 2017 that are based on data from a
historical period because hospitals have not yet had an opportunity
to review and submit corrections for their data from the FY 2017
performance period. (For additional information on our policy
regarding the review and correction of hospital-specific measure
rates under the Hospital VBP Program, consistent with section
1886(o)(10)(A)(ii) of the Act, we refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53578 through 53581), the CY 2012 OPPS/
ASC final rule with comment period (76 FR 74544 through 74547), and
the Hospital Inpatient VBP final rule (76 FR 26534 through 26536).)
The Affordable Care Act also established section
1886(r) of the Act, which modifies

[[Page 25268]]

the methodology for computing the Medicare DSH payment adjustment
beginning in FY 2014. Beginning in FY 2014, IPPS hospitals receiving
Medicare DSH payment adjustments will receive an empirically
justified Medicare DSH payment equal to 25 percent of the amount
that would previously have been received under the statutory formula
set forth under section 1886(d)(5)(F) of the Act governing the
Medicare DSH payment adjustment. In accordance with section
1886(r)(2) of the Act, the remaining amount, equal to an estimate of
75 percent of what otherwise would have been paid as Medicare DSH
payments, reduced to reflect changes in the percentage of
individuals under age 65 who are uninsured and an additional
statutory adjustment, will be available to make additional payments
to Medicare DSH hospitals based on their share of the total amount
of uncompensated care reported by Medicare DSH hospitals for a given
time period. In order to properly determine aggregate payments on
each side of the comparison for budget neutrality, prior to FY 2014,
we included estimated Medicare DSH payments on both sides of our
comparison of aggregate payments when determining all budget
neutrality factors described in section II.A.4. of this Addendum.
To do this for FY 2017 (as we did for the last 3 fiscal years),
we are proposing to include estimated empirically justified Medicare
DSH payments that will be paid in accordance with section 1886(r)(1)
of the Act and estimates of the additional uncompensated care
payments made to hospitals receiving Medicare DSH payment
adjustments as described by section 1886(r)(2) of the Act. That is,
we are proposing to consider estimated empirically justified
Medicare DSH payments at 25 percent of what would otherwise have
been paid, and also the estimated additional uncompensated care
payments for hospitals receiving Medicare DSH payment adjustments on
both sides of our comparison of aggregate payments when determining
all budget neutrality factors described in section II.A.4. of this
Addendum.
When calculating total payments for budget neutrality,
to determine total payments for SCHs, we model total hospital-
specific rate payments and total Federal rate payments and then
include whichever one of the total payments is greater. As discussed
in section IV.F. of the preamble to this proposed rule and below, we
are proposing to continue the FY 2014 finalized methodology under
which we would take into consideration uncompensated care payments
in the comparison of payments under the Federal rate and the
hospital-specific rate for SCHs. Therefore, we are proposing to
include estimated uncompensated care payments in this comparison.
Similarly, for MDHs, as discussed in section IV. of the preamble
to this proposed rule, when computing payments under the Federal
national rate plus 75 percent of the difference between the payments
under the Federal national rate and the payments under the updated
hospital-specific rate, we are continuing to take into consideration
uncompensated care payments in the computation of payments under the
Federal rate and the hospital-specific rate for MDHs.
We are proposing to include an adjustment to the
standardized amount for those hospitals that are not meaningful EHR
users in our modeling of aggregate payments for budget neutrality
for FY 2017. Similar to FY 2016, we are including this adjustment
based on data on the prior year's performance. Payments for
hospitals would be estimated based on the proposed applicable
standardized amount in Tables 1A and 1B for discharges occurring in
FY 2017.

a. Proposed Recalibration of MS-DRG Relative Weights

Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning
in FY 1991, the annual DRG reclassification and recalibration of the
relative weights must be made in a manner that ensures that
aggregate payments to hospitals are not affected. As discussed in
section II.G. of the preamble of this proposed rule, we normalized
the recalibrated MS-DRG relative weights by an adjustment factor so
that the average case relative weight after recalibration is equal
to the average case relative weight prior to recalibration. However,
equating the average case relative weight after recalibration to the
average case relative weight before recalibration does not
necessarily achieve budget neutrality with respect to aggregate
payments to hospitals because payments to hospitals are affected by
factors other than average case relative weight. Therefore, as we
have done in past years, we are proposing to make a budget
neutrality adjustment to ensure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.
For FY 2017, to comply with the requirement that MS-DRG
reclassification and recalibration of the relative weights be budget
neutral for the standardized amount and the hospital-specific rates,
we used FY 2015 discharge data to simulate payments and compared the
following:
Aggregate payments using the FY 2016 labor-related
share percentages, the FY 2016 relative weights, and the FY 2016
pre-reclassified wage data, and applied the proposed FY 2017
hospital readmissions payment adjustments and estimated FY 2017
hospital VBP payment adjustments; and
Aggregate payments using the FY 2016 labor-related
share percentages, the proposed FY 2017 relative weights, and the FY
2016 pre-reclassified wage data, and applied the same proposed FY
2017 hospital readmissions payment adjustments and estimated FY 2017
hospital VBP payment adjustments applied above.
Based on this comparison, we computed a proposed budget
neutrality adjustment factor equal to 0.999006 and applied this
factor to the standardized amount. As discussed in section IV. of
this Addendum, we also are proposing to apply the MS-DRG
reclassification and recalibration budget neutrality factor of
0.999006 to the hospital-specific rates that are effective for cost
reporting periods beginning on or after October 1, 2016.

b. Updated Wage Index--Budget Neutrality Adjustment

Section 1886(d)(3)(E)(i) of the Act requires us to update the
hospital wage index on an annual basis beginning October 1, 1993.
This provision also requires us to make any updates or adjustments
to the wage index in a manner that ensures that aggregate payments
to hospitals are not affected by the change in the wage index.
Section 1886(d)(3)(E)(i) of the Act requires that we implement the
wage index adjustment in a budget neutral manner. However, section
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62
percent for hospitals with a wage index less than or equal to
1.0000, and section 1886(d)(3)(E)(i) of the Act provides that the
Secretary shall calculate the budget neutrality adjustment for the
adjustments or updates made under that provision as if section
1886(d)(3)(E)(ii) of the Act had not been enacted. In other words,
this section of the statute requires that we implement the updates
to the wage index in a budget neutral manner, but that our budget
neutrality adjustment should not take into account the requirement
that we set the labor-related share for hospitals with wage indexes
less than or equal to 1.0000 at the more advantageous level of 62
percent. Therefore, for purposes of this budget neutrality
adjustment, section 1886(d)(3)(E)(i) of the Act prohibits us from
taking into account the fact that hospitals with a wage index less
than or equal to 1.0000 are paid using a labor-related share of 62
percent. Consistent with current policy, for FY 2017, we are
proposing to adjust 100 percent of the wage index factor for
occupational mix. We describe the occupational mix adjustment in
section III.E. of the preamble of this proposed rule.
To compute a proposed budget neutrality adjustment factor for
wage index and labor-related share percentage changes, we used FY
2015 discharge data to simulate payments and compared the following:
Aggregate payments using the proposed FY 2017 relative
weights and the FY 2016 pre-reclassified wage indexes, applied the
FY 2016 labor-related share of 69.6 percent to all hospitals
(regardless of whether the hospital's wage index was above or below
1.0000), and applied the proposed FY 2017 hospital readmissions
payment adjustment and the estimated FY 2017 hospital VBP payment
adjustment; and
Aggregate payments using the proposed FY 2017 relative
weights and the proposed FY 2017 pre-reclassified wage indexes,
applied the proposed labor-related share for FY 2017 of 69.6 percent
to all hospitals (regardless of whether the hospital's wage index
was above or below 1.0000), and applied the same proposed FY 2017
hospital readmissions payment adjustments and estimated FY 2017
hospital VBP payment adjustments applied above.
In addition, we applied the proposed MS-DRG reclassification and
recalibration budget neutrality adjustment factor (derived in the
first step) to the payment rates that were used to simulate payments
for this comparison of aggregate payments from FY 2016 to FY 2017.
By applying this methodology, we determined a proposed budget
neutrality adjustment factor of 0.999785 for proposed changes to the
wage index.
We note that, in prior fiscal years, we used a three-step
process and combined the

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recalibration and wage index budget neutrality factors into one
factor by multiplying the recalibration adjustment factor by the
wage index adjustment factor. Because these two adjustments are
required under two different sections of the Act (sections
1886(d)(4)(C)(iii) and 1886(d)(3)(E)(i) of the Act) and the law
requires that the wage index budget neutrality adjustment not take
into account the requirement that we set the labor-related share for
hospitals with wage indexes less than or equal to 1.0000 at the more
advantageous level of 62 percent for FY 2017, we are proposing to
separate these two adjustments and apply them individually to the
standardized amount. Applying these factors individually rather than
as a combined factor has no effect mathematically on adjusting the
standardized amount.

c. Reclassified Hospitals--Proposed Budget Neutrality Adjustment

Section 1886(d)(8)(B) of the Act provides that certain rural
hospitals are deemed urban. In addition, section 1886(d)(10) of the
Act provides for the reclassification of hospitals based on
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a
hospital may be reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the Secretary is
required to adjust the standardized amount to ensure that aggregate
payments under the IPPS after implementation of the provisions of
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal
to the aggregate prospective payments that would have been made
absent these provisions. We note that the wage index adjustments
provided for under section 1886(d)(13) of the Act are not budget
neutral. Section 1886(d)(13)(H) of the Act provides that any
increase in a wage index under section 1886(d)(13) shall not be
taken into account in applying any budget neutrality adjustment with
respect to such index under section 1886(d)(8)(D) of the Act. To
calculate the proposed budget neutrality adjustment factor for FY
2017, we used FY 2015 discharge data to simulate payments and
compared the following:
Aggregate payments using the proposed FY 2017 labor-
related share percentages, proposed FY 2017 relative weights and
proposed FY 2017 wage data prior to any reclassifications under
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act, and
applied the proposed FY 2017 hospital readmissions payment
adjustments and the estimated FY 2017 hospital VBP payment
adjustments; and
Aggregate payments using the proposed FY 2017 labor-
related share percentages, proposed FY 2017 relative weights, and
proposed FY 2017 wage data after such reclassifications, and applied
the same proposed FY 2017 hospital readmissions payment adjustments
and the estimated FY 2017 hospital VBP payment adjustments applied
above.
We note that the reclassifications applied under the second
simulation and comparison are those listed in Table 2 associated
with this proposed rule, which is available via the Internet on the
CMS Web site. This table reflects reclassification crosswalks
proposed for FY 2017, and apply the proposed policies explained in
section III. of the preamble to this proposed rule. Based on these
simulations, we calculated a proposed budget neutrality adjustment
factor of 0.988816 to ensure that the effects of these provisions
are budget neutral, consistent with the statute.
The proposed FY 2017 budget neutrality adjustment factor was
applied to the standardized amount after removing the effects of the
FY 2016 budget neutrality adjustment factor. We note that the
proposed FY 2017 budget neutrality adjustment reflects FY 2017 wage
index reclassifications approved by the MGCRB or the Administrator
at the time of development of the proposed rule.

d. Proposed Rural Floor Budget Neutrality Adjustment

Under Sec. 412.64(e)(4), we make an adjustment to the wage
index to ensure that aggregate payments after implementation of the
rural floor under section 4410 of the BBA (Pub. L. 105-33) and the
imputed floor under Sec. 412.64(h)(4) are equal to the aggregate
prospective payments that would have been made in the absence of
such provisions. Consistent with section 3141 of the Affordable Care
Act and as discussed in section III.H. of the preamble of this
proposed rule and codified at Sec. 412.64(e)(4)(ii), the budget
neutrality adjustment for the rural floor and the imputed floor is a
national adjustment to the wage index.
As noted above and as discussed in section III.H.2. of the
preamble of this proposed rule, we are proposing to extend the
imputed floor policy (both the original methodology and alternative
methodology) for FY 2017. Therefore, in order to ensure that
aggregate payments to hospitals are not affected, similar to prior
years, for FY 2017, we would follow our policy of including the
proposed imputed floor (calculated under the original and
alternative methodologies) in the proposed national rural floor
budget neutrality adjustment to the wage index.
Similar to our calculation in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50369 through 50370), for FY 2017, we are proposing to
calculate a national rural Puerto Rico wage index. Because there are
no rural Puerto Rico hospitals with established wage data, our
calculation of the proposed FY 2017 rural Puerto Rico wage index is
based on the policy adopted in the FY 2008 IPPS final rule with
comment period (72 FR 47323). That is, we will use the unweighted
average of the wage indexes from all CBSAs (urban areas) that are
contiguous (share a border with) to the rural counties to compute
the rural floor (72 FR 47323; 76 FR 51594). Under the new OMB labor
market area delineations, except for Arecibo, Puerto Rico (CBSA
11640), all other Puerto Rico urban areas are contiguous to a rural
area. Therefore, based on our existing policy, the proposed FY 2017
rural Puerto Rico wage index is calculated based on the average of
the proposed FY 2017 wage indexes for the following urban areas:
Aguadilla-Isabela, PR (CBSA 10380); Guayama, PR (CBSA 25020);
Mayaguez, PR (CBSA 32420); Ponce, PR (CBSA 38660), San German, PR
(CBSA 41900) and San Juan-Carolina-Caguas, PR (CBSA 41980).
To calculate the national rural floor and imputed floor budget
neutrality adjustment factor, we are proposing to use FY 2015
discharge data to simulate payments and the proposed post-
reclassified national wage indexes and compared the following:
National simulated payments without the proposed
national rural floor and imputed floor; and
National simulated payments with the proposed national
rural floor and imputed floor.
Based on this comparison, we determined a proposed national
rural floor and imputed floor budget neutrality adjustment factor of
0.993806. The national adjustment was applied to the national wage
indexes to produce a proposed national rural floor and imputed floor
budget neutral wage index.

e. Wage Index Transition Budget Neutrality

As discussed in section III.G. of the preamble of this proposed
rule, in the past, we have provided for transition periods when
adopting changes that have significant payment implications,
particularly large negative impacts.
Similar to FY 2005, for FY 2015, we determined that the
transition to using the new OMB labor market area delineations would
have the largest impact on hospitals that were located in an urban
county that became rural under the new OMB delineations or hospitals
deemed urban where the urban area became rural under the new OMB
delineations. To alleviate the decreased payments associated with
having a rural wage index, in calculating the area wage index,
similar to the transition provided in the FY 2005 IPPS final rule,
we finalized a policy to generally assign the hospitals in these
counties the urban wage index value of the CBSA where they are
physically located in for FY 2014 for FYs 2015, 2016, and 2017. FY
2017 will be the final year of this 3-year transition policy. We
note that the 1-year blended wage index transitional policy for all
hospitals that would experience any decrease in their wage index
value expired in FY 2015.
As discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR
50372 through 50373), in the past, CMS has budget neutralized
transitional wage indexes. We stated that because we established a
policy that allows for the application of a transitional wage index
only when it benefits the hospital, we believe that it would be
appropriate to ensure that such a transitional policy does not
increase aggregate Medicare payments beyond the payments that would
be made had we simply adopted the OMB delineations without any
transitional provisions. Therefore, as we did for FYs 2015 and 2016,
for FY 2017, we are proposing to use our exceptions and adjustments
authority under section 1886(d)(5)(I)(i) of the Act to make an
adjustment to the national standardized amounts to ensure that total
payments for the effect of the 3-year transitional wage index
provisions would equal what payments would have been if we had fully
adopted the new OMB delineations without providing these
transitional provisions. To calculate the proposed transitional wage
index budget neutrality factor for FY 2017, we used FY 2015

[[Page 25270]]

discharge data to simulate payments and compared the following:
Aggregate payments using the OMB delineations for FY
2017, the proposed FY 2017 relative weights, proposed FY 2017 wage
data after such reclassifications under sections 1886(d)(8)(B) and
(C) and 1886(d)(10) of the Act, application of the proposed rural
floor budget neutrality adjustment factor to the wage index, and
application of the proposed FY 2017 hospital readmissions payment
adjustments and the estimated FY 2017 hospital VBP payment
adjustments; and
Aggregate payments using the OMB delineations for FY
2017, the proposed FY 2017 relative weights, proposed FY 2017 wage
data after such reclassifications under sections 1886(d)(8)(B) and
(C) and 1886(d)(10) of the Act, application of the proposed rural
floor budget neutrality adjustment factor to the wage index,
application of the 3-year transitional wage indexes, and application
of the same proposed FY 2017 hospital readmissions payment
adjustments and the estimated FY 2017 hospital VBP payment
adjustments applied above.
Based on these simulations, we calculated a proposed budget
neutrality adjustment factor of 0.999999. Therefore, for FY 2017, we
are proposing to apply a transitional wage index budget neutrality
adjustment factor of 0.999999 to the national average standardized
amounts to ensure that the effects of these proposed transitional
wage indexes are budget neutral.
We note that the proposed budget neutrality adjustment factor
calculated above is based on the increase in payments in FY 2017
that would result from the final year of the 3-year transitional
wage index policies. Therefore, we are proposing to apply this
proposed budget neutrality adjustment factor as a one-time
adjustment to the FY 2017 national standardized amounts in order to
offset the increase in payments in FY 2017 as a result of this final
year of the 3-year transitional wage index. For FY 2017, we did not
take into consideration the adjustment factor applied to the
national standardized amounts in the previous fiscal year's update
when calculating the current fiscal year transitional wage index
budget neutrality adjustment factor (that is, this adjustment is not
applied cumulatively).

f. Proposed Case-Mix Budget Neutrality Adjustment

(1) Background

Below we summarize the proposed recoupment adjustment to the FY
2017 payment rates, as required by section 631 of ATRA, to account
for the increase in aggregate payments as a result of not completing
the prospective adjustment authorized under section 7(b)(1)(A) of
Public Law 110-90 until FY 2013. We refer readers to section II.D.
of the preamble of this proposed rule for a complete discussion
regarding our proposed policies for FY 2017 in this proposed rule
and previously finalized policies (including our historical
adjustments to the payment rates) relating to the effect of changes
in documentation and coding that do not reflect real changes in
case-mix.

(2) Recoupment or Repayment Adjustment Authorized by Section 631 of the
American Taxpayer Relief Act of 2012 (ATRA) to the National
Standardized Amount

Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law
110-90 to require the Secretary to make a recoupment adjustment
totaling $11 billion by FY 2017. Our actuaries estimated that if CMS
were to fully account for the $11 billion recoupment required by
section 631 of ATRA in FY 2014, a one-time -9.3 percent adjustment
to the standardized amount would be necessary. It is often our
practice to delay or phase-in payment rate adjustments over more
than 1 year, in order to moderate the effect on payment rates in any
1 year. Therefore, consistent with the policies that we have adopted
in many similar cases, for FY 2014, FY 2015 and FY 2016, we applied
a -0.8 percent adjustment to the standardized amount. For FY 2017,
we are proposing to apply a -1.5 percent adjustment to the
standardized amount. We refer the reader to section II. D. 6 of the
preamble to this proposed rule for a complete discussion on this
adjustment. We note that, as section 631 of the ATRA instructs the
Secretary to make a recoupment adjustment only to the standardized
amount, this adjustment would not apply to the hospital-specific
payment rates.

g. Proposed Adjustment to IPPS Rates Resulting From 2-Midnight Policy

As discussed in section IV. O of the preamble to this proposed
rule, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50906 through
50954), we adopted the 2-midnight policy effective for dates of
admission on or after October 1, 2013. We used our authority under
section 1886(d)(5)(I)(i) of the Act to make a reduction of 0.2
percent to the standardized amount, the Puerto Rico standardized
amount, and the hospital-specific payment rate, and we used our
authority under section 1886(g) of the Act to make a reduction of
0.2 percent to the national capital Federal rate and the Puerto
Rico-specific capital rate, in order to offset the estimated
increase of $220 million in IPPS expenditures in FY 2014 as a result
of the 2-midnight policy.
In Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-
263 (D.D.C.) and consolidated cases, hospitals challenged the 0.2
percent reduction in IPPS rates to account for the estimated $220
million in additional FY 2014 expenditures resulting from the 2-
midnight policy. In its Memorandum Opinion, issued September 21,
2015, the Court found that the ``Secretary's interpretation of the
exceptions and adjustments provision is a reasonable one'' for this
purpose. However, the Court also ordered the 0.2 percent reduction
remanded back to the Secretary, without vacating the rule, to
correct certain procedural deficiencies in the promulgation of the
0.2 percent reduction and reconsider the adjustment. In accordance
with the Court's order, we published a notice with comment period
that appeared in the December 1, 2015 Federal Register (80 FR
75107), which discussed the basis for the 0.2 percent reduction and
its underlying assumptions and invited comments on the same in order
to facilitate our further consideration of the FY 2014 reduction.
We still believe the assumptions underlying the 0.2 percent
reduction to the rates put in place beginning in FY 2014 were
reasonable at the time we made them in 2013. Nevertheless, taking
all the factors discussed in section IV. O of the preamble to this
proposed rule into account and in the context of the litigation, we
believe it would be appropriate to use our authority under section
1886(d)(5)(I)(i) to prospectively remove, beginning in FY 2017, the
0.2 percent reduction to the standardized amount and hospital-
specific rates put in place beginning in FY 2014. The 0.2 percent
reduction was implemented by including a factor of 0.998 in the
calculation of the FY 2014 standardized amount and hospital-specific
rates, permanently reducing the standardized amount and hospital-
specific rates for FY 2014 and future years until the 0.998 is
removed. We are proposing to permanently remove the 0.998 reduction
beginning in FY 2017 by including a factor of (1/0.998) in the
calculation of the FY 2017 standardized amount and hospital specific
rate.
In addition, for the reasons discussed in section IV.O. of the
preamble of this proposed rule, we believe it would be appropriate
to use our authority under section 1886(d)(5)(I)(i) to temporarily
increase the standardized amount and hospital-specific rates, only
for FY 2017, to address the effect of the 0.2 percent reduction to
the standardized amount and hospital-specific rates in effect for FY
2014, the 0.2 percent reduction to the standardized amount and
hospital-specific rates in effect for FY 2015 (recall the 0.998
factor included in the calculation of the FY 2014 rates permanently
reduced the rates for FY 2014 and future years until it is removed),
and the 0.2 percent reduction to the standardized amount and
hospital-specific rates in effect for FY 2016. We believe that the
most transparent, expedient, and administratively feasible method to
accomplish this is a temporary one-time prospective increase to the
FY 2017 standardized amount and hospital-specific rates of 0.6
percent (= 0.2 percent + 0.2 percent + 0.2 percent). Specifically,
we are proposing to include a factor of 1.006 in the calculation of
the standardized amount and the hospital-specific rates in FY 2017
and then remove this temporary one-time prospective increase by
including a factor of (1/1.006) in the calculation of the
standardized amount and hospital-specific rates for FY 2018.
We refer the reader to section IV.O. of the preamble to this
proposed rule for a complete discussion.

h. Proposed Outlier Payments

Section 1886(d)(5)(A) of the Act provides for payments in
addition to the basic prospective payments for ``outlier'' cases
involving extraordinarily high costs. To qualify for outlier
payments, a case must have costs greater than the sum of the
prospective payment rate for the MS-DRG, any IME and DSH payments,
uncompensated care payments, any new technology add-on payments, and
the ``outlier threshold'' or ``fixed-loss'' amount (a dollar amount
by

[[Page 25271]]

which the costs of a case must exceed payments in order to qualify
for an outlier payment). We refer to the sum of the prospective
payment rate for the MS-DRG, any IME and DSH payments, uncompensated
care payments, any new technology add-on payments, and the outlier
threshold as the outlier ``fixed-loss cost threshold.'' To determine
whether the costs of a case exceed the fixed-loss cost threshold, a
hospital's CCR is applied to the total covered charges for the case
to convert the charges to estimated costs. Payments for eligible
cases are then made based on a marginal cost factor, which is a
percentage of the estimated costs above the fixed-loss cost
threshold. The marginal cost factor for FY 2017 is 80 percent, or 90
percent for burn MS-DRGs 927, 928, 929, 933, 934 and 935. We have
used a marginal cost factor of 90 percent since FY 1989 (54 FR 36479
through 36480) for designated burn DRGs as well as a marginal cost
factor of 80 percent for all other DRGs since FY 1995 (59 FR 45367).
In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier
payments for any year are projected to be not less than 5 percent
nor more than 6 percent of total operating DRG payments (which does
not include IME and DSH payments) plus outlier payments. When
setting the outlier threshold, we compute the 5.1 percent target by
dividing the total operating outlier payments by the total operating
DRG payments plus outlier payments. We do not include any other
payments such as IME and DSH within the outlier target amount.
Therefore, it is not necessary to include Medicare Advantage IME
payments in the outlier threshold calculation. Section 1886(d)(3)(B)
of the Act requires the Secretary to reduce the average standardized
amount by a factor to account for the estimated proportion of total
DRG payments made to outlier cases. More information on outlier
payments may be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/outlier.htm.

(1) Proposed FY 2017 Outlier Fixed-Loss Cost Threshold

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50977 through
50983), in response to public comments on the FY 2013 IPPS/LTCH PPS
proposed rule, we made changes to our methodology for projecting the
outlier fixed-loss cost threshold for FY 2014. We refer readers to
the FY 2014 IPPS/LTCH PPS final rule for detailed discussion of the
changes.
As we have done in the past, to calculate the proposed FY 2017
outlier threshold, we simulated payments by applying proposed FY
2017 payment rates and policies using cases from the FY 2015 MedPAR
file. Therefore, in order to determine the proposed FY 2017 outlier
threshold, we inflated the charges on the MedPAR claims by 2 years,
from FY 2015 to FY 2017. As discussed in the FY 2015 IPPS/LTCH PPS
final rule, we believe a methodology that is based on 1-year of
charge data will provide a more stable measure to project the
average charge per case because our prior methodology used a 6-month
measure, which inherently uses fewer claims than a 1-year measure
and makes it more susceptible to fluctuations in the average charge
per case as a result of any significant charge increases or
decreases by hospitals. The methodology we are proposing to
calculate the charge inflation factor for FY 2017 and subsequent
fiscal years is as follows:
To produce the most stable measure of charge inflation,
we applied the following inclusion and exclusion criteria of
hospitals claims in our measure of charge inflation: include
hospitals whose last four digits fall between 0001 and 0899 (section
2779A1 of Chapter 2 of the State Operations Manual on the CMS Web
site at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/som107c02.pdf); include CAHs that were IPPS
hospitals for the time period of the MedPAR data being used to
calculate the charge inflation factor; include hospitals in
Maryland; and remove PPS excluded cancer hospitals who have a ``V''
in the fifth position of their provider number or a ``E'' or ``F''
in the sixth position.
We excluded Medicare Advantage IME claims for the
reasons described in section I.A.4. of this Addendum. We refer
readers to the FY 2011 IPPS/LTCH PPS final rule for a complete
discussion on our methodology of identifying and adding the total
Medicare Advantage IME payment amount to the budget neutrality
adjustments.
In order to ensure that we capture only FFS claims, we
included claims with a ``Claim Type'' of 60 (which is a field on the
MedPAR file that indicates a claim is an FFS claim).
In order to further ensure that we capture only FFS
claims, we excluded claims with a ``GHOPAID'' indicator of 1 (which
is a field on the MedPAR file that indicates a claim is not an FFS
claim and is paid by a Group Health Organization).
We examined the MedPAR file and removed pharmacy
charges for anti-hemophilic blood factor (which are paid separately
under the IPPS) with an indicator of ``3'' for blood clotting with a
revenue code of ``0636'' from the covered charge field. We also
removed organ acquisition charges from the covered charge field
because organ acquisition is a pass-through payment not paid under
the IPPS.
In the FY 2016 IPPS/LTCH final rule (80 FR 49779-49780), we
stated that commenters were concerned that they were unable to
replicate the calculation of the charge inflation factor that CMS
used in the proposed rule. In response to those comments, we stated
that we continue to believe that it is optimal to use the most
recent period of charge data available to measure charge inflation.
In response to those comments, similar to FY 2016, for FY 2017 we
grouped claims data by quarter in the table below in order that the
public would be able to replicate the claims summary for the claims
with discharge dates through September 30, 2015, that are available
under the current LDS structure. In order to provide even more
information in response to the commenters' request, similar to FY
2016, for FY 2017 we have made available on the CMS Web site at:
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html (click on the link on the left titled
``FY 2017 IPPS Proposed Rule Home Page''' and then click the link
``FY 2017 Proposed Rule Data Files''') a more detailed summary table
by provider with the monthly charges that were used to compute the
charge inflation factor. We continue to work with our systems teams
and privacy office to explore expanding the information available in
the current LDS, perhaps through the provision of a supplemental
data file for future rulemaking.

----------------------------------------------------------------------------------------------------------------
Covered charges Cases (January Covered charges Cases
(January 1, 1, 2014, (January 1, (January 1,
Quarter 2014, through through 2015, through 2015, through
December 31, December 31, December 31, December 31,
2014) 2014) 2015) 2015)
----------------------------------------------------------------------------------------------------------------
1........................................... $126,156,195,005 2,479,295 $134,250,323,661 2,546,078
2........................................... 122,171,248,575 2,445,370 126,880,227,174 2,416,569
3........................................... 119,364,629,662 2,364,553 122,165,668,615 2,308,537
4........................................... 124,733,843,923 2,436,787 90,677,073,204 1,696,180
-------------------------------------------------------------------
Total................................... 492,425,917,165 9,726,005 473,973,292,654 8,967,364
----------------------------------------------------------------------------------------------------------------

Under this methodology, to compute the 1-year average annualized
rate-of-change in charges per case for FY 2017, we are proposing to
compare the average covered charge per case of $50,360
($492,425,917,165/9,726,005) from the second quarter of FY 2014
through the first quarter of FY 2015 (January 1, 2014, through
December 31, 2014) to the average covered charge per case of $52,855
($473,973,292,654/8,967,364) from the second quarter of FY 2015
through the first quarter of FY 2016 (January 1, 2015, through
December 31, 2015). This rate-of-change is 4.4 percent (1.043957) or
9.8 percent (1.089846) over 2 years. The billed charges are obtained
from the claim from the MedPAR file and inflated by the inflation
factor specified above.
As we have done in the past, in this proposed rule, we are
proposing to establish the proposed FY 2017 outlier threshold using
hospital CCRs from the December 2015 update to the Provider-Specific
File (PSF)--

[[Page 25272]]

the most recent available data at the time of the development of
this proposed rule. As stated in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50979), we apply the following edits to providers' CCRs
in the PSF. We believe these edits are appropriate in order to
accurately model the outlier threshold. We first search for Indian
Health Service providers and those providers assigned the statewide
average CCR from the current fiscal year. We then replace these CCRs
with the statewide average CCR for the upcoming fiscal year. We also
assign the statewide average CCR (for the upcoming fiscal year) to
those providers that have no value in the CCR field in the PSF. We
do not apply the adjustment factors described below to hospitals
assigned the statewide average CCR.
For FY 2017, we also are proposing to continue to apply an
adjustment factor to the CCRs to account for cost and charge
inflation (as explained below). We are proposing that, if more
recent data become available, we would use that data to calculate
the final FY 2017 outlier threshold.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50979), we
adopted a new methodology to adjust the CCRs. Specifically, we
finalized a policy to compare the national average case-weighted
operating and capital CCR from the most recent update of the PSF to
the national average case-weighted operating and capital CCR from
the same period of the prior year.
Therefore, as we did for the last 3 fiscal years, we are
proposing to adjust the CCRs from the December 2015 update of the
PSF by comparing the percentage change in the national average case-
weighted operating CCR and capital CCR from the December 2014 update
of the PSF to the national average case-weighted operating CCR and
capital CCR from the December 2015 update of the PSF. We note that
we used total transfer-adjusted cases from FY 2015 to determine the
national average case-weighted CCRs for both sides of the
comparison. As stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR
50979), we believe that it is appropriate to use the same case count
on both sides of the comparison because this will produce the true
percentage change in the average case-weighted operating and capital
CCR from one year to the next without any effect from a change in
case count on different sides of the comparison.
Using the proposed methodology above, we calculated a proposed
December 2014 operating national average case-weighted CCR of
0.280907 and a proposed December 2015 operating national average
case-weighted CCR of 0.272363. We then calculated the percentage
change between the two national operating case-weighted CCRs by
subtracting the December 2014 operating national average case-
weighted CCR from the December 2015 operating national average case-
weighted CCR and then dividing the result by the December 2014
national operating average case-weighted CCR. This resulted in a
proposed national operating CCR adjustment factor of 0.969585.
We used the same methodology proposed above to adjust the
capital CCRs. Specifically, we calculated a December 2014 capital
national average case-weighted CCR of 0.024615 and a December 2015
capital national average case-weighted CCR of 0.024008. We then
calculated the percentage change between the two national capital
case-weighted CCRs by subtracting the December 2014 capital national
average case-weighted CCR from the December 2015 capital national
average case-weighted CCR and then dividing the result by the
December 2014 capital national average case-weighted CCR. This
resulted in a proposed national capital CCR adjustment factor of
0.975335.
As discussed above, for FY 2017, we are proposing to apply the
final year of the 3-year transitional wage index because of the
adoption of the new OMB labor market area delineations. Also, as
discussed in section III.B.3. of the preamble to the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50160 and 50161) and in section III.H.3.
of the preamble of this proposed rule, in accordance with section
10324(a) of the Affordable Care Act, we created a wage index floor
of 1.0000 for all hospitals located in States determined to be
frontier States. We note that the frontier State floor adjustments
would be calculated and applied after rural and imputed floor budget
neutrality adjustments are calculated for all labor market areas, in
order to ensure that no hospital in a frontier State would receive a
wage index less than 1.0000 due to the proposed rural and imputed
floor adjustment. In accordance with section 10324(a) of the
Affordable Care Act, the frontier State adjustment will not be
subject to budget neutrality, and will only be extended to hospitals
geographically located within a frontier State. However, for
purposes of estimating the proposed outlier threshold for FY 2017,
it was necessary to apply the proposed 3-year transitional wage
indexes and adjust the proposed wage index of those eligible
hospitals in a frontier State when calculating the proposed outlier
threshold that results in outlier payments being 5.1 percent of
total payments for FY 2017. If we did not take the above into
account, our estimate of total FY 2017 payments would be too low,
and, as a result, our proposed outlier threshold would be too high,
such that estimated outlier payments would be less than our
projected 5.1 percent of total payments.
As we did in establishing the FY 2009 outlier threshold (73 FR
57891), in our projection of FY 2017 outlier payments, we are
proposing not to make any adjustments for the possibility that
hospitals' CCRs and outlier payments may be reconciled upon cost
report settlement. We continue to believe that, due to the policy
implemented in the June 9, 2003 Outlier Final Rule (68 FR 34494),
CCRs will no longer fluctuate significantly and, therefore, few
hospitals will actually have these ratios reconciled upon cost
report settlement. In addition, it is difficult to predict the
specific hospitals that will have CCRs and outlier payments
reconciled in any given year. We note that we have instructed MACs
to identify for CMS any instances where (1) a hospital's actual CCR
for the cost reporting period fluctuates plus or minus 10 percentage
points compared to the interim CCR used to calculate outlier
payments when a bill is processed; and (2) the total outlier
payments for the hospital exceeded $500,000.00 for that period. Our
simulations assume that CCRs accurately measure hospital costs based
on information available to us at the time we set the outlier
threshold. For these reasons, we are proposing not to make any
assumptions regarding the effects of reconciliation on the outlier
threshold calculation.
As described in sections IV.G. and IV.H. respectively, of the
preamble of this proposed rule, sections 1886(q) and 1886(o) of the
Act establish the Hospital Readmissions Reduction Program and the
Hospital VBP Program, respectively. We do not believe that it is
appropriate to include the hospital VBP payment adjustments and the
hospital readmissions payment adjustments in the proposed outlier
threshold calculation or the proposed outlier offset to the
standardized amount. Specifically, consistent with our definition of
the base operating DRG payment amount for the Hospital Readmissions
Reduction Program under Sec. 412.152 and the Hospital VBP Program
under Sec. 412.160, outlier payments under section 1886(d)(5)(A) of
the Act are not affected by these payment adjustments. Therefore,
outlier payments would continue to be calculated based on the
unadjusted base DRG payment amount (as opposed to using the base-
operating DRG payment amount adjusted by the hospital readmissions
payment adjustment and the hospital VBP payment adjustment).
Consequently, we are proposing to exclude the hospital VBP payment
adjustments and the hospital readmissions payment adjustments from
the calculation of the proposed outlier fixed-loss cost threshold.
We note that, to the extent section 1886(r) of the Act modifies
the DSH payment methodology under section 1886(d)(5)(F) of the Act,
the new uncompensated care payment under section 1886(r)(2) of the
Act, like the empirically justified Medicare DSH payment under
section 1886(r)(1) of the Act, may be considered an amount payable
under section 1886(d)(5)(F) of the Act such that it would be
reasonable to include the payment in the outlier determination under
section 1886(d)(5)(A) of the Act. As we have done since the
implementation of uncompensated care payments in FY 2014, we also
are proposing for FY 2017 to allocate an estimated per-discharge
uncompensated care payment amount to all cases for the hospitals
eligible to receive the uncompensated care payment amount in the
calculation of the outlier fixed-loss cost threshold methodology. We
continue to believe that allocating an eligible hospital's estimated
uncompensated care payment to all cases equally in the calculation
of the outlier fixed-loss cost threshold would best approximate the
amount we would pay in uncompensated care payments during the year
because, when we make claim payments to a hospital eligible for such
payments, we would be making estimated per-discharge uncompensated
care payments to all cases equally. Furthermore, we continue to
believe that using the estimated per-claim uncompensated care
payment amount to determine outlier estimates provides
predictability as to the amount of uncompensated care payments
included in

[[Page 25273]]

the calculation of outlier payments. Therefore, consistent with the
methodology used since FY 2014 to calculate the outlier fixed-loss
cost threshold, for FY 2017, we are proposing to include estimated
FY 2017 uncompensated care payments in the computation of the
proposed outlier fixed-loss cost threshold. Specifically, we are
proposing to use the estimated per-discharge uncompensated care
payments to hospitals eligible for the uncompensated care payment
for all cases in the calculation of the proposed outlier fixed-loss
cost threshold methodology.
Using this methodology, we used the formula described in section
I.C.1 of this Addendum to simulate and calculate the Federal payment
rate and outlier payments for all claims. We used a threshold of
$23,681 and calculated total operating Federal payments of
$82,727,323,366 and total outlier payments of $4,445,892,903. We
then divided total outlier payments by total operating Federal
payments plus total outlier payments and determined that this
threshold met the 5.1 percent target. As a result, we are proposing
an outlier fixed-loss cost threshold for FY 2017 equal to the
prospective payment rate for the MS-DRG, plus any IME, empirically
justified Medicare DSH payments, estimated uncompensated care
payment, and any add-on payments for new technology, plus $23,681.

(2) Other Proposed Changes Concerning Outliers

As stated in the FY 1994 IPPS final rule (58 FR 46348), we
establish an outlier threshold that is applicable to both hospital
inpatient operating costs and hospital inpatient capital-related
costs. When we modeled the combined operating and capital outlier
payments, we found that using a common threshold resulted in a lower
percentage of outlier payments for capital-related costs than for
operating costs. We project that the thresholds for FY 2017 will
result in outlier payments that will equal 5.1 percent of operating
DRG payments and 6.26 percent of capital payments based on the
Federal rate.
In accordance with section 1886(d)(3)(B) of the Act, we are
proposing to reduce the FY 2017 standardized amount by the same
percentage to account for the projected proportion of payments paid
as outliers.
The proposed outlier adjustment factors that would be applied to
the standardized amount based on the proposed FY 2017 outlier
threshold are as follows:

------------------------------------------------------------------------
Operating Capital
standardized Federal
amounts rate
------------------------------------------------------------------------
National..................................... 0.948999 0.937400
------------------------------------------------------------------------

We are proposing to apply the outlier adjustment factors to the
proposed FY 2017 payment rates after removing the effects of the FY
2016 outlier adjustment factors on the standardized amount.
To determine whether a case qualifies for outlier payments, we
apply hospital-specific CCRs to the total covered charges for the
case. Estimated operating and capital costs for the case are
calculated separately by applying separate operating and capital
CCRs. These costs are then combined and compared with the outlier
fixed-loss cost threshold.
Under our current policy at Sec. 412.84, we calculate operating
and capital CCR ceilings and assign a statewide average CCR for
hospitals whose CCRs exceed 3.0 standard deviations from the mean of
the log distribution of CCRs for all hospitals. Based on this
calculation, for hospitals for which the MAC computes operating CCRs
greater than 1.19 or capital CCRs greater than 0.171, or hospitals
for which the MAC is unable to calculate a CCR (as described under
Sec. 412.84(i)(3) of our regulations), statewide average CCRs are
used to determine whether a hospital qualifies for outlier payments.
Table 8A listed in section VI. of this Addendum (and available only
via the Internet on the CMS Web site) contains the proposed
statewide average operating CCRs for urban hospitals and for rural
hospitals for which the MAC is unable to compute a hospital-specific
CCR within the above range. Effective for discharges occurring on or
after October 1, 2016, these statewide average ratios would replace
the ratios posted on our Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2014-IPPS-Final-Rule-Home-Page-Items/FY-2014-IPPS-Final-Rule-CMS-1599-F-Tables.html. Table 8B listed in section VI. of this Addendum (and
available via the Internet on the CMS Web site) contains the
comparable proposed statewide average capital CCRs. As previously
stated, the proposed CCRs in Tables 8A and 8B would be used during
FY 2017 when hospital-specific CCRs based on the latest settled cost
report either are not available or are outside the range noted
above. Table 8C listed in section VI. of this Addendum (and
available via the Internet on the CMS Web site) contains the
proposed statewide average total CCRs used under the LTCH PPS as
discussed in section V. of this Addendum.
We finally note that we published a manual update (Change
Request 3966) to our outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing
Manual. The manual update covered an array of topics, including
CCRs, reconciliation, and the time value of money. We encourage
hospitals that are assigned the statewide average operating and/or
capital CCRs to work with their MAC on a possible alternative
operating and/or capital CCR as explained in Change Request 3966.
Use of an alternative CCR developed by the hospital in conjunction
with the MAC can avoid possible overpayments or underpayments at
cost report settlement, thereby ensuring better accuracy when making
outlier payments and negating the need for outlier reconciliation.
We also note that a hospital may request an alternative operating or
capital CCR ratio at any time as long as the guidelines of Change
Request 3966 are followed. In addition, as mentioned above, we
published an additional manual update (Change Request 7192) to our
outlier policy on December 3, 2010, which also updated Chapter 3,
Section 20.1.2 of the Medicare Claims Processing Manual. The manual
update outlines the outlier reconciliation process for hospitals and
Medicare contractors. To download and view the manual instructions
on outlier reconciliation, we refer readers to the CMS Web site:
http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.

(3) FY 2015 Outlier Payments

Our current estimate, using available FY 2015 claims data, is
that actual outlier payments for FY 2015 were approximately 4.68
percent of actual total MS-DRG payments. Therefore, the data
indicate that, for FY 2015, the percentage of actual outlier
payments relative to actual total payments is lower than we
projected for FY 2015. Consistent with the policy and statutory
interpretation we have maintained since the inception of the IPPS,
we do not make retroactive adjustments to outlier payments to ensure
that total outlier payments for FY 2015 are equal to 5.1 percent of
total MS-DRG payments. As explained in the FY 2003 Outlier Final
Rule (68 FR 34502), if we were to make retroactive adjustments to
all outlier payments to ensure total payments are 5.1 percent of MS-
DRG payments (by retroactively adjusting outlier payments), we would
be removing the important aspect of the prospective nature of the
IPPS. Because such an across-the-board adjustment would either lead
to more or less outlier payments for all hospitals, hospitals would
no longer be able to reliably approximate their payment for a
patient while the patient is still hospitalized. We believe it would
be neither necessary nor appropriate to make such an aggregate
retroactive adjustment. Furthermore, we believe it is consistent
with the intent of the language at section 1886(d)(5)(A)(iv) of the
Act not to make retroactive adjustments to outlier payments. This
section calls for the Secretary to ensure that outlier payments are
equal to or greater than 5 percent and less than or equal to 6
percent of projected or estimated (not actual) MS-DRG payments. We
believe this language reflects the intent of Congress regarding the
prospectivity of the IPPS. We believe that an important goal of a
PPS is predictability. Therefore, we believe that the fixed-loss
outlier threshold should be projected based on the best available
historical data and should not be adjusted retroactively. A
retroactive change to the fixed-loss outlier threshold would affect
all hospitals subject to the IPPS, thereby undercutting the
predictability of the system as a whole.
We note that because the MedPAR claims data for the entire FY
2016 will not be available until after September 30, 2016, we are
unable to provide an estimate of actual outlier payments for FY 2016
based on FY 2016 claims data in this proposed rule. We will provide
an estimate of actual FY 2016 outlier payments in the FY 2018 IPPS/
LTCH PPS proposed rule.

5. Proposed FY 2017 Standardized Amount

The adjusted standardized amount is divided into labor-related
and nonlabor-related portions. Tables 1A and 1B listed and published
in section VI. of this Addendum (and available via the Internet on
the CMS Web site) contain the national standardized amounts that we
are proposing to apply to all hospitals, except hospitals located in
Puerto

[[Page 25274]]

Rico, for FY 2017. The proposed standardized amount for hospitals in
Puerto Rico is shown in Table 1C listed and published in section VI.
of this Addendum (and available via the Internet on the CMS Web
site). The proposed amounts shown in Tables 1A and 1B differ only in
that the labor-related share applied to the standardized amounts in
Table 1A is 69.6 percent, and the labor-related share applied to the
standardized amounts in Table 1B is 62 percent. In accordance with
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act, we are
proposing to apply a labor-related share of 62 percent, unless
application of that percentage would result in lower payments to a
hospital than would otherwise be made. In effect, the statutory
provision means that we will apply a labor-related share of 62
percent for all hospitals whose wage indexes are less than or equal
to 1.0000.
In addition, Tables 1A and 1B include the proposed standardized
amounts reflecting the proposed applicable percentage increases for
FY 2017.
The proposed labor-related and nonlabor-related portions of the
national average standardized amounts for Puerto Rico hospitals for
FY 2017 are set forth in Table 1C listed and published in section
VI. of this Addendum (and available via the Internet on the CMS Web
site). Similar to above, section 1886(d)(9)(C)(iv) of the Act, as
amended by section 403(b) of Public Law 108-173, provides that the
labor-related share for hospitals located in Puerto Rico be 62
percent, unless the application of that percentage would result in
lower payments to the hospital.
The following table illustrates the changes from the FY 2016
national standardized amount to the proposed FY 2017 national
standardized amount. The second through fifth columns display the
proposed changes from the FY 2016 standardized amounts for each
applicable FY 2017 standardized amount. The first row of the table
shows the updated (through FY 2016) average standardized amount
after restoring the FY 2016 offsets for outlier payments,
demonstration budget neutrality, geographic reclassification budget
neutrality, new labor market delineation wage index transition
budget neutrality, retrospective documentation and coding adjustment
under section 7(b)(1)(B) of Public Law 110-90 and an adjustment to
the standardized amount using our authority under section
1886(d)(5)(I)(i) of the Act to permanently prospectively remove the
0.2 percent reduction to the rate put in place in FY 2014 to offset
the estimated increase in IPPS expenditures as a result of the 2-
midnight policy . The MS-DRG reclassification and recalibration and
wage index budget neutrality adjustment factors are cumulative.
Therefore, those FY 2016 adjustment factors are not removed from
this table.

