81 FR 56762 - Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and 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; Technical Changes Relating to Costs to Organizations and Medicare Cost Reports; Finalization of Interim Final Rules With Comment Period on LTCH PPS Payments for Severe Wounds, Modifications of Limitations on Redesignation by the Medicare Geographic Classification Review Board, and Extensions of Payments to MDHs and Low-Volume Hospitals

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

Federal Register Volume 81, Issue 162 (August 22, 2016)

Page Range		56762-57345
FR Document		2016-18476

We are revising 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 these changes will implement certain statutory provisions contained in the Pathway for Sustainable Growth 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 updating 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 making changes relating to direct graduate medical education (GME) and indirect medical education payments; establishing new requirements or revising existing requirements for quality reporting by specific Medicare providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities), including related provisions for eligible hospitals and critical access hospitals (CAHs) participating in the Electronic Health Record Incentive Program; updating policies relating to the Hospital Value-Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Condition Reduction Program; implementing 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; announcing the implementation of the Frontier Community Health Integration Project Demonstration; and making technical corrections and changes to regulations relating to costs to related organizations and Medicare cost reports; we are providing notice of the closure of three teaching hospitals and the opportunity to apply for available GME resident slots under section 5506 of the Affordable Care Act. We are finalizing the provisions of interim final rules with comment period that relate to a temporary exception for certain wound care discharges from the application of the site neutral payment rate under the LTCH PPS for certain LTCHs; application of two judicial decisions relating to modifications of limitations on redesignation by the Medicare Geographic Classification Review Board; and legislative extensions of the Medicare-dependent, small rural hospital program and changes to the payment adjustment for low-volume hospitals.

Federal Register, Volume 81 Issue 162 (Monday, August 22, 2016)

[Federal Register Volume 81, Number 162 (Monday, August 22, 2016)]
[Rules and Regulations]
[Pages 56762-57345]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-18476]

[[Page 56761]]

Vol. 81

Monday,

No. 162

August 22, 2016

Part II

Book 2 of 2 Books

Pages 56761-57438

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 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; Technical Changes Relating to Costs to
Organizations and Medicare Cost Reports; Finalization of Interim Final
Rules With Comment Period on LTCH PPS Payments for Severe Wounds,
Modifications of Limitations on Redesignation by the Medicare
Geographic Classification Review Board, and Extensions of Payments to
MDHs and Low-Volume Hospitals; Final Rule

Federal Register / Vol. 81 , No. 162 / Monday, August 22, 2016 /
Rules and Regulations

[[Page 56762]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, and 489

[CMS-1655-F; CMS-16644-F; CMS-1632-F2]
RIN 0938-AS77; 0938-AS88; 0938-AS41

Medicare Program; Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and 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; Technical Changes Relating to Costs to
Organizations and Medicare Cost Reports; Finalization of Interim Final
Rules With Comment Period on LTCH PPS Payments for Severe Wounds,
Modifications of Limitations on Redesignation by the Medicare
Geographic Classification Review Board, and Extensions of Payments to
MDHs and Low-Volume Hospitals

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

ACTION: Final rule.

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SUMMARY: We are revising 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 these changes will
implement certain statutory provisions contained in the Pathway for
Sustainable Growth 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 updating 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 making changes relating to direct graduate
medical education (GME) and indirect medical education payments;
establishing new requirements or revising existing requirements for
quality reporting by specific Medicare providers (acute care hospitals,
PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric
facilities), including related provisions for eligible hospitals and
critical access hospitals (CAHs) participating in the Electronic Health
Record Incentive Program; updating policies relating to the Hospital
Value-Based Purchasing Program, the Hospital Readmissions Reduction
Program, and the Hospital-Acquired Condition Reduction Program;
implementing 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; announcing the
implementation of the Frontier Community Health Integration Project
Demonstration; and making technical corrections and changes to
regulations relating to costs to related organizations and Medicare
cost reports; we are providing notice of the closure of three teaching
hospitals and the opportunity to apply for available GME resident slots
under section 5506 of the Affordable Care Act.
We are finalizing the provisions of interim final rules with
comment period that relate to a temporary exception for certain wound
care discharges from the application of the site neutral payment rate
under the LTCH PPS for certain LTCHs; application of two judicial
decisions relating to modifications of limitations on redesignation by
the Medicare Geographic Classification Review Board; and legislative
extensions of the Medicare-dependent, small rural hospital program and
changes to the payment adjustment for low-volume hospitals.

DATES: Effective Date: These final rules are effective on October 1,
2016.

FOR FURTHER INFORMATION CONTACT: Ing Jye Cheng, (410) 786-4548, and
Donald Thompson, (410) 786-44487, 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 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--
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.

[[Page 56763]]

Kellie Shannon, (410) 786-0416, Technical Changes Relating to Costs
to Organizations and Medicare Cost Reports Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

This Federal Register document is 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 final 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 Final
Rule Home Page'' or ``Acute Inpatient--Files for Download''. The LTCH
PPS tables for this FY 2017 final rule are available through the
Internet 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-F. For further details on the
contents of the tables referenced in this final rule, we refer readers
to section VI. of the Addendum to this final 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
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

[[Page 56764]]

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
PRA Paperwork Reduction Act
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
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 Implemented in
This Final 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 (Public Law 114-10)
5. The Consolidated Appropriations Act, 2016 (Public Law 114-
113)

[[Page 56765]]

6. The Notice of Observation Treatment and Implication for Care
Eligibility Act (the NOTICE Act) of 2015 (Public Law 114-42)
D. Issuance of Notice of Proposed Rulemaking
E. Finalization of Interim Final Rule With Comment Period on the
Temporary Exception to the Site Neutral Payment Rate Under the LTCH
PPS for Certain Severe Wound Discharges From Certain LTCHs as
Required by the Consolidated Appropriations Act, 2016; and
Modification of Limitation on Redesignation by the Medicare
Geographic Classification Review Board
G. Finalization of Interim Final Rule With Comment Period on
Medicare Dependent Small Rural Hospital Program and Payment to Low-
Volume Hospitals
II. 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. 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. 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. 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 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. 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. 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): 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. 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. Changes to Surgical Hierarchies
14. Changes to the MS-DRG Diagnosis Codes for FY 2017
15. Complications or Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC Exclusions List
b. 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
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. 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. Changes for FY 2017
19. Other 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
20. Out of Scope Public Comments Received
G. Recalibration of the FY 2017 MS-DRG Relative Weights
1. Data Sources for Developing the Relative Weights
2. Methodology for Calculation of the Relative Weights
3. Development of National Average CCRs

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H. 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. 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. 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. Defitelio[supreg] (Defibrotide)
f. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis
(IBE)
g Vistogard^TM (Uridine Triacetate)
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
1. Legislative Authority
2. Core-Based Statistical Areas (CBSAs) Revisions for the FY
2017 Hospital Wage Index
B. Worksheet S-3 Wage Data for the FY 2017 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Suppliers and Providers Other Than
Acute Care Hospitals Under the IPPS
C. Verification of Worksheet S-3 Wage Data
D. Method for Computing the FY 2017 Unadjusted Wage Index
E. Occupational Mix Adjustment to the FY 2017 Wage Index
1. Use of 2013 Occupational Mix Survey for the 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 Occupational Mix Adjustment for FY 2017
F. Analysis and Implementation of the Occupational Mix
Adjustment and the 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. Application of the Rural, Imputed, and Frontier Floors
1. Rural Floor
2. Imputed Floor for FY 2017
3. State Frontier Floor for FY 2017
I. FY 2017 Wage Index Tables
J. Revisions to the Wage Index Based on Hospital Redesignations
and Reclassifications
1. General Policies and Effects of Reclassification and
Redesignation
2. Finalization of Interim Final Rule With Comment Period on
Provisions Related to Modification on Limitations on Redesignations
by the Medicare Geographic Classification Review Board (MGCRB)
a. Background
b. Criteria for an Individual Hospital Seeking Redesignation to
Another Area (Sec. 412.103)--Application of Policy Provisions
c. Final Rule Provisions
d. Impact
3. Other MGCRB Reclassification and Redesignation Issues for FY
2017
a. FY 2017 Reclassification Requirements and Approvals
b. Requirements for FY 2018 Applications and Revisions Regarding
Paper Application Requirements
c. Other Policy Regarding Reclassifications for Terminated
Hospitals
4. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the
Act
5. Waiving Lugar Redesignation for the Out-Migration Adjustment
K. Out-Migration Adjustment Based on Commuting Patterns of
Hospital Employees for FY 2017
L. Notification Regarding CMS ``Lock-In'' Date for Urban to
Rural Reclassifications Under Sec. 412.103
M. Process for Requests for Wage Index Data Corrections
N. Labor Market Share for the FY 2017 Wage Index
O. Public Comments on Treatment of Overhead and Home Office
Costs in the Wage Index Calculation as a Result of Our Solicitation
IV. Other Decisions and 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 Pub. L. 114-113
B. Changes in the Inpatient Hospital Updates for FY 2017
(Sec. Sec. 412.64(d) and 412.211(c))
1. FY 2017 Inpatient Hospital Update
2. FY 2017 Puerto Rico Hospital Update
3. Electronic Health Records (EHR) Adjustment to IPPS Market
Basket
C. Rural Referral Centers (RRCs): Annual Updates to Case-Mix
Index (CMI) and Discharge Criteria (Sec. 412.96)
1. Case-Mix Index (CMI)
2. Discharges
D. 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 Policy Changes Affecting IME
F. 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 Factor 1 for FY 2017
b. Calculation of Factor 2 for FY 2017
c. Calculation of Factor 3 for FY 2017
d. Calculation of Factor 3 for FY 2018 and Subsequent Fiscal
Years
(1) Background
(2) Proposed and Finalized Data Source and Time Period for FY
2018 and Subsequent Years, Including Methodology for Incorporating
Worksheet S-10 Data
(3) 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: Updates and Changes
(Sec. Sec. 412.150 Through 412.154)
1. Statutory Basis for the Hospital Readmissions Reduction
Program
2. Regulatory Background
3. Policies for the FY 2017 Hospital Readmissions Reduction
Program
4. Maintenance of Technical Specifications for Quality Measures
5. Applicable Period for FY 2017
6. 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: 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 Program and Future Program
Years
a. 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 Change, and Updating of Quality
Measures for the FY 2019 Program Year
a. Retention of Previously Adopted Hospital VBP Program Measures
b. Domain Name Change
c. 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 Finalized
Measure Refinements for the FY 2019 Program Year
4. Finalized Measures and Measure Refinements for the FY 2021
Program Year and Subsequent Years

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a. Condition-Specific Hospital Level, Risk-Standardized Payment
Measures
b. Finalized 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. 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 Finalized Baseline and
Performance Periods
a. Background
b. Patient- and Caregiver-Centered Experience of Care/Care
Coordination Domain (Person and Community Engagement Domain
Beginning With the FY 2019 Program Year)
c. Efficiency and Cost Reduction Domain
d. Safety Domain
e. Clinical Care Domain
f. Summary of Previously Adopted and Newly Finalized Baseline
and Performance Periods for the FY 2018, FY 2019, FY 2020, FY 2021,
and FY 2022 Program Years
7. Immediate Jeopardy Policy Changes
a. Background
b. Increase of Immediate Jeopardy Citations From Two to Three
Surveys
c. EMTALA-Related Immediate Jeopardy Citations
8. Performance Standards for the Hospital VBP Program
a. Background
b. Previously Adopted and Newly Finalized 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 Finalized Performance Standards
for Certain Measures for the FY 2021 Program Year
e. 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. Changes to the Hospital-Acquired Condition (HAC) Reduction
Program
1. Background
2. 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
3. Implementation of the HAC Reduction Program for FY 2018
a. Adoption of Modified 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. Changes to the HAC Reduction Program Scoring Methodology
4. Comments on Additional Measures for Potential Future Adoption
5. Maintenance of Technical Specifications for Quality Measures
6. 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. Policy Changes Relating to Rural Training Tracks at Urban
Hospitals
c. Effective Date
3. Section 5506 Closed Hospitals
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. Budget Neutrality Methodology for FY 2017 and Reconciliation
for FYs 2011 Through 2016
a. Budget Neutrality Methodology for FY 2017
b. Budget Neutrality Offset Reconciliation for FYs 2011 Through
2016
L. Hospital and CAH Notification Procedures for Outpatients
Receiving Observation Services
1. Background
a. Statutory Authority
b. Effective Date
2. Implementation of the NOTICE Act Provisions
a. Notice Process
b. Notification Recipients
c. Timing of Notice Delivery
d. Requirements for Written Notice
e. Outpatient Observation Services and Beneficiary Financial
Liability
f. Delivering the Medicare Outpatient Observation Notice
g. Oral Notice
h. Signature Requirements
i. No Appeal Rights Under the NOTICE Act
M. 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. Technical Change to Regulations at 42 CFR 413.17(d)(1) on
Cost to Related Organizations
3. Changes to 42 CFR 413.24(f)(4)(i) Relating to Electronic
Submission of Cost Reports
4. Technical Changes to 42 CFR 413.24(f)(4)(ii) Relating to
Electronic Submission of Cost Reports and Due Dates
5. 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. 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. Finalization of Interim Final Rule With Comment Period
Implementing Legislative Extensions Relating to the Payment
Adjustments for Low-Volume Hospitals and the Medicare-Dependent,
Small Rural Hospital (MDH) Program
O. Clarification Regarding the Medicare Utilization Requirement
for Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec. 412.108)
P. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
V. Changes to the IPPS for Capital-Related Costs
A. Overview
B. Additional Provisions
1. Exception Payments
2. New Hospitals
3. Changes in Payments for Hospitals Located in Puerto Rico
C. Annual Update for FY 2017
VI. Changes for Hospitals Excluded From the IPPS
A. Rate-of-Increase in Payments to Excluded Hospitals for FY
2017
B. Report of Adjustment (Exceptions) Payments
C. Critical Care Hospitals (CAHs)
1. Background
2. Frontier Community Health Integration Project (FCHIP)
Demonstration
VII. 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
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. 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)
3. Finalization of Interim Final Rule With Comment Period:
Temporary Exception to the Site Neutral Payment Rate Under the LTCH
PPS for Certain Severe Wound Discharges From Certain LTCHs
C. 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. Changes to the MS-LTC-DRGs for FY 2017
3. Development of the FY 2017 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Development of the MS-LTC-DRG Relative Weights for FY 2017

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c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Treatment of Severity Levels in Developing the MS-LTC-DRG
Relative Weights
f. Low-Volume MS-LTC-DRGs
g. Steps for Determining the FY 2017 MS-LTC-DRG Relative Weights
D. Rebasing of the LTCH Market Basket
1. Background
2. Overview of the 2013-Based LTCH Market Basket
3. Development of the 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. 2013-Based LTCH Market Basket Cost Categories and Weights
4. Selection of Price Proxies
a. Price Proxies for the Operating Portion of the 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 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 2013-Based LTCH Market Basket
d. FY 2017 Market Basket Update for LTCHs
e. FY 2017 Labor-Related Share
E. Changes to the LTCH PPS Payment Rates and Other Changes to
the LTCH PPS for FY 2017
1. Overview of Development of the LTCH PPS Standard Federal
Payment Rates
2. FY 2017 LTCH PPS Standard Federal Payment Rate Annual Market
Basket Update
a. Overview
b. Market Basket Under the LTCH PPS for FY 2017
c. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
d. Adjustment to the LTCH PPS Standard Federal Payment Rate
Under the Long-Term Care Hospital Quality Reporting Program (LTCH
QRP)
e. Annual Market Basket Update Under the LTCH PPS for FY 2017
3. Update Under the Payment Adjustment for ``Subclause (II)''
LTCHs
F. Modifications to the ``25-Percent Threshold Policy'' Payment
Adjustments (Sec. Sec. 412.534 and 412.536)
G. 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. 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 Payment Determination and Subsequent Years
5. Expansion and Updating of Quality Measures
6. Refinements to Existing Measures in the Hospital IQR Program
a. 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. Adoption of Modified PSI 90: Patient Safety and Adverse
Events Composite Measure (NQF #0531)
7. Additional Hospital IQR Program Measures for the FY 2019
Payment Determinations and Subsequent Years
a. Adoption of Three Clinical Episode-Based Payment Measures
b. Adoption of Excess Days in Acute Care After Hospitalization
for Pneumonia (PN Excess Days) Measure
c. Summary of Previously Adopted and Newly Finalized Hospital
IQR Program Measures for the FY 2019 Payment Determination and
Subsequent Years
8. Changes to Policies on Reporting of eCQMs
a. Requirement That Hospitals Report on an Increased Number of
eCQMs in the Hospital IQR Program Measure Set for the CY 2017
Reporting Period/FY 2019 Payment Determination and Subsequent Years
b. 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
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. 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. Modifications to the Existing Processes for Validation of
Hospital IQR Program Data
a. Background
b. 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. Changes to the Hospital IQR Program Extraordinary
Circumstances Extensions or Exemptions (ECE) Policy
a. Extension of the General ECE Request Deadline for Non-eCQM
Circumstances
b. Establishment of a Separate Submission Deadline for ECE
Requests Related to eCQMs
B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
1. Background
2. Criteria for Removal and Retention of PCHQR Program Measures

[[Page 56769]]

3. Retention and Update to Previously Finalized Quality Measures
for PCHs Beginning With the FY 2019 Program Year
a. Background
b. Update of Oncology: Radiation Dose Limits to Normal Tissues
(NQF #0382) Measure for FY 2019 Program Year and Subsequent Years
4. New Quality Measure Beginning With the FY 2019 Program Year
a. Considerations in the Selection of Quality Measures
b. Adoption of the Admissions and Emergency Department (ED)
Visits for Patients Receiving Outpatient Chemotherapy Measure
5. Possible New Quality Measure Topics for Future Years
6. Maintenance of Technical Specifications for Quality Measures
7. Public Display Requirements
a. Background
b. Additional Public Display Requirements
c. Public Display of Additional PCHQR Measure
d. Public Display of Updated Measure
e. 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 for the FY
2018 Payment Determination and Subsequent Years
a. Measure To Address the IMPACT Act Domain of Resource Use and
Other Measures: Total Estimated MSPB--PAC LTCH QRP
b. Measure To Address the IMPACT Act Domain of Resource Use and
Other Measures: Discharge to Community-Post Acute Care (PAC) LTCH
QRP
c. Measure To Address the IMPACT Act Domain of Resource Use and
Other Measures: Potentially Preventable 30-Day Post-Discharge
Readmission Measure for the LTCH QRP
7. LTCH QRP Quality Measure Finalized for the FY 2020 Payment
Determination and Subsequent Years
a. Background
b. Measure To Address 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. 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 Payment Determination and Subsequent Years
c. Timeline and Data Submission Mechanisms for the FY 2018
Payment Determination and Subsequent Years for the LTCH QRP Resource
Use and Other Measures--Claims-Based Measures
d. Revisions to 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. Timeline and Data Submission Mechanisms for the Newly
Finalized 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. Change to Previously Codified LTCH QRP Submission Exception
and Extension Policies
13. Previously Finalized LTCH QRP Reconsideration and Appeals
Procedures
14. 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. 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. Update to Previously Finalized Measure: Screening for
Metabolic Disorders
4. 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) (SUB-3
and SUB3a)
b. Thirty-Day All-Cause Unplanned Readmission Following
Psychiatric Hospitalization in an IPF
5. Summary of 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
8. Form, Manner, and Timing of Quality Data Submission
a. Procedural and Submission Requirements
b. 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 FY 2017 Wage
Index (Hospital Wage Index Occupational Mix Survey)
4. Hospital Applications for Geographic Reclassifications by the
MGCRB
5. ICRs for Applications for GME Resident Slots
6. ICRs for the Notice of Observation Treatment by Hospitals and
CAHs
7. ICRs for the Hospital Inpatient Quality Reporting (IQR)
Program
8. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program
9. ICRs for Hospital Value-Based Purchasing (VBP) Program
10. ICRs for the Long-Term Care Hospital Quality Reporting
Program (LTCH QRP)
11. ICRs for the Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
12. ICRs for the Electronic Health Record (EHR) Incentive
Programs and Meaningful Use

Regulation Text

Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning
on or after October 1, 2016 and Payment Rates for LTCHs Effective With
Discharges Occurring on or After October 1, 2016

I. Summary and Background
II. 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

[[Page 56770]]

B. Adjustments for Area Wage Levels and Cost-of-Living
C. Calculation of the Prospective Payment Rates
III. 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 Inpatient Capital-Related Prospective
Payments for FY 2017
C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2017
V. Updates to the Payment Rates for the LTCH PPS for FY 2017
A. LTCH PPS Standard Federal Payment Rate for FY 2017
B. Adjustment for Area Wage Levels Under the LTCH PPS for FY
2017
1. Background
2. Geographic Classifications (Labor Market Areas) for the LTCH
PPS Standard Federal Payment Rate
3. Labor-Related Share for the LTCH PPS Standard Federal Payment
Rate
4. Wage Index for FY 2017 for the LTCH PPS Standard Federal
Payment Rate
5. Budget Neutrality Adjustment for Changes to the LTCH PPS
Standard Federal Payment Rate Area Wage Level Adjustment
C. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located
in Alaska and Hawaii
D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
E. Update to the IPPS Comparable/Equivalent Amounts To Reflect
the Statutory Changes to the IPPS DSH Payment Adjustment Methodology
F. Computing the Adjusted LTCH PPS Federal Prospective Payments
for FY 2017
VI. Tables Referenced in This Final Rule 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 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 Policy Changes
1. Effects of Policy Relating to New Medical Service and
Technology Add-On Payments
2. Effect of Changes Relating to Payment Adjustment for Medicare
Disproportionate Share Hospitals
3. Effects of Reduction Under the Hospital Readmissions
Reduction Program
4. Effects of Changes Under the FY 2017 Hospital Value-Based
Purchasing (VBP) Program
5. Effects of the Changes to the HAC Reduction Program for FY
2017
6. Effects of 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 Implementation of the Notice of Observation
Treatment and Implications for Care Eligibility Act (NOTICE Act)
9. Effects of 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 Implementation of the Frontier Community Health
Integration Project (FCHIP) Demonstration
I. Effects of Changes in the Capital IPPS
1. General Considerations
2. Results
J. Effects of Payment Rate Changes and Policy Changes Under the
LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals
3. Anticipated Effects of LTCH PPS Payment Rate Changes and
Policy Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Effects of Requirements for Hospital Inpatient Quality
Reporting (IQR) Program
L. Effects of Requirements for the PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
M. Effects of Requirements for the Long-Term Care Hospital
Quality Reporting Program (LTCH QRP) for the FY 2018 Payment
Determination and Subsequent Years
N. Effects of Updates to the Inpatient Psychiatric Facility
Quality Reporting (IPFQR) Program
O. Effects of Requirements Regarding the Electronic Health
Record (EHR) Incentive Programs and Meaningful Use
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. FY 2017 Inpatient Hospital Update
B. Update for SCHs and MDHs for FY 2017
C. FY 2017 Puerto Rico Hospital Update
D. Update for Hospitals Excluded From the IPPS
E. 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 final rule makes 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 makes
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 makes policy changes to
programs associated with Medicare IPPS hospitals, IPPS-excluded
hospitals, and LTCHs.
We are establishing new requirements or revising 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 access hospitals (CAHs) participating
in the Electronic Health Record (EHR) Incentive Program. We are
updating policies relating to the Hospital Value-Based Purchasing (VBP)
Program, the Hospital Readmissions Reduction Program, and the Hospital-
Acquired Condition (HAC) Reduction Program. We are implementing
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; announcing the implementation of the
Frontier Community Health Integration Project Demonstration; and making
technical corrections and changes to regulations relating to costs to
organizations and Medicare cost reports. In addition, in this final
rule, we are providing notice of the closure of three teaching
hospitals and the opportunity for hospitals to apply for available
graduate medical education resident slots under section 5506 of the
Affordable Care Act.
Under various statutory authorities, we are making 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:

[[Page 56771]]

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; 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). Religious nonmedical health care institutions (RNHCIs) are also
excluded from the IPPS.
Sections 123(a) and (c) of the BBRA (Pub. L. 106-113) and
section 307(b)(1) of the BIPA (Pub. L. 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 Sustainable Growth Rate (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 Sustainable Growth Rate (SGR) Reform Act of
2013 (Pub. L. 113-67), which provides for the establishment of a
functional status quality measure under the LTCH QRP for change in
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,
Pub. L. 113-185), 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
extends, 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 extends, through FY 2017, the
Medicare-dependent, small rural hospital (MDH) program.
Section 1886(m)(6)(A)(i) and (E) of the Act, as amended
and added by section 231 of the Consolidated Appropriations Act, 2016
(Pub. L. 114-113), which established a temporary exception to the site
neutral payment rate under the LTCH PPS for certain severe wound
discharges from certain LTCHs occurring prior to January 1, 2017.
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 Pub. L. 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 Pub. L. 110-90 until
FY 2013. Prior to the ATRA, this amount could not have been recovered
under Pub. L. 110-90.
While our actuaries estimated that a -9.3 percent adjustment to the

[[Page 56772]]

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 making an additional -1.5 percent recoupment adjustment to the
standardized amount.
b. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
In this final rule, we are making 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 making 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 making 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 final 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 revising 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 final rule, we are updating one previously adopted measure
beginning with the FY 2019 program year; indicating our intent to
propose to remove one measure beginning with the FY 2019 program year
and our intent to propose to adopt one measure in future rulemaking;
adopting two new measures beginning with the FY 2021 program year;
updating one previously adopted measure beginning with the FY 2021
program year; and adopting one new measure beginning with the FY 2022
program year. We also are changing the performance period for one
previously adopted measure for the FY 2018 program year and changing
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 making
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 final rule, we are promulgating the following HAC Reduction
Program policies: (1) Establishing NHSN CDC HAI data submission
requirements for newly opened hospitals; (2) clarifying 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 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 final rule, we are updating our estimates of the three
factors used to determine uncompensated care payments for FY 2017 and
continuing 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 using 14 percent of Medicaid days as a proxy for SSI
days in the calculation of Factor 3. We are continuing 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 expanding 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. At this time, we are
not finalizing a future transition to using Worksheet S-10 data to
determine the amounts and distribution of uncompensated care payments.

[[Page 56773]]

Specifically, we had proposed to use 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. In
light of public comments, we believe it would be appropriate to
institute certain additional quality control and data improvement
measures to the Worksheet S-10 instructions and data prior to moving
forward with incorporation of Worksheet S-10 data into the calculation
of Factor 3. Consequently, we are not finalizing our proposal to begin
to incorporate Worksheet S-10 data into the computation of Factor 3 for
FY 2018. In light of the significant concerns expressed by commenters
regarding the Worksheet S-10 data, we are postponing the decision
regarding when to begin incorporating data from Worksheet S-10 and
proceeding with revisions to the cost report instructions for Worksheet
S-10. We expect data from the revised Worksheet S-10 to be available to
use in the calculation of Factor 3 in the near future, and no later
than FY 2021. With regard to how Factor 3 will be computed in FY 2018
and subsequent years, we intend to explore whether there is an
appropriate proxy for uncompensated care that could be used to
calculate Factor 3 until we determine that data from the revised
Worksheet S-10 can be used for this purpose. We will undertake further
notice-and-comment rulemaking to address the issue of the appropriate
data to use to determine Factor 3 for FY 2018 and subsequent fiscal
years.
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 final rule, we are revising 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. Changes to the LTCH PPS
In this final rule, we are revising and rebasing 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 final rule,
we are changing our 25-percent threshold policy by sunsetting our
existing regulations at 42 CFR 412.534 and 412.536 and replacing them
with a single consolidated 25-percent threshold policy at Sec.
412.538. We also are amending our existing regulations limiting
allowable charges to beneficiaries for ``subclause (II)'' LTCHs and
making technical corrections to Sec. 412.503. In addition, in this
document, we are finalizing an April 21, 2016 interim final rule with
comment period relating to a temporary exception from the site neutral
payment rate under the LTCH PPS for certain severe wound care
discharges from certain LTCHs.
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 final rule, we are making several changes. First, we are
removing 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 also removing in their
chart-abstracted form, because they are ``topped-out,'' and two others
are structural measures.
Second, we are refining 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 adding 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 summarize public comment we received 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 summarize public comment we received 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 modifying our proposal and requiring hospitals to
select and submit 8 of the available eCQMs included in the Hospital IQR
Program measure set for four quarters of data, on an annual basis, for
the CY 2017 reporting period/FY 2019 payment determination and the CY
2018 reporting period/FY 2020 payment determination, in order to align
the Hospital IQR Program with the Medicare and Medicaid EHR Incentive
Programs. Also, we are establishing related eCQM submission
requirements beginning with the FY 2019 payment determination.
Sixth, we are modifying the existing validation process for
Hospital IQR Program data to include validation of eCQMs beginning with
the FY 2020 payment determination.
Seventh, we are updating 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.
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

[[Page 56774]]

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 final rule, we are specifying three new measures for the FY
2018 payment determination and subsequent years to meet the
requirements as set forth by the IMPACT Act. These 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 establishing one new quality measure to
meet the requirements of the IMPACT Act for the FY 2020 determination
and subsequent years. That 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. Initially, we
publicly reported quality data on four quality measures. In this final
rule, we are providing that we will publicly report data in 2017 on
four additional measures. We are promulgating additional details
regarding procedures that will 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 will 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 changing 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 final rule, for the IPFQR
Program, we are making several changes. We are making a technical
update to the previously finalized measure, ``Screening for Metabolic
Disorders.'' We are finalizing 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 & Other Drug Use Disorder
Treatment at Discharge (NQF #1664); and
Thirty-Day All-Cause Unplanned Readmission Following
Psychiatric Hospitalization in an IPF.
In addition, we are finalizing our proposal to include 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) in the list of measures covered by
the global sample for the FY 2019 payment determination and subsequent
years as proposed. Also, we are finalizing that we will make the data
for the IPFQR Program available as soon as possible and announce both
the date of the public display of the program's data and the 30-day
preview period, which will be approximately 12 weeks before the public
display date, via subregulatory methods, as opposed to rulemaking. For
the FY 2017 payment determination only, we also are finalizing our
proposal that, if it is technically feasible to display the data in
December 2016, we would provide data to IPFs for a 2-week preview
period that would start on October 1, 2016, as proposed. Moreover, we
are finalizing as proposed that as a courtesy, for the FY 2017 payment
determination only, if we are able to display the data in December
2016, we would ensure that IPFs have approximately 30 days for review
if they so choose by providing IPFs with their data as early as mid-
September.
3. Summary of Costs and Benefits
Adjustment for MS-DRG Documentation and Coding Changes. We
are making 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 Pub. L. 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 adjustment and the adjustments made in FYs 2014, 2015, and 2016,
we estimate that we will 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 FY 2017 recoupment adjustment, and we will address
this MACRA provision in future rulemaking.
Adjustment to IPPS Payment Rates as a Result of the 2-
Midnight Policy. The adjustment to IPPS rates resulting

[[Page 56775]]

from the 2-midnight policy will increase IPPS payment rates by (1/
0.998) * 1.006 for FY 2017. The 1.006 is a one-time factor that will 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 will apply a one-time factor of (1/1.006) in the calculation
of the rates to remove this one-time prospective increase.
Changes to the Hospital Readmissions Reduction Program.
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). Overall, in this final rule, we estimate that 2,588 hospitals
will have their base operating DRG payments reduced by their determined
proxy FY 2017 hospital-specific readmission adjustment. As a result, we
estimate that the Hospital Readmissions Reduction Program will save
approximately $528 million in FY 2017, an increase of approximately
$108 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 $1.8
billion.
Changes to the HAC Reduction Program. In regard to the
five 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 changes for FY 2017, including which hospitals will receive the
adjustment, will 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
55.36 percent of the amount to reflect changes in the percentage of
individuals that are uninsured and additional statutory adjustments. In
other words, approximately 41.52 percent (the product of 75 percent and
55.36 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, will reduce payments overall by approximately 0.4 percent as
compared to overall payments with 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 calculated payment amount is not directly tied to a
hospital's number of discharges.
Update to the LTCH PPS Payment Rates and Other Payment
Factors. Based on the best available data for the 420 LTCHs in our data
base, we estimate that the changes to the payment rates and factors
that we are presenting in the preamble and Addendum of this final 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 update to the LTCH PPS standard Federal
payment rate for FY 2017, the update to the LTCH PPS adjustment for
differences in area wage levels (which includes the update to the
labor-related share based on the 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 will
result in an estimated decrease in payments from FY 2016 of
approximately $376 million.
Hospital Inpatient Quality Reporting (IQR) Program. In
this final rule, we are removing 15 measures for the FY 2019 payment
determination and subsequent years. We are adding 4 new claims-based
measures to the Hospital IQR Program for the FY 2019 payment
determination and subsequent years. We also are modifying our proposal
and requiring hospitals to report on 8 of the available Hospital IQR
Program electronic clinical quality measures that align with the
Medicare and Medicaid EHR Incentive Programs for four quarters of data
on an annual basis for the FY 2019 and FY 2020 payment determination.
In addition, we are modifying 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 a total hospital
cost decrease of $50.4 million across 3,300 IPPS hospitals.
Changes Related to the LTCH QRP. In this final rule, we
are specifying 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 expansion of data collection for the measure
NQF #0680 Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (77 FR

[[Page 56776]]

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 final rule. There is no additional burden
for the three other claims-based measures being adopted. Overall, we
estimate the total cost for the 13 previously adopted measures and the
4 new measures will be $27,905 per LTCH annually or $12,054,724 for all
LTCHs annually. These estimates are 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 new measures for FY 2017. Section VIII.C. of the preamble of this
final rule includes a detailed discussion of the policies.
Changes to the IPFQR Program. In this final rule, we are
adding two new measures beginning with the FY 2019 payment
determination and for subsequent years. One of these measures, the 30-
Day All-Cause Unplanned Readmission Following Psychiatric
Hospitalization in an IPF measure, is calculated from administrative
claims data. For the second measure, we estimate that our policies will
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

[[Page 56777]]

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; 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). Religious nonmedical health care institutions (RNHCIs) are also
excluded from the IPPS. Various sections of the Balanced Budget Act of
1997 (BBA, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State
Children's Health Insurance Program] Balanced Budget Refinement Act of
1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554)
provide for the implementation of PPSs for 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, 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), 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 the Pathway for SGR Reform Act
of 2013 (Pub. L. 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 Implemented in This
Final 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 final rule, we are making policy changes to implement
section 631 of the ATRA, 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
final 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 final 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 final rule, we are
updating 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 are finalizing in this 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.

[[Page 56778]]

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 amended section 1886(m)(6)
of the Act to provide for a temporary exception to the site neutral
payment rate under the LTCH PPS for certain severe wound discharges
from certain LTCHs occurring prior to January 1, 2017. This provision
was implemented in an interim final rule with comment period that
appeared in the Federal Register on April 21, 2016 (81 FR 23428 through
23438). We are finalizing that interim final rule with comment period
in section VII.B.3. of this FY 2017 IPPS/LTCH PPS final rule. 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 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 final rule, we are making 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 final rule, we are implementing the
provisions of Public Law 114-42.
D. Issuance of a Notice of Proposed Rulemaking
In the proposed rule that appeared in the Federal Register on April
27, 2016 (81 FR 24946), we set 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, we set 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 proposed 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 included--
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 Pub. L. 108-173, obtained in a town hall
meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to the proposed rule, we proposed
to make revisions to the wage index for acute care hospitals and the
annual update of the wage data. Specific issues addressed included, but
were 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 the 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 the proposed rule, we discussed
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.

[[Page 56779]]

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 the proposed rule, we discussed
the proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2017. In addition, we discussed
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 the proposed rule, we discussed--
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 the 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 to
beneficiaries and related billing requirements for ``subclause (II)''
LTCHs to align those LTCH PPS payment adjustment policies with the
limitation on charges 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
addressed--
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 section V. of the Addendum to the 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 proposed to
establish the threshold amounts for outlier cases. In addition, we
addressed 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 the 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 proposed 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 provided 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 the 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 the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 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 the 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.

[[Page 56780]]

E. Finalization of Interim Final Rule With Comment Period on the
Temporary Exception to the Site Neutral Payment Rate Under the LTCH PPS
for Certain Severe Wound Discharges From Certain LTCHs Required by the
Consolidated Appropriations Act, 2016 and Modification of Limitations
on Redesignation by the Medicare Geographic Classification Review Board
In the interim final rule with comment period that appeared in the
Federal Register on April 21, 2016 (CMS-1664-IFC; 81 FR 23428 through
23438), we addressed provisions relating to (1) a temporary exception
to the site neutral payment rate under the LTCH PPS for certain severe
wound discharges from certain LTCHs; and (2) application of two
judicial decisions relating to modifications of the limitations on
redesignation by the Medicare Geographic Classification Review Board.
In response to the section of the interim final rule with comment
period on the temporary exception to the site neutral payment rate
under the LTCH PPS for certain severe wound discharges from certain
LTCHs, we received 22 timely pieces of correspondence. In section
VII.B.3. of the preamble of this final rule, we summarize our policies
and these public comments, present our responses, and finalize our
policies regarding this temporary exception.
In response to the section of the interim final rule with comment
period on modification of limitations on redesignation by the MGCRB, we
received 7 timely pieces of correspondence. In section III,J,2. of the
preamble of this final rule, we summarize these public comments,
present our responses, and finalize these provisions.
F. Finalization of Interim Final Rule With Comment Period Implementing
Legislative Extensions Relating to the Payment Adjustment for Low-
Volume Hospitals and the Medicare-Dependent, Small Rural Hospital (MDH)
Program
In the interim final rule with comment period that appeared in the
Federal Register on August 17, 2015, as part of the FY 2017 IPPS/LTCH
PPS final rule, we addressed the legislative extensions relating to the
payment adjustment for low-volume hospitals and the MDH program (CMS-
1632-IFC; 80 FR 49594). In response to this interim final rule with
comment period, we received 14 timely pieces of correspondence.
However, all of the correspondence included public comments that were
outside the scope of the provisions of the interim final rule with
comment period. We are finalizing this interim final rule with comment
in section IV.N. of the preamble of this final rule.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as 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 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) and the FYs 2011, 2012, 2013, 2014, 2015, and 2016
IPPS/LTCH PPS final rules (75 FR 50053 through 50055; 76 FR 51485
through 51487; 77 FR 53273; 78 FR 50512; 79 FR 49871; and 80 FR 49342,
respectively).

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. 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. (As a result of this
final rule, for FY 2017, there are 757 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 (Public Law 110-90).
Section 7(a) of Public Law 110-90 reduced the documentation and coding
adjustment made as a result of the MS-DRG system that we adopted in the
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment
through rulemaking, effective October 1, 2007 (72 FR 66886).

[[Page 56781]]

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 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

[[Page 56782]]

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 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. 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 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

[[Page 56783]]

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, as indicated in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 24966), due to lower than previously estimated inpatient
spending, we determined that 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 estimated for the
proposed rule 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
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 are included in a
memorandum from the Office of the Actuary that we made publicly
available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS on the FY 2017 IPPS
Proposed Rule Home Page. 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.
For the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24967), our
actuaries estimated 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, at the time of issuance of the FY 2017 proposed rule, our
actuaries estimated 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). We indicated in the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 24967) that this estimated proposed -1.5
percent adjustment factor would be updated for the final rule based on
the FY 2017 President's Budget Midsession Review. We noted that, based
on updated estimates, the necessary adjustment factor to the nearest
tenth of a percent could be different than our actuaries' estimate of -
1.5 percent.
Comment: MedPAC reiterated its previous support for the recovery of
past overpayments due to documentation and coding. MedPAC stated that
the law stipulates the amount of the recovery and the timing of the
recovery. MedPAC also stated that CMS has little discretion and is
proceeding as required by law.
Response: We appreciate MedPAC's support for our proposal.
Comment: The vast majority of commenters urged CMS to use its older
estimate of the required adjustment for FY 2017 of -0.8 percentage
point, rather than its updated proposed estimate of -1.5 percentage
points. Commenters argued that the ATRA does not require CMS to update
the initial FY 2017 estimate discussed in the FY 2014 final rule with
more recent data, that the law allows CMS to continue using the older
analysis, and that revisiting the actual recoupments for the preceding
fiscal years is not consistent with the ATRA. The commenters' bases for
this argument included that it would be a better interpretation of the
statute and it is more consistent with CMS' approach regarding its use
of estimates for outlier payments. The commenters also stated

[[Page 56784]]

that CMS should take into account any savings in Medicare Advantage
(MA) payments when determining the $11 billion recoupment or otherwise
adjust the $11 billion for policies that have been implemented since
the passage of the ATRA. Many commenters also believed that the
proposed -1.5 percent adjustment was inconsistent with Congressional
intent in the ATRA and the MACRA, which they asserted reflected
Congress' expectation that the final reduction would be 0.8 percentage
points or at least statutorily limited the difference between the
negative recoupment adjustments under the ATRA and the positive
adjustments under the MACRA. Commenters further stated that if CMS does
finalize its proposed adjustment under the ATRA for FY 2017, it should
make an offsetting adjustment in FY 2018 to address the difference
between the FY 2017 adjustment and the positive adjustments provided
for under the MACRA.
Response: We believe our proposed adjustment for FY 2017 is most
consistent with the requirement under section 631 of the ATRA to make
an adjustment to ``fully offset'' $11 billion by FY 2017. While we
recognize that the commenters have advocated for alternative
interpretations of the legislation, we believe the most straightforward
reading is that the ATRA requires us to make a recoupment adjustment or
adjustments totaling $11 billion by FY 2017. If we were to use the
older estimate of a -0.8 percent adjustment for FY 2017, we would only
recoup an estimated $10.1 billion, which we do not believe would be
consistent with the requirement under the ATRA to offset $11 billion by
FY 2017. As we explained in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49345) and prior rules, because estimates of future adjustments were
subject to variations in total estimated savings, we did not address
the specific amount of the final adjustment required under section 631
of the ATRA for FY 2017 at that time.
In response to comments that we should take into account any
savings in MA payments when determining the $11 billion recoupment or
otherwise adjust the $11 billion for policies that have been
implemented since the passage of the ATRA, we note that our approach
for estimating the FY 2017 adjustment is consistent with our historic
approach for estimating adjustments to address documentation and coding
effects. There is no evidence in the legislative language that, in
determining the adjustments necessary to achieve the $11 billion offset
required under the ATRA, CMS should include impacts on MA payments or
make adjustments for policies that have been implemented since the
passage of the ATRA. We also believe that the commenters' suggestion
should be evaluated in the context of MedPAC's comment and prior
comments on this issue that we should recover past overpayments due to
changes in documentation and coding. As stated previously, the $11
billion recoupment under the ATRA 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. Adopting an interpretation that reduces the amount of
our proposed FY 2017 adjustment creates a greater differential by the
end of FY 2017 between the payment increases that occurred due to
documentation and coding and the amount recovered. We do not believe
increasing this differential would be an appropriate policy. We also
note that it has been our consistent practice in implementing the ATRA
to not account for MA discharges or savings and find no indication or
expectation under the MACRA to change this approach.
With respect to the additional issues of Congressional intent
raised by commenters, we disagree that the ATRA and the MACRA, in
conjunction, somehow ratify a -0.8 percent adjustment for FY 2017 or
statutorily limit the difference between the adjustments under the ATRA
and adjustments under the MACRA. As commenters have noted, even if we
did adopt an adjustment of -0.8 percent for FY 2017, the cumulative
effect of our ATRA adjustment would be -3.2 percentage points, while
the MACRA only requires cumulative positive adjustments of +3.0
percent, leaving a -0.2 percent gap between our ATRA adjustments and
the MACRA adjustments. It is not clear to us that the MACRA provision
was intended to augment or limit CMS' separate obligation, pursuant to
the ATRA, to fully offset $11 billion by FY 2017 under section
7(b)(1)(A)(ii) of the TMA, when that language was not changed by the
MACRA and, as noted, the MACRA would not fully restore even an
estimated -3.2 percent adjustment. Moreover, limiting the ATRA
adjustment in this manner would create a greater differential by the
end of FY 2017 between the payment increases that occurred due to
documentation and coding and the amount recovered.
With regard to the comments stating that if CMS finalizes its
proposed adjustment under ATRA for FY 2017, it should make an
offsetting adjustment in FY 2018, as we indicated in the proposed rule,
we will address the adjustments for FY 2018 and later years in future
rulemaking.
Comment: One commenter objected to CMS' use of actuarial
assumptions as the basis for determining the level of adjustment
required under ATRA. The commenter questioned the variance in the
figures for OACT's 2013 and 2016 estimates and stated that OACT's most
recent estimate could not be externally replicated. The commenter
stated that there should be much greater certainty in the estimate
before imposing the higher adjustment proposed for FY 2017. Other
commenters requested that CMS reexamine the assumption and estimates
made by OACT.
Response: While the OACT memorandum containing the estimates
acknowledges the uncertainty in the estimates, it also states that the
results shown are OACT's latest and best estimates for Medicare
payments for FYs 2014-2017, and that OACT believes that the spending
estimates presented, as well as the assumptions used to develop the
estimates, are reasonable. We also note that, as explained in OACT's
memorandum and the proposed rule, the estimate from the proposed rule
was based on the FY 2017 President's Budget, subject to certain
adjustments. As discussed in the memorandum, the major changes in the
projections were due to lower updates to hospital payments than were
assumed in 2013, mostly due to the lower than expected market basket
adjustments and a lower number of discharges than assumed in 2013.
These changes caused the spending levels to be lower than the 2013
projections. However, in 2013, when CMS made the original projections,
everything that was included for 2014 through 2017 was a projection
(except for the 2014 update). Now when we make the current projection,
we have actual updates for the whole period through 2017, and we have
complete data for the number of discharges for 2014 and 2015 and for
part of 2016. For that reason, the current projections of spending for
2014 through 2017 are calculated with greater precision than the
projections that were done in 2013. For additional information on the
specific economic assumptions used in the President's FY 2017 Budget,
we refer readers to the OMB Web site at: https://www.whitehouse.gov/omb/budget. The estimates for this final rule are similarly based on
the Midsession Review of the President's FY 2017 Budget. For additional
information on the specific economic assumptions used in the

[[Page 56785]]

Midsession Review of the President's FY 2017 Budget, we refer readers
to the ``Midsession Review of the President's FY 2017 Budget''
available on the OMB Web site at: https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/17msr.pdf, under ``Economic
Assumptions.'' For a general overview of the principal steps involved
in projecting future costs and utilization, we refer readers to the
``2016 Annual Report of the Boards of Trustees of the Federal Hospital
Insurance and Federal Supplementary Medical Insurance Trust Funds''
available on the CMS Web site at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html?redirect=/reportstrustfunds/ under
``Downloads.'' As we did with the proposed adjustment, we are making
available on the CMS Web site a memorandum containing our actuaries'
estimates relating to our finalized adjustment (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS on the FY
2017 IPPS Final Rule Home Page).
After consideration of the public comments we received, we are
finalizing our proposal without modification. For this final rule,
based on updated estimates by the Office of the Actuary using the
Midsession Review of the President's FY 2017 Budget, we are making an -
1.5 percent adjustment as 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 recoupment under section 631 of the ATRA. In other words,
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. As we stated
earlier, the estimates by our actuaries related to this finalized
adjustment are included in a memorandum that we are making publicly
available on the CMS Web site.
The updated table from our actuaries based on the Midsession Review
of the President's FY 2017 Budget is below. The interpretation of the
table and the calculations are the same as those described in the
proposed rule (81 FR 24966 through 24967), except for the update from
the FY 2017 President's Budget to the FY 2017 President's Budget
Midsession Review.

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......................................... $122.84 1.00800 $123.82 $0.98
FY 2015......................................... 122.48 1.01606 124.45 1.97
FY 2016......................................... 124.02 1.02419 127.02 3.00
FY 2017......................................... 126.40 1.03956 131.40 5.00
---------------------------------------------------------------
Total....................................... .............. .............. .............. 10.95
----------------------------------------------------------------------------------------------------------------
* Based on FY 2017 President's Budget Midsession Review, including capital, IME, and DSH payments.

For this FY 2017 IPPS/LTCH PPS final rule, our actuaries estimate
that the FY 2017 spending subject to the documentation and coding
recoupment adjustment (including capital, IME, and DSH payment) would
be $131.40 billion in the absence of any documentation and recoupment
adjustments from FY 2014 through FY 2017 based on the FY 2017
President's Budget Midsession Review. Therefore our actuaries estimated
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 $126.4 billion, calculated as $131.4/
(1.008*1.008*1.008*1.015).
As stated in the proposed rule, 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, section 414 of the MACRA replaced the single
positive adjustment we intended to make in 2018 with 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 FY 2017 adjustment,
as discussed above. As noted previously, while we received public
comments on adjustments for FY 2018 and later fiscal years, we will
address these adjustments in future rulemaking as we indicated in the
proposed rule.