Comparison of FY 2016 Standardized Amounts to the Proposed FY 2017 Standardized Amounts
----------------------------------------------------------------------------------------------------------------
Hospital submitted Hospital did NOT Hospital did NOT
Hospital submitted quality data and submit quality submit quality
quality data and is NOT a data and is a data and is NOT a
is a meaningful meaningful EHR meaningful EHR meaningful EHR
EHR user user user user
----------------------------------------------------------------------------------------------------------------
FY 2016 Base Rate after If Wage Index is If Wage Index is If Wage Index is If Wage Index is
removing: Greater Than Greater Than Greater Than Greater Than
1.0000: 1.0000: 1.0000: 1.0000:
Labor (69.6%): Labor (69.6%): Labor (69.6%): Labor (69.6%):
$4,394.09. $4,394.09. $4,394.09. $4,394.09
Nonlabor (30.4%): Nonlabor (30.4%): Nonlabor (30.4%): Nonlabor (30.4%):
$1,919.26. $1,919.26. $1,919.26. $1,919.26
If Wage Index is If Wage Index is If Wage Index is If Wage Index is
less Than or less Than or less Than or less Than or
Equal to 1.0000: Equal to 1.0000: Equal to 1.0000: Equal to 1.0000:
Labor (62%): Labor (62%): Labor (62%): Labor (62%):
$3,914.28. $3,914.28. $3,914.28. $3,914.28
Nonlabor (38%): Nonlabor (38%): Nonlabor (38%): Nonlabor (38%):
$2,399.07. $2,399.07. $2,399.07. $2,399.07
1. FY 2016 Geographic
Reclassification Budget
Neutrality (0.988169).
2. FY 2016 Rural Community
Hospital Demonstration
Program Budget Neutrality
(0.999837).
3. Cumulative FY 2008, FY
2009, FY 2012, FY 2013, FY
2014, FY 2015 and FY 2016
Documentation and Coding
Adjustments as Required
under Sections 7(b)(1)(A)
and 7(b)(1)(B) of Pub. L.
110-90 and Documentation
and Coding Recoupment
Adjustment as required
under Section 631 of the
American Taxpayer Relief
Act of 2012 (0.9255).
4. FY 2016 Operating Outlier
Offset (0.948998).
5. FY 2016 New Labor Market
Delineation Wage Index
Transition Budget
Neutrality Factor
(0.999998).
6. FY 2017 Proposed 2-
Midnight Rule Permanent
Adjustment (1/0.998).
Proposed FY 2017 Update Factor.. 1.0155............ 0.9945............ 1.0085............ 0.9875
Proposed FY 2017 MS-DRG 0.999006.......... 0.999006.......... 0.999006.......... 0.999006
Recalibration Budget Neutrality
Factor.
Proposed FY 2017 Wage Index 0.999785.......... 0.999785.......... 0.999785.......... 0.999785
Budget Neutrality Factor.
Proposed FY 2017 0.988816.......... 0.988816.......... 0.988816.......... 0.988816
Reclassification Budget
Neutrality Factor.
Proposed FY 2017 Operating 0.948999.......... 0.948999.......... 0.948999.......... 0.98999
Outlier Factor.

[[Page 25275]]

Cumulative Factor: FY 2008, FY 0.9118............ 0.9118............ 0.9118............ 0.9118
2009, FY 2012, FY 2013, FY
2014, FY 2015, FY 2016 and FY
2017 Documentation and Coding
Adjustment as Required under
Sections 7(b)(1)(A) and
7(b)(1)(B) of Pub. L. 110-90
and Documentation and Coding
Recoupment Adjustment as
required under Section 631 of
the American Taxpayer Relief
Act of 2012.
Proposed FY 2017 New Labor 0.999999.......... 0.999999.......... 0.999999.......... 0.999999
Market Delineation Wage Index 3-
Year Hold Harmless Transition
Budget Neutrality Factor.
Proposed FY 2017 2[dash]Midnight 1.006............. 1.006............. 1.006............. 1.006
Rule One-Time Prospective
Increase.
Proposed National Standardized Labor: $3,836.20.. Labor: $3,756.87.. Labor: $3,809.76.. Labor: $3,730.43
Amount for FY 2017 if Wage Nonlabor: Nonlabor: Nonlabor: Nonlabor:
Index is Greater Than 1.0000; $1,675.59. $1,640.94. $1,664.04. $1,629.39
Labor/Non-Labor Share
Percentage (69.6/30.4).
Proposed National Standardized Labor: $3,417.31.. Labor: $3,346.64.. Labor: $3,393.76.. Labor: $3,323.09
Amount for FY 2017 if Wage Nonlabor: Nonlabor: Nonlabor: Nonlabor:
Index is less Than or Equal to $2,094.48. $2,051.17. $2,080.04. $2,036.73
1.0000; Labor/Non-Labor Share
Percentage (62/38).
----------------------------------------------------------------------------------------------------------------

B. Proposed Adjustments for Area Wage Levels and Cost-of-Living

Tables 1A through 1C, as published in section VI. of this
Addendum (and available via the Internet on the CMS Web site),
contain the proposed labor-related and nonlabor-related shares that
we are proposing to use to calculate the prospective payment rates
for hospitals located in the 50 States, the District of Columbia,
and Puerto Rico for FY 2017. This section addresses two types of
adjustments to the standardized amounts that are made in determining
the proposed prospective payment rates as described in this
Addendum.

1. Proposed Adjustment for Area Wage Levels

Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require
that we make an adjustment to the labor-related portion of the
national prospective payment rate to account for area differences in
hospital wage levels. This adjustment is made by multiplying the
labor-related portion of the adjusted standardized amounts by the
appropriate wage index for the area in which the hospital is
located. In section III. of the preamble of this proposed rule, we
discuss the data and methodology for the proposed FY 2017 wage
index.

2. Adjustment for Cost-of-Living in Alaska and Hawaii

Section 1886(d)(5)(H) of the Act provides discretionary
authority to the Secretary to make such adjustments as the Secretary
deems appropriate to take into account the unique circumstances of
hospitals located in Alaska and Hawaii. Higher labor-related costs
for these two States are taken into account in the adjustment for
area wages described above. To account for higher nonlabor-related
costs for these two States, we multiply the nonlabor-related portion
of the standardized amount for hospitals located in Alaska and
Hawaii by an adjustment factor.
In the FY 2013 IPPS/LTCH PPS final rule, we established a
methodology to update the COLA factors for Alaska and Hawaii that
were published by the U.S. Office of Personnel Management (OPM)
every 4 years (at the same time as the update to the labor-related
share of the IPPS market basket), beginning in FY 2014. We refer
readers to the FY 2013 IPPS/LTCH PPS proposed and final rules for
additional background and a detailed description of this methodology
(77 FR 28145 through 28146 and 77 FR 53700 through 53701,
respectively).
For FY 2014, in the FY 2014 IPPS/LTCH PPS final rule (78 FR
50985 through 50987), we updated the COLA factors published by OPM
for 2009 (as these are the last COLA factors OPM published prior to
transitioning from COLAs to locality pay) using the methodology that
we finalized in the FY 2013 IPPS/LTCH PPS final rule.
Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final
rule, we are proposing to continue to use the same COLA factors in
FY 2017 that were used in FY 2016 to adjust the nonlabor-related
portion of the standardized amount for hospitals located in Alaska
and Hawaii. Below is a table listing the proposed COLA factors for
FY 2017.

Proposed FY 2017 Cost-of-Living Adjustment Factors: Alaska and Hawaii
Hospitals
------------------------------------------------------------------------
Cost of living
Area adjustment
factor
------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius 1.23
by road............................................
City of Fairbanks and 80-kilometer (50-mile) radius 1.23
by road............................................
City of Juneau and 80-kilometer (50-mile) radius by 1.23
road...............................................
Rest of Alaska...................................... 1.25
Hawaii:
City and County of Honolulu......................... 1.25
County of Hawaii.................................... 1.19
County of Kauai..................................... 1.25
County of Maui and County of Kalawao................ 1.25
------------------------------------------------------------------------

[[Page 25276]]

Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final
rule, the next update to the COLA factors for Alaska and Hawaii
would occur in FY 2018.

C. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY
2017

In general, the operating prospective payment rate for all
hospitals (including hospitals in Puerto Rico) paid under the IPPS,
except SCHs and MDHs, for FY 2017 equals the Federal rate (which
includes uncompensated care payments).
SCHs are paid based on whichever of the following rates yields
the greatest aggregate payment: The Federal national rate (which, as
discussed in section IV.F. of the preamble of this proposed rule,
includes uncompensated care payments); the updated hospital-specific
rate based on FY 1982 costs per discharge; the updated hospital-
specific rate based on FY 1987 costs per discharge; the updated
hospital-specific rate based on FY 1996 costs per discharge; or the
updated hospital-specific rate based on FY 2006 costs per discharge
to determine the rate that yields the greatest aggregate payment.
The prospective payment rate for SCHs for FY 2017 equals the
higher of the applicable Federal rate, or the hospital-specific rate
as described below. The prospective payment rate for MDHs for FY
2017 equals the higher of the Federal rate, or the Federal rate plus
75 percent of the difference between the Federal rate and the
hospital-specific rate as described below. For MDHs, the updated
hospital-specific rate is based on FY 1982, FY 1987 or FY 2002 costs
per discharge, whichever yields the greatest aggregate payment.

1. Operating and Capital Federal Payment Rate and Outlier Payment
Calculation

Note: The formula below is used for actual claim payment and is
also used by CMS to project the outlier threshold for the upcoming
FY. The difference is the source of some of the variables in the
formula. For example, operating and capital CCRs for actual claim
payment are from the PSF while CMS uses an adjusted CCR (as
described above) to project the threshold for the upcoming FY. In
addition, charges for a claim payment are from the bill while
charges to project the threshold are from the MedPAR data with an
inflation factor applied to the charges (as described above).
Step 1--Determine the MS-DRG and MS-DRG relative weight for each
claim based on the ICD-10-CM procedure and diagnosis codes on the
claim.
Step 2--Select the applicable average standardized amount
depending on whether the hospital submitted qualifying quality data
and is a meaningful EHR user, as described above.
Step 3--Compute the operating and capital Federal payment rate:

--Federal Payment Rate for Operating Costs = MS-DRG Relative Weight
x [(Labor-Related Applicable Standardized Amount x Applicable CBSA
Wage Index) + (Nonlabor-Related Applicable Standardized Amount x
Cost of Living Adjustment)] x (1 + IME + (DSH * 0.25))
--Federal Payment for Capital Costs = MS-DRG Relative Weight x
Federal Capital Rate x Geographic Adjustment Fact x (l + IME + DSH)

Step 4--Determine operating and capital costs:

--Operating Costs = (Billed Charges x Operating cost-to-charge
ratio)
--Capital Costs = (Billed Charges x Capital cost-to-charge ratio).

Step 5--Compute operating and capital outlier threshold (CMS
applies a geographic adjustment to the operating and capital outlier
threshold to account for local cost variation):

--Operating Cost-to-Charge Ratio to Total Cost-to-Charge Ratio =
(Operating Cost-to-Charge Ratio)/(Operating Cost-to-Charge Ratio +
Capital Cost-to-Charge Ratio)
--Operating Outlier Threshold = [Fixed Loss Threshold x ((Labor-
Related Portion x CBSA Wage Index) + Nonlabor-Related portion)] x
Operating Cost-to-Charge Ratio to Total Cost-to-Charge Ratio +
Federal Payment with IME, DSH + Uncompensated Care Payment + New
Technology Add-On Payment Amount
--Capital Cost-to-Charge Ratio to Total Cost-to-Charge Ratio =
(Capital Cost-to-Charge Ratio)/(Operating Cost-to-Charge Ratio +
Capital Cost-to-Charge Ratio)
--Capital Outlier Threshold = (Fixed Loss Threshold x Geographic
Adjustment Factor x Capital CCR to Total CCR) + Federal Payment with
IME and DSH

Step 6: Compute operating and capital outlier payments:

--Marginal Cost Factor = 0.80 or 0.90 (depending on the MS-DRG)
--Operating Outlier Payment = (Operating Costs--Operating Outlier
Threshold) x Marginal Cost Factor
--Capital Outlier Payment = (Capital Costs--Capital Outlier
Threshold) x Marginal Cost Factor

The payment rate may then be further adjusted for hospitals that
qualify for a low-volume payment adjustment under section
1886(d)(12) of the Act and 42 CFR 412.101(b). The base-operating DRG
payment amount may be further adjusted by the hospital readmissions
payment adjustment and the hospital VBP payment adjustment as
described under sections 1886(q) and 1886(o) of the Act,
respectively. Payments also may be reduced by the 1-percent
adjustment under the HAC Reduction Program as described in section
1886(p) of the Act. We also make new technology add-on payments in
accordance with section 1886(d)(5)(K) and (L) of the Act. Finally,
we add the uncompensated care payment to the total claim payment
amount. As noted in the formula above, we take uncompensated care
payments and new technology add-on payments into consideration when
calculating outlier payments.

2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)

a. Calculation of Hospital-Specific Rate

Section 1886(b)(3)(C) of the Act provides that SCHs are paid
based on whichever of the following rates yields the greatest
aggregate payment: The Federal rate; the updated hospital-specific
rate based on FY 1982 costs per discharge; the updated hospital-
specific rate based on FY 1987 costs per discharge; the updated
hospital-specific rate based on FY 1996 costs per discharge; or the
updated hospital-specific rate based on FY 2006 costs per discharge
to determine the rate that yields the greatest aggregate payment.
As noted above, section 205 of the Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10) extended the
MDH program through FY 2017 (that is, for discharges occurring on or
before September 30, 2017). Currently 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 greater of the updated hospital-specific rates based on either
FY 1982, FY 1987 or FY 2002 costs per discharge.
For a more detailed discussion of the calculation of the
hospital-specific rates, we refer readers to the FY 1984 IPPS
interim final rule (48 FR 39772); the April 20, 1990 final rule with
comment period (55 FR 15150); the FY 1991 IPPS final rule (55 FR
35994); and the FY 2001 IPPS final rule (65 FR 47082).

b. Updating the FY 1982, FY 1987, FY 1996, FY 2002 and FY 2006
Hospital-Specific Rate for FY 2017

Section 1886(b)(3)(B)(iv) of the Act provides that the
applicable percentage increase applicable to the hospital-specific
rates for SCHs and MDHs equals the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same
update factor as for all other hospitals subject to the IPPS).
Because the Act sets the update factor for SCHs and MDHs equal to
the update factor for all other IPPS hospitals, the update to the
hospital-specific rates for SCHs and MDHs is subject to the
amendments to section 1886(b)(3)(B) of the Act made by sections
3401(a) and 10319(a) of the Affordable Care Act. Accordingly, the
proposed applicable percentage increases to the hospital-specific
rates applicable to SCHs and MDHs are the following:

[[Page 25277]]

----------------------------------------------------------------------------------------------------------------
Hospital Hospital Hospital did Hospital did
submitted submitted NOT submit NOT submit
quality data quality data quality data quality data
FY 2017 and is a and is NOT a and is a and is NOT a
meaningful EHR meaningful EHR meaningful EHR meaningful EHR
user user user user
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket 2.8 2.8 2.8 2.8
Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit 0.0 0.0 -0.7 -0.7
Quality Data under Section 1886(b)(3)(B)(viii)
of the Act.....................................
Proposed Adjustment for Failure to be a 0.0 -2.1 0.0 -2.1
Meaningful EHR User under Section
1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section -0.5 -0.5 -0.5 -0.5
1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied 1.55 -0.55 0.85 -1.25
to Hospital-Specific Rate......................
----------------------------------------------------------------------------------------------------------------

For a complete discussion of the applicable percentage increase
applied to the hospital-specific rates for SCHs and MDHs, we refer
readers to section IV.B. of the preamble of this proposed rule.
In addition, because SCHs and MDHs use the same MS-DRGs as other
hospitals when they are paid based in whole or in part on the
hospital-specific rate, the hospital-specific rate is adjusted by a
budget neutrality factor to ensure that changes to the MS-DRG
classifications and the recalibration of the MS-DRG relative weights
are made in a manner so that aggregate IPPS payments are unaffected.
Therefore, the hospital-specific rate for an SCH or an MDH is
adjusted by the proposed MS-DRG reclassification and recalibration
budget neutrality factor of 0.999006, as discussed in section III.
of this Addendum. The resulting rate is used in determining the
payment rate that an SCH or MDH will receive for its discharges
beginning on or after October 1, 2016. We note that, in this
proposed rule, for FY 2017, we are not proposing to make a
documentation and coding adjustment to the hospital-specific rate.
We refer readers to section II.D. of the preamble of this proposed
rule for a complete discussion regarding our proposed policies and
previously finalized policies (including our historical adjustments
to the payment rates) relating to the effect of changes in
documentation and coding that do not reflect real changes in case-
mix. Also, as discussed above and in section IV.O. of the preamble
of this proposed rule, we are proposing an adjustment to the
hospital-specific rates using our authority under section
1886(d)(5)(I)(i) of the Act to permanently prospectively remove the
0.2 percent reduction to the rates put in place in FY 2014 to offset
the estimated increase in IPPS expenditures as a result of the 2-
midnight policy. In addition, as discussed above and in section
IV.O. of the preamble of this proposed rule, we are proposing a
temporary one-time prospective increase to the FY 2017 hospital-
specific rates of 0.6 percent by including a temporary one-time
factor of 1.006 in the calculation of the hospital-specific rates,
using our authority under section 1886(d)(5)(I)(i) of the Act, to
address the effects of the 0.2 percent reduction to the rates for
the 2-midnight policy in effect for FY 2014, FY 2015, and FY 2016.

III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2017

The PPS for acute care hospital inpatient capital-related costs
was implemented for cost reporting periods beginning on or after
October 1, 1991. Effective with that cost reporting period, over a
10-year transition period (which extended through FY 2001) the
payment methodology for Medicare acute care hospital inpatient
capital-related costs changed from a reasonable cost-based
methodology to a prospective methodology (based fully on the Federal
rate).
The basic methodology for determining Federal capital
prospective rates is set forth in the regulations at Sec. Sec.
412.308 through 412.352. In this section, we discuss the factors
that we used to determine the proposed capital Federal rate for FY
2017, which would be effective for discharges occurring on or after
October 1, 2016.
The 10-year transition period ended with hospital cost reporting
periods beginning on or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY 2002, all hospitals
(except ``new'' hospitals under Sec. 412.304(c)(2)) are paid based
on the capital Federal rate. For FY 1992, we computed the standard
Federal payment rate for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient capital cost per case by an
actuarial estimate of the increase in Medicare inpatient capital
costs per case. Each year after FY 1992, we update the capital
standard Federal rate, as provided at Sec. 412.308(c)(1), to
account for capital input price increases and other factors. The
regulations at Sec. 412.308(c)(2) also provide that the capital
Federal rate be adjusted annually by a factor equal to the estimated
proportion of outlier payments under the capital Federal rate to
total capital payments under the capital Federal rate. In addition,
Sec. 412.308(c)(3) requires that the capital Federal rate be
reduced by an adjustment factor equal to the estimated proportion of
payments for exceptions under Sec. 412.348. (We note that, as
discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53705),
there is generally no longer a need for an exceptions payment
adjustment factor.) However, in limited circumstances, an additional
payment exception for extraordinary circumstances is provided for
under Sec. 412.348(f) for qualifying hospitals. Therefore, in
accordance with Sec. 412.308(c)(3), an exceptions payment
adjustment factor may need to be applied if such payments are made.
Section 412.308(c)(4)(ii) requires that the capital standard Federal
rate be adjusted so that the effects of the annual DRG
reclassification and the recalibration of DRG weights and changes in
the geographic adjustment factor (GAF) are budget neutral.
Section 412.374 provides for blended payments to hospitals
located in Puerto Rico under the IPPS for acute care hospital
inpatient capital-related costs. Accordingly, historically, under
the capital PPS, we have computed a separate payment rate specific
to hospitals located in Puerto Rico using the same methodology used
to compute the national Federal rate for capital-related costs.
Effective with discharges occurring on or after October 1, 2004, in
conjunction with the change to the operating payment methodology, we
adopted a methodology for computing capital payments made to
hospitals located in Puerto Rico based on a blend of 25 percent of
the Puerto Rico capital rate and 75 percent of the national capital
Federal rate (69 FR 49185). Effective with discharges on or after
January 1, 2016, operating IPPS payments to hospitals located in
Puerto Rico are now based on 100 percent of the Federal rate--the
operating payment methodology is no longer a blend of 75 percent of
the Federal rate and 25 percent of the Puerto Rico rate. Consistent
with historical practice and under the authority of section 1886(g)
of the Act, as discussed in section V.B.3. of the preamble of this
proposed rule, we are proposing that the capital IPPS payments to
hospitals located in Puerto Rico would be based on 100 percent of
the capital Federal rate, effective with discharges on or after
October 1, 2016, and would no longer be based on the current 75/25
blended rate.

A. Determination of the Proposed Federal Hospital Inpatient
Capital-Related Prospective Payment Rate Update

In the discussion that follows, we explain the factors that we
used to determine the proposed capital Federal rate for FY 2017. In
particular, we explain why the proposed FY 2017 capital Federal rate
increases approximately 1.7 percent, compared to the FY 2016 capital
Federal rate. As discussed in the impact analysis in Appendix A to
this proposed rule, we estimate that capital payments per discharge
will increase approximately 2.0 percent during that same period.
Because capital payments constitute approximately 10 percent of
hospital

[[Page 25278]]

payments, a percent change in the capital Federal rate yields only
approximately a 0.1 percent change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

Under Sec. 412.308(c)(1), the capital standard Federal rate is
updated on the basis of an analytical framework that takes into
account changes in a capital input price index (CIPI) and several
other policy adjustment factors. Specifically, we adjust the
projected CIPI rate-of-increase as appropriate each year for case-
mix index-related changes, for intensity, and for errors in previous
CIPI forecasts. The proposed update factor for FY 2017 under that
framework is 0.9 percent based on the best data available at the
time of development of this proposed rule. The proposed update
factor under that framework is based on a projected 1.2 percent
increase in the FY 2010-based CIPI, a 0.0 percentage point
adjustment for intensity, a 0.0 percentage point adjustment for
case-mix, a 0.0 percentage point adjustment for the DRG
reclassification and recalibration, and a forecast error correction
of -0.3 percentage point. As discussed in section III.C. of this
Addendum, we continue to believe that the CIPI is the most
appropriate input price index for capital costs to measure capital
price changes in a given year. We also explain the basis for the FY
2017 CIPI projection in that same section of this Addendum. Below we
describe the policy adjustments that we are proposing to apply in
the update framework for FY 2017.
The case-mix index is the measure of the average DRG weight for
cases paid under the IPPS. Because the DRG weight determines the
prospective payment for each case, any percentage increase in the
case-mix index corresponds to an equal percentage increase in
hospital payments.
The case-mix index can change for any of several reasons:
The average resource use of Medicare patient changes
(``real'' case-mix change);
Changes in hospital documentation and coding of patient
records result in higher-weighted DRG assignments (``coding
effects''); and
The annual DRG reclassification and recalibration
changes may not be budget neutral (``reclassification effect'').
We define real case-mix change as actual changes in the mix (and
resource requirements) of Medicare patients as opposed to changes in
documentation and coding behavior that result in assignment of cases
to higher-weighted DRGs, but do not reflect higher resource
requirements. The capital update framework includes the same case-
mix index adjustment used in the former operating IPPS update
framework (as discussed in the May 18, 2004 IPPS proposed rule for
FY 2005 (69 FR 28816)). (We no longer use an update framework to
make a recommendation for updating the operating IPPS standardized
amounts as discussed in section II. of Appendix B to the FY 2006
IPPS final rule (70 FR 47707).)
For FY 2017, we are projecting a 0.5 percent total increase in
the case-mix index. We estimated that the real case-mix increase
will equal 0.5 percent for FY 2017. The net adjustment for change in
case-mix is the difference between the projected real increase in
case-mix and the projected total increase in case-mix. Therefore, we
are proposing the net adjustment for case-mix change in FY 2017 of
0.0 percentage point.
The capital update framework also contains an adjustment for the
effects of DRG reclassification and recalibration. This adjustment
is intended to remove the effect on total payments of prior year's
changes to the DRG classifications and relative weights, in order to
retain budget neutrality for all case-mix index-related changes
other than those due to patient severity of illness. Due to the lag
time in the availability of data, there is a 2-year lag in data used
to determine the adjustment for the effects of DRG reclassification
and recalibration. For example, we have data available to evaluate
the effects of the FY 2015 DRG reclassification and recalibration as
part of our update for FY 2017. We estimate that FY 2015 DRG
reclassification and recalibration resulted in no change in the
case-mix when compared with the case-mix index that would have
resulted if we had not made the reclassification and recalibration
changes to the DRGs. Therefore, we are proposing a 0.0 percentage
point adjustment for reclassification and recalibration in the
update framework for FY 2017.
The capital update framework also contains an adjustment for
forecast error. The input price index forecast is based on
historical trends and relationships ascertainable at the time the
update factor is established for the upcoming year. In any given
year, there may be unanticipated price fluctuations that may result
in differences between the actual increase in prices and the
forecast used in calculating the update factors. In setting a
prospective payment rate under the framework, we make an adjustment
for forecast error only if our estimate of the change in the capital
input price index for any year is off by 0.25 percentage point or
more. There is a 2-year lag between the forecast and the
availability of data to develop a measurement of the forecast error.
Historically, when a forecast error of the CIPI is greater than 0.25
percentage point in absolute terms, it is reflected in the update
recommended under this framework. A forecast error of -0.3
percentage point was calculated for the FY 2015 update, for which
there are historical data. That is, current historical data indicate
that the forecasted FY 2015 CIPI (1.5 percent) used in calculating
the FY 2015 update factor was 0.3 percentage points higher than
actual realized price increases (1.2 percent). This over-prediction
was primarily due to prices from municipal bond yields declining in
2015 whereas the forecast projected an increase. Therefore, we are
proposing to make a -0.3 percentage point adjustment for forecast
error in the update for FY 2017.
Under the capital IPPS update framework, we also make an
adjustment for changes in intensity. Historically, we calculated
this adjustment using the same methodology and data that were used
in the past under the framework for operating IPPS. The intensity
factor for the operating update framework reflected how hospital
services are utilized to produce the final product, that is, the
discharge. This component accounts for changes in the use of
quality-enhancing services, for changes within DRG severity, and for
expected modification of practice patterns to remove noncost-
effective services. Our intensity measure is based on a 5-year
average.
We calculate case-mix constant intensity as the change in total
cost per discharge, adjusted for price level changes (the CPI for
hospital and related services) and changes in real case-mix. Without
reliable estimates of the proportions of the overall annual
intensity increases that are due, respectively, to ineffective
practice patterns and the combination of quality-enhancing new
technologies and complexity within the DRG system, we assume that
one-half of the annual increase is due to each of these factors. The
capital update framework thus provides an add-on to the input price
index rate of increase of one-half of the estimated annual increase
in intensity, to allow for increases within DRG severity and the
adoption of quality-enhancing technology.
In this proposed rule, we are continuing to use a Medicare-
specific intensity measure that is based on a 5-year adjusted
average of cost per discharge for FY 2017 (we refer readers to the
FY 2011 IPPS/LTCH PPS final rule (75 FR 50436) for a full
description of our Medicare-specific intensity measure).
Specifically, for FY 2017, we are using an intensity measure that is
based on an average of cost per discharge data from the 5-year
period beginning with FY 2010 and extending through FY 2014. Based
on these data, we estimated that case-mix constant intensity
declined during FYs 2010 through 2014. In the past, when we found
intensity to be declining, we believed a zero (rather than a
negative) intensity adjustment was appropriate. Consistent with this
approach, because we estimate that intensity declined during that 5-
year period, we believe it is appropriate to continue to apply a
zero intensity adjustment for FY 2017. Therefore, we are proposing
to make a 0.0 percentage point adjustment for intensity in the
update for FY 2017.
Above, we described the basis of the components used to develop
the proposed 0.9 percent capital update factor under the capital
update framework for FY 2017 as shown in the following table.

Proposed CMS FY 2017 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------

------------------------------------------------------------------------
Capital Input Price Index *............................. 1.2
Intensity:.............................................. 0.0
Case-Mix Adjustment Factors:
Real Across DRG Change.............................. 0.5
Projected Case-Mix Change........................... 0.5
Subtotal........................................ 1.2
Effect of FY 2015 Reclassification and Recalibration.... 0.0
Forecast Error Correction............................... -0.3
---------------
Total Update.................................... 0.9
------------------------------------------------------------------------
* The capital input price index represents the FY 2010-based CIPI.

[[Page 25279]]

b. Comparison of CMS and MedPAC Update Recommendation

In its March 2016 Report to Congress, MedPAC did not make a
specific update recommendation for capital IPPS payments for FY
2017. (We refer readers to MedPAC's Report to the Congress: Medicare
Payment Policy, March 2016, Chapter 3, available on the Web site at:
http://www.medpac.gov.)

2. Proposed Outlier Payment Adjustment Factor

Section 412.312(c) establishes a unified outlier payment
methodology for inpatient operating and inpatient capital-related
costs. A single set of thresholds is used to identify outlier cases
for both inpatient operating and inpatient capital-related payments.
Section 412.308(c)(2) provides that the standard Federal rate for
inpatient capital-related costs be reduced by an adjustment factor
equal to the estimated proportion of capital-related outlier
payments to total inpatient capital-related PPS payments. The
outlier thresholds are set so that operating outlier payments are
projected to be 5.1 percent of total operating IPPS DRG payments.
For FY 2016, we estimated that outlier payments for capital
would equal 6.35 percent of inpatient capital-related payments based
on the capital Federal rate in FY 2016. Based on the proposed
thresholds as set forth in section II.A. of this Addendum, we
estimate that outlier payments for capital-related costs will equal
6.26 percent for inpatient capital-related payments based on the
proposed capital Federal rate in FY 2017. Therefore, we are
proposing to apply an outlier adjustment factor of 0.9374 in
determining the capital Federal rate for FY 2017. Thus, we estimate
that the percentage of capital outlier payments to total capital
Federal rate payments for FY 2017 will be lower than the percentage
for FY 2016.
The outlier reduction factors are not built permanently into the
capital rates; that is, they are not applied cumulatively in
determining the capital Federal rate. The proposed FY 2017 outlier
adjustment of 0.9374 is a 0.10 percent change from the FY 2016
outlier adjustment of 0.9365. Therefore, the net change in the
outlier adjustment to the proposed capital Federal rate for FY 2017
is 1.0010 (0.9374/0.9365). Thus, the proposed outlier adjustment
will increase the FY 2017 capital Federal rate by 0.10 percent
compared to the FY 2016 outlier adjustment.

3. Proposed Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the GAF

Section 412.308(c)(4)(ii) requires that the capital Federal rate
be adjusted so that aggregate payments for the fiscal year based on
the capital Federal rate after any changes resulting from the annual
DRG reclassification and recalibration and changes in the GAF are
projected to equal aggregate payments that would have been made on
the basis of the capital Federal rate without such changes. Because
we are proposing to determine capital IPPS payments to hospitals
located in Puerto Rico based on 100 percent of the capital Federal
rate beginning in FY 2017, we have not calculated a separate GAF for
Puerto Rico, and therefore, we are not applying a separate budget
neutrality adjustment for the Puerto Rico GAF. Similarly, the budget
neutrality factor for DRG reclassifications and recalibration
nationally is applied in determining the capital IPPS Federal rate,
and is applicable for all hospitals, including those hospitals
located in Puerto Rico.
To determine the proposed national capital rate factors for FY
2017, we compared estimated aggregate capital Federal rate payments
based on the FY 2016 MS-DRG classifications and relative weights and
the FY 2016 GAF to estimated aggregate capital Federal rate payments
based on the FY 2016 MS-DRG classifications and relative weights and
the proposed FY 2017 GAFs. To achieve budget neutrality for the
changes in the national GAFs, based on calculations using updated
data, we are proposing to apply an incremental budget neutrality
adjustment factor of 0.9997 for FY 2017 to the previous cumulative
FY 2016 adjustment factor of 0.9860, yielding an adjustment factor
of 0.9857 through FY 2017.
We then compared estimated aggregate capital Federal rate
payments based on the FY 2016 MS-DRG relative weights and the
proposed FY 2017 GAFs to estimated aggregate capital Federal rate
payments based on the cumulative effects of the proposed FY 2017 MS-
DRG classifications and relative weights and the proposed FY 2017
GAFs. The proposed incremental adjustment factor for DRG
classifications and changes in relative weights is 0.9996. The
proposed cumulative adjustment factor for MS-DRG classifications and
proposed changes in relative weights and for proposed changes in the
GAFs through FY 2017 is 0.9853. (We note that all the values are
calculated with unrounded numbers.)
The GAF/DRG budget neutrality adjustment factors are built
permanently into the capital rates; that is, they are applied
cumulatively in determining the capital Federal rate. This follows
the requirement under Sec. 412.308(c)(4)(ii) that estimated
aggregate payments each year be no more or less than they would have
been in the absence of the annual DRG reclassification and
recalibration and changes in the GAFs.
The methodology used to determine the recalibration and
geographic adjustment factor (GAF/DRG) budget neutrality adjustment
is similar to the methodology used in establishing budget neutrality
adjustments under the IPPS for operating costs. One difference is
that, under the operating IPPS, the budget neutrality adjustments
for the effect of geographic reclassifications are determined
separately from the effects of other changes in the hospital wage
index and the MS-DRG relative weights. Under the capital IPPS, there
is a single GAF/DRG budget neutrality adjustment factor for changes
in the GAF (including geographic reclassification) and the MS-DRG
relative weights. In addition, there is no adjustment for the
effects that geographic reclassification has on the other payment
parameters, such as the payments for DSH or IME.
The proposed cumulative adjustment factor of 0.9993 (the product
of the proposed incremental national GAF budget neutrality
adjustment factor of 0.9997 and the proposed incremental DRG budget
neutrality adjustment factor of 0.9996) accounts for the MS-DRG
reclassifications and recalibration and for changes in the GAFs. It
also incorporates the effects on the GAFs of FY 2017 geographic
reclassification decisions made by the MGCRB compared to FY 2016
decisions. However, it does not account for changes in payments due
to changes in the DSH and IME adjustment factors.
As discussed in section V.C. of the preamble of this proposed
rule, we are proposing to make an adjustment of (1/0.998) to the
proposed national capital Federal rate to remove the 0.2 percent
reduction (an adjustment factor of 0.998) to the national capital
Federal rate to offset the estimated increase in capital IPPS
expenditures associated with the 2-midnight policy. This is
consistent with the proposed adjustment to the operating IPPS
standardized amount and the hospital-specific payment rates. In
addition, consistent with the approach proposed for the operating
IPPS standardized amount and hospital-specific payment rates and for
the reasons discussed in sections IV.O. and V.C. of the preamble of
this proposed rule, we are proposing a one-time prospective
adjustment of 1.006 in FY 2017 to the proposed national capital
Federal rate to address the effect of the 0.2 percent reduction to
the national capital Federal rates in effect for FY 2014, FY 2015,
and FY 2016. We also are proposing to remove this one-time
prospective adjustment through an adjustment of (1/1.006) to the
national capital Federal rate in FY 2018, consistent with the
approach proposed for the operating IPPS standardized amount and
hospital-specific payment rates (as discussed in section IV.O. of
the preamble of this proposed rule). We refer readers to sections
IV.O. and V.C. of the preamble of this proposed rule for a complete
discussion of these proposals.

4. Proposed Capital Federal Rate for FY 2017

For FY 2016, we established a capital Federal rate of $438.75
(as revised, in the FY 2016 IPPS/LTCH PPS correction notice CMS-
1632-CN2 (80 FR 60060 and 60061)). We are proposing to establish an
update of 0.9 percent in determining the FY 2017 capital Federal
rate for all hospitals. As a result of this proposed update, the
proposed budget neutrality factors discussed earlier, and the
proposed adjustments to remove the 0.2 percent reductions (both the
(1/0.998) adjustment to permanently remove the 0.2 percent reduction
and the one-time 0.6 percent adjustment) resulting from the 2-
midnight policy, we are proposing to establish a national capital
Federal rate of $446.35 for FY 2017. The proposed national capital
Federal rate for FY 2017 was calculated as follows:
The proposed FY 2017 update factor is 1.009, that is,
the proposed update is 0.9 percent.
The proposed FY 2017 budget neutrality adjustment
factor that is applied to the capital Federal rate for changes in
the MS-DRG classifications and relative weights and changes in the
GAFs is 0.9993.
The proposed FY 2017 outlier adjustment factor is
0.9374.

[[Page 25280]]

The proposed 2-midnight policy adjustment to
permanently remove the 0.2 percent reduction is (1/0.998).
The proposed 2-midnight one-time policy adjustment is
1.006.
(We note that, as discussed in section V.C. of the preamble of
this proposed rule, we are not making an additional MS-DRG
documentation and coding adjustment to the proposed capital IPPS
Federal rate for FY 2017.)
Because the proposed FY 2017 capital Federal rate has already
been adjusted for differences in case-mix, wages, cost-of-living,
indirect medical education costs, and payments to hospitals serving
a disproportionate share of low-income patients, we are not
proposing to make additional adjustments in the capital Federal rate
for these factors, other than the budget neutrality factor for
changes in the MS-DRG classifications and relative weights and for
changes in the GAFs.
We are providing the following chart that shows how each of the
proposed factors and adjustments for FY 2017 affects the computation
of the proposed FY 2017 national capital Federal rate in comparison
to the FY 2016 national capital Federal rate. The proposed FY 2017
update factor has the effect of increasing the capital Federal rate
by 0.9 percent compared to the FY 2016 capital Federal rate. The
proposed GAF/DRG budget neutrality adjustment factor has the effect
of decreasing the proposed capital Federal rate by 0.07 percent. The
proposed FY 2017 outlier adjustment factor has the effect of
increasing the proposed capital Federal rate by 0.10 percent
compared to the FY 2016 capital Federal rate. The proposed permanent
2-midnight policy adjustment has the effect of increasing the
proposed capital Federal rate by 0.2 percent and the proposed
temporary 2-midnight policy adjustment has the effect of increasing
the proposed capital Federal rate by 0.6 percent. The combined
effect of all the proposed changes would increase the proposed
national capital Federal rate by approximately 1.7 percent compared
to the FY 2016 national capital Federal rate.

Comparison of Factors and Adjustments: FY 2016 Capital Federal Rate and Proposed FY 2017 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
Proposed FY
FY 2016 2017 Change Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\............................... 1.0130 1.009 1.009 0.9
GAF/DRG Adjustment Factor \1\................... 0.9976 0.9993 0.9993 -0.07
Outlier Adjustment Factor \2\................... 0.9365 0.9374 1.0010 0.10
Permanent 2-midnight Policy Adjustment Factor... N/A 1.002 1.002 0.2
One-Time 2-midnight Policy Adjustment Factor.... N/A 1.006 1.006 0.6
Capital Federal Rate............................ $438.75 $446.35 1.0173 1.73
----------------------------------------------------------------------------------------------------------------
\1\ The proposed update factor and the proposed GAF/DRG budget neutrality adjustment factors are built
permanently into the capital Federal rates. Thus, for example, the incremental change from FY 2016 to FY 2017
resulting from the application of the proposed 0.9993 GAF/DRG budget neutrality adjustment factor for FY 2017
is a net change of 0.9993 (or -0.07 percent).
\2\ The proposed outlier reduction factor is not built permanently into the capital Federal rate; that is, the
factor is not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change
resulting from the application of the proposed FY 2017 outlier adjustment factor is 0.9374/0.9365, or 1.0010
(or 0.10 percent).

B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2017

For purposes of calculating payments for each discharge during
FY 2017, the capital Federal rate is adjusted as follows: (Standard
Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located
in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment
Factor, if applicable). The result is the adjusted capital Federal
rate.
Hospitals also may receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year.
Section 412.312(c) provides for a single set of thresholds to
identify outlier cases for both inpatient operating and inpatient
capital-related payments. The proposed outlier thresholds for FY
2017 are in section II.A. of this Addendum. For FY 2017, a case
would qualify as a cost outlier if the cost for the case plus the
(operating) IME and DSH payments (including both the empirically
justified Medicare DSH payment and the estimated uncompensated care
payment, as discussed in section II.A.4.g.(1) of this Addendum) is
greater than the prospective payment rate for the MS-DRG plus the
proposed fixed-loss amount of $23,681.
Currently, as provided under Sec. 412.304(c)(2), we pay a new
hospital 85 percent of its reasonable costs during the first 2 years
of operation unless it elects to receive payment based on 100
percent of the capital Federal rate. Effective with the third year
of operation, we pay the hospital based on 100 percent of the
capital Federal rate (that is, the same methodology used to pay all
other hospitals subject to the capital PPS).

C. Capital Input Price Index

1. Background

Like the operating input price index, the capital input price
index (CIPI) is a fixed-weight price index that measures the price
changes associated with capital costs during a given year. The CIPI
differs from the operating input price index in one important
aspect--the CIPI reflects the vintage nature of capital, which is
the acquisition and use of capital over time. Capital expenses in
any given year are determined by the stock of capital in that year
(that is, capital that remains on hand from all current and prior
capital acquisitions). An index measuring capital price changes
needs to reflect this vintage nature of capital. Therefore, the CIPI
was developed to capture the vintage nature of capital by using a
weighted-average of past capital purchase prices up to and including
the current year.
We periodically update the base year for the operating and
capital input price indexes to reflect the changing composition of
inputs for operating and capital expenses. In the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50603 through 50607), we rebased and revised
the CIPI to a FY 2010 base year to reflect the more current
structure of capital costs in hospitals. For a complete discussion
of this rebasing, we refer readers to the FY 2014 IPPS/LTCH PPS
final rule.

2. Forecast of the CIPI for FY 2017

Based on the latest forecast by IHS Global Insight, Inc. (first
quarter of 2016), we are forecasting the FY 2010-based CIPI to
increase 1.2 percent in FY 2017. This reflects a projected 1.6
percent increase in vintage-weighted depreciation prices (building
and fixed equipment, and movable equipment), and a projected 2.6
percent increase in other capital expense prices in FY 2017,
partially offset by a projected 1.5 percent decline in vintage-
weighted interest expense prices in FY 2017. The weighted average of
these three factors produces the forecasted 1.2 percent increase for
the FY 2010-based CIPI as a whole in FY 2017.

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Proposed
Rate-of-Increase Percentages for FY 2017

Payments for services furnished in children's hospitals, 11
cancer hospitals, and hospitals located outside the 50 States, the
District of Columbia and Puerto Rico (that is, short-term acute care
hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa) that are excluded from the IPPS
are made on the basis of reasonable costs based on the hospital's
own historical cost experience, subject to a rate-of-increase
ceiling. A per discharge limit (the target amount as defined in
Sec. 413.40(a) of the regulations) is set for each hospital based
on the hospital's own cost experience in its base year, and updated
annually by a rate-of-increase percentage. (We note that, in
accordance with Sec. 403.752(a), RNHCIs are also subject to the

[[Page 25281]]

rate-of-increase limits established under Sec. 413.40 of the
regulations.)
In this proposed rule, the FY 2017 rate-of-increase percentage
for updating the target amounts for the 11 cancer hospitals,
children's hospitals, the short-term acute care hospitals located in
the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and
American Samoa, and RNHCIs is the estimated percentage increase in
the IPPS operating market basket for FY 2017, in accordance with
applicable regulations at Sec. 413.40. Based on IHS Global Insight,
Inc.'s 2016 first quarter forecast, we estimated that the FY 2010-
based IPPS operating market basket update for FY 2017 would be 2.8
percent (that is, the estimate of the market basket rate-of-
increase). However, we proposed that if more recent data become
available for the final rule, we would use them to calculate the
IPPS operating market basket update for FY 2017. Therefore, based on
IHS Global Insight, Inc.'s 2016 first quarter forecast, with
historical data through 2015 fourth quarter, we estimate that the FY
2010-based IPPS operating market basket update for FY 2017 is 2.8
percent (that is, the estimate of the market basket rate-of-
increase). For children's hospitals, the 11 cancer hospitals,
hospitals located outside the 50 States, the District of Columbia
and Puerto Rico (that is, short-term acute care hospitals located in
the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and
American Samoa), and RNHCIs, the proposed FY 2017 rate-of-increase
percentage that would be applied to the FY 2016 target amounts in
order to determine the proposed FY 2017 target amounts is 2.8
percent.
The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually.
We refer readers to section VII. of the preamble of this proposed
rule and section V. of the Addendum to this proposed rule for the
proposed update changes to the Federal payment rates for LTCHs under
the LTCH PPS for FY 2017. The annual updates for the IRF PPS and the
IPF PPS are issued by the agency in separate Federal Register
documents.

V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 2017

A. Proposed LTCH PPS Standard Federal Payment Rate for FY 2017

1. Background

In section VII. of the preamble of this proposed rule, we
discuss our proposed annual updates to the payment rates, factors,
and specific policies under the LTCH PPS for FY 2017.
Under Sec. 412.523(c)(3)(ii) of the regulations, for LTCH PPS
rate years beginning RY 2004 through RY 2006, we updated the
standard Federal rate annually by a factor to adjust for the most
recent estimate of the increases in prices of an appropriate market
basket of goods and services for LTCHs. We established this policy
of annually updating the standard Federal rate because, at that
time, we believed that was the most appropriate method for updating
the LTCH PPS standard Federal rate for years after the initial
implementation of the LTCH PPS in FY 2003. Therefore, under Sec.
412.523(c)(3)(ii), for RYs 2004 through 2006, the annual update to
the LTCH PPS standard Federal rate was equal to the previous rate
year's Federal rate updated by the most recent estimate of increases
in the appropriate market basket of goods and services included in
covered inpatient LTCH services.
In determining the annual update to the standard Federal rate
for RY 2007, based on our ongoing monitoring activity, we believed
that, rather than solely using the most recent estimate of the LTCH
PPS market basket update as the basis of the annual update factor,
it was appropriate to adjust the standard Federal rate to account
for the effect of documentation and coding in a prior period that
was unrelated to patients' severity of illness (71 FR 27818).
Accordingly, we established under Sec. 412.523(c)(3)(iii) that the
annual update to the standard Federal rate for RY 2007 was zero
percent based on the most recent estimate of the LTCH PPS market
basket at that time, offset by an adjustment to account for changes
in case-mix in prior periods due to the effect of documentation and
coding that were unrelated to patients' severity of illness. For RY
2008 through FY 2011, we also made an adjustment to account for the
effect of documentation and coding that was unrelated to patients'
severity of illness in establishing the annual update to the
standard Federal rate as set forth in the regulations at Sec. Sec.
412.523(c)(3)(iv) through (c)(3)(vii). For FYs 2012 through 2016, we
updated the standard Federal rate by the most recent estimate of the
LTCH PPS market basket at that time, including additional statutory
adjustments required by section 1886(m)(3)(A) of the Act as set
forth in the regulations at Sec. Sec. 412.523(c)(3)(viii) through
(c)(3)(ix).
Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of
the Affordable Care Act, specifies that, for rate year 2010 and each
subsequent rate year, any annual update to the standard Federal rate
shall be reduced:
For rate year 2010 through 2019, by the other
adjustment specified in section 1886(m)(3)(A)(ii) and (m)(4) of the
Act; and
For rate year 2012 and each subsequent year, by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II)
of the Act (which we refer to as ``the multifactor productivity
(MFP) adjustment'') as discussed in section VII.E.2. of the preamble
of this proposed rule.
Section 1886(m)(3)(B) of the Act provides that the application
of paragraph (3) of section 1886(m) of the Act may result in the
annual update being less than zero for a rate year, and may result
in payment rates for a rate year being less than such payment rates
for the preceding rate year. (As noted in section VII.E.2.a. of the
preamble of this proposed rule, the annual update to the LTCH PPS
occurs on October 1 and we have adopted the term ``fiscal year''
(FY) rather than ``rate year'' (RY) under the LTCH PPS beginning
October 1, 2010. Therefore, for purposes of clarity, when discussing
the annual update for the LTCH PPS, including the provisions of the
Affordable Care Act, we use the term ``fiscal year'' rather than
``rate year'' for 2011 and subsequent years.)
For FY 2016, consistent with our historical practice, we
established an update to the LTCH PPS standard Federal payment rate
based on the full estimated LTCH PPS market basket increase of 2.4
percent and the 0.7 percentage point reductions required by sections
1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(E) of the
Act. Accordingly, at Sec. 412.523(c)(3)(xii) of the regulations, we
established an annual update of 1.7 percent to the standard Federal
payment rate for FY 2016 (80 FR 49636 through 49637). In addition,
as discussed in that same final rule, the annual update for FY 2016
was further reduced by 2.0 percentage points for LTCHs that failed
to submit quality reporting data in accordance with the requirements
of the LTCH QRP under section 1886(m)(5) of the Act.
For FY 2017, in this proposed rule, based on the best available
data, we are proposing an annual update to the LTCH PPS standard
Federal payment rate of 1.45 percent, which is based on the full
estimated increase in the LTCH PPS market basket of 2.7 percent,
less the MFP adjustment of 0.5 percentage point consistent with
section 1886(m)(3)(A)(i) of the Act, and less the 0.75 percentage
point required by sections 1886(m)(3)(A)(ii) and (m)(4)(F) of the
Act. (As discussed in section VII.E. of the preamble of this
proposed rule, we are proposing to rebase and revise the 2009-based
LTCH-specific market basket to reflect a 2013 base year.) For LTCHs
that fail to submit the required quality reporting data for FY 2017
in accordance with the LTCH QRP, the annual update is further
reduced by 2.0 percentage points as required by section 1886(m)(5)
of the Act (as discussed in greater detail in section VII.E.2.c. of
the preamble of this proposed rule). Accordingly, we are proposing
an annual update to the LTCH PPS standard Federal payment rate of -
0.55 percent for LTCHs that fail to submit the required quality
reporting data for FY 2017. This proposed -0.55 percent update was
calculated based on the full estimated increase in the LTCH PPS
market basket of 2.7 percent, less a MFP adjustment of 0.5
percentage point, less an additional adjustment of 0.75 percentage
point required by the statute, and less 2.0 percentage points for
failure to submit quality reporting data as required by section
1886(m)(5) of the Act.

2. Development of the Proposed FY 2017 LTCH PPS Standard Federal
Payment Rate

We continue to believe that the annual update to the LTCH PPS
standard Federal payment rate should be based on the most recent
estimate of the increase in the LTCH PPS market basket, including
any statutory adjustments. Consistent with our historical practice,
for FY 2017, we are proposing to apply the annual update to the LTCH
PPS standard Federal payment rate from the previous year.
Furthermore, in determining the LTCH PPS standard Federal payment
rate for FY 2017, we also are proposing to make certain regulatory
adjustments, consistent with past practices. Specifically, in
determining the proposed FY 2017 LTCH PPS standard Federal payment
rate, we are proposing to apply a budget neutrality adjustment
factor for the proposed changes related to the area wage adjustment
(that is, changes to the wage data and labor-related share) in
accordance with Sec. 412.523(d)(4). We also are proposing to use
more recent data to

[[Page 25282]]

determine the update to the LTCH PPS standard Federal payment rate
for FY 2017 in the final rule.
For FY 2016, we established an annual update to the LTCH PPS
standard Federal payment rate of 1.7 percent based on the full
estimated LTCH PPS market basket increase of 2.4 percent, less the
MFP adjustment of 0.5 percentage point consistent with section
1886(m)(3)(A)(i) of the Act and less the 0.2 percentage point
required by sections 1886(m)(3)(A)(ii) and (m)(4)(E) of the Act.
Accordingly, at Sec. 412.523(c)(3)(xii), we established an annual
update to the LTCH PPS standard Federal payment rate for FY 2015 of
1.7 percent. That is, we applied an update factor of 1.017 to the FY
2015 Federal rate of $41,043.71 to determine the FY 2016 LTCH PPS
standard Federal payment rate. We also applied an area wage level
budget neutrality factor for FY 2016 of 1.000513 to the LTCH PPS
standard Federal payment rate to ensure that any changes to the area
wage level adjustment would not result in any change in estimated
aggregate LTCH PPS payments. Consequently, we established a LTCH PPS
standard Federal payment rate for FY 2016 of $41,762.85 (calculated
as $41,043.71 x 1.017 x 1.000513) (80 FR 49797).
In this proposed rule, we are proposing an annual update to the
LTCH PPS standard Federal payment rate of 1.45 percent, which was
determined using the methodology previously described. Accordingly,
under Sec. 412.523(c)(3)(xiii), we are proposing to apply a factor
of 1.0145 to the FY 2017 LTCH PPS standard Federal payment rate of
$41,762.85 to determine the proposed FY 2017 LTCH PPS standard
Federal payment rate. These factors are based on IGI's first quarter
2016 forecast, which are the best available data at this time. For
LTCHs that fail to submit quality reporting data for FY 2017 under
the LTCH QRP, under proposed Sec. 412.523(c)(3)(xiii), applied in
conjunction with the provisions of Sec. 412.523(c)(4), we are
proposing to reduce the annual update to the LTCH PPS standard
Federal payment rate by an additional 2.0 percentage points,
consistent with section 1886(m)(5) of the Act. In those cases, the
LTCH PPS standard Federal payment rate is updated by -0.55 percent
(that is, a proposed update factor of 0.9945) for FY 2017 for LTCHs
that fail to submit the required quality reporting data for FY 2017
as required under the LTCH QRP. Consistent with Sec. 412.523(d)(4),
we also are proposing to apply an area wage level budget neutrality
factor to the FY 2017 LTCH PPS standard Federal payment rate of
0.998723, which was determined using the methodology described below
in section V.B.4. of this Addendum. We are proposing to apply this
area wage level budget neutrality factor to the FY 2017 LTCH PPS
standard Federal payment rate to ensure that any proposed changes to
the area wage level adjustment (that is, the proposed annual update
of the wage index values and labor-related share) will not result in
any change (increase or decrease) in estimated aggregate LTCH PPS
standard Federal payment rate payments. Accordingly, we are
proposing a LTCH PPS standard Federal payment rate of $42,314.31
(calculated as $41,762.85 x 1.0145 x 0.998723) for FY 2017. For
LTCHs that fail to submit quality reporting data for FY 2017 in
accordance with the requirements of the LTCHQRP under section
1886(m)(5) of the Act, we are proposing a LTCH PPS standard Federal
payment rate of $41,480.12 (calculated as $41,762.85x 0.9945 x
0.998723) for FY 2017. We note, as discussed in section VII.B. of
the preamble of this proposed rule, under our application of the
site neutral payment rate required under section 1886(m)(6) of the
Act, this LTCH PPS standard Federal payment rate will only be used
to determine payments for LTCH PPS standard Federal payment rate
cases (that is, those LTCH PPS cases that meet the statutory
criteria to be excluded from the site neutral payment rate).

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for
FY 2017

1. Background

Under the authority of section 123 of the BBRA, as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS standard Federal payment rate to account for differences in LTCH
area wage levels under Sec. 412.525(c). The labor-related share of
the LTCH PPS standard Federal payment rate is adjusted to account
for geographic differences in area wage levels by applying the
applicable LTCH PPS wage index. The applicable LTCH PPS wage index
is computed using wage data from inpatient acute care hospitals
without regard to reclassification under section 1886(d)(8) or
section 1886(d)(10) of the Act.
When we implemented the LTCH PPS, we established a 5-year
transition to the full area wage level adjustment. The area wage
level adjustment was completely phased-in for cost reporting periods
beginning in FY 2007. Therefore, for cost reporting periods
beginning on or after October 1, 2006, the applicable LTCH area wage
index values are the full LTCH PPS area wage index values calculated
based on acute care hospital inpatient wage index data without
taking into account geographic reclassification under section
1886(d)(8) and section 1886(d)(10) of the Act. For additional
information on the phase-in of the area wage level adjustment under
the LTCH PPS, we refer readers to the August 30, 2002 LTCH PPS final
rule (67 FR 56015 through 56019) and the RY 2008 LTCH PPS final rule
(72 FR 26891).

2. Proposed Geographic Classifications (Labor Market Areas) for the
LTCH PPS Standard Federal Payment Rate

In adjusting for the differences in area wage levels under the
LTCH PPS, the labor-related portion of an LTCH's Federal prospective
payment is adjusted by using an appropriate area wage index based on
the geographic classification (labor market area) in which the LTCH
is located. Specifically, the application of the LTCH PPS area wage
level adjustment under existing Sec. 412.525(c) is made based on
the location of the LTCH--either in an ``urban area,'' or a ``rural
area,'' as defined in Sec. 412.503. Under Sec. 412.503, an ``urban
area'' is defined as a Metropolitan Statistical Area (MSA) (which
includes a Metropolitan division, where applicable), as defined by
the Executive OMB and a ``rural area'' is defined as any area
outside of an urban area. (Information on OMB's MSA delineations
based on the 2010 standards can be found at: http://www.whitehouse.gov/sites/default/files/omb/assets/fedreg_2010/06282010_metro_standards-Complete.pdf).
The CBSA-based geographic classifications (labor market area
definitions) currently used under the LTCH PPS, effective for
discharges occurring on or after October 1, 2014, are based on the
OMB labor market area delineations based on the 2010 Decennial
Census data. The current statistical areas (which were implemented
beginning with FY 2015) are based on revised OMB delineations issued
on February 28, 2013, in OMB Bulletin No. 13-01. We adopted these
labor market area delineations because they are based on the best
available data that reflect the local economies and area wage levels
of the hospitals that are currently located in these geographic
areas. We also believe that these OMB delineations will ensure that
the LTCH PPS area wage level adjustment most appropriately accounts
for and reflects the relative hospital wage levels in the geographic
area of the hospital as compared to the national average hospital
wage level. We noted that this policy was consistent with the IPPS
policy adopted in FY 2015 under Sec. 412.64(b)(1)(ii)(D) of the
regulations (79 FR 49951 through 49963). (For additional information
on the CBSA-based labor market area (geographic classification)
delineations currently used under the LTCH PPS and the history of
the labor market area definitions used under the LTCH PPS, we refer
readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50180 through
50185).)
In general, it is our historical practice to update the CBSA-
based labor market area delineations annually based on the most
recent updates issued by OMB. Generally, OMB issues major revisions
to statistical areas every 10 years, based on the results of the
decennial census. However, OMB occasionally issues minor updates and
revisions to statistical areas in the years between the decennial
censuses. On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which
provides updates to and supersedes OMB Bulletin No. 13-01 that was
issued on February 28, 2013. The attachment to OMB Bulletin No. 15-
01 provides detailed information on the update to statistical areas
since February 28, 2013. As discussed in section III.A.2. of the
preamble of this proposed rule, the updates provided in OMB Bulletin
No. 15-01 are based on the application of the 2010 Standards for
Delineating Metropolitan and Micropolitan Statistical Areas to
Census Bureau population estimates for July 1, 2012 and July 1,
2013. A copy of this bulletin may be obtained on the Web site at:
https://www.whitehouse.gov/omb/bulletins_/.
OMB Bulletin No. 15-01 made the following changes that are
relevant to the LTCH PPS CBSA-based labor market area (geographic
classification) delineations:
Garfield County, OK, with principal city Enid, OK,
which was a Micropolitan (geographically rural) area, now qualifies
as an urban area under new CBSA 21420 entitled Enid, OK.
The county of Bedford City, VA, a component of the
Lynchburg, VA CBSA

[[Page 25283]]

31340, changed to town status and is added to Bedford County.
Therefore, the county of Bedford City is now part of the county of
Bedford, VA. The CBSA remains Lynchburg, VA, 31340.
The name of Macon, GA, CBSA 31420, as well as a
principal city of the Macon-Warner Robins, GA combined statistical
area, is now Macon-Bibb County, GA. The CBSA code remains as 31420.
We believe that these revisions to the CBSA-based labor market
area delineations will ensure that the LTCH PPS area wage level
adjustment most appropriately accounts for and reflects the relative
hospital wage levels in the geographic area of the hospital as
compared to the national average hospital wage level based on the
best available data that reflect the local economies and area wage
levels of the hospitals that are currently located in these
geographic areas and, therefore, we are proposing to adopt them
under the LTCH PPS, effective October 1, 2016. Accordingly, the
proposed FY 2017 LTCH PPS wage index values in Tables 12A and 12B
listed in section VI. of the Addendum of this proposed rule (which
are available via the Internet on the CMS Web site) reflect the
revisions to the CBSA-based labor market area delineations described
above. We note that, as discussed in section III.C.2. of the
preamble of this proposed rule, the revisions to the CBSA-based
delineations also are proposed for adoption under the IPPS,
effective beginning October 1, 2016.

3. Proposed Labor-Related Share for the LTCH PPS Standard Federal
Payment Rate

Under the payment adjustment for the differences in area wage
levels under Sec. 412.525(c), the labor-related share of an LTCH's
standard Federal payment rate payment is adjusted by the applicable
wage index for the labor market area in which the LTCH is located.
The LTCH PPS labor-related share currently represents the sum of the
labor-related portion of operating costs (Wages and Salaries;
Employee Benefits; Professional Fees Labor-Related, Administrative
and Business Support Services; and All-Other: Labor-Related
Services) and a labor-related portion of capital costs using the
applicable LTCH PPS market basket. Additional background information
on the historical development of the labor-related share under the
LTCH PPS can be found in the RY 2007 LTCH PPS final rule (71 FR
27810 through 27817 and 27829 through 27830) and the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51766 through 51769 and 51808).
For FY 2013, we revised and rebased the market basket used under
the LTCH PPS by adopting the newly created FY 2009-based LTCH-
specific market basket. In addition, beginning in FY 2013, we
determined the labor-related share annually as the sum of the
relative importance of each labor-related cost category of the 2009-
based LTCH-specific market basket for the respective fiscal year
based on the best available data. (For more details, we refer
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53477 through
53479).) As noted previously, we are proposing to rebase and revise
the 2009-based LTCH-specific market basket to reflect a 2013 base
year. In conjunction with that proposal, as discussed in section
VII.D.4.e. of the preamble of this proposed rule, we are proposing
that the LTCH PPS labor-related share for FY 2017 would be the sum
of the FY 2017 relative importance of each labor-related cost
category in the proposed 2013-based LTCH market basket using the
most recent available data. Specifically, we are proposing that the
labor related share for FY 2017 would include the sum of the labor-
related portion of operating costs from the proposed 2013-based LTCH
market basket (that is, the sum of the FY 2017 relative importance
share of Wages and Salaries; Employee Benefits; Professional Fees:
Labor-Related; Administrative and Facilities Support Services;
Installation, Maintenance, and Repair Services; All Other: Labor-
related Services) and a portion of the Capital-Related cost weight
from the proposed 2013-based LTCH PPS market basket. Based on IGI's
first quarter 2016 forecast of the proposed 2013-based LTCH market
basket, we are proposing a labor-related share under the LTCH PPS
for FY 2017 of 66.6 percent. This proposed labor-related share is
determined using the same methodology as employed in calculating all
previous LTCH PPS labor-related shares. Consistent with our
historical practice, we are proposing to use more recent data to
determine the final FY 2017 labor-related share in the final rule.
Table VII-9 in section VII.D.4.e. of the preamble of this
proposed rule shows the proposed FY 2017 relative importance labor-
related share using the proposed 2013-based LTCH market basket and
the FY 2016 relative importance labor-related share using the 2009-
based LTCH-specific market basket. The proposed labor-related share
for FY 2017 is the sum of the proposed FY 2017 relative importance
of each labor-related cost category, and would reflect the different
rates of price change for these cost categories between the base
year (2013) and FY 2017. The sum of the proposed relative importance
for FY 2017 for operating costs (Wages and Salaries; Employee
Benefits; Professional Fees: Labor-Related; Administrative and
Facilities Support Services; Installation, Maintenance, and Repair
Services; All Other: Labor-related Services) is 62.3 percent. We are
proposing that the portion of capital-related costs that is
influenced by the local labor market is estimated to be 46 percent
(the same percentage applied to the 2009-based LTCH-specific market
basket). Because the relative importance for capital-related costs
under our proposals would be 9.4 percent of the proposed 2013-based
LTCH market basket in FY 2017, we are proposing to take 46 percent
of 9.4 percent to determine the proposed labor-related share of
capital-related costs for FY 2017 (0.46 x 9.4). The result is 4.3
percent, which we are proposing to add to 62.3 percent for the
operating cost amount to determine the total proposed labor-related
share for FY 2017. Therefore, the proposed labor-related share under
the LTCH PPS for FY 2017 is 66.6 percent. We note that the proposed
FY 2017 labor-related share using the proposed 2013-based LTCH
market basket is 4.6 percentage points higher than the FY 2016
labor-related share using the 2009-based LTCH-specific market
basket. This is primarily due to, as discussed in greater detail in
section VII.D.4.e. of the preamble of this proposed rule, the change
in the quantity of labor, particularly for professional services,
outpacing the change in quantity of products (which are not included
in the labor-related share) between 2009 and 2013, which more than
offsets the faster relative growth in prices for products.

4. Proposed Wage Index for FY 2017 for the LTCH PPS Standard Federal
Payment Rate

Historically, we have established LTCH PPS area wage index
values calculated from acute care IPPS hospital wage data without
taking into account geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The area wage
level adjustment established under the LTCH PPS is based on an
LTCH's actual location without regard to the ``urban'' or ``rural''
designation of any related or affiliated provider.
In the FY 2016 LTCH PPS final rule (80 FR 49798through 49799),
we calculated the FY 2016 LTCH PPS area wage index values using the
same data used for the FY 2016 acute care hospital IPPS (that is,
data from cost reporting periods beginning during FY 2012), without
taking into account geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act, as these were the most recent
complete data available at that time. In that same final rule, we
indicated that we computed the FY 2016 LTCH PPS area wage index
values, consistent with the urban and rural geographic
classifications (labor market areas) that were in place at that time
and consistent with the pre-reclassified IPPS wage index policy
(that is, our historical policy of not taking into account IPPS
geographic reclassifications in determining payments under the LTCH
PPS). As with the IPPS wage index, wage data for multicampus
hospitals with campuses located in different labor market areas
(CBSAs) are apportioned to each CBSA where the campus (or campuses)
are located. We also continued to use our existing policy for
determining area wage index values for areas where there are no IPPS
wage data.
Consistent with our historical methodology, to determine the
applicable area wage index values for the FY 2017 LTCH PPS standard
Federal payment rate, under the broad authority of section 123 of
the BBRA, as amended by section 307(b) of the BIPA, we are proposing
to use wage data collected from cost reports submitted by IPPS
hospitals for cost reporting periods beginning during FY 2013,
without taking into account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the Act, because these data
are the most recent complete data available. We also note that these
are the same data we are using to compute the proposed FY 2017 acute
care hospital inpatient wage index, as discussed in section III. of
the preamble of this proposed rule. We are computing the proposed FY
2017 LTCH PPS standard Federal payment rate area wage index values
consistent with the ``urban'' and ``rural'' geographic
classifications (that is, labor market area delineations, including
the proposed updates, as previously discussed in section V.B.2. of
this Addendum) and our historical policy of not taking into account

[[Page 25284]]

IPPS geographic reclassifications under sections 1886(d)(8) and
1886(d)(10) of the Act in determining payments under the LTCH PPS.
We also are proposing to continue to apportion wage data for
multicampus hospitals with campuses located in different labor
market areas to each CBSA where the campus or campuses are located,
consistent with the IPPS policy. Lastly, consistent with our
existing methodology for determining the LTCH PPS wage index values,
for FY 2017 we are proposing to continue to use our existing policy
for determining area wage index values for areas where there are no
IPPS wage data.
Under our existing methodology, the LTCH PPS wage index value
for urban CBSAs with no IPPS wage data would be determined by using
an average of all of the urban areas within the State and the LTCH
PPS wage index value for rural areas with no IPPS wage data would be
determined by using the unweighted average of the wage indices from
all of the CBSAs that are contiguous to the rural counties of the
State.
Based on the FY 2013 IPPS wage data that we are using to
determine the proposed FY 2017 LTCH PPS standard Federal payment
rate area wage index values in this proposed rule, there are no IPPS
wage data for the urban area of Hinesville, GA (CBSA 25980).
Consistent with the methodology discussed above, we calculated the
proposed FY 2017 wage index value for CBSA 25980 as the average of
the wage index values for all of the other urban areas within the
state of Georgia (that is, CBSAs 10500, 12020, 12060, 12260, 15260,
16860, 17980, 19140, 23580, 31420, 40660, 42340, 46660 and 47580),
as shown in Table 12A, which is listed in section VI. of the
Addendum to this proposed rule and available via the Internet on the
CMS Web site). We note that, as IPPS wage data are dynamic, it is
possible that urban areas without IPPS wage data will vary in the
future.
Based on the FY 2013 IPPS wage data that we are using to
determine the proposed FY 2017 LTCH PPS standard Federal payment
rate area wage index values in this proposed rule, there are no
rural areas without IPPS hospital wage data. Therefore, it is not
necessary to use our established methodology to calculate a proposed
LTCH PPS standard Federal payment rate wage index value for rural
areas with no IPPS wage data for FY 2017. We note that, as IPPS wage
data are dynamic, it is possible that the number of rural areas
without IPPS wage data will vary in the future. The proposed FY 2017
LTCH PPS standard Federal payment rate wage index values that would
be applicable for LTCH PPS standard Federal payment rate discharges
occurring on or after October 1, 2016, through September 30, 2017,
are presented in Table 12A (for urban areas) and Table 12B (for
rural areas), which are listed in section VI. of the Addendum of
this proposed rule and available via the Internet on the CMS Web
site.

5. Proposed Budget Neutrality Adjustment for Changes to the LTCH PPS
Standard Federal Payment Rate Area Wage Level Adjustment

Historically, the LTCH PPS wage index and labor-related share
are updated annually based on the latest available data. Under Sec.
412.525(c)(2), any changes to the area wage index values or labor-
related share are to be made in a budget neutral manner such that
estimated aggregate LTCH PPS payments are unaffected; that is, will
be neither greater than nor less than estimated aggregate LTCH PPS
payments without such changes to the area wage level adjustment.
Under this policy, we determine an area wage-level adjustment budget
neutrality factor that will be applied to the standard Federal
payment rate to ensure that any changes to the area wage level
adjustments are budget neutral such that any changes to the area
wage index values or labor-related share would not result in any
change (increase or decrease) in estimated aggregate LTCH PPS
payments. Accordingly, under Sec. 412.523(d)(4), we apply an area
wage level adjustment budget neutrality factor in determining the
standard Federal payment rate, and we also established a methodology
for calculating an area wage level adjustment budget neutrality
factor. (For additional information on the establishment of our
budget neutrality policy for changes to the area wage level
adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51771 through 51773 and 51809).)
In this proposed rule, for FY 2017 LTCH PPS standard Federal
payment rate cases, in accordance with Sec. 412.523(d)(4), we are
proposing to apply an area wage level adjustment budget neutrality
factor to adjust the LTCH PPS standard Federal payment rate to
account for the estimated effect of the proposed adjustments or
updates to the area wage level adjustment under Sec. 412.525(c)(1)
on estimated aggregate LTCH PPS payments using a methodology that is
consistent with the methodology we established in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51773). Specifically, we are proposing to
determine an area wage level adjustment budget neutrality factor
that would be applied to the LTCH PPS standard Federal payment rate
under Sec. 412.523(d)(4) for FY 2017 using the following
methodology:
Step 1--We simulated estimated aggregate LTCH PPS standard
Federal payment rate payments using the FY 2016 wage index values
and the FY 2016 labor-related share of 62.0 percent (as established
in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49798 and 49799).
Step 2--We simulated estimated aggregate LTCH PPS standard
Federal payment rate payments using the proposed FY 2017 wage index
values (as shown in Tables 12A and 12B listed in the Addendum to
this proposed rule and available via the Internet on the CMS Web
site) and the proposed FY 2017 labor-related share of 66.6 percent
(based on the latest available data as previously discussed
previously in this Addendum).
Step 3--We calculated the ratio of these estimated total LTCH
PPS standard Federal payment rate payments by dividing the estimated
total LTCH PPS standard Federal payment rate payments using the FY
2016 area wage level adjustments (calculated in Step 1) by the
estimated total LTCH PPS standard Federal payment rate payments
using the proposed FY 2017 area wage level adjustments (calculated
in Step 2) to determine the proposed area wage level adjustment
budget neutrality factor for FY 2017 LTCH PPS standard Federal
payment rate payments.
Step 4--We then applied the proposed FY 2017 area wage level
adjustment budget neutrality factor from Step 3 to determine the
proposed FY 2017 LTCH PPS standard Federal payment rate after the
application of the proposed FY 2017 annual update (discussed
previously in section V.A.2. of this Addendum).
We note that, with the exception of cases subject to the
transitional blend payment rate provisions in the first 2 years,
under the dual rate LTCH PPS payment structure, only LTCH PPS cases
that meet the statutory criteria to be excluded from the site
neutral payment rate (that is, LTCH PPS standard Federal payment
rate cases) are paid based on the LTCH PPS standard Federal payment
rate. Because the area wage level adjustment under Sec. 412.525(c)
is an adjustment to the LTCH PPS standard Federal payment rate, we
only used data from claims that would have qualified for payment at
the LTCH PPS standard Federal payment rate if such rate were in
effect at the time of discharge to calculate the FY 2017 LTCH PPS
standard Federal payment rate area wage level adjustment budget
neutrality factor described above.
For this proposed rule, using the steps in the methodology
previously described, we determined a proposed FY 2017 LTCH PPS
standard Federal payment rate area wage level adjustment budget
neutrality factor of 0.998723. Accordingly, in section V.A.2. of the
Addendum to this propose rule, to determine the proposed FY 2017
LTCH PPS standard Federal payment rate, we are applying a proposed
area wage level adjustment budget neutrality factor of 0.998723, in
accordance with Sec. 412.523(d)(4). The proposed FY 2017 LTCH PPS
standard Federal payment rate shown in Table 1E of the Addendum to
this proposed rule reflects this adjustment factor.

C. Proposed Cost-of-Living Adjustment (COLA) for LTCHs Located in
Alaska and Hawaii

Under Sec. 412.525(b), a cost-of-living adjustment (COLA) is
provided for LTCHs located in Alaska and Hawaii to account for the
higher costs incurred in those States. Specifically, we apply a COLA
to payments to LTCHs located in Alaska and Hawaii by multiplying the
nonlabor-related portion of the standard Federal payment rate by the
applicable COLA factors established annually by CMS. Higher labor-
related costs for LTCHs located in Alaska and Hawaii are taken into
account in the adjustment for area wage levels previously described.
Under our current methodology, we update the COLA factors for
Alaska and Hawaii every 4 years (at the same time as the update to
the labor-related share of the IPPS market basket) (77 FR 53712
through 53713). This

[[Page 25285]]

methodology is based on a comparison of the growth in the Consumer
Price Indexes (CPIs) for Anchorage, Alaska, and Honolulu, Hawaii,
relative to the growth in the CPI for the average U.S. city as
published by the Bureau of Labor Statistics (BLS). It also includes
a 25-percent cap on the CPI-updated COLA factors. (For additional
details on our current methodology for updating the COLA factors for
Alaska and Hawaii, we refer readers to section VII.D.3. of the
preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481
through 53482).)
We continue to believe that determining updated COLA factors
using this methodology would appropriately adjust the nonlabor-
related portion of the LTCH PPS standard Federal payment rate for
LTCHs located in Alaska and Hawaii. Under our current policy, we
update the COLA factors using the methodology described above every
4 years; the first year began in FY 2014 (77 FR 53482). Therefore,
in this proposed rule for FY 2017, under the broad authority
conferred upon the Secretary by section 123 of the BBRA, as amended
by section 307(b) of the BIPA, to determine appropriate payment
adjustments under the LTCH PPS, we are proposing to continue to use
the COLA factors based on the 2009 OPM COLA factors updated through
2012 by the comparison of the growth in the CPIs for Anchorage,
Alaska, and Honolulu, Hawaii, relative to the growth in the CPI for
the average U.S. city as established in the FY 2014 IPPS/LTCH PPS
final rule. (We refer readers to the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50998) for a discussion of the FY 2014 COLA factors.)
Consistent with our historical practice, we are proposing to
establish that the COLA factors shown in the following table will be
used to adjust the nonlabor-related portion of the LTCH PPS standard
Federal payment rate for LTCHs located in Alaska and Hawaii under
Sec. 412.525(b).

Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii
Hospitals Under the LTCH PPS for FY 2017
------------------------------------------------------------------------

------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50[dash]mile) radius by 1.23
road......................................................
City of Fairbanks and 80-kilometer (50[dash]mile) radius by 1.23
road......................................................
City of Juneau and 80-kilometer (50[dash]mile) radius by 1.23
road......................................................
All other areas of Alaska.................................. 1.25
Hawaii:
City and County of Honolulu................................ 1.25
County of Hawaii........................................... 1.19
County of Kauai............................................ 1.25
County of Maui and County of Kalawao....................... 1.25
------------------------------------------------------------------------

D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

1. HCO Background

From the beginning of the LTCH PPS, we have included an
adjustment to account for cases in which there are extraordinarily
high costs relative to the costs of most discharges. Under this
policy, additional payments are made based on the degree to which
the estimated cost of a case (which is calculated by multiplying the
Medicare allowable covered charge by the hospital's overall hospital
CCR) exceeds a fixed-loss amount. This policy results in greater
payment accuracy under the LTCH PPS and the Medicare program, and
the LTCH sharing the financial risk for the treatment of
extraordinarily high-cost cases.
We retained the basic tenets of our HCO policy in FY 2016 when
we implemented the dual rate LTCH PPS payment structure under
section 1206 of Public Law 113-67. LTCH discharges that meet the
criteria for exclusion from site neutral payment rate (that is, LTCH
PPS standard Federal payment rate cases) are paid at the LTCH PPS
standard Federal payment rate, which includes, as applicable, HCO
payments under Sec. 412.523(e). LTCH discharges that do not meet
the criteria for exclusion are paid at the site neutral payment
rate, which includes, as applicable, HCO payments under Sec.
412.522(c)(2)(i). In the same rule, we established separate fixed-
loss amounts and targets for the two different LTCH PPS payment
rates. Under this bifurcated policy, the historic 8 percent HCO
target was retained for LTCH PPS standard Federal payment rate
cases, with the fixed-loss amount calculated using only data from
LTCH cases which would have been paid at the LTCH PPS standard
Federal payment rate if that rate had been in effect at the time of
those discharges. For site neutral payment rate cases, we adopted
the operating IPPS HCO target (currently 5.1 percent) and set the
fixed-loss amount for site neutral payment rate cases at the value
of the IPPS fixed-loss amount. Under the HCO policy for both payment
rates, an LTCH receives 80 percent of the difference between the
estimated cost of the case and the applicable HCO threshold, which
is the sum of the LTCH PPS payment for the case and the applicable
fixed-loss amount for such case. In order to maintain budget
neutrality, consistent with the budget neutrality requirement for
HCO payments to LTCH PPS standard Federal rate payment cases, we
also adopted a budget neutrality requirement for HCO payments to
site neutral payment rate cases by applying a budget neutrality
factor to the LTCH PPS payment for those site neutral payment rate
cases. (We refer readers to Sec. 412.522(c)(2)(i) of the regulation
for further details). We note during the 2-year transitional period,
the site neutral payment rate HCO budget neutrality factor does not
apply to the LTCH PPS standard Federal payment rate portion of the
blended rate at Sec. 412.522(c)(3) payable to site neutral payment
rate cases. (For additional details on the HCO policy adopted for
site neutral payment rate cases under the dual rate LTCH PPS payment
structure, including the budget neutrality adjustment for HCO
payments to site neutral payment rate cases, we refer readers to the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49617 through 49623).)

2. Determining LTCH CCRs under the LTCH PPS

a. Background

As noted above, CCRs are used to determine payments for HCO
adjustments for both payment rates under the LTCH PPS, and are also
used to determine payments for SSO cases under Sec. 412.529 as well
as payments for site neutral payment rate cases. (We note that the
provisions of Sec. 412.529 are only applicable to LTCH PPS standard
Federal payment rate cases.) Therefore, this discussion is relevant
to all HCO, SSO, and site neutral payment rate calculations.
As noted earlier, in determining HCO, SSO, and the site neutral
payment rate (regardless of whether the case is also an HCO)
payments, we generally calculate the estimated cost of the case by
multiplying the LTCH's overall CCR by the Medicare allowable charges
for the case. An overall CCR is used because the LTCH PPS uses a
single prospective payment per discharge that covers both inpatient
operating and capital-related costs. The LTCH's overall CCR is
generally computed based on the sum of LTCH operating and capital
costs (as described in Section 150.24, Chapter 3, of the Medicare
Claims Processing Manual (Pub. 100-4)) as compared to total Medicare
charges (that is, the sum of its operating and capital inpatient
routine and ancillary charges), with those values determined from
either the most recently settled cost report or the most recent
tentatively settled cost report, whichever is from the latest cost
reporting period. However, in certain instances, we use an
alternative CCR, such as the statewide average CCR, a CCR that is
specified by CMS, or one that is requested by the hospital. (We
refer readers to Sec. 412.525(a)(4)(iv) of the regulations for
further details regarding HCO adjustments for either LTCH PPS
payment rate, Sec. 412.529(f)(4) for SSO adjustments, and Sec.
412.522(c)(1)(ii) for the site neutral payment rate, respectively.)
The LTCH's calculated CCR is then compared to the LTCH total CCR
ceiling. Under our established policy, an LTCH with a calculated CCR
in excess of the applicable maximum CCR threshold (that is, the LTCH
total CCR ceiling, which is calculated as 3 standard deviations from
the national geometric average CCR) is generally assigned the
applicable statewide CCR. This policy is premised on a belief that
calculated CCRs above the LTCH total CCR ceiling are most likely due
to faulty data reporting or entry, and CCRs based on erroneous data
should not be used to identify and make payments for outlier cases.

b. LTCH Total CCR Ceiling

In this proposed rule, using our established methodology for
determining the LTCH total CCR ceiling based on IPPS total CCR data
from the December 2015 update of the Provider Specific File (PSF),
we are proposing a LTCH total CCR ceiling of 1.302 under the LTCH
PPS for FY 2017 in accordance with Sec. 412.525(a)(4)(iv)(C)(2) for
HCO cases under either payment rate, Sec. 412.529(f)(4)(iii)(B) for
SSOs, and Sec. 412.522(c)(1)(ii) for the site neutral payment rate.
Consistent with our historical practice, we also are proposing to
use more

[[Page 25286]]

recent data to determine the LTCH total CCR ceiling for the FY 2017
final rule. (For additional information on our methodology for
determining the LTCH total CCR ceiling, we refer readers to the FY
2007 IPPS final rule (71 FR 48118 through 48119).)

c. LTCH Statewide Average CCRs

Our general methodology for determining the statewide average
CCRs used under the LTCH PPS is similar to our established
methodology for determining the LTCH total CCR ceiling because it is
based on ``total'' IPPS CCR data. (For additional information on our
methodology for determining statewide average CCRs under the LTCH
PPS, we refer readers to the FY 2007 IPPS final rule (71 FR 48119
through 48120).) Under the LTCH PPS HCO policy for cases paid under
either payment rate at Sec. 412.525(a)(4)(iv)(C), the SSO policy at
Sec. 412.529(f)(4)(iii), and the site neutral payment rate at Sec.
412.522(c)(1)(ii), the MAC may use a statewide average CCR, which is
established annually by CMS, if it is unable to determine an
accurate CCR for an LTCH in one of the following circumstances: (1)
New LTCHs that have not yet submitted their first Medicare cost
report, a new LTCH is defined as an entity that has not accepted
assignment of an existing hospital's provider agreement in
accordance with Sec. 489.18); (2) LTCHs whose calculated CCR is in
excess of the LTCH total CCR ceiling; and (3) other LTCHs for whom
data with which to calculate a CCR are not available (for example,
missing or faulty data). (Other sources of data that the MAC may
consider in determining an LTCH's CCR include data from a different
cost reporting period for the LTCH, data from the cost reporting
period preceding the period in which the hospital began to be paid
as an LTCH (that is, the period of at least 6 months that it was
paid as a short-term, acute care hospital), or data from other
comparable LTCHs, such as LTCHs in the same chain or in the same
region.)
Consistent with our historical practice of using the best
available data, in this proposed rule, using our established
methodology for determining the LTCH statewide average CCRs, based
on the most recent complete IPPS ``total CCR'' data from the
December 2015 update of the PSF, we are proposing LTCH PPS statewide
average total CCRs for urban and rural hospitals that would be
effective for discharges occurring on or after October 1, 2016
through September 30, 2017, in Table 8C listed in section VI. of the
Addendum to this proposed rule (and available via the Internet on
the CMS Web site). Consistent with our historical practice, we are
proposing to use more recent data to determine the LTCH PPS
statewide average total CCRs for FY 2017 in the final rule.
Under the current LTCH PPS labor market areas, all areas in
Delaware, the District of Columbia, New Jersey, and Rhode Island are
classified as urban. Therefore, there are no rural statewide average
total CCRs listed for those jurisdictions in Table 8C. This policy
is consistent with the policy that we established when we revised
our methodology for determining the applicable LTCH statewide
average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through
48121) and is the same as the policy applied under the IPPS. In
addition, although Connecticut and North Dakota have areas that are
designated as rural, in our calculation of the LTCH statewide
average CCRs, there was no data available from short-term, acute
care IPPS hospitals to compute a rural statewide average CCR or
there were no short-term, acute care IPPS hospitals or LTCHs located
in those areas as of December 2015. Therefore, consistent with our
existing methodology, we are proposing to use the national average
total CCR for rural IPPS hospitals for rural Connecticut and North
Dakota in Table 8C listed in section VI. of the Addendum to this
proposed rule (and available via the Internet on the CMS Web site).
Furthermore, consistent with our existing methodology, in
determining the urban and rural statewide average total CCRs for
Maryland LTCHs paid under the LTCH PPS, we are proposing to continue
to use, as a proxy, the national average total CCR for urban IPPS
hospitals and the national average total CCR for rural IPPS
hospitals, respectively. We use this proxy because we believe that
the CCR data in the PSF for Maryland hospitals may not be entirely
accurate (as discussed in greater detail in the FY 2007 IPPS final
rule (71 FR 48120)).

d. Reconciliation of HCO and SSO Payments

Under the HCO policy for cases paid under either payment rate at
Sec. 412.525(a)(4)(iv)(D) and the SSO policy at Sec.
412.529(f)(4)(iv), the payments for HCO and SSO cases are subject to
reconciliation. Specifically, any such payments are reconciled at
settlement based on the CCR that is calculated based on the cost
report coinciding with the discharge. (We note the existing
reconciliation process for HCO payments is also applicable to LTCH
PPS payments for site neutral payment rate cases (80 FR 49610).) For
additional information on the reconciliation policy, we refer
readers to Sections 150.26 through 150.28 of the Medicare Claims
Processing Manual (Pub. 100-4) as added by Change Request 7192
(Transmittal 2111; December 3, 2010) and the RY 2009 LTCH PPS final
rule (73 FR 26820 through 26821).

e. Proposed Technical Change to the Definition of ``Outlier Payment''

The existing regulations at Sec. 412.503 includes a definition
of ``outlier payment,'' which was adopted when the LTCH PPS was
implemented (67 FR 56049). This definition does not account for the
dual rate LTCH PPS payment structure that began in FY 2016.
Therefore, in this proposed rule, to account for our HCO policy for
LTCH cases paid under either payment rate, we are proposing to
revise the definition of ``outlier payment'' at Sec. 412.503 to
mean an additional payment beyond the LTCH PPS standard Federal
payment rate or the site neutral payment rate (including, when
applicable, the transitional blended rate), as applicable, for cases
with unusually high costs.

3. Proposed High-Cost Outlier Payments for LTCH PPS Standard Federal
Payment Rate Cases

a. Establishment of the Proposed Fixed-Loss Amount for LTCH PPS
Standard Federal Payment Rate Cases for FY 2017

When we implemented the LTCH PPS, we established a fixed-loss
amount so that total estimated outlier payments are projected to
equal 8 percent of total estimated payments under the LTCH PPS (67
FR 56022 through 56026). When we implemented the dual rate LTCH PPS
payment structure beginning in FY 2016, we established that, in
general, that the historical LTCH PPS HCO policy will continue to
apply to LTCH PPS standard Federal payment rate cases. That is, the
fixed-loss amount and target for LTCH PPS standard Federal payment
rate cases is determined using the LTCH PPS HCO policy adopted when
the LTCH PPS was first implemented, but we limited the data used
under that policy to LTCH cases that would have been LTCH PPS
standard Federal payment rate cases if the statutory changes had
been in effect at the time of those discharges.
To determine the applicable fixed-loss amount for LTCH PPS
standard Federal payment rate cases, we estimate outlier payments
and total LTCH PPS payments for each LTCH PPS standard Federal
payment rate case (or for each case that would have been a LTCH PPS
standard Federal payment rate case if the statutory changes had been
in effect at the time of the discharge) using claims data from the
MedPAR files. The applicable fixed-loss amount for LTCH PPS standard
Federal payment rate cases results in estimated total outlier
payments being projected to be equal to 8 percent of projected total
LTCH PPS payments for LTCH PPS standard Federal payment rate cases.
We use MedPAR claims data and CCRs based on data from the most
recent PSF (or from the applicable statewide average CCR if an
LTCH's CCR data are faulty or unavailable) to establish an
applicable fixed-loss threshold amount for LTCH PPS standard Federal
payment rate cases.
For FY 2017, we are not proposing to make any modifications to
the current LTCH PPS HCO payment methodology for LTCH PPS standard
Federal payment rate cases. Therefore, for FY 2017, we are proposing
to determine an applicable fixed-loss amount for LTCH PPS standard
Federal payment rate cases using data from LTCH PPS standard Federal
payment rate cases (or cases that would have been LTCH PPS standard
Federal payment rate cases had the dual rate LTCH PPS payment
structure been in effect at the time of those discharges). The
proposed fixed-loss amount for LTCH PPS standard Federal payment
rate cases would continue to be determined so that estimated HCO
payments would be projected to equal 8 percent of estimated total
LTCH PPS standard Federal payment rate cases. Furthermore, in
accordance with Sec. 412.523(d)(1), a budget neutrality factor
would continue to be applied to LTCH PPS standard Federal payment
rate cases to offset that 8 percent so that HCO payments for LTCH
PPS standard Federal payment rate

[[Page 25287]]

cases will be budget neutral. Below we present our calculation of
the proposed fixed-loss amount for LTCH PPS standard Federal payment
rate cases for FY 2017, which is consistent with the methodology
used to establish the FY 2016 LTCH PPS fixed-loss amount.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49803 through
49804), we presented our policies regarding the methodology and data
we used to establish a fixed-loss amount of $16,432 for FY 2016 for
LTCH PPS standard Federal payment rate cases, which was calculated
based on the data and the rates and policies presented in that final
rule in order to maintain estimated HCO payments at the projected 8
percent of total estimated LTCH PPS payments. Consistent with our
historical practice of using the best data available, in determining
the proposed fixed-loss amount for LTCH PPS standard Federal payment
rate cases for FY 2017, we used the most recent available LTCH
claims data and CCR data, that is, LTCH claims data from the
December 2015 update of the FY 2015 MedPAR file and CCRs from the
December 2015 update of the PSF, as these data were the most recent
complete LTCH data available at that time.
For FY 2017, we are proposing to continue to use our current
methodology to calculate an applicable fixed-loss amount for LTCH
PPS standard Federal payment rate cases for FY 2017 using the best
available data that would maintain estimated HCO payments at the
projected 8 percent of total estimated LTCH PPS payments for LTCH
PPS standard Federal payment rate cases (based on the rates and
policies for these cases presented in this proposed rule).
Specifically, based on the most recent complete LTCH data available
(that is, LTCH claims data from the December 2015 update of the FY
2015 MedPAR file and CCRs from the December 2015 update of the PSF),
we determined a proposed fixed-loss amount for LTCH PPS standard
Federal payment rate cases for FY 2017 that will result in estimated
outlier payments projected to be equal to 8 percent of estimated FY
2017 payments for such cases. Under the broad authority of section
123(a)(1) of the BBRA and section 307(b)(1) of the BIPA, we are
proposing a fixed-loss amount of $22,728 for LTCH PPS standard
Federal payment rate cases for FY 2017. Under our proposal, we would
continue to make an additional HCO payment for the cost of an LTCH
PPS standard Federal payment rate case that exceeds the HCO
threshold amount that is equal to 80 percent of the difference
between the estimated cost of the case and the outlier threshold
(the sum of the adjusted LTCH PPS standard Federal payment rate
payment and the fixed-loss amount for LTCH PPS standard Federal
payment rate cases of $22,728).
We note that the proposed fixed-loss amount of $22,728 for FY
2017 for LTCH PPS standard Federal payment rate cases is notably
higher than the FY 2016 fixed-loss amount for LTCH PPS standard
Federal payment rate cases of $16,423. The FY 2016 fixed-loss amount
for LTCH PPS standard Federal payment rate cases was determined
using LTCH claims data from the March 2015 update of the FY 2014
MedPAR file and CCRs from the March 2015 update of the PSF. Based on
that data, the estimated outlier payments were projected to be equal
to 8 percent of estimated FY 2016 payments for such cases (80 FR
49803). Using the more recent LTCH claims data (that is, FY 2015
LTCH discharges from the December 2015 update of the MedPAR file and
CCRs from the December 2015 update of the PSF), we currently
estimate that the FY 2016 fixed-loss amount of $16,423 results in
estimated HCO payments for LTCH PPS standard Federal payment rate
cases of approximately 9.1 percent of total estimated FY 2016 LTCH
PPS payments to those cases, which exceeds the 8 percent target.
While many factors contribute to this increase, we found that the
rate-of-change in the Medicare allowable charges on the claims data
in the MedPAR is a significant contributing factor. In the payment
modeling used to estimate LTCH PPS payments for the FY 2016 IPPS/
LTCH PPS final rule, for SSO and HCO cases paid as LTCH PPS standard
Federal payment rate cases, we applied an inflation factor of 4.6
percent (determined by the Office of the Actuary) to update the 2014
costs of each case to 2016 (80 FR 49833). Upon examining the FY 2014
LTCH discharge data and the FY 2015 discharge data, we found that
Medicare allowable charges for LTCH PPS standard Federal payment
rate cases (had the dual rate LTCH PPS payment structure been in
effect at the time of the discharges) increased approximately 7
percent. This higher inflation factor results in higher estimated
costs for outlier cases and, therefore, more estimated outlier
payments.
Fluctuations in the fixed-loss amount occurred in the first few
years after the implementation of the LTCH PPS, due, in part, to the
changes in LTCH behavior (such as Medicare beneficiary treatment
patterns) in response to the new payment system and the lack of data
and information available to predict how those changes would affect
the estimate costs of LTCH cases. As we gained more experience with
the effects and implementation of the LTCH PPS, the annual changes
on the fixed-loss amount generally stabilized relative to the
fluctuations that occurred in the early years of the LTCH PPS. At
this time, we are not proposing any changes to our method for the
inflation factor applied to update the costs of each case (that is,
an inflation factor based on the most recent estimate of the
proposed 2013-based LTCH market basket as determined by the Office
of the Actuary) in determining the proposed fixed-loss amount for
LTCH PPS standard Federal payment rate cases for FY 2017. We
continue to believe that it is appropriate to continue to use our
historical approach until we gain experience with the effects and
implementation of the dual rate LTCH PPS payment structure that
began with discharges occurring in cost reporting periods beginning
on or after October 1, 2015, and the types of cases paid at the LTCH
PPS standard Federal payment rate under this dual rate payment
structure. We may revisit this issue in the future if data
demonstrate such a change is warranted, and would propose any
changes in the future through the notice-and-comment rulemaking
process. However, we are inviting public comments on potential
improvements to the determination of the fixed-loss amount for LTCH
PPS standard Federal payment rate cases, including the most
appropriate method of determining an inflation factor for projecting
the costs of each case when determining the fixed-loss threshold.
For the reasons discussed above, we believe it is necessary and
appropriate to propose an increase to the fixed-loss amount for LTCH
PPS standard Federal payment rate cases for FY 2017 to maintain
that, for LTCH PPS standard Federal payment rate cases, estimated
HCO payments would equal 8 percent of estimated total LTCH PPS
payments for those cases as required under Sec. 412.525(a). (For
further information on the existing 8 percent HCO ``target''
requirement, we refer readers to the August 30, 2002 LTCH PPS final
rule (67 FR 56022 through 56024).) Maintaining the fixed-loss amount
at the current level would result in HCO payments that are
substantially more than the current regulatory 8 percent target that
we are applying to total payments for LTCH PPS standard Federal
payment rate cases because a lower fixed-loss amount would result in
more cases qualifying as outlier cases, as well as higher outlier
payments for qualifying HCO cases because the maximum loss that an
LTCH must incur before receiving an HCO payment (that is, the fixed-
loss amount) would be smaller.

b. Application of the High-Cost Outlier Policy to SSO Cases

Under our implementation of the dual rate LTCH PPS payment
structure required by statute, LTCH PPS standard Federal payment
rate cases (that is, LTCH discharges that meet the criteria for
exclusion from the site neutral payment rate) will continue to be
paid based on the LTCH PPS standard Federal payment rate, and will
include all of the existing payment adjustments under Sec.
412.525(d), such as the adjustments for SSO cases under Sec.
412.529. Under some rare circumstances, an LTCH discharge can
qualify as an SSO case (as defined in the regulations at Sec.
412.529 in conjunction with Sec. 412.503) and also as an HCO case,
as discussed in the August 30, 2002 final rule (67 FR 56026). In
this scenario, a patient could be hospitalized for less than five-
sixths of the geometric average length of stay for the specific MS-
LTC-DRG, and yet incur extraordinarily high treatment costs. If the
estimated costs exceeded the HCO threshold (that is, the SSO payment
plus the applicable fixed-loss amount), the discharge is eligible
for payment as an HCO. Therefore, for an SSO case in FY 2017, we are
proposing the HCO payment would be 80 percent of the difference
between the estimated cost of the case and the outlier threshold
(the sum of the proposed fixed-loss amount of $22,728 and the amount
paid under the SSO policy as specified in Sec. 412.529).