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'' (available at: http://
www.rti.org/reports/cms/HHSM-

[[Page 56786]]

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 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,

[[Page 56787]]

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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 24968), we stated that 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 19 CCRs and the MS-DRG
relative weights for FY 2017 is included in section II.G. of the
preamble of this final rule.
Comment: One commenter recommended that CMS work with stakeholders
to update cost reporting instructions and improve the accuracy and
validity of the national average CCRs. The commenter expressed concern
that the differences between hospitals' use of nonstandard cost center
codes and CMS' procedures for mapping and rolling up nonstandard codes
to the standard cost centers will continue to result in invalid CCRs
and inaccurate payments. The commenter stressed the need for
flexibility in cost reporting, to accommodate any new or unique
services that certain hospitals may provide, which may not be easily
captured through the cost reporting software. Finally, the commenter
again recommended, as it had done in response to prior IPPS rules, that
CMS pay particular attention to data used for CT scanand MRI cost
centers; the commenter believed that the hospital payment rates
established by CMS from the CT scan and MRI CCRs simply do not
correlate with resources used for these capital-intensive services.
Response: We appreciate the commenter's desire to increase the
accuracy and validity of the CCRs. As discussed in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49347 through 49350), we noticed
inconsistencies in hospital cost reporting of nonstandard cost centers
and were concerned about the implication that some of these
discrepancies might have on the aspects of the IPPS that rely on CCRs.
While we did not propose any changes to the methodology or data sources
for the FY 2016 CCRs and relative weights, we stated in that final rule
that we would continue to explore ways in which we can improve the
accuracy of the cost report data and calculated CCRs used in the cost
estimation process and that, to the extent possible, we will continue
to seek stakeholder input in efforts to limit the impact on providers.
We also note that the concern regarding hospitals' use of nonstandard
cost center codes and CMS' procedures for mapping and rolling up
nonstandard codes to the standard cost centers does not specifically
apply to the standard CT scan and MRI cost centers. Although these
centers were previously nonstandard cost centers, they were implemented
as standard cost centers in Form CMS-2552-10. Therefore, many of the
issues relating to inconsistent coding and issues with information
``rollup'' would not be specifically relevant for the CT scan and MRI
standard cost centers. We have previously addressed stakeholder
concerns related to the flexibility of cost reporting and accuracy of
the CT scan and MRI standard cost centers in setting the IPPS relative
weights. For a detailed discussion of the CT scan and MRI standard cost
centers, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78
FR 50520 through 50523), and the FY 2011 IPPS/LTCH PPS final rule (7 FR
50077 through 50079).
Consistent with our established policy, we calculated the final 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. 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 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 Final Rule Home Page'' or ``Acute
Inpatient Files for Download.''

F. 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

[[Page 56788]]

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 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

[[Page 56789]]

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 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 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 final 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 proposed to the MS-DRGs for FY 2017 in
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24971 through 25016). We
invited public comment on each of the MS-DRG classification proposed
changes as well as our proposals to maintain certain existing MS-DRG
classifications discussed in the proposed rule. In some cases, we
proposed changes to the MS-DRG classifications based on our analysis of
claims data. In other cases, we proposed to maintain the existing MS-
DRG classification based on our analysis of claims data. For the FY
2017 proposed rule, our MS-DRG analysis was 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, we referred to our analysis of claims
data from the ``December 2015 update of the FY 2015 MedPAR file.''
In this FY 2017 IPPS/LTCH PPS final rule, we summarize the public
comments we received on our proposals, present our responses, and state
our final policies. For this FY 2017 final rule, we did not perform any
further MS-DRG analysis of claims data. Therefore, all of the data
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.
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

[[Page 56790]]

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 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 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 and final 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 and final FY 2017 relative
payment weights is also based on the FY 2015 ICD-9-CM MedPAR claims
data, including any MS-DRG classification changes discussed in the
proposed rule and this final 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 final
rule, ICD-9-CM data were used for computing the proposed and final FY
2017 MS-DRG relative payment weights. As we did for FY 2016, we note
that, for FY 2017, we have made the MS-DRG GROUPER and Medicare Code
Editor (MCE) ICD-9-CM Software Version 34 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/FY2017-IPPS-Final-Rule-Home-Page.html. 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.
Comment: Some commenters requested that CMS make the FY 2017
finalized MS-DRG GROUPER logic proposals retroactive to October 1, 2015
for current FY 2016 claims. One commenter stated that if the corrected
replication issues were retroactive to October 1, 2015, private payers
would be able to appropriately adjust claims that had an inappropriate
MS-DRG assignment.
Response: We acknowledge the commenters' request. However, we note
that, in accordance with section 1886(d)(4)(C) of the Act, we adjust
the DRG classifications and relative weights at least annually. The FY
2016 ICD-10 MS-DRGs Version 33 were subject to review and comment by
the public as part of the FY 2016 IPPS/LTCH PPS proposed and final
rulemaking process. We encouraged the public to submit any comments on
areas where they believed the ICD-10 MS-DRGs did not accurately reflect
the GROUPER logic found in the ICD-9-CM MS-DRGs (80 FR 49356), and
discussed in the FY 2016 rulemaking the requests we received to update
the ICD-10 MS-DRGs to better replicate the ICD-9 MS-DRGs. In the FY
2017 IPPS/LTCH PPS proposed rule, we proposed further updates to the
MS-DRG GROUPER logic, to be effecive October 1, 2016.
With regard to the ability of private payers to adjust claims
affected by replication issues, as noted in the FY 2008 IPPS final rule
(72 FR 47152), we have stated many times in the past that we encourage
private insurers and other non-Medicare payers to make refinements to
Medicare's DRG system to better suit the needs of the patients they
serve. Consistent with our general approach for implementing updates to
the MS-DRGs, the proposals adopted as final policy in this FY 2017
IPPS/LTCH PPS final rule will apply beginning with the FY 2017 MS-DRGs.
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

[[Page 56791]]

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 the proposed
rule and this final rule, to assist in the conversion from the ICD-9-CM
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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24971
through 24972), for FY 2017, we proposed 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 invited
public comments on our proposal.
Comment: Commenters supported the proposal to assign ICD-10-PCS
procedure codes 02RK0JZ and 02RL0JZ as a code cluster to ICD-10 Version
34 MS-DRGs 001 and 002. The commenters noted that this code cluster
assignment is crucial to assure that all consumers who require a heart
replacement with a total artificial heart will have access to care,
regardless of whether they are a Medicare beneficiary, a Medicaid
recipient, or a privately insured individual. Other commenters noted
the proposal was reasonable, given the data, the ICD-10-PCS codes, and
the information provided.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to assign 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) as a code cluster to MS-DRGs 001 and 002
(Heart Transplant or Implant of Heart Assist System with and without
MCC, respectively) effective October 1, 2016 for ICD-10 MS-DRGs Version
34.
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.

[[Page 56792]]

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.
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.

[[Page 56793]]

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
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).
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24972 through 24976), 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

[[Page 56794]]

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-DRG 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 procedures and other
endovascular procedures cases reported in MS-DRGs 020, 021, 022, 023,
024, 025, 026, and 027, we stated in the proposed rule that we did 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

[[Page 56795]]

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 were 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 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, in the FY 2017 IPPS/LTCH
PPS proposed rule, we did not propose 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
invited public comments on our proposal to maintain the current MS-DRG
assignments of these procedures in MS-DRGs 020 through 027.
Comment: Commenters supported the proposal to maintain the current
MS-DRG assignments of endovascular embolization or occlusion of head
and neck procedures and other endovascular procedures in MS-DRGs 020
through 027. The commenters 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. The commenters stated that the
proposal was reasonable, given the data, the ICD-10-PCS codes, and the
information provided. One commenter believed that the cost data and
clinical profile of endovascular embolization procedures support MS-DRG
refinements. This commenter requested that CMS reexamine the issue when
ICD-10 claims data become available.
Response: We appreciate the commenters' support. We will review
this and other related MS-DRG assignments once ICD-10 claims data
become available.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current MS-DRG assignments for
endovascular embolization or occlusion of head and neck procedures and
other endovascular 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).

[[Page 56796]]

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.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24976), 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 noted 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 agreed 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, in the FY 2017 IPPS/
LTCH PPS proposed rule, we proposed 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 invited public comments on our proposal.
Comment: Commenters supported the proposal 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.
One commenter who supported the proposal suggested that the
proposed MS-DRG assignment for 18 additional diagnosis codes describing
similar conditions affecting the nervous system is inaccurate, both
clinically and in terms of MS-DRG grouping principles. Specifically,
the commenter requested that the 18 ICD-10-CN diagnosis codes in the
following table be reassigned from MDC 21 under DRGs 919, 920 and 921,
as currently proposed, to MDC 1 under MS-DRGs 091, 092, and 093.

ICD-10-CM Diagnosis Codes Recommended by Commenter for Reassignment From
MDC 21 to MDC 1
------------------------------------------------------------------------

-------------------------------------------------------------------------
T85.615A (Breakdown (mechanical) of other nervous system device, implant
or graft, initial encounter).
T85.625A (Displacement of other nervous system device, implant or graft,
initial encounter).
T85.635A (Leakage of other nervous system device, implant or graft,
initial encounter).
T85.695A (Other mechanical complication of other nervous system device,
implant or graft, initial encounter).
T85.730A (Infection and inflammatory reaction due to ventricular
intracranial (communicating) shunt, initial encounter).
T85.731A (Infection and inflammatory reaction due to implanted
electronic neurostimulator of brain, electrode (lead), initial
encounter).
T85.732A (Infection and inflammatory reaction due to implanted
electronic neurostimulator of peripheral nerve, electrode (lead),
initial encounter).
T85.733A (Infection and inflammatory reaction due to implanted
electronic neurostimulator of spinal cord, electrode (lead), initial
encounter).
T85.734A (Infection and inflammatory reaction due to implanted
electronic neurostimulator, generator, initial encounter).
T85.735A (Infection and inflammatory reaction due to cranial or spinal
infusion catheter, initial encounter).
T85.738A (Infection and inflammatory reaction due to other nervous
system device, implant or graft, initial encounter).
T85.810A (Embolism due to nervous system prosthetic devices, implants
and grafts, initial encounter).
T85.820A (Fibrosis due to nervous system prosthetic devices, implants
and grafts, initial encounter).
T85.830A (Hemorrhage due to nervous system prosthetic devices, implants
and grafts, initial encounter).
T85.840A (Pain due to nervous system prosthetic devices, implants and
grafts, initial encounter).
T85.850A (Stenosis due to nervous system prosthetic devices, implants
and grafts, initial encounter).
T85.860A (Thrombosis due to nervous system prosthetic devices, implants
and grafts, initial encounter).
T85.890A (Other specified complication of nervous system prosthetic
devices, implants and grafts, initial encounter).
------------------------------------------------------------------------

Response: We appreciate the commenters' support of our proposal. We
also appreciate the commenter's recommendation to reassign the
additional 18 ICD-10-CM diagnosis codes describing procedures performed
on the nervous system from MDC 21 under MS-DRGs 919, 920, and 921 to
MDC 1 under MS DRGs 091, 092, and 093. Our clinical advisors agree that
these 18 diagnosis codes also should be reassigned from MDC 21 under
MS-DRGs 919, 920 and 921 to MDC1 under MS-DRGs 091, 092 and 093.
After consideration of the public comments we received, we are
finalizing our proposal 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. The official code
titles for these four codes were revised after publication of the
proposed rule. Effective October 1, 2016, the revised code titles are
as follows (and are reflected in Table 6E associated with this final
rule, which is available via the Internet on the CMS Web site):
T85.610A (Breakdown (mechanical) of cranial or spinal
infusion catheter, initial encounter);
T85.620A (Displacement of cranial or spinal infusion
catheter, initial encounter);
T85.630A (Leakage of cranial or spinal infusion catheter,
initial encounter); and
T85.690A (Other mechanical complication of cranial or
spinal infusion catheter, initial encounter).

[[Page 56797]]

We also are reassigning the 18 ICD-10-CM diagnosis codes listed in
the table above that were recommended by the commenter 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) effective
October 1, 2016. These 18 codes also are reflected in Table 6E
associated with this final rule, which is available via the Internet on
the CMS Web site.
4. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)
a. 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
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, in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 24976), for FY 2017, we proposed 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 invited 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.
Comment: Commenters supported the proposal to reassign ICD-10-CM
diagnosis code R22.2 from MDC 4 to MDC 9 under MS-DRGs 606 and 607.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal 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).
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.
------------------------------------------------------------------------

[[Page 56798]]

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.
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24977 through 24979), 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
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

[[Page 56799]]

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.

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.
As a result of the data analysis and the concerns expressed by our
clinical advisors, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24977 through 24979), we did not propose to create a new MS-DRG or to
reassign cases with a principal diagnosis of pulmonary embolism with
tPA or other

[[Page 56800]]

thrombolytic therapy for FY 2017. We invited public comment on our
proposal.
Comment: Commenters supported the proposal to not create a new MS-
DRG or to reassign cases with a principal diagnosis of pulmonary
embolism with tPA or other thrombolytic therapy. The commenters stated
that the proposal was reasonable, given the data, the ICD-10-CM/PCS
codes, and information provided.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to not 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. The current structure of MS-DRGs 175
and 176 (Pulmonary Embolism with and without MCC, respectively) is
maintained in the ICD-10 MS-DRGs Version 34 effective October 1, 2016.
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 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 the proposed rule and this final 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
stated in the proposed rule that 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 did not
include 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24979
through 24980), for FY 2017, we proposed to designate the following
four ICD-10-PCS codes as O.R. procedures

[[Page 56801]]

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 proposed 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 invited public comments on our proposals.
Comment: Commenters supported the proposal to designate the four
ICD-10-PCS procedure codes listed in this section that describe the
insertion or revision of a monitoring device from non-O.R. to O.R. to
better reflect the resources involved with these procedures. The
commenters also agreed with the proposed MS-DRG assignments for these
procedure codes under the ICD-10 MS-DRGs, stating that the proposal was
reasonable, given the data, the ICD-10-PCS codes and information
provided. One commenter specifically expressed appreciation with CMS'
review of this replication issue and agreed that the codes that were
proposed to be changed from non-O.R. to O.R. are accurate and that this
change will result in better data on claims. This commenter also
commended CMS for the proposed MS-DRG assignments under the ICD-10 MS-
DRGs.
Alternatively, another commenter noted that while it agreed with
the proposal to change the designation of the four ICD-10-PCS procedure
codes from non-O.R. to O.R. and supported the proposed MS-DRG
assignments, the commenter believed that the two other ICD-10-PCS
procedure codes describing insertion of a monitoring device into the
abdomen subcutaneous tissue and fascia (ICD-10-PCS procedure codes
0JH802Z and 0JH832Z) also merit redesignation from non-O.R. to O.R. and
assignment to the same corresponding surgical MS-DRGs in order to fully
address the ICD-9 to ICD-10 replication issue. According to the
commenter, the anatomical location of implants involving loop recorders
does not affect the level of effort involved in performing such
procedures. The commenter recommended that CMS consider ICD-9-CM
procedure code 37.79 (Revision or relocation of cardiac device pocket)
and its attributes versus ICD-9-CM procedure code 86.09 (Other incision
of skin and subcutaneous tissue) as more appropriate for examining all
the comparable ICD-10 code translations and MS-DRG assignments.
Response: We appreciate the commenters' support of our proposals.
We agree with the commenters that this modification will better address
the resources involved with these procedures.
With regard to the commenter who recommended that we include the
two ICD-10-PCS codes describing insertion of a monitoring device into
the abdomen subcutaneous tissue and fascia, we are not clear with
respect to the commenter's statement that the anatomical location of
implants involving loop recorders does not affect the level of effort
involved in performing such procedures because loop recorders are not
inserted in that area of the abdomen. As we noted in the FY 2017 IPPS/
LTCH PPS proposed rule, when we were unable to fully replicate the ICD-
9 to ICD-10 MS-DRG logic for a specific request, we sought and proposed
an alternative option that would not cause MS-DRG shifts or a material
payment distribution. For this particular issue, the request was to
change the designation of the six ICD-10-PCS procedure codes from non-
O.R. to O.R. and, as described above, we were not able to finalize that
specific request. Rather, we finalized an alternative option, which was
to change the designation for four of the six codes requested. We also
point out that, currently, under the ICD-10 MS-DRGs Version 33, all six
ICD-10-PCS procedure codes that were the subject of our specific
proposal are designated as non-O.R. procedures affecting the 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). Therefore, while we are not finalizing the proposal to
change the two ICD-10-PCS procedure codes describing the insertion of a
monitoring device into the abdomen (0JH802Z and 0JH832Z) from non-OR to
O.R., we note that these two procedure codes will continue to be
recognized as non-O.R. procedures affecting MS-DRGs 579, 580, and 581
under the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
After consideration of the public comments we received, we are
finalizing our proposal 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 finalizing our proposal that the ICD-10 MS-DRG
assignment for the above four ICD-10-PCS procedure codes replicate the
ICD-9-CM based MS-DRG assignment for procedure code 37.79; that is, 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), effective October 1, 2016.
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 (Other Major
Cardiovascular Procedures with MCC, with CC, and without CC/MCC,
respectively)). (We note that in the FY 2017 IPPS/LTCH PPS proposed
rule, we incorrectly cited the titles for MS-DRGs 270, 271, and 272 as
``(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

[[Page 56802]]

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 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 agreed 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 24980 through 24981), for implementation October
1, 2016, we proposed to restructure the ICD-10-PCS MS-DRG configuration
and add the ICD-10-PCS code translations listed in the following chart
(which would capture procedures describing endovascular thrombectomy of
the lower limbs) to ICD-10 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.
------------------------------------------------------------------------

[[Page 56803]]

We invited 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.
Comment: Several commenters supported the proposal to assign the
ICD-10-PCS procedures describing the endovascular thrombectomy of the
lower limbs listed in the table in the proposed rule to ICD-10 Version
34 MS-DRGs 270, 271 and 272 for FY 2017. The commenters noted it is
important that endovascular thrombectomy procedures be assigned to the
same MS-DRGs as other procedures describing lower extremity
thrombectomy. However, some commenters also noted that a subset of the
codes listed in the table in the proposed rule describe non-lower limb
procedures. The commenters were concerned that moving the 34 non-lower
limb procedure codes displayed in the following table would not support
clinical and resource use homogeneity in the MS-DRG.

ICD-10-PCS Endovascular Thrombectomy Non-Lower Limb Procedure Codes
Identified by Commenters
------------------------------------------------------------------------

One commenter suggested adding two additional procedure codes
describing thrombectomy of the lower limbs (ICD-10-PCS codes 06CV3Z
(Extirpation of matter from left foot vein, percutaneous approach) and
06CY3Z (Extirpation of matter from lower vein, percutaneous approach))
to the list of procedure codes to be moved to MS-DRGs 270, 271 and 272.
Response: We appreciate the commenters' support for the assignment
of ICD-10-PCS procedure codes describing endovascular thrombectomy of
the lower limbs to ICD-10 Version 34 MS-DRGs 270, 271 and 272 for FY
2017. We agree with removing the 34 codes that the commenters
identified as not describing endovascular thrombectomy of the lower
limbs from the list of codes that were proposed to be reassigned to MS-
DRGs 270, 271 and 272. Our clinical advisors reviewed and also agree
with removing these 34 non-lower limb procedure codes from the proposed
list of codes to be reassigned to MS-DRGs 270, 271 and 272. These 34
non-lower limb procedure codes will remain assigned to MS-DRGs 252,
253, and 254 (Other vascular procedures with MCC, with CC, and without
CC/MCC, respectively) for FY 2017.
In addition, our clinical advisors agree with the commenter's
recommendation to add procedure codes 06CV3Z and 06CY3Z to the list of
lower limb procedure codes to be reassigned to MS-DRGs 270, 271, and
272. Therefore, we are reassigning these two procedure codes from MS-
DRG 263 (Vein ligation and stripping) and MS-DRGs 252, 253, and 254 to
MS-DRGs 270, 271, and 272 for FY 2017.
After consideration of the public comments we received, we are
finalizing our proposal with these modifications. We are finalizing the
assignment of the ICD-10-PCS procedure codes describing endovascular
thrombectomy of the lower limbs listed in the following table to ICD-10
Version 34 MS-DRGs 270, 271 and 272 for FY 2017 (which reflects the
removal of the 34 proposed procedure codes and the addition of the 2
procedure codes discussed in our response above).

[[Page 56804]]

ICD-10-PCS Endovascular Thrombectomy Procedure Codes Reassigned to MS-
DRGs 270, 271, and 272 for FY 2017
------------------------------------------------------------------------

------------------------------------------------------------------------
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.
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.
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.
06CV3ZZ.................. Extirpation of matter from left foot vein,
percutaneous approach.
06CY3ZZ.................. Extirpation of matter from lower vein,
percutaneous approach.
------------------------------------------------------------------------

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.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24981 through 24984), 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
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 stated that 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 stated that 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 proposed 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
stated that 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 procedures involving cardiac pacemaker
devices (any one code reported from this in combination with leads (any one code reported from this
column list) (1) (2) column list) (3)
-------------------------------------------- --------------------------------------------
Procedure code Code description Procedure code Code description
----------------------------------------------------------------------------------------------------------------
0JH604Z............... Insertion of ...................... 02H40JZ............... Insertion of
pacemaker, single pacemaker lead
chamber into chest into coronary
subcutaneous vein, open
tissue and fascia, approach.
open approach.
0JH605Z............... Insertion of ...................... 02H40MZ............... Insertion of
pacemaker, single cardiac lead into
chamber rate coronary vein,
responsive into open approach.
chest subcutaneous
tissue and fascia,
open approach.
0JH606Z............... Insertion of ...................... 02H43JZ............... Insertion of
pacemaker, dual pacemaker lead
chamber into chest into coronary
subcutaneous vein, percutaneous
tissue and fascia, approach.
open approach.

[[Page 56805]]

0JH607Z............... Insertion of ...................... 02H43MZ............... Insertion of
cardiac cardiac lead into
resynchronization coronary vein,
pacemaker pulse percutaneous
generator into approach.
chest subcutaneous
tissue and fascia,
open approach.
0JH60PZ............... Insertion of ...................... 02H44JZ............... Insertion of
cardiac rhythm pacemaker lead
related device into coronary
into chest vein, percutaneous
subcutaneous endoscopic
tissue and fascia, approach.
open approach.
0JH634Z............... Insertion of ...................... 02H44MZ............... Insertion of
pacemaker, single cardiac lead into
chamber into chest coronary vein,
subcutaneous percutaneous
tissue and fascia, endoscopic
percutaneous approach.
approach.
0JH635Z............... Insertion of ...................... 02H60JZ............... Insertion of
pacemaker, single pacemaker lead
chamber rate into right atrium,
responsive into open approach.
chest subcutaneous
tissue and fascia,
percutaneous
approach.
0JH636Z............... Insertion of ...................... 02H60MZ............... Insertion of
pacemaker, dual cardiac lead into
chamber into chest right atrium, open
subcutaneous approach.
tissue and fascia,
percutaneous
approach.
0JH637Z............... Insertion of ...................... 02H63JZ............... Insertion of
cardiac pacemaker lead
resynchronization into right atrium,
pacemaker pulse percutaneous
generator into approach.
chest subcutaneous
tissue and fascia,
percutaneous
approach.
0JH63PZ............... Insertion of ...................... 02H63MZ............... Insertion of
cardiac rhythm cardiac lead into
related device right atrium,
into chest percutaneous
subcutaneous approach.
tissue and fascia,
percutaneous
approach.
0JH804Z............... Insertion of ...................... 02H64JZ............... Insertion of
pacemaker, single pacemaker lead
chamber into into right atrium,
abdomen percutaneous
subcutaneous endoscopic
tissue and fascia, approach.
open approach.
0JH805Z............... Insertion of ...................... 02H64MZ............... Insertion of
pacemaker, single cardiac lead into
chamber rate right atrium,
responsive into percutaneous
abdomen endoscopic
subcutaneous approach.
tissue and fascia,
open approach.
0JH806Z............... Insertion of ...................... 02H70JZ............... Insertion of
pacemaker, dual pacemaker lead
chamber into into left atrium,
abdomen open approach.
subcutaneous
tissue and fascia,
open approach.
0JH807Z............... Insertion of ...................... 02H70MZ............... Insertion of
cardiac cardiac lead into
resynchronization left atrium, open
pacemaker pulse approach.
generator into
abdomen
subcutaneous
tissue and fascia,
open approach.
0JH80PZ............... Insertion of ...................... 02H73JZ............... Insertion of
cardiac rhythm pacemaker lead
related device into left atrium,
into abdomen percutaneous
subcutaneous approach.
tissue and fascia,
open approach.
0JH834Z............... Insertion of ...................... 02H73MZ............... Insertion of
pacemaker, single cardiac lead into
chamber into left atrium,
abdomen percutaneous
subcutaneous approach.
tissue and fascia,
percutaneous
approach.
0JH835Z............... Insertion of ...................... 02H74JZ............... Insertion of
pacemaker, single pacemaker lead
chamber rate into left atrium,
responsive into percutaneous
abdomen endoscopic
subcutaneous approach.
tissue and fascia,
percutaneous
approach.
0JH836Z............... Insertion of ...................... 02H74MZ............... Insertion of
pacemaker, dual cardiac lead into
chamber into left atrium,
abdomen percutaneous
subcutaneous endoscopic
tissue and fascia, approach.
percutaneous
approach.
0JH837Z............... Insertion of ...................... 02HK0JZ............... Insertion of
cardiac pacemaker lead
resynchronization into right
pacemaker pulse ventricle, open
generator into approach.
abdomen
subcutaneous
tissue and fascia,
percutaneous
approach.
0JH83PZ............... Insertion of ...................... 02HK0MZ............... Insertion of
cardiac rhythm cardiac lead into
related device right ventricle,
into abdomen open approach.
subcutaneous
tissue 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.

[[Page 56806]]

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 invited 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.
Comment: Commenters supported the proposed updates for MS-DRGs 242,
243, and 244. The commenters stated that the proposed logic is simpler
than the prior logic. One commenter stated that the proposal was
logical and less complicated and appeared to be able to correctly
capture procedures involving pacemaker devices. Several commenters
recommended that CMS continue to monitor the impact of this change in
future years to determine whether further modifications will be
necessary.
Response: We appreciate the commenters' support for our proposed
updates to MS-DRGs 242, 243, and 244. We agree that this is a simpler
approach to the MS-DRG GROUPER logic. We will continue to monitor this
and other related MS-DRGs as we receive ICD-10 claims data.
After consideration of the public comments we received, we are
finalizing 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 will 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 24983 through 24984), we proposed 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. We included in the proposed rule the following listing of ICD-
10-PCS procedure codes describing procedures involving pacemaker device
insertions that would be assigned to MS-DRG 258 and 259.

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 for FY 2017
------------------------------------------------------------------------
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.

[[Page 56807]]

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 invited 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 proposed rule 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.
Comment: Commenters supported the proposed updates to MS-DRGs 258
and 259. The commenters stated that the proposed updates appeared to be
logical and less complicated and appeared to be able to correctly
capture these circumstances.
Response: We appreciate the commenters' support for our proposed
updates to MS-DRGs 258 and 259. We agree this approach is logical and
less complicated.
After consideration of the public comments we received, we are
finalizing our proposal to modify the MS-DRG logic for MS-DRGs 258 and
259 (Cardiac Pacemaker Device Replacement with and without MCC,
respectively) to establish that a case reporting one ICD-10-PCS
procedure code describing procedures involving pacemaker device
insertions without any other procedure codes describing procedures
involving pacemaker leads reported is assigned to MS-DRGs 258 and 259
for FY 2017. We are finalizing the table above (which was included in
the proposed rule) that lists the ICD-10-PCS procedure codes describing
procedures involving pacemaker device insertions without any other
procedure codes describing procedures involving pacemaker leads
reported that are assigned to MS-DRGs 258 and 259 for FY 2017.
We also point out that the ICD-10-PCS pacemaker codes listed in the
following table are classified as non-operating room (non-O.R.) codes
within the MS-DRGs. The GROUPER logic will continue to classify these
codes as non-O.R. codes. However, a case reporting one of these non-
O.R. procedure codes describing procedures involving pacemaker device
insertions without any other procedure codes describing procedures
involving pacemaker leads reported is assigned to MS-DRGs 258 and 259
within MDC 5 in our final policy.

------------------------------------------------------------------------
ICD-10-PCS code (non-
O.R.) 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.
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.
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.
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.
------------------------------------------------------------------------

[[Page 56808]]

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 stated in the proposed rule that
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-DRGs 260, 261, and 262. In the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 24984 through 24985), we proposed
that the list of ICD-10-PCS procedure codes describing procedures
involving pacemaker lead insertion, removal, or revisions and insertion
of hemodynamic devices in a table included in the proposed rule (81 FR
24984 through 24985) would be assigned to MS-DRGs 260, 261, and 262. We
simply proposed to use a single list of ICD-10-PCS procedure codes to
determine the MS-DRG assignment.
We invited 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 in the proposed rule would be assigned to MS-DRGs 260, 261, and
262.
Comment: Commenters supported the 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 in the proposed rule would be assigned to MS DRGs 260, 261, and
262. The commenters stated that the proposed updates were logical and
less complicated and appeared to be able to correctly capture cardiac
pacemaker revisions. However, several of the commenters supporting the
proposal pointed out that there were errors in the code titles for
codes included in the table labeled ``List of Procedure Codes Proposed
to be Assigned to MS-DRGs 260, 261, and 262'' in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 24984 through 24985). The commenters stated
that the table included errors such as referring to a ``pacemaker''
lead instead of a ``cardiac'' lead in code 02H60MZ (Insertion of
Cardiac Lead into Right Atrium, Open Approach) and referring to a
``cardiac'' lead instead of a ``pacemaker'' lead in code 02H63JZ
(Insertion of Pacemaker Lead into Right Atrium, Percutaneous Approach).
The commenters recommended that CMS correct the code titles to align
with the official ICD-10-PCS code titles.
Response: We appreciate the commenter's support for our proposal.
In addition, we reviewed the list of codes in the table included in the
proposed rule and agree that there were errors in some of the code
titles (ICD-10-PCS codes 02H60MZ through 02HN4MZ) in that table. We
have corrected these title errors and are finalizing a corrected table
below.
After consideration of the public comments we received, we are
finalizing 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 corrected table below
are assigned to MS DRGs 260, 261, and 262.

List of Procedure Codes 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 Cardiac Lead into Right Atrium,
Open Approach.
02H63JZ.................. Insertion of Pacemaker Lead into Right
Atrium, Percutaneous Approach.
02H63MZ.................. Insertion of Cardiac Lead into Right Atrium,
Percutaneous Approach.
02H64JZ.................. Insertion of Pacemaker Lead into Right
Atrium, Percutaneous Endoscopic Approach.
02H64MZ.................. Insertion of Cardiac Lead into Right Atrium,
Percutaneous Endoscopic Approach.
02H70JZ.................. Insertion of Pacemaker Lead into Left Atrium,
Open Approach.
02H70MZ.................. Insertion of Cardiac Lead into Left Atrium,
Open Approach.
02H73JZ.................. Insertion of Pacemaker Lead into Left Atrium,
Percutaneous Approach.
02H73MZ.................. Insertion of Cardiac Lead into Left Atrium,
Percutaneous Approach.
02H74JZ.................. Insertion of Pacemaker Lead into Left Atrium,
Percutaneous Endoscopic Approach.
02H74MZ.................. Insertion of Cardiac Lead into Left Atrium,
Percutaneous Endoscopic Approach.
02HK00Z.................. Insertion of Pressure Sensor Monitoring
Device into Right Ventricle, Open Approach.
02HK02Z.................. Insertion of Monitoring Device into Right
Ventricle, Open Approach.
02HK0JZ.................. Insertion of Pacemaker Lead into Right
Ventricle, Open Approach.
02HK0MZ.................. Insertion of Cardiac Lead into Right
Ventricle, Open Approach.
02HK30Z.................. Insertion of Pressure Sensor Monitoring
Device into Right Ventricle, Percutaneous
Approach.
02HK32Z.................. Insertion of Monitoring Device into Right
Ventricle, Percutaneous Approach.
02HK3JZ.................. Insertion of Pacemaker Lead into Right
Ventricle, Percutaneous Approach.
02HK3MZ.................. Insertion of Cardiac Lead into Right
Ventricle, Percutaneous Approach.
02HK40Z.................. Insertion of Pressure Sensor Monitoring
Device into Right Ventricle, Percutaneous
Endoscopic Approach.
02HK42Z.................. Insertion of Monitoring Device into Right
Ventricle, Percutaneous Endoscopic 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.

[[Page 56809]]

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 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.
------------------------------------------------------------------------

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
the proposed rule and this final rule, we proposed to discontinue the
new technology add-on payment for MitraClip[supreg] for FY 2017 and are
finalizing our proposal in this final rule.
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.
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.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule, 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.

[[Page 56810]]

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 group 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 stated in the proposed rule that we
determined that we could not propose the suggestion of a new MS-DRG
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 did not propose to
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 did 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

[[Page 56811]]

reassigned to MS-DRGs 266 and 267, they would be overpaid by
approximately $10,000 as shown in the table below. Our clinical
advisors agreed 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, for the proposed rule, 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 minus $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.

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

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24987 through
24988), for FY 2017, we proposed 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 proposed to reassign ICD-9-CM
procedure code 35.97 and the cases

[[Page 56812]]

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 invited public comments on our proposals.
We also note that, as discussed earlier in this section of the
proposed rule and this final rule, 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. We stated that if our proposal in the FY 2017 proposed rule to
reassign ICD-10-PCS code 02UG3JZ to MS-DRG 228 and proposed revised MS-
DRG 229 was finalized in this FY 2017 IPPS/LTCH PPS final rule, it
would 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, we stated in the proposed rule that if the proposal is
finalized for FY 2017, cases reporting ICD-10-PCS procedure code
02UG3JZ will group to MS-DRG 228 and revised MS-DRG 229 versus MS-DRGs
231 and 232 because of the surgical hierarchy GROUPER logic.
As a result, in the FY 2017 IPPS/LTCH PPS proposed rule, we
proposed 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-DRG 228 and proposed revised MS-DRG 229 is finalized. We
invited public comments on our proposals.
Comment: A large number of commenters supported the proposal to
reassign ICD-9-CM procedure code 35.97 and ICD-10-PCS procedure code
02UG3JZ, which describe a mitral valve repair procedure involving the
MitraClip[supreg], from MS-DRGs 273 and 274 to MS-DRG 228 and proposed
revised MS-DRG 229. Commenters stated that patient access to the
procedure has been very restricted at their institutions due to the
financial hardship that results from the current payment inadequacies.
Several commenters noted that mitral valve interventions are an
integral part of their organizations structural heart disease programs
and stated that, with the expiration of the new technology add-on
payment effective September 30, 2016, the insufficient payment amount
and issues with patient access would only increase.
Other commenters reported that these high-risk degenerative mitral
valve patients have no alternative options, are not surgical candidates
for open procedures, are generally older, more complex to treat and
require greater resources by a multidisciplinary heart team; therefore,
the commenters urged CMS to finalize the proposal. According to the
commenters, the procedure is labor and time intensive with a higher
complexity than traditional percutaneous procedures. Commenters also
stated the proposed modifications to the MS-DRG structure will enable
more patients to have an improved quality of life. These commenters
stated that, for the patients who actually receive a mitral valve
repair procedure with the MitraClip[supreg], they have witnessed
improved clinical outcomes, such as improvements in their NYHA class
designation and walk distances. Other commenters described how
patients' families shared the impact of what it meant for their family
member to have a new outlook on life after having undergone the
procedure. A number of commenters also pointed out the cost savings to
Medicare with the procedure, which they stated were evidenced by
reduced lengths of stay and decreased heart failure readmissions.
Conversely, a few commenters opposed the proposal to modify the
structure of MS-DRGs 228, 229, and 230. These commenters recommended
that the only changes made should be for replication of the ICD-9-CM
MS-DRG logic. These commenters suggested that, because FY 2016 is the
first year of implementation in which CMS will have ICD-10 claims data,
CMS allow the data to stabilize prior to evaluating for any proposed
changes. The commenters stated that replication is important because
both the logic for the proposed MS-DRGs and the data source used to
calculate and develop the proposed relative payment weights are based
on the same ICD-9-CM MedPAR claims data.
Response: We appreciate the commenters' support of our proposal.
With regard to the commenters who opposed the proposal to modify the
structure of MS-DRGs 228, 229, and 230 and recommended that the only
changes made should be for replication of the ICD-9-CM MS-DRG logic as
noted and illustrated in the tables above, the proposal to revise the
structure of MS-DRGs 228, 229, and 230 was based on the analysis of
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 the ICD-9 based MS-DRGs 273 and 274. The
ICD-9-CM data and our clinical advisors supported the reassignment of
ICD-9-CM procedure code 35.97 from ICD-9-CM MS-DRGs 273 and 274 to
restructured ICD-9-CM MS-DRGs 228 and 229. Therefore, the proposal for
restructuring the ICD-10 MS-DRGs is in fact replicating the ICD-9-CM
MS-DRG logic that was finalized.
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, the FY 2017 relative payment weights
are based on the ICD-9-CM diagnosis and procedure codes from the FY
2015 MedPAR claims data that were grouped through the ICD-9-CM version
of the FY 2017 GROUPER Version 34. We note that we have made the MS-DRG
GROUPER and MCE ICD-9-CM Software Version 34 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.
After consideration of the public comments we received, we are
finalizing our proposal to collapse MS-DRGs 228, 229, and 230 from
three severity levels to two severity levels by

[[Page 56813]]

deleting MS-DRG 230 and revising MS-DRG 229. We also are finalizing our
proposal 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 revised MS-DRG 229. The title of revised MS-DRG
229 is finalized as follows to reflect the ``without MCC'' designation,
``Other Cardiothoracic Procedures without MCC''. The title for MS-DRG
228 is finalized as ``MS-DRG 228 (Other Cardiothoracic Procedures with
MCC)''. In addition, we are finalizing our proposal 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. All of these finalized
modifications are effective October 1, 2016.
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
----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG 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 the proposed rule and this final 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
MS-DRG by suggested severity level cases length 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
----------------------------------------------------------------------------------------------------------------

As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24988 through 24989), based on our analysis of claims data from the
December 2015 update of the FY 2015 MedPAR file, the data findings did
not support creating new severity levels. The findings showed 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 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 did 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 did not propose to subdivide MS-DRG 245
into severity levels. We invited public comments on our proposal to
maintain the current structure for MS-DRG 245.
Comment: Commenters supported the proposal not to subdivide MS-DRG
245 into severity levels. One commenter agreed that volumes were not
sufficient to justify a three-way split in the AICD generator
procedures, but neared meeting the levels required for a two-way split
(with MCC and without MCC). The commenter requested that we examine the
issue for a two-way split again next year.
Response: We appreciate the commenters' support. We agree that the
criteria were not met to support the subdivision of MS-DRG 245 into
severity levels for FY 2017. We will continue to monitor MS-DRG 245
claim data as we analyze issues for the FY 2018 IPPS/LTCH PPS proposed
rule.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current structure of MS-DRG 245
(AICD Generator Procedures) for FY 2017.
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

[[Page 56814]]

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24989), we proposed 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 invited public comments on our proposal.
Comment: Many commenters supported our proposal to reassign two
ICD-10-PCS procedure codes that identify excision procedures performed
on the ileum and jejunum. The commenters believed that the proposal was
reasonable, given the data, the ICD-10-PCS codes, and the information
provided. One commenter recommended that CMS reassign ICD-10-PCS
procedure code 0DB90ZZ (Excision of duodenum, open approach) to ICD-10
MS-DRGs 329, 330, and 331, noting that, as stated in the proposed rule,
the requester indicated 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.
Response: We appreciate the commenters' support of our proposal. In
response to the commenter's recommendation that we also reassign ICD-
10-PCS procedure code 0DB90ZZ to ICD-10 MS-DRGs 329, 330, and 331, we
note that, under ICD-9-CM, procedure code 45.31 (Other local excision
of lesion of duodenum) is the comparable translation and was assigned
to ICD-9 based MS-DRGs 326, 327, and 328 (Stomach, Esophageal and
Duodenal Procedures with MCC, with CC and without CC/MCC,
respectively). We did not include ICD-10-PCS procedure code 0DB90ZZ in
our proposal because, upon review, we determined that this code is
currently assigned to ICD-10 MS-DRGs 326, 327, and 328 (Stomach,
Esophageal and Duodenal Procedures with MCC, with CC and without CC/
MCC, respectively), and therefore, is accurately replicating the ICD-9
based MS-DRG logic.
After consideration of the public comments we received, we are
finalizing our proposal to reassign ICD-10-PCS procedure codes 0DBB0ZZ
(Excision of ileum, open approach) and 0DBA0ZZ (Excision of jejunum,
open approach) from MS-DRGs 347, 348, and 349 (Anal and Stomal
Procedures with MCC, with CC, and without CC/MCC, respectively) to MS-
DRGs 329, 330, and 331 (Major Small and Large Bowel Procedures with
MCC, with CC, and without CC/MCC, respectively) effective with the ICD-
10 MS-DRGs Version 34 on October 1, 2016.
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 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 agreed 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 agreed that ICD-10-PCS procedure code
06183DY should be assigned to MDC 7 and MS-DRGs 405, 406, and 407.
Therefore, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24989), we
proposed to assign ICD-10-PCS procedure code 06183DY to MDC 7 and MS-
DRGs 405, 406, and 407 for FY 2017.
We invited public comments on our proposal.
Comment: Commenters supported the proposal to assign ICD-10-PCS
procedure code 06183DY to MDC 7 under MS-DRGs 405, 406, and 407. One
commenter stated that the proposed change to MDC 7 and MS-DRGs 405,
406, and 407 is a more appropriate fit for ICD-10-PCS procedure code
06183DY.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal 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).
8. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. 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

[[Page 56815]]

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). As discussed in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 24989 through 24990), 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.

Total Ankle Replacement Cases Reported in MS-DRGs 469 and 470
----------------------------------------------------------------------------------------------------------------
Number of Average
MS-DRG cases length 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 stated in the proposed rule that
we believe 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 did 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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 24989 through 24990), we did not propose to
create a new MS-DRG for total ankle replacement procedures. We proposed
to maintain the current MS-DRG structure for MS-DRGs 469 and 470.
We invited public comments on this proposal.
Comment: Some commenters supported the proposal to maintain the
current MS-DRG structure for revision of total ankle replacement
procedures within MS-DRGs 469 and 470 and not create a new MS-DRG for
total ankle replacements. Several of the commenters stated that the
proposal was reasonable, given the data, the ICD-10-PCS codes, and the
information provided.
Response: We appreciate the commenters' support for our proposal.
Comment: Several commenters disagreed with the proposal not to
create a new MS-DRG for total ankle replacement procedures and to
maintain the current MS-DRG structure for MS-DRGs 469 and 470 for total
ankle replacement procedures. The commenters stated that the current
MS-DRG assignment for TAR procedures was inadequate to reflect the
actual cost and complexity of these procedures. The commenters stated
that the combined total ankle replacement cases in MS-DRGs 469 and 470
exceeds the minimum number of cases (500) in the criterion which CMS
established for consideration of a distinct MS-DRG group. Therefore,
the commenters believed that CMS should create a new MS-DRG for total
ankle replacements.
The commenters stated that the MS-DRG assignment was impacting
Medicare beneficiary access to total ankle replacement as an
alternative to an arthrodesis (fusion) of the ankle joint. The
commenters further stated that there were significant dissimilarities
in the inpatient hospital costs and length of stay, and different
postoperative and postdischarge care and rehabilitation protocols for
total ankle replacement procedures.

[[Page 56816]]

One commenter objected to CMS' comparison of the volume of total
ankle replacement cases to total hip and knee cases within MS-DRG 469
and 470 and the statement that, within the inpatient prospective
payment system framework, some cases have higher and some cases have
lower average costs within any MS-DRG. The commenter stated that CMS'
statements about possible explanations for the higher costs of total
ankle replacement cases within MS-DRGs 469 and 470 does not change the
fact that the total ankle replacement cases have higher costs than all
cases within MS-DRGs 469 and 470. The commenter stated that total ankle
replacement cases have a greater clinical complexity compared to other
procedures within MS-DRGs 469 and 470. The commenter stated that a
total ankle replacement procedure was a complicated surgery that
involved the replacement of the damaged parts of the three bones that
make up the ankle joint, as compared to two bones in hip and knee
replacement procedures. Furthermore, as the smallest weight-bearing
large joint in the body, the commenter stated that total ankle
replacement demanded a complexity of implant device design,
engineering, and manufacture to exacting functional specifications that
is vastly different from that of total hip and total knee replacement
devices. In addition, the commenter stated that the unique anatomical
characteristics and function of the ankle joint requires a specialized
surgical skill set, operative technique, and level of operating room
resource utilization that is vastly dissimilar from that of total hip
and total ankle replacement procedures.
Another commenter stated that accurate representation of patients
within each MS-DRG is an important step for fair payment and analysis.
The commenter believed that reassigning fractures and ankle procedures
from MS-DRGs 469 and 470 would help to accomplish that purpose. Another
commenter asked that CMS reexamine the appropriate MS-DRG assignment
for total ankle replacement procedures once ICD-10 claims data are
available.
Response: We disagree with the commenters' statement that the
number of total ankle replacement cases in MS-DRGs 469 and 470
justifies the creation of a new MS-DRG based on the criterion of there
being more than 500 cases. The criterion the commenters mentioned is
part of criteria established in FY 2008 (72 FR 47169) to determine if
the creation of a new CC or MCC subgroup within a base MS-DRG was
warranted (which was discussed in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 24971)), but is not determinative of whether a new MS-DRG
should be created.
As stated earlier, the data showed that the average costs of total
ankle replacement cases were higher than the average costs for all
cases reported in MS-DRG 469 and 470. We found that the average costs
of total ankle replacement procedures were higher in MS-DRG 469
($34,889 compared to $22,358 for all cases) and in MS-DRG 470 ($20,019
compared to $14,834 for all cases). However, there were only 30 total
ankle replacement cases in MS-DRG 469 out of 25,729 total cases. There
were only 1,626 cases in MS-DRG 470 out of 421,149 cases.
As we explained in the proposed rule, 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. Several expensive cases could
impact the average costs for a very small number of patients. 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. While the commenters disagreed with
this approach to classifying similar procedures within a set of MS-
DRGs, our clinical advisors reviewed the procedures assigned within MS-
DRGs 469 and 470 and determined that patients undergoing total ankle
replacement have similar clinical features compared to other patients
undergoing procedures included in MS-DRGs 469 and 470. The clinical
differences are not great enough to justify the creation of a new MS-
DRG. While the ankle may be the smallest weight-bearing joint in the
body and the devices used may be more costly, the joint repairs of the
lower extremity are clinically similar. The clinical expertise used by
surgeons performing ankle procedures versus the clinical expertise
required to perform other lower joint procedures does not justify
creating a new MS-DRG. Our clinical advisors determined that the cases
involving total ankle replacements are appropriately assigned to MS-
DRGs 469 and 470 with the two severity levels.
In response to the commenter's request that CMS reexamine the
appropriate MS-DRG assignment for total ankle replacement procedures
once ICD-10 claims data are available, we encourage requests for MS-DRG
updates to be submitted by December 7 of each year via the new CMS MS-
DRG Classification Change Requests Mailbox located at:
[email protected]. Once ICD-10 claims dara are
received, we will use these data to evaluate MS-DRG assignments.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current MS-DRG assignment for
total ankle replacements in MS-DRGs 469 and 470 and not create a new
MS-DRG for total ankle replacements.
(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

[[Page 56817]]

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 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.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24990 through 24992), 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

[[Page 56818]]

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-
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 did 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 agreed 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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 24990 through 24992), we did not propose 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 proposed to maintain the current
MS-DRG structure for MS-DRGs 469 and 470.
We invited public comments on our proposals.
Comment: Several commenters supported the proposal to maintain the
current MS-DRG structure for hip replacement procedures with a
principal diagnosis of hip fractures within MS-DRGs 469 and 470. They
did not support the creation of a new MS-DRG for hip replacement
procedures with a principal diagnosis of hip fractures. The commenters
stated that the proposal was reasonable, given the data, the ICD-10-CM
and ICD-10-PCS codes, and the information provided.
Response: We appreciate the commenters' support for the proposal.
Comment: Several commenters expressed concern with the current MS-
DRG assignment for hip replacement procedures with a principal
diagnosis of hip fractures. One commenter recommended that CMS consider
creating an MS-DRG or 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 commenter recognized that the claims data
presented in the proposed rule did not show significantly different
average costs for hip replacement procedures with a principal diagnosis
of hip fractures. However, the commenter stated that the average length
of stay and the patient profile are different for hip replacement
procedures with a principal diagnosis of hip fractures.
Response: We agree with the commenter that the claims data do not
show significant differences between the average costs for hip
replacement procedures with a principal diagnosis of hip fractures and
those without a hip fracture. For this reason and the reasons stated in
the proposed rule, the claims data did not support creating a new MS-
DRG for the assignment of cases of hip replacements with hip fractures.
As discussed in the proposed rule and earlier in this final rule, 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. In
response to the commenter's recommendation that CMS consider

[[Page 56819]]

reassigning all hip replacement procedures with a principal diagnosis
of hip fracture only to MS-DRG 469, even if there is no reported MCC,
we also examined the data in relation to the request to reassign all
procedures of hip replacement with hip fracture to MS-DRG 469, even if
there is no reported MCC. As discussed in the proposed rule and earlier
in this final rule, 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.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the MS-DRG assignment for hip
replacements with a principal diagnosis of hip fractures in MS-DRGs 469
and 470 and not create a new MS-DRG for hip replacements with a
principal diagnosis of hip fractures.
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.
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.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24992 through 24993), 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
----------------------------------------------------------------------------------------------------------------

[[Page 56820]]

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
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 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 did 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24992
through 24993), we proposed to maintain the current MS-DRG assignment
for revision of total ankle replacement procedures for FY 2017.
We invited public comments on our proposal.
Comment: Commenters supported the proposal to maintain the current
MS-DRG structure for revision of total ankle replacement procedures
within MS-DRGs 515, 516, and 517. The commenters stated that the
proposal was reasonable, given the data, the ICD-10-PCS codes, and the
information provided.
Response: We appreciate the commenters' support for the proposal.
Comment: One commenter expressed appreciation for CMS' analysis of
the MS-DRG assignment for revision of total ankle replacement
procedures within MS-DRGs 515, 516, and 517. The commenter agreed that
these procedures were previously assigned to code 81.59 (Revision of
joint replacement of lower extremity, not elsewhere classified), which
includes toe and foot joint revision procedures as well as revisions of
total ankle replacements. The commenter agreed that this nonspecific
ICD-9-CM code did not allow CMS to determine how many cases were
actually revisions of total ankle replacements. The commenter also
agreed that ICD-10-PCS provides greater detail and will provide
information on revisions of total ankle replacement. The commenter
acknowledged that CMS does not yet have ICD-10 claims data to analyze
this issue.
The commenter urged CMS to accelerate the incorporation of ICD-10
claims data to examine the issue of revision of total ankle
replacements. The commenter urged CMS to consider the following three
options when these data become available:
Map the new ICD-10-PCS ankle revision procedure codes to
MS-DRGs 466, 467, and 468 and rename these MS-DRGs Revision of Hip,
Knee or Ankle with MCC, with CC, and without CC/MCC, respectively;
Map the new ICD-10-PCS ankle revision procedure codes to
MS-DRG 469 to more appropriately recognize higher hospital procedure
costs associated with revision of TAR; or
Establish a new MS-DRG for the new ICD-10-PCS ankle
revision codes and ankle joint revision cases.
The commenter requested that CMS consider one of these three
options in FY 2017 if these data were available, but if these data are
not available, the commenter requested that CMS use ICD-10 claims data
to revise the MS-DRG assignment for revision of total ankle replacement
procedures in FY 2018.
Another commenter also recommended that CMS review this MS-DRG
assignment again once ICD-10 claims data are available.
Response: We agree with the commenter that ICD-10-PCS claims data
will provide more detail to evaluate the MS-DRG assignment for revision
of total ankle replacement procedures. Once ICD-10 claims data become
available, we will use these claims data to evaluate this and other MS-
DRG updates.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current MS-DRG assignment for
revision of total ankle replacement procedures.
(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, 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.