4. Proposed High-Cost Outlier Payments for Site Neutral Payment Rate
Cases

Under Sec. 412.525(a), site neutral payment rate cases receive
an additional HCO payment for costs that exceed the HCO threshold
that is equal to 80 percent of the difference between the estimated
cost of the case and the applicable HCO threshold (80

[[Page 25288]]

FR 49618 through 49629). In the FY 2016 IPPS/LTCH PPS final rule, in
examining the appropriate fixed-loss amount for site neutral payment
rate cases issue, we considered how LTCH discharges based on
historical claims data would have been classified under the dual
rate LTCH PPS payment structure and the CMS' Office of the Actuary
(OACT) projections regarding how LTCHs would likely respond to our
proposed implementation of policies resulting from the statutory
payment changes. For FY 2016, at that time our actuaries projected
that the proportion of cases that would qualify as LTCH PPS standard
Federal payment rate cases versus site neutral payment rate cases
under the statutory provisions would remain consistent with what is
reflected in the historical LTCH PPS claims data. Although our
actuaries did not project an immediate change in the proportions
found in the historical data, they did project cost and resource
changes to account for the lower payment rates. Our actuaries also
projected that the costs and resource use for cases paid at the site
neutral payment rate would likely be lower, on average, than the
costs and resource use for cases paid at the LTCH PPS standard
Federal payment rate and would likely mirror the costs and resource
use for IPPS cases assigned to the same MS-DRG, regardless of
whether the proportion of site neutral payment rate cases in the
future remains similar to what is found based on the historical
data. In light of these projections and expectations, we discussed
that we believed that the use of a single fixed-loss amount and HCO
target for all LTCH PPS cases would be problematic. In addition, we
discussed that we did not believe that it would be appropriate for
comparable LTCH PPS site neutral payment rate cases to receive
dramatically different HCO payments from those cases that would be
paid under the IPPS (80 FR 49618 through 49619). For those reasons,
in the FY 2016 IPPS/LTCH PPS final rule (FR 80 49619), we stated
that we believe that the most appropriate fixed-loss amount for site
neutral payment rate cases for a given fiscal year, beginning with
FY 2016, would be the IPPS fixed-loss amount for that fiscal year.
Accordingly, we established that for FY 2016, a fixed-loss amount
for site neutral payment rate cases of $22,544, which was the same
as the FY 2016 IPPS fixed-loss amount. (We note that the FY 2016
fixed-loss amount under the IPPS was updated, applicable for
discharges on or after January 1, 2016, as a conforming change to
the implementation of section 601 of the Consolidated Appropriations
Act, 2016, which modified the payment calculation with respect to
operating costs of inpatient hospital services of a subsection (d)
Puerto Rico hospital for inpatient hospital discharges on or after
January 1, 2016 (Change Request 9523, Transmittal 3449, dated
February 4, 2016).) Consistent with this change, the FY 2016 fixed-
loss amount for site neutral payment rate cases under the LTCH PPS
was updated, applicable for discharges on or after January 1, 2016,
to $22,538, which is the same as the updated IPPS outlier fixed-loss
cost threshold for FY 2016. (We refer readers to Change Request
9527, Transmittal 3445, dated January 29, 2016, which also updated
the IPPS comparable amount calculation, applicable to discharges
occurring on or after January 1, 2016, consistent with the
conforming changes made as a result of the new IPPS payment
requirement.)
For this proposed rule, in developing a proposed fixed-loss
amount for site neutral payment rate cases for FY 2017, we
considered the same factors we did developing a fixed-loss amount
for such cases for FY 2016. For FY 2017, our actuaries currently
project that the proportion of cases that would qualify as LTCH PPS
standard Federal payment rate cases versus site neutral payment rate
cases under the dual rate LTCH PPS payment structure provisions
would remain consistent with what is reflected in the historical
LTCH PPS claims data. Based on FY 2014 LTCH claims data, LTCH claims
data, we found that approximately 55 percent of LTCH cases would
have been paid the LTCH PPS standard Federal payment rate and
approximately 45 percent of LTCH cases would have been paid the site
neutral payment rate if those rates had been in effect at that
time.) At this time, our actuaries continue to project no immediate
change in these proportions. However, they do continue to project
that the costs and resource use for cases paid at the site neutral
payment rate would likely be lower, on average, than the costs and
resource use for cases paid at the LTCH PPS standard Federal payment
rate and would likely mirror the costs and resource use for IPPS
cases assigned to the same MS-DRG, regardless of whether the
proportion of site neutral payment rate cases in the future remains
similar to what is found based on the historical data. As discussed
in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49619), this
actuarial assumption is based on our expectation that site neutral
payment rate cases would generally be paid based on an IPPS
comparable per diem amount under the statutory LTCH PPS payment
changes that began in FY 2016, which, in the majority of cases, is
much lower than the payment that would have been paid if these
statutory changes were not enacted. For these reasons, we continue
to believe that the most appropriate fixed-loss amount for site
neutral payment rate cases for FY 2017 is the IPPS fixed-loss amount
for FY 2017.
Therefore, for FY 2017, we are proposing that the applicable HCO
threshold for site neutral payment rate cases is the sum of the site
neutral payment rate for the case and the IPPS fixed-loss amount.
That is, we are proposing a fixed-loss amount for site neutral
payment rate cases of $23,681, which is the same proposed FY 2017
IPPS fixed-loss amount discussed in section II.A.4.g.(1). of the
Addendum to this proposed rule. We continue to believe that this
policy will reduce differences between HCO payments for similar
cases under the IPPS and site neutral payment rate cases under the
LTCH PPS and promote fairness between the two systems. Accordingly,
under this proposal, for FY 2017, we would calculate a HCO payment
for site neutral payment rate cases with costs that exceed the HCO
threshold amount, which is equal to 80 percent of the difference
between the estimated cost of the case and the outlier threshold
(the sum of site neutral payment rate payment and the proposed
fixed-loss amount for site neutral payment rate cases of $23,681).
(We note that any site neutral payment rate case that is paid 100
percent of the estimated cost of the case (because that amount is
lower than the IPPS comparable per diem amount) will not be eligible
to receive a HCO payment because, by definition, the estimated costs
of such cases would never exceed the IPPS comparable per diem amount
by any threshold.)
In establishing a HCO policy for site neutral payment rate
cases, we established a budget neutrality requirement at Sec.
412.522(c)(2)(i). We established this requirement because we believe
that the HCO policy for site neutral payment rate cases should be
budget neutral, just as the HCO policy for LTCH PPS standard Federal
payment rate cases are budget neutral, meaning that estimated site
neutral payment rate HCO payments should not result in any change in
estimated aggregate LTCH PPS payments. Under Sec. 412.522(c)(2)(i),
we adjust all payments for site neutral payment rate cases by a
budget neutrality factor so that the estimated HCO payments payable
for site neutral payment rate cases do not result in any increase in
aggregate LTCH PPS payments. Specifically, under Sec.
412.522(c)(2)(i), we apply a budget neutrality factor to the site
neutral payment rate portion of the transitional blended rate
payment (that is applicable to site neutral payment rate cases
during the 2-year transition period provided by the statute) that is
established based on an estimated basis. (We refer readers to 80 FR
49621 through 49622 and 49805.)
Under the approach adopted for applying the budget neutrality
adjustment to the site neutral payment rate portion of the
transitional blended rate payment in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49805), we explained that there is no need to perform
any calculation of the site neutral payment rate case HCO payment
budget neutrality adjustment under our finalized policy. This is
because, as discussed previously, based on our actuarial assumptions
we project that our proposal to use the IPPS fixed-loss threshold
for the site neutral payment rate cases would result in HCO payments
for those cases that are similar in proportion as is seen in IPPS
cases assigned to the same MS-DRG; that is, 5.1 percent. In other
words, we estimated that HCO payments for site neutral payment rate
cases would be 5.1 percent of the site neutral payment rate
payments. Under the statutory transition period, payments to site
neutral payment rate cases in FY 2017 will be paid under the blended
transitional rate. As such, estimated HCO payments for site neutral
payment rate cases in the FY 2017 proposal would be projected to be
5.1 percent of the portion of the blended rate payment that is based
on the estimated site neutral payment rate payment amount (and would
not include the LTCH PPS standard Federal payment rate payment
amount as specified in Sec. 412.522(c)(2)(i)). To ensure that
estimated HCO payments payable to site neutral payment rate cases in
FY 2017 would not

[[Page 25289]]

result any increase in estimated aggregate FY 2017 LTCH PPS
payments, under the budget neutrality requirement at Sec.
412.522(c)(2)(i), it is necessary to reduce the site neutral payment
rate portion of the blended rate payment by 5.1 percent to account
for the estimated additional HCO payments payable to those cases in
FY 2017. In order to achieve this, for FY 2017, we are proposing to
continue to apply a budget neutrality factor of 0.949 (that is, the
decimal equivalent of a 5.1 percent reduction, determined as 1.0-
5.1/100 = 0.949) to the site neutral payment rate portion of the
blended rate payment (80 FR 49805). As stated previously, this
adjustment is necessary so that the estimated HCO payments payable
for site neutral payment rate cases do not result in any increase in
aggregate LTCH PPS payments.

E. Proposed Update to the IPPS Comparable/Equivalent Amounts to
Reflect the Statutory Changes to the IPPS DSH Payment Adjustment
Methodology

In the FY 2014 IPPS/LTCH PPS final rule, we established a policy
for reflecting the changes to the Medicare IPPS DSH payment
adjustment methodology provided for by section 3133 of the
Affordable Care Act in the calculation of the ``IPPS comparable
amount'' under the SSO policy at Sec. 412.529 and the ``IPPS
equivalent amount'' under the 25-percent threshold payment
adjustment policy at Sec. 412.534 and Sec. 412.536. Historically,
the determination of both the ``IPPS comparable amount'' and the
``IPPS equivalent amount'' includes an amount for inpatient
operating costs ``for the costs of serving a disproportionate share
of low-income patients.'' Under the statutory changes to the
Medicare DSH payment adjustment methodology that began in FY 2014,
in general, eligible IPPS hospitals receive an empirically justified
Medicare DSH payment equal to 25 percent of the amount they
otherwise would have received under the statutory formula for
Medicare DSH payments prior to the amendments made by the Affordable
Care Act. The remaining amount, equal to an estimate of 75 percent
of the amount that otherwise would have been paid as Medicare DSH
payments, reduced to reflect changes in the percentage of
individuals under the age of 65 who are uninsured, is made available
to make additional payments to each hospital that qualifies for
Medicare DSH payments and that has uncompensated care. The
additional uncompensated care payments are based on the hospital's
amount of uncompensated care for a given time period relative to the
total amount of uncompensated care for that same time period
reported by all IPPS hospitals that receive Medicare DSH payments.
To reflect the statutory changes to the Medicare DSH payment
adjustment methodology in the calculation of the ``IPPS comparable
amount'' and the ``IPPS equivalent amount'' under the LTCH PPS, we
stated that we will include a reduced Medicare DSH payment amount
that reflects the projected percentage of the payment amount
calculated based on the statutory Medicare DSH payment formula prior
to the amendments made by the Affordable Care Act that will be paid
to eligible IPPS hospitals as empirically justified Medicare DSH
payments and uncompensated care payments in that year (that is, a
percentage of the operating DSH payment amount that has historically
been reflected in the LTCH PPS payments that is based on IPPS
rates). We also stated that the projected percentage will be updated
annually, consistent with the annual determination of the amount of
uncompensated care payments that will be made to eligible IPPS
hospitals. We believe that this approach results in appropriate
payments under the LTCH PPS and is consistent with our intention
that the ``IPPS comparable amount'' and the ``IPPS equivalent
amount'' under the LTCH PPS closely resemble what an IPPS payment
would have been for the same episode of care, while recognizing that
some features of the IPPS cannot be translated directly into the
LTCH PPS (79 FR 50766 through 50767).
For FY 2017, as discussed in greater detail in section
IV.D.3.d.(2) of the preamble of this proposed rule, based on the
most recent data available, our estimate of 75 percent of the amount
that would otherwise have been paid as Medicare DSH payments (under
the methodology outlined in section 1886(r)(2) of the Act) is
adjusted to 56.74 percent of that amount to reflect the change in
the percentage of individuals who are uninsured. The resulting
amount is then used to determine the amount of uncompensated care
payments that will be made to eligible IPPS hospitals in FY 2017. In
other words, Medicare DSH payments prior to the amendments made by
the Affordable Care Act would be adjusted to 42.56 percent (the
product of 75 percent and 56.74 percent) and the resulting amount
will be used to calculate the uncompensated care payments to
eligible hospitals. As a result, for FY 2017, we project that the
reduction in the amount of Medicare DSH payments pursuant to section
1886(r)(1) of the Act, along with the payments for uncompensated
care under section 1886(r)(2) of the Act, would result in overall
Medicare DSH payments of 67.56 percent of the amount of Medicare DSH
payments that would otherwise have been made in the absence of
amendments made by the Affordable Care Act (that is, 25 percent +
56.74 percent = 67.56 percent).
In this proposed rule, for FY 2017, we are proposing that the
calculation of the ``IPPS comparable amount'' under Sec. 412.529
and the ``IPPS equivalent amount'' under new Sec. 412.538 would
include an applicable operating Medicare DSH payment amount that is
equal to 67.5677 percent of the operating Medicare DSH payment
amount that would have been paid based on the statutory Medicare DSH
payment formula but for the amendments made by the Affordable Care
Act. Furthermore, consistent with our historical practice, we are
proposing to use more recent data, if available, to determine this
factor in the final rule.

F. Computing the Proposed Adjusted LTCH PPS Federal Prospective
Payments for FY 2017

Section 412.525 sets forth the adjustments to the LTCH PPS
standard Federal payment rate. Under the dual rate LTCH PPS payment
structure, only LTCH PPS cases that meet the statutory criteria to
be excluded from the site neutral payment rate are paid based on the
LTCH PPS standard Federal payment rate. Under Sec. 412.525(c), the
LTCH PPS standard Federal payment rate is adjusted to account for
differences in area wages by multiplying the labor-related share of
the LTCH PPS standard Federal payment for a case by the applicable
LTCH PPS wage index (the proposed FY 2017 values are shown in Tables
12A through 12B listed in section VI. of the Addendum of this
proposed rule and are available via the Internet on the CMS Web
site). The LTCH PPS standard Federal payment is also adjusted to
account for the higher costs of LTCHs located in Alaska and Hawaii
by the applicable COLA factors (the proposed FY 2017 factors are
shown in the chart in section V.D. of this Addendum) in accordance
with Sec. 412.525(b). In this proposed rule, we are proposing an
LTCH PPS standard Federal payment rate for FY 2017 of $42,314.31, as
discussed in section V.A.2. of the Addendum to this proposed rule.
We illustrate the methodology to adjust the proposed LTCH PPS
standard Federal payment rate for FY 2017 in the following example:

Example: During FY 2017, a Medicare discharge that meets the
criteria to be excluded from the site neutral payment rate, that is
an LTCH PPS standard Federal payment rate case, is from an LTCH that
is located in Chicago, Illinois (CBSA 16974). The FY 2017 LTCH PPS
proposed wage index value for CBSA 16974 is 1.0486 (obtained from
Table 12A listed in section VI. of the Addendum of this proposed
rule and available via the Internet on the CMS Web site). The
Medicare patient case is classified into MS-LTC-DRG 189 (Pulmonary
Edema & Respiratory Failure), which has a proposed relative weight
for FY 2017 of 0.9107 (obtained from Table 11 listed in section VI.
of the Addendum of this proposed rule and available via the Internet
on the CMS Web site). The LTCH submitted quality reporting data for
FY 2017 in accordance with the LTCHQRP under section 1886(m)(5) of
the Act.

To calculate the LTCH's total proposed adjusted Federal
prospective payment for this Medicare patient case in FY 2017, we
computed the wage-adjusted Federal prospective payment amount by
multiplying the unadjusted proposed FY 2017 LTCH PPS standard
Federal payment rate ($42,314.31) by the proposed labor-related
share (66.6 percent) and the wage index value (1.0486). This wage-
adjusted amount was then added to the proposed nonlabor-related
portion of the unadjusted LTCH PPS standard Federal payment rate
(33.4 percent; adjusted for cost of living, if applicable) to
determine the adjusted proposed LTCH PPS standard Federal payment
rate, which is then multiplied by the proposed MS-LTC-DRG relative
weight (0.9107) to calculate the total proposed adjusted LTCH PPS
standard Federal prospective payment for FY 2017 ($39,782.95). The
table below illustrates the components of the calculations in this
example.

[[Page 25290]]

------------------------------------------------------------------------

------------------------------------------------------------------------
Proposed LTCH PPS Standard Federal $42,314.31
Prospective Payment Rate.
Proposed Labor-Related Share........... x 0.666
Proposed Labor-Related Portion of the = $28,181.33
LTCH PPS Standard Federal Payment Rate.
Proposed Wage Index (CBSA 16974)....... x 1.0486
Proposed Wage-Adjusted Labor Share of = $29,550.94
LTCH PPS Standard Federal Payment Rate.
Proposed Nonlabor-Related Portion of + $14,132.98
the LTCH PPS Standard Federal Payment
Rate ($42,314.31 x 0.334).
Proposed Adjusted LTCH PPS Standard = $43,683.92
Federal Payment Amount.
Proposed MS-LTC-DRG 189 Relative Weight x 0.9107
Total Proposed Adjusted LTCH PPS = $39,782.95
Standard Federal Prospective Payment.
------------------------------------------------------------------------

VI. Tables Referenced in This Proposed Rule and Available Only Through
the Internet on the CMS Web Site

This section lists the tables referred to throughout the
preamble of this proposed rule and in this Addendum. In the past, a
majority of these tables were published in the Federal Register as
part of the annual proposed and final rules. However, similar to FYs
2012 through 2016, for the FY 2017 rulemaking cycle, the IPPS and
LTCH tables will not be published in the Federal Register in the
annual IPPS/LTCH PPS proposed and final rules and will be available
only through the Internet. Specifically, all IPPS tables listed
below, with the exception of IPPS Tables 1A, 1B, 1C, and 1D, and
LTCH PPS Table 1E will be available only through the Internet. IPPS
Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E are displayed at
the end of this section and will continue to be published in the
Federal Register as part of the annual proposed and final rules.
As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49807), we streamlined and consolidated the wage index tables for FY
2016 and subsequent fiscal years.
As discussed in sections II.F.14., II.F.15.b., II.F.16.,
II.F.17.a., and II.F.19.a.1., a.3., and c.1. of the preamble of this
proposed rule, we developed the following ICD-10-CM and ICD-10-PCS
code tables for FY 2017: Table 6A--New Diagnosis Codes; Table 6B--
New Procedure Codes; Table 6C--Invalid Diagnosis Codes; Table 6G.1--
Proposed Secondary Diagnosis Order Additions to the CC Exclusion
List; Table 6G.2--Proposed Principal Diagnosis Order Additions to
the CC Exclusion List; Table 6H.1--Proposed Secondary Diagnosis
Order Deletions to the CC Exclusion List; Table 6H.2--Proposed
Principal Diagnosis Order Deletions to the CC Exclusion List; Table
6I--Proposed Complete MCC List; Table 6I.1--Proposed Additions to
MCC List; Table 6I.2--Proposed Deletions to MCC List; Table 6J--
Proposed Complete CC List; Table 6J.1--Proposed Additions to CC
List; Table 6J.2--Proposed Deletions to CC List; Table 6L--Proposed
Principal Diagnosis Is Its Own MCC List; Table 6M--Proposed
Principal Diagnosis Is Its Own CC List; Table 6M.1--Proposed
Additions to the Principal Diagnosis Is Its Own CC List; and Table
6P--ICD-10-CM and ICD-10-PCS Codes for Proposed MCE and MS-DRG
Changes. Table 6P contains multiple tables, 6P.1a through 6P.4k,
that include the ICD-10-CM and ICD-10-PCS code lists and
translations relating to specific MCE and MS-DRG proposed changes.
In addition, under the HAC Reduction Program established by section
3008 of the Affordable Care Act, a hospital's total payment may be
reduced by 1 percent if it is in the lowest HAC performance
quartile. However, as discussed in section IV.F. of the preamble of
this proposed rule, we are not providing the hospital-level data as
a table associated with this proposed rule. The hospital-level data
for the FY 2017 HAC Reduction Program will be made publicly
available once it has undergone the review and corrections process.
Finally, a hospital's Factor 3 is the proportion of the
uncompensated care amount that a DSH eligible hospital will receive
under section 3133 of the Affordable Care Act. Factor 3 is the
hospital's estimated number of Medicaid days and Medicare SSI days
(or for a Puerto Rico hospital, a proxy for its Medicare SSI days)
relative to the estimate of all DSH hospitals' Medicaid days and
Medicare SSI days (or for Puerto Rico hospitals that are estimated
to be eligible for DSH payments, a proxy for their Medicare SSI
days). Table 18 associated with this proposed rule contains the FY
2017 Medicare DSH uncompensated care payment Factor 3 for all
hospitals and identifies whether or not a hospital is projected to
receive DSH and, therefore, eligible to receive the additional
payment for uncompensated care for FY 2017.
Readers who experience any problems accessing any of the tables
that are posted on the CMS Web sites identified below should contact
Michael Treitel at (410) 786-4552.
The following IPPS tables for this FY 2017 proposed rule are
available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of
the screen titled, ``FY 2017 IPPS Proposed Rule Home Page'' or
``Acute Inpatient--Files for Download''.

Table 2.--Proposed Case-Mix Index and Wage Index Table by CCN--FY
2017
Table 3.--Proposed Wage Index Table by CBSA--FY 2017
Table 5.--Proposed List of Proposed Medicare Severity Diagnosis-
Related Groups (MS DRGs), Relative Weighting Factors, and Geometric
and Arithmetic Mean Length of Stay--FY 2017
Table 6A.--New Diagnosis Codes for FY 2017
Table 6B.--New Procedure Codes for FY 2017
Table 6C.--Invalid Diagnosis Codes for FY 2017
Table 6G.1.--Proposed Secondary Diagnosis Order Additions to the CC
Exclusions List--FY 2017
Table 6G.2.--Proposed Principal Diagnosis Order Additions to the CC
Exclusions List--FY 2017
Table 6H.1.--Proposed Secondary Diagnosis Order Deletions to the CC
Exclusions List--FY 2017
Table 6H.2.--Proposed Principal Diagnosis Order Deletions to the CC
Exclusions List--FY 2017
Table 6I.--Proposed Complete Major Complication and Comorbidity
(MCC) List--FY 2017
Table 6I.1.--Proposed Additions to the MCC List--FY 2017
Table 6I.2.--Proposed Deletions to the MCC List--FY 2017
Table 6J.--Proposed Complete Complication and Comorbidity (CC)
List--FY 2017
Table 6J.1.--Proposed Additions to the CC List--FY 2017
Table 6J.2.--Proposed Deletions to the CC List--FY 2017
Table 6L.--Proposed Principal Diagnosis Is Its Own MCC List--FY 2017
Table 6M.--Proposed Principal Diagnosis Is Its Own CC List--FY 2017
Table 6M.1.--Proposed Additions to the Principal Diagnosis Is Its
Own CC List--FY 2017
Table 6P.--ICD-10-CM and ICD-10-PCS Codes for Proposed MCE and MS-
DRG Changes--FY 2017
Table 7A.--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2015 MedPAR Update--December 2015 GROUPER V33.0
MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2015 MedPAR Update--December 2015 GROUPER V34.0
MS-DRGs
Table 8A.--Proposed FY 2017 Statewide Average Operating Cost-to-
Charge Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--Proposed FY 2017 Statewide Average Capital Cost-to-Charge
Ratios (CCRs) for Acute Care Hospitals
Table 10.--Proposed New Technology Add-On Payment Thresholds for
Applications for FY 2018
Table 14.--List of Hospitals with Fewer Than 1,600 Medicare
Discharges Based on the December 2015 Update of the FY 2015 MedPAR
File and Potentially Eligible Hospitals for the Proposed FY 2017 Low
Volume Hospital Payment Adjustment (eligibility for the low-volume
hospital payment adjustment is also dependent upon meeting the
mileage criteria specified at 42 CFR 412.101(b)(2)(ii).)
Table 15.--Proposed FY 2017 Proxy Readmissions Adjustment Factors
Table 16.--Proposed Proxy Hospital Inpatient Value-Based Purchasing
(VBP) Adjustment Factors for FY 2017
Table 18.--Proposed FY 2017 Medicare DSH Uncompensated Care Payment
Factor 3

The following LTCH PPS tables for this FY 2017 proposed rule are
available only through the Internet on the CMS Web site at

[[Page 25291]]

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for
Regulation Number CMS-1655-P:

Table 8C.--Proposed FY 2017 Statewide Average Total Cost-to-Charge
Ratios (CCRs) for LTCHs (Urban and Rural)
Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, Short-Stay Outlier (SSO) Threshold, and ``IPPS
Comparable'' Threshold for LTCH PPS Discharges Occurring from
October 1, 2016 through September 30, 2017
Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for
Discharges Occurring from October 1, 2016 through September 30, 2017
Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for
Discharges Occurring from October 1, 2016 through September 30, 2017
Table 13A.--Proposed Composition of Low Volume Quintiles for MS-LTC-
DRGs--FY 2017
Table 13B.--Proposed No Volume MS LTC-DRG Crosswalk for FY 2017

Table 1A--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.6 Percent Labor Share/
30.4 Percent Nonlabor Share if Wage Index Is Greater Than 1)--FY 2017
----------------------------------------------------------------------------------------------------------------
Hospital submitted quality Hospital submitted quality Hospital did NOT submit Hospital did NOT submit
data and is a meaningful EHR data and is NOT a quality data and is a quality data and is NOT a
user (update = 1.55 percent) meaningful EHR user meaningful EHR user meaningful EHR user
----------------------------- (update = -0.55 percent) (update = 0.850 percent) (update = -1.25 percent)
-----------------------------------------------------------------------------------
Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
$3,836.20 $1,675.59 $3,756.87 $1,640.94 $3,809.76 $1,664.04 $3,730.43 $1,629.39
----------------------------------------------------------------------------------------------------------------

Table 1B--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38
Percent Nonlabor Share if Wage Index Is Less Than 1)--FY 2017
----------------------------------------------------------------------------------------------------------------
Hospital submitted quality Hospital submitted quality Hospital did NOT submit Hospital did NOT submit
data and is a meaningful EHR data and is NOT a quality data and is a quality data and is NOT a
user (update = 1.55 percent) meaningful EHR user meaningful EHR user meaningful EHR user
----------------------------- (update = -0.55 percent) (update = 0.850 percent) (update = -1.25 percent)
-----------------------------------------------------------------------------------
Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
$3,417.31 $2,094.48 $3,346.64 $2,051.17 $3,393.76 $2,080.04 $3,323.09 $2,036.73
----------------------------------------------------------------------------------------------------------------

Table 1C--Proposed Adjusted Operating Standardized Amounts for Hospitals in Puerto Rico, Labor/Nonlabor
(National: 62 Percent Labor Share/38 Percent Nonlabor Share Because Wage Index Is Less Than or Equal to 1)--FY
2017
----------------------------------------------------------------------------------------------------------------
Rates if wage index is greater than 1 Rates if wage index is less
---------------------------------------------- than or equal to 1
Standardized amount -------------------------------
Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
National\1\....................... Not Applicable....... Not Applicable....... $3,417.31 $2,094.48
----------------------------------------------------------------------------------------------------------------
\1\ For FY 2017, there are no CBSAs in Puerto Rico with a national wage index greater than 1.

Table 1D--Proposed Capital Standard Federal Payment Rate--FY 2017
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
National................................................ $446.35
------------------------------------------------------------------------

Table 1E--Proposed LTCH PPS Standard Federal Payment Rate--FY 2017
------------------------------------------------------------------------
Full update (1.45 Reduced update *
percent) (-0.55 percent)
------------------------------------------------------------------------
Standard Federal Rate............. $42,314.31 $41,480.12
------------------------------------------------------------------------
* For LTCHs that fail to submit quality reporting data for FY 2017 in
accordance with the LTCH Quality Reporting Program (LTCH QRP), the
annual update is reduced by 2.0 percentage points as required by
section 1886(m)(5) of the Act.

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this proposed rule as required
by Executive Order 12866 on Regulatory Planning and Review
(September 30, 1993), Executive Order 13563 on Improving Regulation
and Regulatory Review (February 2, 2011), the Regulatory Flexibility
Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of
the Social Security Act, section 202 of the Unfunded Mandates Reform
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132
on Federalism (August 4, 1999), and the Congressional Review Act (5
U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic,

[[Page 25292]]

environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasizes the
importance of quantifying both costs and benefits, of reducing
costs, of harmonizing rules, and of promoting flexibility. A
regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year).
We have determined that this proposed rule is a major rule as
defined in 5 U.S.C. 804(2). We estimate that the proposed changes
for FY 2017 acute care hospital operating and capital payments would
redistribute amounts in excess of $100 million to acute care
hospitals. The applicable percentage increase to the IPPS rates
required by the statute, in conjunction with other proposed payment
changes in this proposed rule, would result in an estimated $693
million increase in FY 2017 proposed operating payments (or 0.7
percent change) and an estimated $164 million increase in FY 2017
proposed capital payments (or 2.0 percent change). These proposed
changes are relative to payments made in FY 2016. The impact
analysis of the proposed capital payments can be found in section
I.I. of this Appendix. In addition, as described in section I.J. of
this Appendix, LTCHs are expected to experience a decrease in
payments by $355 million in FY 2017 relative to FY 2016.
Our operating impact estimate includes the proposed -1.5 percent
documentation and coding adjustment applied to the IPPS standardized
amount, as discussed in section II.D. of the preamble of this
proposed rule, which represents part of the recoupment required
under section 631 of the ATRA. In addition, our operating payment
impact estimate includes the proposed 1.55 percent hospital update
to the standardized amount (which includes the estimated 2.8 percent
market basket update less 0.5 percentage point for the proposed
multifactor productivity adjustment and less 0.75 percentage point
required under the Affordable Care Act). Our operating payment
impact estimate also includes a proposed adjustment of (1/0.998) to
permanently remove the -0.2 percent reduction and a proposed 1.006
temporary adjustment to address the effects of the 0.2 percent
reduction in effect for FYs 2014 through 2016 as a result of the 2-
midnight policy (we refer readers to section IV.O. of the preamble
of this proposed rule for an explanation of these proposed
adjustments). The estimates of IPPS operating payments to acute care
hospitals do not reflect any changes in hospital admissions or real
case-mix intensity, which will also affect overall proposed payment
changes.
The analysis in this Appendix, in conjunction with the remainder
of this document, demonstrates that this proposed rule is consistent
with the regulatory philosophy and principles identified in
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of
the Act. This proposed rule would affect payments to a substantial
number of small rural hospitals, as well as other classes of
hospitals, and the effects on some hospitals may be significant.
Finally, in accordance with the provisions of Executive Order 12866,
the Executive Office of Management and Budget has reviewed this
proposed rule.

B. Statement of Need

This proposed rule is necessary in order to make payment and
policy changes under the Medicare IPPS for Medicare acute care
hospital inpatient services for operating and capital-related costs
as well as for certain hospitals and hospital units excluded from
the IPPS. This proposed rule also is necessary to make payment and
policy changes for Medicare hospitals under the LTCH PPS.

C. Objectives of the IPPS

The primary objective of the IPPS is to create incentives for
hospitals to operate efficiently and minimize unnecessary costs
while at the same time ensuring that payments are sufficient to
adequately compensate hospitals for their legitimate costs in
delivering necessary care to Medicare beneficiaries. In addition, we
share national goals of preserving the Medicare Hospital Insurance
Trust Fund.
We believe that the changes in this proposed rule would further
each of these goals while maintaining the financial viability of the
hospital industry and ensuring access to high quality health care
for Medicare beneficiaries. We expect that these proposed changes
will ensure that the outcomes of the prospective payment systems are
reasonable and equitable while avoiding or minimizing unintended
adverse consequences.

D. Limitations of Our Analysis

The following quantitative analysis presents the projected
effects of our proposed policy changes, as well as statutory changes
effective for FY 2017, on various hospital groups. We estimate the
effects of individual proposed policy changes by estimating payments
per case while holding all other payment policies constant. We use
the best data available, but, generally, we do not attempt to make
adjustments for future changes in such variables as admissions,
lengths of stay, or case-mix.

E. Hospitals Included in and Excluded From the IPPS

The prospective payment systems for hospital inpatient operating
and capital-related costs of acute care hospitals encompass most
general short-term, acute care hospitals that participate in the
Medicare program. There were 31 Indian Health Service hospitals in
our database, which we excluded from the analysis due to the special
characteristics of the prospective payment methodology for these
hospitals. Among other short-term, acute care hospitals, hospitals
in Maryland are paid in accordance with the Maryland All-Payer
Model, and hospitals located outside the 50 States, the District of
Columbia, and Puerto Rico (that is, 5 short-term acute care
hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa) receive payment for inpatient
hospital services they furnish on the basis of reasonable costs,
subject to a rate-of-increase ceiling.
As of March 2016, there were 3,330 IPPS acute care hospitals
included in our analysis. This represents approximately 55 percent
of all Medicare-participating hospitals. The majority of this impact
analysis focuses on this set of hospitals. There also are
approximately 1,374 CAHs. These small, limited service hospitals are
paid on the basis of reasonable costs rather than under the IPPS.
IPPS-excluded hospitals and units, which are paid under separate
payment systems, include IPFs, IRFs, LTCHs, RNHCIs, children's
hospitals, 11 cancer hospitals, and 5 short-term acute care
hospitals located in the Virgin Islands, Guam, the Northern Mariana
Islands, and American Samoa. Changes in the prospective payment
systems for IPFs and IRFs are made through separate rulemaking.
Payment impacts of changes to the prospective payment systems for
these IPPS-excluded hospitals and units are not included in this
proposed rule. The impact of the proposed update and proposed policy
changes to the LTCH PPS for FY 2017 is discussed in section I.J. of
this Appendix.

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

As of March 2016, there were 98 children's hospitals, 11 cancer
hospitals, 5 short-term acute care hospitals located in the Virgin
Islands, Guam, the Northern Mariana Islands and American Samoa, and
18 RNHCIs being paid on a reasonable cost basis subject to the rate-
of-increase ceiling under Sec. 413.40. (In accordance with Sec.
403.752(a) of the regulation, RNHCIs are paid under Sec. 413.40.)
Among the remaining providers, 262 rehabilitation hospitals and 869
rehabilitation units, and approximately 430 LTCHs, are paid the
Federal prospective per discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 495 psychiatric hospitals and 1,122
psychiatric units are paid the Federal per diem amount under the IPF
PPS. As stated previously, IRFs and IPFs are not affected by the
rate updates discussed in this proposed rule. The impacts of the
changes on LTCHs are discussed in section I.J. of this Appendix.
For children's hospitals, the 11 cancer hospitals, the 5 short-
term acute care hospitals located in the Virgin Islands, Guam, the
Northern Mariana Islands, and American Samoa, and RNHCIs, the update
of the rate-of-increase limit (or target amount) is the estimated FY
2017 percentage increase in the IPPS operating market basket,
consistent with section 1886(b)(3)(B)(ii) of the Act, and Sec. Sec.
403.752(a) and 413.40 of the regulations. As discussed in section
IV. of the preamble of the FY 2014 IPPS/LTCH PPS final rule, we
rebased the IPPS operating market basket to a FY 2010 base year.
Therefore, we are using the percentage increase in the FY 2010-based
IPPS operating market basket to update the target amounts for FY
2017 and subsequent fiscal years for children's hospitals, the 11
cancer hospitals, the 5 short-term acute care hospitals located in
the Virgin Islands, Guam, the Northern Mariana Islands, and American
Samoa, and RNHCIs that are paid based on reasonable costs subject to
the rate-of-increase limits. Consistent with current law,

[[Page 25293]]

based on IHS Global Insight, Inc.'s first quarter 2016 forecast of
the FY 2010-based IPPS market basket increase, we are estimating the
FY 2017 update to be 2.8 percent (that is, the current estimate of
the market basket rate-of-increase). However, the Affordable Care
Act requires an adjustment for multifactor productivity (currently
estimated to be 0.5 percentage point for FY 2017) and a 0.75
percentage point reduction to the market basket update, resulting in
a 1.55 percent applicable percentage increase for IPPS hospitals
that submit quality data and are meaningful EHR users, as discussed
in section IV.B. of the preamble of this proposed rule. Children's
hospitals, the 11 cancer hospitals, the 5 short-term acute care
hospitals located in the Virgin Islands, Guam, the Northern Mariana
Islands, and American Samoa, and RNHCIs that continue to be paid
based on reasonable costs subject to rate-of-increase limits under
Sec. 413.40 of the regulations are not subject to the reductions in
the applicable percentage increase required under the Affordable
Care Act. Therefore, for those hospitals paid under Sec. 413.40 of
the regulations, the update is the percentage increase in the FY
2010-based IPPS operating market basket for FY 2017, estimated at
2.8 percent, without the reductions described previously under the
Affordable Care Act.
The impact of the update in the rate-of-increase limit on those
excluded hospitals depends on the cumulative cost increases
experienced by each excluded hospital since its applicable base
period. For excluded hospitals that have maintained their cost
increases at a level below the rate-of-increase limits since their
base period, the major effect is on the level of incentive payments
these excluded hospitals receive. Conversely, for excluded hospitals
with cost increases above the cumulative update in their rate-of-
increase limits, the major effect is the amount of excess costs that
would not be paid.
We note that, under Sec. 413.40(d)(3), an excluded hospital
that continues to be paid under the TEFRA system and whose costs
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus the lesser of: (1) 50 percent of its
reasonable costs in excess of 110 percent of the limit; or (2) 10
percent of its limit. In addition, under the various provisions set
forth in Sec. 413.40, hospitals can obtain payment adjustments for
justifiable increases in operating costs that exceed the limit.

G. Quantitative Effects of the Proposed Policy Changes Under the
IPPS for Operating Costs

1. Basis and Methodology of Estimates

In this proposed rule, we are announcing proposed policy changes
and proposed payment rate updates for the IPPS for FY 2017 for
operating costs of acute care hospitals. The proposed FY 2017
updates to the capital payments to acute care hospitals are
discussed in section I.I. of this Appendix.
Based on the overall percentage change in payments per case
estimated using our payment simulation model, we estimate that total
FY 2017 operating payments would increase by 0.7 percent compared to
FY 2016. In addition to the applicable percentage increase, this
amount reflects the proposed FY 2017 recoupment adjustment for
documentation and coding described in section II.D. of the preamble
of this proposed rule of -1.5 percent to the IPPS national
standardized amounts. This amount also reflects the proposed
adjustment of (1/0.998) to permanently remove the 0.2 percent
reduction and the proposed 1.006 temporary adjustment to address the
effects of the 0.2 percent reduction in effect for FYs 2014 through
2016 related to the 2-midnight policy, which are discussed in
section IV.O. of the preamble of this proposed rule. The impacts do
not reflect changes in the number of hospital admissions or real
case-mix intensity, which would also affect overall proposed payment
changes.
We have prepared separate impact analyses of the proposed
changes to each system. This section deals with the proposed changes
to the operating inpatient prospective payment system for acute care
hospitals. Our payment simulation model relies on the most recent
available data to enable us to estimate the impacts on payments per
case of certain changes in this proposed rule. However, there are
other proposed changes for which we do not have data available that
would allow us to estimate the payment impacts using this model. For
those proposed changes, we have attempted to predict the payment
impacts based upon our experience and other more limited data.
The data used in developing the quantitative analyses of
proposed changes in payments per case presented in this section are
taken from the FY 2015 MedPAR file and the most current Provider-
Specific File (PSF) that is used for payment purposes. Although the
analyses of the proposed changes to the operating PPS do not
incorporate cost data, data from the most recently available
hospital cost reports were used to categorize hospitals. Our
analysis has several qualifications. First, in this analysis, we do
not make adjustments for future changes in such variables as
admissions, lengths of stay, or underlying growth in real case-mix.
Second, due to the interdependent nature of the IPPS payment
components, it is very difficult to precisely quantify the impact
associated with each proposed change. Third, we use various data
sources to categorize hospitals in the tables. In some cases,
particularly the number of beds, there is a fair degree of variation
in the data from the different sources. We have attempted to
construct these variables with the best available source overall.
However, for individual hospitals, some miscategorizations are
possible.
Using cases from the FY 2015 MedPAR file, we simulate payments
under the operating IPPS given various combinations of payment
parameters. As described previously, Indian Health Service hospitals
and hospitals in Maryland were excluded from the simulations. The
proposed impact of payments under the capital IPPS, or the impact of
payments for costs other than inpatient operating costs, are not
analyzed in this section. Estimated payment impacts of the capital
IPPS for FY 2017 are discussed in section I.I. of this Appendix.
We discuss the following proposed changes:
The effects of the proposed application of the
documentation and coding adjustment and the applicable percentage
increase (including the proposed market basket update, the proposed
multifactor productivity adjustment, and the applicable percentage
reduction in accordance with the Affordable Care Act) to the
standardized amount and hospital-specific rates.
The effects of the proposed adjustment of (1/0.998) to
permanently remove the 0.2 percent reduction and the proposed 1.006
temporary adjustment to address the effects of the 0.2 percent
reduction in effect for FYs 2014 through 2016 related to the 2-
midnight policy, as discussed in section IV.O. of the preamble of
this proposed rule.
The effects of the proposed changes to the relative
weights and MS-DRG GROUPER.
The effects of the proposed changes in hospitals' wage
index values reflecting updated wage data from hospitals' cost
reporting periods beginning during FY 2013, compared to the FY 2012
wage data, to calculate the FY 2017 wage index.
The effects of the geographic reclassifications by the
MGCRB (as of publication of this proposed rule) that would be
effective for FY 2017.
The effects of the proposed rural floor and imputed
floor with the application of the proposed national budget
neutrality factor to the wage index.
The effects of the last year of the 3-year transition
for hospitals that were located in an urban county that became rural
under the new OMB delineations or hospitals that were deemed urban
where the urban area became rural under the new OMB delineations.
The effects of the proposed frontier State wage index
adjustment under the statutory provision that requires that
hospitals located in States that qualify as frontier States to not
have a wage index less than 1.0. This provision is not budget
neutral.
The effects of the implementation of section
1886(d)(13) of the Act, as added by section 505 of Public Law 108-
173, which provides for an increase in a hospital's wage index if a
threshold percentage of residents of the county where the hospital
is located commute to work at hospitals in counties with higher wage
indexes. This provision is not budget neutral.
The total estimated change in payments based on the
proposed FY 2017 policies relative to payments based on FY 2016
policies that include the applicable percentage increase of 1.55
percent (or 2.8 percent market basket update with a proposed
reduction of 0.5 percentage point for the multifactor productivity
adjustment, and a 0.75 percentage point reduction, as required under
the Affordable Care Act).
To illustrate the impact of the proposed FY 2017 changes, our
analysis begins with a FY 2016 baseline simulation model using: The
FY 2016 applicable percentage increase of 1.7 percent and the
documentation and coding recoupment adjustment of -0.8 percent to
the Federal standardized amount; the FY 2016 MS-DRG GROUPER (Version
33); the FY 2016 CBSA designations for hospitals based on the new
OMB definitions; the FY 2016 wage index; and no MGCRB
reclassifications. Outlier payments are set at

[[Page 25294]]

5.1 percent of total operating MS-DRG and outlier payments for
modeling purposes.
Section 1886(b)(3)(B)(viii) of the Act, as added by section
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A)
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007
and each subsequent year through FY 2014, the update factor will
include a reduction of 2.0 percentage points for any subsection (d)
hospital that does not submit data on measures in a form and manner
and at a time specified by the Secretary. Beginning in FY 2015, the
reduction is one-quarter of such applicable percentage increase
determined without regard to section 1886(b)(3)(B)(ix), (xi), or
(xii) of the Act, or one-quarter of the market basket update.
Therefore, for FY 2017, we are proposing that hospitals that do not
submit quality information under rules established by the Secretary
and that are meaningful EHR users under section 1886(b)(3)(B)(ix) of
the Act would receive an applicable percentage increase of 0.85
percent. At the time that this impact was prepared, 90 hospitals are
estimated to not receive the full market basket rate-of-increase for
FY 2016 because they failed the quality data submission process or
did not choose to participate but are meaningful EHR users. For
purposes of the simulations shown later in this section, we modeled
the proposed payment changes for FY 2017 using a reduced update for
these 90 hospitals.
For FY 2017, in accordance with section 1886(b)(3)(B)(ix) of the
Act, a hospital that has been identified as not a meaningful EHR
user would be subject to a reduction of three-quarters of such
applicable percentage increase determined without regard to section
1886(b)(3)(B)(ix), (xi), or (xii) of the Act. Therefore, for FY
2017, we are proposing that hospitals that are identified as not
meaningful EHR users and do submit quality information under section
1886(b)(3)(B)(viii) of the Act would receive an applicable
percentage increase of -0.55 percent. At the time that this impact
analysis was prepared, 147 hospitals are estimated to not receive
the full market basket rate-of-increase for FY 2017 because they are
identified as not meaningful EHR users that do submit quality
information under section 1886(b)(3)(B)(viii) of the Act. For
purposes of the simulations shown in this section, we modeled the
proposed payment changes for FY 2017 using a reduced update for
these 147 hospitals.
Hospitals that are identified as not meaningful EHR users under
section 1886(b)(3)(B)(ix) of the Act and also do not submit quality
data under section 1886(b)(3)(B)(viii) of the Act would receive an
applicable percentage increase of -1.25 percent, which reflects a
one-quarter reduction of the market basket update for failure to
submit quality data and a three-quarter reduction of the market
basket update for being identified as not a meaningful EHR user. At
the time that this impact was prepared, 30 hospitals are estimated
to not receive the full market basket rate-of-increase for FY 2017
because they are identified as not meaningful EHR users that do not
submit quality data under section 1886(b)(3)(B)(viii) of the Act.
Each proposed policy change, statutory or otherwise, is then
added incrementally to this baseline, finally arriving at an FY 2017
model incorporating all of the proposed changes. This simulation
would allow us to isolate the effects of each proposed change.
Our final comparison illustrates the percent change in payments
per case from FY 2016 to FY 2017. Three factors not discussed
separately have significant impacts here. The first factor is the
proposed update to the standardized amount. In accordance with
section 1886(b)(3)(B)(i) of the Act, we are proposing to update the
standardized amounts for FY 2017 using a proposed applicable
percentage increase of 1.55 percent. This includes our forecasted
IPPS operating hospital market basket increase of 2.8 percent with a
reduction of 0.5 percentage point for the multifactor productivity
adjustment and a 0.75 percentage point reduction as required under
the Affordable Care Act. Hospitals that fail to comply with the
quality data submission requirements and are meaningful EHR users
would receive a proposed update of 0.85 percent. This update
includes a reduction of one-quarter of the market basket update for
failure to submit these data. Hospitals that do comply with the
quality data submission requirements but are not meaningful EHR
users would receive an update of -0.55 percent, which includes a
reduction of three-quarters of the market basket update.
Furthermore, hospitals that do not comply with the quality data
submission requirements and also are not meaningful EHR users would
receive an update of -1.25 percent. Under section 1886(b)(3)(B)(iv)
of the Act, the update to the hospital-specific amounts for SCHs and
MDHs also is equal to the applicable percentage increase, or 1.55
percent if the hospital submits quality data and is a meaningful EHR
user.
A second significant factor that affects the proposed changes in
hospitals' payments per case from FY 2016 to FY 2017 is the change
in hospitals' geographic reclassification status from one year to
the next. That is, payments may be reduced for hospitals
reclassified in FY 2016 that are no longer reclassified in FY 2017.
Conversely, payments may increase for hospitals not reclassified in
FY 2016 that are reclassified in FY 2017.
A third significant factor is that we currently estimate that
actual outlier payments during FY 2016 would be 5.3 percent of total
MS-DRG payments. When the FY 2016 IPPS/LTCH PPS final rule was
published, we projected FY 2016 outlier payments would be 5.1
percent of total MS-DRG plus outlier payments; the average
standardized amounts were offset correspondingly. The effects of the
higher than expected outlier payments during FY 2016 are reflected
in the analyses in this section comparing our current estimates of
FY 2016 payments per case to estimated FY 2017 payments per case
(with outlier payments projected to equal 5.1 percent of total MS-
DRG payments).

2. Analysis of Table I

Table I displays the results of our analysis of the proposed
changes for FY 2017. The table categorizes hospitals by various
geographic and special payment consideration groups to illustrate
the varying impacts on different types of hospitals. The top row of
the table shows the overall impact on the 3,330 acute care hospitals
included in the analysis.
The next four rows of Table I contain hospitals categorized
according to their geographic location: All urban, which is further
divided into large urban and other urban; and rural. There are 2,512
hospitals located in urban areas included in our analysis. Among
these, there are 1,378 hospitals located in large urban areas
(populations over 1 million), and 1,134 hospitals in other urban
areas (populations of 1 million or fewer). In addition, there are
818 hospitals in rural areas. The next two groupings are by bed-size
categories, shown separately for urban and rural hospitals. The
final groupings by geographic location are by census divisions, also
shown separately for urban and rural hospitals.
The second part of Table I shows hospital groups based on
hospitals' FY 2017 proposed payment classifications, including any
reclassifications under section 1886(d)(10) of the Act. For example,
the rows labeled urban, large urban, other urban, and rural show
that the numbers of hospitals paid based on these categorizations
after consideration of geographic reclassifications (including
reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of
the Act that have implications for capital payments) are 2,455;
1,372; 1,083; and 875, respectively.
The next three groupings examine the impacts of the proposed
changes on hospitals grouped by whether or not they have GME
residency programs (teaching hospitals that receive an IME
adjustment) or receive Medicare DSH payments, or some combination of
these two adjustments. There are 2,275 nonteaching hospitals in our
analysis, 804 teaching hospitals with fewer than 100 residents, and
251 teaching hospitals with 100 or more residents.
In the DSH categories, hospitals are grouped according to their
DSH payment status, and whether they are considered urban or rural
for DSH purposes. The next category groups together hospitals
considered urban or rural, in terms of whether they receive the IME
adjustment, the DSH adjustment, both, or neither.
The next three rows examine the impacts of the proposed changes
on rural hospitals by special payment groups (SCHs, RRCs, and MDHs).
There were 193 RRCs, 326 SCHs, 146 MDHs, 126 hospitals that are both
SCHs and RRCs, and 15 hospitals that are both MDHs and RRCs.
The next series of groupings are based on the type of ownership
and the hospital's Medicare utilization expressed as a percent of
total patient days. These data were taken from the FY 2013 or FY
2012 Medicare cost reports.
The next two groupings concern the geographic reclassification
status of hospitals. The first grouping displays all urban hospitals
that were reclassified by the MGCRB for FY 2017. The second grouping
shows the MGCRB rural reclassifications.

[[Page 25295]]

Table I--Impact Analysis of Proposed Changes to the IPPS for Operating Costs for FY 2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed rural
Proposed FY Proposed FY and imputed
Proposed 2017 weights 2017 wage data floor with Proposed
Number of hospital rate and DRG under new CBSA application of application of All
hospitals update and changes with designations FY 2017 MGCRB national the frontier proposed FY
\1\ documentation application of with reclassifications rural and wage index and 2017
and coding recalibration application of imputed floor out-migration changes
adjustment budget wage budget budget adjustment
neutrality neutrality neutrality
........... (1) \2\ (2) \3\ (3) \4\ (4) \5\ (5) \6\ (6) \7\ (7) \8\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
All Hospitals...................................................... 3,330 0.9 0 0 0 0 0.1 0.7
By Geographic Location:
Urban hospitals................................................ 2,512 0.8 0 0 -0.1 0 0.1 0.6
Large urban areas.............................................. 1,378 0.8 0.1 0 -0.3 -0.1 0 0.6
Other urban areas.............................................. 1,134 0.9 0 0 0.1 0.2 0.2 0.7
Rural hospitals................................................ 818 1.5 -0.4 0.1 1.4 -0.2 0.1 0.8
Bed Size (Urban):
0-99 beds...................................................... 656 0.8 -0.2 0.2 -0.5 0.1 0.2 0.7
100-199 beds................................................... 765 0.9 -0.2 0 0 0.3 0.2 0.5
200-299 beds................................................... 449 0.9 -0.1 -0.1 0.1 0 0.1 0.5
300-499 beds................................................... 429 0.9 0.1 0.1 -0.2 0 0.2 0.7
500 or more beds............................................... 213 0.8 0.2 -0.1 -0.2 -0.1 0 0.8
Bed Size (Rural):
0-49 beds...................................................... 320 1.3 -0.5 0.1 0.3 -0.2 0.3 0.6
50-99 beds..................................................... 292 1.7 -0.6 0.1 0.8 -0.1 0.1 0.8
100-149 beds................................................... 119 1.5 -0.4 0 1.5 -0.2 0.2 0.6
150-199 beds................................................... 46 1.5 -0.2 0.1 1.7 -0.2 0 1.0
200 or more beds............................................... 41 1.5 -0.1 0.2 2.5 -0.2 0 1.2
Urban by Region:
New England.................................................... 116 0.7 0 -0.4 1.3 0.8 0 -0.6
Middle Atlantic................................................ 315 0.8 0.1 -0.3 0.5 -0.2 0.1 0.2
South Atlantic................................................. 406 0.9 0 -0.1 -0.4 -0.2 0.1 0.8
East North Central............................................. 390 0.8 0 0.1 -0.2 -0.3 0 1.1
East South Central............................................. 147 0.9 0 -0.2 -0.4 -0.3 0 1.0
West North Central............................................. 163 1 0.1 0 -0.7 -0.3 0.7 0.9
West South Central............................................. 384 0.8 0 0.3 -0.4 -0.3 0 1.2
Mountain....................................................... 163 1 0 0.2 -0.4 0 0.2 0.7
Pacific........................................................ 377 0.8 0 0.4 -0.4 1.1 0.1 0.4
Puerto Rico.................................................... 51 0.8 0.1 -0.4 -0.9 0.2 0.1 0.3
Rural by Region:
New England.................................................... 21 1.2 -0.2 0.4 1.5 -0.2 0 1.2
Middle Atlantic................................................ 55 1.7 -0.4 0.1 0.6 -0.1 0.1 0.9
South Atlantic................................................. 127 1.4 -0.4 -0.1 2.5 -0.2 0.1 0.8
East North Central............................................. 115 1.6 -0.4 0 1 -0.1 0 0.9
East South Central............................................. 156 1 -0.3 0.4 2.1 -0.3 0.1 0.7
West North Central............................................. 99 2.1 -0.4 0 0.3 -0.1 0.3 1.0
West South Central............................................. 161 1.6 -0.5 0.2 1.6 -0.2 0.1 0.9
Mountain....................................................... 60 1.6 -0.4 0.1 0.2 -0.1 0.1 0.7
Pacific........................................................ 24 1.7 -0.5 -0.2 1.3 -0.1 0 0.8
By Payment Classification:
Urban hospitals................................................ 2,455 0.8 0 0 -0.1 0 0.1 0.6
Large urban areas.............................................. 1,372 0.8 0.1 0 -0.3 -0.1 0 0.6
Other urban areas.............................................. 1,083 0.9 0 0 0.2 0.2 0.2 0.7
Rural areas.................................................... 875 1.6 -0.4 0.1 1.1 -0.1 0.3 0.9
Teaching Status:
Nonteaching.................................................... 2,275 1 -0.2 0 0.2 0.1 0.1 0.6
Fewer than 100 residents....................................... 804 0.9 0 0 -0.1 0 0.2 0.7
100 or more residents.......................................... 251 0.8 0.2 -0.1 -0.1 -0.2 0 0.8
Urban DSH:
Non-DSH........................................................ 597 0.9 0 -0.1 0.1 -0.1 0.1 0.5
100 or more beds............................................... 1,608 0.8 0.1 0 -0.1 0 0.1 0.7
Less than 100 beds............................................. 330 0.8 -0.3 0.1 -0.6 0.1 0.1 0.5
Rural DSH:
SCH............................................................ 266 2 -0.5 0.1 0 0 0 0.9
RRC............................................................ 347 1.5 -0.3 0.1 1.5 -0.2 0.3 0.9
100 or more beds............................................... 33 0.8 -0.4 -0.1 2.9 -0.3 0.1 0.5
Less than 100 beds............................................. 149 0.7 -0.4 0.1 1.4 -0.3 0.5 0.2
Urban teaching and DSH:
Both teaching and DSH.......................................... 880 0.8 0.1 0 -0.2 -0.1 0.1 0.7
Teaching and no DSH............................................ 107 0.8 0 0 0.7 -0.1 0 0.2
No teaching and DSH............................................ 1,058 0.8 -0.1 0.1 0 0.2 0.1 0.5
No teaching and no DSH......................................... 410 0.8 0 -0.1 -0.3 0 0.1 0.7
Special Hospital Types:
RRC............................................................ 193 0.8 -0.1 0.2 2 -0.1 0.4 1.1
SCH............................................................ 326 2 -0.3 -0.1 0 0 0 1.0
MDH............................................................ 146 1.6 -0.6 0 0.5 -0.1 0.2 0.8
SCH and RRC.................................................... 126 2 -0.3 0.1 0.4 -0.1 0 1.2
MDH and RRC.................................................... 15 1.8 -0.5 -0.1 0.8 -0.1 0 1.3
Type of Ownership:
Voluntary...................................................... 1,914 0.9 0 0 0 0 0.1 0.7
Proprietary.................................................... 858 0.9 0 0.1 0.1 0 0.1 0.8
Government..................................................... 516 0.9 0 -0.2 -0.2 0.1 0.1 0.5

[[Page 25296]]

Medicare Utilization as a Percent of Inpatient Days:
0-25........................................................... 517 0.7 0.1 0 -0.4 0.1 0 0.7
25-50.......................................................... 2,128 0.9 0 0 0 0 0.1 0.7
50-65.......................................................... 546 1.1 -0.2 -0.1 0.6 0.1 0.1 0.5
Over 65........................................................ 94 1.1 -0.3 0.3 -0.5 0.3 0.2 0.9
FY 2017 Reclassifications by the Medicare Geographic Classification
Review Board:
All Reclassified Hospitals..................................... 853 0.9 0 0 2.1 -0.1 0 0.6
Non-Reclassified Hospitals..................................... 2,477 0.9 0 0 -0.9 0 0.1 0.7
Urban Hospitals Reclassified................................... 576 0.8 0 0 2 -0.1 0 0.5
Urban Nonreclassified Hospitals................................ 1,879 0.8 0.1 0 -0.9 0.1 0.1 0.7
Rural Hospitals Reclassified Full Year......................... 277 1.6 -0.3 0.1 2.3 -0.2 0 1.0
Rural Nonreclassified Hospitals Full Year...................... 484 1.5 -0.5 0.2 -0.2 -0.1 0.3 0.7
All Section 401 Reclassified Hospitals:........................ 57 1.7 -0.2 0.2 -0.4 0 1.2 1.0
Other Reclassified Hospitals (Section 1886(d)(8)(B))........... 57 1.2 -0.4 0.1 3 -0.3 0 0.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY
2015, and hospital cost report data are from reporting periods beginning in FY 2012 and FY 2013.
\2\ This column displays the payment impact of the proposed hospital rate update and other proposed adjustments including the proposed 1.55 percent adjustment to the national standardized
amount and hospital-specific rate (the estimated 2.8 percent market basket update reduced by the 0.5 percentage point for the proposed multifactor productivity adjustment and the 0.75
percentage point reduction under the Affordable Care Act), the -1.5 percent proposed documentation and coding adjustment to the national standardized amount and the proposed adjustment of (1/
0.998) to permanently remove the -0.2 percent reduction, and the proposed 1.006 temporary adjustment to address the effects of the 0.2 percent reduction in effect for FYs 2014 through 2016
related to the 2-midnight policy.
\3\ This column displays the payment impact of the proposed changes to the Version 34 GROUPER, the proposed changes to the relative weights and the recalibration of the MS-DRG weights based on
FY 2015 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act. This column displays the application of the proposed recalibration budget neutrality factor of 0.999006 in
accordance with section 1886(d)(4)(C)(iii) of the Act.
\4\ This column displays the payment impact of the proposed update to wage index data using FY 2013 cost report data and the OMB labor market area delineations based on 2010 Decennial Census
data. This column displays the payment impact of the application of the proposed wage budget neutrality factor, which is calculated separately from the proposed recalibration budget
neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage budget neutrality factor is 0.999785.
\5\ Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB) along with the effects of the continued implementation of the new
OMB labor market area delineations on these reclassifications. The effects demonstrate the FY 2017 payment impact of going from no reclassifications to the reclassifications scheduled to be
in effect for FY 2017. Reclassification for prior years has no bearing on the payment impacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.988816.
\6\ This column displays the effects of the proposed rural and imputed floor based on the continued implementation of the new OMB labor market area delineations. The Affordable Care Act
requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rural floor budget neutrality factor (which includes the proposed imputed
floor) applied to the wage index is 0.993806. This column also shows the effect of the 3-year transition for hospitals that were located in urban counties that became rural under the new OMB
delineations or hospitals deemed urban where the urban area became rural under the new OMB delineations, with a proposed budget neutrality factor of 0.999999.
\7\ This column shows the combined impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier States have a wage index no less than 1.0 and
of section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, which provides for an increase in a hospital's wage index if a threshold percentage of residents of the
county where the hospital is located commute to work at hospitals in counties with higher wage indexes. These are non-budget neutral policies.
\8\ This column shows the proposed changes in payments from FY 2016 to FY 2017. It reflects the impact of the proposed FY 2017 hospital update and the proposed adjustment for documentation and
coding. It also reflects proposed changes in hospitals' reclassification status in FY 2017 compared to FY 2016. It incorporates all of the proposed changes displayed in Columns 1 through 6.
The sum of these impacts may be different from the proposed percentage changes shown here due to rounding and interactive effects.

a. Effects of the Proposed Hospital Update, Documentation and Coding
Adjustment, and Other Adjustments (Column 1)

As discussed in section IV.B. of the preamble of this proposed
rule, this column includes the proposed hospital update, including
the proposed 2.8 percent market basket update, the proposed
reduction of 0.5 percentage point for the multifactor productivity
adjustment, and the 0.75 percentage point reduction in accordance
with the Affordable Care Act. In addition, as discussed in section
II.D. of the preamble of this proposed rule, this column includes
the proposed FY 2017 documentation and coding recoupment adjustment
of -1.5 percent on the national standardized amount as part of the
recoupment required by section 631 of the ATRA and, as discussed in
section IV.O. of the preamble of this proposed rule, the proposed
adjustment of (1/0.998) to permanently remove the 0.2 percent
reduction and the proposed 1.006 temporary adjustment to address the
effects of the 0.2 percent reduction in effect for FYs 2014 through
2016 related to the 2-midnight policy. As a result, we are proposing
to make a 0.9 percent update to the national standardized amount.
This column also includes the proposed 1.55 percent update to the
hospital-specific rates which includes the proposed 2.8 percent
market basket update, the proposed reduction of 0.5 percentage point
for the multifactor productivity adjustment, the 0.75 percentage
point reduction in accordance with the Affordable Care Act. In
addition, this column includes the proposed adjustment to the
hospital-specific rates of (1/0.998) to permanently remove the -0.2
percent reduction and the proposed 1.006 temporary adjustment to
address the effects of the 0.2 percent reduction in effect for FYs
2014 through 2016, which are discussed in section IV.O. of

[[Page 25297]]

the preamble of this proposed rule. As a result, we are proposing to
make a 2.35 percent update to the hospital-specific rates.
Overall, hospitals would experience a 0.9 percent increase in
payments primarily due to the combined effects of the proposed
hospital update and the proposed documentation and coding adjustment
on the national standardized amount and the proposed hospital update
to the hospital-specific rate as well as the proposed adjustment of
(1/0.998) to permanently remove the -0.2 percent reduction and the
proposed 1.006 temporary adjustment to address the effects of the
0.2 percent reduction in effect for FYs 2014 through 2016 related to
the 2-midnight policy to both the national standardized amount and
the hospital-specific rate. Hospitals that are paid under the
hospital-specific rate, namely SCHs, would experience a 2.0 percent
increase in payments; therefore, hospital categories with SCHs paid
under the hospital-specific rate would experience increases in
payments of more than 0.9 percent.

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and
Relative Cost-Based Weights With Recalibration Budget Neutrality
(Column 2)

Column 2 shows the effects of the proposed changes to the MS-
DRGs and relative weights with the application of the recalibration
budget neutrality factor to the standardized amounts. Section
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate
classification changes in order to reflect changes in treatment
patterns, technology, and any other factors that may change the
relative use of hospital resources. Consistent with section
1886(d)(4)(C)(iii) of the Act, we are calculating a recalibration
budget neutrality factor to account for the changes in MS-DRGs and
relative weights to ensure that the overall payment impact is budget
neutral.
As discussed in section II.E. of the preamble of this proposed
rule, the FY 2017 MS-DRG relative weights would be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2017, the MS-DRGs are
calculated using the FY 2015 MedPAR data grouped to the Version 34
(FY 2017) MS-DRGs. The methodology to calculate the relative weights
and the reclassification changes to the GROUPER are described in
more detail in section II.G. of the preamble of this proposed rule.
The ``All Hospitals'' line in Column 2 indicates that proposed
changes due to the MS-DRGs and relative weights would result in a
0.0 percent change in payments with the application of the proposed
recalibration budget neutrality factor of 0.999006 on to the
standardized amount. Hospital categories that generally treat more
surgical cases than medical cases would experience increases in
their payments under the relative weights. Rural hospitals would
experience a 0.4 percent decrease in payments because rural
hospitals tend to treat fewer surgical cases than medical cases,
while teaching hospitals with more than 100 residents would
experience an increase in payments by 0.2 percent as those hospitals
treat more surgical cases than medical cases.

c. Effects of the Proposed Wage Index Changes (Column 3)

Column 3 shows the impact of updated wage data using FY 2013
cost report data, with the application of the wage budget neutrality
factor. The wage index is calculated and assigned to hospitals on
the basis of the labor market area in which the hospital is located.
Under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we
delineate hospital labor market areas based on the Core Based
Statistical Areas (CBSAs) established by OMB. The current
statistical standards used in FY 2017 are based on OMB standards
published on February 28, 2013 (75 FR 37246 and 37252), and 2010
Decennial Census data (OMB Bulletin No. 13-01). (We refer readers to
the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963) for
a full discussion on our adoption of the OMB labor market area
delineations based on the 2010 Decennial Census data, effective
beginning with the FY 2015 IPPS wage index).
Section 1886(d)(3)(E) of the Act requires that, beginning
October 1, 1993, we annually update the wage data used to calculate
the wage index. In accordance with this requirement, the proposed
wage index for acute care hospitals for FY 2017 is based on data
submitted for hospital cost reporting periods beginning on or after
October 1, 2012 and before October 1, 2013. The estimated impact of
the updated wage data using the FY 2013 cost report data and the OMB
labor market area delineations on hospital payments is isolated in
Column 3 by holding the other payment parameters constant in this
simulation. That is, Column 3 shows the percentage change in
payments when going from a model using the FY 2016 wage index, based
on FY 2012 wage data, the labor-related share of 69.6 percent, under
the OMB delineations and having a 100-percent occupational mix
adjustment applied, to a model using the FY 2017 pre-
reclassification wage index based on FY 2013 wage data with the
labor-related share of 69.6 percent, under the OMB delineations,
also having a 100-percent occupational mix adjustment applied, while
holding other proposed payment parameters such as use of the Version
34 MS-DRG GROUPER constant. The proposed FY 2017 occupational mix
adjustment is based on the CY 2013 occupational mix survey.
In addition, the column shows the impact of the proposed
application of the wage budget neutrality to the national
standardized amount. In FY 2010, we began calculating separate wage
budget neutrality and recalibration budget neutrality factors, in
accordance with section 1886(d)(3)(E) of the Act, which specifies
that budget neutrality to account for wage index changes or updates
made under that subparagraph must be made without regard to the 62
percent labor-related share guaranteed under section
1886(d)(3)(E)(ii) of the Act. Therefore, for FY 2017, we are
proposing to calculate the wage budget neutrality factor to ensure
that payments under updated wage data and the labor-related share of
69.6 percent are budget neutral without regard to the lower labor-
related share of 62 percent applied to hospitals with a wage index
less than or equal to 1.0. In other words, the wage budget
neutrality is calculated under the assumption that all hospitals
receive the higher labor-related share of the standardized amount.
The proposed FY 2017 wage budget neutrality factor is 0.999785, and
the overall payment change is 0.0 percent.
Column 3 shows the impacts of updating the wage data using FY
2013 cost reports. Overall, the new wage data and the labor-related
share, combined with the proposed wage budget neutrality adjustment,
would lead to no change for all hospitals as shown in Column 3.
In looking at the wage data itself, the proposed national
average hourly wage would increase 1.02 percent compared to FY 2016.
Therefore, the only manner in which to maintain or exceed the
previous year's wage index was to match or exceed the national 1.02
percent increase in average hourly wage. Of the 3,303 hospitals with
wage data for both FYs 2016 and 2017, 1.634 or 49.5 percent would
experience an average hourly wage increase of 1.02 percent or more.
The following chart compares the shifts in wage index values for
hospitals due to proposed changes in the average hourly wage data
for FY 2017 relative to FY 2016. Among urban hospitals, 5 would
experience a decrease of 10 percent or more, and 14 urban hospitals
would experience an increase of 10 percent or more. One hundred and
thirty-nine urban hospitals would experience an increase or decrease
of at least 5 percent or more but less than 10 percent. Among rural
hospitals, 9 would experience an increase of at least 5 percent but
less than 10 percent, but no rural hospitals would experience a
decrease of greater than or equal to 5 percent but less than 10
percent. No rural hospital would experience increases of 10 percent
or more, but 2 rural hospitals would experience decreases of 10
percent or more. However, 794 rural hospitals would experience
increases or decreases of less than 5 percent, while 2,340 urban
hospitals would experience increases or decreases of less than 5
percent. No urban hospital and no rural hospital would experience no
change to their wage index. These figures reflect proposed changes
in the ``pre-reclassified, occupational mix-adjusted wage index,''
that is, the proposed wage index before the application of proposed
geographic reclassification, the proposed rural and imputed floors,
the proposed out-migration adjustment, and other proposed wage index
exceptions and adjustments. (We refer readers to sections III.G.
through III.L. of the preamble of this proposed rule for a complete
discussion of the exceptions and adjustments to the wage index.) We
note that the proposed ``post-reclassified wage index'' or proposed
``payment wage index,'' which is the proposed wage index that
includes all such exceptions and adjustments (as reflected in Tables
2 and 3 associated with this proposed rule, which are available via
the Internet on the CMS Web site) is used to adjust the labor-
related share of a hospital's standardized amount, either 69.6
percent or 62 percent, depending upon whether a hospital's wage
index is greater than 1.0 or less than or equal to 1.0. Therefore,
the proposed pre-reclassified wage index figures in the

[[Page 25298]]

following chart may illustrate a somewhat larger or smaller change
than would occur in a hospital's proposed payment wage index and
total payment.
The following chart shows the projected impact of proposed
changes in the area wage index values for urban and rural hospitals.

Proposed FY 2017 Percentage Change in Area Wage Index Values
------------------------------------------------------------------------
Number of hospitals
-------------------------------
Urban Rural
------------------------------------------------------------------------
Increase 10 percent or more............. 14 0
Increase greater than or equal to 5 88 9
percent and less than 10 percent.......
Increase or decrease less than 5 percent 2,340 794
Decrease greater than or equal to 5 51 0
percent and less than 10 percent.......
Decrease 10 percent or more............. 5 2
Unchanged............................... 0 0
------------------------------------------------------------------------

d. Effects of MGCRB Reclassifications (Column 4)

Our impact analysis to this point has assumed acute care
hospitals are paid on the basis of their actual geographic location
(with the exception of ongoing policies that provide that certain
hospitals receive payments on bases other than where they are
geographically located). The proposed changes in Column 4 reflect
the per case payment impact of moving from this baseline to a
simulation incorporating the MGCRB decisions for FY 2017.
By spring of each year, the MGCRB makes reclassification
determinations that would be effective for the next fiscal year,
which begins on October 1. The MGCRB may approve a hospital's
reclassification request for the purpose of using another area's
wage index value. Hospitals may appeal denials of MGCRB decisions to
the CMS Administrator. Further, hospitals have 45 days from
publication of the IPPS proposed rule in the Federal Register to
decide whether to withdraw or terminate an approved geographic
reclassification for the following year.
The overall effect of geographic reclassification is required by
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore,
for purposes of this impact analysis, we are proposing to apply an
adjustment of 0.988816 to ensure that the effects of the
reclassifications under section 1886(d)(10) of the Act are budget
neutral (section II.A. of the Addendum to this proposed rule).
Geographic reclassification generally benefits hospitals in rural
areas. We estimate that the geographic reclassification would
increase payments to rural hospitals by an average of 1.4 percent.
By region, all the rural hospital categories will experience
increases in payments due to MGCRB reclassifications.
New Table 2 listed in section VI. of the Addendum to this
proposed rule and available via the Internet on the CMS Web site
reflects the proposed reclassifications for FY 2017.

e. Effects of the Proposed Rural Floor and Imputed Floor, Including
Application of National Budget Neutrality (Column 5)

As discussed in section III.B. of the preamble of the FY 2009
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH PPS final rule, the
FYs 2011, 2012, 2013, 2014, 2015, 2016 IPPS/LTCH PPS final rules,
and this proposed rule, section 4410 of Public Law 105-33
established the rural floor by requiring that the wage index for a
hospital in any urban area cannot be less than the wage index
received by rural hospitals in the same State. We would apply a
uniform budget neutrality adjustment to the wage index. The imputed
floor, which is also included in the calculation of the budget
neutrality adjustment to the wage index, was extended in FY 2012 for
2 additional years and in FY 2014 and FY 2015 for 1 additional year.
Prior to FY 2013, only urban hospitals in New Jersey received the
imputed floor. As discussed in the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53369), we established an alternative temporary methodology
for the imputed floor, which resulted in an imputed floor for Rhode
Island for FY 2013. For FY 2014 and FY 2015, we extended the imputed
rural floor, as calculated under the original methodology and the
alternative methodology. Due to the adoption of the new OMB labor
market area delineations in FY 2015, the State of Delaware also
became an all-urban State and thus eligible for an imputed floor.
For FY 2016, we extended the imputed floor for 1 year, as calculated
under the original methodology and the alternative methodology,
through September 30, 2016. For FY 2017, we are proposing to extend
the imputed rural floor for 1 year, as calculated under the original
methodology and the alternative methodology, through September 20,
2017. As a result, New Jersey, Rhode Island, and Delaware would be
able to receive an imputed floor through September 30, 2017. In New
Jersey, 20 out of 64 hospitals would receive the imputed floor, and
10 out of 11 hospitals in Rhode Island would receive the imputed
floor for FY 2017. For FY 2017, no hospitals would benefit from the
imputed floor in Delaware because the CBSA wage index for each CBSA
in Delaware under the new OMB delineations is equal to or higher
than the imputed rural floor.
The Affordable Care Act requires that we apply one rural floor
budget neutrality factor to the wage index nationally, and the
imputed floor is part of the rural floor budget neutrality factor
applied to the wage index nationally. We have calculated a proposed
FY 2017 rural floor budget neutrality factor to be applied to the
wage index of 0.993806, which would reduce wage indexes by 0.62
percent.
Column 5 shows the projected impact of the proposed rural floor
and imputed floor with the national rural floor budget neutrality
factor applied to the wage index based on the OMB labor market area
delineations. The column compares the proposed post-reclassification
FY 2017 wage index of providers before the proposed rural floor and
imputed floor adjustment and the proposed post-reclassification FY
2017 wage index of providers with the proposed rural floor and
imputed floor adjustment based on the OMB labor market area
delineations. Only urban hospitals can benefit from the rural and
imputed floors. Because the provision is budget neutral, all other
hospitals (that is, all rural hospitals and those urban hospitals to
which the adjustment is not made) would experience a decrease in
payments due to the budget neutrality adjustment that is applied
nationally to their wage index.
We estimate that 401 hospitals would benefit from the proposed
rural and imputed floors in FY 2017, while the remaining 2,929 IPPS
hospitals in our model would have their wage index reduced by the
rural floor budget neutrality adjustment of 0.993806 (or 0.62
percent). We project that, in aggregate, rural hospitals would
experience a 0.2 percent decrease in payments as a result of the
application of the proposed rural floor budget neutrality because
the rural hospitals do not benefit from the rural floor, but have
their wage indexes downwardly adjusted to ensure that the
application of the rural floor is budget neutral overall. We project
hospitals located in urban areas would experience no change in
payments because increases in payments by hospitals benefitting from
the rural floor offset decreases in payments by nonrural floor urban
hospitals whose wage index is downwardly adjusted by the rural floor
budget neutrality factor. Urban hospitals in the New England region
would experience a 0.8 percent increase in payments primarily due to
the application of the proposed rural floor in Massachusetts and the
proposed imputed floor in Rhode Island. Fifteen urban providers in
Massachusetts are expected to receive the proposed rural floor wage
index value, including the rural floor budget neutrality of
0.993806, increasing payments overall to Massachusetts by an
estimated $25 million. We estimate that Massachusetts hospitals
would receive approximately a 0.8 percent increase in IPPS payments
due to the application of the proposed rural floor in FY 2017.

[[Page 25299]]

Urban Puerto Rico hospitals are expected to experience a 0.2
percent increase in payments as a result of the application of the
proposed rural floor budget neutrality factor, of 0.993806 or 0.62
percent, to the proposed rural floor wage index.
There are 20 hospitals out of the 64 hospitals in New Jersey
that would benefit from the proposed extension of the imputed floor
and would receive the imputed floor wage index value under the OMB
labor market area delineations, including the rural floor budget
neutrality of 0.993806, which we estimate would increase payments to
those imputed floor hospitals by $20 million (overall, the State
would receive an increase of $8 million in payments due to the other
hospitals in the State that would experience decreases in payments
due to the proposed rural floor budget neutrality adjustment). Ten
hospitals out of the 11 hospitals in Rhode Island would benefit from
the proposed imputed rural floor calculated under the alternative
methodology and would receive an additional $18 million. While some
hospitals in Delaware are geographically located in CBSAs that are
assigned the imputed floor, none of these hospitals benefit from the
imputed floor because they are reclassifying to CBSAs with a higher
wage index than the imputed floor.
Column 5 also shows the projected effects of the last year of
the 3-year hold harmless provision for hospitals that were located
in an urban county that became rural under the new OMB delineations
or hospitals deemed urban where the urban area became rural under
the new OMB delineations. As discussed in section III.G.2. of the
preamble of this proposed rule, under this transition, hospitals
that were located in an urban county that became rural under the new
OMB delineations will generally be assigned the urban wage index
value of the CBSA in which they are physically located in FY 2014
for a period of 3 fiscal years (that is, FYs 2015, 2016, and 2017).
In addition, as discussed in section III.G.3. of the preamble of
this proposed rule, under this transition, hospitals that were
deemed urban where the urban area became rural under the new OMB
delineations will generally be assigned the area wage index value of
hospitals reclassified to the urban CBSA (that is, the attaching
wage index, if applicable) to which they were designated in FY 2014.
For FY 2017, we are applying the 3-year transition wage index
adjustments in a budget neutral manner, with a budget neutrality
factor of 0.999999.
In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), we are providing the payment
impact of the proposed rural floor and imputed floor with budget
neutrality at the State level. Column 1 of the following table
displays the number of IPPS hospitals located in each State. Column
2 displays the number of hospitals in each State that would receive
the proposed rural floor or imputed floor wage index for FY 2017.
Column 3 displays the percentage of total payments each State would
receive or contribute to fund the rural floor and imputed floor with
national budget neutrality. The column compares the proposed post-
reclassification FY 2017 wage index of providers before the proposed
rural floor and imputed floor adjustment and the proposed post-
reclassification FY 2017 wage index of providers with the proposed
rural floor and imputed floor adjustment. Column 4 displays the
estimated payment amount that each State would gain or lose due to
the application of the proposed rural floor and imputed floor with
national budget neutrality.

Proposed FY 2017 IPPS Estimated Payments Due to Rural and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
Proposed percent
change in
Number of payments due to Proposed
Number of hospitals that application of difference
State hospitals will receive the rural floor and (in
rural floor or Imputed floor millions)
imputed floor with budget
neutrality
(1) (2) (3) (4)
----------------------------------------------------------------------------------------------------------------
Alabama.................................... 83 6 -0.3 $-4.43
Alaska..................................... 6 1 -0.2 -0.34
Arizona.................................... 57 7 -0.1 -1.55
Arkansas................................... 44 0 -0.3 -3.07
California................................. 300 185 1.4 139.3
Colorado................................... 48 3 0.3 3.57
Connecticut................................ 31 13 0 0.29
Delaware................................... 6 0 -0.4 -1.64
Washington, DC............................. 7 0 -0.3 -1.62
Florida.................................... 171 15 -0.2 -11.11
Georgia.................................... 105 0 -0.3 -7.76
Hawaii..................................... 12 0 -0.3 -0.76
Idaho...................................... 14 0 -0.2 -0.74
Illinois................................... 126 3 -0.3 -14.43
Indiana.................................... 89 0 -0.3 -8.24
Iowa....................................... 35 0 -0.3 -2.83
Kansas..................................... 53 0 -0.3 -2.5
Kentucky................................... 65 0 -0.3 -4.71
Louisiana.................................. 95 0 -0.3 -4.19
Maine...................................... 18 0 -0.3 -1.53
Massachusetts.............................. 58 15 0.8 25.4
Michigan................................... 95 0 -0.3 -14.07
Minnesota.................................. 49 0 -0.2 -5.06
Mississippi................................ 62 0 -0.3 -3.08
Missouri................................... 75 2 -0.3 -6.19
Montana.................................... 12 4 0.3 0.96
Nebraska................................... 26 0 -0.2 -1.67
Nevada..................................... 24 3 -0.1 -0.79
New Hampshire.............................. 13 9 0.4 2.24
New Jersey................................. 64 20 0.2 7.84
New Mexico................................. 25 0 -0.2 -0.88
New York................................... 154 21 -0.3 -20.52
North Carolina............................. 84 4 -0.2 -5.88
North Dakota............................... 6 1 -0.2 -0.57

[[Page 25300]]

Ohio....................................... 130 8 -0.3 -9.5
Oklahoma................................... 86 2 -0.3 -3.53
Oregon..................................... 34 2 -0.3 -3.1
Pennsylvania............................... 152 5 -0.3 -15.88
Puerto Rico................................ 51 12 0.2 0.26
Rhode Island............................... 11 10 4.8 18.11
South Carolina............................. 56 5 -0.1 -0.99
South Dakota............................... 18 0 -0.2 -0.67
Tennessee.................................. 93 20 -0.2 -5.59
Texas...................................... 320 1 -0.3 -20.35
Utah....................................... 33 1 -0.3 -1.33
Vermont.................................... 6 0 -0.2 -0.39
Virginia................................... 75 1 -0.2 -6.29
Washington................................. 49 8 0.2 4.38
West Virginia.............................. 29 2 -0.2 -1.21
Wisconsin.................................. 65 12 -0.2 -2.85
Wyoming.................................... 10 0 -0.1 -0.15
----------------------------------------------------------------------------------------------------------------

f. Effects of the Application of the Proposed Frontier State Wage Index
and Out-Migration Adjustment (Column 6)

This column shows the combined effects of the application of
section 10324(a) of the Affordable Care Act, which requires that we
establish a minimum post-reclassified wage-index of 1.00 for all
hospitals located in ``frontier States,'' and the effects of section
1886(d)(13) of the Act, as added by section 505 of Public Law 108-
173, which provides for an increase in the wage index for hospitals
located in certain counties that have a relatively high percentage
of hospital employees who reside in the county, but work in a
different area with a higher wage index. These two wage index
provisions are not budget neutral and increase payments overall by
0.1 percent compared to the provisions not being in effect.
The term ``frontier States'' is defined in the statute as States
in which at least 50 percent of counties have a population density
less than 6 persons per square mile. Based on these criteria, 5
States (Montana, Nevada, North Dakota, South Dakota, and Wyoming)
are considered frontier States and 50 hospitals located in those
States will receive a frontier wage index of 1.0000. Overall, this
provision is not budget neutral and is estimated to increase IPPS
operating payments by approximately $56 million. Rural and urban
hospitals located in the West North Central region would experience
an increase in payments by 0.3 and 0.7 percent, respectively,
because many of the hospitals located in this region are frontier
State hospitals.
In addition, section 1886(d)(13) of the Act, as added by section
505 of Public Law 108-173, provides for an increase in the wage
index for hospitals located in certain counties that have a
relatively high percentage of hospital employees who reside in the
county, but work in a different area with a higher wage index.
Hospitals located in counties that qualify for the payment
adjustment are to receive an increase in the wage index that is
equal to a weighted average of the difference between the wage index
of the resident county, post-reclassification and the higher wage
index work area(s), weighted by the overall percentage of workers
who are employed in an area with a higher wage index. There are an
estimated 249 providers that would receive the out-migration wage
adjustment in FY 2017. Rural hospitals generally qualify for the
adjustment, resulting in a 0.1 percent increase in payments. This
provision appears to benefit section 401 hospitals and RRCs in that
they would experience a 1.2 percent and 0.4 percent increase in
payments, respectively. This out-migration wage adjustment also is
not budget neutral, and we estimate the impact of these providers
receiving the out-migration increase would be approximately $31
million.

g. Effects of All FY 2017 Changes (Column 7)

Column 7 shows our estimate of the proposed changes in payments
per discharge from FY 2016 and FY 2017, resulting from all proposed
changes reflected in this proposed rule for FY 2017. It includes
combined effects of the previous columns in the table.
The proposed average increase in payments under the IPPS for all
hospitals is approximately 0.7 percent for FY 2017 relative to FY
2016. This column includes the proposed annual hospital update of
1.55 percent to the national standardized amount. This proposed
annual hospital update includes the 2.8 percent market basket
update, the proposed reduction of 0.5 percentage point for the
multifactor productivity adjustment, and the 0.75 percentage point
reduction under section 3401 of the Affordable Care Act. As
discussed in section II.D. of the preamble of this proposed rule,
this column also includes the proposed FY 2017 documentation and
coding recoupment adjustment of -1.5 percent on the national
standardized amount as part of the recoupment required under section
631 of the ATRA. In addition, this column includes the proposed
adjustment of (1/0.998) to permanently remove the 0.2 percent
reduction, and the proposed 1.006 temporary adjustment to address
the effects of the 0.2 percent reduction in effect for FYs 2014
through 2016 related to the 2-midnight policy, which are discussed
in section IV.O. of the preamble of this proposed rule. Hospitals
paid under the hospital-specific rate would receive a 1.55 percent
proposed hospital update in addition to the proposed adjustment of
(1/0.998) to permanently remove the 0.2 percent reduction, and the
proposed 1.006 temporary adjustment to address the effects of the
0.2 percent reduction in effect for FYs 2014 through 2016 previously
described. As described in Column 1, the proposed annual hospital
update with the proposed documentation and coding recoupment
adjustment for hospitals paid under the national standardized
amount, the proposed adjustment of (1/0.998) to permanently remove
the 0.2 percent reduction and the proposed 1.006 temporary
adjustment to address the effects of the 0.2 percent reduction in
effect for FYs 2014 through 2016 for hospitals paid under the
national standardized amount and hospitals paid under the hospital-
specific rates, which are discussed in section IV.O. of the preamble
of this proposed rule, combined with the proposed annual hospital
update for hospitals paid under the hospital-specific

[[Page 25301]]

rates would result in a 0.7 percent increase in payments in FY 2017
relative to FY 2016. The impact of moving from our estimate of FY
2016 outlier payments, 5.3 percent, to the proposed estimate of FY
2017 outlier payments, 5.1 percent, would result in a decrease of
0.2 percent in FY 2017 payments relative to FY 2016. There also
might be interactive effects among the various factors comprising
the payment system that we are not able to isolate. For these
reasons, the values in Column 7 may not equal the sum of the
estimated percentage changes described previously.
Overall payments to hospitals paid under the IPPS due to the
proposed applicable percentage increase and proposed changes to
policies related to MS-DRGs, geographic adjustments, and outliers
are estimated to increase by 0.7 percent for FY 2017. Hospitals in
urban areas would experience a 0.6 percent increase in payments per
discharge in FY 2017 compared to FY 2016. Hospital payments per
discharge in rural areas are estimated to increase by 0.8 percent in
FY 2017.

3. Impact Analysis of Table II

Table II presents the projected impact of the proposed changes
for FY 2017 for urban and rural hospitals and for the different
categories of hospitals shown in Table I. It compares the estimated
average payments per discharge for FY 2016 with the proposed
estimated average payments per discharge for FY 2017, as calculated
under our models. Therefore, this table presents, in terms of the
average dollar amounts paid per discharge, the combined effects of
the proposed changes presented in Table I. The proposed estimated
percentage changes shown in the last column of Table II equal the
estimated percentage changes in average payments per discharge from
Column 7 of Table I.