[[Page 56821]]

------------------------------------------------------------------------
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.

------------------------------------------------------------------------
ICD-10-PCS Procedure code Description
------------------------------------------------------------------------
0SRC0J9....................... Replacement of right knee joint with
synthetic substitute, cemented, open
approach.
0SRC0JA....................... Replacement of right knee joint with
synthetic substitute, uncemented, open
approach.
0SRC0JZ....................... Replacement of right knee joint with
synthetic substitute, open approach.
0SRC07Z....................... Replacement of right knee joint with
autologous tissue substitute, open
approach.
0SRC0KZ....................... Replacement of right knee joint with
nonautologous tissue substitute, open
approach.
------------------------------------------------------------------------

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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24993 through 24996), we proposed 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.
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.

[[Page 56822]]

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 Knee
Left Knee Joint, Open Joint with Synthetic
Approach. Substitute, Cemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRD0JA Replacement of Left Knee
Left Knee Joint, Open Joint with Synthetic
Approach. Substitute, Uncemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRD0JZ Replacement of Left Knee
Left Knee Joint, Open Joint with Synthetic
Approach. Substitute, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRU0JA Replacement of Left Knee
Left Knee Joint, Open Joint, Femoral Surface
Approach. with Synthetic
Substitute, Cemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRU0JA Replacement of Left Knee
Left Knee Joint, Open Joint, Femoral Surface
Approach. with Synthetic
Substitute, Uncemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRU0JZ Replacement of Left Knee
Left Knee Joint, Open Joint, Femoral Surface
Approach. with Synthetic
Substitute, Open
Approach.
0SPD08Z.................. Removal of Spacer from and 0SRW0J9 Replacement of Left Knee
Left Knee Joint, Open Joint, Tibial Surface
Approach. with Synthetic
Substitute, Cemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRW0JA Replacement of Left Knee
Left Knee Joint, Open Joint, Tibial Surface
Approach. with Synthetic
Substitute, Uncemented,
Open Approach.
0SPD08Z.................. Removal of Spacer from and 0SRW0JZ Replacement of Left Knee
Left Knee Joint, Open Joint, Tibial Surface
Approach. with Synthetic
Substitute, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRD0J9 Replacement of Left Knee
Left Knee Joint, Joint with Synthetic
Percutaneous Approach. Substitute, Cemented,
Open Approach.
0SPD38Z.................. Removal of Spacer from and 0SRD0JA Replacement of Left Knee
Left Knee Joint, Joint with Synthetic
Percutaneous Approach. Substitute, Uncemented,
Open Approach.
0SPD38Z.................. Removal of Spacer from and 0SRD0JZ Replacement of Left Knee
Left Knee Joint, Joint with Synthetic
Percutaneous Approach. Substitute, Open
Approach.
0SPD38Z.................. Removal of Spacer from and 0SRU0JA Replacement of Left Knee
Left Knee Joint, Joint, Femoral Surface
Percutaneous Approach. with Synthetic
Substitute, Cemented,
Open Approach.

[[Page 56823]]

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

We invited 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.
Comment: A number of commenters supported the proposal to add the
joint revision code combinations listed in the table in the proposed
rule to the ICD-10 Version 34 MS-DRGs 466, 467, and 468. Several
commenters stated that these proposed updates better replicate the
logic of the prior ICD-9-CM version of the MS-DRGs. Another commenter
stated that adding the 58 new combinations of procedure codes for the
removal and replacement of knee joints to MS-DRGs 466, 467, and 468
improves the alignment of these cases under the ICD-10 MS-DRGs. One
commenter stated that it appreciated CMS' proposed updates to MS-DRGs
466, 467, and 468. Several of the commenters requested that the update
be made retroactive to FY 2016 because this was a replication error of
the ICD-9-CM MS-DRGs.
Response: We appreciate the commenters' support for our proposal.
We agree that this addition better replicates the prior ICD-9-CM MS-
DRGs. The FY 2016 MS-DRGs were subject to review and comment by the
public as part of the FY 2016 IPPS/LTCH PPS rulemaking. As stated
earlier, 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). We proposed to add the 58 new
combinations of procedure codes for the removal and replacement of knee
joints to MS-DRGs 466, 467, and 468 in the FY 2017 IPPS/LTCH PPS
proposed rule for the FY 2017 MS-DRGs, effective October 1, 2016.
Therefore, consistent with our general approach for implementing
updates to the MS-DRGs, these updates apply beginning with the FY 2017
MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the 58 new code combinations listed
above that capture the joint revisions to the Version 34 MS DRG
structure for MS-DRGs 466, 467, and 468, effective October 1, 2016.
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

[[Page 56824]]

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 stated in the FY 2017 IPPS/LTCH PPS proposed rule that we agreed
with the commenter's suggestion. Therefore, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 24996), for FY 2017, we proposed 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.
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 invited public comments on our proposal.
Comment: Several commenters supported the proposal to reassign the
ICD-10-PCS procedure codes listed in the table in the proposed rule
from MS-DRGs 515, 516 and 517 to MS-DRGs 028, 029, 030 and MS-DRGs 518,
519 and 520 under the ICD-10 MS-DRGs Version 34.
One commenter recommended that CMS delay reassigning the codes
listed in the table in the proposed rule from MS-DRGs 515, 516 and 517
to MS-DRGs 028, 029, 030 and MS-DRGs 518, 519 and 520 until the FY 2016
MedPAR data are available, which would include ICD-10 coded claims.
According to the commenter, it was difficult to assess the impact of
the proposal in the absence of ICD-10 claims data. The commenter
conducted its own data analysis of ICD-9-CM procedure code 04.49 (Other
peripheral nerve or ganglion decompression or lysis of adhesions),
which is a comparable translation of the ICD-10-PCS codes listed in the
table in the proposed rule. The commenter stated that under Version 32
of the ICD-9-CM MS-DRGs, procedure code 04.49 grouped to MS-DRGs 515,
516, and 517. Based on its analysis, the commenter suggested that if
CMS were to proceed with this proposal without ICD-10 claims data, CMS
consider reassigning the entire list of ICD-10-PCS codes in the 01N
(Release/Peripheral Nervous System) category to ICD-10 MS-DRGs 028,
029, and 030 for length of stay and average cost alignment purposes.
The commenter did not make any recommendation for reassignment of the
listed ICD-10-PCS procedure codes to MS-DRGs 518, 519, and 520.
Response: We appreciate the commenters' support of our proposal.
With regard to the commenter who did not support the proposal and
recommended we not finalize it in the absence of ICD-10 claims data, we
acknowledge that it can be somewhat challenging to fully assess the
impact of a proposal without the coded data to analyze. We note that
the proposal was based on clinical coherence of the listed ICD-10-PCS
codes with other codes describing procedures on the neck and spine
currently assigned to MS-DRGs 028, 029, 030 in MDC 1 (Diseases and
Disorders of the Nervous System) and MS-DRGs 518, 519, and 520 in MDC 8
(Diseases and Disorders of the Musculoskeletal System and Connective
Tissue). We also note that the ICD-9-CM code 04.49 lacks the detail and
specificity of the corresponding ICD-10-PCS codes proposed for
reassignment. For example, the ICD-9-CM code does not specify which
peripheral nerve is being treated or what approach was utilized.
Therefore, we cannot fully evaluate and rely upon the commenter's
analysis results for the ICD-9-CM data to accurately determine the
impact of reassigning all the cited ICD-10-PCS codes, which do specify
the nerve being treated, and the approach that was used to MS-DRGs 028,
029, and 030. In addition, it is not clear which list of ICD-10-PCS
codes the commenter was requesting us to consider for reassignment to
MS-DRGs 028, 029, and 030 based on its submitted comment. It is unclear
if the commenter was suggesting that we reassign the entire list of
ICD-10-PCS codes that appeared in the proposed rule or if the commenter
was suggesting that we reassign the entire list of available code
options in Table 01N (Release/Peripheral Nervous System) of the ICD-10-
PCS classification because the commenter's languge referred to the 01N
``category'' and that is not a standard term used in ICD-10-PCS.
Therefore, we agree that we should delay this proposed change until
the ICD-10 claims data are available, because we will have the ability
to better analyze the impact of reassigning the specified codes
according to their anatomic location, as well as receive clarification
regarding which specific codes should be taken under consideration for
reassignment. Our clinical advisors reviewed this issue and recommended
maintaining the current structure of MS-DRGs 515, 516, and 517 for FY
2017. They agreed that we should not finalize our proposal to reassign
the ICD-10-PCS codes discussed in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 24996 through 24997) to MS-DRGs 028, 029, and 030 and MS-
DRGs 518, 519, and 520 until ICD-10-PCS data are available for analysis
because we will have the opportunity to examine the detailed ICD-10-PCS
codes and assess their impact on MS-DRGs 028, 029, and 030 and
determine the specific codes

[[Page 56825]]

that were suggested for reassignment (the list of ICD-10-PCS codes
displayed in the proposed rule and this final rule above or the entire
list of codes available from Table 01N of the ICD-10-PCS
classification). We also will have the coded claims data to assess the
impact for MS-DRGs 518, 519, and 520 to better evaluate if that
reassignment is supported.
After consideration of the public comments we received and based on
the recommendations from our clinical advisors, we are not finalizing
our proposal to reassign the ICD-10-PCS procedure codes listed in the
table in the proposed rule and above from MS-DRGs 515, 516, and 517
(Other Musculoskeletal System and Connective Tissue O.R. Procedures
with MCC, with CC and without CC/MCC) to MS-DRGs 028, 029, 030 (Spinal
Procedures with MCC, with CC or Spinal Neurostimulators and without CC/
MCC, respectively) and MS-DRGs 518, 519, and 520 (Back and Neck
Procedures Except Spinal Fusion with MCC or Disc Device or
Neurostimulator, with CC and without CC/MCC, respectively) under the
ICD-10 MS-DRGs Version 34. The ICD-10-PCS codes that were listed in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24996 through 24997) will
remain in their current assignment to MS-DRGs 515, 516, and 517.
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).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24997), we
proposed to remove the above four diagnosis codes from the secondary
diagnosis list. We also proposed to maintain these same four codes in
the logic for the principal diagnosis list. We proposed that 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 invited public comments on our proposals.
Comment: Commenters supported the proposal to remove diagnoses
codes M40.50, M40.55, M40.56, and M40.57 from the secondary diagnosis
list for MS DRGs 456, 457, and 458. Commenters also supported the
proposal to maintain these same four codes in the logic for the
principal diagnosis list for MS-DRGs 456, 457, and 458.
Response: We appreciate the commenters' support of our proposal to
remove the above four diagnosis codes from the secondary diagnosis list
and to maintain these same four codes in the logic for the principal
diagnosis list for MS DRGs 456, 457, and 458.
After consideration of the public comments we received, we are
finalizing our proposal to remove diagnoses codes 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) from the
secondary diagnosis list for MS DRGs 456, 457, and 458. These four
codes are retained in the logic for the principal diagnosis list. This
change for 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) is effective October 1, 2016, in
the ICD-10 MS-DRGs Version 34.
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 inclusion term, absent
the terms in parentheses, procedure code 68.8 could

[[Page 56826]]

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24997
through 24998), for FY 2017, we proposed 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 invited public comments on our proposal.
Comment: Commenters supported the proposal to remove the procedure
code cluster for pelvic evisceration procedures currently under MDC 6
in ICD-10 MS-DRGs 332, 333, and 334 for the ICD-10 MS-DRGs Version 34.
The commenters stated the proposal was reasonable, given the data, the
ICD-10-PCS codes, and the information provided.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove the following procedure codes
currently listed as a ``cluster'' in MDC 6 under MS-DRGs 332, 333, and
334 effective October 1, 2016 under the ICD-10 MS-DRGs Version 34. The
codes will remain as a cluster in MDC 13 under MS-DRGs 734 and 735
(Pelvic Evisceration, Radical Hysterectomy and Radical Vulvectomy with
CC/MCC and without CC/MCC, respectively)

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24988), we proposed to change the title of MS-DRG 884 as requested by
the requestor.
We invited 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.
Comment: Commenters supported the proposal to modify the title for
ICD-10 MS-DRG 884. The commenters stated that the proposal was
reasonable, given the data and information provided.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to modify the title for ICD-10 MS-DRG 884. The
finalized title for MS-DRG 884 for the FY 2017 ICD-10 MS-DRGs Version
34 is ``MS-DRG 884 (Organic Disturbances and Intellectual
Disability),'' effective October 1, 2016.
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)
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
24998 through 25000), 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 identify an encounter for rehabilitation
services such as diagnosis 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

[[Page 56827]]

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, it believed 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, the requestor modified its 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-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 the time of development of the proposed rule, we did not have
any claims data that indicate how well this MS-DRG logic is working. We
stated in the proposed rule that we were hesitant to simply add more
codes from category I69 without evaluating the impact of doing so using
claims data. We also did 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 welcomed specific suggestions of codes to be
added to MS-DRGs 945 and 946 based on hospitals' experience in coding
these cases. We stated that we would evaluate these suggestions once we
have claims data to study the impact. Based on the lack of ICD-10
claims data, we proposed to maintain the current logic of MS-DRGs 945
and 946 and not make updates until these claims data become available.
Comment: A number of commenters supported the proposal 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. Several commenters who agreed with this proposal stated that
additional analysis should be undertaken in order to fully understand
the industry impact of the current logic of MS-DRGs 945 and 946. The
commenters stated that it was not clear to what extent the current
logic for these MS-DRGs has created actual payment issues or what the
nature of any identified problems might be.

[[Page 56828]]

One commenter suggested that if an analysis of ICD-10 claims data
indicate that the current logic of MS-DRGs 945 and 946 is creating
significant payment issues, CMS consider reclassifying MS-DRGs 945 and
946 as pre-MDC MS-DRGs as a possible solution.
Response: We agree with the commenters that, without ICD-10 claims
data, it is not possible to evaluate the impact of the logic using ICD-
10 codes within MS-DRGs 945 and 946. We agree that it is appropriate to
wait for the claims data prior to proposing any MS-DRG updates.
We stated in the proposed rule that 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 and new process 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-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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 24998
through 25000), we proposed 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 invited public comments on our proposal to maintain the current
structure of MS-DRGs 945 and 946.
Comment: One commenter agreed with CMS that, given there is no ICD-
10-CM code describing encounters for rehabilitation, it was reasonable
that identification of admissions for rehabilitation had to rely on
ICD-10-PCS procedure codes. One commenter believed that it was not
appropriate for the MS-DRG logic to require a principal diagnosis from
MDC 23 to be assigned to MS-DRGs 945 and 946 because most admissions
for rehabilitation would appropriately have any number of diagnosis
codes sequenced as the principal diagnosis rather than a diagnosis code
from MDC 23. The commenter did not believe it was feasible to identify
all of the ICD-10-CM codes for which rehabilitation services might be
provided, due to the range and number of diagnoses that could
potentially be involved.
Response: We agree with the commenter that there is no ICD-10-CM
code describing encounters for rehabilitation. Given this lack of an
ICD-10-CM code describing encounters for rehabilitation, we used ICD-
10-PCS procedure codes as a means of identifying these cases.
Therefore, the ICD-10 MS-DRG logic cannot be the same as the ICD-9-CM
code logic. We also agree with the commenter that it is not feasible to
identify all of the ICD-10-CM codes for which rehabilitation

[[Page 56829]]

services might be provided, due to the range and number of diagnoses
that could potentially be involved. Therefore, it is necessary to wait
for ICD-10 claims data in order to evaluate and propose MS-DRG updates.
Comment: One commenter disagreed with CMS' proposal to maintain the
current structure of MS-DRGs 945 and 946 and to only reconsider the
issue when ICD-10 claims data become available. The commenter stated
that further research of claims data was not necessary as there was
enough evidence and clinical knowledge to identify the majority of
appropriate principal diagnoses that frequently require an inpatient
admission for rehabilitation. The commenter advised adding the codes
and code categories in the following table to MDC 23.

Code/Code Category and Description
------------------------------------------------------------------------

-------------------------------------------------------------------------
G20 Parkinson's disease.
G21.0 Malignant neuroleptic syndrome.
G21.11 Neuroleptic induced parkinsonism.
G21.19 Other drug induced secondary parkinsonism.
G21.2 Secondary parkinsonism due to other external agents.
G21.3 Postencephalitic parkinsonism.
G21.4 Vascular parkinsonism.
G21.8 Other secondary parkinsonism.
G21.9 Secondary parkinsonism, unspecified.
G31.84 Mild cognitive impairment, so stated.
G35 Multiple sclerosis.
G37.3 Acute transverse myelitis in demyelinating disease of central
nervous system.
G61.0 Guillain-Barre syndrome.
G61.81 Chronic inflammatory demyelinating polyneuritis.
G62.81 Critical illness polyneuropathy.
G62.9 Polyneuropathy, unspecified.
G65.0 Sequelae of Guillain-Barr[Atilde](copyright) syndrome.
G70.00 Myasthenia gravis without (acute) exacerbation.
G70.01 Myasthenia gravis with (acute) exacerbation.
G72.81 Critical illness myopathy.
G91.0 Communicating hydrocephalus.
G91.1 Obstructive hydrocephalus.
G91.2 (Idiopathic) normal pressure hydrocephalus.
G91.3 Post-traumatic hydrocephalus, unspecified.
G91.4 Hydrocephalus in diseases classified elsewhere.
G91.8 Other hydrocephalus.
G91.9 Hydrocephalus, unspecified.
G92 Toxic encephalopathy.
G93.1 Anoxic brain damage, not elsewhere classified.
G93.40 Encephalopathy, unspecified.
G93.41 Metabolic encephalopathy.
G93.49 Other encephalopathy.
I50.22 Chronic systolic (congestive) heart failure.
I50.23 Acute on chronic systolic (congestive) heart failure.
I50.32 Chronic diastolic (congestive) heart failure.
I50.33 Acute on chronic diastolic (congestive) heart failure.
I50.42 Chronic combined systolic (congestive) and diastolic (congestive)
heart failure.
I50.43 Acute on chronic combined systolic (congestive) and diastolic
(congestive) heart failure.
I50.9 Heart failure, unspecified.
M62.81 Muscle weakness (generalized).
M62.82 Rhabdomyolysis.
R26.0 Ataxic gait.
R26.1 Paralytic gait.
R26.2 Difficulty in walking, not elsewhere classified.
R26.81 Unsteadiness on feet.
R26.89 Other abnormalities of gait and mobility.
R26.9 Unspecified abnormalities of gait and mobility.
R27.0 Ataxia, unspecified.
R27.8 Other lack of coordination.
R27.9 Unspecified lack of coordination.
R41.84 Cognitive communication deficit.
R41.842 Visuospatial deficit.
R41.843 Psychomotor deficit.
R41.844 Frontal lobe and executive function deficit.
R41.89 Other symptoms and signs involving cognitive functions and
awareness.
Z47.1 Aftercare following joint replacement surgery.
Z47.81 Encounter for orthopedic aftercare following surgical amputation.
Z47.89 Encounter for other orthopedic aftercare.
Z48.21 Encounter for aftercare following heart transplant.
Z48.22 Encounter for aftercare following kidney transplant.
Z48.23 Encounter for aftercare following liver transplant.
Z48.24 Encounter for aftercare following lung transplant.
Z48.280 Encounter for aftercare following heart-lung transplant.
Z48.288 Encounter for aftercare following multiple organ transplant.

[[Page 56830]]

Z48.290 Encounter for aftercare following bone marrow transplant.
Z48.298 Encounter for aftercare following other organ transplant.
Z48.3 Aftercare following surgery for neoplasm.
Code categories G81, G82, and G83.
Code Category I69.
Code Category M84.3-M84.6 with 7th digit ``D''.
Code Categories S32.4-S32.9 with 7th digit ``D''.
Code Categories S72.0-S72.3 with 7th digit ``D'', ``E'', or ``F''.
------------------------------------------------------------------------

Response: We disagree with the recommendation to add the list of
ICD-10-CM codes shown in the table above to MS-DRGs 945 and 946. As
stated previously, we do not have claims data to evaluate how this
suggested update would impact MS-DRG assignments. We agree with the
other commenters who recommended that CMS wait for claims data in order
to evaluate updates to MS-DRGs 945 and 946. While this commenter took
the position that further research of claims data was not necessary
because there is enough evidence and clinical knowledge to identify the
majority of principal diagnoses that frequently require an inpatient
admission for rehabilitation, and, as noted, submitted the above list
of ICD-10-CM codes and code categories to add to MDC 23, we believe
that ICD-10 claims data are necessary to evaluate this recommended
change; without claims data, we cannot determine the number of cases
that might be reassigned and if this reassignment was appropriate.
Comment: Commenters who agreed with waiting until claims data
become available to evaluate MS-DRG updates stated that they understood
that the current pre-MDC structure is limited to resource-intensive
surgical procedures. However, they believed that there are some
similarities between the existing pre-MDCs and MS-DRGs 945 and 946. The
commenters stated that, similar to the existing pre-MDCs, the driver
for the rehabilitation MS-DRGs is a specific type of service, and this
service may be provided for a wide variety of principal diagnoses.
Therefore, the commenters suggested the creation of a guideline that
limits the use of the ICD-10-PCS rehabilitation codes to rehabilitation
admissions would address the potential for patient cases to be
reassigned from higher paying surgical MS-DRGs in other MDCs to the
lower paying MS-DRGs 945 and 946 based on the reporting of a
rehabilitation procedure code if these MS-DRGs were reassigned to the
pre-MDCs. One commenter stated that, after the establishment of a new
ICD-10-PCS coding guideline, the reporting of ICD-10-PCS rehabilitation
codes for nonrehabilitation hospitalizations would be considered coding
errors and, as with any coding error, could lead to inappropriate MS-
DRG assignment. However, the commenter recommended that edits and
reminders would likely be needed to minimize this type of coding error.
Response: We agree with the commenters that the issue of any
updates to ICD-10-PCS guidelines should be considered along with any
proposed MS-DRG updates because updated guidelines may impact code
reporting.
We welcome any suggestions on how to update the ICD-10-PCS
guidelines. These suggestions should be sent to
[email protected]. We plan to take any proposed ICD-
10-PCS rehabilitation guideline updates to a future meeting of the ICD-
10 Coordination and Maintenance Committee so that the public can
provide input on any new rehabilitation guideline. We continue to be
concerned about creating a new ICD-10-PCS guideline whose purpose is to
restrict assignment to certain MS-DRGs. Over time, the MS-DRGs are
updated as part of the annual IPPS rulemaking. To create a guideline on
a current MS-DRG structure as opposed to a means of capturing national
data for all payers is not consistent with past guideline development.
However, we look forward to working with the public on examining the
need to improve the ICD-10-PCS guidelines for rehabilitation services
reporting.
Comment: Other commenters who agreed with CMS' proposal to maintain
the current structure of MS-DRGs 945 and 946 until such time as ICD-10
claims data become available recommended that the ICD-10 Coordination
and Maintenance Committee address the creation of a single, new ICD-10-
CM diagnosis code in Section Z of ICD-10-CM to replicate the ICD-9-CM
code category V57 (Care involving use of rehabilitation procedures).
The commenters recommended that if the CDC created this new code, the
new ICD-10-CM code be added to MS-DRGs 945 and 946 when reported as a
secondary diagnosis. The commenters urged CMS to obtain industry input
from experts in rehabilitation on possible coding and MS-DRG updates.
Several commenters recommended that the existing ICD-10-CM Official
Guidelines for Coding and Reporting be maintained to allow the
sequencing of the diagnosis code for the condition for which the
service is being performed as the principal diagnosis when the purpose
for the admission/encounter is rehabilitation. Several commenters
recommended a revision of the ICD-10-CM Official Guidelines for Coding
and Reporting if a new ICD-10-CM code for care involving use of
rehabilitation procedures were created. Some of the commenters
recommended that the new diagnosis code be reported as a secondary
diagnosis when the purpose for the admission/encounter was
rehabilitation while others recommended that the new code be reported
as the principal diagnosis.
One commenter objected to the development of coding guidelines
based on Medicare payment policies. However, the commenter stated that
any such guideline should be applied to all payers. The commenter
stated that creating such a guideline that would restrict the use of
these procedure codes such that they could only be used to identify
rehabilitation admissions for the purpose of appropriately assigning
MS-DRGs 945 and 946 merited serious consideration.
Response: We have referred the requests for a new ICD-10-CM code
for care involving the use of rehabilitation procedures to the CDC for
consideration at a future ICD-10 Coordination and Maintenance Committee
meeting. Requests for ICD-10-CM code updates should be sent to the CDC
at [email protected]. Information on submitting proposals for new
diagnosis codes can be found on CDC's Web site at http://www.cdc.gov/nchs/icd/icd10_maintenance.htm. Should such a new diagnosis code be
created, CMS would examine the possibility of using this new diagnosis
code in the MS-DRGs 945 and 946 logic, as was the case in the ICD-9-CM
version of the MS-DRGs. The public is also encouraged to send any
specific recommendations for

[[Page 56831]]

updates to the ICD-10-CM coding guidelines to CDC at:
[email protected]. Updates that are made to ICD-10-CM, ICD-10-PCS,
and the relevant coding guidelines will be considered along with claims
data in evaluating any proposed updates to MS-DRGs 945 and 946.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current structure of MS-DRGs
945 and 946. We look forward to working with the public on updates to
the ICD-10-PCS guidelines or updates to ICD-10-CM to better capture
these services. Once we receive ICD-10 claims data, we will again
examine this issue.
12. 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. In addition, as a result of new
and modified code updates approved after the annual spring ICD-10
Coordination and Maintenance Committee meeting, we routinely make
changes to the MCE. In the past, in both the IPPS proposed and final
rules, we only provided the list of changes to the MCE that were
brought to our attention after the prior year's final rule. We
historically have not listed the changes we have made to the MCE as a
result of the new and modified codes approved after the annual spring
ICD-10 Coordination and Maintenance Committee meeting. These changes
are approved too late in the rulemaking schedule for inclusion in the
proposed rule. Furthermore, although our MCE policies have been
described in our proposed and final rules, we have not provided the
detail of each new or modified diagnosis and procedure code edit in the
final rule. However, we make available the finalized Definitions of
Medicare Code Edits (MCE) file. Therefore, we have made available the
FY 2017 ICD-10 MCE Version 34 manual file and an ICD-9-CM MCE Version
34.0A 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 34 (and ICD-10 MS-DRGs) are
posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html through the FY
2017 IPPS Final Rule Home Page.
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 (for example, fetal distress, perinatal
jaundice).
Pediatric--Age is 0-17 years inclusive (for example,
Reye's syndrome, routine child health exam).
Maternity--Age range is 12-55 years inclusive (for
example, diabetes in pregnancy, antepartum pulmonary complication).
Adult--Age range is 15-124 years inclusive (for example,
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.
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25000 through 25001), 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,

[[Page 56832]]

historically, under ICD-9-CM, this was the rationale for inclusion of
the 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, in
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25001), we proposed 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 invited public comments on our
proposal. We also solicited 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 the 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
proposed to remove.
In addition, for FY 2017, we indicated that we were 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 invited public comments on our proposal to
revise the description of the newborn diagnosis category in the Age
conflict edit under the MCE.
Comment: Several commenters supported the proposal 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. The
commenters did not believe the newborn guidelines were in conflict with
each other or required any modifications, as the specific references
noted in the proposed rule address unrelated reporting issues. However,
the commenters indicated that they planned to submit recommendations
directly to the CDC to revise an instructional note that appears at the
beginning of Chapter 16 which they believe may be a contributing factor
to confusion surrounding the proper application of codes within the
chapter.
Response: We appreciate the commenters' support. We also appreciate
the commenters' review of the newborn guidelines and their plan to
submit a recommendation to the CDC regarding the instructional note
that appears at the beginning of Chapter 16.
We wish to clarify for the commenters that the focus of our
proposal was on the removal of codes from the newborn diagnosis
category in the Age conflict code edit list. Our discussion involving
the references to the guidelines was to simply note the confusion with
the guidelines and how those guidelines impact the codes listed under
newborn diagnosis category in the Age conflict code edit list.
Following that discussion, we stated our belief that it would be
beneficial to discuss the intent of the guidelines with CDC.
Comment: Many commenters supported the proposal for the MCE

[[Page 56833]]

changes related to the Age conflict edit description.
Response: We appreciate the commenters' support and believe a
revised description of the newborn edit better defines the diagnoses
that are subject to it.
After consideration of the public comments we received, we are
finalizing our proposal 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. The
procedure codes listed in Table 6P.1a. associated with this final 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) are the finalized list of procedure codes
that will be removed from the newborn diagnosis category in the Age
conflict code edit list in the ICD-10 MCE Version 34 effective October
1, 2016.
We also are finalizing our proposal to revise the description of
the newborn diagnosis category under the ICD-10 MCE from ``Newborn. Age
of 0 years; a subset of diagnoses intended only for newborns and
neonates (e.g., fetal distress, perinatal jaundice)'' to ``Perinatal/
Newborn. Age 0 years only; a subset of diagnoses which will only occur
during the perinatal or newborn period of age 0 (e.g., tetanus
neonatorum, health examination for newborn under 8 days old)'' in the
ICD-10 MCE Version 34, effective October 1, 2016.
(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.
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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25001 through 25002), we proposed 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 invited public
comments on our proposal.
Comment: Several commenters supported the proposal to address the
replication issue for the pediatric diagnosis category on the ICD-10
MCE Age conflict edit code list by removing the 12 ICD-10-CM diagnosis
codes in the F90 through F98 code range currently listed.
Response: We appreciate the commenters' support of our proposal. We
also agree that removal of the specified ICD-10-CM diagnosis codes from
the edit code list will resolve the replication issue and enable proper
reporting of the conditions regardless of the patient's age.
After consideration of the public comments we received, we are
finalizing our proposal to remove the 12 ICD-10-CM diagnosis codes in
the F90 through F98 code range displayed earlier in this section from
the pediatric diagnosis category Age conflict edit code list in the
ICD-10 MCE Version 34, effective October 1, 2016.
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:

[[Page 56834]]

------------------------------------------------------------------------
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, in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25002), for FY 2017, we did not propose to remove these
codes under the pediatric diagnosis category in the Age conflict edit.
We proposed to maintain this list in the ICD-10 MCE Version 34,
effective October 1, 2016. We invited public comments on our proposal.
Comment: Commenters supported the proposal to retain the list of
ICD-10-CM diagnosis codes describing infantile and juvenile cataracts
in the pediatric diagnosis category for the Age conflict edit.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the ICD-10-CM diagnosis codes
displayed earlier in this section describing infantile and juvenile
cataracts in the pediatric diagnosis category for the Age conflict edit
in the ICD-10 MCE Version 34, effective October 1, 2016.
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 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), in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25003), we proposed to remove ICD-10-CM 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
invited public comments on our proposal.
Comment: Commenters supported the proposal to remove the four ICD-
10-CM diagnosis codes describing body mass index (BMI) for pediatric
patients from the pediatric diagnosis category on the Age conflict edit
code list in the MCE. The commenters stated that this proposal would
enable proper reporting of these codes.
Response: We appreciate the commenters' support. We agree that
removal of the specified ICD-10-CM diagnosis codes discussed previously
from the edit code list will resolve any age discrepancy issues in the
reporting of the conditions regardless of the patient's age.
After consideration of the public comments we received, we are
finalizing our proposal to remove the four ICD-10-CM diagnosis codes
displayed earlier in this section that identify the body mass index for
pediatric patients from the pediatric diagnosis category on the Age
conflict

[[Page 56835]]

edit code list in the ICD-10 MCE Version 34, effective October 1, 2016.
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 capture 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, in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25003), for FY 2017, we proposed 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 invited public comment on our
proposal.
Comment: Commenters supported the proposal to remove ICD-10-CM
diagnosis codes R62.50, R62.52, and R62.59 in subcategory R62.5 and to
also remove ICD-10-CM diagnosis code Y93.6A from the ICD-10 MCE
pediatric diagnosis category on the Age conflict edit code list.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove the following four ICD-10-CM
diagnosis codes from the pediatric diagnosis category on the Age
conflict edit code list in the ICD-10 MCE Version 34, effective October
1, 2016.
R62.50 (Unspecified lack of expected normal physiological
development in childhood);
R62.52 (Short stature (child));
R62.59 (Other lack of expected normal physiological
development in childhood); and
Y93.6A (Activity, physical games generally associated with
school recess, summer camp and children).
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, in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25003), we proposed to
remove this diagnosis code from the Diagnoses for females only edit
code list effective October 1, 2016. We invited public comments on our
proposal.
Comment: Commenters supported the proposal to remove the ICD-10-CM
diagnosis code describing hormone replacement therapy from the
Diagnosis for females only edit code list in the ICD-10 MCE.
Response: We appreciate the commenters' support for our proposal.
We agree it is appropriate to allow the reporting of the ICD-10-CM
diagnosis code describing hormone replacement therapy for both male and
female patients.
After consideration of the public comments we received, we are
finalizing our proposal to remove ICD-10-CM diagnosis code Z79.890
(Hormone replacement therapy (postmenopausal)) from the Diagnosis for
females only edit code list from the ICD-10 MCE Version 34, effective
October 1, 2016.
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 56836]]

------------------------------------------------------------------------
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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25004), we proposed to remove these diagnosis codes from the Diagnoses
for females only edit code list in the ICD-10 MCE, effective October 1,
2016. We invited public comments on our proposal.
Comment: Commenters agreed that the ICD-10-CM diagnosis codes
describing encounters for breast implants or prostheses are appropriate
to report for male patients and should not be limited to females.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove the six ICD-10-CM diagnosis codes
displayed earlier in this section that identify an encounter for
fitting or adjustment of a breast implant or prosthesis from the
Diagnoses for females only edit code list in the ICD-10 MCE Version 34,
effective October 1, 2016.
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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25004), for FY
2017, we proposed 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.

[[Page 56837]]

05CL3ZZ.................. Extirpation of matter from intracranial vein,
percutaneous approach.
05CL4ZZ.................. Extirpation of matter from intracranial vein,
percutaneous endoscopic approach.
------------------------------------------------------------------------

We invited public comments on our proposal.
Comment: Many commenters supported the proposal to remove the four
ICD-10-PCS procedure codes describing mechanical thrombectomy from the
Non-covered procedure edit code list in the ICD-10 MCE to prevent
further claims processing issues. Some commenters also recommended that
CMS instruct the MACs to reprocess claims that were denied as a result
of the codes being listed in the MCE. Other commenters suggested
changes to the National Coverage Determination (NCD) for Intracranial
Percutaneous Transluminal Angioplasty (PTA) with Stenting (20.7).
Response: We appreciate the commenters' support for our proposal.
We agree that removal of the four ICD-10-PCS procedure codes that
describe mechanical thrombectomy procedures from the non-covered
procedure edit code list in the ICD-10 MCE will help resolve future
claims processing and denial issues associated with the reporting of
these codes.
In response to the comment that we instruct the MACs to reprocess
any affected claims, we note that contractors began reprocessing
affected claims at providers' request in March 2016. We recommend that
providers who have experienced claims processing issues work with their
local MACs to resolve any outstanding claims.
With regard to the commenters who suggested that changes be made to
the NCD for Intracranial PTA with Stenting, we note that we issued
instructions with updated changes on June 3, 2016 as a One-Time
Notification, Pub. No. 100-20, Transmittal 1672, Change Request 9631,
effective October 1, 2016.
After consideration of the public comments we received, we are
finalizing our proposal to remove the four ICD-10-PCS procedure codes
displayed earlier in this section from the non-covered procedure edit
code list in the ICD-10 MCE Version 34, effective October 1, 2016.
(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
noncoverage 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 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

[[Page 56838]]

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25005), for FY 2017, we proposed 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 referred readers to Table 6P.1b. associated with the 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) to review the proposed list of noncovered
procedure codes describing sterilization procedures for males and
females for this proposed Non-covered procedure edit. We invited public
comments on our proposal to create this new Non-covered procedure edit
and also invited public comments on the proposed list of codes to
describe sterilization procedures for the proposed edit.
Comment: Commenters supported the proposal 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. One commenter noted
that there could be situations in which a patient is admitted for
another condition and a sterilization procedure is performed during
that episode of care. For example, the commenter stated a female may be
admitted for a cesarean section and have a tubal ligation procedure
during that same hospitalization. The commenter suggested that the
proposed list of procedure codes be considered as non-covered when ICD-
10-CM diagnosis code Z30.2 is reported as a principal or secondary
diagnosis on the claim.
Response: We appreciate the commenters' support for our proposal.
We also agree with the commenter that it is appropriate to list ICD-10-
CM diagnosis code Z30.2 (Encounter for sterilization) as a principal or
secondary diagnosis for purposes of the non-covered procedure edit.
After consideration of the public comments we received, we are
finalizing our proposal to create a new ICD-10 MCE Version 34 Non-
covered procedure edit. The new edit will be defined 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 or
secondary diagnosis.'' The procedure codes listed in Table 6P.1b.
associated with this final 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) are the finalized list of
non-covered procedure codes describing sterilization procedures for
males and females for this finalized Non-covered procedure edit in the
ICD-10 MCE Version 34, effective October 1, 2016.
d. Unacceptable Principal Diagnosis Edit
In the MCE, there are select codes that describe a circumstance
which influences an individual's health status 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.

[[Page 56839]]

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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25006), for FY
2017, we proposed 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 invited public comments on our proposal.
Comment: Several commenters supported the proposal to remove the
three ICD-10-CM diagnosis codes describing a liveborn infant born
outside of the hospital from the Unacceptable principal diagnosis edit
code list in the ICD-10 MCE.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove 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) from the Unacceptable principal diagnosis edit code list in
the ICD-10 MCE Version 34, effective October 1, 2016.
(2) Multiple Gestation
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25006 through 25007), 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.
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 was included in Table 6P.1c.
associated with the 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25007), for FY
2017, we proposed to remove the ICD-10-CM diagnosis codes listed in
Table 6P.1c. associated with the 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

[[Page 56840]]

Version 34 Unacceptable principal diagnosis list. We invited public
comments on our proposal.
Comment: Commenters supported the proposal to remove the ICD-10-CM
diagnosis codes listed describing multiple gestation from the
Unacceptable principal diagnosis edit code list in the ICD-10 MCE.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove the ICD-10-CM diagnosis codes listed
in Table 6P.1c. associated with this final 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) from the
ICD-10 MCE Version 34 Unacceptable principal diagnosis list, effective
October 1, 2016.
(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.

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.
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.

[[Page 56841]]

O09.521.................. Supervision of elderly multigravida, first
trimester.
O09.522.................. Supervision of elderly multigravida, second
trimester.
O09.523.................. Supervision of elderly multigravida, third
trimester.
O09.529.................. Supervision of elderly multigravida,
unspecified trimester.
------------------------------------------------------------------------

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, in the FY 2017 IPPS/LTCH PPS proposed rule, we
acknowledged 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25007 through
25008), for FY 2017, we proposed to remove all the ICD-10-CM diagnosis
codes related to high-risk pregnancy currently listed in Table 6P.1d.
associated with the 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 invited
public comment on our proposal.
Comment: Many commenters supported the proposal to remove the ICD-
10-CM diagnosis codes related to high-risk pregnancy from the ICD-10
MCE Unacceptable principal diagnosis edit code list. However, some
commenters did not support the proposal. The commenters stated their
understanding that the codes from category O09, Supervision of high-
risk pregnancy, should only be used for routine prenatal outpatient
visits.
Response: We appreciate the commenters' support of our proposal.
With regard to the commenters who did not support the proposal to
remove the diagnosis codes related to high-risk pregnancy from the ICD-
10 MCE Unacceptable principal diagnosis edit code list, we note that
there is confusion with the correct reporting of these diagnosis codes.
For example, in the Alphabetic Index to Diseases, the following entry
is displayed:
Pregnancy (childbirth) (labor) (puerperium) (see also
Delivery and Puerperal)
[squ][squ] complicated by (care of) (management affected by)
[squ][squ] elderly
[squ][squ][squ] multigravida O09.52-
[squ][squ][squ] primigravida O09.51-.
Therefore, the classification is defining an elderly multigravida
or elderly primigravida as a complication of the pregnancy. This entry
could relate to Chapter 15, Section I.C.15.b.3 of the guidelines for
episodes when no delivery occurs, which instructs users that the
principal diagnosis should correspond to the principal complication of
the pregnancy which necessitated the encounter for care. In other
words, if an elderly primigravida is admitted to the hospital with no
other complications and does not deliver during that admission, the
classification appears to allow the reporting of a code from category
O09, Supervision of high-risk pregnancy, as a principal diagnosis based
on the Index entry. However, in Chapter 15, Section I.C.15.b.2. of the
guidelines, the language instructs users that a code from category O90,
Supervision of high-risk pregnancy, should be used as the first-listed
diagnosis to report prenatal outpatient visits for high-risk patients.
We consulted with the staff at the CDC's NCHS to clarify the intent
of the ICD-10-CM Alphabetic Index to Diseases entry and the Chapter 15
guidelines related to these codes. According to the CDC NCHS staff, the
ICD-10-CM Guidelines have been updated for FY 2017 to explain the
appropriate reporting of category O09 codes. The FY 2017 ICD-10-CM
Official Guidelines for Coding and Reporting are available via the
Internet on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm. We note that, historically, we have not provided coding
advice in rulemaking with respect to policy. We collaborate with the
American Hospital Association (AHA) through the Coding Clinic for ICD-
10-CM and ICD-10-PCS to promote proper coding. In addition, a proposal
to revise the ICD-10-CM Alphabetic Index to Diseases will be discussed
at the September 13-14, 2016 ICD-10 Coordination and Maintenance
Committee meeting.
After consideration of the public comments we received and the
updated FY 2017 ICD-10-CM Official Guidelines for Coding and Reporting,
we are not finalizing our proposal to remove all the ICD-10-CM
diagnosis codes related to high-risk pregnancy currently listed in
Table 6P.1d. associated with the proposed rule and this final 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. The ICD-10-CM
diagnosis codes listed in Table 6P.1d. will continue to be subject to
the Unacceptable principal diagnosis edit in the ICD-10 MCE Version 34,
effective October 1, 2016.
e. Other MCE Issues
The following MCE discussion, proposals, and final policies 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 proposed to further revise the description of this
code edit. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25008),
for FY 2017, we proposed 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

[[Page 56842]]

four consecutive days during the length of stay.''
We stated that we believe this proposed modification would further
clarify the appropriate circumstances in which ICD-10-PCS code 5A1955Z
may be reported. We invited public comments on our proposal.
Comment: Commenters supported the proposal to modify the
description for the ``Procedure inconsistent with length of stay'' edit
for ICD-10-PCS code 5A1955Z in the ICD-10 MCE.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
adopting as final the proposed revision of the description of the
``Procedure inconsistent with length of stay'' edit for ICD-10-PCS code
5A1955Z (Respiratory ventilation, greater than 96 consecutive hours)
under the ICD-10 MCE from ``The following procedure code should only be
coded on claims with a length of stay greater than four days'' to ``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'' in the ICD-10 MCE Version 34,
effective October 1, 2016.
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
``< 96hours'' 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25008), we proposed 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 proposed 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
invited public comments on our proposal.
Comment: Commenters supported the proposal to revise the title for
ICD-10 MS-DRG 208.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to revise the title of MS-DRG 208 by adding an
``equal'' sign (=) after the ``less than'' (<) sign to better reflect
the GROUPER logic. The finalized title for MS-DRG 208 (Respiratory
System Diagnosis with Ventilator Support <=96 Hours) is included in the
ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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, in the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25008), we proposed to add ICD-
10-CM diagnosis codes C58 (Malignant neoplasm of placenta), D39.2
(Neoplasm of uncertain behavior of placenta), and F53 (Puerperal
psychosis) to the Age conflict edit code list for maternity diagnoses.
We invited public comments on our proposals for changes to the FY
2017 ICD-10 MCE Version 34.
Comment: Many commenters supported the proposal to add ICD-10-CM
diagnosis codes C58, D39.2, and F53 to the Age conflict edit code list
for maternity diagnosis in the ICD-10 MCE. The commenters stated that
the addition of these diagnosis codes is appropriate and consistent
with related conditions currently on the edit code list for maternity
diagnoses.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-CM diagnosis codes C58 (Malignant
neoplasm of placenta), D39.2 (Neoplasm of uncertain behavior of
placenta), and F53 (Puerperal psychosis) to the Age conflict edit code
list for maternity diagnosis in the ICD-10 MCE Version 34, effective
October 1, 2016.
(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 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25008 through
25009), we proposed 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.