Table II--Impact Analysis of Proposed Changes for FY 2017 Acute Care Hospital Operating Prospective Payment
System
[Payments per discharge]
----------------------------------------------------------------------------------------------------------------
Estimated average Estimated average
Number of FY 2016 payment FY 2017 payment Proposed FY 2017
hospitals per discharge per discharge changes
(1) (2) (3) (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals....................... 3,330 11,524 11,599 0.7
By Geographic Location:
Urban hospitals................. 2,512 11,869 11,944 0.6
Large urban areas............... 1,378 12,658 12,729 0.6
Other urban areas............... 1,134 10,924 11,004 0.7
Rural hospitals................. 818 8,614 8,686 0.8
Bed Size (Urban):
0-99 beds....................... 656 9,393 9,462 0.7
100-199 beds.................... 765 10,006 10,052 0.5
200-299 beds.................... 449 10,758 10,807 0.5
300-499 beds.................... 429 12,068 12,153 0.7
500 or more beds................ 213 14,591 14,703 0.8
Bed Size (Rural):
0-49 beds....................... 320 7,187 7,230 0.6
50-99 beds...................... 292 8,214 8,278 0.8
100-149 beds.................... 119 8,457 8,506 0.6
150-199 beds.................... 46 9,263 9,359 1.0
200 or more beds................ 41 10,175 10,295 1.2
Urban by Region:
New England..................... 116 12,947 12,870 -0.6
Middle Atlantic................. 315 13,445 13,469 0.2
South Atlantic.................. 406 10,494 10,574 0.8
East North Central.............. 390 11,167 11,290 1.1
East South Central.............. 147 10,022 10,123 1.0
West North Central.............. 163 11,589 11,694 0.9
West South Central.............. 384 10,688 10,812 1.2
Mountain........................ 163 12,273 12,361 0.7
Pacific......................... 377 15,279 15,336 0.4
Puerto Rico..................... 51 8,409 8,432 0.3
Rural by Region:
New England..................... 21 11,758 11,897 1.2
Middle Atlantic................. 55 8,646 8,726 0.9
South Atlantic.................. 127 8,059 8,120 0.8
East North Central.............. 115 8,947 9,023 0.9
East South Central.............. 156 7,642 7,694 0.7
West North Central.............. 99 9,464 9,555 1.0
West South Central.............. 161 7,254 7,321 0.9
Mountain........................ 60 10,142 10,214 0.7
Pacific......................... 24 11,976 12,066 0.8
By Payment Classification:
Urban hospitals................. 2,455 11,888 11,963 0.6
Large urban areas............... 1,372 12,664 12,735 0.6
Other urban areas............... 1,083 10,926 11,006 0.7
Rural areas..................... 875 8,890 8,967 0.9
Teaching Status:
Nonteaching..................... 2,275 9,593 9,649 0.6
Fewer than 100 residents........ 804 11,122 11,194 0.7
100 or more residents........... 251 16,697 16,821 0.8
Urban DSH:
Non-DSH......................... 597 10,104 10,156 0.5

[[Page 25302]]

100 or more beds................ 1,608 12,247 12,327 0.7
Less than 100 beds.............. 330 8,718 8,759 0.5
Rural DSH:
SCH............................. 266 9,218 9,299 0.9
RRC............................. 347 9,200 9,286 0.9
100 or more beds................ 33 7,070 7,102 0.5
Less than 100 beds.............. 149 6,783 6,798 0.2
Urban teaching and DSH:
Both teaching and DSH........... 880 13,362 13,456 0.7
Teaching and no DSH............. 107 11,418 11,438 0.2
No teaching and DSH............. 1,058 10,009 10,061 0.5
No teaching and no DSH.......... 410 9,519 9,585 0.7
Special Hospital Types:
RRC............................. 193 9,673 9,782 1.1
SCH............................. 326 10,357 10,459 1.0
MDH............................. 146 7,202 7,262 0.8
SCH and RRC..................... 126 10,814 10,940 1.2
MDH and RRC..................... 15 9,216 9,334 1.3
Type of Ownership:
Voluntary....................... 1,914 11,704 11,781 0.7
Proprietary..................... 858 10,110 10,188 0.8
Government...................... 516 12,474 12,532 0.5
Medicare Utilization as a Percent of
Inpatient Days:
0-25............................ 517 14,964 15,062 0.7
25-50........................... 2,128 11,446 11,523 0.7
50-65........................... 546 9,341 9,387 0.5
Over 65......................... 94 6,966 7,025 0.9
FY 2017 Reclassifications by the
Medicare Geographic Classification
Review Board:
All Reclassified Hospitals...... 853 11,571 11,641 0.6
Non-Reclassified Hospitals...... 2,477 11,504 11,581 0.7
Urban Hospitals Reclassified.... 576 12,191 12,256 0.5
Urban Nonreclassified Hospitals. 1,879 11,774 11,852 0.7
Rural Hospitals Reclassified 277 8,994 9,080 1.0
Full Year......................
Rural Nonreclassified Hospitals 484 8,193 8,250 0.7
Full Year......................
All Section 401 Reclassified 57 10,782 10,892 1.0
Hospitals:.....................
Other Reclassified Hospitals 57 7,949 7,998 0.6
(Section 1886(d)(8)(B))........
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Proposed Policy Changes

In addition to those proposed policy changes discussed
previously that we are able to model using our IPPS payment
simulation model, we are proposing to make various other changes in
this proposed rule. Generally, we have limited or no specific data
available with which to estimate the impacts of these proposed
changes. Our estimates of the likely impacts associated with these
other proposed changes are discussed in this section.

1. Effects of Proposed Policy Relating to New Medical Service and
Technology Add-On Payments

In section II.H. of the preamble to this proposed rule, we
discuss nine technologies for which we received applications for
add-on payments for new medical services and technologies for FY
2017, as well as the status of the new technologies that were
approved to receive new technology add-on payments in FY 2016. We
note that one applicant withdraw its application prior to the
issuance of this proposed rule. As explained in the preamble to this
proposed rule, add-on payments for new medical services and
technologies under section 1886(d)(5)(K) of the Act are not required
to be budget neutral. As discussed in section II.H.5. of the
preamble of this proposed rule, we have not yet determined whether
any of these nine technologies for which we received applications
for consideration for new technology add-on payments for FY 2017
will meet the specified criteria. Consequently, it is premature to
estimate the potential payment impact of these nine technologies for
any potential new technology add-on payments for FY 2017. We note
that if any of the nine technologies are found to be eligible for
new technology add-on payments for FY 2017, in the FY 2017 IPPS/LTCH
PPS final rule, we would discuss the estimated payment impact for FY
2017.
In section II.H.4. of the preamble of this proposed rule, we are
proposing to discontinue new technology add-on payments for the
Argus[supreg] II Retinal Prosthesis System, Kcentra^TM,
the MitraClip[supreg] System, and the Responsive Neurostimulator
(RNS[supreg]) for FY 2017 because these technologies will have been
on the U.S. market for 3 years. We also are proposing to continue to
make new technology add-on payments for the CardioMEMS^TM
HF (Heart Failure) Monitoring System, Blinatumomab
(BLINCYTO^TM), and the LUTONIX[supreg] Drug Coated Balloon
(DCB) Percutaneous Transluminal Angioplasty (PTA) and
IN.PACT^TM Admiral^TM Pacliaxel Coated
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter in FY
2017 because these technologies are still considered new. We note
that new technology add-on payments for each case are limited to the
lesser of (1) 50 percent of the costs of the new technology or (2)
50 percent of the amount by which the costs of the case exceed the
standard MS-DRG payment for the case. Because it is difficult to
predict the actual new technology add-on payment for each case, our
estimates below are based on the increase in new technology add-on
payments for FY 2017 as if every claim that would qualify for a new
technology add-on payment would receive the maximum add-on

[[Page 25303]]

payment. For the CardioMEMS^TM HF Monitoring System, based
on the applicant's estimate from FY 2015, we currently estimate that
new technology add-on payments for the CardioMEMS^TM HF
Monitoring System will increase overall FY 2017 payments by
$11,315,625. Based on the applicant's estimate for FY 2016, we
currently estimate that new technology add-on payments for
BLINCYTO^TM will increase overall FY 2017 payments by
$4,593,034 (maximum add-on payment of $27,017.85 * 170 patients).
Based on the weighted cost average for FY 2016 described in the FY
2016 IPPS/LTCH final rule (80 FR 49469 through 49470), we currently
estimate that new technology add-on payments for the LUTONIX[supreg]
DCB PTA and IN.PACT^TM Admiral^TM Pacliaxel
Coated PTA Balloon Catheter will increase overall FY 2017 payments
by $36,120,735 (maximum add-on payment of $1,035.72 * 8,875 patients
for LUTONIX[supreg] DCB PTA Balloon Catheter; maximum add-on payment
of $1,035.72 * 26,000 patients for IN.PACT^TM
Admiral^TM Pacliaxel Coated PTA Balloon Catheter).

2. Effects of the Proposed Changes to Medicare DSH Payments for FY 2017

As discussed in section IV.F. of the preamble of this proposed
rule, under section 3133 of the Affordable Care Act, hospitals that
are eligible to receive Medicare DSH payments will receive 25
percent of the amount they previously would have received under the
former statutory formula for Medicare DSH payments. The remainder,
equal to an estimate of 75 percent of what formerly would have been
paid as Medicare DSH payments (Factor 1), reduced to reflect changes
in the percentage of individuals under age 65 who are uninsured and
additional statutory adjustments (Factor 2), is available to make
additional payments to each hospital that qualifies for Medicare DSH
payments and that has uncompensated care. Each hospital eligible for
Medicare DSH payments will receive an additional payment based on
its estimated share of the total amount of uncompensated care for
all hospitals eligible for Medicare DSH payments. The uncompensated
care payment methodology has redistributive effects based on the
proportion of a hospital's uncompensated care relative to the
uncompensated care for all hospitals eligible for Medicare DSH
payments (Factor 3). For FY 2017, because we are proposing to
continue to use low-income insured patient days as a proxy for
uncompensated care, the uncompensated care payment methodology has
redistributive effects based on the proportion of a hospital's low-
income insured patient days (sum of Medicaid patient days and
Medicare SSI patient days) relative to the low-income insured
patient days for all hospitals eligible for DSH payments. The
reduction to Medicare DSH payments under section 3133 of the
Affordable Care Act is not budget neutral.
In this proposed rule, we are proposing to establish the overall
amount available to be distributed as uncompensated care payments to
DSH eligible hospitals, which for FY 2017 is $6,054,458,492.68, or
75 percent of what otherwise would have been paid for Medicare DSH
payment adjustments adjusted by a proposed Factor 2 of 56.74
percent. For FY 2016, the amount available to be distributed for
uncompensated care was $6,406,145,534.04, or 75 percent of what
otherwise would have been paid for Medicare DSH payment adjustments
adjusted by a Factor 2 of 63.69 percent. To calculate Factor 3 for
FY 2017, we are proposing to use an average of data computed using
Medicaid days from hospitals' 2011, 2012, and 2013 cost reports,
Medicaid days from 2011 and 2012 cost report data submitted to CMS
by IHS hospitals, and SSI days from the FY 2012, FY 2013, and FY
2014 SSI ratios. That is, for each hospital we are proposing to
calculate an individual Factor 3 for cost reporting periods
beginning during FYs 2011, 2012, and 2013, sum the individual
amounts, and divide the sum by three in order to calculate an
average Factor 3 for the hospital.
The FY 2017 proposal to use data on low-income insured days from
3 years of cost reports to determine Factor 3, as described earlier,
is in contrast to the methodology used in FY 2016, when we used
Medicaid days from the more recent of a hospital's full year 2012 or
2011 cost report from the March 2015 update of the HCRIS database,
Medicaid days from 2012 cost report data submitted to CMS by IHS
hospitals, and SSI days from the FY 2013 SSI ratios to calculate
Factor 3. In addition, as explained in section IV.F. of the preamble
of this proposed rule, we are proposing to make two additional
modifications to the Factor 3 methodology: (1) To create proxy
Medicare SSI values for Puerto Rico hospitals and (2) to include all
hospitals' cost reports that begin during FYs 2011, 2012, and 2013,
even in the instance where a hospital has more than one cost report
beginning during a given fiscal year. Because residents of Puerto
Rico are not eligible for SSI benefits, we are proposing to impute a
Medicare SSI value for each Puerto Rico hospital equal to 14 percent
of its Medicaid days. The proposed FY 2017 uncompensated care
payment methodology is discussed in more detail in section IV.F. of
the preamble of this proposed rule.
To estimate the impact of the combined effect of reductions in
the percent of individuals under age 65 who are uninsured and
additional statutory adjustments (Factor 2) and changes in Medicaid
and SSI patient days (components of Factor 3) on the calculation of
Medicare DSH payments, including both empirically justified Medicare
DSH payments and uncompensated care payments, we compared total DSH
payments estimated in the FY 2016 IPPS/LTCH PPS final rule to total
DSH payments estimated in this FY 2017 IPPS/LTCH PPS proposed rule.
For FY 2016, for each hospital, we calculated the sum of: (1) 25
percent of the estimated amount of what would have been paid as
Medicare DSH in FY 2016 in the absence of section 3133 of the
Affordable Care Act; and (2) 75 percent of the estimated amount of
what would have been paid as Medicare DSH payments in the absence of
section 3133 of the Affordable Care Act, adjusted by a Factor 2 of
63.69 percent and multiplied by a Factor 3 as stated in the FY 2016
IPPS/LTCH PPS final rule. For FY 2017, we would calculate the sum
of: (1) 25 percent of the estimated amount of what would be paid as
Medicare DSH payments in FY 2017 absent section 3133 of Affordable
Care Act; and (2) 75 percent of the estimated amount of what would
have been paid as Medicare DSH payments absent section 3133 of the
Affordable Care Act, adjusted by a Factor 2 of 56.74 percent and
multiplied by a Factor 3 as previously stated.
Our analysis included 2,434 hospitals that are projected to be
eligible for DSH in FY 2017. It did not include hospitals that
terminated their participation from the Medicare program as of July
1, 2015, Maryland hospitals, and SCHs that are expected to be paid
based on their hospital-specific rates. In addition, low-income
insured days from merged or acquired hospitals were combined into
the surviving hospital's CCN, and the nonsurviving CCN was excluded
from the analysis. In contrast to FY 2016, hospitals participating
in the Rural Community Hospital Demonstration program, which is
scheduled to end in FY 2017, are included in the analysis if
projected to be eligible for DSH payments during FY 2017. The
estimated impact of the proposed changes in Factors 1, 2, and 3
across all hospitals projected to be eligible for DSH payments in FY
2017, by hospital characteristic, is presented in the following
table.

Modeled Disproportionate Share Hospital Payments for Estimated FY 2017 DSHs by Hospital Type: Model DSH $ (in
Millions) From FY 2016 to FY 2017
----------------------------------------------------------------------------------------------------------------
FY 2017
Number of FY 2016 final proposed rule Dollar
estimated DSHs rule estimated estimated DSH difference: FY Percent change
(FY 2017) DSH $ * (in $ * (in 2017-FY 2016 **
millions) millions) (in millions)
(1) (2) (3) (4) (5)
----------------------------------------------------------------------------------------------------------------
Total........................... 2,434 $9,732 $9,598 -$134 -1.4%
By Geographic Location:
Urban Hospitals............. 1,927 9,262 9,148 -114 -1.2

[[Page 25304]]

Large Urban Areas........... 1,048 5,861 5,789 -72 -1.2
Other Urban Areas........... 879 3,401 3,359 -42 -1.2
Rural Hospitals................. 507 470 450 -20 -4.3
Bed Size (Urban):
0 to 99 Beds................ 337 184 186 2 0.9
100 to 249 Beds............. 841 2,199 2,171 -28 -1.3
250 to 499 Beds............. 749 $6,879 $6,791 -$88 -1.3
Bed Size (Rural):
0 to 99 Beds................ 375 205 192 -$13 -6.3
100 to 249 Beds............. 118 209 202 -7 -3.4
250 to 499 Beds............. 14 56 56 0 -0.3
Urban by Region:
East North Central.......... 317 1,268 1,253 -$15 -1.2
East South Central.......... 132 575 566 -9 -1.6
Middle Atlantic............. 233 1,607 1,583 -24 -1.5
Mountain.................... 122 447 449 2 0.4
New England................. 90 386 388 2 0.5
Pacific..................... 313 1,459 1,453 -6 -0.4
Puerto Rico................. 42 100 113 12 12.2
South Atlantic.............. 320 1,772 1,737 -35 -2.0
West North Central.......... 103 450 440 -10 -2.3
West South Central.......... 255 1,198 1,168 -30 -2.5
Rural by Region:
East North Central.......... 65 48 45 -3 -6.7
East South Central.......... 142 151 142 -9 -6.0
Middle Atlantic............. 26 34 32 -2 -6.2
Mountain.................... 21 16 16 0 0.1
New England................. 11 15 16 1 8.8
Pacific..................... 7 8 7 -1 -16.2
South Atlantic.............. 88 96 96 0 0.2
West North Central.......... 34 20 19 -1 -5.4
West South Central.......... 113 83 78 -5 -5.9
By Payment Classification:
Urban Hospitals............. 1,896 9,212 9,097 -115 -1.2
Large Urban Areas....... 1,046 5,859 5,788 -72 -1.2
Other Urban Areas....... 850 3,353 3,310 -43 -1.3
Rural Hospitals............. 538 520 501 -20 -3.8
Teaching Status:
Nonteaching................. 1,551 3,101 3,065 -36 -1.2
Fewer than 100 residents.... 644 3,206 3,157 -49 -1.5
100 or more residents....... 239 3,425 3,375 -50 -1.5
Type of Ownership:
Voluntary................... 1,400 6,020 5,939 -81 -1.3
Proprietary................. 550 1,664 1,638 -26 -1.5
Government.................. 482 2,022 1,996 -26 -1.3
Unknown..................... 2 27 25 -2 -5.8
Medicare Utilization Percent:
0-25........................ 430 3,008 2,972 -36 -1.2
25-50....................... 1,625 6,329 6,235 -94 -1.5
50-65....................... 320 382 379 -3 -0.8
Over 65..................... 59 14 12 -2 -12.9
----------------------------------------------------------------------------------------------------------------
Source: Dobson [bond] DaVanzo analysis of 2011-2013 Hospital Cost Reports.
* Dollar DSH calculated by [0.25 * estimated section 1886(d)(5)(F) payments] + [0.75 * estimated section
1886(d)(5)(F) payments * Factor 2 * Factor 3]. When summed across all hospitals projected to receive DSH
payments, DSH payments are estimated to be $9,372 million in FY 2016 and $9,598 million in FY 2017.
** Percentage change is determined as the difference between Medicare DSH payments modeled for the FY 2017 IPPS/
LTCH PPS proposed rule (column 3) and Medicare DSH payments modeled for the FY 2016 IPPS/LTCH final rule
(column 2) divided by Medicare DSH payments modeled for the FY 2016 final rule (column 2) 1 times 100 percent.

Changes in projected FY 2017 DSH payments from DSH payments in
FY 2016 are primarily driven by three factors: (1) An increase in
Factor 1 from $13.411 billion to $14.227 billion; (2) a reduction in
the percent of uninsured (Factor 2) from 63.69 percent to 56.74
percent; and (3) a revised proxy methodology for calculating Factor
3 values. The proposed impact analysis found that, across all
projected DSH eligible hospitals, FY 2017 DSH payments are estimated
at approximately $9.598 billion, or a decrease of

[[Page 25305]]

approximately 1.4 percent from FY 2016 DSH payments (approximately
$9.732 billion). Although Factor 1 increased by approximately 6.1
percent, the reduction in Factor 2 offsets this and results in a net
decrease in the amount available to be distributed in uncompensated
care payments.
As seen in the above table, percent reductions greater than 1.4
percent indicate that hospitals within the specified category are
projected to experience a greater reduction in DSH payments, on
average, compared to the universe of FY 2017 projected DSH
hospitals. Conversely, percent reductions that are less than 1.4
percent indicate a hospital type is projected to have a smaller
reduction than the overall average. The variation in the
distribution of payments by hospital characteristic is largely
dependent on the change in a given hospital's number of Medicaid
days and SSI days used in the Factor 3 computation.
Rural hospitals, grouped by geographic location, payment
classification, and bed size, are projected to experience a larger
reduction in DSH payments than urban hospitals. Overall, urban
hospitals are projected to receive a 1.2 percent decrease in DSH
payments, and rural hospitals are projected to receive a 4.3 percent
decrease in DSH payments. The smaller the rural hospital, the larger
the projected reduction in DSH payments, with rural hospitals that
have 0-99 beds projected to experience a 6.3 percent payment
reduction, and larger rural hospitals with 250-499 beds projected to
experience a 0.3 percent payment reduction. In contrast, the
smallest urban hospitals (0-99 beds) are projected to receive an
increase in DSH payments of 0.9 percent. Larger hospitals (100-250
beds and 250+ beds) are projected to receive reductions of 1.3
percent in DSH payments that are smaller than the overall average.
By region, projected DSH payment reductions for urban hospitals
were largest in the West South Central, West North Central, and
South Atlantic regions. The Mountain, New England, and Puerto Rico
region hospitals are projected to receive an increase in DSH
payments. Reductions in remaining urban hospital regions are
generally consistent with the overall average percent reduction of
1.4. Regionally, rural hospitals are projected to receive a wider
range of reductions. Rural hospitals in the South Atlantic,
Mountain, and most notably New England regions are projected to
receive an increase in DSH payments. Reductions are projected to be
larger than the overall average in most remaining regions,
particularly in the Pacific region.
Teaching hospitals are projected to receive relatively larger
reductions than nonteaching hospitals. Voluntary, proprietary, and
government hospitals are projected to receive payment reductions
generally consistent with the overall average percent reduction of
1.4. Government hospitals are projected to receive slightly smaller
reductions in DSH payments, while proprietary hospitals are
projected to receive slightly larger reductions than the overall
average. Hospitals with over 65 percent Medicare utilization are
projected to receive a significant reduction in DSH payments, while
lower Medicare utilization percentiles show smaller reductions.
Puerto Rico hospitals are projected to receive an increase in
overall DSH payments, including both empirically justified DSH
payments and uncompensated care payments, due to the proposal to
create proxy values for SSI days for hospitals in Puerto Rico for
purposes of calculating Factor 3 of the uncompensated care payment
methodology. For FY 2017, Puerto Rico hospitals are projected to
receive $113 million in overall DSH and uncompensated care payments,
or a 12.2 percent increase from FY 2016 payments ($100 million). Of
the estimated $113 million for FY 2017, we estimate that $75 million
will be uncompensated care payments to Puerto Rico hospitals. This
represents an increase of approximately 11.2 percent, or $7.6
million, in FY 2017 compared to the estimated $68 million in
uncompensated care payments to Puerto Rico hospitals in FY 2016.
Moreover, we estimate that uncompensated care payments to Puerto
Rico hospitals for FY 2017 are 12.6 percent, or $8.4 million, higher
with the proposed SSI proxy than they otherwise would have been
without the proposed SSI proxy for FY 2017. In other words, without
the proposed SSI proxy, we would have expected uncompensated care
payments to Puerto Rico hospitals to decline by approximately $0.9
million between FY 2016 and FY 2017. We note that because the
proposed SSI proxy for Puerto Rico hospitals increases the number of
days in the denominator of Factor 3, this affects hospitals
nationally. We estimate that uncompensated care payments to non-
Puerto Rico hospitals for FY 2017 are approximately 0.1 percent
lower with the proposed SSI proxy than they otherwise would have
been without the proposed SSI proxy.

3. Effects of Proposed Reduction Under the Hospital Readmissions
Reduction Program

In section IV.G. of the preamble of this proposed rule, we
discuss our proposals for the FY 2017 Hospital Readmissions
Reduction Program (established under section 3025 of the Affordable
Care Act), which requires a reduction to a hospital's base operating
DRG payments to account for excess readmissions. For FY 2017, the
reduction is based on a hospital's risk-adjusted readmission rate
during a 3-year period for acute myocardial infarction (AMI), heart
failure (HF), pneumonia, chronic obstructive pulmonary disease
(COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA),
and coronary artery bypass graft (CABG). This provision is not
budget neutral. A hospital's readmission adjustment is the higher of
a ratio of the hospital's aggregate payments for excess readmissions
to their aggregate payments for all discharges, or a floor, which
has been defined in the statute as 0.97 (or a 3.0 percent
reduction). A hospital's base operating DRG payment (that is, wage-
adjusted DRG payment amount, as discussed in section IV.G. of the
preamble of this proposed rule) is the portion of the IPPS payment
subject to the readmissions payment adjustment (DSH, IME, outliers
and low-volume add-on payments are not subject to the readmissions
adjustment). In this proposed rule, we estimate that 2,603 hospitals
would have their base operating DRG payments reduced by their proxy
FY 2017 hospital-specific readmissions adjustment. As a result, we
estimate that the Hospital Readmissions Reduction Program would save
approximately $523 million in FY 2017, an increase of $100 million
over the estimated FY 2016 savings.

4. Effects of Proposed Changes Under the FY 2017 Hospital Value-Based
Purchasing (VBP) Program

In section IV.H. of the preamble of this proposed rule, we
discuss the Hospital VBP Program under which the Secretary makes
value-based incentive payments to hospitals based on their
performance on measures during the performance period with respect
to a fiscal year. These incentive payments will be funded for FY
2017 through a reduction to the FY 2017 base operating DRG payment
amount for the discharge for the hospital for such fiscal year, as
required by section 1886(o)(7)(B) of the Act. The applicable
percentage for FY 2017 and subsequent years is 2 percent. The total
amount available for value-based incentive payments must be equal to
the total amount of reduced payments for all hospitals for the
fiscal year, as estimated by the Secretary.
In section IV.H. of the preamble of this proposed rule, we
estimate the available pool of funds for value-based incentive
payments in the FY 2017 program year, which, in accordance with
section 1886(o)(7)(C)(v) of the Act, will be 2.00 percent of base
operating DRG payments, or a total of approximately $1.7 billion.
This estimated available pool for FY 2017 is based on the historical
pool of hospitals that were eligible to participate in the FY 2016
program year and the payment information from the December 2015
update to the FY 2015 MedPAR file.
The proposed estimated impacts of the FY 2017 program year by
hospital characteristic, found in the table below, are based on
historical TPSs. We used the FY 2016 program year's TPSs to
calculate the proxy adjustment factors used for this impact
analysis. These are the most recently available scores that
hospitals were given an opportunity to review and correct. The proxy
adjustment factors use estimated annual base operating DRG payment
amounts derived from the December 2015 update to the FY 2015 MedPAR
file. The proxy adjustment factors can be found in Table 16
associated with this proposed rule (available via the Internet on
the CMS Web site).
The impact analysis shows that, for the FY 2017 program year,
the number of hospitals that would receive an increase in their base
operating DRG payment amount is higher than the number of hospitals
that would receive a decrease. Among urban hospitals, those in the
New England, South Atlantic, East North Central, East South Central,
West North Central, West South Central, Mountain, and Pacific
regions would have an increase, on average, in their base operating
DRG payment amount. Urban hospitals in the Middle Atlantic region
would receive an average decrease in their base operating DRG
payment amount. Among rural hospitals, those in all regions would
have an increase, on average, in their base operating DRG payment
amounts.

[[Page 25306]]

On average, hospitals that receive a higher (50-65) percent of
DSH payments would receive decreases in base operating DRG payment
amount. With respect to hospitals' Medicare utilization as a percent
of inpatient days (MCR), those hospitals with an MCR above 65
percent would have the largest average increase in base operating
DRG payment amount.
Nonteaching hospitals would have an average increase, and
teaching hospitals would experience an average decrease in base
operating DRG payment amount.

Impact Analysis of Base Operating DRG Payment Amount Proposed Changes
Resulting From the FY 2017 Hospital VBP Program
------------------------------------------------------------------------
Number of
hospitals Average (%)
------------------------------------------------------------------------
By Geographic Location:
All Hospitals....................... 3,041 0.244
Large Urban..................... 1,247 0.117
Other Urban..................... 1,046 0.202
Rural Area...................... 748 0.514
Urban hospitals..................... 2,293 0.156
0-99 beds....................... 517 0.708
100-199 beds.................... 719 0.143
200-299 beds.................... 430 -0.035
300-499 beds.................... 419 -0.146
500 or more beds................ 208 -0.171
Rural hospitals..................... 748 0.514
0-49 beds....................... 265 0.695
50-99 beds...................... 286 0.540
100-149 beds.................... 115 0.304
150-199 beds.................... 45 0.159
200 or more beds................ 37 0.103
By Region:
Urban By Region..................... 2,293 0.156
New England..................... 110 0.152
Middle Atlantic................. 297 -0.065
South Atlantic.................. 389 0.108
East North Central.............. 368 0.204
East South Central.............. 141 0.126
West North Central.............. 155 0.370
West South Central.............. 324 0.211
Mountain........................ 159 0.128
Pacific......................... 350 0.225
Rural By Region..................... 748 0.514
New England..................... 20 0.528
Middle Atlantic................. 53 0.373
South Atlantic.................. 117 0.621
East North Central.............. 112 0.514
East South Central.............. 138 0.389
West North Central.............. 94 0.623
West South Central.............. 135 0.416
Mountain........................ 55 0.713
Pacific......................... 24 0.677
By MCR Percent:
0-25................................ 374 0.131
25-50............................... 2,024 0.205
50-65............................... 508 0.409
Over 65............................. 126 0.539
Missing............................. 9 0.204
BY DSH Percent:
0-25................................ 1,427 0.384
25-50............................... 1,320 0.154
50-65............................... 156 -0.067
Over 65............................. 138 0.007
By Teaching Status:
Non-Teaching........................ 2,041 0.381
Teaching............................ 1,000 -0.036
------------------------------------------------------------------------

Actual FY 2017 program year's TPSs will not be reviewed and
corrected by hospitals until after the FY 2017 IPPS/LTCH PPS final
rule has been published. Therefore, the same historical universe of
eligible hospitals and corresponding TPSs from the FY 2016 program
year will be used for the updated impact analysis in that final
rule.

5. Effects of Proposed Changes to the HAC Reduction Program for FY 2017

In section IV.I. of the preamble of this proposed rule, we
discuss the proposed changes to the HAC Reduction Program for FY
2017. The table and analysis below show the estimated cumulative
effect of the measures and scoring system for the HAC Reduction
Program proposed in this proposed rule. In the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49575 through 49576), we finalized a Total HAC
Score methodology that assigns, for FY 2017, weights for Domain 1
and Domain 2 at 15 percent and 85 percent, respectively. Based on
this methodology, the table below presents data on the estimated
proportion of hospitals in the worst-performing quartile of the
Total HAC Scores by hospital characteristic. We note that because
scores will undergo a 30-day review and correction period by the
hospitals that will not conclude until after the publication of the
FY 2017 IPPS/LTCH PPS final rule, we are not providing hospital-
level data or a hospital-level payment impact in conjunction with
this FY 2017 IPPS/LTCH PPS proposed rule.
To estimate the impact of the FY 2017 HAC Reduction Program, we
used, as previously finalized, AHRQ PSI 90 measure results based on
Medicare FFS discharges from July 2013 through June 2015 and version
5.0.1 (recalibrated) of the AHRQ software. For the CLABSI, CAUTI,
Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia, and CDI
measure results, we used standardized

[[Page 25307]]

infection ratios (SIRs) calculated with hospital surveillance data
reported to the NHSN for infections occurring between January 1,
2013 and December 31, 2014.
To analyze the results by hospital characteristic, we used the
FY 2016 Final Rule Impact File. This table includes 3,225 non-
Maryland hospitals that had a Total HAC Score for FY 2017. Of these,
3,211 hospitals had information for geographic location, region, bed
size, DSH percent, and teaching status, 3,197 had information for
ownership, and 3,191 had information for MCR percent. Maryland
hospitals and hospitals without a Total HAC Score are not included
in the table below.

Estimated Proportion of Hospitals in the Worst-Performing Quartile (75th Percentile) of the Total HAC Score for
the FY 2017 HAC Reduction Program
[By hospital characteristic]
----------------------------------------------------------------------------------------------------------------
Number of Percent of
hospitals in hospitals in
Hospital characteristic Number of the worst- the worst-
hospitals \a\ performing performing
quartile \b\ quartile \c\
----------------------------------------------------------------------------------------------------------------
Total \d\....................................................... 3,225 774 24.0
By Geographic Location:
All hospitals:
Urban....................................................... 2,403 656 27.3
Rural....................................................... 808 108 13.4
Urban hospitals:
1-99 beds................................................... 593 90 15.2
100-199 beds................................................ 737 164 22.3
200-299 beds................................................ 436 128 29.4
300-399 beds................................................ 273 103 37.7
400-499..................................................... 151 62 41.1
500 or more beds............................................ 213 109 51.2
Rural hospitals:
1-49 beds................................................... 306 44 14.4
50-99 beds.................................................. 294 32 10.9
100-149 beds................................................ 120 11 9.2
150-199 beds................................................ 47 11 23.4
200 or more beds............................................ 41 10 24.4
By Region:
New England................................................. 134 46 34.3
Mid-Atlantic................................................ 367 130 35.4
South Atlantic.............................................. 520 131 25.2
East North Central.......................................... 499 105 21.0
East South Central.......................................... 299 58 19.4
West North Central.......................................... 262 39 14.9
West South Central.......................................... 510 79 15.5
Mountain.................................................... 225 64 28.4
Pacific..................................................... 395 112 28.4
By DSH Percent: \e\
0-24........................................................ 1,512 336 22.2
25-49....................................................... 1,370 329 24.0
50-64....................................................... 170 48 28.2
65 and over................................................. 159 51 32.1
By Teaching Status: \f\
Non-teaching................................................ 2,189 398 18.2
Fewer than 100 residents.................................... 1,022 366 35.8
100 or more residents....................................... 777 230 29.6
By Type of Ownership:
Voluntary................................................... 1,874 480 25.6
Proprietary................................................. 834 160 19.2
Government.................................................. 489 122 24.9
By MCR Percent:
0-24........................................................ 480 143 29.8
25-49....................................................... 2,096 498 23.8
50-64....................................................... 533 104 19.5
65 and over................................................. 82 14 17.1
----------------------------------------------------------------------------------------------------------------
Source: FY 2017 HAC Reduction Program Proposed Rule Preliminary Results. Scores are based on AHRQ PSI 90 data
from July 2013 through June 2015 and CDC CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia
and CDI data from January 2013 to December 2014. Hospital Characteristics are based on the FY 2016 Final Rule
Impact File updated on October 8, 2015.
\a\ The total number of non-Maryland hospitals with a Total HAC Score with hospital characteristic data (3,211
for geographic location, region, bed size, DSH percent, and teaching status; 3,197 for type of ownership; and
3,191 for MCR) does not add up to the total number of non-Maryland hospitals with a Total HAC Score for the FY
2017 HAC Reduction Program (3,225) because 14 hospitals are not included in the FY 2016 Final Rule Impact File
and not all hospitals have data for all characteristics.
\b\ This column is the number of non-Maryland hospitals with a Total HAC Score within the corresponding
characteristic that are estimated to be in the worst-performing quartile.
\c\ This column is the percent of hospitals within each characteristic that are estimated to be in the worst-
performing quartile. The percentages are calculated by dividing the number of non-Maryland hospitals with a
Total HAC Score in the worst-performing quartile by the total number of non-Maryland hospitals with a Total
HAC Score within that characteristic.
\d\ Total excludes 47 Maryland hospitals and 64 non-Maryland hospitals without a Total HAC Score for FY 2017.
\e\ A hospital is considered to be a DSH hospital if it has a disproportionate patient percentage (DPP) greater
than zero.
\f\ A hospital is considered to be a teaching hospital if it has an IME adjustment factor for Operation PPS
(TCHOP) greater than zero.

[[Page 25308]]

6. Effects of Proposed Policy Changes Relating to Direct GME and IME
Payments for Rural Training Tracks at Urban Hospitals

In section IV.J. of the preamble of this proposed rule, we
discuss our proposal to extend the period for establishing rural
track FTE limitations from 3 years to 5 years for purposes of direct
GME and IME payments to urban hospitals with rural track training
programs. Specifically, we are proposing to revise the regulations
to permit that, in the first 5 program years (rather than the first
3 program years) of the rural track's existence, the rural track FTE
limitation for each urban hospital will be the actual number of FTE
residents training in the rural training track at the urban
hospital, and beginning with the urban hospital's cost reporting
period that coincides with or follows the start of the sixth program
year of the rural training track's existence, the rural track FTE
limitation would take effect. This proposed change addresses
concerns expressed by the hospital community that rural training
tracks, like any program, should have a sufficient amount of time
for a hospital to ``grow'' and to establish a rural track FTE
limitation that reflects the number of FTE residents that it will
actually train, once the program is fully grown. In section IV.J. of
the preamble of this proposed rule, we explain that because we
inadvertently did not also amend the separate direct GME and IME
regulations regarding the growth window and effective date of FTE
limitations for rural track training programs when we amended the
regulations regarding the 5-year growth window in the FY 2013 IPPS/
LTCH PPS final rule and regarding the additional changes we made in
the FY 2015 IPPS/LTCH PPS final rule, we are proposing that the
effective date regarding the change in the growth window also be
effective for rural track training programs started on or after
October 1, 2012. Mostly due to the relatively small size of rural
track programs, we estimate that the proposal would cost
approximately $1 million by the end of the 10-year period, a
negligible cost.

7. Effects of Implementation of Rural Community Hospital Demonstration
Program

In section IV.K. of the preamble of this proposed rule, for FY
2017, we discuss our implementation of section 410A of Public Law
108-173, as amended, which requires the Secretary to conduct a
demonstration that would modify payments for inpatient services for
up to 30 rural community hospitals. Section 410A(c)(2) requires that
in conducting the demonstration program under this section, the
Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have
paid if the demonstration program under this section was not
implemented.
As discussed in section IV.K. of the preamble of this proposed
rule, in the IPPS final rules for each of the previous 12 fiscal
years, we have estimated the additional payments made by the program
for each of the participating hospitals as a result of the
demonstration. In order to achieve budget neutrality, we have
adjusted the national IPPS rates by an amount sufficient to account
for the added costs of this demonstration. In other words, we have
applied budget neutrality across the payment system as a whole
rather than across the participants of this demonstration. The
language of the statutory budget neutrality requirement permits the
agency to implement the budget neutrality provision in this manner.
The statutory language requires that aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have
paid if the demonstration was not implemented but does not identify
the range across which aggregate payments must be held equal.
In this FY 2017 proposed rule, we are proposing a different
methodology as compared to previous years for analyzing the costs
attributable to the demonstration for FY 2017. The demonstration
will have substantially phased out by the beginning of FY 2017. The
7 ``originally participating hospitals'', that is, those hospitals
that were selected for the demonstration in 2004 and 2008, ended
their participation in the 5-year extension period authorized by the
Affordable Care Act prior to the start of FY 2016. In addition, the
participation period for the 14 hospitals that entered the
demonstration following the extension of the demonstration mandated
by the Affordable Care Act and that are still participating will end
on a rolling basis according to the end dates of the hospitals' cost
report periods, respectively, from April 30, 2016 through December
31, 2016. Of these 14 hospitals, 10 hospitals will end participation
on or before September 30, 2016, leaving 4 hospitals participating
for the last 3 months of CY 2016 (that is, the first 3 months of FY
2017). Given the small number of participating hospitals and the
limited time of participation, we are proposing to forego the
process of estimating the costs attributable to the demonstration
for FY 2017 and to instead analyze the set of finalized cost reports
for reporting periods beginning in FY 2016 when they become
available.
In previous IPPS/LTCH PPS final rules, we have determined the
amount by which the actual costs of the demonstration for an
earlier, previous year differed from the estimated costs of the
demonstration set forth in the corresponding final rule for the
corresponding fiscal year, and we incorporated that amount into the
budget neutrality offset amount for the upcoming fiscal year. We
note that we have calculated this difference between the actual
costs of the demonstration for FYs 2005 through 2010, as determined
from finalized cost reports once available, and estimated costs of
the demonstration as identified in the applicable IPPS final rules
for these years. In this proposed rule, we are proposing to conduct
this analysis for FYs 2011 through 2016 at one time, when all of the
finalized cost reports for cost reporting periods beginning in FYs
2011 through 2016 are available. Given the general lag of 3 years in
finalizing cost reports, we expect any such analysis to be conducted
in FY 2020.
Because, as discussed earlier, we are proposing that we would
not calculate and apply an estimated budget neutrality offset amount
for FY 2017, but instead analyze the set of finalized cost reports
for cost reporting periods beginning in FY 2016 when they become
available, and are proposing to reconcile the budget neutrality
offset amounts for FYs 2011 through 2016 with the actual costs of
the demonstration once the finalized cost reports for all of these
years are available, we believe there would be no impact from the
demonstration on the national IPPS rates for FY 2017.

8. Effects of Proposed Implementation of the Notice of Observation
Treatment and Implications for Care Eligibility Act (NOTICE Act)

In section IV.L. of the preamble of this proposed rule, we
discuss our proposal to implement section 1866(a)(1)(Y) of the Act
as amended by the NOTICE Act (Pub. L. 114-42) by revising the basic
commitments providers agree to as part of participating in Medicare
under a provider agreement by establishing regulations that would
specify a process for hospitals and CAHs to notify an individual,
orally and in writing, regarding the individual's receipt of
observation services as an outpatient for more than 24 hours and the
implications of receiving such services. The statute mandates the
Secretary develop a plain language written notice for this purpose.
The written notice must be delivered no later than 36 hours after
observation services are initiated. We have developed a standardized
format for the notice, which is undergoing OMB approval. The notice
would be disseminated during the normal course of related business
activities. In 2014, there were approximately 977,000 claims for
Medicare outpatient observation services lasting greater than 24
hours furnished by 6,142 hospitals and CAHs.\322\ We refer readers
to section IX.B. of the preamble of this proposed rule for a
discussion of the burden associated with this notice requirement.
---------------------------------------------------------------------------

\322\ Source: CMS Office of Enterprise and Data Analytics.
---------------------------------------------------------------------------

9. Effects of Proposed Technical Changes and Correction of
Typographical Errors in Certain Regulations Under 42 CFR Part 413
Relating to Costs to Related Organizations and Medicare Cost Reports

In section IV.M. of the preamble of this proposed rule, we
discuss a number of proposed technical changes or corrections of
typographical errors in 42 CFR part 413 relating to costs to related
organizations and Medicare cost reports that need to be made. We
believe that the impact of these proposed technical changes and
corrections is negligible.

10. Effects of Proposed Implementation of the Frontier Community Health
Integration Project (FCHIP) Demonstration

In section VI.B. of the preamble of this proposed rule, we
discuss the implementation of the FCHIP demonstration, which will
allow eligible entities to develop and test new models for the
delivery of health care services in eligible counties in order to
improve access to and better integrate the delivery of acute care,
extended care, and other health care services to Medicare
beneficiaries in no more than four

[[Page 25309]]

States. CMS has selected CAHs to participate in the demonstration,
and budget neutrality estimates will be based on the demonstration
period, which is expected to be August 1, 2016 through July 31,
2019. The selected CAHs are located in three States: Montana,
Nevada, and North Dakota. The demonstration design includes three
intervention prongs, under which specific waivers of Medicare
payment rules will allow for enhanced payment: telemedicine, nursing
facility, and ambulance services. These waivers were formulated with
the goal of increasing access to care with no net increase in costs.
We have specified the payment enhancements for the
demonstration, and based our selection of CAHs for participation,
with the goal of maintaining the budget neutrality of the
demonstration on its own terms (that is, the demonstration will
produce savings from reduced transfers and admissions to other
health care providers, thus offsetting any increase in payments
resulting from the demonstration). However, because of the small
size of this demonstration program and uncertainty associated with
projected Medicare utilization and costs, we are proposing a
contingency plan to ensure that the budget neutrality requirement in
section 123 of Public Law 110-275 is met. Accordingly, if analysis
of claims data for the Medicare beneficiaries receiving services at
each of the participating CAHs, as well as of other data sources,
including cost reports for these CAHs, shows that increases in
Medicare payments under the demonstration during the 3-year period
are not sufficiently offset by reductions elsewhere, we will recoup
the additional expenditures attributable to the demonstration
through a reduction in payments to all CAHs nationwide. The
demonstration is projected to impact payments to participating CAHs
under both Medicare Part A and Part B. Thus, in the event that we
determine that aggregate payments under the demonstration exceed the
payments that would otherwise have been made, we are proposing that
CMS would recoup payments through reductions of Medicare payments to
all CAHs under both Medicare Part A and Part B. Because of the small
scale of the demonstration, it would be not be feasible to implement
budget neutrality by reducing only payments to the participating CAH
providers. We are proposing to make the reduction to payments to all
CAHs, not just those participating in the demonstration, because the
FCHIP program is specifically designed to test innovations that
affect delivery of services by this provider category. We believe
that the language of the statutory budget neutrality requirement at
section 123(g)(1)(B) of the Act permits the agency to implement the
budget neutrality provision in this manner. The statutory language
refers merely to ensuring that aggregate payments made by the
Secretary do not exceed the amount which the Secretary estimates
would have been paid if the demonstration project was not
implemented, and does not identify the range across which aggregate
payments must be held equal.
Given the 3-year period of performance of the FCHIP
demonstration and the time needed to conduct the budget neutrality
analysis, we are proposing that, in the event the demonstration is
found not to have been budget neutral, any excess costs would be
recouped over a period of three cost report periods, beginning in CY
2020. Therefore, this proposal does not impact any national payment
system for FY 2017.

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

For the impact analysis presented below, we used data from the
December 2015 update of the FY 2015 MedPAR file and the December
2015 update of the Provider-Specific File (PSF) that is used for
payment purposes. Although the analyses of the proposed changes to
the capital prospective payment system do not incorporate cost data,
we used the December 2015 update of the most recently available
hospital cost report data (FYs 2013 and 2014) to categorize
hospitals. Our analysis has several qualifications. We use the best
data available and make assumptions about case-mix and beneficiary
enrollment as described later in this section.
Due to the interdependent nature of the IPPS, it is very
difficult to precisely quantify the impact associated with each
change. In addition, we draw upon various sources for the data used
to categorize hospitals in the tables. In some cases (for instance,
the number of beds), there is a fair degree of variation in the data
from different sources. We have attempted to construct these
variables with the best available sources overall. However, it is
possible that some individual hospitals are placed in the wrong
category.
Using cases from the December 2015 update of the FY 2015 MedPAR
file, we simulated payments under the capital IPPS for FY 2016 and
FY 2017 for a comparison of total payments per case. Any short-term,
acute care hospitals not paid under the general IPPS (for example,
Indian Health Service hospitals and hospitals in Maryland) are
excluded from the simulations.
The methodology for determining a capital IPPS payment is set
forth at Sec. 412.312. The basic methodology for calculating the
proposed capital IPPS payments in FY 2017 is as follows:

(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME
adjustment factor, if applicable).