[[Page 56843]]

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 invited public comments on our proposal.
Comment: Commenters supported the proposal to add the ICD-10-CM
codes in the table included in the proposed rule describing other
reactive arthropathies to the Manifestation codes not allowed as
principal diagnosis edit code list in the ICD-10 MCE.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to add the diagnosis codes in subcategory M02.8
as displayed in the table in the proposed rule and above to the
Manifestation codes not allowed as principal diagnosis edit code list
in the ICD-10 MCE Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25009), we proposed 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 invited public comments on our proposal.
Comment: A number of commenters supported the proposal to remove
the ICD-10-CM diagnosis codes listed in the proposed rule from the
Questionable admission edit in the ICD-10 MCE.
Response: We appreciate the commenters' support for our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove the five ICD-10-CM diagnosis codes
listed in the proposed rule and above (T81.81XA, T88.4XXA, T88.7XXA,
T88.8XXA, and T88.9XXA) from the ICD-10 MCE Questionable admission edit
for the ICD-10 MCE Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25009), we proposed to remove the reference to
them, effective with the ICD-10 MCE manual and software Version 34, for
FY 2017. We invited public comments on our proposal.
Comment: Commenters supported the proposal to remove the language
referencing discontinued edits for the

[[Page 56844]]

open biopsy check and the bilateral procedure edit from the ICD-10 MCE.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to remove the references to the open biopsy
check and the bilateral procedure edit from the ICD-10 MCE Version 34,
effective October 1, 2016.
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. 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 proposed to make for FY 2017, as
discussed in section II.F.4.c. of the preamble of the FY 2017 IPPS/LTCH
PPS proposed rule, we proposed 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) (81
FR 25010).
We invited public comments on our proposal.
Comment: A number of commenters supported the proposal to maintain
the current surgical hierarchy in MDC 5 for proposed revised MS-DRGs
228 and 229.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current surgical hierarchy in
MDC 5 for FY 2017. As discussed in section II.F.5.d. in the preamble of
this final rule, we finalized the modification of MS-DRGs 228 and 229
(Other Cardiothoracic Procedures with and without MCC, respectively),
effective with the ICD-10 MS-DRGs Version 34 on October 1, 2016.
14. Changes to the MS-DRG Diagnosis Codes for FY 2017
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25010), 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 were made 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.
We did not receive any public comments on the proposed additions or
deletions to the MCC and CC lists and, therefore, are adopting them as
final, effective October 1, 2016. The final version of these four
tables for FY 2017 are available via the Internet on the same CMS Web
site cited above.
As we stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49414),
certain ICD-10-CM diagnosis codes express conditions that, when coded
in

[[Page 56845]]

ICD-9-CM, use two or more ICD-9-CM diagnosis codes. In the interest of
ensuring that the ICD-10 MS-DRGs place a patient in the same MS-DRG,
regardless of whether the patient claim was to be coded in ICD-9-CM or
ICD-10, whenever one of these ICD-10-CM combination codes is used as
principal diagnosis, the cluster of ICD-9-CM codes that would be coded
on an ICD-9-CM claim is considered. If one of the ICD-9-CM codes in the
cluster is a CC or an MCC, the single ICD-10-CM combination code used
as a principal diagnosis must also imply that the CC or MCC is present.
Appendix J of the ICD-10 MS-DRG Definitions Manual Version 33 includes
two lists. Part 1 is the list of principal diagnosis codes where the
ICD-10-CM code is its own MCC. Part 2 is the list of principal
diagnosis codes where the ICD-10-CM code is its own CC. Appendix J of
the ICD-10 MS-DRG Definitions Manual Version 33 is available via the
internet on the CMS Web site at: http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
For FY 2017, the ICD-10-CM diagnoses for which this implication
must be made were listed in Table 6L (Proposed Principal Diagnosis Is
Its Own MCC List--FY 2017), Table 6M (Proposed Principal Diagnosis Is
Its Own CC List--FY 2017), and Table 6M.1 (Proposed Additions to the
Principal Diagnosis is Its Own CC List--FY 2017) associated with the
proposed rule, which were made 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 the proposed rule. We note that there were no proposed
changes to Table 6L for FY 2017 and the list of ICD-10-CM diagnoses
that will act as its own MCC when reported as a principal diagnosis
remains unchanged from the FY 2016 list. Therefore, we did not develop
Table 6L.1 (Additions to the Principal Diagnosis Is Its Own MCC List)
or Table 6L.2 (Deletions to the Principal Diagnosis Is Its Own MCC
List) for FY 2017.
As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49414),
ICD-9-CM diagnosis code 591 (Hydronephrosis) is classified as a CC.
Under ICD-10-CM, hydronephrosis is reported with a combination code if
the hydronephrosis is due to another condition, such as with new ICD-
10-CM code N13.0 (Hydronephrosis with ureteropelvic junction
obstruction), effective October 1, 2016. In ICD-10-CM, this finalized
code is classified as a CC and, similar to existing ICD-10-CM codes
N13.1 (Hydronephrosis with ureteral stricture, not elsewhere
classified) and N13.2 (Hydronephrosis with renal and ureteral calculous
obstruction), should be recognized as a principal diagnosis that acts
as its own CC. Accordingly, ICD-10-CM code N13.0 (Hydronephrosis with
ureteropelvic junction obstruction) was inclujded in Table 6M (Proposed
Principal Diagnosis Is Its Own CC List--FY 2017) and Table 6M.1
(Proposed Additions to the Principal Diagnosis Is Its Own CC List--FY
2017), which were made available via the Internet on the CMS Web site
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. We did not receive any public comments
regarding this specific proposal and, therefore, are adopting it as
final, effective October 1, 2016.
15. 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).
b. 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.
The ICD-10 MS-DRGs Version 33 CC Exclusion List is included as
Appendix C in the ICD-10 MS-DRG Definitions Manual, which is available
via the Internet on the CMS Web site at: http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, and
includes two lists identified as Part 1 and Part 2. Part 1 is the list
of all diagnosis codes that are defined as a CC or an MCC when

[[Page 56846]]

reported as a secondary diagnosis. If the code designated as a CC or an
MCC is allowed with all principal diagnoses, the phrase ``NoExcl'' (for
no exclusions) follows the CC or MCC designation. For example, ICD-10-
CM diagnosis code A17.83 (Tuberculous neuritis) has this ``NoExcl''
entry. For all other diagnosis codes on the list, a link is provided to
a collection of diagnosis codes which, when used as the principal
diagnosis, would cause the CC or MCC diagnosis to be considered as a
non-CC. Part 2 is the list of diagnosis codes designated as an MCC only
for patients discharged alive; otherwise, they are assigned as a non-
CC.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25011), for FY
2017, we proposed changes to the ICD-10 MS-DRGs Version 34 CC Exclusion
List. Therefore, we 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 was 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 the 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.
Comment: Several commenters supported the proposed changes to the
CC Exclusion List as displayed in Table 6G.1., Table 6G.2., Table
6H.1., and Table 6H.2. that were associated with the proposed rule and
made available via the Internet on the CMS Web site.
Response: We appreciate the commenters' support of our proposals.
We note that, for this FY 2017 IPPS/LTCH PPS final rule, we have
developed Table 6K.--Complete List of CC Exclusions, which is available
via the Internet at the same CMS Web site as Tables 6G and 6H. Table
6K. corresponds to the Part 1 list of Appendix C in the ICD-10 MS-DRG
Definitions Manual as described above.
The complete documentation of the ICD-10 MS-DRG Version 34 GROUPER
logic, including the current CC Exclusions List, is available via the
Internet on the CMS Acute Inpatient PPS Web page 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 developed Table 6A.--New Diagnosis Codes, Table 6B.--New
Procedure Codes, and Table 6C--Invalid Diagnosis Codes to the proposed
rule. However, they were not published in the Addendum to the proposed
rule but were 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 the proposed rule.
For this final rule, we have developed Table 6D.--Invalid Procedure
Codes, to reflect the deletion of 12 ICD-10-PCS procedure codes,
effective October 1, 2016, as a result of public comments received
after the March 9-10, 2016 ICD-10 Coordination and Maintenance
Committee meeting.
We note that while we did not specifically develop a Table 6E.--
Revised Diagnosis Code Titles for the 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 the 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
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.
After consideration of the public comments we received, we are
making available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html the
following final tables associated with this final rule:
Table 6A.--New Diagnosis Codes--FY 2017;
Table 6B.--New Procedure Codes--FY 2017;
Table 6C.--Invalid Diagnosis Codes--FY 2017;
Table 6D.--Invalid Procedure Codes--FY 2017;
Table 6E.--Revised Diagnosis Code Titles--FY 2017;
Table 6F.--Revised Procedure Code Titles--FY 2017;
Table 6G.1.--Secondary Diagnosis Order Additions to the CC
Exclusions List--FY 2017;
Table 6G.2.--Principal Diagnosis Order Additions to the CC
Exclusions List--FY 2017;
Table 6H.1.--Secondary Diagnosis Order Deletions to the CC
Exclusions List--FY 2017;
Table 6H.2.--Principal Diagnosis Order Deletions to the CC
Exclusions List--FY 2017;
Table 6I.--Complete MCC List--FY 2017;
Table 6I.1.--Additions to the MCC List--FY 2017;
Table 6I.2.-Deletions to the MCC List--FY 2017;
Table 6J.--Complete CC List--FY 2017;
Table 6J.1.--Additions to the CC List--FY 2017;
Table 6J.2.--Deletions to the CC List --FY 2017;
Table 6K.--Complete List of CC Exclusions--FY 2017;
Table 6L.--Principal Diagnosis Is Its Own MCC List--FY
2017;
Table 6M.--Principal Diagnosis Is Its Own CC List--FY
2017; and
Table 6M.1.--Additions to the Principal Diagnosis Is Its
Own CC List--FY 2017

[[Page 56847]]

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 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 the FY 2017 proposed rule and this final 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, in the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25012), for FY 2017, we did not
propose to change the procedures assigned among these MS-DRGs. We
invited public comments on our proposal to maintain the current
structure of these MS-DRGs.
Comment: Many commenters supported the proposal to maintain the
current structure of MS-DRGs 984, 985, and 986 under the ICD-10 MS-
DRGs.
Response: We appreciate the commenters' support of our proposal. We
note that while the comparable ICD-10-PCS code translations for the
above list of ICD-9-CM codes were made available in Table 6P.2.
associated with the FY 2017 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), we wish to
clarify that the table was not intended to be a representation of the
current ICD-10 MS-DRG GROUPER Version 33 logic. Rather, it was to
simply demonstrate what the ICD-9-CM to ICD-10-PCS code translations
were for purposes of review and comment. For example, the translations
that were listed in Table 6P.2 of the FY 2017 proposed rule included
six ICD-10-PCS procedure codes that are not included in the current
ICD-10 MS-DRG GROUPER Version 33 logic for MS-DRGs 984, 985, and 986.
Although these six ICD-10-PCS procedure codes are considered comparable
translations of the corresponding ICD-9-CM procedure codes, these ICD-
10-PCS procedure codes are currently designated as non-O.R. codes and,
therefore, are not defined as prostatic O.R. codes for purposes of MS-
DRG assignment under the ICD-10 MS-DRG Version 33 Definitions Manual
under Appendix E--Operating Room Procedures and Procedure Code/MS-DRG
Index.
In addition, as discussed in section II.F.19.c.1.b. of the FY 2017
proposed rule (81 FR 25025), we proposed to change the status of a
number of ICD-10-PCS procedure codes from O.R. to non-O.R. Among the
list in Table 6P.4b. associated with the proposed rule were procedures
describing the endoscopic/transorifice removal of drainage, infusion,
intraluminal or monitoring devices. Four of these codes (which were
proposed to change from an O.R. to non-O.R. status) identify procedures
performed on the prostate and seminal vesicles and are currently
included in the ICD-10 MS-DRG GROUPER Version 33 logic for MS-DRGs 984,
985, and 986. These four procedure codes were also listed in Table
6P.2.--List of ICD-10-PCS code translations for prostatic procedures in
MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively), are currently designated as O.R. codes, and were
proposed to change to a non-O.R. status. As discussed in section
II.F.19.c.(1)(b) of the preamble of this final rule, we received public
support for changing the status of the codes listed in Table 6P.4b. and
are finalizing our proposal.
To reflect our finalized policy to designate these four codes as
non-O.R. codes, as discussed in section II.F.19.c.(1)(b) of the
preamble of this final rule, and also to remove the six ICD-10-PCS
procedure codes that are not included in the current ICD-10 MS-DRG
GROUPER Version 33 logic for MS-DRGs 984, 985 and 986, we are removing
the following 10 ICD-10-PCS procedure codes from Table 6P.2 (which was
associated with the FY 2017 proposed rule and available via the
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-FeeforServicePayment/AcuteInpatientPPS/index.html):
0T7D7ZZ (Dilation of urethra, via natural or artificial
opening);
0T7D8ZZ (Dilation of urethra, via natural or artificial
opening endoscopic);
0VB03ZX (Excision of prostate, percutaneous approach,
diagnostic);

[[Page 56848]]

0VB04ZX (Excision of prostate, percutaneous endoscopic
approach, diagnostic);
0VB07ZX (Excision of prostate, via natural or artificial
opening, diagnostic);
0VB08ZX (Excision of prostate, via natural or artificial
opening endoscopic, diagnostic);
0VP470Z (Removal of drainage device from prostate and
seminal vesicles, via natural or artificial opening);
0VP473Z (Removal of infusion device from prostate and
seminal vesicles, via natural or artificial opening);
0VP480Z (Removal of drainage device from prostate and
seminal vesicles, via natural or artificial opening endoscopic); and
0VP483Z (Removal of infusion device from prostate and
seminal vesicles, via natural or artificial opening endoscopic).
In addition, we are finalizing the list of ICD-10-PCS procedure
codes that are assigned to MS-DRGs 984, 985, and 986 for FY 2017. The
list of codes displayed in Table 6P.2 associated with this final rule
represents the ICD-10 MS-DRG GROUPER logic for MS-DRGs 984, 985, and
986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC, respectively) for the ICD-10 MS-DRGs
Version 34, effective October 1, 2016.
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.
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25012), 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, in the proposed rule for FY 2017, we did not propose 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 invited public comments on our
proposal to maintain the current structure of these MS-DRGs.
Comment: Several commenters supported our proposal to not move any
procedure codes out of MS-DRGs 981, 982, 983, 987, 988, or 989.
Response: We appreciate the commenters' support of our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to not move any procedures from MS-DRGs 981,
982, or 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis
with MCC, with CC, and without CC/MCC, respectively), or from MS-DRGs
987, 988, or 989 (Nonextensive O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and without CC/MCC, respectively) into one
of the surgical MS-DRGs for the MDC into which the principal diagnosis
is assigned for ICD-10 MS-DRGs Version 34, effective October 1, 2016.
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.
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25012), 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 did not
propose to move any procedure codes among these MS-DRGs. We invited
public comments on our proposal.
Comment: Several commenters supported our proposal to not move any
procedure codes among MS-DRGs 981, 982, 983, 984, 985, 986, 987, 988,
or 989.
Response: We appreciate the commenters' support for our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to maintain the current structure for 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) with regard to not reassigning any procedure codes among
these MS-DRGs for FY 2017. As discussed in section II.F.16. of the
preamble of this final rule, we are removing four procedure codes from
MS-DRGs 984, 985, and 986, as they were included in the codes listed in
Table 6P.4b that were finalized to change from being designated as O.R.
codes to non-O.R. status in the ICD-10 MS-DRGs Version 34, effective
October 1, 2016.
c. Adding Diagnosis or Procedure Codes to MDCs
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25012 through 25016), based on the review of cases in the MDCs, we
proposed 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

[[Page 56849]]

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 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25012 through 25013), we proposed 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 invited 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.
Comment: Several commenters supported the proposal to add the codes
listed in the table in the proposed rule to ICD-10 MS-DRGs 037, 038,
and 039. The commenters also acknowledged CMS' continued efforts for
accurate replication.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
After consideration of the public comments we received, we are
finalizing 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 for the ICD-10 MS-DRGs
Version 34, effective October 1, 2016.
(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,

[[Page 56850]]

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 with MCC,
with CC and without CC/MCC, respectively).
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 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25013 through 25014), we proposed 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 noted 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.
------------------------------------------------------------------------

We stated that 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 proposed
that these procedure codes be assigned to the corresponding MS-DRGs in
each respective MDC as listed above. We stated that 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 invited 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.
Comment: Several commenters supported the proposal to add the codes
listed in the table in the proposed rule to MDCs 6, 11, 21 and 24 in
the corresponding ICD-10 MS-DRGs. The commenters also acknowledged CMS'
continued efforts for accurate replication.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
After consideration of the public comments we received, we are
finalizing our proposal to add the codes

[[Page 56851]]

listed in the table in the proposed rule and above to the following
MDCs and MS-DRGs for the ICD-10 MS-DRGs Version 34, effective October
1, 2016.
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 with MCC,
with CC and without CC/MCC, respectively).
(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25014), we proposed 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). We stated that this 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.
We invited 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.
Comment: Several commenters supported the proposal to add ICD-10-
PCS procedure codes 0WBH0ZZ, 0WBH3ZZ, and 0WBH4ZZ describing excision
of retroperitoneum to MDC 6 in MS-DRGs 356 through 358. The commenters
also acknowledged CMS' continued efforts for accurate replication.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS codes 0WBH0ZZ (Excision of
retroperitoneum, open approach), 0WBH3ZZ (Excision of retroperitoneum,
percutaneous approach), and 0WBH4ZZ (Excision of retroperitoneum,
percutaneous endoscopic approach) to MDC 6 in MS-DRGs 356 through 358
(Other Digestive System O.R. Procedures with MCC, with CC, and without
CC/MCC, respectively) for the ICD-10 MS-DRGs Version 34, effective
October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25015), we proposed to add the two ICD-10-PCS
procedure codes describing occlusion of esophageal vein to MDC 7 under
MS-DRGs 423 through 425. We stated that this would result in a more
accurate replication of the comparable procedure under the ICD-9-CM MS-
DRGs Version 32. We stated that 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 invited 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.
Comment: Several commenters supported the proposal to add ICD-10-
PCS procedure codes 06L30CZ and 06L30DZ to MDC 7 under MS-DRGs 423
through 425. The commenters also acknowledged CMS' continued efforts
for accurate replication.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS procedure codes 06L30CZ

[[Page 56852]]

(Occlusion of esophageal vein with extraluminal device, open approach)
and 06L30DZ (Occlusion of esophageal vein with intraluminal device,
open approach) to MDC 7 under MS-DRGs 423 through 425 (Other
Hepatobiliary or Pancreas O.R. procedures with MCC, with CC, and
without CC/MCC, respectively) for the ICD-10 MS-DRGs Version 34,
effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25015), we proposed to add ICD-10-PCS procedure
code 0UBMXZZ to MDC 13 under MS-DRGs 746 and 747. We stated that 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 noted that there is no replication issue for MDC
9 regarding this procedure code.
We invited 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.
Comment: Several commenters supported the proposal to add ICD-10-
PCS procedure code 0UBMXZZ to MDC 13 under MS-DRGs 746 and 747. The
commenters also acknowledged CMS' continued efforts for accurate
replication.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS procedure code 0UBMXZZ
(Excision of vulva, external approach) to MDC 13 under MS-DRG 746
(Vagina, cervix and vulva procedures with CC/MCC) and MS-DRG 747
(Vagina, Cervix and Vulva procedures without CC/MCC) for the ICD-10 MS-
DRGs Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25015 through 25016), we proposed 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, in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25015 through 25016), we proposed to add these two ICD-10-
PCS procedure codes to MDC 4 in MS-DRGs 166 through 168 as well.
We stated that 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. We also stated that the proposed changes would
eliminate erroneous assignment to MS-DRGs 987 through 989 for these
procedures.
We invited public comments on our proposal to add ICD-10-PCS
procedure codes 07B74ZX, 07B70ZX, and 07B73ZX to MDC 4 under MS-DRGs
166 through 168, effective October 1, 2016, in the ICD-10 MS-DRGs
Version 34.
Comment: Several commenters expressed support for our proposal to
add ICD-10-PCS procedure codes 07B74ZX, 07B70ZX, and 07B73ZX to MDC 4
under MS-DRGs 166 through 168. The commenters also acknowledged CMS'
continued efforts for accurate replication.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS procedure codes 07B74ZX
(Excision of thorax lymphatic, percutaneous endoscopic approach,
diagnostic), 07B70ZX (Excision of thorax lymphatic, open approach,
diagnostic) and 07B73ZX (Excision of

[[Page 56853]]

thorax lymphatic, percutaneous approach, diagnostic) to MDC 4 under MS-
DRGs 166 through 168 (Other Respiratory System O.R. Procedures with
MCC, with CC, and without CC/MCC, respectively) for the ICD-10 MS-DRGs
Version 34, 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25016), we proposed to add these eight ICD-10-PCS
procedure codes to MDC 14 in MS-DRG 774. We stated that the proposed
changes would eliminate erroneous assignment to MS-DRGs 987 through 989
for these procedures.
We invited 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.
Comment: Several commenters supported the proposal to add the eight
ICD-10-PCS procedure codes listed in the proposed rule to MDC 14 under
MS-DRG 774. The commenters also acknowledged CMS' continued efforts for
accurate replication.
One commenter who agreed with the proposal to add the eight ICD-10-
PCS procedure codes to MDC 14 under MS-DRG 774 also recommended that
CMS consider adding the following six ICD-10-PCS procedure codes to MDC
14 in MS-DRG 774:
0UQJ0ZZ (Repair clitoris, open approach);
0UQJXZZ (Repair clitoris, external approach);
0TQDXZZ (Repair urethra, external approach);
0KQM0ZZ (Repair perineum muscle, open approach);
0KQM3ZZ (Repair perineum muscle, percutaneous approach);
and
0KQM4ZZ (Repair perineum muscle, percutaneous endoscopic
approach).
The commenter acknowledged that, although procedures involving
repair of clitoral and urethral lacerations during delivery are rare,
they do occur and require intervention. The commenter noted that its
organization observed cases grouping to the Unrelated MS-DRG when
reporting any one of these six procedure codes.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze the replication issues between the ICD-9 and
ICD-10 based MS-DRGs brought to our attention.
With regard to the recommendation that we consider the addition of
ICD-10-PCS procedure codes describing repair of the clitoris, urethra,
and perineum muscle to MDC 14 in MS-DRG 774, we note that the code
describing repair of the urethra (0TQDXZZ) is currently listed under
MDC 14 in MS-DRG 774 as displayed under the list titled ``Third
Condition,'' as well as in the ICD-10 MS-DRG Version 33 Definitions
Manual in Appendix E--Operating Room Procedures and Procedure Code/MS-
DRG Index. However, the codes describing repair of the perineum muscle
and repair of the clitoris with various approaches are not listed in
the two above-mentioned locations. The three codes describing repair of
the perineum muscle (0KQM0ZZ, 0KQM3ZZ, and 0KQM4ZZ) are currently
assigned to the following MDCs and MS-DRGs:
MDC 1 (Diseases and Disorders of the Nervous System): MS-
DRGs 040 through 042 (Peripheral, Cranial Nerve and Other Nervous
System Procedures with MCC, with CC or Peripheral Neurostimulator, and
without CC/MCC, respectively);
MDC 8 (Diseases and Disorders of the Musculoskeletal
System and Connective Tissue): MS-DRG 500 through 502 (Soft Tissue
Procedures with MCC, with CC and without CC/MCC, respectively);
MDC 9 (Diseases and 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);
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 with MCC,
with CC and without CC/MCC).
The two ICD-10-PCS procedure codes describing repair of the
clitoris (0UQJ0ZZ and 0UQJXZZ) are currently assigned to MDC 13
(Diseases and Disorders of the Female Reproductive System) in MS-DRGs
746 and 747 (Vagina, Cervix and Vulva Procedures with CC/MCC and
without CC/MCC, respectively).
As the codes describing repair of the perineum muscle and repair of
the clitoris are not currently listed in the Definitions Manual under
MDC 14 in MS-DRG 774, it is understandable that, depending on what ICD-
10-CM

[[Page 56854]]

diagnosis code was entered, a case could accurately result in
assignment to one of the Unrelated MS-DRGs based on the current GROUPER
logic. Because it is unclear what ICD-10-CM diagnosis codes the
commenter entered into the ICD-10 MS-DRG GROUPER along with the
specified ICD-10-PCS procedure codes describing repair of the clitoris,
urethra or perineum, we were not able to fully duplicate the
commenter's exact issue with respect to the Unrelated MS-DRG
assignment. We ran test cases through the ICD-10 MS-DRG Version 33
GROUPER software which resulted in an Unrelated MS-DRG assignment for
repair of the urethra, while repair of the perineum muscle codes
resulted in appropriate assignment to MS-DRG 774 (Vaginal Delivery with
Complicating Diagnoses) when a listed diagnosis code from that specific
MS-DRG (which is defined as a complicating diagnosis) was entered.
Thus, it appears that there may be a discrepancy between the code list
in the ICD-10 MS-DRG Version 33 Definitions Manual and the GROUPER
software for those specific codes describing repair of the urethra and
repair of the perineum muscle. However, we agree that the codes
describing repair of urethra and repair of perineum muscle could be
performed during an episode of care involving a vaginal delivery and
merit assignment to MS-DRG 774.
In our review of the commenter's recommendation to add the two
codes describing repair of the clitoris (0UQJ0ZZ and 0UQJXZZ), we
examined whether or not these procedures could be performed during the
course of an admission involving a delivery. Our medical advisors
agreed that, clinically, a tear involving the clitoris may occur during
a vaginal delivery and, therefore, it is appropriate to add these
procedures to MS-DRG 774.
We note that the code lists as currently displayed in the ICD-10
MS-DRG Version 33 Definitions Manual for MS-DRG 774 require further
analysis to clarify what constitutes a vaginal delivery to satisfy the
ICD-10 MS-DRG logic. For example, the Definitions Manual currently
states that three conditions must be met, the first of which is a
vaginal delivery. To satisfy this first condition, codes that describe
conditions or circumstances from among three lists of codes must be
reported. The first list is comprised of ICD-10-CM diagnosis codes that
may be reported as a principal or secondary diagnosis. These diagnosis
codes describe conditions in which it is assumed that a vaginal
delivery has occurred. The second list of codes are a list of ICD-10-
PCS procedure codes that also describe circumstances in which it is
assumed that a vaginal delivery occurred. The third list of codes
identifies diagnoses describing the outcome of the delivery. Therefore,
if any code from one of those three lists is reported, the first
condition (vaginal delivery) is considered to be met for assignment to
MS-DRG 774.
Our concern with the first list of ICD-10-CM diagnosis codes as
currently displayed in the Definitions Manual under the first condition
is that not all of the conditions necessarily reflect that a vaginal
delivery occurred. Several of the diagnosis codes listed could also
reflect that a cesarean delivery occurred. For example, ICD-10-CM
diagnosis code O10.02 (Pre-existing essential hypertension complicating
childbirth) does not specify that a vaginal delivery took place; yet it
is included in the list of conditions that may be reported as a
principal or secondary diagnosis in the GROUPER logic for a vaginal
delivery. The reporting of this code could also be appropriate for a
delivery that occurred by cesarean section. Therefore, we plan to
conduct further analysis of the diagnosis code lists in MS-DRG 774 for
FY 2018.
As noted above, the second list of codes for the first condition
are comprised of ICD-10-PCS procedure codes. We acknowledge that the
current list of procedure codes in MS-DRG 774 appropriately describe
that a vaginal delivery occurred. In addition, there are unique
procedure codes in ICD-10-PCS that distinguish a vaginal delivery from
a cesarean delivery.
After consideration of the public comments we received, we are
finalizing our proposal and the commenters' recommendation to add the
list of ICD-10-PCS procedure codes in the following table to MS-DRG 774
effective October 1, 2016, for the ICD-10 MS-DRGs Version 34. We also
are clarifying that the procedure codes describing repair of perineum
muscle currently group to MS-DRG 774 and will continue this assignment
for FY 2017.

17. 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

[[Page 56855]]

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 and this final
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 were not published in the Addendum to the proposed rule or this
final rule. Rather, they are available via the Internet as discussed in
section VI. of the Addendum to the proposed rule and this final 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 June
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

[[Page 56856]]

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.
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 would
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 were 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, 1 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 were 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 were 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 were 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

[[Page 56857]]

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 1 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 No. Change Fiscal year No. 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
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
FY 2017(October 1, 2016) .............. ............... FY 2017: .............. ..............
Diagnoses................ 14,567 0 ICD-10-CM.... 71,486 0
Procedures............... 3,882 0 ICD-10-PCS... 75,789 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. Changes for FY 2017
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25019), for FY
2017, we proposed not to add any MS-DRGs to the policy for replaced
devices offered without cost or with a credit. We proposed to continue
to include the

[[Page 56858]]

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.
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 solicited 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. We indicated that the final list of
MS-DRGs subject to the policy for FY 2017 would be listed in this FY
2017 IPPS/LTCH PPS final rule, as well as issued to providers in the
form of a Change Request (CR).
We did not receive any public comments opposing our proposal to
continue to include the existing MS-DRGs currently subject to the
policy and to not add any additional MS-DRGs. Therefore, we are
finalizing the list of MS-DRGs in the table included in the proposed
rule and above that will be subject to the replaced devices offered
without cost or with a credit policy effective October 1, 2016.
19. Other 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, in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25020), we proposed to add
the 208 ICD-10-PCS procedure codes shown in Table 6P.3a. associated
with the proposed rule (which is available via the Internet on the CMS
Web site at:

[[Page 56859]]

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 invited public comments on our
proposal.
Comment: Commenters supported the proposal to add the 208 ICD-10-
PCS procedure codes describing operations to correct fetal defects to
MDC 14 in MS-DRG 768. The commenters also expressed appreciation for
CMS' continued efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the 208 ICD-10-PCS procedure codes shown
in Table 6P.3a. associated with the proposed rule and this final 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 in ICD-10 MS-DRGs
Version 34, effective October 1, 2016.
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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25020), we solicited 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 may be performed with a subsequent delivery during
the same hospital stay. This second concept is the structure of current
MS-DRG 768. We indicated that commenters should submit their code
recommendations for these concepts to the following email address
[email protected] by December 7, 2016. We
encouraged 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. In the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25021), we noted that, as discussed in section II.F.5.d. of the
preamble of the proposed rule, we proposed to delete MS-DRG 230 and
revise MS-DRG 229. Accordingly, to resolve this replication issue, we
proposed 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.

[[Page 56860]]

We invited 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.
Comment: Commenters supported the proposal to add the 16 ICD-10-PCS
procedure codes describing revascularization procedures to MDC 5 in MS-
DRGs 228 and proposed revised MS-DRG 229. The commenters also expressed
appreciation for CMS' continued efforts towards addressing replication
issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs. We note that, as discussed in section
II.F.15.b. of the proposed rule, we made a document consisting of
procedure code updates publicly available. This document included the
titles to the above list of codes that were revised in response to
public comments received during the partial code freeze. The revised
code titles reflect the term ``artery'' where the current term ``site''
is displayed and reflect the term ``arteries'' where the current term
``sites'' is displayed in the table above. A complete list of all the
revised ICD-10-PCS procedure code titles is shown in Table 6F.--Revised
Procedure Code Titles associated with this final 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).
After consideration of the public comments we received, we are
finalizing our proposal to add the ICD-10-PCS procedure codes in the
proposed rule and above in this final rule, with their revised code
titles as shown in Table 6F.--Revised Procedure Code Titles, to MDC 5
in MS-DRGs 228 and 229 (Other Cardiothoracic Procedures with and
without MCC, respectively) in ICD-10 MS-DRGs Version 34, effective
October 1, 2016. We also note that, as discussed in section II.F.5.d.
of this final rule, the proposal to collapse MS-DRGs 228, 229, and 230
from three severity levels into two severity levels was finalized.
(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, in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25021), we proposed to add the 234
ICD-10-PCS procedure codes listed in Table 6P.3b. associated with the
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-DRGs 252, 253, and 254,
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We invited
public comments on our proposal.
Comment: Commenters supported the proposal to add the 234 ICD-10-
PCS procedure codes describing procedures performed on the sensory
receptors to MDC 5 in MS-DRGs 252, 253, and 254. The commenters also
expressed appreciation for CMS' continued efforts towards addressing
replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the 234 ICD-10-PCS procedure codes
listed in Table 6P.3b. associated with the proposed rule and this final
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-DRGs 252, 253, and 254 (Other
Vascular Procedures with MCC, with CC, and without CC/MCC,
respectively) in ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25021), we proposed to add the four ICD-10-PCS procedure codes to MDC 6
in MS-DRGs 329, 330, and 331, effective October 1, 2016, in ICD-10 MS-
DRGs Version 34. We invited public comments on our proposal.
Comment: Commenters supported the proposal to add the four ICD-10-
PCS procedure codes describing repair of the intestine to MDC 6 in MS-
DRGs 329, 330, and 331. The commenters also expressed appreciation for
CMS' continued efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS procedure codes 0DQF0ZZ,
0DQG0ZZ, 0DQL0ZZ, and 0DQM0ZZ listed in the proposed rule and above in
this final rule to MDC 6 in MS-DRGs 329, 330, and 331 (Major Small and
Large Bowel Procedures with MCC, with CC, and without CC/MCC,
respectively) in ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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
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-

[[Page 56861]]

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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25021 through 25022), we proposed to add the 16
ICD-10-PCS procedure codes listed in the table 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 invited public comments on our proposal.
Comment: Commenters supported the proposal to add the 16 ICD-10-PCS
procedure codes describing insertion of an infusion pump listed in the
proposed rule to the corresponding MDCs and MS-DRGs for ICD-9-CM code
86.06. The commenters also expressed appreciation for CMS' continued
efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the 16 ICD-10-PCS procedure codes
describing insertion of an infusion pump listed in the proposed rule
and above in this final rule to the corresponding MDCs and MS-DRGs for
ICD-9-CM code 86.06, as set forth in 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 in
ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25022), we
proposed 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 invited public comments on our proposal.
Comment: Commenters supported the proposal to add the 6 ICD-10-PCS
procedure codes describing procedures that involve cutting into the
bursa listed in the proposed rule to MDC 8 in MS-DRGs 500, 501, and
502. The commenters also expressed appreciation for CMS' continued
efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the six ICD-10-PCS procedure codes
listed in the proposed rule and above in this final rule to MDC 8 in
MS-DRGs 500, 501, and 502 (Soft Tissue Procedures with MCC, with CC,
and without CC/MCC, respectively) in ICD-10 MS-DRGs Version 34,
effective October 1, 2016.
(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

[[Page 56862]]

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25022), we proposed to remove these two ICD-10-PCS procedure codes from
MS-DRGs 981, 982, and 983, to designate them as non-O.R. procedures,
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We invited
public comments on our proposal.
Comment: Commenters supported the proposal to designate the two
ICD-10-PCS codes (0HQVXZZ and 0HQYXZZ) as non-O.R. procedures. The
commenters also expressed appreciation for CMS' continued efforts
towards addressing replication issues.
One commenter expressed concern with the proposal, noting that the
proposed change may result in unintended consequences for other
procedures because these ICD-10-PCS codes can also be considered
comparable translations of ICD-9-CM procedure code 85.89 (Other
mammoplasty), which is designated as an O.R. procedure.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs. We also acknowledge the concerns of the
commenter who stated that our proposal could result in unintended
consequences. We note that a large number of ICD-9-CM procedure codes
that have a fourth digit of 9 (XX.X9) and include the term ``other'' as
part of the code title are designated as O.R. procedures under the ICD-
9-CM MS-DRGs Version 32. The intent of these codes is to capture
procedures that are not able to be identified elsewhere in the
classification system with another procedure code. These codes are
often very vague and generally do not distinguish what approach is used
for a specific anatomic site according to the body system in which it
was assigned. Therefore, when these ``other'' ICD-9-CM procedure codes
went through the process of the ICD-10 MS-DRG conversion, they
understandably satisfied almost every available option (root operation,
body part, approach, among others) within the structure of the
specified ICD-10-PCS section, respective of the body system.
As such, while we recognize that ICD-10-PCS procedure codes 0HQVXZZ
(Repair bilateral breast, external approach) and 0HQYXZZ (Repair
supernumerary breast, external approach) can be considered comparable
translations of ICD-9-CM procedure code 85.89 (Other mammoplasty),
which is designated as an O.R. procedure, we note that, under ICD-10-
PCS, there also are more appropriate root operations that could
logically be reported to identify that a mammoplasty was performed. For
example, a mammoplasty may involve breast augmentation to enhance the
appearance, size, or contour of the breast, in which case the ICD-10-
PCS root operation ``Alteration'' could be reported. In the case where
a mammoplasty was performed for breast reduction purposes, the ICD-10-
PCS root operation ``Excision'' could be reported. For cases where
mammoplasty is performed for breast reconstruction after mastectomy,
the ICD-10-PCS root operations ``Supplement'' or ``Replacement'' could
be reported. We believe that, from a clinical perspective, a
mammoplasty would not necessarily be coded using the root of Repair
with an external approach under ICD-10-PCS.
In addition, we note that the ICD-10-PCS procedure codes describing
unilateral repair of the breast with an external approach are currently
designated as non-O.R. procedures under the ICD-10 MS-DRGs Version 33.
Therefore, the proposal to make bilateral repair of the breast with an
external approach non-O.R. would be consistent with those codes.
After consideration of the public comments we received, we are
finalizing our proposal to designate ICD-10-PCS procedure codes 0HQVXZZ
(Repair bilateral breast, external approach) and 0HQYXZZ (Repair
supernumerary breast, external approach) as non-O.R. codes in ICD-10
MS-DRGs Version 34, effective October 1, 2016.
(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 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.

[[Page 56863]]

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25022 through 25023), we proposed 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 invited
public comments on our proposal.
Comment: Commenters supported the proposal to add the 19 ICD-10-PCS
procedure codes describing procedures that involve cutting the
subcutaneous tissue and fascia listed in the table in the proposed rule
to MDC 9 in MS-DRGs 579, 580, and 581. The commenters also expressed
appreciation for CMS' continued efforts towards addressing replication
issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the 19 ICD-10-PCS procedure codes listed
in the table in the proposed rule and above in this final rule to MDC 9
in MS-DRGs 579, 580, and 581 (Other Skin, Subcutaneous Tissue and
Breast Procedures with MCC, with CC and without CC/MCC, respectively)
in ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25023), we proposed 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 invited public comments on our proposal.
Comment: Commenters supported the proposal to add the two ICD-10-
PCS procedure codes describing procedures that involve shoulder
replacement listed in the proposed rule to MDC 8 in MS-DRGs 492, 493,
and 494. The commenters also expressed appreciation for CMS' continued
efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS codes 0PRC0JZ (Replacement of
right humeral head with synthetic substitute, open approach) and
0PRD0JZ (Replacement of left humeral head with synthetic substitute,
open approach) to MDC 8 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) in ICD-10 MS-DRGs Version 34,
effective October 1, 2016.
(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-10 PCS 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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25023), we proposed 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 invited public
comments on our proposal.
Comment: Commenters supported the proposal to add the four ICD-10-
PCS procedure codes describing repositioning of vertebra listed in the
proposed rule to MDC 8 in MS-DRGs 515, 516, and 517. The commenters
also expressed appreciation for CMS' continued efforts towards
addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS codes 0PS33ZZ (Reposition
cervical vertebra, percutaneous approach); 0PS43ZZ (Reposition thoracic
vertebra, percutaneous approach), 0QS03ZZ (Reposition lumbar vertebra,
percutaneous approach), and 0QS13ZZ (Reposition sacrum, percutaneous
approach) to MDC 8 in MS-DRGs 515, 516, and 517 (Other Musculoskeletal
System and Connective Tissue Procedures with MCC, with CC, and without
CC/MCC, respectively) in ICD-10 MS-DRGs Version 34, effective October
1, 2016.

[[Page 56864]]

(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25023), we proposed to add the 49 ICD-10-PCS
procedure codes shown in Table 6P.3c. associated with the 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 8 in MS-DRGs 515, 516, and 517,
effective October 1, 2016, in ICD-10 MS-DRGs Version 34. We invited
public comments on our proposal.
Comment: Several commenters supported the proposal to add the 49
ICD-10-PCS procedure codes describing open insertion of an infusion
device into a joint or disc to MDC 8 in MS-DRGs 515, 516, and 517. The
commenters also expressed appreciation for CMS' continued efforts
towards addressing replication issues.
One commenter reported that standard surgical practice does not
support procedures involving infusion devices (as well as removal of
tracheostomy and occlusion of esophageal vein which are discussed in
sections II.F.19.c.1.c. and section II.F.19.c.1.j. of the preamble of
this final rule) being performed outside of an operating room setting.
This commenter asserted that because these types of procedures are
complex, necessitate a sterile environment and general anesthesia
support, physicians would rarely perform them in a setting other than
the operating room.
However, other commenters did not agree that procedures describing
the insertion of an infusion device into a joint or disc should be
classified the same as ICD-9-CM code 86.06 (Insertion of totally
implantable infusion pump). One commenter noted that the 49 ICD-10-PCS
procedure codes describe an infusion device which the ICD-10-PCS
classification categorizes as an infusion catheter, and there are
separate ICD-10-PCS device values that specifically describe an
infusion device, pump. This commenter disagreed with the proposal to
assign the 49 ICD-10-PCS procedure codes into MS-DRGs 515, 516, and
517, stating that an infusion pump cannot be inserted into a joint,
while a catheter can. The commenter noted that, similar to our
discussion in section II.F.19.c.1.k. of the preamble of the proposed
rule, these ICD-10-PCS procedures codes reasonably correlate to the
insertion of a common infusion catheter versus the insertion of a
totally implantable infusion pump.
Another commenter expressed concern with the potential coding and
payment impacts as a result of the proposal and noted that while an
infusion catheter and an infusion pump may be inserted together, they
are separate devices with different levels of resource utilization. The
commenter stated that implantable infusion pumps are resource-intensive
for hospitals and designated appropriately as O.R. procedures in
contrast to infusion catheters.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs. It is not clear if the commenter who stated
that standard surgical practice does not support procedures involving
infusion devices being performed outside of an operating room was
referring to procedures involving an infusion pump versus procedures
involving an infusion device as classified under ICD-10-PCS. We note
that, as stated above, under ICD-9-CM, procedure code 86.06 describes
the insertion of a totally implantable infusion pump. Under ICD-10-PCS,
the term ``implantable'' is not utilized with the infusion device,
pump, or infusion codes.
In response to the commenters who disagreed with our proposal, we
acknowledge that the ICD-10-PCS classification categorizes the device
values for an infusion device (catheter) separately from the device
values that describe an infusion device, pump. In addition, our
clinical advisors support the commenters' observation that an infusion
device, pump is not inserted into a joint space, but rather the
infusion device, catheter would be inserted into the joint space.
It is understandable that the term ``infusion device'' can be
interpreted in different ways because the type of infusion device used
is sometimes dependent on whether the prescribed treatment will be
administered intermittently (for example, for chemotherapy) or
continuously (for example, insulin therapy) and the mechanism used to
pump in the drug may vary (for example, battery, electricity, or
pressure). Taking these characteristics into account, an ``infusion
device'' could be literally implanted in the body or parts of the
device could be found outside of the body. For example, a
subcutaneously implanted reservoir may function as an infusion device
when it is accessed via a needle attached to another catheter that
transports the intended drug to the reservoir. Transport of the drug is
via an external mechanical pump. In comparison to the aforementioned
example of a subcutaneous reservoir with catheter as an ``infusion
device'' are the elastomeric pumps which rely on the pressure generated
by the elastic constriction created when the pump is filled with the
drug to be administered. Elastomeric pumps do not rely upon any
electronics or additional sources of energy to maintain the flow rate.
Elastomeric pumps are typically single-use and disposable. In view of
the different types of pumps used for short-term and long-term
treatment purposes and the different interpretations of the infusion
device codes, we will continue to analyze if further revisions to these
codes are needed in ICD-10-PCS to ensure accurate assignment under the
ICD-10 MS-DRGs. We also will continue to work with the AHA through the
Coding Clinic for ICD-10-CM and ICD-10-PCS to promote proper coding.
After consideration of the public comments we received, we are not
finalizing our proposal to assign the 49 ICD-10-PCS procedure codes
describing insertion of an infusion device to MDC 8 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) for FY
2017. Consistent with the discussion in section II.F.19.c.(1)(k) of the
preamble of the proposed rule and the same section of this final rule,
the 49 ICD-10-PCS procedure codes shown in Table 6P.3c. associated with
the proposed rule and updated for this final rule (which is available
via the Internet on the CMS Web site at: http://www.cms.gov/

[[Page 56865]]

Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) will
take the attributes of ICD-9-CM procedure code 99.99 (Other
miscellaneous procedures), a non-O.R. procedure in the ICD-10 MS-DRGs
Version 34, effective October 1, 2016.
(12) Bladder Neck Repair
In the ICD-9-CM MS-DRGs Version 32, a procedure involving a bladder
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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25023 through
25024), we proposed to add these five ICD-10-PCS procedure codes to MDC
11 in MS-DRGs 653, 654, and 655 (Major Bladder Procedures with MCC,
with CC, and without CC/MCC, respectively) and MDC 13 in MS-DRGs 749
and 750 (Other Female Reproductive System O.R. Procedures with CC/MCC
and without CC/MCC, respectively) in ICD-10 MS-DRGs Version 34,
effective October 1, 2016. We invited public comments on our proposal.
Comment: Commenters supported the proposal to add the five ICD-10-
PCS procedure codes describing bladder neck repair listed in the
proposed rule to MDC 11 in MS-DRGs 653, 654 and 655 and to MDC 13 in
MS-DRGs 749 and 750. The commenters also expressed appreciation for
CMS' continued efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add the ICD-10-PCS procedure codes 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) to MDC 11 in MS-DRGs 653, 654, and 655
(Major Bladder Procedures with MCC, with CC, and without CC/MCC,
respectively) and MDC 13 in MS-DRGs 749 and 750 (Other Female
Reproductive System O.R. Procedures with CC/MCC and without CC/MCC,
respectively) in ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25024), we welcomed
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. We indicated that commenters should submit
their recommendations for these code refinements to the following email
address: [email protected] by December 7, 2016.
We also noted in the proposed rule 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 the proposed rule and this final 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, in
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25024), we proposed 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 invited 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.
Comment: Commenters supported the proposal to add ICD-10-CM
diagnosis code O90.2 (Hematoma of obstetric wound) to MDC 14 in MS-DRGs
769 and 776. The commenters also

[[Page 56866]]

expressed appreciation for CMS' continued efforts towards addressing
replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-CM diagnosis code O90.2 (Hematoma
of obstetric wound) to MDC 14 in 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) in the ICD-10 MS-DRGs
Version 34, effective October 1, 2016.
c. Other Operating Room (O.R.) and Non-O.R. Issues
(1) O.R. Procedures to Non-O.R. Procedures
For the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25024 through
25026), 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 proposed 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 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.
(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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25024
through 25025), we proposed that the 72 ICD-10-PCS procedure codes in
Table 6P.4a. associated with the 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
invited public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of 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. The commenters
also expressed appreciation for CMS' continued efforts towards
addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
Comment: One commenter who agreed with our proposal also
recommended that CMS remove the following two ICD-10-PCS procedure
codes from the O.R. procedure list: 0DH67UZ (Insertion of Feeding
Device into Stomach, Via Natural or Artificial Opening); and 0DH68UZ
(Insertion of Feeding Device into Stomach, Via Natural or Artificial
Opening Endoscopic). According to the commenter, these two ICD-10-PCS
procedure codes are comparable translations of ICD-9-CM procedure code
96.6 (Enteral infusion of concentrated nutritional substances), which
is designated as a non-O.R. procedure.
Response: We thank the commenter for their support of our proposal.
With respect to the commenter's recommendation that we change the
designation of the two ICD-10-PCS procedure codes (0DH67UZ and
0DH68UZ), we note that these procedure codes are currently designated
as non-O.R. procedures in the ICD-10 MS-DRGs Version 33 Definitions
Manual. Therefore, no change is needed. These procedure codes will
remain non-O.R. procedures in ICD-10 Version 34.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 72 ICD-10-PCS
procedure codes in Table 6P.4a. associated with the proposed rule and
this final 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). These 72 ICD-10-PCS procedure codes will
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25025), we proposed that the 155 ICD-10-PCS procedure codes in Table
6P.4b. associated with the 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 invited public comments
on this proposal.
Comment: Commenters supported the proposal to change the
designation of 155 ICD-10-PCS procedure codes describing the
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. The
commenters also expressed

[[Page 56867]]

appreciation for CMS' continued efforts towards addressing replication
issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 155 ICD-10-PCS
procedure codes in Table 6P.4b. associated with the proposed rule and
this final 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). These 155 ICD-10-PCS procedure codes
will 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 replace the ICD-9-CM procedure codes and descriptions
reflected in column D in the ICD-10 MS-DRGs Version 34, effective
October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25025), we proposed that the five ICD-10-PCS
procedure codes in Table 6P.4c. associated with the 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 invited public comments on this proposal.
Comment: Several commenters supported the proposal to change the
designation of five ICD-10-PCS procedure codes describing the removal
of a tracheostomy device with various approaches. The commenters also
expressed appreciation for CMS' continued efforts towards addressing
replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
Comment: One commenter stated that standard surgical practice does
not support procedures involving removal of tracheostomy being
performed outside of an operating room setting. This commenter also
stated that these procedure codes were considered valid O.R. procedures
under ICD-9-CM.
Response: We disagree with the commenter's statements. We note that
removal of a tracheostomy frequently occurs at the bedside and is
performed by nonoperative, manual removal of the tracheostomy tube. As
discussed in the FY 2017 IPPS/LTCH PPS proposed rule and above in this
final rule, under ICD-9-CM, removal of tracheostomy was designated as a
non-O.R. procedure.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the five ICD-10-
PCS procedure codes in Table 6P.4c. associated with the proposed rule
and this final 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). These five ICD-10-PCS procedure codes
are 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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25025), we proposed that the
117 ICD-10-PCS procedure codes in Table 6P.4d. associated with the
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 invited public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of 117 ICD-10-PCS procedure codes describing the
endoscopic/percutaneous insertion of infusion and monitoring devices
into vascular and musculoskeletal body parts. The commenters also
expressed appreciation for CMS' continued efforts towards addressing
replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 117 ICD-10-PCS
procedure codes in Table 6P.4d. associated with the proposed rule and
this final 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). These 117 ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25025), we proposed that the
124 ICD-10-PCS procedure codes in Table 6P.4e. associated with the
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

[[Page 56868]]

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 invited public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of 124 ICD-10-PCS procedure codes describing the
percutaneous removal of drainage, infusion and monitoring devices from
vascular and musculoskeletal body parts. The commenters also expressed
appreciation for CMS' continued efforts towards addressing replication
issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 124 ICD-10-PCS
procedure codes in Table 6P.4e. associated with the proposed rule and
this final 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). These 124 ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25025), we proposed that the 518 ICD-10-PCS procedure codes in Table
6P.4f. associated with the 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 invited public comments
on this proposal.
Comment: Several commenters supported the proposal to change the
designation of 518 ICD-10-PCS procedure codes describing the
percutaneous therapeutic drainage of various body sites with or without
placement of a drainage device. The commenters also expressed
appreciation for CMS' continued efforts towards addressing replication
issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
Comment: Other commenters who agreed with our proposal also
recommended that CMS change the designation of ICD-10-PCS procedure
code 0W9G3ZX (Drainage of Peritoneal Cavity, Percutaneous Approach,
Diagnostic) from O.R. to non-O.R. The commenters noted that the
nondiagnostic version of the same code (7th character Z) is designated
non-O.R. and suggested that ICD-9-CM procedure code 54.91(Percutaneous
abdominal drainage) is a more accurate translation for the diagnostic
version of the ICD-10-PCS procedure code.
Response: We thank the commenters for their support of our
proposal. With respect to the commenters' recommendation that we change
the designation of ICD-10-PCS procedure code 0W9G3ZX from O.R. to non-
O.R., we note that the comparable translation under ICD-9-CM for
replication purposes was procedure code 54.29 (Other diagnostic
procedures on abdominal region), which is designated as an O.R. code.
However, we agree with the commenters that diagnostic drainage of the
peritoneal cavity is more accurately replicated with ICD-9-CM procedure
code 54.91 (Percutaneous abdominal drainage) for reporting diagnostic
paracentesis procedures and it is designated as a non-O.R. procedure.
Therefore, we agree that the designation of ICD-10-PCS procedure code
0W9G3ZX (Drainage of peritoneal cavity, percutaneous approach,
diagnostic) should also be changed from O.R. to non-O.R.
Comment: Another commenter who agreed with the proposal also
recommended that CMS change the designation of all the diagnostic
versions of the ICD-10-PCS procedures codes in Table 6P.4f. associated
with the 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).
Response: We acknowledge the commenter's support of our proposal.
We note that, due to the volume of 518 ICD-10-PCS procedure codes
listed in Table 6P.4f. and the timeframe that we have available to
evaluate and assess the impact of additional recommendations submitted
in response to proposals, we were not able to analyze all diagnostic
versions for the full list of codes for FY 2017. We will review the
list as part of our annual update process for FY 2018.
After consideration of the public comments we received, we are
finalizing the recommendation to change the designation of ICD-10-PCS
procedure code 0W9G3ZX (Drainage of Peritoneal Cavity, Percutaneous
Approach, Diagnostic) from O.R. to non-O.R. We also are finalizing our
proposal to change the designation of the 518 ICD-10-PCS procedure
codes in Table 6P.4f. associated with the proposed rule and this final
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). These 518 ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25025), we proposed that
the 131 ICD-10-PCS procedure codes in Table 6P.4g. associated with the
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

[[Page 56869]]

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
invited public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of 131 ICD-10-PCS procedure codes describing the
percutaneous inspection of various body sites. The commenters also
expressed appreciation for CMS' continued efforts towards addressing
replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 131 ICD-10-PCS
procedure codes in Table 6P.4g. associated with the proposed rule and
this final 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). These 131 ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25026), we proposed that the 40
ICD-10-PCS codes in Table 6P.4h. associated with the 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 invited
public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of 40 ICD-10-PCS procedure codes describing the inspection
of various body sites with endoscopic/transorifice and external
approaches. The commenters also expressed appreciation for CMS'
continued efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 40 ICD-10-PCS
procedure codes in Table 6P.4h. associated with the proposed rule and
this final 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). These 40 ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25026), we proposed that the six ICD-10-PCS procedure codes in Table
6P.4i. associated with the 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 invited public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of six ICD-10-PCS procedure codes describing the dilation
of stomach and pylorus body sites with various approaches. The
commenters also expressed appreciation for CMS' continued efforts
towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the six ICD-10-PCS
procedure codes in Table 6P.4i. associated with the proposed rule and
this final 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). These six ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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. In the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25026), we proposed that the six ICD-10-
PCS procedure codes in Table 6P.4j. associated with the 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 invited
public comments on this proposal.
Comment: Several commenters supported the proposal to change the
designation of six ICD-10-PCS procedure codes describing the
percutaneous occlusion of esophageal vein with and without a device.
The commenters also expressed appreciation for CMS' continued efforts
towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential

[[Page 56870]]

replication issues between the ICD-9 and ICD-10 based MS-DRGs.
Comment: One commenter stated that standard surgical practice does
not support procedures involving occlusion of the esophageal vein being
performed outside of an operating room setting. This commenter also
stated that these procedure codes were considered valid O.R. procedures
under ICD-9-CM.
Response: We disagree with the commenter's statements. We note that
percutaneous occlusion of the esophageal vein does not utilize the
resources to be designated as an O.R. procedure. In addition, under
ICD-9-CM, the endoscopic excision or destruction of lesion or tissue of
esophagus for occlusion of esophageal vein was designated as a non-O.R.
procedure.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the six ICD-10-PCS
procedure codes in Table 6P.4j. associated with the proposed rule and
this final 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). These six ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25026), we proposed
that the 82 ICD-10-PCS procedure codes in Table 6P.4k. associated with
the 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 invited
public comments on this proposal.
Comment: Commenters supported the proposal to change the
designation of 82 ICD-10-PCS procedure codes describing the insertion
of an infusion device to various parts. The commenters also expressed
appreciation for CMS' continued efforts towards addressing replication
issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 82 ICD-10-PCS
procedure codes in Table 6P.4k. associated with the proposed rule and
this final 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). These 82 ICD-10-PCS procedure codes are
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
replace the ICD-9-CM procedure codes and descriptions reflected in
column D in the ICD-10 MS-DRGs Version 34, effective October 1, 2016.
(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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25026), we proposed 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 invited public comments on our
proposal.
Comment: Commenters supported the proposal to change the
designation of four ICD-10-PCS procedure codes describing percutaneous
endoscopic drainage of the pleural cavity with or without a drainage
device. The commenters also expressed appreciation for CMS' continued
efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the four ICD-10-
PCS procedure codes describing percutaneous endoscopic drainage of the
pleural cavity with or without a drainage device (0W9940Z, 0W994ZZ,
0W9B40Z, and 0W9B4ZZ) from non-O.R. to O.R. These procedure codes are
added to the ICD-10 MS-DRGs Version 34 Definitions Manual in Appendix
E--Operating Room Procedures and Procedure Code/MS-DRG Index and
assigned to MS-DRGs 166, 167, and 168 (Other Respiratory System O.R.
Procedures with MCC, with CC, and without CC/MCC, respectively),
effective October 1, 2016.
(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

[[Page 56871]]

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.
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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25026 through 25027), we proposed 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 invited public comments on our proposal.
Comment: Commenters supported the proposal to change the
designation of 18 ICD-10-PCS procedure codes describing endoscopic/
percutaneous drainage of intracranial sites with or without a drainage
device. The commenters also expressed appreciation for CMS' continued
efforts towards addressing replication issues.
Response: We appreciate the commenters' support of our proposal and
of our efforts to analyze potential replication issues between the ICD-
9 and ICD-10 based MS-DRGs.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of the 18 ICD-10-PCS
procedure codes listed above describing endoscopic/percutaneous
drainage of intracranial sites with or without a drainage device from
non-O.R. to O.R. These procedure codes are added to the ICD-10 MS-DRGs
Version 34 Definitions Manual in Appendix E--Operating Room Procedures
and Procedure Code/MS-DRG Index and assigned to MS-DRGs 023 and 024
(Craniotomy with Major Device Implant or Acute Complex Central Nervous
System Principal Diagnosis with MCC or Chemotherapy Implant and without
MCC, respectively) and to MS-DRGs 025, 026 and 027 (Craniotomy and
Endovascular Intracranial Procedures with MCC, with CC, and without CC/
MCC, respectively), effective October 1, 2016.
(3) FY 2018 Refinements
As discussed earlier in this section, for FY 2017, we continued our
efforts to address the MS-DRG replication issues between the ICD-9-CM
logic and ICD-10 that were brought to our attention. As a result of
analyzing specific requests, additional areas in the ICD-10
classification were identified where we proposed modifications to more
accurately replicate the logic of ICD-9-CM and to reassign ICD-10 codes
based on the different clinical concepts and definitions of the codes
under the ICD-10 classification.
In response to some of the proposals set forth in the FY 2017 IPPS/
LTCH PPS proposed rule pertaining to changing the designation of an
ICD-10-PCS procedure code from O.R. to non-O.R., we received detailed
comments and recommendations for consideration that we were not able to
fully evaluate for FY 2017. We appreciate the extensive and thorough
analysis that the commenters performed and their suggestions for
further refinements. As the commenters' recommendations included
analysis of over 800 procedure codes for redesignation, we plan to
conduct a comprehensive review and analyze these codes for our FY 2018
refinement efforts.
20. Out of Scope Public Comments Received
We received public comments regarding five MS-DRG issues that were
outside of the scope of the proposals included in the FY 2017 IPPS/LTCH
PPS proposed rule. These comments were as follows:
Several commenters requested the inclusion of ICD-10-PCS
code 02L73ZK (Occlusion of left atrial appendage, percutaneous
approach) that describes what is known as the LARIAT procedure in the
FY 2017 MS-DRG proposal for the transcatheter mitral valve repair
procedure.
Commenters provided comments on ICD-10-CM diagnosis codes
that were not approved at the time of issuance of the proposed rule.
One commenter requested the creation of new MS-DRGs for
the treatment of orphan diseases.
Comments were submitted regarding the complexity, time
commitment, and payment for transesophageal echocardiography services
performed for a MitraClip procedure.