In addition to the other adjustments, hospitals may receive
outlier payments for those cases that qualify under the threshold
established for each fiscal year. We modeled payments for each
hospital by multiplying the capital Federal rate by the GAF and the
hospital's case-mix. We then added estimated payments for indirect
medical education, disproportionate share, and outliers, if
applicable. For purposes of this impact analysis, the model includes
the following assumptions:
We estimate that the Medicare case-mix index will
increase by 0.5 percent in both FYs 2016 and 2017.
We estimate that Medicare discharges will be
approximately 11.3 million in FY 2016 and 11.5 million in FY 2017.
The capital Federal rate was updated beginning in FY
1996 by an analytical framework that considers changes in the prices
associated with capital-related costs and adjustments to account for
forecast error, changes in the case-mix index, allowable changes in
intensity, and other factors. As discussed in section III.A.1.a. of
the Addendum to this proposed rule, the proposed update is 0.9
percent for FY 2017.
In addition to the proposed FY 2017 update factor, the
proposed FY 2017 capital Federal rate was calculated based on a
proposed GAF/DRG budget neutrality adjustment factor of 0.9993, a
proposed outlier adjustment factor of 0.9374, and a proposed
adjustment of (1/0.998) to permanently remove the 0.2 percent
adjustment, as well as a proposed temporary 2-midnight adjustment of
1.006. The 2-midnight adjustments are discussed in section V.C. of
the preamble of this proposed rule and are consistent with the
proposed 2-midnight adjustments on the operating Federal rate. As
discussed in section V.C. of the preamble of this proposed rule, we
are not proposing to make an additional MS-DRG documentation and
coding adjustment to the capital IPPS Federal rates for FY 2017.

2. Results

We used the actuarial model previously described in section I.I.
of Appendix A of this proposed rule to estimate the potential impact
of our proposed changes for FY 2017 on total capital payments per
case, using a universe of 3,330 hospitals. As previously described,
the individual hospital payment parameters are taken from the best
available data, including the December 2015 update of the FY 2015
MedPAR file, the December 2015 update to the PSF, and the most
recent cost report data from the December 2015 update of HCRIS. In
Table III, we present a comparison of estimated total payments per
case for FY 2016 and estimated total payments per case for FY 2017
based on the proposed FY 2017 payment policies. Column 2 shows
estimates of payments per case under our model for FY 2016. Column 3
shows estimates of payments per case under our model for FY 2017.
Column 4 shows the total percentage change in payments from FY 2016
to FY 2017. The change represented in Column 4 includes the proposed
0.9 percent update to the capital Federal rate and other proposed
changes in the adjustments to the capital Federal rate. The
comparisons are provided by: (1) Geographic location; (2) region;
and (3) payment classification.
The simulation results show that, on average, proposed capital
payments per case in FY 2017 are expected to increase as compared to
capital payments per case in FY 2016. This expected increase is due
to the proposed approximately 1.7 percent increase in the capital
Federal rate for FY 2017 as compared to the FY 2016 capital Federal
rate and, to a lesser degree, changes to the MS-DRG
reclassifications and recalibrations. (For a discussion of the
determination of the capital Federal rate, we refer readers to
section III.A. of the Addendum to this proposed rule.) The proposed
increase in

[[Page 25310]]

capital payments per case due to the effects of changes to the MS-
DRG reclassifications and recalibrations is expected to be slightly
greater for urban hospitals than for rural hospitals. However, less
than half of the hospitals in urban areas are expected to experience
a slight increase in capital payments per case due to the effects of
proposed changes to the GAFs, while the remainder of these urban
area hospitals would experience no change or a decrease in capital
payments per case due to proposed changes in the GAFs. For most
hospitals in rural areas, proposed changes in the GAFs are expected
to increase capital payments, to a greater or lesser extent, except
for two rural areas where proposed changes in the GAFs are expected
to decrease capital payments per case. These regional effects of the
proposed changes to the GAFs on capital payments are consistent with
the projected changes in payments due to proposed changes in the
wage index (and proposed policies affecting the wage index) as shown
in Table I in section I.G. of this Appendix A.
The net impact of these proposed changes is an estimated
proposed 2.0 percent change in capital payments per case from FY
2016 to FY 2017 for all hospitals (as shown in Table III).
The geographic comparison shows that, on average, hospitals in
all classifications (urban and rural) would experience an increase
in capital IPPS payments per case in FY 2017 as compared to FY 2016.
Capital IPPS payments per case for hospitals in ``large urban
areas'' have an estimated increase of 2.0 percent, while hospitals
in rural areas, on average, are expected to experience a 2.1 percent
increase in proposed capital payments per case from FY 2016 to FY
2017. Capital IPPS payments per case for ``other urban hospitals''
are also estimated to increase 2.1 percent. The primary factor
contributing to the difference in the proposed projected increase in
capital IPPS payments per case for urban hospitals as compared to
rural hospitals is the proposed changes to the MS-DRGs
reclassifications and recalibrations.
The comparisons by region show that the estimated increases in
capital payments per case from FY 2016 to FY 2017 in urban areas
range from a 2.7 percent increase for the West South Central urban
region to a 0.7 percent increase for the New England urban region.
For rural regions, the Middle Atlantic rural region is projected to
experience the largest increase in capital IPPS payments per case of
2.9 percent; the Mountain rural region is projected to experience
the smallest increase in capital IPPS payments per case of 0.7
percent. The proposed change in the GAFs is the main factor for the
Mountain rural region experiencing the smallest projected increase
in capital IPPS payments among rural regions, and it is also the
main contributor for the smallest projected increase in capital IPPS
payments for the New England urban region.
Hospitals of all types of ownership (that is, voluntary
hospitals, government hospitals, and proprietary hospitals) are
expected to experience an increase in capital payments per case from
FY 2016 to FY 2017. The proposed increase in capital payments for
voluntary and proprietary hospitals is estimated to be 2.0 percent
and 2.2 percent, respectively. For government hospitals, the
increase is estimated to be 1.8 percent.
Section 1886(d)(10) of the Act established the MGCRB. Hospitals
may apply for reclassification for purposes of the wage index for FY
2017. Reclassification for wage index purposes also affects the GAFs
because that factor is constructed from the hospital wage index. To
present the effects of the hospitals being reclassified as of the
publication of this proposed rule for FY 2017, we show the average
capital payments per case for reclassified hospitals for FY 2017.
Urban reclassified hospitals are expected to experience an increase
in capital payments of 2.0 percent; urban nonreclassified hospitals
are expected to experience an increase in capital payments of 2.1
percent. The estimated percentage increase for rural reclassified
hospitals is 2.3 percent, and for rural nonreclassified hospitals,
the estimated percentage increase is 1.5 percent. Other reclassified
hospitals (section 1886(d)(8)(B) of the Act) are expected to
experience the largest increase in capital payments of 2.6 percent.

Table III--Comparison of Total Payments per Case
[FY 2016 payments compared to FY 2017 payments]
----------------------------------------------------------------------------------------------------------------
Average FY Average FY
Number of 2016 payments/ 2017 payments/ Change
hospitals case case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
All hospitals............................... 3,330 895 913 2.0
Large urban areas (populations over 1 1,378 991 1,010 2.0
million)...................................
Other urban areas (populations of 1 million 1,134 855 873 2.1
of fewer)..................................
Rural areas................................. 818 607 619 2.1
Urban hospitals............................. 2,512 929 948 2.0
0-99 beds............................... 656 752 766 2.0
100-199 beds............................ 765 805 819 1.8
200-299 beds............................ 449 848 864 1.9
300-499 beds............................ 429 943 963 2.1
500 or more beds........................ 213 1,118 1,142 2.1
Rural hospitals............................. 818 607 619 2.1
0-49 beds............................... 320 509 519 2.0
50-99 beds.............................. 292 568 579 2.1
100-149 beds............................ 119 599 610 1.8
150-199 beds............................ 46 656 669 2.1
200 or more beds........................ 41 727 744 2.3
By Region:
Urban by Region............................. 2,512 929 948 2.0
New England............................. 116 1,011 1,018 0.7
Middle Atlantic......................... 315 1,035 1,050 1.5
South Atlantic.......................... 406 826 843 2.1
East North Central...................... 390 892 913 2.3
East South Central...................... 147 780 800 2.5
West North Central...................... 163 907 926 2.1
West South Central...................... 384 839 862 2.7
Mountain................................ 163 961 980 1.9
Pacific................................. 377 1,194 1,218 2.0
Puerto Rico............................. 51 426 450 5.5
Rural by Region............................. 818 607 619 2.1
New England............................. 21 847 866 2.3
Middle Atlantic......................... 55 579 595 2.9

[[Page 25311]]

South Atlantic.......................... 127 573 581 1.5
East North Central...................... 115 627 642 2.4
East South Central...................... 156 552 563 2.0
West North Central...................... 99 655 666 1.8
West South Central...................... 161 524 538 2.6
Mountain................................ 60 710 715 0.7
Pacific................................. 24 794 813 2.4
By Payment Classification:
All hospitals............................... 3,330 895 913 2.0
Large urban areas (populations over 1 1,372 992 1,011 2.0
million)...................................
Other urban areas (populations of 1 million 1,083 860 878 2.1
of fewer)..................................
Rural areas................................. 875 622 634 1.9
Teaching Status:
Non-teaching............................ 2,275 755 770 1.9
Fewer than 100 Residents................ 804 868 886 2.1
100 or more Residents................... 251 1,264 1,290 2.1
Urban DSH:
100 or more beds.................... 1,608 954 973 2.1
Less than 100 beds.................. 330 688 700 1.8
Rural DSH:
Sole Community (SCH/EACH)........... 266 590 603 2.2
Referral Center (RRC/EACH).......... 347 652 665 2.0
Other Rural:
100 or more beds................ 33 537 545 1.4
Less than 100 beds.............. 149 515 523 1.6
Urban teaching and DSH:
Both teaching and DSH................... 880 1,029 1,051 2.1
Teaching and no DSH..................... 107 928 942 1.5
No teaching and DSH..................... 1,058 800 816 2.0
No teaching and no DSH.................. 410 804 820 1.9
Rural Hospital Types:
Non special status hospitals............ 2,522 931 949 2.0
RRC/EACH................................ 193 754 774 2.6
SCH/EACH................................ 326 689 702 2.0
SCH, RRC and EACH....................... 126 735 749 1.9
Hospitals Reclassified by the Medicare
Geographic Classification Review Board:
FY2017 Reclassifications:
All Urban Reclassified.................. 576 952 971 2.0
All Urban Non-Reclassified.............. 1,879 925 944 2.1
All Rural Reclassified.................. 277 636 651 2.3
All Rural Non-Reclassified.............. 484 570 578 1.5
Other Reclassified Hospitals (Section 57 582 597 2.6
1886(d)(8)(B)).........................
Type of Ownership:
Voluntary............................... 1,914 908 927 2.0
Proprietary............................. 858 803 820 2.2
Government.............................. 516 946 963 1.8
Medicare Utilization as a Percent of
Inpatient Days:
0-25.................................... 517 1,086 1,109 2.2
25-50................................... 2,128 899 917 2.0
50-65................................... 546 730 744 1.9
Over 65................................. 94 518 528 2.0
----------------------------------------------------------------------------------------------------------------

J. Effects of Proposed Payment Rate Changes and Policy Changes
Under the LTCH PPS

1. Introduction and General Considerations

In section VII. of the preamble of this proposed rule and
section V. of the Addendum to this proposed rule, we set forth the
proposed annual update to the payment rates for the LTCH PPS for FY
2017. In the preamble of this proposed rule, we specify the
statutory authority for the proposed provisions that are presented,
identify those proposed policies, and present rationales for our
proposed decisions as well as alternatives that were considered. In
this section of Appendix A to this proposed rule, we discuss the
impact of the proposed changes to the payment rate, factors, and
other payment rate policies related to the LTCH PPS that are
presented in the preamble of this proposed rule in terms of their
estimated fiscal impact on the Medicare budget and on LTCHs.
There are 420 LTCHs included in this impacts analysis, which
includes data for 78 nonprofit (voluntary ownership control) LTCHs,
325 proprietary LTCHs, and 17 LTCHs that are government-owned and
operated. (We note that, although there are currently approximately
430 LTCHs, for purposes of this impact analysis, we excluded the
data of all-inclusive rate providers consistent with the development
of the proposed FY 2017 MS-LTC-DRG relative weights (discussed in
section VII.C.3.c. of the preamble of this proposed rule).) In the
impact analysis, we used the proposed payment rate, factors, and
policies presented in this proposed rule, which includes the

[[Page 25312]]

continued transition to the site neutral payment rate required by
section 1886(m)(6)(A) of the Act (discussed in section VII.B. of the
preamble of this proposed rule), the proposed 1.45 percent annual
update to the LTCH PPS standard Federal payment rate in accordance
with section 1886(m)(5)(C) of the Act (which is based on the full
estimated increase of the proposed revised and rebased LTCH PPS
market basket and the reductions required by sections 1886(m)(3) and
(m)(4) of the Act), the proposed update to the MS-LTC-DRG
classifications and relative weights, the proposed update to the
wage index values and labor-related share, and the best available
claims and CCR data to estimate the proposed change in payments for
FY 2017.
Under the dual rate LTCH PPS payment structure, payment for LTCH
discharges that meet the criteria for exclusion from the site
neutral payment rate (that is, LTCH PPS standard Federal payment
rate cases) is based on the LTCH PPS standard Federal payment rate.
Consistent with the statute, the site neutral payment rate is the
lower of the IPPS comparable per diem amount as determined under
Sec. 412.529(d)(4), including any applicable outlier payments as
specified in Sec. 412.525(a); or 100 percent of the estimated cost
of the case as determined under existing Sec. 412.529(d)(2). In
addition, there are two separate HCO targets--one for LTCH PPS
standard Federal payment rate cases and one for site neutral payment
rate cases. The statute also establishes a transitional payment
method for cases that are paid the site neutral payment rate for
LTCH discharges occurring in cost reporting periods beginning during
FY 2016 and FY 2017. The transitional payment amount for site
neutral payment rate cases is a blended payment rate, which is
calculated as 50 percent of the applicable site neutral payment rate
amount for the discharge as determined under new Sec. 412.522(c)(1)
and 50 percent of the applicable LTCH PPS standard Federal payment
rate for the discharge determined under Sec. 412.523.
Based on the best available data for the 420 LTCHs in our
database that were considered in the analyses used for this proposed
rule, we estimate that overall LTCH PPS payments in FY 2017 would
decrease by approximately 6.9 percent (or approximately $355
million). This projection takes into account estimated payments for
LTCH cases in our database that would have met the patient-level
criteria and been paid the LTCH PPS standard Federal payment rate if
those criteria had been in effect at the time of the discharge, and
estimated payments for LTCH cases that would not have met the
patient-level criteria and been paid under the site neutral payment
rate if that rate had been in effect at the time of the discharge,
as described in the following paragraph.
The statutory transitional payment method for cases that are
paid the site neutral payment rate for LTCH discharges occurring in
cost reporting periods beginning during FY 2016 or FY 2017 uses a
blended payment rate, which is determined as 50 percent of the site
neutral payment rate amount for the discharge and 50 percent of the
standard Federal prospective payment rate amount for the discharge
(Sec. 412.522(c)(3)). The transitional blended payment rate uses
the same blend percentages (that is, 50 percent) for both years of
the 2-year transition period. Therefore, when estimating FY 2017
LTCH PPS payments for site neutral payment rate cases for this
impact analysis, the transitional blended payment rate was applied
to all such cases because all discharges in FY 2017 will either be
in the hospital's cost reporting period that began during FY 2016 or
in the hospital's cost reporting period that will begin during FY
2017. However, when estimating FY 2016 LTCH PPS payments for site
neutral payment rate cases for this impact analysis because the
statute specifies that the site neutral payment rate effective date
for a given LTCH is determined based on the date on which that
LTCH's cost reporting period begins during FY 2016, we included an
adjustment to account for this rolling effective date, consistent
with the approach used for the LTCH PPS impact analysis presented in
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49831). This approach
accounts for the fact that LTCHs with discharges in FY 2016 that are
in cost reporting periods that begin before October 1, 2015,
continued to be paid for all discharges (including those that did
not meet the patient-level criteria for exclusion from the site
neutral payment rate) at the LTCH PPS standard Federal payment rate
until the start of their first cost reporting period beginning after
October 1, 2015.
For purposes of this impact analysis, to estimate total FY 2016
LTCH PPS payments for site neutral payment rate cases, we used the
same approach as was used in the FY 2016 IPPS/LTCH PPS final rule.
In summary, under this approach, we grouped LTCHs based on the
quarter of FY 2016 their cost reporting periods began during FY
2016. For example, LTCHs with cost reporting periods that began
during October through December 2015 began during the first quarter
of FY 2016. For LTCHs grouped in each quarter of FY 2016, we modeled
those LTCHs' estimated FY 2016 site neutral payment rate payments
under the transitional blended payment rate based on the quarter in
which the LTCHs in each group become subject to the site neutral
payment rate. Then, we modeled for LTCHs grouped in each quarter of
FY 2016, estimated FY 2016 payments under the LTCH PPS standard
Federal payment rate based on the quarter in which the LTCHs in each
group become subject to the site neutral payment rate. (For
additional details on our method of taking into account the rolling
effective date of the application of the site neutral payment rate
when estimating payments for FY 2016, we refer readers to the
description presented in FY 2016 IPPS/LTCH PPS final rule (80 FR
49831).) We continue to believe that this approach is a reasonable
means of taking the rolling effective date into account when
estimating FY 2016 payments.
Based on the fiscal year start dates recorded in the December
2015 update of the PSF, of the 420 LTCHs in our database of LTCH
claims from the December 2015 update of the FY 2015 MedPAR files
used for this proposed rule, the following percentages apply in the
approach previously described: 9.9 percent of site neutral payment
rate cases are from LTCHs whose cost reporting periods begin in the
first quarter of FY 2016; 26.4 percent of site neutral payment rate
cases are from LTCHs whose cost reporting periods begin in the
second quarter of FY 2016; 10.3 percent of site neutral payment rate
cases are from LTCHs whose cost reporting periods begin in the third
quarter of FY 2016; and 53.4 percent of site neutral payment rate
cases are from LTCHs whose cost reporting periods begin in the
fourth quarter of FY 2016.
Based on the FY 2015 LTCH cases that were used for the analyses
in this proposed rule, approximately 45 percent of those LTCH cases
would have been classified as site neutral payment rate cases if the
site neutral payment rate had been in effect in FY 2015 (that is, 45
percent of such LTCH cases would not have met the patient-level
criteria for exclusion from the site neutral payment rate). Our
Office of the Actuary estimates that the percent of LTCH PPS cases
that will be paid at the site neutral payment rate in FY 2017 will
not change significantly from the historical data. Taking into
account the transitional blended payment rate and other proposed
changes that would apply to the site neutral payment rate cases in
FY 2017, we estimate that aggregate LTCH PPS payments for these site
neutral payment rate cases would decrease by approximately 21
percent (or approximately $367 million).
Approximately 55 percent of LTCH cases are expected to meet the
patient-level criteria for exclusion from the site neutral payment
rate in FY 2017, and will be paid based on the LTCH PPS standard
Federal payment rate for the full year. We estimate that total LTCH
PPS payments for these LTCH PPS standard Federal payment rate cases
in FY 2017 would increase approximately 0.3 percent (or
approximately $12 million). This estimated increase in LTCH PPS
payments for LTCH PPS standard Federal payment rate cases in FY 2017
is primarily due to the combined effects of the proposed 1.45
percent annual update to the LTCH PPS standard Federal payment rate
for FY 2017 (discussed in section V.A. of the Addendum to this
proposed rule) and an estimated decrease in HCO payments for these
cases (discussed in section V.D.3. of the Addendum to this proposed
rule).
Based on the 420 LTCHs that were represented in the FY 2015 LTCH
cases that were used for the analyses in this proposed rule, we
estimate that aggregate FY 2017 LTCH PPS payments would be
approximately $4.757 billion, as compared to estimated aggregate FY
2016 LTCH PPS payments of approximately $5.112 billion, resulting in
an estimated overall decrease in LTCH PPS payments of approximately
$355 million. Because the combined distributional effects and
estimated payment changes exceed $100 million, this proposed rule is
a major economic rule. We note that this estimated $355 million
decrease in LTCH PPS payments in FY 2017 (which includes estimated
payments for LTCH PPS standard Federal payment rate cases and site
neutral payment rate cases) does not reflect changes in LTCH
admissions or case-mix intensity, which would also affect the
overall payment effects of the proposals in this proposed rule.

[[Page 25313]]

The LTCH PPS standard Federal payment rate for FY 2016 is
$41,762.85. For FY 2017, we are proposing an LTCH PPS standard
Federal payment rate of $42,314.31, which reflects the proposed 1.45
percent annual update to the LTCH PPS standard Federal payment rate
and the proposed area wage budget neutrality factor of 0.998723 to
ensure that the proposed changes in the wage indexes and labor-
related share do not influence aggregate payments. For LTCHs that
fail to submit data for the LTCH QRP, in accordance with section
1886(m)(5)(C) of the Act, we are proposing an LTCH PPS standard
Federal payment rate of $41,480.12. This proposed reduced LTCH PPS
standard Federal payment rate reflects the updates previously
described as well as the required 2.0 percentage point reduction to
the annual update for failure to submit data under the LTCH QRP. We
note that the factors previously described to determine the proposed
FY 2017 LTCH PPS standard Federal payment rate are applied to the FY
2016 LTCH PPS standard Federal rate set forth under Sec.
412.523(c)(3)(xi) (that is, $41,762.85).
Table IV shows the estimated impact for LTCH PPS standard
Federal payment rate cases. The estimated change attributable solely
to the proposed annual update to the LTCH PPS standard Federal
payment rate is projected to result in an increase of 1.3 percent in
payments per discharge for LTCH PPS standard Federal payment rate
cases from FY 2016 to FY 2017, on average, for all LTCHs (Column 6).
In addition to the proposed annual update to the LTCH PPS standard
Federal payment rate for FY 2017, the estimated increase of 1.3
percent shown in Column 6 of Table IV also includes estimated
payments for SSO cases that will be paid using special methodologies
that are not affected by the proposed annual update to the LTCH PPS
standard Federal payment rate, as well as the reduction that is
applied to the proposed annual update of LTCHs that do not submit
the required LTCH QRP data. Therefore, for all hospital categories,
the projected increase in payments based on the proposed LTCH PPS
standard Federal payment rate to LTCH PPS standard Federal payment
rate cases is somewhat less than the proposed 1.45 percent proposed
annual update for FY 2017.
For FY 2017, we are proposing to update the wage index values
based on the most recent available data, and we are proposing to
continue to use labor market areas based on the OMB CBSA
delineations (as discussed in section V.B. of the Addendum to this
proposed rule). In addition, we are proposing an increase in the
labor-related share from 62.0 percent to 66.6 percent under the LTCH
PPS for FY 2017, based on the most recent available data on the
relative importance of the labor-related share of operating and
capital costs of the proposed 2013-based LTCH market basket (as
discussed in section VII.D. of the preamble of this proposed rule).
We also are proposing to apply an area wage level budget neutrality
factor of 0.998723 to ensure that the proposed changes to the wage
data and labor-related share do not result in a change in estimated
aggregate LTCH PPS payments to LTCH PPS standard Federal payment
rate cases, which decreases the LTCH PPS standard Federal payment
rate by approximately 0.13 percent.
We currently estimate total HCO payments for LTCH PPS standard
Federal payment rate cases would decrease from FY 2016 to FY 2017.
Based on the FY 2015 LTCH cases that were used for the analyses in
this proposed rule, we estimate that the FY 2016 HCO threshold of
$16,423 (as established in the FY 2016 IPPS/LTCH PPS final rule)
would result in estimated HCO payments for LTCH PPS standard Federal
payment rate cases in FY 2016 that are above the estimated 8 percent
target. Specifically, we currently estimate that HCO payments for
LTCH PPS standard Federal payment rate cases would be approximately
9.1 percent of the estimated total LTCH PPS standard Federal payment
rate payments in FY 2016. Combined with our estimate that FY 2017
HCO payments for LTCH PPS standard Federal payment rate cases would
be 8.0 percent of estimated total LTCH PPS standard Federal payment
rate payments in FY 2017, this results in the estimated decrease in
HCO payments of approximately 1.1 percent between FY 2016 and FY
2017.
In calculating these estimated HCO payments, we increased
estimated costs by our actuaries' projected market basket percentage
increase factor. This increase in estimated costs also results in a
projected increase in SSO payments in FY 2017 (because 100 percent
of the estimated cost of the case is an option in the SSO payment
formula (Sec. 412.529)). We estimate that these increased SSO
payments in FY 2017 would increase total payments for LTCH PPS
standard Federal payment rate cases by approximately 0.25 percent.
(Payments for SSO cases represent approximately 14 percent of the
estimated total FY 2017 payments for LTCH PPS standard Federal
payment rate cases.)
Table IV shows the estimated impact of the proposed payment rate
and policy changes on LTCH PPS payments for LTCH PPS standard
Federal payment rate cases for FY 2017 by comparing estimated FY
2016 LTCH PPS payments to estimated FY 2017 LTCH PPS payments. (As
noted earlier, our analysis does not reflect changes in LTCH
admissions or case-mix intensity.) The projected increase in
payments from FY 2016 to FY 2017 for LTCH PPS standard Federal
payment rate cases of 0.3 percent is attributable to the impacts of
the change to the LTCH PPS standard Federal payment rate (1.3
percent in Column 6) and the effect of the estimated decrease in HCO
payments for LTCH PPS standard Federal payment cases (-1.1 percent),
and the estimated increase in payments for SSO cases (0.25 percent).
We note that these impacts do not include LTCH PPS site neutral
payment rate cases for the reasons discussed in section I.J.3. of
this Appendix.
As we discuss in detail throughout this proposed rule, based on
the most recent available data, we believe that the provisions of
this proposed rule relating to the LTCH PPS, which are projected to
result in an overall decrease in estimated aggregate LTCH PPS
payments, and the resulting LTCH PPS payment amounts would result in
appropriate Medicare payments that are consistent with the statute.

2. Impact on Rural Hospitals

For purposes of section 1102(b) of the Act, we define a small
rural hospital as a hospital that is located outside of an urban
area and has fewer than 100 beds. As shown in Table IV, we are
projecting a 0.3 percent increase in estimated payments for LTCH PPS
standard Federal payment rate cases. This estimated impact is based
on the FY 2015 data for the 21 rural LTCHs (out of 420 LTCHs) that
were used for the impact analyses shown in Table VI.

3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes and
Policy Changes

a. Budgetary Impact

Section 123(a)(1) of the BBRA requires that the PPS developed
for LTCHs ``maintain budget neutrality.'' We believe that the
statute's mandate for budget neutrality applies only to the first
year of the implementation of the LTCH PPS (that is, FY 2003).
Therefore, in calculating the FY 2003 standard Federal payment rate
under Sec. 412.523(d)(2), we set total estimated payments for FY
2003 under the LTCH PPS so that estimated aggregate payments under
the LTCH PPS were estimated to equal the amount that would have been
paid if the LTCH PPS had not been implemented.
Section 1886(m)(6)(A) of the Act establishes a dual rate LTCH
PPS payment structure with two distinct payment rates for LTCH
discharges beginning in FY 2016. Under this statutory change, LTCH
discharges that meet the patient-level criteria for exclusion from
the site neutral payment rate (that is, LTCH PPS standard Federal
payment rate cases) are paid based on the LTCH PPS standard Federal
payment rate. LTCH discharges paid at the site neutral payment rate
are generally paid the lower of the IPPS comparable per diem amount,
including any applicable HCO payments, or 100 percent of the
estimated cost of the case. The statute also establishes a
transitional payment method for cases that are paid at the site
neutral payment rate for LTCH discharges occurring in cost reporting
periods beginning during FY 2016 or FY 2017, under which the site
neutral payment rate cases are paid based on a blended payment rate
calculated as 50 percent of the applicable site neutral payment rate
amount for the discharge and 50 percent of the applicable LTCH PPS
standard Federal payment rate for the discharge.
As discussed in section I.J.1. of this Appendix, we project a
decrease in aggregate LTCH PPS payments in FY 2017 of approximately
$355 million. This estimated decrease in payments reflects the
projected increase in payments to LTCH PPS standard Federal payment
rate cases of approximately $12 million and the projected decrease
in payments to site neutral payment rate cases of approximately $367
million under the dual rate LTCH PPS payment rate structure required
by the statute beginning in FY 2016.
As discussed in section VII.B.7.b. of the preamble of this
proposed rule, our actuaries project cost and resource changes for
site neutral payment rate cases due to the site

[[Page 25314]]

neutral payment rates required under the statute. Specifically, our
actuaries project that the costs and resource use for cases paid at
the site neutral payment rate will likely be lower, on average, than
the costs and resource use for cases paid at the LTCH PPS standard
Federal payment rate, and will likely mirror the costs and resource
use for IPPS cases assigned to the same MS-DRG. While we are able to
incorporate this projection at an aggregate level into our payment
modeling, because the historical claims data that we are using in
this proposed rule to project estimated FY 2017 LTCH PPS payments
(that is, FY 2015 LTCH claims data) do not reflect this actuarial
projection, we are unable to model the impact of the change in LTCH
PPS payments for site neutral payment rate cases at the same level
of detail with which we are able to model the impacts of the changes
to LTCH PPS payments for LTCH PPS standard Federal payment rate
cases. Therefore, Table IV only reflects proposed changes in LTCH
PPS payments for LTCH PPS standard Federal payment rate cases and,
unless otherwise noted, the remaining discussion in section I.J.3.
of this Appendix refers only to the impact on LTCH PPS payments for
LTCH PPS standard Federal payment rate cases. In the following
section, we present our provider impact analysis for the changes
that affect LTCH PPS payments for LTCH PPS standard Federal payment
rate cases.

b. Impact on Providers

Under the dual rate LTCH PPS payment structure, there are two
distinct payment rates for LTCH discharges occurring in cost
reporting periods beginning on or after October 1, 2016. Under that
statute, any discharges that occur on or after October 1, 2015, but
prior to the start of the LTCH's FY 2016 cost reporting period, will
be paid at the LTCH PPS standard Federal payment rate. On or after
the start of an LTCH's FY 2017 cost reporting period, discharges are
paid based on the nature of the case. As described previously, LTCH
PPS standard Federal payment rate cases are defined as LTCH
discharges that meet the patient-level criteria to be excluded from
the typically lower site neutral payment rate, and site neutral
payment rate cases are defined as LTCH discharges that do not meet
the patient-level criteria and generally will be paid the lower site
neutral payment rate. However, for discharges occurring in cost
reporting periods beginning in FY 2016 or 2017, the statute
specifies that site neutral payment rate cases are paid based on a
transitional payment method that is calculated as 50 percent of the
applicable site neutral payment rate amount and 50 percent of the
applicable LTCH PPS standard Federal payment rate.
The basic methodology for determining a per discharge payment
for LTCH PPS standard Federal payment rate cases is currently set
forth under Sec. Sec. 412.515 through 412.536. In addition to
adjusting the LTCH PPS standard Federal payment rate by the MS-LTC-
DRG relative weight, we make adjustments to account for area wage
levels and SSOs. LTCHs located in Alaska and Hawaii also have their
payments adjusted by a COLA. Under our application of the dual rate
LTCH PPS payment structure, the LTCH PPS standard Federal payment
rate is generally only used to determine payments for LTCH PPS
standard Federal payment rate cases (that is, those LTCH PPS cases
that meet the statutory criteria to be excluded from the site
neutral payment rate). LTCH discharges that do not meet the patient-
level criteria for exclusion are paid the site neutral payment rate,
which we are calculating as the lower of the IPPS comparable per
diem amount as determined under Sec. 412.529(d)(4), including any
applicable outlier payments, or 100 percent of the estimated cost of
the case as determined under existing Sec. 412.529(d)(2). In
addition, when certain thresholds are met, LTCHs also receive HCO
payments for both LTCH PPS standard Federal payment rate cases and
site neutral payment rate cases that are paid at the IPPS comparable
per diem amount.
To understand the impact of the changes to the LTCH PPS payments
for LTCH PPS standard Federal payment rate cases presented in this
proposed rule on different categories of LTCHs for FY 2017, it is
necessary to estimate payments per discharge for FY 2016 using the
rates, factors, and the policies established in the FY 2016 IPPS/
LTCH PPS final rule and estimate payments per discharge for FY 2017
using the rates, factors, and the policies proposed in this FY 2017
IPPS/LTCH PPS proposed rule (as discussed in section VII. of the
preamble of this proposed rule and section V. of the Addendum to
this proposed rule). As discussed elsewhere in this proposed rule,
these estimates are based on the best available LTCH claims data and
other factors, such as the application of inflation factors to
estimate costs for SSO and HCO cases in each year. The resulting
analyses can then be used to compare how our proposed policies
applicable to LTCH PPS standard Federal payment rate cases affect
different groups of LTCHs.
For the following analysis, we group hospitals based on
characteristics provided in the OSCAR data, FY 2012 through FY 2013
cost report data in HCRIS, and PSF data. Hospital groups included
the following:
Location: Large urban/other urban/rural.
Participation date.
Ownership control.
Census region.
Bed size.

c. Calculation of LTCH PPS Payments for LTCH PPS Standard Federal
Payment Rate Cases

For purposes of this impact analysis, to estimate the per
discharge payment effects of our proposed policies on payments for
LTCH PPS standard Federal payment rate cases, we simulated FYs 2016
and 2017 payments on a case-by-case basis using historical LTCH
claims from the FY 2015 MedPAR files that would have met the
criteria to be paid at the LTCH PPS standard Federal payment rate if
the statutory patient-level criteria had been in effect at the time
of discharge for those cases. For modeling FY 2016 LTCH PPS
payments, we used the FY 2016 standard Federal payment rate of
$41,762.85, or $40,941.55 for LTCHs that failed to submit quality
data as required under the requirements of the LTCH QRP. Similarly,
for modeling payments based on the FY 2017 LTCH PPS standard Federal
payment rate, we used the proposed FY 2017 standard Federal payment
rate of $42,314.31, or $41,480.12 for LTCHs that failed to submit
quality data as required under the requirements of the LTCH QRP. In
each case, we applied the applicable proposed adjustments for area
wage levels and the COLA for LTCHs located in Alaska and Hawaii.
Specifically, for modeling FY 2016 LTCH PPS payments, we used the
current FY 2016 labor-related share (62.0 percent); the wage index
values established in the Tables 12A through 12D listed in the
Addendum to the FY 2016 IPPS/LTCH PPS final rule (which are
available via the Internet on the CMS Web site); the FY 2016 HCO
fixed-loss amount for LTCH PPS standard Federal payment rate cases
of $16,423 (as discussed in section V.D. of the Addendum to that
final rule) and the FY 2016 COLA factors (shown in the table in
section V.C. of the Addendum to that final rule) to adjust the FY
2016 nonlabor-related share (38.0 percent) for LTCHs located in
Alaska and Hawaii. Similarly, for modeling FY 2017 LTCH PPS
payments, we used the proposed FY 2017 LTCH PPS labor-related share
(66.6 percent), the proposed FY 2017 wage index values from Tables
12A and 12B listed in section VI. of the Addendum to this proposed
rule (which are available via the Internet on the CMS Web site), the
proposed FY 2017 fixed-loss amount for LTCH PPS standard Federal
payment rate cases of $22,728 (as discussed in section V.D.3. of the
Addendum to this proposed rule), and the proposed FY 2017 COLA
factors (shown in the table in section V.C. of the Addendum to this
proposed rule) to adjust the proposed FY 2017 nonlabor-related share
(33.4 percent) for LTCHs located in Alaska and Hawaii.
As previously discussed, our impact analysis reflects an
estimated change in payments for SSO cases, as well as an estimated
decrease in HCO payments for LTCH PPS standard Federal payment rate
cases (as described previously in section I.J.1. of this Appendix).
In modeling proposed payments for SSO and HCO cases for LTCH PPS
standard Federal payment rate cases, we applied an inflation factor
of 4.8 percent (determined by the Office of the Actuary) to update
the 2015 costs of each case.
The impacts that follow reflect the estimated ``losses'' or
``gains'' among the various classifications of LTCHs from FY 2016 to
FY 2017 based on the proposed payment rates and policy changes
applicable to LTCH PPS standard Federal payment rate cases presented
in this proposed rule. Table IV illustrates the estimated aggregate
impact of the change in LTCH PPS payments for LTCH PPS standard
Federal payment rate cases among various classifications of LTCHs.
(As discussed previously, these impacts do not include LTCH PPS site
neutral payment rate cases.)
The first column, LTCH Classification, identifies the
type of LTCH.
The second column lists the number of LTCHs of each
classification type.
The third column identifies the number of LTCH cases
expected to meet the LTCH PPS standard Federal payment rate
criteria.
The fourth column shows the estimated FY 2016 payment
per discharge for LTCH

[[Page 25315]]

cases expected to meet the LTCH PPS standard Federal payment rate
criteria (as described previously).
The fifth column shows the estimated FY 2017 payment
per discharge for LTCH cases expected to meet the LTCH PPS standard
Federal payment rate criteria (as described previously).
The sixth column shows the percentage change in
estimated payments per discharge for LTCH cases expected to meet the
LTCH PPS standard Federal payment rate criteria from FY 2016 to FY
2017 due to the annual update to the standard Federal rate (as
discussed in section V.A.2. of the Addendum to this proposed rule).
The seventh column shows the percentage change in
estimated payments per discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017 for proposed changes to
the area wage level adjustment (that is, the proposed wage indexes
and the proposed labor-related share), including the application of
the proposed area wage level budget neutrality factor (as discussed
in section V.B. of the Addendum to this proposed rule).
The eighth column shows the percentage change in
estimated payments per discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 (Column 4) to FY 2017 (Column 5) for
all proposed changes (and includes the effect of estimated changes
to HCO and SSO payments).

Table IV--Impact of Proposed Payment Rate and Policy Changes to LTCH PPS Payments for Standard Payment Rate Cases for FY 2017
[Estimated FY 2016 payments compared to estimated FY 2017 payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Proposed percent change percent change
average FY in payments in payments Percent change
Number of LTCH Average FY 2017 LTCH PPS per case due per case due in payments
Number of PPS standard 2016 LTCH PPS standard to the annual to changes to per case from
LTCH classification LTCHs Federal payment per Federal update to the the area wage FY 2016 to FY
payment rate case payment rate LTCH PPS level 2017 for all
cases payment per standard adjustment proposed
case \1\ Federal rate with budget changes \4\
\2\ neutrality \3\
(1) (2) (3) (4) (5) (6) (7) (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS........................... 420 72,064 $46,944 $47,105 1.3 0.0 0.3
BY LOCATION:
RURAL............................... 21 2,271 38,858 38,808 1.3 -0.6 0.2
URBAN............................... 399 69,793 47,207 47,375 1.3 0.0 0.3
LARGE........................... 202 41,448 49,428 49,738 1.3 0.2 0.3
OTHER........................... 197 28,345 43,959 43,920 1.3 -0.3 0.2
BY PARTICIPATION DATE:
BEFORE OCT. 1983.................... 14 1,929 42,951 43,133 1.3 0.0 0.3
OCT. 1983-SEPT. 1993................ 42 8,856 53,153 53,438 1.2 0.3 0.4
OCT. 1993-SEPT. 2002................ 174 31,584 45,536 45,721 1.3 0.1 0.2
OCTOBER 2002 and AFTER.............. 190 29,695 46,849 46,947 1.3 -0.2 0.2
BY OWNERSHIP TYPE:
VOLUNTARY........................... 78 10,016 47,838 47,719 1.3 -0.3 0.2
PROPRIETARY......................... 325 60,366 46,633 46,844 1.3 0.1 0.3
GOVERNMENT.............................. 17 1,682 52,773 52,799 1.3 0.0 0.3
BY REGION:
NEW ENGLAND......................... 13 2,792 43,643 43,864 1.3 0.0 0.3
MIDDLE ATLANTIC..................... 26 5,486 51,620 52,093 1.3 0.5 0.3
SOUTH ATLANTIC...................... 63 12,021 46,804 46,754 1.3 -0.4 0.3
EAST NORTH CENTRAL.................. 69 11,588 46,982 47,092 1.3 -0.2 0.2
EAST SOUTH CENTRAL.................. 34 5,367 44,251 44,005 1.3 -0.8 0.2
WEST NORTH CENTRAL.................. 29 3,877 46,850 46,623 1.3 -0.4 0.2
WEST SOUTH CENTRAL.................. 128 18,590 42,312 42,344 1.3 -0.1 0.2
MOUNTAIN............................ 33 4,287 49,026 49,174 1.3 0.2 0.2
PACIFIC............................. 25 8,056 56,476 57,556 1.2 1.2 0.4
BY BED SIZE:
BEDS: 0-24.......................... 26 1,497 43,923 44,126 1.3 -0.1 0.2
BEDS: 25-49......................... 194 24,575 44,012 44,018 1.3 -0.4 0.2
BEDS: 50-74......................... 119 19,597 48,823 48,938 1.3 0.1 0.3
BEDS: 75-124........................ 48 12,941 49,992 50,356 1.3 0.3 0.3
BEDS: 125-199....................... 23 8,347 46,472 46,688 1.3 0.1 0.3
BEDS: 200 +......................... 10 5,107 47,771 48,242 1.2 0.4 0.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated proposed FY 2017 LTCH PPS payments for LTCH PPS standard Federal payment rate criteria based on the proposed payment rate and factor
changes applicable to such cases presented in the preamble of and the Addendum to this proposed rule.

[[Page 25316]]

\2\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for the proposed annual
update to the LTCH PPS standard Federal payment rate. The temporary exclusion from the site neutral payment rate provided by section 231 of Public Law
114-113 is not reflected in these estimated FY 2017 LTCH PPS payments.
\3\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for proposed changes to
the area wage level adjustment under Sec. 412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule).
\4\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 (shown in Column 4) to FY 2017
(shown in Column 5), including all of the proposed changes to the rates and factors applicable to such cases presented in the preamble and the
Addendum to this proposed rule. We note that this column, which shows the percent change in estimated payments per discharge for all proposed changes,
does not equal the sum of the percent changes in estimated payments per discharge for the proposed annual update to the LTCH PPS standard Federal
payment rate (Column 6) and the proposed changes to the area wage level adjustment with budget neutrality (Column 7) due to the effect of estimated
changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments for LTCH PPS standard Federal
payment rate cases (as discussed in this impact analysis), as well as other interactive effects that cannot be isolated.

d. Results

Based on the FY 2015 LTCH cases (from 420 LTCHs) that were used
for the analyses in this proposed rule, we have prepared the
following summary of the impact (as shown in Table IV) of the
proposed LTCH PPS payment rate and proposed policy changes for LTCH
PPS standard Federal payment rate cases presented in this proposed
rule. The impact analysis in Table IV shows that estimated payments
per discharge for LTCH PPS standard Federal payment rate cases are
expected to increase 0.3 percent, on average, for all LTCHs from FY
2016 to FY 2017 as a result of the proposed payment rate and policy
changes applicable to LTCH PPS standard Federal payment rate cases
presented in this proposed rule. This estimated 0.3 percent increase
in LTCH PPS payments per discharge was determined by comparing
estimated FY 2017 LTCH PPS payments (using the proposed payment
rates and factors discussed in this proposed rule) to estimated FY
2016 LTCH PPS payments for LTCH discharges which would be LTCH PPS
standard Federal payment rate cases if the dual rate LTCH PPS
payment structure had been in effect at the time of the discharge
(as described in section I.J.3. of this Appendix).
As stated previously, we are proposing to update the LTCH PPS
standard Federal payment rate for FY 2017 by 1.45 percent based on
the estimate of the proposed 2013-based LTCH PPS market basket
increase (2.7 percent), the proposed reduction of 0.5 percentage
point for the MFP adjustment, and the 0.75 percentage point
reduction consistent with sections 1886(m)(3) and (m)(4) of the Act.
For LTCHs that fail to submit quality data under the requirements of
the LTCH QRP, as required by section 1886(m)(5)(C) of the Act, a 2.0
percentage point reduction is applied to the proposed annual update
to the LTCH PPS standard Federal payment rate. As explained earlier
in this section, for most categories of LTCHs (as shown in Table IV,
Column 6), the estimated payment increase due to the 1.45 percent
proposed annual update to the LTCH PPS standard Federal payment rate
is projected to result in approximately a 1.3 percent increase in
estimated payments per discharge for LTCH PPS standard Federal
payment rate cases for all LTCHs from FY 2016 to FY 2017. This is
because our estimate of the changes in payments due to the proposed
update to the LTCH PPS standard Federal payment rate also reflects
estimated payments for SSO cases that are paid using special
methodologies that are not affected by the proposed update to the
LTCH PPS standard Federal payment rate. Consequently, for certain
hospital categories, we estimate that payments to LTCH PPS standard
Federal payment rate cases may increase by less than 1.45 percent
due to the proposed annual update to the LTCH PPS standard Federal
payment rate for FY 2017.

(1) Location

Based on the most recent available data, the vast majority of
LTCHs are located in urban areas. Only approximately 5 percent of
the LTCHs are identified as being located in a rural area, and
approximately 3 percent of all LTCH PPS standard Federal payment
rate cases are expected to be treated in these rural hospitals. The
impact analysis presented in Table IV shows that the overall average
percent increase in estimated payments per discharge for LTCH PPS
standard Federal payment rate cases from FY 2016 to FY 2017 for all
hospitals is 0.3 percent. For rural LTCHs, the overall percent
change for LTCH PPS standard Federal payment rate cases is estimated
to be a 0.2 percent increase, while for urban LTCHs, we estimate the
increase will be 0.3 percent. Large urban LTCHs are projected to
experience an increase of 0.3 percent in estimated payments per
discharge for LTCH PPS standard Federal payment rate cases from FY
2016 to FY 2017, and other urban LTCHs are projected to experience
an increase of 0.2 percent in estimated payments per discharge for
LTCH PPS standard Federal payment rate cases from FY 2016 to FY
2017, as shown in Table IV.

(2) Participation Date

LTCHs are grouped by participation date into four categories:
(1) Before October 1983; (2) between October 1983 and September
1993; (3) between October 1993 and September 2002; and (4) October
2002 and after. Based on the most recent available data, the
categories of LTCHs with the largest expected percentage of LTCH PPS
standard Federal payment rate cases (approximately 44 percent) are
in LTCHs that began participating in the Medicare program between
October 1993 and September 2002, and they are projected to
experience a 0.2 percent increase in estimated payments per
discharge for LTCH PPS standard Federal payment rate cases from FY
2016 to FY 2017, as shown in Table IV.
Approximately 3.3 percent of LTCHs began participating in the
Medicare program before October 1983, and these LTCHs are projected
to experience an average percent increase (0.3 percent) in estimated
payments per discharge for LTCH PPS standard Federal payment rate
cases from FY 2016 to FY 2017, as shown in Table IV. Approximately
10 percent of LTCHs began participating in the Medicare program
between October 1983 and September 1993. These LTCHs are projected
to experience a larger than average increase (0.4 percent) in
estimated payments for LTCH PPS standard Federal payment rate cases
from FY 2016 to FY 2017, which is primarily due to a projected
larger than average increase in payments due to the proposed changes
to the area wage adjustment. LTCHs that began participating in the
Medicare program after October 1, 2002, which treat approximately 41
percent of all LTCH PPS standard Federal payment rate cases, are
projected to experience a 0.2 percent increase in estimated payments
from FY 2016 to FY 2017.