[[Page 56872]]

We consider these public comments to be outside of the scope of the
proposed rule and, therefore, we are not addressing them in this final
rule. As stated in section II.F.1.b. of the preamble of this final
rule, we encourage individuals with comments about MS-DRG
classification to submit these comments no later than December 7 of
each year so that they can be considered for possible inclusion in the
annual proposed rule and, if included, may be subjected to public
review and comment. We will consider these public comments for possible
proposals in future rulemaking as part of our annual review process.

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

1. Data Sources for Developing the Relative Weights
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25027), in developing the 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 final rule include
discharges occurring on October 1, 2014, through September 30, 2015,
based on bills received by CMS through March 31, 2016, 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 relative weights includes data
for approximately 9,770,558 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 March 31, 2016 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 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 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 March 31,
2016 update of the FY 2014 HCRIS for calculating the FY 2017 cost-based
relative weights.
2. Methodology for Calculation of the Final Relative Weights
As we explain in section II.E.2. of the preamble of this final
rule, we calculated the FY 2017 relative weights based on 19 CCRs, as
we did for FY 2016. The methodology we used to calculate the 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 FY 2017 MS-DRG classifications discussed in sections II.B.
and II.F. of the preamble of this final rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 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, 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 92.1 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

[[Page 56873]]

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, as we proposed, we are continuing 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 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. In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25028), we stated that if stakeholders have
comments about the groupings in this table, we may consider those
comments as we finalize our policy. However, we did not receive any
comments on the groupings in this table, and therefore, we are
finalizing the groupings as proposed.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost from HCRIS Charges from HCRIS Medicare Charges from
Revenue codes (Worksheet C, Part (Worksheet C, Part HCRIS (Worksheet D-
Cost center group name (19 MedPAR charge contained in Cost report line 1, Column 5 and 1, Column 6 & 7 and 3, Column & line
total) field MedPAR charge description line number) Form line number) Form number) Form CMS-
field CMS-2552-10 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).
Semi-Private Room 012X, 013X and
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 C_1_C5_32 C_1_C6_32 D3_HOS_C2_32
Charges. Unit.
Burn Intensive C_1_C5_33 C_1_C6_33 D3_HOS_C2_33
Care Unit.
Surgical C_1_C5_34 C_1_C6_34 D3_HOS_C2_34
Intensive Care
Unit.
Other Special C_1_C5_35 C_1_C6_35 D3_HOS_C2_35
Care 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.

[[Page 56874]]

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, Charged to
0277, 0279, and Patients.
0621, 0622, 0623.
C_1_C7_71
Durable Medical 0290, 0291, 0292 DME-Rented....... C_1_C5_96 C_1_C6_96 D3_HOS_C2_96
Equipment and 0294-0299.
Charges.
C_1_C7_96
Used Durable 0293............. DME-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
to Patients.
C_1_C7_72
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 041X and 046X.... Respiratory C_1_C5_65 C_1_C6_65 D3_HOS_C2_65
Therapy 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 037X............. Anesthesiology... C_1_C5_53 C_1_C6_53 D3_HOS_C2_53
Charges.
C_1_C7_53
Cardiology.................... Cardiology 048X and 073X.... Electro car C_1_C5_69 C_1_C6_69 D3_HOS_C2_69
Charges. diology.
C_1_C7_69
Cardiac Cath eteri zation..... 0481............. Cardiac C_1_C5_59 C_1_C6_59 D3_HOS_C2_59
Catheterization.
C_1_C7_59
Laboratory.................... Laboratory 030X, 031X, and Laboratory....... C_1_C5_60 C_1_C6_60 D3_HOS_C2_60
Charges. 075X.
C_1_C7_60
PBP Clinic C_1_C5_61 C_1_C6_61 D3_HOS_C2_61
Laboratory
Services.
C_1_C7_61
074X, 086X....... Electro-Enceph C_1_C5_70 C_1_C6_70 D3_HOS_C2_70
alography.
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, utic.
0339, 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)
Scan.
C_1_C7_57
Magnetic Resonance Imaging MRI Charges...... 061X............. Magnetic C_1_C5_58 C_1_C6_58 D3_HOS_C2_58
(MRI). Resonance
Imaging (MRI).
C_1_C7_58

[[Page 56875]]

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
Cells.
C_1_C7_62
Blood Storage/ 039x............. Blood Storing, C_1_C5_63 C_1_C6_63 D3_HOS_C2_63
Processing. Processing, &
Transfusing.
C_1_C7_63
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- C_1_C7_74
Setting Charges. 088X.
Home Program C_1_C5_94 C_1_C6_94 D3_HOS_C2_94
Dialysis.
C_1_C7_94
Outpatient 049X............. ASC (Non Distinct C_1_C5_75 C_1_C6_75 D3_HOS_C2_75
Service Charges. Part).
Lithotripsy 079X............. C_1_C7_75
Charge.
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

[[Page 56876]]

per case to determine the relative weight.
The FY 2017 cost-based relative weights were then normalized by an
adjustment factor of 1.691521 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
The 19 national average CCRs for FY 2017 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days............................................ 0.457
Intensive Days.......................................... 0.375
Drugs................................................... 0.194
Supplies & Equipment.................................... 0.297
Implantable Devices..................................... 0.331
Therapy Services........................................ 0.321
Laboratory.............................................. 0.120
Operating Room.......................................... 0.191
Cardiology.............................................. 0.112
Cardiac Catheterization................................. 0.118
Radiology............................................... 0.153
MRIs.................................................... 0.079
CT Scans................................................ 0.038
Emergency Room.......................................... 0.171
Blood and Blood Products................................ 0.323
Other Services.......................................... 0.365
Labor & Delivery........................................ 0.410
Inhalation Therapy...................................... 0.170
Anesthesia.............................................. 0.089
------------------------------------------------------------------------

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. As we proposed, we 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, as we proposed, we 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 with O.R. Final FY 2016 relative weight (adjusted by percent
Procedure Except change in average weight of the cases in other MS-
Sterilization and/or D&C. DRGs).
789......................... Neonates, Died or Transferred Final FY 2016 relative weight (adjusted by percent
to Another Acute Care change in average weight of the cases in other MS-
Facility. DRGs).
790......................... Extreme Immaturity or Final FY 2016 relative weight (adjusted by percent
Respiratory Distress change in average weight of the cases in other MS-
Syndrome, Neonate. DRGs).
791......................... Prematurity with Major Final FY 2016 relative weight (adjusted by percent
Problems. change in average weight of the cases in other MS-
DRGs).
792......................... Prematurity without Major Final FY 2016 relative weight (adjusted by percent
Problems. change in average weight of the cases in other MS-
DRGs).
793......................... Full-Term Neonate with Major Final FY 2016 relative weight (adjusted by percent
Problems. change in average weight of the cases in other MS-
DRGs).
794......................... Neonate with Other Significant Final FY 2016 relative weight (adjusted by percent
Problems. 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 did not receive any public comments on our proposals for
establishing the relative weights for FY 2017 and are finalizing them
as proposed.

H. 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

[[Page 56877]]

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 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 or clearance, 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 or cleared 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.

[[Page 56878]]

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 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 presented in the FY 2017IPPS/LTCH PPS 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. In the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25033), we proposed to
conduct future town hall meetings entirely via teleconference and
Webcast using the same technologies. Under that 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

[[Page 56879]]

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 invited public comments on this
proposal in the proposed rule.
Comment: One commenter expressed appreciation for CMS' efforts to
organize and host the new technology town hall meetings entirely via
teleconference and Webcast, while continuing to maintain an open
telephone line with an option for participation through the Webcast and
making the recording of the town hall meeting available on the CMS You
Tube Web page or other CMS Web site following the meeting. However, the
commenter requested that the option for an open face-to-face meeting be
maintained in addition to the teleconference and Webcast participation
options. The commenter noted that the opportunity to be able to present
in an actual face-to-face forum allows attendees and presenters to
gauge reaction and foster added awareness of the use of new
technologies.
Several commenters disagreed with the proposal to conduct the new
technology town hall meetings via phone and video conference only, and
to discontinue in-person meetings. The commenters stated that there is
considerable value in face-to-face meetings and presentations on new
technologies.
Response: We appreciate the commenter's support and have taken into
consideration the commenters' concerns. Therefore, in the interim, we
will continue to host the new technology town hall meetings in person.
However, we encourage the public to utilize the teleconference and
Webcast participation options in order to become familiar with the
advancing technological options. We will continue to gauge the public's
interest in CMS hosting the new technology town hall meetings entirely
via teleconference and Webcast in subsequent fiscal years.
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
summarized in the proposed rule a general comment that did not relate
to a specific application for FY 2017 new technology add-on payments.
We also summarized comments regarding individual applications, or, if
applicable, indicated that there were no comments received in section
II.H.5. of the preamble of the proposed rule at the end of each
applicable discussion of the individual applications. We note that we
did receive public comments 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 did not summarize
these additional comments in the proposed rule. However, we did invite
the commenter to resubmit its comments in response to proposals
presented in the proposed rule.
Comment: Commenters provided additional comments during the 60-day
comment period for the proposed rule with regard to the newness, cost,
and substantial clinical improvement criteria. Some commenters
reiterated comments presented at the town hall meeting, including a
recommendation 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; (4) addresses patient-centered objectives as
defined by the Secretary; or (5) meets such other criteria as the
Secretary may specify; and a suggestion that an entity submitting an
application for new technology add-on payments be entitled to
administrative review of an adverse determination made by the
Secretary.
Response: We did not propose any policy changes to the criteria
applied to new technology applications in the FY 2016 IPPS/LTCH PPS
proposed rule. Therefore, we are not addressing these additional
comments in this final rule. Similar to our response in the proposed
rule, we will take the commenters' recommendation and suggestion into
consideration in future rulemaking.
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.
Comment: One commenter supported the implementation of Section
``X'' codes, but recommended that CMS, in order to avoid confusion,
make it mandatory that requestors of these new Section ``X'' codes also
request the creation of new procedure codes in the body of ICD-10-PCS
to accommodate the new medical service or technology. Other commenters
also supported the creation and implementation of the Section ``X''
codes, but noted the need to gain better understanding of how the new
section ``X'' codes will be used and applied. These commenters
encouraged CMS to continue to remain transparent in how the agency
develops and applies these new codes.
Response: We appreciate the commenters' support of the new ICD-10-
PCS codes. These Section ``X'' codes are included in Table 6B
associated with this final rule (which is available via the Internet on
the CMS Web site). Section ``X'' codes are standalone codes. They are
not supplemental codes. Section ``X'' codes fully represent the
specific procedure described in the code title and do not require any
additional codes from other sections of ICD-10-PCS. When a section
``X'' code contains a code title that describes a specific new
technology procedure, only that section ``X'' code is reported for the
procedure. There is no need to report a broader, nonspecific code in
another section of ICD-10-PCS. Section X of the ICD-10-PCS structure
does not introduce any new coding concepts or unusual guidelines for
correct coding. We encourage individuals interested in the creation of
ICD-10-PCS codes (including Section ``X'' codes) and any
recommendations as to whether or not there should be a mandatory
requirement that new code requests

[[Page 56880]]

include both codes in Section X as well as in other sections of ICD-10-
PCS to make this suggestion at future meetings of the ICD-10
Coordination and Maintenance Committee. We encourage participation at
these future meetings as well as the presentation of comments during
the comment period regarding proposals and approvals for creating and
implementing new codes. We refer commenters to the CMS Web site at:
https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html for complete details.
4. 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 would 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) occurred prior to the beginning of FY 2017.
Therefore, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25034), we
proposed to discontinue new technology add-on payments for this
technology for FY 2017. We invited public comments on this proposal in
the proposed rule.
We did not receive any public comments on our proposal. Therefore,
as we proposed, we are discontinuing new technology add-on payments for
Kcentra^TM for FY 2017. The 3-year anniversary date of the
product's entry onto the U.S. market occurred prior to the beginning of
FY 2017. Therefore, the technology is not eligible for new technology
add-on payments for FY 2017 because the technology will no longer meet
the ``newness'' criterion.
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
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
13, 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 13, 2013.
After evaluation of the new technology add-on payment application
and consideration of public comments received, we concluded that the
Argus[supreg]

[[Page 56881]]

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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25034 and 25035), we proposed to discontinue new technology add-on
payments for this technology for FY 2017. We invited public comments on
this proposal in the proposed rule.
We did not receive any public comments on our proposal. Therefore,
as we proposed, we are discontinuing new technology add-on payments for
the Argus[supreg] II System for FY 2017. The 3-year anniversary date of
the product's entry onto the U.S. market occurs in the first half of FY
2017. Therefore, the technology is not eligible for new technology add-
on payments for FY 2017 because the technology will no longer meet the
``newness'' criterion.
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 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), in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25035 and 25036), we proposed to
continue new technology add-on payments for this technology for FY
2017. We proposed that the maximum payment for a case involving the
CardioMEMS^TM HF Monitoring System would remain at $8,875 for
FY 2017. We invited public comments on our proposal in the proposed
rule.
Comment: One commenter, the manufacturer, supported the
continuation of new technology add-on payments for the
CardioMEMS^TM HF Monitoring System in FY 2017. The commenter
requested that CMS provide further and more detailed guidance to the
various stakeholders, including hospitals, physicians, MACs, and other
manufacturers, on the purpose for the additional payment and how the
new technology add-on payment is calculated thereafter. The commenter
added that when new technology add-on payments are approved, it is
ultimately the responsibility of the applicable provider to charge and
bill appropriately. The commenter further explained that it is most
often the manufacturer that developed the new technology that
researches and provides guidance and expertise to the adopting
facilities regarding the technology's use. However, the commenter
believed that, given the few new medical services or technologies
approved for new

[[Page 56882]]

technology add-on payments, hospitals often lack the resources or
experience to research and understand the payment calculations. The
commenter recommended that CMS provide examples or sample calculations
of the new technology add-on payment in a similar fashion that CMS has
published examples of other payment methodologies, for example, DSH
payments.
Response: We appreciate the commenter's support. We note that after
the development and publication of each final rule, CMS issues
instructions to the MACs informing them of important changes for the
upcoming fiscal year. In addition, CMS issues a Medicare Learning
Matters (MLN) article for the public in order to provide information
regarding changes for the upcoming fiscal year. The instructions for
the MACs and the MLN article for the public always include which new
technologies are eligible for new technology add-on payments for in the
upcoming fiscal year. We refer readers to the CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2015-Transmittals-Items/R3431CP.html to view the MAC instructions and MLN
article issued in conjunction with the FY 2016 IPPS/LTCH final rule.
For information regarding how to receive MLN articles, we refer readers
to the CMS Web site at: https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/What_Is_MLNMatters.pdf. Also, the regulations at 42 CFR 412.88 explain
how the new technology add-on payment is made. Further, on December 13,
2002, we issued Change Request 2301, which provides examples of how the
new technology add-on payment is made. Change Request 2301 is available
for download via the Internet from the CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/A02124.pdf. We also educate the public through our conference calls via
open door forums. For information on CMS' open door forums, we refer
readers to the CMS Web site at: https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
After consideration of the public comments we received, we are
finalizing our proposal to continue new technology add-on payments for
the CardioMEMS^TM HF Monitoring System for FY 2017. The
maximum new technology add-on payment for a case involving the
CardioMEMS^TM HF Monitoring System will remain at $8,875 for
FY 2017.
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, in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25036), we proposed to discontinue new technology add-on
payments for this technology for FY 2017. We invited public comments on
this proposal in the proposed rule.
We did not receive any public comments on our proposal. Therefore,
as we proposed, we are discontinuing new technology add-on payments for
the MitraClip[supreg] System for FY 2017. The 3-year anniversary of the
product's entry onto the U.S. market occurs in the first half of FY
2017. Therefore, the technology is not eligible for new technology add-
on payments for FY 2017 because the technology will no longer meet the
``newness'' criterion.
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

[[Page 56883]]

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 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, in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25036 and 25037), we
proposed to discontinue new technology add-on payments for this
technology for FY 2017. We invited public comments on this proposal in
the proposed rule.
Comment: One commenter, the manufacturer, submitted a comment and
requested that CMS continue to make new technology add-on payments for
the RNS[supreg] System in FY 2017. The commenter stated that it
recognized that the 3-year anniversary date of the RNS[supreg] System's
entry onto the U.S. market technically occurs in the first half of FY
2017. However, the commenter believed that CMS should continue to
consider the device ``new'' in FY 2017 for purposes of new technology
add-on payments because numerous obstacles were encountered before the
product began to be sold, resulting in a significant delay in the
product's availability on the U.S. market. As a result of these
obstacles, the commenter believed that the data used to analyze and
compare cost for the limited number of cases reported in the first half
of FY 2014 were also hindering and skewed the comparisons. The
commenter provided the following reasons why it believed CMS should
continue new technology add-on payments for the RNS[supreg] System for
FY 2017:
Because of delays encountered during the FDA approval
process for the RNS[supreg] System, FDA approval for the use of the new
technology was not received by July 1, 2013, which disqualified the
approval of the FY 2014 new technology add-on payment application for
the RNS[supreg] System in FY 2014. Although the RNS[supreg] System
received FDA approval on November 14, 2013, a 30-day notice to replace
a component supplier was required to be submitted to FDA following the
approval. According to the manufacturer, the delays significantly
impacted the product's availability on the U.S. market; prohibiting the
ability to market or make the product available on the U.S. market
until December 18, 2013.
As a condition of approval by the FDA, the RNS[supreg]
System can only be sold to Comprehensive Epilepsy Centers (CECs) that
meet specific requirements related to physician expertise and center
experience. The FDA does not grant approval for the CECs to purchase
and implant the RNS[supreg] System. Rather, the manufacturer
(NeuroPace) has to verify that the CEC meets certain requirements
before it allows the CEC to procure the device. After that verification
is completed, the CEC then has to comply with its own internal approval
processes, which are quite extensive, before the actual acquisition or
purchase of the device and commencing use of the device. The approval
process typically involves several different groups within the CEC and
occurs in a series of sequential steps. According to the manufacturer,
as a result, many CECs were unwilling to adopt the use of the
technology initially because they would incur a significant financial
loss for each Medicare patient treated in FY 2014 because new
technology add-on payments for the RNS[supreg] System were not
available. In addition, the manufacturer stated that further
complications and delays were presented and encountered because a
number of CECs were unwilling to proceed with acquisition and use of
the new technology until CMS announced approval of new technology add-
on payments for the RNS[supreg] System in the FY 2015 IPPS/LTCH PPS
final rule.
According to the manufacturer, because the RNS[supreg]
System can only be sold to CECs, by March 30, 2014 (that

[[Page 56884]]

is, during the first half of FY 2014), only six RNS[supreg] System
commercial implant procedures were performed (which occurred at
previous clinical trial sites that allowed the internal approval
process to proceed more quickly). Of these cases, only two represented
the treatment of Medicare beneficiaries. As a result, the market
activity was extremely limited in the first half of that fiscal year.
In addition, the manufacturer stated that hospitals incorrectly
reported cases involving ICD-9-CM procedure codes 01.20 and 02.93 for
non-RNS[supreg] System procedures. The manufacturer asserted that, as a
result, CMS may have reviewed MedPAR data and may have believed that
there were many more RNS[supreg] System cases than what actually
occurred (including during the first 6 months of FY 2014), which may
have negatively impacted how CMS views and applies the criteria
regarding continuing new technology add-on payments for the RNS[supreg]
System for a third year because the MedPAR data does not accurately
reflect cases involving treatment using the RNS[supreg] System.
Without the approval for new technology add-on payments in
FY 2017, CECs currently offering treatment involving the RNS[supreg]
System would face the difficult challenge of continuing to provide
treatment using the device to Medicare beneficiaries in the face of
substantial losses because of an inadequate applicable MS-DRG payment
rate.
Response: With regard to the technology's newness, the timeframe
that a new technology can be eligible to receive new technology add-on
payments ends when data documenting the use and cost of the procedures
become available. Section 412.87(b)(2) states 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 (depending on when a new code
is assigned and data on the new service or technology become available
for DRG recalibration). Section 412.87(b)(2) also states, after CMS has
recalibrated the DRGs, based on available data, to reflect the costs of
an otherwise new medical service or technology, the medical service or
technology will no longer be considered ``new'' under the applicable
criteria. Therefore, as discussed in the FY 2005 IPPS final rule (69 FR
49003), if the costs of the technology are included in the charge data,
and the MS-DRGs have been recalibrated using that data, the technology
can no longer be considered ``new'' for the purposes of this provision.
We further stated in the FY 2005 IPPS final rule that the period of
newness does not necessarily start with the FDA approval date for the
medical service or technology or the issuance of a distinct procedure
code. Instead, the newness period begins with the date of availability
of the product on the U.S. market, which is when data become available.
We have consistently applied this standard, and believe that it is most
consistent with the purpose of new technology add-on payments.
With regard to the RNS[supreg] System, while there may have been
issues with some CECs meeting specific requirements and delays
prohibiting the use of the device, as the commenter noted, the
RNS[supreg] System was available for acquisition on the U.S. market on
or after December 18, 2013. We agree that the newness period for the
RNS[supreg] System should begin on December 18, 2013. However, because
the 3-year anniversary date of the entry of the RNS[supreg] System on
the U.S. market (December 18, 2016) will still occur in the first half
of FY 2017, the RNS[supreg] System continues to be ineligible for new
technology add-on payments in FY 2017. As noted previously, 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.
In addition, similar to our discussion in the FY 2006 IPPS final
rule (70 FR 47349), we do not believe that case volume is a relevant
consideration for making the determination as to whether a product is
``new.'' Consistent with the statute and our implementing regulations,
a technology no longer qualifies as ``new'' once it is more than 2 to 3
years old, irrespective of how frequently it has been used in the
Medicare population. Therefore, if a product is more than 2 to 3 years
old, we consider its costs to be included in the MS-DRG relative
weights, whether its use in the Medicare population has been frequent
or infrequent.
Therefore, based on all of the reasons stated above, the
RNS[supreg] System is no longer considered ``new'' for purposes of new
technology add-on payments for FY 2017. We are finalizing our proposal
to discontinue making new technology add-on payments for the
RNS[supreg] System for FY 2017.
Comment: Several commenters that had experienced the effects of the
correlating illnesses explained the clinical effectiveness of the
device and requested the continuation of new technology add-on payments
for the RNS[supreg] System for FY 2017.
Response: We thank the commenters for their input. However, as
stated above, the RNS[supreg] System is no longer considered ``new''
for FY 2017 and, therefore, is no longer eligible for new technology
add-on payments.
f. Blinatumomab (BLINCYTO[supreg]Trade Brand)
Amgen, Inc. submitted an application for new technology add-on
payments for FY 2016 for Blinatumomab (BLINCYTO[supreg]), 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[supreg] 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[supreg] 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[supreg] technology is
the first, and the only, bi-specific CD19-directed CD3 T-cell engager
single-agent immunotherapy approved by the FDA.
BLINCYTO[supreg] 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 is 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

[[Page 56885]]

given after remission has been achieved to prolong the duration. During
phase 1 of a single treatment course, up to two cycles of
BLINCYTO[supreg] are administered, and up to three additional cycles
are administered during consolidation. The recommended dosage of
BLINCYTO[supreg] 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[supreg]
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[supreg]
and consideration of the public comments we received in response to the
FY 2016 IPPS/LTCH PPS proposed rule, we approved BLINCYTO[supreg] for
new technology add-on payments for FY 2016 (80 FR 49449). Cases
involving BLINCYTO[supreg] 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 group 1).
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[supreg] 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[supreg]
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[supreg] 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 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[supreg]
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[supreg] is $27,017.85 for FY 2016.
With regard to the newness criterion for BLINCYTO[supreg], 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[supreg] on the
U.S. market will occur after FY 2017 (December 17, 2017), in the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25038), we proposed to continue
new technology add-on payments for this technology for FY 2017. We
proposed that the maximum payment for a case involving BLINCYTO[supreg]
would remain at $27,017.85 for FY 2017. We invited public comments on
this proposal in the proposed rule.
Comment: Commenters supported CMS' proposal to continue new
technology add-on payments for BLINCYTO[supreg] for FY 2017. The
manufacturer submitted a comment with regard to the substantial
clinical improvement of the BLINCYTO[supreg] and stated that recently
released results from a randomized, open-label, Phase 3 confirmatory
study (the TOWER study) show significant improvements in overall
survival (primary endpoint), complete remission, and event-free
survival with BLINCYTO[supreg] compared to standard of care
chemotherapy in adult patients diagnosed with Ph- R/R B-cell precursor
ALL. According to the manufacturer, in this study, 405 patients were
randomized in a 2:1 ratio to receive BLINCYTO[supreg] or one of four
standard of care chemotherapeutic regimens chosen by the investigator.
The manufacturer noted that the study was ended early based on a
prespecified interim analysis from an independent data monitoring
committee (DMC), which found a significant overall survival improvement
in the BLINCYTO[supreg] arm over standard of care chemotherapy.
According to the manufacturer, results from the DMC analysis
demonstrated a median overall survival (OS) of 7.8 months.
Response: We appreciate the commenters' support for our proposal.
After consideration of the public comments we received, we are
finalizing our proposal to continue new technology add-on payments for
BLINCYTO[supreg] for FY 2017. The maximum new technology add-on payment
for a case involving BLINCYTO[supreg] will remain at $27,017.85 for FY
2017.
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

[[Page 56886]]

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.
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.

[[Page 56887]]

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), in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25039 and 25040), we proposed to
continue new technology add-on payments for both the LUTONIX[supreg]
and IN.PACT^TM Admiral^TM technologies for FY 2017.
We proposed that 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 invited public comments on this
proposal in the proposed rule.
Comment: Commenters supported CMS' proposal to continue new
technology add-on payments for the LUTONIX[supreg] and IN
PACT^TM Admiral^TM for FY 2017.
Response: We appreciate the commenters' support for our proposal.
After consideration of the public comments we received, we are
finalizing our proposal and continuing new technology add-on payments
for both the LUTONIX[supreg] and IN PACT^TM
Admiral^TM for FY 2017. The maximum add-on payment for a case
involving LUTONIX[supreg] and IN.PACT^TM Admiral^TM
remains at $1,035.72 for FY 2017.
5. FY 2017 Applications for New Technology Add-On Payments
We received nine applications for new technology add-on payments
for FY 2017. One applicant withdrew its application prior to the
issuance of the FY 2017 IPPS/LTCH PPS proposed rule. Another applicant,
Andexanet Alfa, withdrew its application prior to the issuance of the
FY 2017 IPPS/LTCH PPS final rule.
In addition, in accordance with the regulations under Sec.
412.87(c), applicants for new technology add-on payments must have FDA
approval or clearance by July 1 of each year prior to the beginning of
the fiscal year that the application is being considered. One
applicant, the EDWARDS INTUITY Elite^TM Valve System, did not
receive FDA approval for their technology by July 1, 2016, and,
therefore, it is ineligible for consideration for new technology add-on
payments for FY 2017. We are not including the descriptions and
discussions of these two applications that were included in the FY 2017
proposed rule in this final rule. We note that we did receive public
comments on these two applications. However, because Andexanet Alfa
withdrew its application and the EDWARDS INTUITY Elite^TM
Value System is ineligible for new technology add-on payments for FY
2017 because it did not receive FDA approval by July 1, 2016, we are
not summarizing or responding to public comments on these applications
in this final rule. A

[[Page 56888]]

discussion of the seven remaining applications is presented below.
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 clearance for use of
the predicate device, which used a Harrington Rod on February 27, 2014.
The applicant verified that, due to manufacturing delays, the
MAGEC[supreg] Spine was not available for implant until April 1, 2014.
Specifically, the complete MAGEC[supreg] Spine system was produced and
available for shipment for the first implant on April 1, 2014.
Therefore, the newness period for the MAGEC[supreg] Spine begins on
April 1, 2014. Subsequent FDA clearance was granted for use of the
modified device, which uses a shorter 70 mm rod on September 18, 2014.
After minor modification of the product, the MAGEC[supreg] Spine
received FDA clearances on March 24, 2015, and May 29, 2015,
respectively.
The applicant submitted a request for a unique ICD-10-PCS procedure
code and was granted approval for the following procedure codes under
New Technology Group 2: XNS0032 (Reposition of lumbar vertebra using
magnetically controlled growth rod(s), open approach); XNS0432
(Reposition of lumbar vertebra using magnetically controlled growth
rod(s), percutaneous endoscopic approach); XNS3032 (Reposition of
cervical vertebra using magnetically controlled growth rod(s), open
approach); XNS3432 (Reposition of cervical vertebra using magnetically
controlled growth rod(s), percutaneous endoscopic approach); XNS4032
(Reposition of thoracic vertebra using magnetically controlled growth
rod(s), open approach); and XNS4432 (Reposition of thoracic vertebra
using magnetically controlled growth rod(s), percutaneous endoscopic
approach). These new ICD-10-PCS procedure codes are effective on
October 1, 2016.
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, in the proposed rule (81 FR
25040), we stated that we were 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 acknowledged that the applicant noted
that the MAGEC[supreg] Spine does not require the patient to endure the
potential and adverse effects of additional surgeries, we stated that
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, in the proposed rule, we stated 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 clearance 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

[[Page 56889]]

need for scheduled distraction surgeries, as the applicant pointed out
are needed with the use of TGRs. Therefore, in the proposed rule, we
stated that 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 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, in the proposed rule we stated that we
were concerned that the technology may not be considered ``new'' for
the purposes of new technology add-on payments (81 FR 25041). We also
invited public comments on whether the MAGEC[supreg] Spine meets the
newness criterion.
Comment: The applicant submitted public comments that responded to
CMS' concerns presented in the proposed rule with regard to newness.
The applicant provided a working definition of ``mechanism of action''
of spinal distraction systems as: The combined device-technique
interaction with tissues that produces a therapeutic effect. The
combined device-technique interaction includes the following elements:
Initial fusion; device mechanism; spinal growth control; and spinal
curvature control.
The applicant distinguished MAGEC[supreg] Spine's mechanism of
action as distinct from the Shilla system's tissue interaction because
the Shilla system provides passive growth guidance and the
MAGEC[supreg] Spine provides active distraction by noninvasive
magnetically controlled lengthening. Furthermore, MAGEC[supreg] Spine
enables a surgeon to customize or adjust a patient's therapy with more
frequent, noninvasive, magnetic external remote controlled sessions.
The applicant described the MAGEC[supreg] Spine's device mechanism as
distinct from the Shilla system in that the MAGEC[supreg] Spine
system's initial fusion is the cephalad and caudad ends of the spine
whereas the Shilla system's initial fusion is at the apex of the spinal
curve. The MAGEC[supreg] Spine system drives growth with active
noninvasive rod distractions whereas the Shilla system provides passive
growth guidance with sliding anchors and limited stability.
The applicant further described the MAGEC[supreg] Spine's device
mechanism as distinct from TGRs in that the MAGEC[supreg] Spine system
consists of magnetically controlled growing rods and actuators and an
external remote, whereas, TGRs device mechanism consists of growing
rods and tandem connectors which must be surgically removed and
replaced with longer rods to achieve the desired lengthening. The
applicant further compared the MAGEC[supreg] Spine system's tissue
interaction as frequent noninvasive lengthening in an awake patient to
control and adapt spine growth to a child's development, with low
complication rates and few repeated surgeries. TGRs tissue interactions
include manual surgical lengthening under general anesthesia at 6-month
intervals.
Response: We appreciate the details and input provided by the
applicant in response to our concerns. As the commenter has described
above, we agree that the MAGEC[supreg] Spine's mechanism of action is
distinct from the TGR and the Shilla system. Specifically, the
MAGEC[supreg] Spine's noninvasive method of distraction is distinct
from TGRs surgical distraction and the MAGEC[supreg] Spine's active
distraction is distinct from the Shilla system's passive distraction.
After considering the additional information submitted by the applicant
in response to our concerns, which supported the technology's
uniqueness in achieving spinal rod distraction, we agree with the
applicant that the MAGEC[supreg] Spine meets the newness criterion, and
we consider the technology to be ``new'' as of April 1, 2014.
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 applicant stated that the majority of the Medicare
population is 65 years of age and older, while individuals 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.

[[Page 56890]]

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25041), we stated
that 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, in the proposed rule,
we stated that we were 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 invited public comments on whether the MAGEC[supreg] Spine meets
the cost criterion, particularly with regard to the concerns we raised
in the proposed rule.
Comment: In response to our concerns, the applicant reported that
it had conducted a new cost analysis using the FY 2015 MedPAR data set.
Specifically, the applicant searched for cases with patients less than
25 years of age that had the following ICD-9-CM diagnosis codes
(737.30, 737.32, 737.34, 737.39, 737.43 or 754.2) that map to MS-DRGs
456, 457, and 458. This resulted in fewer than 11 cases in each of the
applicable MS-DRGs (456, 457 and 458); therefore, the applicant
suppressed the exact number of cases to protect patient privacy. The
applicant stated that the total number of cases across all three MS-
DRGs was between 11 and 20. This resulted in average case weighted
charge per case of $329,370. The applicant then removed charges for the
prior technology (traditional growth rods) and standardized the charges
which resulted in a case-weighted standardized charge per case of
$228,627. Using the FY 2016 IPPS Table 10 thresholds, the average case-
weighted threshold amount was $170,061 (all calculations above were
performed using unrounded numbers). Without inflating the charges and
adding charges for the device to the standardized case-weighted charge
per case, the applicant determined that the standardized case-weighted
charge per case exceeds the average case-weighted threshold amount.
Because the MedPAR analysis identified only a few cases, the
applicant provided additional charge data to demonstrate it would meet
the cost criterion. The applicant explained that patients who receive
the MAGEC[supreg] Spine technology have an average length of stay of 5
days in the hospital. To compute the average implantation procedure
costs for the MAGEC[supreg] Spine, the applicant used FY 2015 MedPAR
data and determined average implantation procedure costs for MS-DRGs
456, 457, and 458 of $40.932. The applicant noted that 20 percent of
cases use a single rod while 80 percent of cases use a dual rod. The
applicant then computed an average weighted cost of $43,049 for single
and dual rod construct of the device (which includes costs for pedicle
and rod screws and hooks as well as some connectors). This resulted in
a subtotal of total costs of $83,981 ($40.932 + $43,049). The applicant
then deducted $13,845 for total costs related to the previous
technology (costs for TGR). This resulted in total costs of $70,136
related to the MAGEC[supreg] Spine ($83,981 - $13,845). To convert the
total costs to charges, the applicant applied divided the total costs
of $70,136 by the national average implantable device CCR of 0.337 from
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49429) which resulted in
total charges of $208,119. Because the total charges for the
MAGEC[supreg] Spine technology of $208,119 exceed the average case-
weighted threshold amount of $170,061, the applicant maintained that
the MAGEC[supreg] Spine technology meets the cost criterion.
Response: We thank the applicant for providing these further
analyses. We agree that the applicant has demonstrated that the
MAGEC[supreg] Spine technology meets the cost criterion.
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 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 stated in the proposed rule (81 FR 25042) that we were 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

[[Page 56891]]

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 stated that we
were concerned that the MAGEC[supreg] Spine may not represent a
substantial clinical improvement over existing technologies. We also
invited public comments on whether the MAGEC[supreg] Spine meets the
substantial clinical improvement criterion.
Comment: The applicant submitted public comments that responded to
our concerns presented in the proposed rule with regard to substantial
clinical improvement. The applicant provided studies which showed
frequency of spinal lengthening improves thoracic-sacral spinal growth.
The applicant also provided studies which showed improved spinal curve
correction, increased spinal height, and decreased complications with
the MAGEC[supreg] Spine when compared to traditional growth rods.
The applicant maintained that treatment goals for Early Onset
Scoliosis (EOS) are not limited to controlling curvature and increasing
height, but also include the avoidance of surgical and nonsurgical
complications. Specifically, these additional goals include minimizing
complications, procedures, hospitalizations, and family burden. The
applicant asserted that the use of the MAGEC[supreg] Spine system
achieves curve correction, increases patient height, results in fewer
surgeries/hospitalizations (as compared to TGRs) which leads to fewer
complications and better outcomes in a fragile and vulnerable patient
population through reduced exposure to anesthesia,\6\ reduced exposure
to radiation, reduced negative psychosocial outcomes,\7\ reduced
infections risk due to fewer surgeries,\8\ and improved lung
development and weight gain.
---------------------------------------------------------------------------

\6\ Matsumoto, W.E., Abnormal psychological scores are observed
in patients with EOS. The at-risk patients are younger at the time
of their initial scoliosis surgery and the number of repetitive
surgeries. Journal of Pediatric Orthopedics, 2014, pp. 172-182.
\7\ Flynn, E., Psychological Dysfunction in Children Who Require
Repetitive Surgery for Early Onset Scoliosis. Journal of Pediatric
Orthopedics, 2014, pp. 594-599.
\8\ Kabirian, et al., Deep Surgical Site Infection Following
2344 Growing-Rod Procedures for Early-Onset Scoliosis: Rick Factors
and Clinical Consequences, Journal of Bone and Joint Surgery, 2014,
pp. 2739-2744.
---------------------------------------------------------------------------

Several commenters indicated improvements in clinical outcomes and
decreased morbidity in this patient population. Other commenters who
were parents with children who have converted to the MAGEC[supreg] rods
from traditional growth rods and body casts considered the
MAGEC[supreg] rods the best option to eliminate pain and
hospitalization. Several other commenters supported approval of new
technology add-on payment for the MAGEC[supreg] Spine System.
Response: We appreciate the commenters' support and comments
addressing our concerns. We agree that the MAGEC[supreg] Spine
represents a substantial clinical improvement over existing
technologies because it avoids surgical complications. Specifically,
the MAGEC[supreg] Spine rods can be nonsurgically lengthened,
eliminating the need for subsequent surgical intervention for revision.
After consideration of the public comments we received, we have
determined that the MAGEC[supreg] Spinal Bracing Distraction system
meets all of the criteria for approval of new technology add-on
payments for FY 2017. Cases involving the MAGEC[supreg] Spinal Bracing
Distraction system that are eligible for new technology add-on payments
will be identified by the ICD-10-PCS procedure codes XNS0032, XNS0432,
XNS3032, XNS3432, XNS4032, and XNS4432. With the new technology add-on
payment application, the applicant stated that the total operating cost
of the MAGEC[supreg] Spine is $17,500 for a single rod and $35,000 for
a dual rod. It is historical practice for CMS to make the new
technology add-on payment based on the average cost of the technology
and not the maximum. For example, in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53358), we approved new technology add-on payments for
DIFICID^TM based on the average dosage of 6.2 days rather
than the maximum 10 day dosage. As noted above, 20 percent of cases use
a single rod while 80 percent of cases use a dual rod. As a result, the
weighted average cost for a single and dual MAGEC[supreg] Spine is
$31,500 (((0.2 * $17,500) + (0.8 * $35,000))). We note that the costs
for pedicle and rod screws and hooks as well as some connectors are not
unique to the MAGEC[supreg] Spine as these components are generic to
TGR. Therefore, they are not considered new and are not included in the
costs above. Under Sec. 412.88(a)(2), new technology add-on payments
are limited 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 use of the MAGEC[supreg] Spinal Bracing Distraction
system is $15,750 for FY 2017.
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 clearance for its use on January 27, 2015.
The applicant submitted a request for an unique ICD-10-PCS procedure
code and was granted approval for the following code: XLRPXL2
(Replacement of Skin using Porcine Liver Derived Skin Substitute,
External Approach, New Technology Group 2). The new

[[Page 56892]]

code is effective on October 1, 2016 (FY 2017).
Comment: One commenter asserted that an unique ICD-10-PCS procedure
code for procedures involving the use of the MIRODERM is not necessary
because the use of this product should coincide with the same coding
used for all cellular and/or tissue-based products (CTPs).
Response: As noted above, an unique ICD-10-PCS procedure code was
created for procedures involving the use of the MIRODERM in Section
``X'' of the ICD-10-PCS codes. As discussed in the FY 2016 IPPS/LTCH
final rule (80 FR 49434), Section ``X'' of the ICD-10-PCS was created
to identify and describe new technologies and medical services for
purposes of new technology, or that capture other new technologies that
are not currently classified within the ICD-10-PCS. The Section ``X''
codes identify new medical services and technologies that are not
usually captured by coders, or that do not usually have the desired
specificity within the current ICD-10-PCS structure required to capture
the use of these new services and technologies. We believe that the
issuance of a unique ICD-10-PCS procedure code in Section ``X'' of the
ICD-10-PCS for procedures involving the use of the MIRODERM is an
example of why we created Section ``X.''
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 in its application 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 stated in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25042) that we were concerned that MIRODERM
employs the same mechanism of action as other wound matrix treatments.
Although the applicant had 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 stated that 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 or cleared 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 or
cleared wound treatment matrixes. Because it appeared that the MIRODERM
may be substantially similar to currently approved or cleared wound
treatment matrixes, we stated that we were concerned the technology may
not be considered ``new'' for the purposes of new technology add-on
payments. We also invited public comments on whether MIRODERM meets the
newness criterion in the proposed rule.
Comment: The applicant commented that, by definition, the native
tissue reaction to liver tissue compressed into a biologic mesh will be
different than other highly processed tissue sources. According to the
applicant, the ``gentleness'' of the unique and patent-protected
perfusion decellularization process results in a fully intact
decellularized liver matrix, complete with a mix of proteins not
contained in matrices decellularized by other means. The applicant
further stated that the remaining large vascular structures in the
perfusion decellularized liver matrix provide an entirely new and
enhanced conduit for revascularization and remodeling.
The applicant noted that MIRODERM is the only wound matrix derived
from the porcine liver utilizing perfusion decellularization
technology, which has been highly published by numerous leading
academic institutions for its ability to decellularize the whole liver
while retaining the native architecture and vasculature. The applicant
stated that preclinical studies have demonstrated the importance of the
preexisting vasculature in cellular migration into the matrix and
subsequent revascularization. The vascular density within liver tissue
far exceeds that of other tissues that are used to derive acellular
skin substitutes including dermis, urinary bladder, pericardial sac and
small intestine submucosa. For these reasons, the applicant believed
that MIRODERM is unique compared to other currently approved wound
treatment matrixes.
One commenter stated that MIRODERM is substantially similar to
existing wound matrix treatments because it supplies the wound bed an
extracellular matrix (ECM). According to the commenter, treatments
using an acellular matrix closely resemble native ECM. The commenter
explained the following with regard to wound matrix treatments: While
the ECM may act as a scaffold for matrix metalloproteinase (MMPs) to
bind to and break down collagen in the product, epithelial cells,
fibroblasts and vascular endothelial cells will migrate into the wound
and proliferate; having reduced levels of MMPs to be released back into
the wound as the collagen matrix breaks down, the ECM rebalances the
protease and growth factor levels in the wound, thus allowing wound to
heal.
The commenter stated that the source of skin wound matrix
treatments is collagen and the only difference between MIRODERM and
other wound matrix treatments is the source of the ECM. The commenter
noted that recent skin wound matrix products such as Kerecis, an intact
fish skin that is rich in naturally occurring Omega3
polyunsaturatedfatty acids and is used to regenerate damaged human
tissue, have been approved for use in the treatment of chronic wounds.
According to the commenter, when grafted onto

[[Page 56893]]

damaged human tissue, such as a diabetic ulcer, the acellular material
recruits the body's cells from the wound perimeter and these cells are
then incorporated into the fish skin, which is ultimately converted
into functional, living tissue. The commenter explained that fish skin
structure resembles the native structure of human skin and studies have
shown that cells and stem cells proliferate faster in this structure
than in other materials such amnion-membrane and other mammalian-
sourced materials.
Response: After consideration of the public comments we received,
we believe that MIRODERM's mechanism of action is similar to other
acellular skin substitutes currently available for wound healing. We
note that MIRODERM provides a scaffold of collagen with a mix of matrix
proteins, both of which are similar to other acellular skin
substitutes. Therefore, although the applicant asserted that MIRODERM's
matrix proteins are different from the proteins found in other
acellular skin substitutes, the mechanism of wound healing carried out
by the body in the presence of the acellular substitutes is the same.
We note that the applicant also indicated that the remaining large
vascular structures in the perfusion decellularized liver matrix
provide an entirely new and enhanced conduit for revascularization and
remodeling. However, the applicant did not provide any data
illustrating that MIRODERM's acellular porcine liver skin substitute is
a conduit for revascularization and remodeling. Therefore, we are
unable to verify the applicant's assertion.
We believe that the MIRODERM is substantially similar to currently
approved or cleared wound treatment matrixes because it meets all three
of the criteria identified above and, therefore, does not meet the
newness criterion. Therefore, because the MIRODERM is not considered
``new,'' it is not eligible for new technology add-on payments for FY
2017.
With regard to the cost criterion, the applicant conducted the
following 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

[[Page 56894]]

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 invited public comments on whether the MIRODERM technology meets
the cost criterion in the proposed rule.
Comment: One commenter stated that the evaluation of the cost
criterion using the average standardized case-weighted threshold amount
to determine cost savings is not unique to the MIRODERM.
Response: We are not certain what the commenter is referring to
with regard to the evaluation of the cost criterion for this technology
because the criterion measures and determines whether a new technology
is inadequately paid, but does not measure or determine cost savings.
Based on the applicant's analysis, it appears that the MIRODERM meets
the cost criterion. However, because we believe that the MIRODERM is
substantially similar to other wound treatment matrixes for the reasons
discussed earlier and, therefore, does not meet the newness criterion,
it is not eligible for new technology add-on payments.
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 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 stated in the proposed rule (81 FR 25044) that we were 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 stated that we were
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 invited public comments on
whether MIRODERM meets the substantial clinical improvement criterion
in the proposed rule.
Comment: The applicant submitted additional clinical data,
including a case series of seven additional cases that were selected to
receive MIRODERM as a treatment for diabetic foot ulcers (DFU). The
commenter noted the following: the duration of the preexisting chronic
wound prior to MIRODERM treatment ranged from 5 to 48 months and 3 of
the 6 patients in the evaluation healed after treatment with MIRODERM
within the 12-week study duration. The applicant stated that the
results obtained by case series demonstrated a 50-percent closure rate
of hard to heal DFUs that had previously failed advanced biologic wound
care treatment.
The commenter also submitted one additional case study that had
been submitted for presentation at a national wound conference. The
patient was a 54-year old male that sustained a myocardial infarction
in November 2015. This necessitated a coronary artery bypass graft
surgical procedure. A major postoperative complication of the CABG
procedure was bilateral pulmonary embolism with respiratory failure.
The patient also developed bilateral lower extremity deep venous
thrombosis and initiated Heparin therapy. This triggered a Heparin
induced thrombocytopenia resulting in bilateral forefoot gangrene and
bilateral lower extremity compartment syndrome.
The commenter noted the following: The patient underwent an open
transmetatarsal (TMA) of the left forefoot and extensive skin and deep
tissue of the plantar foot extending to the distal heel; the wound
remained open due to a lack of appropriate plantar soft tissue coverage
with exposed muscle and bone; local wound care consisted of negative
pressure wound therapy (NPWT) initially which was discontinued due to
severe pain; enzymatic debridement with local wound care continued
until the initial application of a perfusion decellularized porcine
hepatic wound matrix. The patient was healed to a functional outcome.
The commenter further stated that, with regard to perfusion
decellularization technology, the MIRODERM encompasses a method to
decellularize and recellularize whole or partial organs and tissues.
The commenter explained that the technology is based on a proprietary
method for removing all cells, while maintaining a non-cellular (called
extracellular) matrix or scaffold with its original architecture,
mechanical properties, and a vascular network capable of maintaining
physiological pressures. The commenter noted that the most widely
recognized method of removing cells in use today is ``immersion
decellularization,'' in which an organ is soaked in a vat of

[[Page 56895]]

harsh detergent, which migrates from the outer surface inward and then
back out once the cells are dissolved. The commenter stated that this
method damages the organ capsule through mechanical or enzymatic
methods, and the cells within the organ begin to break down before
being exposed to the detergent, releasing various enzymes that also
degrade the surrounding scaffold with the end result a partially
degraded scaffold with a compromised vascular network and an outer
organ capsule that will not maintain physiological pressures when
tested. The commenter further stated that cells will no longer
recognize this degraded scaffold as the appropriate environment in
which to become functional.
The commenter added that perfusion decellularization technology is
in contrast to immersion decellularization and overcomes the hurdles of
immersion by facilitating rapid access to the whole organ through the
native vasculature by cannulating the vasculature and perfusing
(running) a mild detergent solution through the native blood vessels,
as opposed to immersing the organ. The commenter stated that scaffolds
created with this technology are capable of receiving and incorporating
a variety of cell types, depending on the organ scaffold utilized.
Moreover, the commenter believed that as cell type discovery continues
to grow, the fact that scaffolds created with this technology are of a
natural biological design make them an ideal template to support the
growth and differentiation of stem cells into functional tissues,
organs and bioidentical test beds.
One commenter stated that there are other CTPs with substantiated
evidence of a randomized clinical trial that also demonstrate healing
in one or two applications (GraftJacket and DermACELL). Additionally,
the commenter stated there has been no published randomized clinical
trial regarding the use of the MIRODERM in the treatment of chronic
wound applications. The commenter concluded that citing two case
studies, one involving a diverting colostomy, is not sufficient
evidence.
Response: We appreciate the commenters' input. However, because we
believe that the MIRODERM is substantially similar to other wound
treatment matrixes for the reasons discussed earlier and, therefore,
does not meet the newness criterion, it is not eligible 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 invited public
comments on whether Idarucizumab meets the newness criterion in the
proposed rule.
Comment: Several commenters stated that there is currently no other
reversal agent on the U.S. market for patients who are being treated
with Dabigatran and experience severe bleeding.
The applicant submitted public comments reiterating its assertion
that Idarucizumab satisfies the newness criterion. The applicant
emphasized that Idarucizumab was developed as a specific reversal agent
to Dabigatran, an anticoagulant that works by directly inhibiting
thrombin, thereby blocking the final step of the coagulation cascade.
The applicant further defined the potential adverse effects of
anticoagulant therapy and the increased risk of bleeding that may be
life-threatening or fatal which may require emergent medical and
surgical procedures and the need for rapid reversal of an
anticoagulation to perform the procedure in a timely manner. The
applicant reiterated that Idarucizumab was developed as a specific
reversal agent to Dabigatran, and that Idarucizumab was granted FDA
approval on October 16, 2015.
Response: We appreciate the details and input provided by the
commenters and the applicant on whether Idarucizumab meets the newness
criterion. After review of the information provided by the applicant
and consideration of the public comments we received, we believe that
Idarucizumab meets the newness criterion and we consider the technology
to be ``new'' as of October 16, 2015, when the technology received FDA
approval.
With regard to the cost criterion, in the proposed rule, we noted
that 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

[[Page 56896]]

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 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 standardized case-weighted 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 standardized case-weighted 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 standardized case-weighted
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 standardized case-weighted 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 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 this analysis. We
invited public comments regarding the applicant's analyses with regard
to the cost criterion in the proposed rule.
Comment: The applicant submitted public comments reiterating its
costs analysis results. According to the applicant, the standardized
case-weighted charge per case exceeds the average case-weighted
threshold for Idarucizumab. The applicant stated that CMS' summary in
the proposed rule did not accurately reflect the analysis submitted by
the applicant with its application. Specifically, the applicant stated
that, with regard to the analysis cases that mapped to the top 75
percent of the 684 MS-DRGs identified, CMS listed the inflated average
standardized case-weighted charge per case as $55,872 and the average
case-weighted threshold amount across all 87 MS-DRGs as $63,323. The
commenter stated that the inflated average standardized case-weighted
charge per case should have been $63,323 and the average case-weighted
threshold amount across all 87 MS-DRGs should have been $52,753.
Response: We agree with the applicant that we inadvertently listed
the wrong amounts in the proposed rule. The amounts listed above by the
applicant are indeed the correct amounts. Under both analyses provided
by the applicant, the inflated average standardized case-weighted
charge per case exceeds the average case-weighted threshold amount.
Therefore, we agree that Idarucizumab meets 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.\9\

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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.
---------------------------------------------------------------------------

\9\ 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.\10\ 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.
---------------------------------------------------------------------------

\10\ Pradaxa[supreg] (Dabigatran Etexilate Mesylate) prescribing
information. Ridgefield, CT: Boehringer Ingelheim; 2014.
---------------------------------------------------------------------------

The applicant also provided interim data from an ongoing Phase III
trial ^{11 12} 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 with the 99th percentile of the Dabigatran levels measured
in the RE-LY trial.
---------------------------------------------------------------------------

\11\ 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.
\12\ 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 invited
public comments on whether Idarucizumab meets the substantial clinical
improvement criterion in the proposed rule.
Comment: Several commenters supported the substantial clinical
improvement criterion for Idarucizumab. Several commenters stated that,
aside from Idarucizumab, the only alternative for anticoagulation
reversal in patients being treated with Dabigatran is withholding the
drug and observing the patient for bleeding. The commenters noted that
this approach is not ideal in the case of severe bleeding when rapid
reversal is needed for emergent surgical procedures. The applicant also
reiterated its assertion that Idarucizumab satisfies the clinical
improvement criterion, citing that prior to the approval of
Idarucizumab, patients treated with Dabigatran who experienced severe
bleeding were often managed by supportive care alone, such as fluid
administration and blood transfusions. The applicant stated that
Idarucizumab has been shown to reverse the anticoagulant effect of
Dabigatran immediately in patients needing rapid reversal of
anticoagulation in emergency situations.
Response: We appreciate the comments supporting the substantial
clinical improvement criterion for Idarucizumab. We agree that
Idarucizumab meets the substantial clinical improvement criterion.
After consideration of the public comments we received, we have
determined that Idarucizumab meets all of the criteria for approval of
new technology add-on payments. Therefore, we are approving new
technology add-on payments for Idarucizumab for FY 2017. Cases
involving Idarucizumab that are eligible for new technology add-on
payments will be identified by ICD-10-PCS procedure code XW03331.
In its application, the applicant estimated that the average
Medicare beneficiary would require a dosage of 5 grams for
Idarucizumab. According to the applicant, the wholesale acquisition
cost for one dose is $3,500. 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 Idarucizumab is
$1,750 for FY 2017.
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

[[Page 56898]]

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 produce lower rates of device
complications such as debris and inflammation.
On October 27, 2014, the Titan Spine nanoLOCK^TM received
FDA clearance 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 clearance 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. The applicant
indicated that, due to manufacturing delays, all of the devices above
were not available on the market until July 8, 2016. Therefore, the
applicant believes that all of the devices above are new as of July 8,
2016.
The applicant submitted a request for a unique ICD-10-PCS procedure
code and was granted approval for the following procedure codes under
New Technology Group 2: XRG0092 (Fusion of occipital-cervical joint
using nanotextured surface interbody fusion device, open approach);
XRG1092 (Fusion of cervical vertebral joint using nanotextured surface
interbody fusion device, open approach); XRG2092 (Fusion of 2 or more
cervical vertebral joints using nanotextured surface interbody fusion
device, open approach); XRG4092 (Fusion of cervicothoracic vertebral
joint using nanotextured surface interbody fusion device, open
approach); XRG6092 (Fusion of thoracic vertebral joint using
nanotextured surface interbody fusion device, open approach); XRG7092
(Fusion of 2 to 7 thoracic vertebral joints using nanotextured surface
interbody fusion device, open approach); XRG8092 (Fusion of 8 or more
thoracic vertebral joints using nanotextured surface interbody fusion
device, open approach); XRGA092 (Fusion of thoracolumbar vertebral
joint using nanotextured surface interbody fusion device, open
approach); XRGB092 (Fusion of lumbar vertebral joint using nanotextured
surface interbody fusion device, open approach); XRGC092 (Fusion of 2
or more lumbar vertebral joints using nanotextured surface interbody
fusion device, open approach); and XRGD092 (Fusion of lumbosacral joint
using nanotextured surface interbody fusion device, open approach).
These new ICD-10-PCS procedure codes are effective on October 1, 2016.
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 because all of the devices use
the Titan Spine nanoLOCK^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

[[Page 56899]]

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 \13\
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 \14\ 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.
---------------------------------------------------------------------------

\13\ Olivares-Navarrete R, Hyzy S, Gittens R. Titanium Alloys
Regulate Osteoblast Production of Angiogenic Factors. The Spine
Journal, 2013, ep.13. 1563-1570.
\14\ 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, in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25047), we stated that we
were 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 stated that we believe that the
Titan Spine nanoLOCK^TM interbody devices may be
substantially similar to currently available titanium interbody
devices.
We invited 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 in the proposed rule.
Comment: One commenter stated the Titan Spine nanoLOCK's rough
topography is not unique to Titan Spine's nanoLOCK^TM
interbody devices. The commenter listed other titanium devices with
micro and macro surfaces which also stimulate bone growth. According to
the commenter, the studies provided by the Titan Spine applicant show
that any roughened surface topography is associated with an increase in
the apha2-beta1 integrin mRNA expression, which is favorable to
osteogenesis.
Response: We appreciate the commenter's comments regarding the
Titan Spine Endoskeleton[supreg] nanoLOCK^TM Interbody
Devices. In the proposed rule, we stated concerns that Titan Spine
Endoskeleton[supreg] nanoLOCK^TM Interbody Devices may be
substantially similar to currently available titanium interbody
devices. Although Titan Spine Endoskeleton[supreg]
nanoLOCK^TM Interbody Devices employ nanotechnology in their
surface manufacturing technique to produce macro, micro, and nano
surfaces, there are other titanium devices that also produce porous
surfaces which promote an osteogenic response.
After consideration of the public comments we received, we remain
concerned that the Titan Spine Endoskeleton[supreg]
nanoLOCK^TM Interbody Devices are substantially similar to
other titanium spinal implants and, therefore, as to whether the Titan
Spine Endoskeleton[supreg] nanoLOCK^TM Interbody 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 clearance 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

[[Page 56900]]

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
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 invited 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 in the proposed rule. We did not receive any
public comments concerning costs for Titan Spine nanoLOCK^TM
for Lumbar DDD. We believe Titan Spine nanoLOCK^TM for Lumbar
DDD meets the cost criterion.
(2) Titan Spine Endoskeleton[supreg] nanoLOCK^TM Interbody
Device for Cervical DDD
As previously mentioned, Titan Spine received FDA clearance 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 invited public comments on whether the Titan Spine
nanoLOCK^TM for Cervical DDD meets the cost criterion in the
proposed rule. We did not receive any public comments concerning costs
for Titan Spine nanoLOCK^TM for Cervical DDD. We believe
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.

[[Page 56901]]

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 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 stated in the proposed rule (81 FR 25049) that we were 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 further stated that we were 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 stated that we were 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 invited public comments
on whether the Titan Spine nanoLOCK^TM technologies meet the
substantial clinical improvement criterion in the proposed rule.
Comment: Several commenters supported that Titan Spine
Endoskeleton[supreg] nanoLOCK^TM Interbody Devices for Lumbar
DDD and Cervical DDD represent a substantial clinical improvement over
existing technologies. The commenters cited enhanced clinical outcomes
with Titan Spine's predicate devices. Commenters cited the success of
bench studies which show improved bone growth with nano-textured
titanium surfaces. Several commenters have used Titan Spine's predicate
devices and stated satisfaction with these predicate devices.
Response: We appreciate the commenters' statements concerning Titan
Spine's predicate devices. However, none of the commenters cited actual
clinical data that used the Titan Spine Endoskeleton[supreg]
nanoLOCK^TM Interbody Device for Lumbar DDD and Cervical DDD.
As mentioned above, the commenters cited data with regard to Titan
Spine's predicate devices. Therefore, our concerns stated in the
proposed rule are still the same. Due to the lack of actual clinical
data using the Titan Spine Endoskeleton[supreg] nanoLOCK^TM
Interbody Device for Lumbar DDD and Cervical DDD, we are unable to
determine if Titan Spine Endoskeleton[supreg] meets the substantial
clinical improvement criterion. Therefore, we are not approving new
technology add-on payments for the Titan Spine Endoskeleton[supreg]
nanoLOCK^TM Interbody Device for Lumbar DDD and Cervical DDD
for FY 2017. The applicant can reapply in FY 2018 and provide
additional clinical data supporting substantial clinical improvement.
e. 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, also known as
sinusoidal obstruction syndrome (SOS), is a potentially life-
threatening complication of hematopoietic stem cell transplantation
(HSCT), with an incidence rate of 8 percent to 15 percent. 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 multi-organ failure
face an immediate risk of death, with a mortality rate of more than 80
percent when only supportive care is used. The applicant asserts that
Defitelio[supreg] improves the survival rate of patients with VOD with
multi-organ failure by 23 percent.
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 for a minimum of 21 days. The recommended dosage
is 6.25 mg/kg body weight (25mg/kg/day). 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.
In the proposed rule, we noted that the applicant had applied for a
unique ICD-10-PCS procedure code to identify the use of
Defitelio[supreg]. In this final rule, we note that the new ICD-10-PCS
procedure codes XW03392 (Introduction of defibrotide sodium
anticoagulant into peripheral vein, percutaneous approach) and XW04392
(Introduction of defibrotide sodium anticoagulant into central vein,
percutaneous approach) were established in New Technology Group 2 as
shown in Table 6B (New Procedure Codes) and will uniquely identify
procedures involving the Defitelio[supreg] technology. More information
on this

[[Page 56902]]

request and the approval can be found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-MeetingMaterials.html and the FY 2016 New ICD-10-PCS Codes can be
found at the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/2016-ICD-10-PCS-and-GEMs.html.
As stated in the proposed rule, with regard to the newness
criterion, according to the manufacturer, Defitelio[supreg] received
FDA approval on March 30, 2016. We subsequently learned that
Defitelio[supreg] was granted Orphan Drug Designation for the treatment
of VOD in 2003 and for the prevention of VOD in 2007. It has been
available to patients as an investigational drug through an expanded
access program since 2007. The applicant's New Drug Application (NDA)
for Defitelio[supreg] received FDA approval on March 30, 2016.
After the proposed rule was issued and after further analysis, we
recognized that Defitelio[supreg] may no longer be considered ``new''
due to the drug's prior Orphan Drug Designation and availability
through an expanded access program. The regulations at Sec.
412.87(b)(2) state 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 (depending on when a new code is assigned and
data on the new service or technology become available for DRG
recalibration). After CMS has recalibrated the DRGs, based on available
data, to reflect the costs of an otherwise new medical service or
technology, the medical service or technology will no longer be
considered ``new'' under the criterion of this section. As we have
indicated in the past, we generally believe that the newness period
begins on the date that FDA approval is granted. The FDA approval date
is typically the date when new technologies are available on the market
and as a result begin to be reflected within the MS-DRGs cost data. As
noted above, Defitelio[supreg] was first granted Orphan Drug
Designation by the FDA in 2003.
The applicant verified that it did not recover the costs of making
Defitelio[supreg] available under its 2003 Orphan Drug Designation or
through its 2007 FDA grant of expanded access. Therefore, the applicant
asserted that because cost recovery did not occur until after the NDA
approval on March 30, 2016, the drug was not included in the data used
to calculate the DRG relative weights, and it is inappropriate to
consider prior availability of the drug as constituting an FDA approval
in the context of the newness criterion. As we discuss in section
II.H.4. and in our discussion of Voraxaze included in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53348), the period of newness does not
necessarily start with the FDA approval date for the medical service or
technology or the issuance of a distinct procedure code. Instead, the
newness period begins with the date of availability of the product on
the U.S. market, which is when data become available. The applicant
confirmed that Defitelio[supreg] was not available on the U.S. market
as of the FDA NDA approval date of March 30, 2016, which we believed to
be the start of the newness period in the proposed rule. According to
the applicant, commercial packaging could not be completed until the
label for Defitelio[supreg] was finalized with FDA approval, and that
commercial shipments of Defitelio[supreg] to hospitals and treatment
centers began on April 4, 2016. We agree that, based on this
information, the newness period for Defitelio[supreg] begins on April
4, 2016, the date of its first commercial availability.
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,
in the proposed rule, we stated that 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 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 stated in the proposed rule that
we were 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, in the proposed rule, we stated that
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, in the proposed
rule, we stated that 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 non-approved
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 stated our concern 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 also stated in the proposed rule that we were
concerned that Defitelio[supreg] may not produce outcomes that are
significantly different than the outcomes of patients treated with
supportive care.
We invited public comments on whether Defitelio[supreg] is
substantially similar to existing technologies and whether it meets the
newness criterion.
Comment: With regard to our concern that we cannot determine
whether Defitelio[supreg] is substantially similar to other
technologies without a full understanding of its mechanism of action,
the applicant provided additional information about the

[[Page 56903]]

pathophysiology of VOD and how it is addressed by Defitelio[supreg]'s
dual mechanism of action consisting of: (1) Endothelial cell protection
and stabilization, and (2) enhancement of plasmin enzymatic activity to
restore thrombo-fibrinolytic balance. According to the applicant, this
two-pronged mechanism of action sets Defitelio[supreg] apart from
supportive care agents available to treat VOD with multi-organ failure.
The applicant described the damage, detachment, and death of
endothelial cells as triggered first by conditioning chemotherapy and/
or radiotherapy, a necessary part of the HSCT conditioning regimen, and
then by complications related to the HSCT procedure itself. The
applicant asserted that progressive deterioration of endothelial cells
results in tissue damage characteristic of VOD with multi-organ
failure. In particular, clots form at the site of endothelial cell
damage and obstruct small veins in the liver. The hepatocellular
necrosis and vascular occlusion resulting from endothelial cell damage
ultimately leads to liver, pulmonary, and renal failure which can
culminate in death.
The applicant provided additional information from numerous
clinical studies that demonstrate Defitelo[supreg]'s robust and
reproducible ability to protect endothelial cells from cell damage,
particularly from chemotherapy-induced cell death, as well as its
ability to restore the thrombo-fibrinolytic balance, improving blood
circulation. The applicant reiterated that Defitelio[supreg] is the
only FDA-approved treatment for VOD with multi-organ failure and that,
prior to this approval, patients only received supportive care. While
supportive care agents with anti-coagulant activity are available, they
do not have the unique dual mechanism of action that Defitelio[supreg]
possesses, nor have they been proven to be effective in the treatment
of VOD with multi-organ failure.
With regard to our concern that cases eligible for
Defitelio[supreg] would be assigned to the same MS-DRGs that identify
cases of patients treated with supportive care for VOD with multi-organ
failure, the applicant noted that, prior to NDA approval of
Defitelio[supreg], patients with VOD with multi-organ failure would
have received supportive care alone because there were no FDA-approved
treatments for VOD. As a result, there are no charges for VOD treatment
in MS-DRG 014, MS-DRG 016, or any other MS-DRG to which cases eligible
for Defitelio[supreg] would map.
With regard to our concern 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 with supportive
care and that Defitelio[supreg] may not produce outcomes that are
significantly different than the outcomes of patients treated with
supportive care, the applicant clarified that it did include such
studies, including the Phase 3 Study #2005-01, which enabled a
comparison of Defitelio[supreg] versus supportive care alone and
demonstrated the statistically and clinically significant benefit of
Defitelio[supreg] over supportive care. The results of Study #2005-01
are described below in our discussion of whether Defitelio[supreg]
meets the substantial clinical improvement criterion.
Response: We appreciate the applicant's input and the detailed
explanation of Defitelio[supreg]'s mechanism of action and the
pathophysiology of VOD with multi-organ failure. We acknowledge that,
as the only FDA-approved treatment for VOD with multi-organ failure,
the applicant believed there are no charges for VOD treatment in the
MS-DRGs claims data. We also acknowledge that the applicant submitted
data from the Phase 3 Study #2005-01 to demonstrate that the improved
outcomes among patients treated with Defitelio[supreg] compared to
patients treated only with supportive care are statistically
significant and valid. After considering the additional information
submitted by the applicant, we have determined that Defitelio[supreg]
is not substantially similar to any other technologies currently on the
U.S. market for the treatment of VOD with multi-organ failure, and we
agree that Defitelio[supreg] meets the newness criterion.
With regard to the cost criterion, in the proposed rule, we stated
that 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.

Table Submitted by Applicant: 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
Transplant (HSCT) (at 41.01......................... otherwise specified.
least one code). 41.02......................... Autologous bone marrow
41.03......................... transplant without purging.
41.04......................... Allogeneic bone marrow
transplant with purging.
Allogeneic bone marrow
transplant without purging.
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.

[[Page 56904]]

B..................... Liver Injury (at least 453.xx........................ Other venous embolism and
one code). 570.xx........................ thrombosis.
573.8......................... Acute and subacute necrosis
573.9......................... of liver.
459.89........................ Other specified disorders of
277.4......................... liver.
Unspecified disorder of
liver.
Other specified disorders of
the circulatory system.
Disorders of bilirubin
excretion.
C..................... VOD Symptoms (at least 782.4......................... Hyperbilirubinemia.
two codes). 789.1......................... Hepatomegaly.
783.1......................... Abnormal weight gain.
789.5......................... Ascites.
D..................... Multi-Organ Dysfunction 518.8x........................ Acute/Chronic Respiratory
(at least one code). 786.09........................ Failure.
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, 93.93, 93.99.... Non-invasive mechanical
ventilation.
584.X......................... Acute renal failure.
586.X......................... Renal failure unspecified.
593.9......................... Renal Failure.
39.27, 39.42, 39.95, 54.98.... Dialysis, including
hemodialysis, 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 07300 (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 PPS 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-weighted threshold amount (as shown in the table
below) without inflating the charges and without adding any charges for
Defitelio[supreg].

------------------------------------------------------------------------
Average
Average case- standardized case-
SAF Year weighted weighted charge
threshold amount per case
------------------------------------------------------------------------
2012............................ $161,469 $347,910
2013............................ 150,585 326,445

[[Page 56905]]

2014............................ 163,434 404,883
------------------------------------------------------------------------

We invited public comments on whether Defitelio[supreg] meets the
cost criterion in the proposed rule.
Comment: The applicant submitted a technical correction to update
its cost criterion analysis. According to the applicant, the 1-year
inflation factor from the FY 2016 IPPS/LTCH PPS proposed rule (80 FR
24632) was used in the sensitivity analysis included in its application
instead of the 1-year inflation factor from the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49784). The applicant maintained that, in the revised
sensitivity analysis with the updated inflation factor, the average
standardized case-weighted charge per case for the applicable MS-DRGs
exceeded the average case-weighted threshold amount without adding any
charges for Defitelio[supreg]. In the applicant's initial analysis
using the 1-year inflation factor of 1.048116 from the proposed rule,
the average standardized case-weighted charges exceeded the average
case-weighted MS-DRG thresholds by an average of $200,323. After
applying the updated inflation factor of 1.037616, the average
standardized case-weighted charges exceeded the average case-weighted
MS-DRG thresholds by an average of $187,776 before adding charges for
Defitelio[supreg]. The 1-year inflation factor was applied four times
for 2012 claims, three times for 2013 claims, and two times for 2014
claims in order to compare 2012 through 2014 claims data to the FY 2016
IPPS/LTCH PPS final rule thresholds.
Response: We appreciate the applicant submitting the additional
information. After reviewing the sensitivity analysis included in the
original application and subsequent analysis included in the
applicant's public comment, we have determined that the
Defitelio[supreg] meets the cost criterion.
With regard to the substantial clinical improvement criterion, in
the proposed rule, we stated that 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 stated in the proposed rule that we are
concerned that there are limitations to the historical control group
used in pivotal trial 2005-01. We stated that 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 were 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 were concerned that
the patients in the historical control group cannot be appropriately
compared to patients in the treatment group. Moreover, we stated that
we believe that it is difficult to attribute improved survival and CR
rates only to Defitelio[supreg] treatment.
We invited public comments on whether Defitelio[supreg] meets the
substantial clinical improvement criterion in the proposed rule.
Comment: The applicant submitted public comments in response to
CMS' concerns presented in the proposed rule, which asserted that the
small sample size and nonrandomized trial design of Study #2005-01 is
due to the rarity of conditions that require HSCT and the low incidence
of severe VOD in patients who have undergone HSCT. In addition to the
difficulty of enrolling large numbers of patients in any study of VOD,
the high overall mortality rate among patients who develop VOD with
multi-organ failure would make a randomized controlled trial that did
not allow use of Defitelio[supreg] unethical. For these reasons, the
applicant chose a study design with a Historical Control group. The
applicant ensured that the Defitelio[supreg] treatment (n=102) and
Historical Control (n=32) groups were comparable in baseline prognostic
variables and disease characteristics using a propensity score
adjustment based on baseline prognostic factors of survival. The
applicant also ensured that the rate of VOD with multi-organ failure
observed among patients screened for the Historical Control group in
Study #2005-01 was consistent with overall incidence expected and
validated from other sources. According to the applicant, the overall
incidence of severe VOD in the screened population is estimated to be
1.5 percent, which was comparable to the incidence of 1.3 percent in an
independent registry. Overall, the applicant stated that the incidence
of VOD with multi-organ failure remains similar across diverse
populations, indicating not only a consistently low incidence, but also
that the Historical Control group for Study #2005-01 was representative
of VOD with multi-organ failure.
With regard to our concern that patients in the Historical Control
group cannot be appropriately compared to treatment group patients
because of advancements in medicine within the timeframe of the
patients in the

[[Page 56906]]

historical control group, the applicant asserted that medical advances
have only lowered the incidence of VOD with multi-organ failure but
have not improved the highly lethal outcome of the disease once it
develops. The applicant asserted that increasing utilization of
reduced-intensity conditioning regimens have led to a reduction in the
incidence of VOD over time; however, they do not improve outcomes for
those patients who develop VOD with multi-organ failure. The clinical
pattern of VOD following HSCT and its high mortality rate of over 80
percent are the same, regardless of the conditioning regimen the
patient receives. The applicant reported that during the period of
Study #2005-01, there were no improvements in the treatment of VOD once
multi-organ failure developed. Although Defitelio[supreg] was available
as an orphan drug beginning in 2003, it did not have enough
distribution to impact mortality. The Historical Control patients were
treated in a functionally similar timeframe to the Defitelio[supreg]
treatment patients and received similar care with the key exception of
the availability of Defitelio[supreg] for the treatment group.
Finally, the applicant cited a recently published study describing
Study #2005-01, which concluded that Defitelio[supreg] use in patients
with VOD with multi-organ failure post-HSCT is associated with a 23
percent improvement in survival at Day+100 post-HSCT, as well as a
clinically meaningful improvement in the rate of Complete Response by
Day+100 compared with the Historical Control.\15\ In this respect, the
applicant maintained that Defitelio[supreg] provides a promising
treatment option for patients with a high unmet medical need.
---------------------------------------------------------------------------

\15\ Richardson PG, Riches M, Kernan NA, Brochstein JA, Mineishi
S, Termuhlen AM, Phase 3 trial of defibrotide for the treatment of
severe veno-occlusive disease and multi-organ failure. Blood. 2016
Mar 31;127(13)1656-65.
---------------------------------------------------------------------------

Response: We appreciate the applicant's submittal of the additional
information and the explanation of the reasons behind the study design
that was chosen. We acknowledge the limitations due to the small
population of patients with VOD with multi-organ failure and the high
mortality rate of patients who develop the disease and that a
Historical Control group is appropriate for purposes of the Phase III
trial. We also acknowledge the appropriateness of using propensity
scoring to ensure a balanced patient population between the
Defitelio[supreg] treatment group and Historical Control group and the
statistically and clinically significant results of Study #2005-01,
which demonstrate that the Defitelio[supreg] treated group experienced
better survival and complete response rates compared to patients in the
Historical Control group.
Comment: One commenter concurred with the applicant that
Defitelio[supreg] meets the substantial clinical improvement criterion.
The commenter cited the pivotal trial for Study #2005-01, which
demonstrates that treatment with Defitelio[supreg] is associated with
higher incidence of VOD resolution and survival than what was observed
in a historically controlled cohort of patients with VOD with multi-
organ failure.\16\ The commenter asserted that, over the past two
decades, many supportive care agents have been used to treat VOD with
multi-organ failure but that none have been successful in demonstrating
superior survival. The commenter reported that, given that supportive
care agents have led to disappointing results and that there are no
other FDA-approved treatments for VOD with multi-organ failure,
Defitelio[supreg] is now universally accepted as the only treatment for
VOD currently available and should therefore be made available for
patients who need it.
---------------------------------------------------------------------------

\16\ Richardson et al. 2016.
---------------------------------------------------------------------------

Response: We agree with the commenter that Defitelio[supreg]
represents a substantial clinical improvement over existing
technologies in a patient population diagnosed with VOD with multi-
organ failure. In particular, we concur with the applicant and the
commenter that, because Defitelio[supreg] is the only FDA-approved
treatment for VOD with multi-organ failure, it represents a substantial
clinical improvement for patients afflicted with this disease, whose
alternatives include supportive care agents that have not demonstrated
improved survival or complete response rates.
After consideration of the public comments we received, we have
determined that the Defitelio[supreg] meets all of the criteria for
approval of new technology add-on payments. Therefore, we are approving
new technology add-on payments for Defitelio[supreg] for FY 2017. Cases
involving Defitelio[supreg] that are eligible for new technology add-on
payments will be identifiable by ICD-10-PCS procedure codes XW03392 and
XW04392.
In its application, the applicant estimated that the average
Medicare beneficiary would require a dosage of 25 mg/kg/day for a
minimum of 21 days of treatment. The recommended dose is 6.25 mg/kg
given as a 2-hour intravenous infusion every 6 hours. Dosing should be
based on a patient's baseline body weight, which is assumed to be 70 kg
for an average adult patient. All vials contain 200 mg at a cost of
$825 per vial. Therefore, we have determined that cases involving the
use of the Defitelio[supreg] technology would incur an average cost per
case of $151,800 (70 kg adult x 25 mg/kg/day x 21 days = 36,750 mg per
patient/200 mg vial = 184 vials per patient x $825 per vial =
$151,800). 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 new technology add-on payment
amount for a case involving the use of Defitelio[supreg] is $75,900 for
FY 2017.
f. 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 received pre-
market FDA approval of the GORE IBE device on February 29, 2016. The
applicant submitted a request for a unique ICD-10-PCS procedure code
and was granted approval for the following procedure codes: 04VC0EZ
(Restriction of right common iliac artery with branched or fenestrated
intraluminal device, one or two arteries, open approach); 04VC0FZ
(Restriction of right common iliac artery with branched or fenestrated
intraluminal device, three or more arteries, open approach); 04VC3EZ
(Restriction of right common iliac artery with branched or fenestrated
intraluminal device, one or two arteries, percutaneous approach);
04VC3FZ (Restriction of right common iliac artery with branched or
fenestrated intraluminal device, three or more

[[Page 56907]]

arteries, percutaneous approach); 04VC4EZ (Restriction of right common
iliac artery with branched or fenestrated intraluminal device, one or
two arteries, percutaneous approach); 04VC4FZ (Restriction of right
common iliac artery with branched or fenestrated intraluminal device,
three or more arteries, percutaneous endoscopic approach); 04VD0EZ
(Restriction of left common iliac artery with branched or fenestrated
intraluminal device, one or two arteries, open approach); 04VD0FZ
(Restriction of left common iliac artery with branched or fenestrated
intraluminal device, three or more arteries, open approach); 04VD3EZ
(Restriction of left common iliac artery with branched or fenestrated
intraluminal device, one or two arteries, percutaneous approach);
04VD3FZ (Restriction of left common iliac artery with branched or
fenestrated intraluminal device, three or more arteries, percutaneous
approach); 04VD4EZ (Restriction of left common iliac artery with
branched or fenestrated intraluminal device, one or two arteries,
percutaneous endoscopic approach); and 04VD4FZ (Restriction of left
common iliac artery with branched or fenestrated intraluminal device,
three or more arteries, percutaneous endoscopic approach). These new
ICD-10-PCS procedure codes are effective on October 1, 2016.
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 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 expressed concern in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25058) 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 expressed
concern 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. In the FY 2017 IPPS/LTCH PPS proposed
rule, (81 FR 25057 through 25059), we invited public comments on
whether the GORE IBE device is substantially similar to existing
technologies and whether the technology meets the newness criterion.
Comment: The manufacturer of the GORE IBE device commented that
several characteristics of the GORE IBE demonstrate that the technology
is new, including differentiated delivery mechanisms to allow for
effective use in the specific anatomy, use of a technique specific to
the iliac bifurcation, facilitation of a unique approach not necessary
in other areas of the aortic anatomy, and allowance for the only
dedicated and on-label treatment of iliac aneurysms. The manufacturer
indicated that the GORE IBE device received premarket approval on
February 29, 2016.
With respect to the mechanism of action, the manufacturer indicated
that all FDA-approved endovascular aneurysm repair (EVAR) devices
designed to treat AAAs share the same fundamental mechanism of action,
but that devices must be specifically designed to address anatomical
constraints and specific pathophysiology. Another commenter also
indicated that the GORE IBE differs from standard EVAR in that it is a
bifurcated graft that requires increased work to deploy.
Response: We appreciate the additional information provided to us
by the manufacturer and the other commenter. After reviewing the
comments, we believe that the GORE IBE is a treatment option for a new
patient population because it is the first stent-graft in its class for
patients with iliac branch involvement. As a result, there is no other
device to which to compare its mechanism of action because the GORE IBE
is unique to the patient population that it is approved for use by the
FDA. Therefore, the GORE IBE is not substantially similar to any
existing technologies because it does not meet all three of the
substantial similarity criteria.
After consideration of the public comments we received, we believe
that the GORE IBE device meets the newness criterion, and we consider
the technology to be ``new'' as of February 29, 2016, the date that the
GORE IBE device received premarket approval.
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

[[Page 56908]]

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 OR 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 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 indicated that we were 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 invited public comments on whether the GORE IBE
device meets the cost criterion, including with regard to the concerns
we raised in the proposed rule.
Comment: The manufacturer of the GORE IBE device clarified the
basis for the assumption regarding the DRG distribution of cases
involving the IBE. According to the manufacturer, its analysis utilized
a sample of 100 cases where a combination of the ICD-9 procedure and
diagnosis codes strongly suggested the use of current alternative
methods, that is, physician-developed methods, for preservation of
internal iliac flow in conjunction with EVAR. The manufacturer reported
that 80 percent were in the No MCC severity level, while 20 percent
were in the MCC severity level. The manufacturer also examined a more
conservative distribution of all EVAR cases, in which it found 87
percent with no MCC, and 13 percent with MCC. The manufacturer
indicated that, using the conservative assumption, the threshold was
still met.
Response: We appreciate the manufacturer's clarification of the
basis for the assumption regarding the MS-DRG distribution of cases.
After consideration of the public comments we received, we believe that
the GORE IBE meets the cost criterion.
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,\17\ 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

[[Page 56909]]

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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

The applicant submitted several research articles with its
application, which consisted of a few very small case series of 23
total patients published ^{18 19 20}, 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.
---------------------------------------------------------------------------

\18\ 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.
\19\ 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.
\20\ 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
stated in the proposed rule that we have the following concerns: We
stated that we were concerned about the lack of clinical studies
comparing the GORE IBE device with alternative methods of treatment,
and noted 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 noted 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 invited public comments on whether the GORE IBE device
meets the substantial clinical improvement criterion in the proposed
rule.
Comment: The manufacturer of the GORE IBE device indicated that the
FDA-approved study design was appropriate and reflected real-world
limitations associated with clinical studies in small, targeted
populations. The manufacturer also noted that it was impractical to
incorporate off-label alternatives, and that the surgical alternative
is not preferred; therefore, neither of these approaches could be used
as a comparison arm. However, the manufacturer provided an abstract of
the IBE pivotal trial, described in the June 2016 supplement to the
Journal of Vascular Surgery, which included a built-in control subgroup
consisting of those patients that had bilateral aneurysms.\21\
According to the manufacturer, these patients received the IBE device
on one side, while flow on the other side was either sacrificed via
coil or plug, or preserved with surgical bypass. Of the 21 patients in
which the flow was sacrificed on one side, 29 percent experienced new-
onset claudication on the side where the flow was sacrificed. There
were no reports of claudication on the IBE treatment side. The
manufacturer stated that this finding supports the benefit of flow
preservation.
---------------------------------------------------------------------------

\21\ Schneider, D. B., Matsumura, J., Oderich, G. S., Lee, J.
T., Peterson, B. G. (2016). Pivotal Results for the Gore Excluder
Iliac Branch Endoprosthesis for Treatment of Aortoiliac Aneurysms in
the IBE 12-04 Prospective, Multicenter Study. Journal of Vascular
Surgery, 63, 6S.
---------------------------------------------------------------------------

Another commenter also referred to a Society for Vascular Surgery
practice guideline which described the importance of preserving
internal iliac flow on at least one side, which supports the benefit of
the GORE IBE device in improving quality of life. Another commenter
supported the approval of a new technology add-on payment for the GORE
IBE in that it allows for higher quality of care and improved quality
of life.
Response: We appreciate the manufacturer's explanation of the
built-in control subgroup, and we agree that this group represents a
good comparison group for the GORE IBE device. We believe that the
information presented by the manufacturer and other commenters
demonstrates that the GORE IBE device represents a substantial clinical
improvement over current treatment approaches.
After consideration of the public comments we received, we have
determined that the GORE IBE device system meets all of the criteria
for approval of new technology add-on payments for FY 2017. As
discussed above, cases involving the GORE IBE device that are eligible
for new technology add-on payments will be identified by ICD-10-PCS
procedure codes: 04VC0EZ; 04VC0FZ; 04VC3EZ; 04VC3FZ; 04VC4EZ; 04VC4FZ;
04VD0EZ; 04VD0FZ; 04VD3EZ; 04VD3FZ; 04VD4EZ; and 04VD4FZ. In its new
technology add-on payment application, the applicant stated that the
projected cost of the GORE IBE device is $10,500. Under Sec.
412.88(a)(2), new technology add-on payments are limited 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 use of
the GORE IBE device is $5,250 for FY 2017.
g. 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

[[Page 56910]]

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, in the proposed rule, we
stated that 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. The
applicant submitted a request for a unique ICD-10-PCS procedure code
and was granted approval for the following procedure code: XW0DX82
(Introduction of Uridine Triacetate into Mouth and Pharynx, External
Approach, New Technology Group 2). The new code is effective on October
1, 2016.
Comment: The manufacturer commented that the start of the newness
period for Vistogard ^TM should be established as March 2,
2016. The manufacturer explained that the FDA approved Vistogard
^TM on December 11, 2015 under Priority Review. The
manufacturer stated that this approval was granted approximately 3
months earlier than the PDUFA (Prescription Drug User Fee Act) User Fee
goal date of March 10, 2016. Commercial availability of Vistogard
^TM occurred March 2, 2016 due to the need for receipt of
final labeling, contracting manufacturing schedules, and final
packaging.
Response: We agree with the commenter that, due to the delay in
availability described above, the date the newness period begins for
Vistogard ^TM is March 2, 2016, instead of December 11, 2015.
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,
in the proposed rule, we stated that the applicant explained 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, in the proposed rule we
stated that the applicant noted that Xuriden (uridine triacetate) was
also approved by the FDA on September 4, 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,
in the proposed rule we stated that 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
invited public comments on whether Vistogard ^TM is
substantially similar to existing technologies and whether it meets the
newness criterion in the proposed rule.
Comment: The manufacturer reiterated that Vistogard ^TM
is not substantially similar to any existing technology and that it
meets the newness criterion.
Response: After consideration of the information provided by the
applicant, we agree that Vistogard ^TM is not substantially
similar to any existing technology and meets the newness criterion.
With regard to the cost criterion, in the proposed rule, we stated
that 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.

[[Page 56911]]

------------------------------------------------------------------------
Criterion ICD-9 code Description
------------------------------------------------------------------------
Colorectal, head and neck, 153.x................. Malignant
gastric, or pancreatic cancer 154.x................. neoplasm of
(at least one code). colon.
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 one E933.1................ antineoplastic
code). and
immunosuppressi
ve drugs.
Antineoplastic
and
immunosuppressi
ve drugs
causing adverse
effects in
therapeutic
use.
Admission to Inpatient Revenue Center........ Revenue Center
Setting. Admitted from ED. Codes 450, 451,
452, 456, 459.
or observation unit........... Revenue Center........ Revenue Center
Codes 760, 761,
762, 769.
or short-term, acute care N/A................... Source of
hospital. admission code
= ``4''.
``Transfer from
hospital
(Different
facility)''.
or received chemotherapy V58.0................. Encounter or
during inpatient stay. V58.11................ admission for
radiation.
Encounter for
antineoplastic
chemotherapy.
V58.12................ Encounter for
antineoplastic
immunotherapy
(Must be
primary
diagnosis on
the claim).
Expired during inpatient stay N/A................... Determined by
or within seven days of N/A................... patient
discharge (at least one code) discharge
\a\. status code.
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 noted in the proposed rule 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 stated that 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 stated that 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 invited public comments on whether Vistogard
^TM meets the cost criterion under both analyses.
Comment: The manufacturer commented that it agreed with our
analysis that, regardless of the inflation factor used, Vistogard
^TM would still meet the cost criterion. The manufacturer
supplied revised data with the correct inflation factor that
demonstrated that the inflated average standardized case-weighted
charge per case exceeded the average case-weighted threshold.
Response: We thank the commenter for providing a revised analysis,
and we agree that Vistogard ^TM meets the cost criterion.
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

[[Page 56912]]

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 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 invited public comments on whether Vistogard ^TM meets
the substantial clinical improvement criterion in the proposed rule.
Comment: The manufacturer reiterated the points described above and
asserted that Vistogard ^TM meets the substantial clinical
improvement criterion.
Response: After consideration of the information provided by the
applicant, we agree that Vistogard ^TM meets the substantial
clinical improvement criterion. For the reasons described above and
after consideration of the public comments we received, we have
determined that Vistogard ^TM meets all of the criteria for
approval of new technology add-on payments for FY 2017.
Comment: The manufacturer commented that with the implementation of
ICD-10, the following series of codes are expected to be used to
distinguish cases with 5-FU overdose or severe toxicities:
T45.1X1A, T45.1X1D and T45.1X1S (Poisoning by
antineoplastic and immunosuppressive drugs, accidental (unintentional)
initial encounter, subsequent encounter or sequela). The former ICD-9
code (963.1) has been divided into subcodes.
T45.1X5A, T45.1X5D, T45.1X5S (Adverse effect of anti
neoplastic and immunosuppressive drugs initial encounter, subsequent
encounter or sequela).
The commenter explained that because 5-FU toxicity is a rare,
unintentional byproduct of chemotherapy with 5-FU, it is expected that
the primary code associated with 5-FU overdose or severe toxicity cases
will be T45.1X1 with the ``accidental'' designation.
Response: We thank the commenter for explaining the coding with
regard to 5-FU overdose or severe toxicities. In order to pay for cases
of Vistogard ^TM consistent with the FDA labeling, cases
involving Vistogard ^TM that are eligible for new technology
add-on payments will be identified by any one of ICD-10-PCS diagnosis
codes T45.1X1A, T45.1X1D, T45.1X1S, T45.1X5A, T45.1X5D, and T45.1X5S in
combination with ICD-10-PCS procedure code XW0DX82. According to the
applicant, the wholesale acquisition cost (WAC) of Vistogard
^TM is $3,750.00 per each 10g packet of oral granules.
Recommended adult dosing per the Vistogard ^TM label is 10g
(one packet every 6 hours for a minimum of 20 doses over 5 days). The
total cost is 20 packets x WAC of $3,750.00 per packet which equals
$75,000 per patient. 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 new technology add-on payment
amount for a case involving the use of Vistogard ^TM is
$37,500 for FY 2017.

III. 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 FY 2017 hospital wage index based on the
statistical areas appears under sections III.A.2. and G. of the
preamble of this final 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 adjustment for FY 2017 is
discussed in section II.B. of the Addendum to this final rule.
As discussed in section III.J. of the preamble of this final 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 budget neutrality adjustment for FY 2017 is discussed in

[[Page 56913]]

section II.A.4.b. of the Addendum to this final rule. We also note
that, under section III.J.2. of the preamble of this final rule, we are
finalizing an April 21, 2016 interim final rule with comment period
that addressed modifications to limitations on redesignation by the
Medicare Geographic Classification Review Board (MGCRB), and included
regulatory changes to codify the application and interpretation of two
judicial decisions.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in
order to construct an occupational mix adjustment to the wage index. A
discussion of the occupational mix adjustment that we are applying to
the FY 2017 wage index appears under sections III.E.3. and F. of the
preamble of this final rule.
2. Core-Based Statistical Areas (CBSAs) Revisions for the 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. As we discussed in the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25062), 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25062), we proposed to implement these revisions,
effective October 1, 2016, beginning with the FY 2017 wage indexes. We
proposed 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 2017,
Tables 2 and 3 for the 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 reflected these CBSA changes. We
invited public comments on these proposals.
We did not receive any public comments on our proposal to implement
the revisions to the CBSAs effective October 1, 2016, beginning with
the FY 2017 hospital wage index, as proposed in the FY 2017 IPPS/LTCH
PPS proposed rule. Therefore, we are finalizing our proposal without
modification. Tables 2 and 3 for this final 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.