(3) Ownership Control

LTCHs are grouped into three categories based on ownership
control type: Voluntary, proprietary, and government. Based on the
most recent available data, approximately 19 percent of LTCHs are
identified as voluntary (Table IV). The majority (approximately 77
percent) of LTCHs are identified as proprietary, while government
owned and operated LTCHs represent approximately 4 percent of LTCHs.
Based on ownership type, voluntary LTCHs are expected to experience
an average increase in payments to LTCH PPS standard Federal payment
rate cases of 0.2 percent. Both proprietary and government owned and
operating LTCHs are expected to experience an increase of 0.3
percent in payments to LTCH PPS standard Federal payment rate cases
from FY 2016 to FY 2017.

(4) Census Region

Estimated payments per discharge for LTCH PPS standard Federal
payment rate cases for FY 2017 are projected to increase for LTCHs
located in all regions in comparison to FY 2016. Of the 9 census
regions, we project that the increase in estimated payments per
discharge to LTCH PPS standard Federal payment rate cases would have
the largest positive impact on LTCHs in the Pacific region (0.4
percent as shown in Table IV), which is largely attributable to the
proposed changes in the area wage level adjustment.
In contrast, LTCHs located in the East North Central, East South
Central, West North Central, West South Central, and Mountain
regions are projected to experience the smallest increase in
estimated payments per discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017. The lower than national
average estimated increase in payments of 0.2 percent is primarily
due to estimated decreases in payments associated with the proposed
changes to the area wage level adjustment.

[[Page 25317]]

(5) Bed Size

LTCHs are grouped into six categories based on bed size: 0-24
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater
than 200 beds. All bed size categories are projected to receive an
increase in estimated payments per discharge for LTCH PPS standard
Federal payment rate cases from FY 2016 to FY 2017. We project that
LTCHs with 50 or more beds (that is, LTCHs in the 50-74 beds; 75-124
beds; 125-199 beds; and 200+ beds categories) would experience an
average increase in payments for LTCH PPS standard Federal payment
rate cases (0.3 percent). LTCHs with less than 50 beds (that is,
LTCHs in the 0-24 beds and 25-49 beds categories) are expected to
experience a smaller than average increase in payments per discharge
for LTCH PPS standard Federal payment rate cases from FY 2016 to FY
2017 (0.2 percent), mostly due to estimated decreases in payments
from the proposed area wage level adjustment.

4. Effect on the Medicare Program

As stated previously, we project that the provisions of this
proposed rule would result in an increase in estimated aggregate
LTCH PPS payments to LTCH PPS standard Federal payment rate cases in
FY 2017 relative to FY 2016 of approximately $12 million (or
approximately 0.3 percent) for the 420 LTCHs in our database.
Although, as stated previously, the hospital-level impacts do not
include LTCH PPS site neutral payment rate cases, we estimate that
the provisions of this proposed rule would result in a decrease in
estimated aggregate LTCH PPS payments to site neutral payment rate
cases in FY 2017 relative to FY 2016 of approximately $367million
(or approximately 21 percent) for the 420 LTCHs in our database.
Therefore, we project that the provisions of this proposed rule
would result in a decrease in estimated aggregate LTCH PPS payments
to all LTCH cases in FY 2017 relative to FY 2016 of approximately
$355 million (or approximately 6.9 percent) for the 420 LTCHs in our
database.

5. Effect on Medicare Beneficiaries

Under the LTCH PPS, hospitals receive payment based on the
average resources consumed by patients for each diagnosis. We do not
expect any changes in the quality of care or access to services for
Medicare beneficiaries as a result of this proposed rule, but we
continue to expect that paying prospectively for LTCH services will
enhance the efficiency of the Medicare program.

K. Effects of Proposed Requirements for the Hospital Inpatient
Quality Reporting (IQR) Program

In section VIII.A. of the preamble of this proposed rule, we
discuss our requirements for hospitals to report quality data under
the Hospital IQR Program in order to receive the full annual
percentage increase for the FY 2019 payment determination.
In section VIII.A.3.b. of the preamble of this proposed rule, we
are proposing to remove 15 measures: 13 eCQMs (2 of which we are
proposing to remove also in their chart-abstracted form) and 2
structural measures.
We are proposing to remove the electronic versions of: (1) AMI-
2: Aspirin Prescribed at Discharge for AMI (NQF #0142); (2) AMI-7a:
Fibrinolytic Therapy Received Within 30 minutes of Hospital Arrival;
(3) AMI-10: Statin Prescribed at Discharge; (4) HTN: Healthy Term
Newborn (NQF #0716); (5) PN-6: Initial Antibiotic Selection for
Community-Acquired Pneumonia (CAP) in Immunocompetent Patients (NQF
#0147); (6) SCIP-Inf-1a: Prophylactic Antibiotic Received within 1
Hour Prior to Surgical Incision (NQF #0527); (7) SCIP-Inf-2a:
Prophylactic Antibiotic Selection for Surgical Patients (NQF #0528);
(8) SCIP Inf-9: Urinary Catheter Removed on Postoperative Day 1
(POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day
Zero; (9) STK-4: Thrombolytic Therapy (NQF #0437); (10) VTE-3:
Venous Thromboembolism Patients with Anticoagulation Overlap Therapy
(NQF #0373); (11) VTE-4: Venous Thromboembolism Patients Receiving
Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring
by Protocol (or Nomogram); (12) VTE-5: Venous Thromboembolism
Discharge Instructions; and (13) VTE-6: Incidence of Potentially
Preventable Venous Thromboembolism.
We are also proposing to remove: (1) STK-4: Thrombolytic Therapy
(NQF #0437); and (2) VTE-5: Venous Thromboembolism Discharge
Instructions in their chart-abstracted form. Finally, we are also
proposing to remove two structural measures: (1) Participation in a
Systematic Clinical Database Registry for Nursing Sensitive Care;
and (2) Participation in a Systematic Clinical Database Registry for
General Surgery.
As further explained in section X.B.6. of the preamble of this
proposed rule, we believe that there would be a reduction in burden
for hospitals due to the removal of two chart-abstracted measures
(STK-4 and VTE-5). Due to the burden associated with the collection
of chart-abstracted data, we estimate that the removal of STK-4
would result in a burden reduction of approximately 303,534 hours
across all hospitals participating in the Hospital IQR Program for
the FY 2019 payment determination. We estimate that the removal of
VTE-5 would result in a burden reduction of approximately 653,565
hours across all hospitals participating in the Hospital IQR Program
for the FY 2019 payment determination. We believe that removing 13
eCQMs would reduce burden for hospitals, however, if our proposal to
require hospitals to submit data on all of the available eCQMs
included in the Hospital IQR Program measure set is finalized as
proposed, this modest reduction in burden would be offset by the
increased burden associated with submitting data on 15 eCQMs instead
of 4 eCQMs. We believe that there would be a negligible burden
reduction due to the removal of the two structural measures.
Also, we are proposing refinements to two previously adopted
measures: (1) Expanding the population cohort for the Hospital-
Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for
Pneumonia; and (2) Patient Safety and Adverse Events Composite (NQF
#0531). As further explained in section X.B.6. of the preamble of
this proposed rule, we believe no additional burden on hospitals
will result from the proposed refinements to these two claims-based
measures.
In addition, we are proposing to add four claims-based measures
to the Hospital IQR Program measure set beginning with the FY 2019
payment determination: (1) Aortic Aneurysm Procedure Clinical
Episode-Based Payment Measure; (2) Cholecystectomy and Common Duct
Exploration Clinical Episode-Based Payment Measure; (3) Spinal
Fusion Clinical Episode-Based Payment Measure; and (4) Excess Days
in Acute Care after Hospitalization for Pneumonia. We believe no
additional burden on hospitals would result from the addition of
these four proposed claims-based measures.
For the FY 2019 payment determination and subsequent years, we
are proposing to require hospitals to submit data for all available
eCQMs included in the Hospital IQR Program measure set in a manner
that will permit eligible hospitals to align Hospital IQR Program
requirements with some requirements under the Medicare and Medicaid
EHR Incentive Programs. Specifically, hospitals would be required to
submit a full calendar year of data for all eCQMs, on an annual
basis beginning with CY 2017 reporting for the FY 2019 payment
determination, as further explained in section X.B.6. of the
preamble of this proposed rule. In total, we expect that this
proposal would increase burden by 30,800 hours across all hospitals
participating in the Hospital IQR Program.
As we noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49763), for validation of chart-abstracted data, we require
hospitals to provide 72 charts per hospital per year (with an
average page length of 1,500), including 40 charts for HAI
validation and 32 charts for clinical process of care validation,
for a total of 108,000 pages per hospital per year. We reimburse
hospitals at 12 cents per photocopied page for a total per hospital
cost of $12,960. For hospitals providing charts digitally via a re-
writable disc, such as encrypted CD-ROMs, DVDs, or flash drives, we
will reimburse hospitals at a rate of 40 cents per disc, and
additionally hospitals will be reimbursed $3.00 per record. For
hospitals providing charts via secure file transfer, we will
reimburse hospitals at a rate of $3.00 per record. We will maintain
these requirements for the FY 2019 payment determination and
subsequent years.
In this proposed rule, we are proposing to modify the existing
validation process for Hospital IQR Program data to include a random
sample of up to 200 hospitals for validation of eCQMs in the
Hospital IQR Program. As further explained in section X.B.5. of the
preamble of this proposed rule, we estimate that 43 hours of work
for up to 200 hospitals reflects a total burden increase of 8,533
labor hours. As such, we estimate an hourly labor cost of $32.84 and
a cost increase of $280,224 (8,533 additional burden hours x $32.84
per hour) across the up to 200 hospitals selected for eCQM
validation, on an annual basis.
Finally, we are proposing to update our Extraordinary
Circumstances Extensions or Exemptions (ECE) policy. We believe the
proposed updates would have no effect on burden for hospitals.

[[Page 25318]]

Historically, 100 hospitals, on average, that participate in the
Hospital IQR Program do not receive the full annual percentage
increase in any fiscal year due to the requirements of this program.
We anticipate that, because of the new requirements for reporting we
are proposing for the FY 2019 payment determination, the number of
hospitals not receiving the full annual percentage increase may be
higher than average. At this time, information is not available to
determine the precise number of hospitals that would not meet the
proposed requirements to receive the full annual percentage increase
for the FY 2019 payment determination. If the number of hospitals
failing to receive the full annual percentage increase does increase
because of the new requirements, we anticipate that, over the long
run, this number would decline as hospitals gain more experience
with these requirements.
Under OMB number 0938-1022, considering the policies proposed
above, we estimate a total burden decrease of 917,766 hours, at a
total cost decrease of approximately $30 million across
approximately 3,300 hospitals participating in the Hospital IQR
Program for the FY 2019 payment determination. In implementing the
Hospital IQR Program and other quality reporting programs, we have
focused on measures that have high impact and support CMS and HHS
priorities for improved quality and efficiency of care for Medicare
beneficiaries.

L. Effects of Proposed Requirements for the PPS-Exempt Cancer
Hospital Quality Reporting (PCHQR) Program

In section VIII.B. of the preamble of this proposed rule, we
discuss our policies for the quality data reporting program for PPS-
exempt cancer hospitals (PCHs), which we refer to as the PPS-Exempt
Cancer Hospital Quality Reporting (PCHQR) Program. The PCHQR Program
is authorized under section 1866(k) of the Act, which was added by
section 3005 of the Affordable Care Act.
In section VIII.B.3. of the preamble of this proposed rule, we
are proposing updates to one of the measures on which PCHs currently
submit data: Oncology: Radiation Dose Limits to Normal Tissues (NQF
#0382). In addition, in section VIII.B.4.b. of the preamble of this
proposed rule, we are proposing the addition of one claims-based
quality measure for the PCHQR Program: Admissions and Emergency
Department (ED) Visits for Patients Receiving Outpatient
Chemotherapy.
The impact of the proposed new requirements for the PCHQR
Program is expected to be minimal overall since beginning with Q1
2016 events, PCHs have been reporting Clinical Process/Oncology Care
Measures using a sampling methodology which requires reporting no
more than 25 cases per facility (79 FR 28259). As the measure cohort
expansion for Oncology: Radiation Dose Limits to Normal Tissues (NQF
#0382) does not expand the maximum required sample, we do not
anticipate that this cohort expansion will significantly impact the
operational burden for PCHs.
In addition, the Admissions and Emergency Department (ED) Visits
for Patients Receiving Outpatient Chemotherapy measure is a claims-
based measure and, therefore, poses no additional burden for PCHs to
submit data beyond that which they currently submit as part of the
claims process.
One expected effect of the PCHQR Program is to keep the public
informed of the quality of care provided by PCHs. We will display
publicly the quality measure data collected under the PCHQR Program
as required under the Act. These data will be displayed on the
Hospital Compare Web site. The goals of making these data available
to the public in a user-friendly and relevant format include, but
are not limited to: (1) Allowing the public to compare PCHs in order
to make informed health care decisions regarding care setting; and
(2) providing information about current trends in health care.
Furthermore, PCHs can use their own health care quality data for
many purposes such as in risk management programs, healthcare
associated infection prevention programs, and research and
development activities, among others.

M. Effects of Proposed Requirements for the Long-Term Care Hospital
Quality Reporting Program (LTCH QRP) for the FY 2018 Payment
Determination and Subsequent Years

In section VIII.C.1. of the preamble of this proposed rule, we
discuss the implementation of section 1886(m)(5) of the Act, which
was added by section 3004(a) of the Affordable Care Act. Section
1886(m)(5) of the Act provides that, for rate year 2014 and each
subsequent year, any LTCH that does not submit data to the Secretary
in accordance with section 1886(m)(5)(C) and (F) of the Act shall
receive a 2 percentage point reduction to the annual update to the
standard Federal rate for discharges for the hospital during the
applicable fiscal year.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49838 through
49839), we estimated that only a few LTCHs will not receive the full
annual percentage increase in any fiscal year as a result of failure
to submit data under the LTCH QRP. There are approximately 432 LTCHs
currently reporting quality data to CMS. At the time that this
analysis was prepared, 39, or approximately 9.5 percent, of 412
eligible LTCHs were determined to be noncompliant and therefore will
receive a 2 percentage point reduction to their FY 2016 annual
payment update.
Information is not available to determine the precise number of
LTCHs that will not meet the requirements to receive the full annual
percentage increase for the FY 2017 payment determination.
We believe that a majority of LTCHs will continue to collect and
submit data for the FY 2017 payment determination and subsequent
years because they will continue to view the LTCH QRP as an
important step in improving the quality of care patients receive in
the LTCHs. We believe that the burden associated with the LTCH QRP
is the time and effort associated with data collection.
Currently, LTCHs use two separate data collection mechanisms to
report quality data to CMS: The CDC's NHSN, which is used to report
all Healthcare Associated Infections (HAI) (CAUTI, CLABSI, MRSA
Bacteremia, CDI, VAE) and vaccination data, (Influenza Vaccination
Coverage Among Healthcare Personnel measure); and the LTCH CARE Data
Set, which is submitted to the QIES ASAP system.
The data collection burden associated with reporting quality
measures via the CDC's NHSN is discussed in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49838 through 49839). These measures are
stewarded by the CDC, and the reporting burden is approved under OMB
control number 0920-0666.
The All-Cause Unplanned Readmission Measure for 30 Days Post-
Discharge from Long-Term Care Hospitals (NQF #2512) measure is
calculated based on Medicare FFS claims data, and therefore does not
have any associated data reporting burden for LTCHs.
The remaining assessment-based quality measure data are reported
to CMS by LTCHs using the LTCH CARE Data Set. As of April 1, 2016,
LTCHs use the LTCH CARE Data Set Version 3.00 (approved under OMB
control number 0938-1163) which includes data elements related to
the following quality measures: Percent of Residents or Patients
with Pressure Ulcers That Are New or Worsened (NQF #0678), Percent
of Residents or Patients Who Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (Short Stay) (NQF #0680); Application
of Percent of Residents Experiencing One or More Falls with Major
Injury (Long Stay) (NQF #0674); Percent of Long-Term Care Hospital
Patients with an Admission and Discharge Functional Assessment and a
Care Plan That Addresses Function (NQF #2631); Application of
Percent of Long-Term Care Hospital Patients with an Admission and
Discharge Functional Assessment and a Care Plan That Addresses
Function (NQF #2631); and Functional Outcome Measure: Change in
Mobility Among Long-Term Care Hospital Patients Requiring Ventilator
Support (NQF #2632).
In this proposed rule, we are retaining 13 previously finalized
quality measures and are proposing 4 additional measures for use in
the LTCH QRP. In section VII.C.6. of the preamble of this proposed
rule, we are proposing three measures for the FY 2018 payment
determination and subsequent years: (1) MSPB-PAC LTCH QRP; (2)
Discharge to Community--PAC LTCH QRP; and (3) Potentially
Preventable 30-Day Post-Discharge Readmission Measure for the PAC
LTCH QRP. These three measures are Medicare claims-based measures,
and because claims-based measures can be calculated based on data
that are already reported to the Medicare program for payment
purposes, we believe there would be no additional burden if any of
these measures are finalized.
In section VIII.C.9.d. of the preamble of this proposed rule, we
are proposing to expand the data collection timeframe for the
measure NQF #0680 Percent of Residents or Patients Who Were Assessed
and Appropriately Given the Seasonal Influenza Vaccine (77 FR 53624
through 53627), beginning with the FY 2019 payment determination.
The data collection time frame and associated data submission

[[Page 25319]]

deadlines are currently aligned with the Influenza Vaccination
Season (IVS) (October 1 of a given year through March 31 of the
subsequent year), and only require data collection during the two
calendar year quarters that align with the IVS. We have proposed to
expand the data collection timeframe from just two quarters
(covering the IVS) to a full four quarters or 12 months. We refer
readers to section VIII.C.9.d. of the preamble of this proposed rule
for further details on the proposed expansion of data collection for
this measures (NQF #0680), including data collection timeframes and
associated submission deadlines. We originally finalized this
measure for use in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624
through 53627). Although we finalized data collection for this
measure to coincide with the IVS, we originally proposed year-round
data collection. The associated PRA package, which was approved
under OMB control number 0938-1163, included burden calculations
that aligned with our original proposal for year-round data
collection. All subsequent PRA packages, and the PRA package that is
currently under review by OMB, included burden calculations
reflecting year-round (12 month) data collection for this measure.
Because of this, the proposed change in the data collection
timeframe for this measure, and any associated burden related to
increased data collection, has already been accounted for in the
total burden figures included in this section of the preamble of
this proposed rule.
In section VIII.C.7. of the preamble of this proposed rule, we
are proposing to adopt one measure for the FY 2020 payment
determination and subsequent years: Drug Regimen Review Conducted
with Follow-Up for Identified Issues--PAC LTCH QRP. In addition, we
are proposing that data for this measure will be collected and
reported using the LTCH CARE Data Set Version 4.00 (effective April
1, 2018).
While reporting quality measure data involves collecting
information, we believe that the burden associated with
modifications to the LTCH CARE Data Set discussed in this proposed
rule fall under the PRA exceptions provided in section 1899B(m) of
the Act. Section 1899B(m) of the Act, which was added by the IMPACT
Act, states that the PRA requirements do not apply to section 1899B
of the Act and the sections referenced in section 1899B(a)(2)(B) of
the Act that require modifications in order to achieve standardized
patient assessment data. However, the PRA requirements and burden
estimates will be submitted to OMB for review and approval when
modifications to the LTCH CARE Data Set or other applicable PAC
assessment instruments are not used to achieve standardized patient
assessment data.
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49838 through
49840), we discussed burden estimates for the 13 previously
finalized quality measures which we are retaining in this proposed
rule using the LTCH CARE Data Set Version 2.01. Based on a revised
PRA package for the LTCH CARE Data Set Version 3.00, we estimate the
total cost for the previously finalized assessment-based measures
was $13,929 per LTCH annually or $6,017,146 for all LTCHs annually.
In addition, we estimate that the cost to report the previously
finalized quality measures via the CDC's NHSN was $10,896 per LTCH
annually or $4,706,857 for all LTCHs annually. The revised total
estimate for all 13 previously finalized measures was $24,825 per
LTCH annually or $10,724,003 for all LTCHs annually. The two
estimates discussed above, as well as the comprehensive estimate
discussed below, include overhead; however, obtaining data on other
overhead costs is challenging. Overhead costs vary greatly across
industries and firm sizes. In addition, the precise cost elements
assigned as ``indirect'' or ``overhead'' costs, as opposed to direct
costs or employee wages, are subject to some interpretation at the
firm level. Therefore, we have chosen to calculate the cost of
overhead at 100 percent of the mean hourly wage. This is necessarily
a rough adjustment, both because fringe benefits and overhead costs
vary significantly from employer to employer and because methods of
estimating these costs vary widely from study to study. Nonetheless,
there is no practical alternative, and we believe that doubling the
hourly wage to estimate total cost is a reasonably accurate
estimation method.
Because we are proposing to add the Drug Regimen Review
Conducted with Follow-Up for Identified Issues--PAC LTCH QRP measure
in the LTCH CARE Data Set Version 4.00, the estimated burden and
cost would increase if this measure is finalized. The additional
data elements for this proposed quality measure will take 6 minutes
of nursing/clinical staff time to report data on admission and 4
minutes of nursing/clinical staff time to report data on discharge,
for a total of 10 minutes. We believe that the additional LTCH CARE
Data Set items we are proposing would be completed by registered
nurses and pharmacists. As a result, we estimate that the total cost
related to the proposed Drug Regimen Review Conducted with Follow-Up
for Identified Issues--PAC LTCH QRP measure would be $3,080 per LTCH
annually, or $1,330,721 for all LTCHs annually. Because the three
measures proposed in section VII.C.6. of the preamble of this
proposed rule are claims-based and would be calculated based on data
that are already reported to the Medicare program for payment
purposes, we believe that there would be no additional LTCH burden
if any of these measures is finalized.
Overall, we estimate the total cost for the 13 previously
adopted measures and the 4 proposed measures would be $27,905 per
LTCH annually or $12,054,724 for all LTCHs annually. This is an
average increase of 14 percent to all LTCHs over the burden
discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49838
through 49840), which included all quality measures that LTCHs are
required to report under the LTCH QRP, with the exception of those 4
new measures we are proposing in this proposed rule.
We intend to continue to closely monitor the effects of the LTCH
QRP on LTCHs and help facilitate successful reporting outcomes
through ongoing stakeholder education, national trainings, LTCH
announcements, Web site postings, CMS Open Door Forums, and general
and technical help desks.

N. Effects of Proposed Updates to the Inpatient Psychiatric
Facility Quality Reporting (IPFQR) Program

As discussed in section VIII.D. of the preamble of this proposed
rule and in accordance with section 1886(s)(4)(A)(i) of the Act, we
will implement a 2.0 percentage point reduction in the FY 2019
market basket update for IPFs that have failed to comply with the
IPFQR Program requirements for FY 2019, including reporting on the
required measures. In section VIII.D. of the preamble of this
proposed rule, we discuss how the 2 percentage point reduction will
be applied. For FY 2016, of the 1,684 IPFs eligible for the IPFQR
Program, 51 did not receive the full market basket update because of
the IPFQR Program; 24 of these IPFs chose not to participate and 27
did not meet the requirements of the program. We anticipate that
even fewer IPFs will receive the reduction for FY 2017 as IPFs
become more familiar with the requirements. Thus, we estimate that
this policy will have a negligible impact on overall IPF payments
for FY 2017.
Based on the proposals in this proposed rule, we estimate a
total increase in burden due to the proposed addition of a chart-
abstracted measure set of 212 hours per IPF or 357,008 hours across
all IPFs, resulting in a total increase in financial burden of
approximately $6,962 per IPF or $11,724,143 across all IPFs. We also
estimate a total increase in burden for training of 2 hours per IPF
or 3,368 hours across all IPFs, resulting in a total increase in
financial burden of $65.68 per IPF or $110,605 across all IPFs. Our
estimate for the total increase in burden, including the newly
proposed chart-abstracted measure set and training, is 360,376 hours
across all IPFs, which at $32.84 labor cost per hour, totals
$11,834,748. As discussed in section X.B.10. of the preamble of this
proposed rule, we will attribute the costs associated with the
finalized proposals to the year in which these costs begin; for the
purposes of all the proposed changes made in this proposed rule,
that year is FY 2017. Further information on these estimates can be
found in section X.B.10. of the preamble of this proposed rule.
We intend to closely monitor the effects of this quality
reporting program on IPFs and help facilitate successful reporting
outcomes through ongoing stakeholder education, national trainings,
and a technical help desk.

O. Effects of Proposed Requirements Regarding Electronic Health
Record (EHR) Meaningful Use Program

In section VIII.E. of the preamble of this proposed rule, we
discuss proposed requirements for the Medicare and Medicaid EHR
Incentive Programs. We are proposing CQM reporting requirements,
including reporting periods and submission periods, as well as CQMs
required and information about CQM specifications' updates, for the
Medicare and Medicaid EHR Incentive Programs for eligible hospitals
and CAHs for 2017. We note that these proposals would

[[Page 25320]]

only apply for eligible hospitals and CAHs submitting CQMs
electronically in CY 2017. Because these proposals for data
collection would align with the reporting requirements in place for
the Hospital IQR Program and eligible hospitals and CAHs still have
the option to submit their clinical quality measures via attestation
for the Medicare and Medicaid EHR Incentive Programs, we do not
believe these proposals would have a significant impact.

P. Alternatives Considered

This proposed rule contains a range of proposed policies. It
also provides descriptions of the statutory provisions that are
addressed, identifies the proposed policies, and presents rationales
for our decisions and, where relevant, alternatives that were
considered.

Q. Overall Conclusion

1. Acute Care Hospitals

Table I of section I.G. of this Appendix demonstrates the
estimated distributional impact of the IPPS budget neutrality
requirements for the proposed MS-DRG and wage index changes, and for
the wage index reclassifications under the MGCRB. Table I also shows
a projected overall increase of 0.7 percent in operating payments.
As discussed in section I.G. of this Appendix, we estimate that
operating payments would increase by approximately $693 million in
FY 2017 relative to FY 2016. However, when we account for the impact
of the proposed changes in Medicare DSH payments and the impact of
the proposed additional payments based on uncompensated care in
accordance with section 3133 of the Affordable Care Act, based on
estimates provided by the CMS Office of the Actuary, consistent with
our policy discussed in section IV.F. of the preamble of this
proposed rule, we estimate that operating payments would increase by
approximately $525 million relative to FY 2016. We currently
estimate that the proposed changes in new technology add-on payments
for FY 2017 would decrease spending by approximately $50 million due
to the expiration of new technology add-on payments for four
technologies. In addition, the proposed changes to the Hospital
Readmissions Reduction Program for FY 2017 would decrease spending
by $100 million, as a result of the proposed inclusion of the
refinement to the pneumonia readmissions measure that expanded the
measure cohort, along with the addition of the CABG readmission
measure, in the calculation of the FY 2017 payment adjustment
factor. This estimate, combined with our estimated increase in FY
2017 operating payment of $525 million, would result in an estimated
increase of approximately $375 million for FY 2017. We estimate that
hospitals would experience a 2.0 percent increase in capital
payments per case, as shown in Table III of section I.I. of this
Appendix. We project that there would be a $164 million increase in
capital payments in FY 2017 compared to FY 2016. The cumulative
operating and capital payments would result in a net increase of
approximately $539 million to IPPS providers. The discussions
presented in the previous pages, in combination with the rest of
this proposed rule, constitute a regulatory impact analysis.

2. LTCHs

Overall, LTCHs are projected to experience a decrease in
estimated payments per discharge in FY 2017. In the impact analysis,
we are using the proposed rates, factors, and policies presented in
this proposed rule, including updated wage index values and relative
weights, and the best available claims and CCR data to estimate the
change in payments under the LTCH PPS for FY 2017. Accordingly,
based on the best available data for the 420 LTCHs in our database,
we estimate that FY 2017 LTCH PPS payments would decrease
approximately $355 million relative to FY 2016 as a result of the
proposed payment rates and factors presented in this proposed rule.

II. Accounting Statements and Tables

A. Acute Care Hospitals

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in the following
Table V, we have prepared an accounting statement showing the
classification of the expenditures associated with the provisions of
this proposed rule as they relate to acute care hospitals. This
table provides our best estimate of the change in Medicare payments
to providers as a result of the proposed changes to the IPPS
presented in this proposed rule. All expenditures are classified as
transfers to Medicare providers.
The costs to the Federal Government associated with the proposed
policies in this proposed rule are estimated at $539 million.

Table V--Accounting Statement: Classification of Estimated Expenditures
Under the IPPS From FY 2016 to FY 2017
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... $539 million.
From Whom to Whom...................... Federal Government to IPPS
Medicare Providers.
------------------------------------------------------------------------

B. LTCHs

As discussed in section I.J. of this Appendix, the impact
analysis of the proposed payment rates and factors presented in this
proposed rule under the LTCH PPS is projected to result in a
decrease in estimated aggregate LTCH PPS payments in FY 2017
relative to FY 2016 of approximately $355 million based on the data
for 420 LTCHs in our database that are subject to payment under the
LTCH PPS. Therefore, as required by OMB Circular A-4 (available at
http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI,
we have prepared an accounting statement showing the classification
of the expenditures associated with the provisions of this proposed
rule as they relate to the proposed changes to the LTCH PPS. Table
VI provides our best estimate of the estimated change in Medicare
payments under the LTCH PPS as a result of the proposed payment
rates and factors and other provisions presented in this proposed
rule based on the data for the 420 LTCHs in our database. All
expenditures are classified as transfers to Medicare providers (that
is, LTCHs).
The savings to the Federal Government associated with the
policies for LTCHs in this proposed rule are estimated at $355
million.

Table VI--Accounting Statement: Classification of Estimated Expenditures
From the FY 2016 LTCH PPS to the FY 2017 LTCH PPS
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... -$355 million.
From Whom to Whom...................... Federal Government to LTCH
Medicare Providers
------------------------------------------------------------------------

III. Regulatory Flexibility Act (RFA) Analysis

The RFA requires agencies to analyze options for regulatory
relief of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
government jurisdictions. We estimate that most hospitals and most
other providers and suppliers are small entities as that term is
used in the RFA. The great majority of hospitals and most other
health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $7.5 million to $38.5
million in any 1 year). (For details on the latest standards for
health care providers, we refer readers to page 36 of the Table of
Small Business Size Standards for NAIC 622 found on the SBA Web site
at: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.)
For purposes of the RFA, all hospitals and other providers and
suppliers are considered to be small entities. Individuals and
States are not included in the definition of a small entity. We
believe that the provisions of this proposed rule relating to acute
care hospitals would have a significant impact on small entities as
explained in this Appendix. Because we lack data on individual
hospital receipts, we cannot determine the number of small
proprietary LTCHs. Therefore, we are assuming that all LTCHs are
considered small entities for the purpose of the analysis in section
I.J. of this Appendix. MACs are not considered to be small entities.
Because we acknowledge that many of the affected entities are small
entities, the analysis discussed throughout the preamble of this
proposed rule constitutes our regulatory flexibility analysis. In
this proposed rule, we are soliciting public comments on our
estimates and analysis of the impact of our proposals on those small
entities. Any public comments that we receive and our responses will
be presented in the final rule.

[[Page 25321]]

IV. Impact on Small Rural Hospitals

Section 1102(b) of the Social Security Act requires us to
prepare a regulatory impact analysis for any proposed or final rule
that may have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must
conform to the provisions of section 603 of the RFA. With the
exception of hospitals located in certain New England counties, for
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of an urban area and
has fewer than 100 beds. Section 601(g) of the Social Security
Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain
New England counties as belonging to the adjacent urban area. Thus,
for purposes of the IPPS and the LTCH PPS, we continue to classify
these hospitals as urban hospitals. (We refer readers to Table I in
section I.G. of this Appendix for the quantitative effects of the
proposed policy changes under the IPPS for operating costs.)

V. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4) also requires that agencies assess anticipated costs and
benefits before issuing any rule whose mandates require spending in
any 1 year of $100 million in 1995 dollars, updated annually for
inflation. In 2016, that threshold level is approximately $146
million. This proposed rule would not mandate any requirements for
State, local, or tribal governments, nor would it affect private
sector costs.

VI. Executive Order 12866

In accordance with the provisions of Executive Order 12866, the
Executive Office of Management and Budget reviewed this proposed
rule.

Appendix B: Recommendation of Update Factors for Operating Cost Rates
of Payment for Inpatient Hospital Services

I. Background

Section 1886(e)(4)(A) of the Act requires that the Secretary,
taking into consideration the recommendations of MedPAC, recommend
update factors for inpatient hospital services for each fiscal year
that take into account the amounts necessary for the efficient and
effective delivery of medically appropriate and necessary care of
high quality. Under section 1886(e)(5) of the Act, we are required
to publish update factors recommended by the Secretary in the
proposed and final IPPS rules, respectively. Accordingly, this
Appendix provides the recommendations for the update factors for the
IPPS national standardized amount, the hospital-specific rate for
SCHs and MDHs, and the rate-of-increase limits for certain hospitals
excluded from the IPPS, as well as LTCHs. In prior years, we have
made a recommendation in the IPPS proposed rule and final rule for
the update factors for the payment rates for IRFs and IPFs. However,
for FY 2017 consistent with approach for FY 2016, we are including
the Secretary's recommendation for the update factors for IRFs and
IPFs in separate Federal Register documents at the time that we
announce the annual updates for IRFs and IPFs. We also discuss our
response to MedPAC's recommended update factors for inpatient
hospital services.

II. Inpatient Hospital Update for FY 2017

A. Proposed FY 2017 Inpatient Hospital Update

As discussed in section IV.B. of the preamble to this proposed
rule, consistent with section 1886(b)(3)(B) of the Act, as amended
by sections 3401(a) and 10319(a) of the Affordable Care Act, we are
setting the applicable percentage increase by applying the following
adjustments in the following sequence. Specifically, the applicable
percentage increase under the IPPS is equal to the rate-of-increase
in the hospital market basket for IPPS hospitals in all areas,
subject to a reduction of one-quarter of the applicable percentage
increase (prior to the application of other statutory adjustments;
also referred to as the market basket update or rate-of-increase
(with no adjustments)) for hospitals that fail to submit quality
information under rules established by the Secretary in accordance
with section 1886(b)(3)(B)(viii) of the Act and a reduction of
three-quarters of the applicable percentage increase (prior to the
application of other statutory adjustments; also referred to as the
market basket update or rate-of-increase (with no adjustments)) for
hospitals not considered to be meaningful electronic health record
(EHR) users in accordance with section 1886(b)(3)(B)(ix) of the Act,
and then subject to an adjustment based on changes in economy-wide
productivity (the multifactor productivity (MFP) adjustment), and an
additional reduction of 0.75 percentage point as required by section
1886(b)(3)(B)(xii) of the Act. Sections 1886(b)(3)(B)(xi) and
(b)(3)(B)(xii) of the Act, as added by section 3401(a) of the
Affordable Care Act, state that application of the MFP adjustment
and the additional FY 2017 adjustment of 0.75 percentage point may
result in the applicable percentage increase being less than zero.
Based on the most recent data available for this FY 2017 IPPS/
LTCH PPS proposed rule, in accordance with section 1886(b)(3)(B) of
the Act, we are proposing to base the proposed FY 2017 market basket
update used to determine the applicable percentage increase for the
IPPS on the IHS Global Insight, Inc. (IGI's) first quarter 2016
forecast of the FY 2010-based IPPS market basket rate-of-increase
with historical data through fourth quarter 2015, which is estimated
to be 2.8 percent. In accordance with section 1886(b)(3)(B) of the
Act, as amended by section 3401(a) of the Affordable Care Act, in
section IV.B. of the preamble of this proposed rule, we are
proposing an MFP adjustment of 0.5 percent for FY 2017. Therefore,
based on IGI's first quarter 2016 forecast of the FY 2010-based IPPS
market basket, depending on whether a hospital submits quality data
under the rules established in accordance with section
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital
that submits quality data) and is a meaningful EHR user under
section 1886(b)(3)(B)(ix) of the Act (hereafter referred to as a
hospital that is a meaningful EHR user), there are four possible
applicable percentage increases that can be applied to the
standardized amount. Below we provide a table summarizing the four
proposed applicable percentage increases.

----------------------------------------------------------------------------------------------------------------
Hospital Hospital Hospital did Hospital did
submitted submitted NOT submit NOT submit
quality data quality data quality data quality data
FY 2017 and is a and is NOT a and is a and is NOT a
meaningful EHR meaningful EHR meaningful EHR meaningful EHR
user user user user
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket 2.8 2.8 2.8 2.8
Rate[dash]of[dash]Increase.....................
Proposed Adjustment for Failure to Submit 0.0 0.0 -0.7 -0.7
Quality Data under Section 1886(b)(3)(B)(viii)
of the Act.....................................
Proposed Adjustment for Failure to be a 0.0 -2.1 0.0 -2.1
Meaningful EHR User under Section
1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section -0.5 -0.5 -0.5 -0.5
1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied 1.55 -0.55 0.85 -1.25
to Standardized Amount.........................
----------------------------------------------------------------------------------------------------------------

B. Proposed Update for SCHs and MDHs for FY 2017

Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2017
applicable percentage increase in the hospital-specific rate for
SCHs and MDHs equals the applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act (that is, the same update factor
as for all other hospitals subject to the IPPS).
As discussed in section IV.N. of the preamble of this proposed
rule, section 205 of the Medicare Access and CHIP

[[Page 25322]]

Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted on
April 16, 2015) extended the MDH program (which, under previous law,
was to be in effect for discharges on or before March 31, 2015 only)
for discharges occurring on or after April 1, 2015, through FY 2017
(that is, for discharges occurring on or before September 30, 2017).
As previously mentioned, the update to the hospital specific
rate for SCHs and MDHs is subject to section 1886(b)(3)(B)(i) of the
Act, as amended by sections 3401(a) and 10319(a) of the Affordable
Care Act. Accordingly, depending on whether a hospital submits
quality data and is a meaningful EHR user, we are proposing the same
four possible applicable percentage increases in the table above for
the hospital-specific rate applicable to SCHs and MDHs.

C. Proposed FY 2017 Puerto Rico Hospital Update

As discussed in section IV.A. of the preamble of this proposed
rule, prior to January 1, 2016, Puerto Rico hospitals were paid
based on 75 percent of the national standardized amount and 25
percent of the Puerto Rico-specific standardized amount. Section 601
of Public Law 114-113 amended section 1886(d)(9)(E) of the Act to
specify that the payment calculation with respect to operating costs
of inpatient hospital services of a subsection (d) Puerto Rico
hospital for inpatient hospital discharges on or after January 1,
2016, shall use 100 percent of the national standardized amount.
Because Puerto Rico hospitals are no longer paid with a Puerto Rico-
specific standardized amount under the amendments to section
1886(d)(9)(E) of the Act, there is no longer a need for us to
propose an update to the Puerto Rico standardized amount. Hospitals
in Puerto Rico are now paid 100 percent of the national standardized
amount and, therefore, are subject to the same update to the
national standardized amount discussed under section IV.B.1. of the
preamble of this proposed rule. Accordingly, for FY 2017, we are
proposing an applicable percentage increase of 1.55 percent to the
standardized amount for hospitals located in Puerto Rico.

D. Proposed Update for Hospitals Excluded From the IPPS for FY 2017

Section 1886(b)(3)(B)(ii) of the Act is used for purposes of
determining the percentage increase in the rate-of-increase limits
for children's hospitals, cancer hospitals, and hospitals located
outside the 50 States, the District of Columbia, and Puerto Rico
(that is, short-term acute care hospitals located in the U.S. Virgin
Islands, Guam, the Northern Mariana Islands, and America Samoa).
Section 1886(b)(3)(B)(ii) of the Act sets the percentage increase in
the rate-of-increase limits equal to the market basket percentage
increase. In accordance with Sec. 403.752(a) of the regulations,
RNHCIs are paid under the provisions of Sec. 413.40, which also use
section 1886(b)(3)(B)(ii) of the Act to update the percentage
increase in the rate-of-increase limits.
Currently, children's hospitals, PPS-excluded cancer hospitals,
RNHCIs, and short-term acute care hospitals located in the U.S.
Virgin Islands, Guam, the Northern Mariana Islands, and American
Samoa are among the remaining types of hospitals still paid under
the reasonable cost methodology, subject to the rate-of-increase
limits. As we finalized in the FY 2015 IPPS/LTCH PPS final rule (79
FR 50156 through 50157), we are applying the FY 2017 percentage
increase in the IPPS operating market basket to the target amount
for children's hospitals, PPS-excluded cancer hospitals, RNHCIs, and
short-term acute care hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and American Samoa. For this
proposed rule, the current estimate of the IPPS operating market
basket percentage increase for FY 2017 is 2.8 percent.

E. Proposed Update for LTCHs for FY 2017

Section 123 of Public Law 106-113, as amended by section 307(b)
of Public Law 106-554 (and codified at section 1886(m)(1) of the
Act), provides the statutory authority for updating payment rates
under the LTCH PPS.
As discussed in section V.A. of the Addendum to this proposed
rule, we are proposing to establish an update to the LTCH PPS
standard Federal rate for FY 2017 based on the full proposed 2013-
based LTCH PPS market basket increase estimate (for this proposed
rule, estimated to be 2.7 percent), subject to an adjustment based
on changes in economy-wide productivity and an additional reduction
required by sections 1886(m)(3)(A)(ii) and (m)(4)(F) of the Act. In
accordance with the LTCHQR Program under section 1886(m)(5) of the
Act, we are proposing to reduce the annual update to the LTCH PPS
standard Federal rate by 2.0 percentage points for failure of a LTCH
to submit the required quality data. The MFP adjustment described in
section 1886(b)(3)(B)(xi)(ii) of the Act is currently estimated to
be 0.5 percent for FY 2017. In addition, section 1886(m)(3)(A)(ii)
of the Act requires that any annual update for FY 2017 be reduced by
the ``other adjustment'' at section 1886(m)(4)(F) of the Act, which
is 0.75 percentage point. Therefore, based on IGI's first quarter
2016 forecast of the proposed FY 2017 LTCH PPS market basket
increase, we are proposing to establish an annual update to the LTCH
PPS standard Federal rate of 1.45 percent (that is, the current FY
2017 estimate of the proposed market basket rate-of-increase of 2.7
percent less a proposed adjustment of 0.5 percentage point for MFP
and less 0.75 percentage point). Accordingly, we are proposing to
apply an update factor of 1.0145 percent in determining the LTCH PPS
standard Federal rate for FY 2017. For LTCHs that fail to submit
quality data for FY 2017, we are proposing to apply an annual update
to the LTCH PPS standard Federal rate of -0.55 percent (that is, the
proposed annual update for FY 2017 of 1.45 percent less 2.0
percentage points for failure to submit the required quality data in
accordance with section 1886(m)(5)(C) of the Act and our rules) by
applying a proposed update factor of 0.9945 percent in determining
the LTCH PPS standard Federal rate for FY 2017.

III. Secretary's Recommendations

MedPAC is recommending an inpatient hospital update in the
amount specified in current law for FY 2017. MedPAC's rationale for
this update recommendation is described in more detail below. As
mentioned above, section 1886(e)(4)(A) of the Act requires that the
Secretary, taking into consideration the recommendations of MedPAC,
recommend update factors for inpatient hospital services for each
fiscal year that take into account the amounts necessary for the
efficient and effective delivery of medically appropriate and
necessary care of high quality. Consistent with current law,
depending on whether a hospital submits quality data and is a
meaningful EHR user, we are recommending the four applicable
percentage increases to the standardized amount listed in the table
under section II. of this Appendix B. We are recommending that the
same applicable percentage increases apply to SCHs and MDHs.
In addition to making a recommendation for IPPS hospitals, in
accordance with section 1886(e)(4)(A) of the Act, we are
recommending update factors for certain other types of hospitals
excluded from the IPPS. Consistent with our policies for these
facilities, we are recommending an update to the target amounts for
children's hospitals, cancer hospitals, RNHCIs, and short-term acute
care hospitals located in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and American Samoa of 2.8 percent.
For FY 2017, consistent with policy set forth in section VII. of
the preamble of this proposed rule, for LTCHs that submit quality
data, we are recommending an update of 1.45 percent to the LTCH PPS
standard Federal rate. For LTCHs that fail to submit quality data
for FY 2017, we are recommending an annual update to the LTCH PPS
standard Federal rate of -0.55 percent.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating
Payments in Traditional Medicare

In its March 2016 Report to Congress, MedPAC assessed the
adequacy of current payments and costs, and the relationship between
payments and an appropriate cost base. MedPAC recommended an update
to the hospital inpatient rates in the amount specified in current
law. We refer the reader to the March 2016 MedPAC report, which is
available for download at www.medpac.gov for a complete discussion
on this recommendation. MedPAC expects Medicare margins to remain
low in 2016. At the same time, MedPAC's analysis finds that
efficient hospitals have been able to maintain positive Medicare
margins while maintaining a relatively high quality of care.
Response: We agree with MedPAC and consistent with current law
we are proposing an applicable percentage increase for FY 2017 of
1.55 percent, provided the hospital submits quality data and is a
meaningful EHR user, consistent with statutory requirements.
We note that, because the operating and capital prospective
payment systems remain separate, we are continuing to use separate
updates for operating and capital payments. The update to the
capital rate is discussed in section III. of the Addendum to this
proposed rule.

[FR Doc. 2016-09120 Filed 4-18-16; 4:15 pm]
BILLING CODE 4120-01-P

81_FR_25027

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Proposed rule.
Dates		To be assured consideration, comments must be received at one of
Contact		Ing Jye Cheng, (410) 786-4548, and Donald Thompson, (410) 786-4487, Operating Prospective Payment, MS- DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH) Issues, Medicare-Dependent Small Rural Hospital (MDH) Program, and Low-Volume Hospital Payment Adjustment Issues.
FR Citation		81 FR 24946
RIN Number		0938-AS77
CFR Citation		42 CFR 405 42 CFR 412 42 CFR 413 42 CFR 485
CFR Associated		Administrative Practice and Procedure; Health Facilities; Health Professions; Kidney Diseases; Medicare; Reporting and Recordkeeping; Rural Areas; X-Rays; Puerto Rico and Reporting and Recordkeeping Requirements

DEPARTMENT OF HEALTH AND HUMAN SERVICESCenters for Medicare & Medicaid Services

Federal Register Volume 81, Issue 81 (April 27, 2016)

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services