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

The 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 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 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

[[Page 56914]]

residents) and certified registered nurse anesthetists (CRNAs), and
other subprovider components that are not paid under the IPPS. The 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 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 FY 2017 wage index includes FY 2013
data submitted to us as of June 28, 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 wage index. We stated in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25063) that, of these 62 providers that we
excluded from the proposed wage index, 47 have data that we did 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 are
the following: 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). We stated in
the proposed rule that if data elements for some of these providers
were corrected, we intend to include those providers in the calculation
of the final FY 2017 wage index (81 FR 25063). 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 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.
Comment: One commenter expressed appreciation for CMS' efforts over
the past 2 years to ``refine and augment its area wage index audit
protocols to ensure more consistency across the MACs,'' and observed
that this has resulted in fewer hospitals being excluded from the final
wage index. The commenter stated that several member hospitals had a
``very positive experience in working with their MACs, despite a very
challenging timeline.'' For those hospitals that are excluded due to a
higher than average average hourly wage, the commenter requested that
CMS make transparent the audit thresholds it uses to exclude these
hospitals, as hospitals remain concerned that, in some instances,
having a higher than average average hourly wage will remain
unacceptable to CMS.
Response: We appreciate the commenter's acknowledgement of the
efforts we and the MACs invest in the wage index review process, and
recognize the improved collaboration between hospitals and the MACs. As
part of our efforts to assure that hospitals are aware of whether or
not their wage data are excluded from the development of the wage
index, we note that, for the FY 2017 wage index development cycle, we
have added additional tabs to the Public Use Files (PUFs) that we post
on our Web site. These tabs specifically list the hospitals and their
respective wage data and occupational mix data that have been removed
from the wage index (the various FY 2017 PUFs are available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2017-Wage-Index-Home-Page.html). As we explained in the FY 2016 IPPS/LTCH PPS final rule (80
FR 49490 through 49491), section 1886(d)(3)(E) of the Act requires the
Secretary to adjust the proportion of hospitals' costs attributable to
wages and wage-related costs for area differences reflecting the
relative hospital wage level in the geographic areas of the hospital
compared to the national average hospital wage level. We believe that,
under this section of the Act, we have discretion to remove aberrant
hospital data from the wage index PUFs to help ensure that the costs
attributable to wages and wage-related costs in fact reflect the
relative hospital wage level in the hospitals' geographic area. We
appreciate that hospitals remain concerned that, in some instances,
having a higher than average average hourly wage might be unacceptable
to CMS, depending on the circumstances, but reasonableness and
relativity to each area's average hourly wages have been longstanding
tenets of the wage index development process that CMS has articulated
in rulemaking. Therefore, for the FY 2017 wage index, as we have done
in previous years, we have exercised our discretion to remove certain
hospitals from the wage index that have unusually high or unusually low
average hourly wages relative to the

[[Page 56915]]

average hourly wages of the hospitals in the same geographic area. We
note that it has never been CMS' policy to disclose audit protocol; the
protocol is for CMS and MAC internal use only. In addition, we note
that foreknowledge of an audit threshold should not in any way
influence the wages and hours that hospitals report on Worksheet S-3;
as with all cost report data, hospitals must attest to the accuracy of
what they report on the Medicare cost reports, without regard to
whether or not their data will be subjected to an audit.
Since the development of the FY 2017 proposed wage index, as a
result of further review by the MACs and the April and May appeals
processes, we received improved data for 11 hospitals. Therefore, we
are including the wage data of these 11 hospitals in the final wage
index. However, we also have deleted the wage data of 2 additional
hospitals whose data were determined to be aberrant, and the hospitals
were not responsive to requests by the MAC to provide supporting
documentation. For this final rule, we learned of an additional 4
hospitals that converted to CAH status on or after February 5, 2015,
and through and including January 22, 2016, the cut-off date for CAH
exclusion from the FY 2017 wage index. Thus, for this final rule, we
removed 7 hospitals that converted to CAH status on or after February
5, 2015, and through and including January 22, 2016 (3 CAHs removed for
the proposed rule, and 4 additional CAHs removed for this final rule).
Hospitals that are excluded from the wage index remain excluded for a
variety of reasons, such as, but not limited to, unresponsiveness to
requests for documentation or insufficiently documented data,
terminated hospitals' failed edits for reasonableness, or low Medicare
utilization. Accordingly, the final FY 2017 wage index is based on the
wage data of 3,350 hospitals (3,345 + 11-2-4 = 3,350).
For the final 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 final FY 2017 wage index associated with
this final 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 FY 2017 Unadjusted Wage Index

The method used to compute the 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).
Comment: One commenter requested CMS to consider developing a
process for determining a wage index that would reward hospitals that
invest in the workforce and raise the wages of the lowest paid workers,
rather than relying primarily on the average hourly wages of the labor
market area as a whole.
Response: Section 1886(d)(3)(E) of the Act requires the Secretary
to adjust for area differences in hospital wage levels by a factor
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level. The
statute does not direct the Secretary to develop a wage index that
rewards hospitals for workforce investment or other labor initiatives.
Comment: One commenter requested that CMS establish a floor wage
index for providers in Puerto Rico that is not lower than the ratio of
Puerto Rico nonhealth care wages to U.S. nonhealth care wages, using
data from the Occupational Employment Statistics (OES) of the U.S.
Bureau of Labor Statistics (BLS).
Response: We appreciate this comment. However, we consider it to be
outside the scope of the FY 2017 IPPS/LTCH PPS proposed rule.
Therefore, we are not responding to the comment at this time.
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 as discussed in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25063 through 25064), we did not propose any changes to the
usage for FY 2017, nor have received any public comments on this issue.
Therefore, for FY 2017, we used the ECI as the data source for our
wages and salaries and other price proxies in the IPPS market basket.
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
------------------------------------------------------------------------
Adjustment
After Before 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 FY 2017 national
average hourly wage (unadjusted for occupational mix) is $41.1982.
Previously, we also would provide a Puerto Rico overall average
hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25076) and in section IV.A. of the preamble of this final 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) 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 we stated in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25064), 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

[[Page 56916]]

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 is $41.1982 for this FY 2017 final rule) and the national wage
index, which is applied to the national labor share of the national
standardized amount. We did not receive any public comments on this
issue. Accordingly, for FY 2017, as we proposed (81 FR 25064), we are
not establishing a Puerto Rico-specific overall average hourly wage or
wage index.

E. 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 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, and can be
accessed at http://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201512-0938-011.
3. Calculation of the Occupational Mix Adjustment for FY 2017
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25065), for FY
2017, we proposed 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 proposed FY 2017 wage index, we used the Worksheet S-3,
Parts II and III wage data of 3,345 hospitals, and we used the
occupational mix surveys of 3,143 hospitals for which we also have
Worksheet S-3 wage data, which represented a ``response'' rate of 94
percent (3,143/3,345). For the proposed FY 2017 wage index, 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).
Comment: One commenter stated that all hospitals should be
obligated to submit the occupational mix survey because failure to
complete the survey jeopardizes the accuracy of the wage index. The
commenter suggested that a penalty be instituted for nonsubmitters.
This commenter also requested that, pending CMS' analysis of the
Commuting Based Wage Index and given the Institute of Medicine's study
on geographic variation in hospital wage costs, CMS eliminate the
occupational mix survey and the significant reporting burden it
creates.
Response: We appreciate the commenter's concern about the accuracy
of the wage index. We have continually requested that all hospitals
complete and submit the occupational mix surveys. We did not establish
a penalty for hospitals that did not submit the 2013 occupational mix
survey. However, we are continuing to consider for future rulemaking
various options for ensuring full compliance with future occupational
mix surveys. Regarding the commenter's request that CMS eliminate the
occupational mix survey, this survey is necessary to meet the
provisions of section 1886(d)(3)(E) of the Act, which requires us to
measure the earnings and paid hours of employment by occupational
category.
After consideration of the public comments we received, for FY
2017, we are adopting as final our proposal to calculate the
occupational mix adjustment factor using the same methodology that we
have used since

[[Page 56917]]

the FY 2012 wage index. For the final FY 2017 wage index, we are using
the Worksheet S-3, Parts II and III wage data of 3,350 hospitals, and
we are using the occupational mix surveys of 3,149 hospitals for which
we also have Worksheet S-3 wage data, which represents a ``response''
rate of 94 percent (3,149/3,350). For the final FY 2017 wage index, 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). As a result of applying this
methodology, the FY 2017 occupational mix adjusted national average
hourly wage is $41.1615.

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

As discussed in section III.E. of the preamble of this final rule,
for FY 2017, we are applying the occupational mix adjustment to 100
percent of the FY 2017 wage index. We calculated the 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 national average hourly wage of $41.1615. Previously, we
would also provide a Puerto Rico overall average hourly wage. As
discussed in the proposed rule (81 FR 25076) and in section IV.A. of
the preamble of this final 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) 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 is $41.1615 for this FY 2017
final rule) and the national wage index, which is applied to the
national labor share of the national standardized amount. Accordingly,
for FY 2017, we did not propose a Puerto Rico-specific overall average
hourly wage or wage index in the proposed rule (81 FR 25065), nor are
we establishing such for this final rule.
The 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
Occupational mix nursing subcategory hourly wage
------------------------------------------------------------------------
National RN............................................. $38.83416971
National LPN and Surgical Technician.................... 22.73766832
National Nurse Aide, Orderly, and Attendant............. 15.95353295
National Medical Assistant.............................. 18.04809696
National Nurse Category................................. 32.8589243
------------------------------------------------------------------------

The national average hourly wage for the entire nurse category as
computed in Step 5 of the occupational mix calculation is $32.8589243.
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 25.7
percent in one CBSA to a high of 80.5 percent in another CBSA.
We compared the FY 2017 occupational mix adjusted wage indexes for
each CBSA to the unadjusted wage indexes for each CBSA. As a result of
applying the occupational mix adjustment to the wage data, the final
wage index values for 221 (54.2 percent) urban areas and 24 (51.1
percent) rural areas will increase. The final wage index values for 104
(25.5 percent) urban areas will increase by greater than or equal to 1
percent but less than 5 percent, and the final wage index values for 6
(1.5 percent) urban areas will increase by 5 percent or more. The final
wage index values for 10 (21.3 percent) rural areas will increase by
greater than or equal to 1 percent but less than 5 percent, and no
rural areas' final wage index values will increase by 5 percent or
more. However, the wage index values for 186 (45.6 percent) urban areas
and 23 (48.9 percent) rural areas will decrease. The final wage index
values for 89 (21.8 percent) urban areas will decrease by greater than
or equal to 1 percent but less than 5 percent, and no urban areas'
final wage index value will decrease by 5 percent or more. The final
wage index values of 7 (14.9 percent) rural areas will decrease by
greater than or equal to 1 percent and less than 5 percent, and no
rural areas' final wage index values will decrease by 5 percent or
more. The largest positive impacts will be 17.4 percent for an urban
area and 2.9 percent for a rural area. The largest negative impacts
will be 4.9 percent for an urban area and 2.1 percent for a rural area.
One urban area's wage index, but no rural area wage indexes, will
remain unchanged by application of the occupational mix adjustment.
These results indicate that a larger percentage of urban areas (54.2
percent) will benefit from the occupational mix adjustment than will
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

[[Page 56918]]

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. We did not propose to
make any changes to this policy in the FY 2017 IPPS/LTCH PPS proposed
rule, and therefore we are not making any changes to this policy in
this final 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 was geographically 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 beginning in 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 followed our
existing policy regarding the inclusion of a hospital's wage index data
in the CBSA in which it is geographically located (we 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 were 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.
We did not receive any public comments regarding the 3-year
transition policy for hospitals that were located in an urban county
that became rural under the new OMB delineations. Fiscal year 2017 is
the third and final year of this 3-year transition period. We also
remind hospitals that if any affected hospital is approved for any wage
index reclassification or redesignation in FY 2017, it will no longer
be eligible for the remaining year of this transitional wage index.

[[Page 56919]]

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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25067), for FY
2017, we did not propose to make any changes to this policy. We 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.
We did not receive any public comments regarding the 3-year
transition policy for hospitals deemed urban under section
1886(d)(8)(B) of the Act where the urban area became rural under the
new OMB delineations. Fiscal year 2017 is the third and final year of
this 3-year transition period. We also remind hospitals that if any
affected hospital is approved for any wage index reclassification or
redesignation in FY 2017, it will no longer be eligible for the
remaining year of this transitional wage index.
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. In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25067), for FY 2017, we proposed to apply the 3-
year transition adjustments in a budget neutral manner. We proposed 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 were not providing for any
transitional wage indexes under the new OMB delineations. For a
complete discussion on the budget neutrality adjustment for FY 2017, we
refer readers to section II.A.4.b. of the Addendum to this final rule,
where we also address any public comments we received.
We did not receive any public comments on these proposals. In this
final rule, for FY 2017, we are applying the 3-year transition
adjustments in a budget neutral manner. We are making an adjustment to
the standardized amount to ensure that the total payments, including
the effect of the transition provisions, will equal what payments would
have been if we were not providing for any transitional wage indexes
under the new OMB delineations.

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

1. 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. In
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25067), based on the
proposed FY 2017 wage index associated with the 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 wage index due to
the application of the rural floor.
Comment: Several commenters appreciated CMS' providing a State-
specific analysis of impacts in the proposed rule and requested
additional long-term analysis of State-specific and aggregate payment
distortions produced by nationwide rural floor budget neutrality.
Response: We appreciate the commenters' continued concern regarding
rural floor budget neutrality. We are publishing a State-specific rural
floor analysis of impacts in Appendix A of this final rule, as we have
done in previous rules. However, we question the usefulness of
additional long-term analysis of State-specific effects of national
rural floor budget neutrality, given that we are currently required by
section 3141 of Public Law 111-148 to apply budget neutrality on a
national level in implementing the rural floor and the imputed rural
floor.
Comment: One commenter expressed concern that the current
application of the rural floor does not reflect the needs of rural
hospitals, and suggested that CMS include a provision in the final rule
that requires States to have at least 5 percent of its IPPS hospitals
in federally recognized rural areas before a rural floor can be
established in the State.
Response: We appreciate the commenter's input. However, we did not
propose such a provision in the proposed rule, and thus we are not
adopting such a policy in this final rule. Furthermore, we note that
section 4410(a) of Public Law 105-33 requires that, for purposes of
section 1886(d)(3)(E) of the Act, for discharges occurring on or after
October 1, 1997, the area wage index applicable under

[[Page 56920]]

such section to any hospital which is not located in a rural area (as
defined in section 1886(d)(2)(D) of such Act) may not be less than the
area wage index applicable under such section to hospitals located in
rural areas in the State in which the hospital is located.
Comment: Many commenters expressed concern about the decline in the
proposed Massachusetts rural wage index, due partially to preliminary
audit adjustments made by the MAC to Nantucket Cottage Hospital's FY
2017 wage data, and certain errors identified by Nantucket Cottage
Hospital in the FY 2017 wage data it submitted. The commenters stated
that an abrupt decline in payment would have a negative impact for
Massachusetts hospitals, particularly for hospitals in parts of the
State lagging economically. In addition, several commenters noted that
because of the calculation of the alternative methodology for the
imputed floor, a decline in the Massachusetts rural floor would have a
negative payment impact on hospitals in Rhode Island.
The commenters urged CMS to exercise its discretion in this
situation to grant wage data correction requests outside of the
prescribed FY 2017 Wage Index Timeline and accept Nantucket Cottage
Hospital's request to correct its data errors, which were submitted to
the MAC after the specified deadline. Many commenters also believed it
would be ``sound public policy'' for CMS to use the most accurate data
available in order to prevent one hospital's data errors from having a
negative effect on Medicare payments of other hospitals. One commenter
did not believe CMS should knowingly use the incorrect wage data and
cautioned that Massachusetts hospitals' efforts at cost reform may be
jeopardized due to the negative financial impact of finalizing the
proposed rural wage index.
Several commenters believed that, because the rural floor is
subject to a budget neutrality adjustment, the impact of accepting
Nantucket Cottage Hospital's wage data correction would be spread
across hospitals nationwide and would minimally impact any particular
hospital, but the effects of not correcting the data error would be
significant for hospitals in Massachusetts.
Conversely, other commenters requested that CMS deny Nantucket
Cottage Hospital's request to correct its wage index data, as the
request was submitted nearly 2 months after the agency's deadline. The
commenters emphasized that Nantucket Cottage Hospital should be held to
the same standards as hospitals nationwide. Several commenters stated
that CMS would establish a ``troubling'' precedent by disregarding CMS
rules and regulations, which provide ample opportunity to correct wage
data through the agency's normal review process and deadlines.
Commenters also noted that the redistributive effect of nationwide
rural floor budget neutrality would further lower wage index values for
hospitals nationwide to pay for additional increases in Massachusetts's
rural floor. One commenter requested that CMS deny Nantucket Cottage
Hospital's request in order to ensure access to care in rural hospitals
in States other than Massachusetts that the commenter stated are
struggling in part due to receipt of a wage index that is lower than it
would be in the absence of a high Massachusetts rural floor.
Response: We appreciate all of the commenters' concerns about the
Massachusetts rural wage index. It is our intent to ensure that the
wage index is calculated from the best available data, consistent with
our wage index policies and development timeline. We have determined
that the corrections requested by Nantucket Cottage Hospital fall
outside the applicable deadline set forth in the FY 2017 Wage Index
Development Timetable finalized in the FY 2015 IPPS/LTCH PPS final rule
(79 FR 49987 through 49990) and the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49506 through 49507), and available on the CMS Web site at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2017-WI-Time-Table.pdf. The annual Wage
Index Development Timetable has been established through rulemaking,
and plays an important role in maintaining the integrity and fairness
of the wage index calculation. We have consistently stated in annual
IPPS rulemaking that hospitals that do not meet the procedural
deadlines set forth in the IPPS rule 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 (for example, 79 FR
28081, 79 FR 49986, 80 FR 24473, 80 FR 49503, and 81 FR 25073).
Therefore, we are not incorporating the adjustments requested by
Nantucket Cottage Hospital for the FY 2017 final rule wage index.
Separately, we also have determined that the adjustments made by the
MAC in this situation could ideally have been made earlier in the
process, and we are not incorporating those adjustments for the FY 2017
final rule wage index. We note that the average hourly wage of
Nantucket Cottage Hospital that was used in calculating the proposed FY
2017 wage index did not include the MAC's nor the hospital's requested
adjustments. Accordingly, we are finalizing Nantucket Cottage
Hospital's unadjusted average hourly wage as proposed for the
Massachusetts's rural wage index, which is the same unadjusted average
hourly wage that was used in the FY 2017 IPPS/LTCH PPS proposed rule
wage index (which neither incorporated the MAC audit adjustment nor
additional adjustment requests by the hospital).
Comment: Commenters opposed the continued application of a
nationwide rural floor budget neutrality adjustment, noting that the
policy allows for manipulation of the wage index system so that
hospitals in some States benefit at the expense of many hospitals in
other States. Commenters pointed to the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74192) where CMS expressed concern that a
change in hospital status can significantly inflate wage indexes in a
State, causing a reduction to all hospital wage indexes as a result of
nationwide budget neutrality for the rural floor. One commenter
specifically disagreed with what it called the ``political maneuvers''
used to unfairly manipulate the rural floor in Massachusetts and other
States. Commenters reiterated that the wage index system is in need of
reform to ensure that payments accurately reflect actual wage costs.
Response: We appreciate the commenters' concerns about application
of the nationwide rural floor budget neutrality policy. However, for
discharges occurring on or after October 1, 2010, for purposes of
applying the rural floor and the imputed rural floor, section 3141 of
the Affordable Care Act replaced the statewide budget neutrality
adjustment policy with the national budget neutrality adjustment policy
that was in place during FY 2008. That is, section 3141 required that
budget neutrality for the rural and imputed floor be applied ``through
a uniform, national adjustment to the area wage index'' instead of
within each State beginning in FY 2011 (75 FR 50160). Accordingly, we
do not have the authority to calculate rural floor budget neutrality in
a State-specific manner.
After consideration of the public comments we received, and based
on the final FY 2017 wage index associated with this final rule (which
is available via the Internet on the CMS Web site), we estimate that
397 hospitals will receive an increase in their FY 2017 wage index due
to the application of the rural or imputed floor.

[[Page 56921]]

2. 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 final 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 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
IPPS/LTCH PPS 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25068), for FY
2017, we proposed to extend the imputed floor policy (under both the
original methodology and the alternative methodology) for 1 additional
year, through September 30, 2017. We proposed to revise the regulations
at Sec. 412.64(h)(4) and (h)(4)(vi) to reflect this proposed
additional 1-year extension. We invited public comments on the proposed
additional 1-year extension of the imputed floor through September 30,
2017.
Comment: Several commenters supported CMS' proposal to extend the
imputed floor for 1 year, stating that it establishes an approach to
remedy the competitive disadvantage suffered by all-urban States due to
several unique factors common to these areas. However, these commenters
urged CMS to make the imputed rural floor policy permanent rather than
continue the policy through 1-year extensions, and to reevaluate the
imputed floor policy only in the context of broader wage index reform.
Other commenters opposed the proposed 1-year extension, stating that
this type of floor should apply only when required by statute. One
commenter questioned CMS' statutory authority for extending the imputed
rural floor.
Response: We appreciate the positions of commenters that both
support and oppose the proposal to extend the

[[Page 56922]]

imputed floor. We adopted the imputed floor policy to address concerns
from hospitals in all-urban States and subsequently extended it through
notice-and-comment rulemaking. As we stated in the FY 2005 IPPS final
rule (69 FR 49110), we note that the Secretary has broad authority
under section 1886(d)(3)(E) of the Act to adjust the proportion (as
estimated by the Secretary from time to time) of hospitals' costs which
are attributable to wage and wage-related cost of the DRG prospective
payment rates for area differences in hospital wage levels by a factor
(established by the Secretary). Therefore, we believe that we do have
the discretion to adopt a policy that would adjust wage indexes in the
stated manner.
However, we also understand the commenters' opposition to extending
the imputed floor. In the FY 2008 IPPS final rule (72 FR 47322) and FY
2009 IPPS final rule (73 FR 48570 through 48574), we expressed our
concern that the imputed rural floor creates a disadvantage in the
application of the wage index to hospitals in States with rural
hospitals but no urban hospitals receiving the rural floor. Therefore,
we have not made the imputed rural floor policy permanent. We will give
further consideration to all public comments if and when wage index
reform is considered.
After consideration of the public comments we received, we are
finalizing our proposal without modification to extend the imputed
floor policy under both the original methodology and the alternative
methodology for an additional year, through September 30, 2017. We also
are adopting as final the proposed revisions to Sec. Sec. 412.64(h)(4)
and (h)(4)(vi) to reflect the 1-year extension of the imputed floor.
The wage index and impact tables associated with this FY 2017 IPPS/LTCH
PPS final rule (which are available on the Internet via the CMS Web
site) reflect the continued application of the imputed floor policy at
Sec. 412.64(h)(4) and a national budget neutrality adjustment for the
imputed floor for FY 2017. There are 18 hospitals in New Jersey that
will receive an increase in their FY 2017 wage index due to the
continued application of the imputed floor policy under the original
methodology, and 10 hospitals in Rhode Island that will benefit under
the alternative methodology. In the proposed rule (81 FR 25068), we
stated that no providers in Delaware would benefit under the original
methodology or the alternative methodology. However, for the final FY
2017 wage index, we have determined that, in fact, 2 hospitals in
Delaware will benefit under the alternative methodology. Therefore, for
this final rule, we are applying the imputed floor to these hospitals
in Delaware using the alternative methodology. Tables 2 and 3
associated with this final rule (which are available via the Internet
on the CMS Web site) reflect the application of the imputed floor to 2
hospitals in Delaware.
3. 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)). In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25068), we did not propose any changes to the
frontier floor policy for FY 2017. We stated in the proposed rule that
50 hospitals would receive the frontier floor value of 1.0000 for their
FY 2017 wage index in the proposed rule. These hospitals are located in
Montana, Nevada, North Dakota, South Dakota, and Wyoming.
We did not receive any public comments on the application of the
State frontier floor for FY 2017. In this final rule, 50 hospitals will
receive the frontier floor value of 1.0000 for their FY 2017 wage
index. These hospitals are located in Montana, Nevada, North Dakota,
South Dakota, and Wyoming.
The areas affected by the rural, imputed, and frontier floor
policies for the FY 2017 wage index are identified in Table 2
associated with this final rule, which is available via the Internet on
the CMS Web site.

I. 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 final rule for a
discussion of the final wage index tables for FY 2017.

J. 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.) Except as discussed in
section III.J.2. of the preamble of this final rule, the general
policies for reclassifications and redesignations 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. Finalization of Interim Final Rule With Comment Period on Provisions
Related To Modification of Limitations on Redesignation by the Medicare
Geographic Classification Review Board (MGCRB)
On April 21, 2016, CMS published an interim final rule with comment
period (IFC) in the Federal Register (81 FR 23428 through 23438) which
included provisions amending our regulations to allow hospitals
nationwide to reclassify based on acquired rural status, effective with
reclassification applications due to the MGCRB on September 1, 2016 for
reclassifications first effective for FY

[[Page 56923]]

2018. In addition, effective with the display date of the IFC, eligible
hospitals with an existing MGCRB reclassification also may seek rural
reclassification under Sec. 412.103 for IPPS payment (such as DSH) and
other purposes (such as eligibility for the section 340B program), but
keep their existing MGCRB reclassification (which would control for
wage index purposes). We also finalized and began to apply the policies
in the IFC when deciding timely appeals before the Administrator for FY
2017 that were denied by the MGCRB due to the application of the
superseded regulations, which did not permit simultaneous rural
reclassification and MGCRB reclassifications. These additional
regulatory changes were implemented to codify the application and
interpretation of the judicial decisions resulting from the
adjudication of 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. February 4, 2015) in a nationally consistent manner.
We note that, in the April 21, 2016 IFC, we found good cause for
waiving notice-and-comment rulemaking and the 60-day delay in effective
date, given the decisions of the courts of appeals and the public
interest in consistent application of a Federal policy nationwide. We
stated that revising the regulation text at Sec. 412.230(a)(5)(ii) and
removing the regulation text at Sec. 412.230(a)(5)(iii) through an IFC
and subsequent final rule rather than through the normal notice-and-
comment rulemaking cycle and waiving the 60-day delay of effective date
would ensure a uniform national reclassification policy. By reason of
the court decisions, this policy has already been effective since July
23, 2015, in the Third Circuit and February 4, 2016 in the Second
Circuit. Absent such a policy, the wage index for acute care hospitals
paid under the IPPS would have remained confusingly inconsistent across
jurisdictions. Even though we waived notice of proposed rulemaking
requirements and issued the provisions on an interim basis with
subsequent issuance of a final rule, we provided a 60-day public
comment period. In this section of this final rule, we are responding
to the public comments that we received on these provisions in the
April 21, 2016 IFC and finalizing the interim policies.
a. Background
Hospitals may seek to have their geographic designation
reclassified. Under section 1886(d)(8)(E) of the Act, a qualifying
inpatient prospective payment hospital located in an urban area may
apply for rural status. Specifically, section 1886(d)(8)(E) of the Act
states 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, the Secretary shall treat the hospital as being located
in the rural area (as defined in the statute) of the State in which the
hospital is located if certain criteria are met. The regulations
governing these geographic redesignations are codified under Sec.
412.103. We also refer readers to the final rule published in the
August 1, 2000 Federal Register entitled, ``Medicare Program;
Provisions of the Balanced Budget Refinement Act of 1999; Hospital
Inpatient Payments and Rates and Costs of Graduate Medical Education''
(65 FR 47029 through 47031) for a discussion of the general criteria
for reclassifying from urban to rural under this statute. In addition,
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51596), we discussed the
effects on the wage index of an urban hospital reclassifying to a rural
area of its State, if the urban hospital meets the requirements under
Sec. 412.103. Hospitals that are located in States without any
geographically rural areas are ineligible to apply for rural
reclassification in accordance with the provisions of Sec. 412.103.
In addition, as discussed under section III.J.1. of the preamble of
this final rule, under section 1886(d)(10) of the Act, the MGCRB
considers applications by hospitals for geographic reclassification for
purposes of payment under the IPPS. Hospitals must apply to the MGCRB
to reclassify not later than 13 months prior to the start of the fiscal
year for which reclassification is sought (generally by September 1).
Generally, hospitals must be proximate to the labor market area to
which they are seeking reclassification and must demonstrate
characteristics similar to hospitals located in that area. The MGCRB
issues its decisions by the end of February for reclassifications that
become effective for the following fiscal year (beginning October 1).
The regulations applicable to reclassifications by the MGCRB are
located in Sec. Sec. 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 applicable to reclassifications
under the MGCRB process are also discussed in the FY 2012 IPPS/LTCH PPS
final rule for the FY 2012 final wage index (76 FR 51595 and 51596).
b. Criteria for an Individual Hospital Seeking Redesignation to Another
Area (Sec. 412.103)--Application of Policy Provisions
Our policy in effect prior to the issuance of the April 21, 2016
IFC limited certain redesignations in order to preclude hospitals from
obtaining urban to rural redesignation under Sec. 412.103, and then
using that obtained rural status to receive an additional
reclassification through the MGCRB. In the April 21, 2016 IFC, we
referred readers to Sec. 412.230(a)(5)(iii) as it existed at that
time, which stated that an urban hospital that has been granted
redesignation as rural under Sec. 412.103 cannot receive an additional
reclassification by the MGCRB based on this acquired rural status for a
year in which such redesignation is in effect. In other words, Sec.
412.230(a)(5)(iii) prohibited a hospital from simultaneously receiving
an urban to rural redesignation under Sec. 412.103 and a
reclassification under the MGCRB.
As discussed in the April 21, 2016 IFC, on July 23, 2015 the Court
of Appeals for the Third Circuit issued a decision in Geisinger
Community Medical Center v. Secretary, United States Department of
Health and Human Services, 794 F.3d 383 (3d Cir. 2015). Geisinger
Community Medical Center (``Geisinger''), a hospital located in a
geographically urban CBSA, obtained rural status under Sec. 412.103,
but was unable to receive additional reclassification through the MGCRB
while still maintaining its rural status under Sec.
412.230(a)(5)(iii). Under the regulations prior to the April 21, 2016
IFC, to receive reclassification through the MGCRB under existing
regulations, Geisinger would have had to first cancel its Sec. 412.103
urban-to-rural redesignation and use the proximity requirements for an
urban hospital rather than take advantage of the broader proximity
requirements for reclassification granted to rural hospitals. (In the
April 21, 2016 IFC, we referred readers to Sec. 412.230(b)(1), which
states that a hospital demonstrates a close proximity with the area to
which it seeks redesignation if the distance from the hospital to the
area is no more than 15 miles for an urban hospital and no more than 35
miles for a rural hospital.) Geisinger challenged as unlawful the
regulation at Sec. 412.230(a)(5)(iii) requiring cancelation of its
rural reclassification prior to

[[Page 56924]]

applying for reclassification through the MGCRB. In Geisinger Community
Medical Center v. Burwell, 73 F. Supp.3d 507 (M.D. Pa. 2014), the
District Court for the Middle District of Pennsylvania upheld the
regulation at Sec. 412.230(a)(5)(iii) and granted summary judgment in
favor of CMS. The Court of Appeals for the Third Circuit reversed the
decision of the District Court, holding that the language of section
1886(d)(8)(E)(i) of the Act is unambiguous in its plain intent that
``the Secretary shall treat the hospital as being located in the rural
area,'' inclusive of MGCRB reclassification purposes, thus invalidating
the regulation at Sec. 412.230(a)(5)(iii). On February 4, 2016, the
Court of Appeals for the Second Circuit issued its decision in Lawrence
+ Memorial Hospital v. Burwell, No. 15-164, 2016 WL 423702 (2d Cir.
February 4, 2016), essentially following the reasoning of the Third
Circuit Geisinger decision.
We stated in the IFC that while these decisions currently apply
only to hospitals located within the jurisdictions of the Second and
Third Circuits, we believed that maintaining the regulations at Sec.
412.230(a)(5)(iii) in other circuits would constitute inconsistent
application of the reclassification policy based on jurisdictional
regions. In the interest of creating a uniform national
reclassification policy, in the IFC, we removed the regulation text at
Sec. 412.230(a)(5)(iii). We also revised the regulation text at Sec.
412.230(a)(5)(ii) to allow more than one reclassification for those
hospitals redesignated as rural under Sec. 412.103, and simultaneously
seeking reclassification through the MGCRB. Specifically, we revised
Sec. 412.230(a)(5)(ii) to state that a hospital may not be
redesignated to more than one area, except for an urban hospital that
has been granted redesignation as rural under Sec. 412.103 and
receives an additional reclassification by the MGCRB. Therefore,
effective for reclassification applications due to the MGCRB by
September 1, 2016, for reclassification first effective for FY 2018, a
hospital may apply for a reclassification under the MGCRB while still
being redesignated from urban to rural under Sec. 412.103. Such
hospitals are eligible to use distance and average hourly wage criteria
designated for rural hospitals at Sec. 412.230(b)(1) and (d)(1). In
addition, we provided that, effective with the public display date of
the IFC, a hospital that has an active MGCRB reclassification and is
then approved for redesignation under Sec. 412.103 will not lose its
MGCRB reclassification; that is, a hospital with an active MGCRB
reclassification can simultaneously maintain rural status under Sec.
412.103, and receive a reclassified urban wage index during the years
of its active MGCRB reclassification and will still be considered rural
under section 1886(d) of the Act and for other purposes. We also stated
that we will apply the policy adopted in the April 21, 2016 IFC when
deciding timely appeals before the Administrator under Sec. 412.278
for FY 2017 that were denied by the MGCRB due to existing provisions of
Sec. 412.230(a)(5)(ii) and (iii), which did not permit simultaneous
Sec. 412.103 and MGCRB reclassifications.
Apart from the direct impact on reclassifying hospitals previously
discussed in this section, we also considered how to treat the wage
data of hospitals that maintain simultaneous reclassifications under
both the Sec. 412.103 and the MGCRB processes. Under the wage index
calculation procedures that applied prior to issuance of the IFC, the
wage data for a hospital geographically located in an urban area with a
Sec. 412.103 redesignation was included in the wage index for its home
geographic area. It is also included in its State rural wage index, if
including wage data for hospitals with rural reclassification raises
the state's rural floor. In addition, the wage data for a hospital
located in an urban area, and that is approved by the MGCRB to
reclassify to another urban area (or another State's rural area), are
included in its home area wage index calculation, and in the
calculation for the reclassified ``attaching'' area. In the IFC, we
referred readers to the FY 2012 IPPS final rule (76 FR 59595 through
59596) for a full discussion of the effect of reclassification on wage
index calculations. Furthermore, as discussed in the FY 2007 IPPS final
rule (71 FR 48020 through 48022), hospitals could not simultaneously
maintain more than one wage index status (for example, a hospital could
not simultaneously maintain a Sec. 412.103 rural redesignation and an
MGCRB reclassification, nor could a hospital receive an outmigration
adjustment while also maintaining MGCRB or Lugar status). However, as a
consequence of the court decisions previously discussed, we revised our
regulations and created a rule that applies to all hospitals
nationally, regarding the treatment of the wage data of hospitals that
have both a Sec. 412.103 redesignation and an MGCRB reclassification.
In the IFC, we established that if a hospital with a Sec. 412.103
redesignation is approved for an additional reclassification through
the MGCRB process, and the hospital accepts its MGCRB reclassification,
the Core-Based Statistical Area (CBSA) to which the hospital is
reclassified under the MGCRB prescribes the area wage index that the
hospital will receive; the hospital will not receive the wage index
associated with the rural area to which the hospital is redesignated
under Sec. 412.103. That is, when there is both a Sec. 412.103
redesignation and an MGCRB reclassification, the MGCRB reclassification
will control for wage index calculation and payment purposes.
Therefore, although we amended our policy with the IFC to allow a
hospital to simultaneously have a reclassification under the MGCRB and
an urban to rural redesignation under Sec. 412.103, we separately
clarified that we will exclude hospitals with Sec. 412.103
redesignations from the calculation of the reclassified rural wage
index if they also have an active MGCRB reclassification to another
area. In these circumstances, we stated that we believe it is
appropriate to rely on the urban MGCRB reclassification to include the
hospital's wage data in the calculation of the urban CBSA wage index.
Further, we stated that we believe it is appropriate to rely on the
urban MGCRB reclassification to ensure that the hospital is paid based
on its urban MGCRB wage index. That is, while rural reclassification
confers other rural benefits besides the wage index under section
1886(d) of the Act, a hospital that chooses to pursue reclassification
under the MGCRB (while also maintaining a rural redesignation under
Sec. 412.103) would do so solely for wage index payment purposes.
As previously stated, when there is both a Sec. 412.103
redesignation and an MGCRB reclassification, the MGCRB reclassification
will control for wage index calculation and payment purposes. That is,
if an application for urban reclassification through the MGCRB is
approved, and is not withdrawn or terminated by the hospital within the
established timelines, we will consider, as is current practice, the
hospital's geographic CBSA and the urban CBSA to which the hospital is
reclassified under the MGCRB for the wage index calculation. We
indicated that the hospital's geographic CBSA and reclassified CBSA
would be reflected accordingly in Tables 2 and 3, associated with the
annual IPPS/LTCH PPS proposed and final rules, which are available
through the Internet on the CMS Web site.) However, in the absence of
an active MGCRB reclassification, if

[[Page 56925]]

the hospital has an active Sec. 412.103 redesignation, CMS will treat
the hospital as rural under Sec. 412.103 redesignation for IPPS
payment and other purposes, including purposes of calculating the wage
indices reflected in Tables 2 and 3 of the annual IPPS/LTCH PPS
proposed and final rules
Comment: One commenter requested that, as part of the IPPS
rulemaking process, CMS release data on the hospitals that have been
granted redesignation under Sec. 412.103 and receive an additional
reclassification by the MGCRB. The commenter noted that while, in the
payment impact file, there is a ``401 hospital'' field that indicates
whether a hospital has been redesignated as rural under Sec. 412.103,
it appears that hospitals that have both a Sec. 412.103 redesignation
and an MGCRB reclassification do not have a ``Yes'' in the ``401
hospital'' field. The commenter requested that this field be labeled
``Yes'' when a hospital with a Sec. 412.103 redesignation also
receives an MGCRB reclassification.
Response: We agree with the commenter's request and will include a
column in the public use impact file posted on the CMS Web site in
conjunction with the IPPS rules to indicate that a hospital has a Sec.
412.103 redesignation when it also has an MGCRB reclassification. This
file can be located by visiting the following link https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html
and selecting that IPPS regulation's home page on the left side of the
screen. The impact files are located under ``Impact File and Data
Files''.
Comment: Two commenters noted that the regulations at Sec. 412.103
still require that an urban hospital requesting rural status use the
statewide rural wage index for at least a 12-month period before the
facility can be reclassified using the rural proximity requirement. The
commenters requested that CMS clarify that those hospitals that have
already used the rural wage index for one or more previous 12-month
periods are allowed to choose to use their home geographic wage index,
rather than the Sec. 412.103 rural wage index, for the 12 months prior
to receiving a MGCRB reclassification for FY 2018 or years beyond.
Response: We are unsure of the meaning of the commenter's statement
``the regulations at Sec. 412.103 still require that an urban hospital
requesting rural status use the statewide rural wage index for at least
a 12 month period before the facility can be reclassified using the
rural proximity requirement.'' The regulations at Sec. 412.103 do not
indicate a time period for using the statewide rural wage index before
a hospital can be reclassified using the rural proximity requirement;
rather, the 12-month time period referenced at Sec. 412.103 pertains
to cancellation of rural reclassification for a hospital classified as
a rural referral center based on a Sec. 412.103 reclassification. We
also do not understand the commenter's request for clarification that
hospitals that have received the rural wage index for 12 months be
allowed to use their geographic home wage index prior to receiving an
MGCRB reclassification for FY 2018 and after, because the regulations
do not address payment at the rural wage index for a period of time in
order to receive an MGCRB reclassification based on a Sec. 412.103
redesignation. We reiterate that, as indicated in the IFC, when there
is both an MGCRB reclassification and a Sec. 412.103 redesignation,
the MGCRB reclassification will control for wage index calculation and
payment purposes; the hospital will not receive the wage index
associated with the rural area to which the hospital is redesignated
under Sec. 412.103. We also reiterate that for any period of time that
a hospital has a Sec. 412.103 redesignation but not a MGCRB
reclassification, the hospital will be paid using the rural wage index,
and not its geographic home wage index.
Comment: One commenter requested clarification as to whether a
hospital redesignated as rural under Sec. 412.103 can use that rural
status to reclassify to a nearby rural area. The commenter asked that
CMS clarify whether a hospital redesignated as rural will be treated as
rural for purposes of a rural to rural reclassification application.
Response: We are clarifying that a hospital redesignated as rural
under Sec. 412.103 can use that rural status to reclassify via the
MGCRB to another rural or urban area, provided it meets the distance
and average hourly wage criteria under Sec. 412.230(b)(1),
(d)(1)(iii)(C), and (d)(1)(iv)(E).
Comment: One commenter requested clarification on several aspects
of the amended regulations. The commenter requested that CMS clarify
that--
The rural distance and average hourly wage criteria will
be used for hospitals with a Sec. 412.103 redesignation;
The hospital's average hourly wage data are to be compared
to the average hourly wage data for the State's rural area for purposes
of determining whether the hospital meets the criterion in Sec.
412.230(d)(l)(iii)(C);
A rural redesignated hospital can undergo an MGCRB
reclassification back to the CBSA in which it is physically located;
Hospitals redesignated as rural can have dual MGCRB
reclassifications, with the termination or withdrawal of one of the
reclassifications after the issuance of the IPPS proposed rule,
consistent with Sec. 412.273;
Hospitals redesignated as rural can still be part of an
urban group seeking redesignation to another urban area for the
geographic area where they are physically located, in accordance with
Sec. 412.234;
In all future years, hospitals that already have an MGCRB
reclassification can receive a Sec. 412.103 redesignation without
losing their MGCRB reclassification; and
If a hospital has both an MGCRB reclassification and a
Sec. 412.103 redesignation, the wage data will be included in the
urban area to which it is reclassified, rather than the rural area.
Response: The commenter is correct that the rural distance and
average hourly wage criteria will be used for hospitals with a Sec.
412.103 redesignation. However, the commenter's statement that the
average hourly wage of a hospital with a Sec. 412.103 redesignation is
compared to the average hourly wage of hospitals in the State's rural
area under Sec. 412.230(d)(1)(iii)(C) is incorrect. Instead, the
hospital's average hourly wage would be compared to the average hourly
wage of all other hospitals in its urban geographic location using the
rural distance and average hourly wage criteria. The commenter is
correct that a Sec. 412.103 rural redesignated hospital can undergo an
MGCRB reclassification back to the CBSA in which it is physically
located if it meets the criteria for use of an urban or other rural
area's wage index at Sec. 412.230(d) using the average hourly wage
criteria specified for rural hospitals. We are unsure of the meaning of
``dual MGCRB reclassifications'' because a hospital can only have one
MGCRB reclassification at a time.
We refer the commenter to the regulations at Sec. 412.273 which
describe the policies for withdrawing an MGCRB application, terminating
an approved 3-year MGCRB reclassification, or canceling a previous
withdrawal or termination. The policies at Sec. 412.273 apply to all
MGCRB reclassifications, including those that are held in addition to a
Sec. 412.103 redesignation.
The commenter is correct that a geographically urban hospital
redesignated as rural under Sec. 412.103 can still apply for group
reclassification

[[Page 56926]]

with other urban hospitals located in the same geographically urban
area to another urban area via the MGCRB, in accordance with Sec.
412.234, and that effective with the IFC display date (April 18, 2016)
and for future years, hospitals that already have an MGCRB
reclassification can receive a Sec. 412.103 redesignation without
losing their MGCRB reclassification. Finally, we are reiterating that
wage data for a hospital with both an MGCRB reclassification and a
Sec. 412.103 redesignation would be included in the post-reclassified
wage index of the area to which it is reclassified under the MGCRB, and
not the rural area to which it is reclassified under Sec. 412.103.
Comment: One commenter requested that CMS repeal the provision
Sec. 412.103(g)(2) because the new policy has rendered this provision
irrelevant. The commenter referenced CMS' discussion of this issue in
the FY 2008 IPPS final rule (72 FR 47371 through 47373), and stated
that the goal of creating this minimum time period was to
disincentivize hospitals to receive a rural redesignation, obtain rural
referral center status to achieve favorable MGCRB treatment, and then
terminate their rural status. The commenter believed that because
hospitals can now be both an urban and a rural referral center, this
disincentive is no longer necessary.
Response: We appreciate the commenter's suggestion. The discussion
in the FY 2008 IPPS final rule referenced by the commenter addressed a
revision to Sec. 412.103(g) to require that, for a hospital that
obtains rural referral center status based on acquired rural status
under Sec. 412.103, the hospital's cancellation of its acquired rural
status under Sec. 412.103 is effective after it has been paid as rural
for at least one 12-month cost reporting period, and not until the
beginning of a Federal fiscal year following both the request for
cancellation and the 12-month cost reporting period. The discussion in
the FY 2008 IPPS final rule noted our concerns about hospitals that
acquire rural status to become rural referral centers and then cancel
acquired rural status after a brief period of time in order to take
advantage of special MGCRB reclassification rules, which was the basis
for the revisions to the regulation at Sec. 412.103(g). Because we did
not propose a change in the regulation regarding the interplay of rural
redesignations and rural referral center status in particular, we are
not amending these regulations at this time, but may address this issue
in future rulemaking.
In summary, for reclassifications effective beginning FY 2018, a
hospital may acquire rural status under Sec. 412.103 and subsequently
apply for a reclassification under the MGCRB using distance and average
hourly wage criteria designated for rural hospitals. In addition,
effective with the public display date of the IFC (April 18, 2016), a
hospital with an active MGCRB reclassification may also acquire rural
status under Sec. 412.103. We stated that we also will apply the
policy in the April 21, 2016 IFC when deciding timely appeals before
the Administrator under Sec. 412.278 for FY 2017 that were denied by
the MGCRB due to then existing provisions of Sec. 412.230(a)(5)(ii)
and (iii), which did not permit simultaneous Sec. 412.103
redesignation and MGCRB reclassifications. When there is both an MGCRB
reclassification and a Sec. 412.103 reclassification, the MGCRB
reclassification will control for wage index calculation and payment
purposes. For a discussion regarding budget neutrality adjustments for
FY 2017 and subsequent years for hospitals that have a reclassification
under Sec. 412.103 and an MGCRB reclassification, we refer readers
section II.A.4. of the Addendum to this FY 2017 IPPS/LTCH PPS final
rule.
c. Final Rule Provisions
In this final rule, we are finalizing the provisions of the April
21, 2016 IFC without modification. We also are finalizing without
modification our removal of Sec. 412.230(a)(5)(iii) and the revisions
to Sec. 412.230(a)(5)(ii).
d. Impact
In the April 21, 2016 IFC (81 FR 23436 through 23438), we presented
the following impact analysis for the IPPS wage index portion of the
IFC. We are not making any changes to this IFC impact analysis in this
final rule.
We did not conduct an in-depth impact analysis because our revision
to the regulatory text is a consequence of court decisions. The
Geisinger decision invalidated the regulation at Sec.
412.230(a)(5)(iii), effective July 23, 2015, for hospitals in States
within the Third Circuit's jurisdiction, and the Lawrence + Memorial
decision invalidated the regulation at Sec. 412.230(a)(5)(iii),
effective February 4, 2016, for hospitals in States within the Second
Circuit's jurisdiction. That is, we did not have a choice to maintain
the previously uniform regulations at Sec. 412.230(a)(5)(iii) for
hospitals in States within the Second and Third Circuits.
Furthermore, we indicated that we do not believe that we could
necessarily estimate the national impact of removing the regulation at
Sec. 412.230(a)(5)(iii). We noted that of the 3,586 IPPS hospitals
listed on wage index Table 2 associated with the proposed rule and
available via the Internet on the CMS Web site, 867 hospitals already
had an MGCRB reclassification, and 57 hospitals had a reclassification
to a rural area under Sec. 412.103. (This table is discussed in the FY
2017 IPPS/LTCH PPS proposed rule and is available 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''.) We could not
estimate how many additional hospitals will elect to apply to the MGCRB
by September 1, 2016, for reclassification beginning FY 2018, and we
could not predict how many hospitals may elect to retain or acquire
Sec. 412.103 urban-to-rural reclassification over and above the
hospitals that have already reclassified.
In addition, under Sec. 412.64(e)(1)(ii), (e)(2), and (e)(4),
increases in the wage index due to reclassification and other wage
index adjustments are implemented in a budget neutral manner (that is,
wage index adjustments are made in a manner that ensures that aggregate
payments to hospitals are unaffected through the application of a wage
index budget neutrality adjustment described more fully in the FY 2017
IPPS/LTCH PPS proposed rule). Therefore, as a result of the Third
Circuit's decision in Geisinger, even though an urban hospital that may
or may not already have a reclassification to another urban area under
the MGCRB may be able to qualify for a reclassification to a more
distant urban area with an even higher wage index, this would not
increase aggregate IPPS payments (although the wage index budget
neutrality factor applied to IPPS hospitals could be larger as a result
of additional reclassifications occurring to higher wage index areas).
However, we noted in the IFC that there are other Medicare payment
provisions potentially impacted by rural status, such as payments to
disproportionate share hospitals (DSHs), and non-Medicare payment
provisions, such as the 340B Drug Pricing Program administered by HRSA,
under which payments are not made in a budget neutral manner. We noted
that additional hospitals acquiring rural status under Sec. 412.103
could, therefore, potentially increase Federal expenditures.
Nevertheless, taking all of these factors into account, we indicated
that we could not accurately determine an impact analysis as a result
of the

[[Page 56927]]

Third Circuit's decision in Geisinger and the Second Circuit's decision
in Lawrence + Memorial.
Comment: One commenter stated that because the 340B Drug Pricing
Program is not a government payment program, Federal expenditures would
not be expected to increase as a result of this change to CMS'
regulations. The commenter noted that other possible impacts on Federal
expenditures would be unrelated to the 340B Drug Pricing Program. The
commenter requested that CMS clarify that Federal expenditures would
not be increased as a result of the 340B Drug Pricing Program.
Response: We agree with the commenter that because the 340B Drug
Pricing Program is not a Federal payment program, Federal expenditures
would not be expected to increase as a result of any increased
eligibility for the 340B Drug Pricing Program resulting from this
change to our regulations.
The Regulatory Flexibility Act (RFA) also requires agencies to
analyze options for regulatory relief of small entities if a rule has a
significant impact on a substantial number of small entities. For
purposes of the RFA, small entities include small businesses, nonprofit
organizations, and small governmental 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: https://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. MACs are not
considered to be small entities. We believe that the provisions of this
final rule may have an impact on some small entities, but for the
reasons previously discussed in this final rule, we cannot conclusively
determine the number of such entities impacted. Because we lack data on
individual hospital receipts, we cannot determine the number of small
proprietary hospitals. Therefore, we are assuming that all hospitals
are considered small entities for the purpose of the RFA. Because we
acknowledge that many of the potentially affected entities are small
entities, the discussion in this section regarding potentially impacted
hospitals constitutes our regulatory flexibility analysis.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule 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 604 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 a metropolitan
statistical 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. For this final rule, no
geographically rural hospitals are directly affected because only urban
hospitals can reclassify to a rural area under Sec. 412.103. However,
we note that with regard to the wage index budget neutrality
adjustments applied under Sec. 412.64(e)(1)(ii), (e)(2), and (e)(4),
rural IPPS hospitals will be affected to the extent that the
reclassification budget neutrality adjustment increases, but this
impact is no different than on urban IPPS hospitals, as the same budget
neutrality factor is applied to all IPPS hospitals.
3. Other MGCRB Reclassification and Redesignation Issues for FY 2017
a. FY 2017 Reclassification Requirements and Approvals
As previously stated, 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 final rule was constructed, the MGCRB had
completed its review of FY 2017 reclassification requests. Based on
such reviews, there are 265 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 294 hospitals approved for wage index reclassifications in
FY 2015 that will continue for FY 2017, and 258 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 final
rule, 817 hospitals are in a MGCRB reclassification status for FY 2017.
We note that the number of hospitals with active reclassifications
changed between the proposed rule and the final rule because hospitals
had the opportunity to withdraw or terminate their reclassification
within 45 days of the publication of the FY 2017 proposed rule.
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 are incorporated
into the wage index values published in this 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.
Comment: One commenter stated that CMS' policy that hospitals must
request to withdraw or terminate MGCRB reclassifications within 45 days
of the proposed rule is problematic because a hospital could terminate
a reclassification based on information in

[[Page 56928]]

the proposed rule, and with the publication of the final rule, discover
that its original reclassified status was more desirable. The commenter
stated that hospitals cannot make informed decisions concerning their
reclassification status based on values in a proposed rule that are
likely to change and, therefore, recommended that CMS revise its
existing policy to permit hospitals to withdraw or terminate their
reclassification status within 45 days of the publication of the final
rule.
Several other commenters requested that CMS revise group
reclassification rules at Sec. 412.234(a)(3)(iv) so that urban county
groups would no longer be required to be within the same CSA or CBSA as
the desired labor market area.
Response: We did not make any proposals to change any of the
reclassification regulations for FY 2017. Any changes to the
reclassification regulations would need to be first proposed through
notice-and-comment rulemaking. Consequently, we are not making any
changes to address the commenters' concerns at this time. We maintain
that information provided in the proposed rule constitutes the best
available data to assist hospitals in making reclassification
decisions. The values published in the final rule represent the final
wage index values reflective of reclassification decisions.
b. Requirements for FY 2018 Applications and 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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25069), we proposed 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 proposed 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 specified that CMS copies should be sent
via email to [email protected]. We invited public comments on this
proposal.
Comment: Commenters supported CMS' proposal to require electronic
copies for wage index reclassification materials. Commenters requested
that CMS provide email confirmation upon receipt of these copies, and
further request CMS to provide additional guidance on how to submit
files that may be too large for some email systems.
Response: We appreciate the commenters' support of our proposal,
and we are finalizing the regulation change as proposed. We reiterate
that MGCRB application requirements will be published separately from
this rulemaking process, and paper applications will likely still be
required. The MGCRB makes all initial determinations for geographic
reclassification requests, but CMS requests copies of all applications
to assist in verifying a reclassification status during the wage index
development process. We believe that requiring electronic versions
would better aid CMS in this process, and would reduce the overall
burden upon hospitals. We appreciate the commenters' request for email
verification that an application was received in the
[email protected] mailbox, and we will endeavor to provide such
validation in a timely manner. Regarding issues with email size, we
believe that a scanned PDF copy of an application should rarely exceed
the size limitations of most email systems. In circumstances when this
may be an issue, we request that hospitals notify the wage index
mailbox to arrange for an alternate delivery method. We also request
that all correspondence with the wage index mailbox clearly identify
the hospital's CCN (or the county and state for group reclassification
requests) in the subject line, and that emails include a name, email
address, and phone number of a responsible party at the hospital,
should CMS need to contact the hospital to request or clarify certain
information.
Comment: Commenters requested additional guidance regarding
acceptable materials for a variety of MGCRB application requirements,
specifically for documenting proximity requirements.
Response: As discussed previously, MGCRB application instructions
are published on the CMS Web site at https://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html separately from the
rulemaking process.
We are finalizing our proposal to revise Sec. 412.256(a)(1),
without modification, 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].
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
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''

[[Page 56929]]

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 stated in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25070) that we believe this policy is consistent with
existing regulations regarding reclassification status of
``multicampus'' hospitals at Sec. 412.230(d)(2)(v). We further stated
that hospitals should take care to review their status on Table 2
associated with the 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.
We did not receive any public comments on our clarification
regarding the treatment of reclassifications of terminated hospitals.
4. 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 final 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.
We refer readers to section III.J.2. of the preamble of this final
rule for discussion and the finalization of the April 21, 2016 IFC
(CMS-1664-IFC; 81 FR 23428) in which 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 revised the
regulations at Sec. 412.230(a)(5)(ii) and removed 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 gave hospitals
with an existing MGCRB reclassification the opportunity to seek rural
reclassification 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, in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25070), we clarified 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. Similarly, in the FY 2017 proposed rule, we also
clarified 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 stated
that 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 final 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.
Comment: Commenters supported the policy to allow Lugar hospitals
to retain their reclassified wage index when they obtain a rural
reclassification under Sec. 412.103.
Response: We appreciate the commenters' support.
After consideration of public comments we received, we are again
clarifying that a hospital with Lugar status may simultaneously receive
an urban to rural reclassification under Sec. 412.103. As discussed
above, we are assigning hospitals that qualify under section
1886(d)(8)(B) of the Act while simultaneously maintaining rural status
obtained under Sec. 412.103 the wage index associated with their Lugar
status.
5. 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 final 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 of eligibility, the hospital
explicitly notifies CMS in writing, within the required period
(generally 45 days from the publication of the proposed rule),

[[Page 56930]]

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.
We did not receive any public comments on this issue. In the FY
2017 IPPS/LTCH PPS proposed rule, we did not propose a change to the
rules regarding waiving Lugar designation for the out-migration
adjustment. Therefore, the process remains unchanged at this time.
However, as a separate matter, we are taking the opportunity to clarify
that a request to waive Lugar status, received within 45 days of the
publication of the proposed rule, is valid for the full 3-year period
for which the hospital's out-migration adjustment is effective. If a
hospital wishes to reinstate Lugar status for any fiscal year within
this 3-year period, it must send a request to CMS within 45 days of the
proposed rule for that particular fiscal year. These requests may be
sent electronically to [email protected]. CMS will not consider
reinstatements of Lugar status for a future fiscal year. For example,
if a hospital requests to waive Lugar status for FY 2017 and also to
reinstate Lugar status for FY 2018 and 2019, CMS will disregard the
reinstatement requests for FY 2018 and FY 2019. Instead, the hospital
must request the reinstatement of Lugar status for FY 2018 within 45
days of the FY 2018 IPPS/LTCH PPS proposed rule. If the hospital does
this, by default, the hospital would retain Lugar status for FY 2019,
although the hospital may once again opt to waive Lugar status for the
out-migration adjustment by sending a new request to CMS within 45 days
of the FY 2019 IPPS/LTCH PPS proposed rule.

K. 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 proposed to use them again for FY
2017. As we stated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25071), we have applied the same policies, procedures, and computations
since FY 2012, and we believe they continue to be appropriate for FY
2017. We did not receive any comments on these proposals. 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
did not propose any changes to the methodology or data source that we
used for FY 2016 (81 FR 25071). (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 final rule (which is available via the Internet on the CMS Web
site) includes the final out-migration adjustments for the FY 2017 wage
index.

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

As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25071 through 25072), 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

[[Page 56931]]

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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25071
through 25072), we proposed 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 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
stated in the proposed rule (81 FR 25072) that we believe 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 proposed 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 Sec. 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
stated that 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. As discussed in the proposed rule, 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 the current Federal fiscal 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 proposed to revise Sec.
412.103(b) by adding a new paragraph (6) to 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.
Comment: One commenter believed that the proposal to specify a
lock-in date for urban to rural reclassification under Sec. 412.103
for wage index and budget neutrality calculation purposes was
reasonable and supported the need to have a ``cutoff'' date. However,
the commenter requested clarification that the lock-in date for wage
index and ratesetting purposes would have no impact on the timing of
payment changes at the hospital-specific level.
Response: We appreciate the commenter's support. We proposed to set
a lock-in date by which a hospital must file for urban to rural
reclassification under Sec. 412.103 in order to be treated as rural in
the upcoming fiscal year's wage index and budget neutrality
calculations. Thus, if a hospital wants its rural status to be
reflected in the wage index and budget neutrality calculations for
setting payment rates for the upcoming fiscal year, the hospital would
need to file its reclassification application with the CMS Regional
Office not later than 70 days prior to the second Monday in June of the
current Federal fiscal year. As we stated in the proposed rule, we did
this to introduce additional transparency and predictability regarding
the timing of accounting for urban or rural status in the IPPS
ratesetting each fiscal year. As the commenter indicated,
reclassification under Sec. 412.103 also affects payment at the
hospital-specific level. We are clarifying that the lock-in date does
not affect the timing of payment changes occurring at the hospital-
specific level as a result of reclassification from urban to rural
under Sec. 412.103. As we indicated in the proposed rule, this lock-in
date does not change the current regulation that allows hospitals that
qualify under Sec. 412.103(a) to request, at any time during a cost
reporting period, to reclassify from urban to rural. A hospital's rural
status and claims payment reflecting its rural status continue to be
effective on the filing date of its reclassification application, which
is the date the CMS Regional Office receives the application, in
accordance with Sec. 412.103(d). The hospital's IPPS claims would be
paid reflecting its rural status on the filing date (the effective
date) of the reclassification, regardless of when the hospital applies.
After consideration of the public comment we received, we are
finalizing, without modification, our proposal that, in order for a
hospital that applies for reclassification under Sec. 412.103 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

[[Page 56932]]

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. We also are finalizing our proposal to add a paragraph (6) to
Sec. 412.103 to specify this new lock-in date.

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 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 were given the opportunity to examine Table 2, which is
listed in section VI. of the Addendum to the 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 associated with
the proposed rule contained 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 noted in the proposed rule (81 FR 25073) that the
proposed hospital average hourly wages shown in Table 2 only reflected
changes made to a hospital's data that were transmitted to CMS by late
February 2016.
We posted the final wage index data PUFs on April 21, 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 were 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 could 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

[[Page 56933]]

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 believed 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 was given the opportunity to notify both its MAC and CMS
regarding why the hospital believed an error exists and provide all
supporting information, including relevant dates (for example, when it
first became aware of the error). The hospital was 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-Page.html, the May appeals were required to 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) were incorporated into the
final FY 2017 wage index in this FY 2017 IPPS/LTCH PPS final rule,
which is 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 did not meet the procedural deadlines set
forth above will not be afforded a later opportunity to submit wage
index data corrections or to dispute the 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 had access to the final wage index data
PUFs by late April 2016, they had 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 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. Labor Market Share for the 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

[[Page 56934]]

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 results 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25074), for
FY 2017, we did not propose 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 proposed to continue to use a labor-related share of 69.6 percent
for discharges occurring on or after October 1, 2016.
We did not receive any public comments on our proposal and are
finalizing our proposal, without modification, 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 the proposed rule
(81 FR 25074) and section IV.A. of the preamble of this final 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 did
not propose a Puerto Rico-specific labor-related share percentage or a
nonlabor-related share percentage in the proposed rule (81 FR 25074).
Tables 1A and 1B, which are published in section VI. of the
Addendum to this FY 2017 IPPS/LTCH PPS final rule and available via the
Internet on the CMS Web site, reflect the 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 applying 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 applying the wage
index to a labor-related share of 69.6 percent of the national
standardized amount.

O. Public Comments on Treatment of Overhead and Home Office Costs in
the Wage Index Calculation as a Result of Our Solicitation

Section III.D. of the preamble of this final rule states that the
method used to compute the 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.) As
stated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25075), 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

[[Page 56935]]

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, OMB Control Number 0938-0050). 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 stated in the proposed rule (81 FR 25075) that 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 excluded area overhead
wage-related costs). Accordingly, as stated in the proposed rule (81 FR
25075), 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 indicated in the proposed rule that 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25075), we
solicited 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.
Comment: One commenter stated that CMS' ``Step 4'' process for
estimating and removing overhead wage-related costs associated with
excluded areas is fair and equitable for all hospitals and should
continue, as it is clear that in most, if not all cases, hospitals are
not self-identifying and removing the excluded area amounts. The
commenter noted that while current cost report instructions for line 17
of Worksheet S-3, Part II instruct hospitals that wage-related costs
associated with excluded areas be removed, the cost report instructions
do not state that hospitals should remove overhead wage-related costs
associated with excluded areas from Line 17 (CMS emphasis added). The
commenter believed that any plan to require hospitals to perform their
own calculation to estimate and remove excluded area overhead could
create inconsistent results unless very specific cost report
instructions are provided and adhered to.
Response: We agree with the commenter 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. As we stated in the proposed rule (81 FR 25075), 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. While we
believe that existing cost report instructions for lines 17 and 18 for
wage-related costs state clearly that lines 17 and 18 must ``not
include wage-related costs applicable to the excluded areas reported on
lines 9 and 10; instead, these costs are reported on line 19,'' we may
consider further specifying that hospitals must also not include on
lines 17 and 18 overhead wage-related costs applicable to excluded
areas. When revising the cost report instructions, we will consider
whether more precise and uniform instructions for estimating and
removing overhead wage-related costs should be incorporated directly
into the cost report for hospitals to complete, rather than CMS
estimating and removing the overhead wage-related costs associated with
excluded areas from the unadjusted wage index calculation.
Comment: In regard to CMS' solicitation of comments related to
reporting of wage-related costs on lines 17 through 25 of Worksheet S-
3, Part II, one commenter believed that most hospitals allocate their
wage-related cost

[[Page 56936]]

on lines 17 through 25 based on salaries, and therefore, this should be
the preferred allocation method. The commenter stated that if a
hospital wishes to use a wage-related cost allocation method other than
one based on salaries, the hospital should be required to document to
the MAC that an alternative method would be more accurate than
salaries. The commenter added that if CMS chooses to pursue building
the ``Step 4'' overhead allocation into the cost report, CMS should
simultaneously add lines to the cost report that perform the complete
average hourly wage calculation that CMS uses to calculate the
unadjusted wage index. The commenter pointed out that the addition of
these lines to the cost report should not require extra administrative
burden because all the additional data elements would be drawn from
existing lines on Worksheet S-3, Parts II and III. However, the
commenter noted that the disadvantage to incorporating the complete
average hourly wage calculation into the cost report is that the cost
report would need to be updated if the wage index calculation is
revised.
Response: We appreciate the information provided by the commenter
that most hospitals allocate their wage-related cost on lines 17
through 25 based on salaries. We also appreciate the commenter's
suggestion regarding adding lines to Worksheet S-3, Part III to
incorporate the complete unadjusted average hourly wage calculation
(meaning, the average hourly wage unadjusted for occupational mix). We
will consider these suggestions further in future rulemaking and/or
cost report revisions as appropriate.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25075 through 25076), another issue about which we are concerned and
for which we solicited public comments in the proposed rule 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 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.\22\ 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 \23\). 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. As stated in the
proposed rule (81 FR 25076), 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). In
the FY 2017 proposed rule (81 FR 25076), we solicited 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.
---------------------------------------------------------------------------

\22\ 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.''
\23\ 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).
---------------------------------------------------------------------------

Comment: One commenter recognized the problem of inconsistent
reporting of home office salaries and wage-related costs, and supported
the idea of reporting these costs in the overhead lines, as long as the
home office salaries and wage-related cost are delineated separately
from other overhead costs. The commenter stated that it is important to
retain transparency on home office costs versus other hospital-specific
overhead costs, and that CMS should also explore the possibility of
penalties for the filing of incomplete or inconsistent cost reports to
increase compliance.
Response: We appreciate the commenter's support, and acknowledge
that it may be useful to separately track home office wages and hours
from other overhead wages and hours. We are in favor of measures to
increase transparency and accuracy of cost reporting, which we are
attempting to do as part of the solicitation of public comments to gain
a better understanding of hospitals' reporting practices regarding
overhead and home office costs and hours. We will consider the
commenter's suggestions in the future as appropriate.
Comment: One commenter stated that most hospitals report home
office salaries on Worksheet A-8-1 with an appropriate adjustment in
Column 6 of Worksheet A. In addition, the commenter believed that most
hospitals report their entire home office salary and hour allocation on
line 14 Worksheet S-3 Part II without removing an amount for excluded
areas. The

[[Page 56937]]

commenter recommended that if CMS decides that an allocation is needed
to remove overhead cost associated with excluded areas contained within
the home office costs, CMS subscript line 14 into overhead and
nonoverhead cost and hours. The overhead portion could then be
allocated in the same manner that the hospital overhead cost is
currently allocated.
Response: We appreciate the information provided by the commenter,
although we are disconcerted to learn that the commenter believes that
most hospitals report their entire home office salary and hour
allocation on line 14 of Worksheet S-3, Part II, without performing an
allocation to remove costs and hours associated with excluded areas.
This means that hospitals are inappropriately including wages and hours
associated with excluded areas in the wage index. We will take these
comments into consideration for future rulemaking and/or cost report
revisions as appropriate.
Comment: One commenter disagreed with CMS' suggestion in the
proposed rule that it may require reporting of home office cost as part
of the overhead lines, instead of line 14 of Worksheet S-3, Part II,
because the nature of services provided by home office personnel are
for general management or administrative services related to the
provision of patient care (81 FR 25076). The commenter stated that the
cost report instructions (CMS Pub. 15-2, Chapter 40, Section 4005.2)
for Worksheet S-3, Part II, Line 14 do not specify that the home office
and/or related party organizations costs need to only be administrative
and general costs. The commenter stated that, as a hospital system with
multiple hospitals, it reports ancillary services such as physical,
occupational, and speech therapy personnel costs on line 14 of
Worksheet S-3, Part II, because they are related organizational costs
that are not reported on Worksheet A, Column 1 and are adjusted on
Worksheet A-8-1. The commenter asserted that because line 14 of
Worksheet S-3, Part II, can include costs not related to general
management or administrative services, these costs should not be
reported on overhead lines.
Response: We appreciate the feedback provided by the commenter. In
the proposed rule, we listed several concerns regarding hospitals'
reporting on line 14, such as 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, and inclusion of an amalgam of
personnel costs, particularly when another more precise line exists for
those personnel costs to be reported (81 FR 25076). We acknowledge
that, currently, the cost report instructions for line 14 of Worksheet
S-3, Part II, do not specify that the home office and/or related party
organizations costs need to only be administrative and general costs.
However, the fact that the commenter, a hospital system with multiple
hospitals, stated that it reports ancillary services such as physical,
occupational, and speech therapy personnel costs on Worksheet S-3, Part
II, line 14, is evidence of the inconsistent and disparate types of
services that hospitals are reporting on line 14. It seems apparent
that hospitals are treating line 14 as they would an overhead cost
center, supporting the need for CMS to consider ending reporting of
home office costs on line 14 and to instead require reporting of home
office costs as part of the overhead lines 27 and 28 (Administrative &
General). By incorporating the home office costs into new lines that
are part of the overhead cost centers, we could systematically remove
costs and hours associated with excluded areas from the wages, wage-
related costs, and hours associated with home office, as we currently
do in ``Step 4'' of the calculation of the unadjusted wage index
described above and in the proposed rule (81 FR 25075). We intend to
consider such measures for future cost report revisions.
Comment: One commenter suggested that any change in the wage index
calculation be evaluated after the additional information is gathered,
similar to CMS efforts in relation to the solicitation of comments
regarding the overhead allocation. The commenter stated that CMS should
disclose its findings and any proposed changes to the wage index
calculation through notice-and-comment rule making.
Response: We will take the commenter's suggestions into
consideration as appropriate.
Because we did not make specific proposals in the proposed rule
regarding treatment of overhead and home office costs in the wage index
calculation, that is, we only solicited comments to gain a better
understanding of hospitals' reporting practices, we are not making any
changes at this time. However, we will take the comments into
consideration for future cost reporting changes and/or rulemaking as
appropriate.

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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25076), we
proposed 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 proposed 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 proposed 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.

[[Page 56938]]

We did not receive any public comments on our proposed changes to
the regulations at Sec. 412.204 and, therefore, are finalizing these
proposed changes without modification in this final rule.

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

1. 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.'' As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81
FR 25076 through 25077), 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 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. In the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25077), for FY 2017, we proposed to continue using the FY 2010-
based IPPS operating and capital market baskets and a proposed labor-
related share of 69.6 percent, which was based on the FY 2010-based
IPPS market basket. We did not receive any public comments on these
proposals and, therefore, for FY 2017, will continue to use the FY
2010-based IPPS operating and capital markets and the labor-related
share of 69.6 percent.
Based on the most recent data available for the FY 2017 IPPS/LTCH
PPS proposed rule, in accordance with section 1886(b)(3)(B) of the Act,
we proposed to base the 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 was estimated to be 2.8 percent (81 FR 25077). We
proposed that if more recent data subsequently became 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.
Based on the most recent data available for this FY 2017 IPPS/LTCH
PPS final rule (that is, IGI's second quarter 2016 forecast of the FY
2010-based IPPS market basket rate-of-increase with historical data
through first quarter 2016), we estimate that the FY 2017 market basket
update used to determine the applicable percentage increase for the
IPPS is 2.7 percent.
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.
Based on the most recent data described above, we determined final
applicable percentage increases to the standardized amount for FY 2017,
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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25077), for FY
2017, we proposed an MFP adjustment of 0.5 percentage point. Similar to
the market basket update, for the proposed rule, we used the most
recent data

[[Page 56939]]

available to compute the MFP adjustment. As noted previously, we
proposed that if more recent data subsequently became 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 final rule, we have determined an MFP
adjustment of 0.3 percentage point for FY 2017.
We did not receive any public comments on our proposal to use the
most recent available data to determine the final market basket update
and the MFP adjustment. Therefore, for this final rule, we are
finalizing a market basket update of 2.7 percent and an MFP adjustment
of 0.3 percentage point based on the most recent available data.
Based on the most recent data available for this final rule, as
described previously, we have determined four applicable percentage
increases to the standardized amount for FY 2017, as specified in the
following table:

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 meaningful meaningful meaningful
EHR user EHR user EHR user EHR user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase.................. 2.7 2.7 2.7 2.7
Adjustment for Failure to Submit Quality Data 0.0 0.0 -0.675 -0.675
under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR 0.0 -2.025 0.0 -2.025
User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi) -0.3 -0.3 -0.3 -0.3
of the Act.....................................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to 1.65 -0.375 0.975 -1.05
Standardized Amount............................
----------------------------------------------------------------------------------------------------------------

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25078), we
proposed 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 proposed 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.
We did not receive any public comments on our proposed changes to
the regulations at Sec. 412.64(d)(1) and, therefore, are finalizing
these proposed changes without modification in this final rule.
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).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25078), for FY
2017, we proposed the updates to the hospital-specific rates applicable
to SCHs and MDHs based on IGI's first quarter 2016 forecast of the FY
2010-based IPPS market basket update and the MFP adjustment. We
proposed that if more recent data subsequently became 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. We did not receive any
public comments with regard to our proposal. Therefore, we are
finalizing the proposal to determine the update to the hospital-
specific rates for SCHs and MDHs in this final rule using the most
recent data available.
For this final rule, based on most recent available data, we are
finalizing the following updates to the hospital-specific rates
applicable to SCHs and MDHs using IGI's second quarter 2016 forecast of
the FY 2010-based IPPS market basket update and the MFP adjustment (as
described previously in this section): An update of 1.65 percent for a
hospital that submits quality data and is a meaningful EHR user; an
update of -0.375 percent for a hospital that submits quality data and
is not a meaningful EHR user; an update of 0.975 percent for a hospital
that fails to submit quality data and is a meaningful EHR user; and an
update of -1.05 percent for a hospital that fails to submit quality
data and is not a meaningful EHR user.
2. FY 2017 Puerto Rico Hospital Update
As discussed in section IV.A. of the preamble of this final 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 determine 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 final rule. Accordingly, in the
proposed rule (81 FR 25078), for FY

[[Page 56940]]

2017, we determined a proposed applicable percentage increase of 1.55
percent to the standardized amount for hospitals located in Puerto
Rico. We note that we did not receive any public comments with regard
to our proposal. Based on the most recent data available for this final
rule (as discussed in section IV.B.1. of the preamble of this final
rule), we are finalizing an applicable percentage increase of 1.65
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): 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 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 national median CMI
value for FY 2017 is based on the CMI values of all urban hospitals
nationwide, and the 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 values are based on discharges
occurring during FY 2015 (October 1, 2014 through September 30, 2015),
and include bills posted to CMS' records through March 2016.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25079), we
proposed 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 median CMI values by region were set forth in a table
in the proposed rule (81 FR 25079). We stated in the proposed rule that
we intended to update the 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.
Based on the latest available data (FY 2015 bills received through
March 2016), 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:
1.6111; 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 final 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).................... 1.3633

[[Page 56941]]

2. Middle Atlantic (PA, NJ, NY)............................ 1.4409
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 1.5079
4. East North Central (IL, IN, MI, OH, WI)................. 1.5331
5. East South Central (AL, KY, MS, TN)..................... 1.4472
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 1.5946
7. West South Central (AR, LA, OK, TX)..................... 1.64525
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 1.6944
9. Pacific (AK, CA, HI, OR, WA)............................ 1.6165
------------------------------------------------------------------------

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. In the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25079), we proposed 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 were the latest cost report data available
at the time the proposed rule was developed. Therefore, in the FY 2017
IPPS/LTCH PPS proposed rule, we proposed 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. (We refer readers to
the table set forth in the FY 2017 IPPS/LTCH PPS proposed rule at 81 FR
25079.) In the proposed rule, we stated that we intended to update
these numbers in the FY 2017 final rule based on the latest available
cost report data.
Based on the latest discharge data available at this time, that is,
for cost reporting periods that began during FY 2015, the final median
number of discharges for urban hospitals by census region are set forth
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)............................ 10,270
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)..................... 8,359
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 7,748
7. West South Central (AR, LA, OK, TX)..................... 5,167
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 8,605
9. Pacific (AK, CA, HI, OR, WA)............................ 8,651
------------------------------------------------------------------------

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 final rule, 5,000 discharges is the
minimum criterion for all hospitals, except for osteopathic hospitals
for which the minimum criterion is 3,000 discharges.
We did not receive any public comments on our proposals.

D. 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. 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 the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25080 through 25081),
consistent with our historical approach, we proposed to update the
discharge data source used to

[[Page 56942]]

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 proposed that qualifying low-
volume hospitals and their payment adjustment would be determined using
the most recently available Medicare discharge data, which at the time
of the proposed rule was from the December 2015 update of the FY 2015
MedPAR file, as these data were the most recent data available at that
time. Table 14 listed in the Addendum of the 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)
listed 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
hospital payment adjustment for FY 2017. Consistent with past practice,
we noted in the proposed rule that the list of hospitals with fewer
than 1,600 Medicare discharges in Table 14 did 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 proposed
that if more recent Medicare discharge data became 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25080
through 25081), we proposed 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
proposed 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, we proposed that 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 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 proposed 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).)
Comment: Commenters supported the actions taken by CMS related to
the extension of the modified criteria to qualify for the low-volume
hospital adjustment through FY 2017. Commenters also expressed their
support for legislative action that would make permanent the criteria
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.
Response: We appreciate the commenters' support of our
implementation of the low-volume hospital payment adjustment for FY
2017, which is consistent with the statutory provisions under section
1886(d)(12) of the Act.
After consideration of the public comments we received, we are
finalizing our proposals, without modification. Consistent with our
proposal to use the most recent Medicare discharge data available for
the final rule, we are using data from the March 2016 update of the FY
2015 MedPAR files to determine qualifying low-volume hospitals and
their payment adjustment in this final rule, and updating Table 14 to
reflect these updated data. Accordingly, Table 14 listed in the
Addendum of this final 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 March 2016 update of the FY 2015 MedPAR file and their
potential low-volume hospital 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). As we proposed, in

[[Page 56943]]

order to receive a low-volume hospital payment adjustment under Sec.
412.101 for FY 2017, consistent with our previously established
procedure, 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, 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, as we proposed, 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 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. Also, as we
proposed, 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 will 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. (As noted above, 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 an interim final rule with comment period (IFC) in
the FY 2016 IPPS/LTCH PPS final rule (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 are
finalizing the provisions of that IFC without modification, as
discussed in section IV.N. of this 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.
Comment: One commenter requested that CMS take into consideration
IME costs across all provider settings and correspondingly increase the
IPPS payment to account for higher indirect patient costs. The
commenter requested that CMS not eliminate or decrease the formula
modifier for the FY 2017 IME adjustment.
Response: The IME adjustment factor is set by statute. Therefore,
we do not have discretion to make any changes to the formula
multiplier.
2. Other Policies Related to IME
We refer readers to section IV.I. of the preamble of this final
rule for a discussion of the finalized policy changes for FY 2017
relating to medical residency training programs (specifically, rural
training tracks) at urban hospitals that also affect payments for IME.

F. 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
section 1886(r) to the

[[Page 56944]]

Act that modifies the methodology for computing the Medicare DSH
payment adjustment. (For purposes of this final 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 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 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

[[Page 56945]]

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 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 will 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 for determining their
eligibility as we do for all other IPPS hospitals, and will make
interim and final DSH and uncompensated care payments accordingly.

[[Page 56946]]

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.
4. Uncompensated Care Payments
As we 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 and final policies for FY 2017.
a. Calculation of 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 the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25084), in order to determine Factor 1 in the uncompensated care
payment formula for FY 2017, we proposed 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), for the proposed
rule, 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 the
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 were 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 were participating in the
program were included in this estimate for FY 2017. However, for the
proposed rule, we 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

[[Page 56947]]

these hospitals will be excluded from receiving DSH payments until that
time. The estimate included 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.
For the proposed rule, using the data sources discussed above, the
Office of the Actuary used 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
applied 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, was approximately $14.227 billion. This
estimate excluded Maryland hospitals participating in the Maryland All-
Payer Model, SCHs paid under their hospital-specific payment rate, and
25 percent of DSH 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, was
approximately $3.556 billion (or 25 percent of the total amount of
estimated Medicare DSH payments for 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 the
proposed rule, we proposed that Factor 1 for FY 2017 was
$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).
We invited public comments on our proposed calculation of Factor 1
for FY 2016.
Comment: A number of commenters requested greater transparency in
the methodology used by the OACT to estimate aggregate DSH payments
that would have been paid absent implementation of the Affordable Care
Act, particularly with respect to the calculation of estimated DSH
payments for purposes of determining Factor 1. The commenters urged CMS
to clarify the methodology and provide additional information on the
assumptions used to make these projections. The commenters also
requested that this information be provided in advance of the
publication of the FY 2017 IPPS/LTCH PPS final rule and in future
proposed rules each year. The commenters stated that hospitals do not
have sufficient information to understand or replicate the relevant
projections and estimates for Factor 1.
Many commenters stated that there is variability in the ``Other''
factors that are used to estimate Medicare DSH expenditures and
requested full disclosure of the methodology and the various components
used to estimate the catch-all ``Other'' column, such as the factor for
Medicaid expansion due to the Affordable Care Act. Specifically, the
commenters expressed concern that the value in the ``Other'' column for
FY 2016 changed from 1.045 in the FY 2016 IPPS/LTCH PPS final rule to
0.9993 in the FY 2017 IPPS/LTCH PPS proposed rule. Commenters were
concerned that such a discrepancy also appeared in the FY 2016 IPPS/
LTCH PPS final rule, when CMS used the exact same 0.9993 factor from
the ``Other'' column for FY 2014, the first year of the Medicaid
expansion; they expressed concern that they believed this was updated
to 1.04795 without explanation in the version of the table that
appeared in the FY 2017 IPPS/LTCH PPS proposed rule. The commenters
requested that CMS provide clarification regarding these changes.
Some commenters asked CMS to explain how Medicaid and CHIP
expansion is accounted for in the ``Other'' column used to determine
the Factor 1 estimate. The commenters stated that CMS appears to have
applied internally inconsistent assumptions as to the effect of
Medicaid expansion on Factor 1, with no explanation or support. One
commenter stated that the effect of Medicaid expansion on the agency's
projection of what the traditional DSH payment would have been for FY
2014, absent of the Affordable Care Act, has varied erratically in the
agency's successive rulemakings for FYs 2014 through 2017. Another
commenter noted that the most recent Congressional Budget Office report
showed a 32-percent increase in Medicaid/CHIP enrollment as a result of
Medicaid expansion, and expected that this increase in enrollment would
result in a substantial increase in reported DSH payments that is not
reflected in OACT's DSH estimate for Factor 1. A second commenter
provided its own estimates of how the Medicaid expansion would affect
DSH payments, and noted that these estimates do not align with CMS'
figures.
Commenters objected to CMS' statement from prior rulemaking that
``the increase due to Medicaid expansion is not as large as commenters
contended due to the actuarial assumption that the new enrollees are
healthier than the average Medicaid recipient, and, therefore, use
fewer hospital services.'' Commenters noted that this assumption has
the effect of reducing the estimate of total Medicare DSH spending
under prior law, which in turn reduces the estimates of both the
empirically justified amount and the amount available to be distributed
as uncompensated care payments. Some commenters asserted that there is
no solid evidentiary basis for the assumption that new Medicaid
enrollees are healthier, and requested that CMS reconsider and
discontinue use of this assumption. Some commenters asserted that CMS
should by now have accurate information regarding States that have
expanded Medicaid, and that CMS should utilize the available enrollment
and/or utilization information from Medicaid expansion programs either
to support or refute the assumption that the Medicaid expansion
population is healthier than the average Medicaid recipient. One
commenter stated that, in the FY 2015 IPPS/LTCH PPS final rule, CMS
provided a table comparing pre-Affordable Care Act versus post-
Affordable Care Act Medicaid enrollment and the corresponding estimated
percentage increase in Medicare DSH, but those data were not provided
in the FY 2016 IPPS/LTCH PPS proposed and final rule or the FY 2017
IPPS/LTCH PPS proposed rule.
Several commenters believed there was incomplete information in the
FY 2017 IPPS/LTCH PPS proposed rule regarding the ``completion factor''
and requested further detail. These commenters suggested that CMS
publish the ``completion factor'' used to adjust the FY 2014 and FY
2015 claims data for purposes of the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25085). In addition, the commenters suggested that CMS
publish information on the ``preliminary data for 2016'' used by the
OACT to determine the discharge figure for FY 2016, as well as the
``assumptions'' used to determine the FY 2017 discharge figure. The
commenters requested that CMS also share detailed calculations of the
discharge and case-mix values as well as the inflation factor update
used for FY 2014 through FY 2017. One commenter noted that, according
to the FY 2017 IPPS/LTCH PPS proposed rule, the data source for the
change in 2015 case-mix is actual data adjusted for a completion
factor, but the value is the same for 2016 and 2017 based on the 2010-
2011 Medicare Technical Review Panel

[[Page 56948]]

report. The commenter questioned whether a more current data source
could be used for this calculation.
Several commenters expressed concern about the sustainability of
continued reductions to aggregate uncompensated care payments. The
commenters noted that, as insurance coverage increases, the aggregate
amount available for uncompensated care payments will decline and thus
reduce the amount of payments to be distributed which they believe will
help cover the cost of uncompensated care. These commenters believed
that it would be appropriate to adjust the ``Other'' column in a manner
that supports safety-net hospitals in order to reflect the growing
number of hospitals that are becoming eligible for DSH payments.
Furthermore, commenters noted that hospitals in States that have not
expanded Medicaid are not experiencing a decrease in uncompensated care
costs and that reductions in Medicare DSH payments are detrimental to
these hospitals. Some commenters noted the reductions in payments they
would experience due to CMS' uncompensated care proposal in totality
and observed that the hospitals that are disproportionately impacted
may not have the resources necessary to successfully transform care,
maintain high quality care, and continue in the commitment to meet the
needs of patients and communities.
Response: We thank the commenters for their input. As in previous
years, we would like to clarify that Factor 1 is not estimated in
isolation. The Factor 1 estimates for proposed rules are generally
consistent with the economic assumptions and actuarial analysis used to
develop the President's Budget estimates under current law, and the
Factor 1 estimates for the final rule are generally consistent with
those used for the Midsession Review of the President's Budget. For
additional information on the development of the President's Budget, we
refer readers to the Office of Management and Budget Web site at:
https://www.whitehouse.gov/omb/budget. For additional information on
the specific economic assumptions used in the Midsession Review of the
President's FY 2017 Budget, we refer readers to the ``Midsession Review
of the President's FY 2017 Budget'' available on the Office of
Management and Budget Web site at: https://www.whitehouse.gov/omb/budget/MSR. For a general overview of the principal steps involved in
projecting future inpatient costs and utilization, we refer readers to
the ``2016 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds'' available on the CMS Web site at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html?redirect=/reportstrustfunds/ under
``Downloads.''
As we did in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49519),
later in this section, we provide additional information regarding the
data sources, methods, and assumptions employed by the actuaries in
determining the OACT's updated estimate of Factor 1 for FY 2017. We
believe that this discussion addresses the methodological concerns
raised by commenters regarding the various assumptions used in the
estimate, including the ``Other'' and ``Discharges'' assumptions and
also provides additional information regarding how we address the
Medicaid and CHIP expansion. However, we note that, with regard to the
commenters' questions and concerns on the completion factor, the OACT
assumed a discharge completion factor of 99 percent for FY 2014 and 98
percent for FY 2015. Similarly, the OACT assumed that case-mix was
stabilized at the time of the estimate and no additional completion
factor adjustment was needed. These assumptions are consistent with
historical patterns of completion factors that were determined for
discharge and case-mix numbers.
Regarding the commenters' assertion that Medicaid expansion is not
adequately accounted for in the ``Other'' column, we note that, based
on data from the Midsession Review of the President's Budget, the OACT
assumed per capita spending for Medicaid beneficiaries who enrolled due
to the expansion to be 50 percent of the average per capita of the pre-
expansion Medicaid beneficiary due to the better health of these
beneficiaries. This assumption is consistent with recent internal
estimates of Medicaid per capita spending pre-expansion and post-
expansion.
In response to the commenters who requested that we adjust the
``Other'' assumption to reflect the growing number of disproportionate
share hospitals in a manner that supports safety-net hospitals,
particularly in States that do not have a Medicaid or CHIP expansion,
we note that our proposed methodology includes assumptions regarding
how DSH payments will increase in aggregate, regardless of how many
hospitals qualify for DSH payments. The statute is clear that the
computation of Factor 1 begins with an 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. In our view, the most appropriate way to estimate
this amount is to project, to the best of our ability, how DSH payments
will change in aggregate, based on the programs and policies that will
be in effect during the fiscal year, rather than focusing on changes in
payments to specific hospitals. Thus, there is no need to adjust our
estimate of the ``Other'' factors to reflect new DSH hospitals.
Furthermore, in response to concerns about the decrease in the amount
available to make uncompensated care payments, we believe that the
intent of the statute is to reduce the amount available to make
uncompensated care payments to reflect the decline in the number of
uninsured individuals and the corresponding decrease in the amount of
uncompensated care costs.
Comment: In addition to requesting that the methodology and
assumptions used for Factor 1 be made public before the publication of
the final rule and with the proposed rule each subsequent year,
commenters requested that CMS furnish interested parties with advance
opportunity to comment on new calculations based on the more recent
data that CMS intends ultimately to use for the final rule. One
commenter believed that CMS' rulemaking is flawed because different
data and calculations are used in the final rule without any
opportunity for the hospitals to comment. This commenter requested that
CMS make clear that it will use different or updated data to determine
DSH payments for uncompensated care in the final rule. The commenter
believed that the proposal to determine the amount of hospitals' new
DSH payment based on data first released with the final rule and on
which hospitals will have no meaningful opportunity to comment violates
notice-and-comment rulemaking requirements. As discussed above, several
commenters noted the variability in the values of the ``Other'' column
as well as in the factor applied to account for Medicaid expansion; one
of the commenters called on CMS to explain why these values were
allowed to change from one rulemaking to the next when the agency has
otherwise taken the position that the estimates used to determine
uncompensated care payments should be fixed when made and not be
reconciled with data that become available later.
Response: We believe that stakeholders had notice and a full
opportunity to comment on methodology that would be used to

[[Page 56949]]

determine uncompensated care payments, including the data sources that
would be used. As a result, commenters had a full opportunity to raise
any concerns regarding the appropriateness of the data generally, even
if the actual data were not yet available, consistent with the
requirements for notice and comment under the Administrative Procedure
Act. With respect to concerns about the variability of the factors used
to estimate Factor 1, we note that, in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50630), using the discretion afforded in the statute to
estimate the aggregate amount of DSH payments that would be made in the
absence of section 1886(r) of the Act, we finalized a policy of
defining the methodology for calculating Factor 1 using the OACT's
biannual Medicare DSH payment projections, which are typically
available in February of each year (based on data from December of the
previous year) as part of the President's Budget, and in July (based on
data from June) as part of the Midsession Review of the President's
Budget.
Comment: Some commenters requested that, in light of their concerns
about the data sources and methods used to estimate Factor 1, CMS adopt
a process of reconciling the initial estimates of Factor 1 with actual
data for the payment year in conjunction with the final settlement of
hospital cost reports for the applicable year. The commenters believed
that a ``true-up approach'' would ensure that Medicare DSH payments are
determined using the best data.
Response: We continue to believe that applying our best estimates
prospectively is most conducive to administrative efficiency, finality,
and predictability in payments (78 FR 50628; 79 FR 50010; and 80 FR
49518). As we noted in the FY 2014 IPPS/LTCH PPS final rule, we do not
know the aggregate Medicare DSH payment amount that would be paid for
each Federal fiscal year until the time of cost report settlements,
which occur several years after the end of the fiscal year.
Furthermore, the statute provides that Factor 1 shall be determined
based on estimates of the aggregate amount of DSH payments that would
be made in the absence of section 1886(r) of the Act and the aggregate
amount of empirically justified DSH payments that are made under
section 1886(r)(1) of the Act. We believe that, in affording the
Secretary the discretion to estimate the amount of these payments and
by including a prohibition against administrative and judicial review
of those estimates in section 1886(r)(3) of the Act, Congress
recognized the importance of finality and predictability in payments
and sought to avoid a situation in which the uncompensated care
payments would be subject to change over a period of a number of years.
Accordingly, we do not agree with the commenters that we should
establish a process for reconciling our estimates of Factor 1. We note
that, in reviewing the OACT's prior estimates for DSH payments compared
to more updated estimate and/or actual experience, from FY 2005 to FY
2017, the original estimates have been higher than either the more
updated estimates and/or actual experience for 7 of the 13 years and
lower than actual experience in only 6 years.
Comment: Commenters indicated that the estimated DSH payments do
not account for the impact of the D.C. Circuit Court decision in Allina
by excluding Medicare Advantage days from the SSI ratio and including
dual eligible Medicare Advantage days in the Medicaid fraction. The
commenters believed that this understates the estimate of Factor 1. The
commenters stated that CMS cannot use prior year data for its
calculations without adjusting that data to reflect what it should have
been under binding D.C. Circuit precedent.
Response: We do not believe the Allina decision has any bearing on
our estimate of Factor 1 for FY 2017. The holding in Allina addresses
traditional DSH payments made to a group of providers between 2004 and
2010. The Allina decision did not address the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50614 through 50620) in which we readopted the policy
of counting Medicare Advantage days in the SSI ratio for FY 2014 and
all subsequent fiscal years. In its estimate of Factor 1 for FY 2017
for the FY 2017 IPPS/LTCH PPS proposed rule, the Office of the Actuary
was making an estimate of difference between the aggregate amount of
DSH payments that would be made under section 1886(d)(5)(F) of the Act
in FY 2017 if section 1886(r) of the Act did not apply and the
aggregate amount of empirically justified DSH payments that will be
made to hospitals in FY 2017 under section 1886(r)(1) of the Act. Thus,
although the Office of the Actuary used the December 2015 update of the
Medicare Hospital Cost Report Information System (HCRIS) in making this
estimate, it also applied inflation adjustments and assumptions
regarding future changes in utilization and case-mix in order to
estimate Medicare DSH payments for FY 2017. Because Medicare Advantage
days will be counted in the SSI fraction in FY 2017 for purposes of
determining empirically justified DSH payments, we believe it is more
appropriate to use data that also include Medicare Advantage days in
the SSI fraction when determining Factor 1 for FY 2017. Accordingly,
consistent with Sec. 412.106(b)(2), as readopted in the FY 2014 IPPS/
LTCH PPS final rule, in estimating DSH payments for FY 2017, the OACT
did not remove patients enrolled in Medicare Advantage plans from SSI
ratios or make any other adjustments to the hospital cost report data
from the December 2015 update of the HCRIS database. We believe this
methodology is consistent with the statute and our regulations.
After consideration of the public comments we received, we are
finalizing, as proposed, the methodology for calculating Factor 1 for
FY 2017. Using this methodology, we discuss the resulting Factor 1
amount for FY 2017 below.
To determine Factor 1 and to model the impact of this provision for
FY 2017, we used the Office of the Actuary's June 2016 Medicare DSH
estimates based on data from the March 2016 update of 2013 cost report
data included in the HCRIS and the 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 June 2016 Medicare DSH estimates.
Furthermore, because Maryland hospitals participating in the Maryland
All-Payer Model do not receive DSH payments, these hospitals also are
excluded from the OACT'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, for this final rule, we
are excluding 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.
For this final rule, using the data sources discussed above, the
Office of the Actuary used the most recently submitted Medicare cost
report data for 2013 to identify Medicare DSH

[[Page 56950]]

payments and the most recent Medicare DSH payment adjustments provided
in the Impact File published in conjunction with the publication of the
FY 2016 IPPS/LTCH PPS final rule, and applied inflation updates and
assumptions for future changes in utilization and case-mix to estimate
Medicare DSH payments for the upcoming fiscal year. The June 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 $14,396,635,710.16 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 DSH
payments for the 4 hospitals whose participation in the Rural Community
Hospital Demonstration program will continue through December 31, 2016.
Therefore, based on the June 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
$3,599,158,927.54 billion (or 25 percent of the total amount of
estimated Medicare DSH payments for 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
final rule, Factor 1 for FY 2017 is $10,797,476,782.62, which is equal
to 75 percent of the total amount of estimated Medicare DSH payments
for FY 2017 ($14,396,635,710.16 minus $3,599,158,927.54).
The Office of the Actuary's final estimates for FY 2017 began with
a baseline of $12.277 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 1.0586 1.035688 $12.715
2015.................................................... 1.014 0.9897 1.005 1.0705 1.079678 13.738
2016.................................................... 1.009 0.9868 1.025 0.9999 1.020471 14.009
2017.................................................... 1.0015 1.0084 1.005 1.0125 1.027649 14.397
--------------------------------------------------------------------------------------------------------------------------------------------------------

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 increase is based on preliminary data adjusted by a
completion factor. The 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............................ 2.7 -0.75 -0.3 -1.5 0.15
----------------------------------------------------------------------------------------------------------------
Note: All numbers are based on Midsession Review of FY 2017 President's Budget projections.

b. Calculation of 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

[[Page 56951]]

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://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 the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 24486), we used the most
recently available estimate of the uninsurance rate, which was 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 was 89 percent. Therefore, the
CBO's most recent estimate of the rate of uninsurance in CY 2016 was 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 was 90 percent. Therefore, the CBO's most recent estimate of
the rate of uninsurance in CY 2017 available for the proposed rule was
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, was 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 2017 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-[bond]((0.1025-0.18)[sol]0.18)[bond] = 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, we proposed that Factor 2 for FY 2017 would be 56.74
percent.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25046), we stated
that the FY 2017 Proposed Uncompensated Care amount was
$10,670,529,595.84 x 0.5674 = $6,054,458,492.68.
Comment: A number of commenters expressed concern about the
accuracy and transparency of the methodology used to calculate Factor
2. The commenters questioned whether CMS has accounted for factors that
affect the percentage of insured individuals, such as the Supreme
Court's ruling on Medicaid expansion in National Federation of
Independent Business v. Sebelius, which resulted in some States not
expanding their Medicaid programs. One commenter specifically asserted
that CMS' methodology for the uncompensated care component of the
Medicare DSH calculation does not account for those States that have
not yet expanded Medicaid, resulting in an overstated percentage of
insured individuals. Another commenter supported using the most
recently available CBO estimates for the uninsured, including any
revised estimates issued before the final rule. A third commenter
believed the CBO estimates to be within reason. This commenter
suggested that CMS true-up the factors based on actual data in order to
yield the most accurate determination of the factors and the amount
available to make uncompensated care payments.
Response: In the FY 2014 IPPS/LTCH PPS final rule, we finalized a
policy to employ the most recent available CBO estimate of the rate of
uninsurance in the calculation of Factor 2 for FY 2014. We stated that
we believe that this approach is consistent with the language of
section 1886(r)(2)(B)(i)(II) of the Act. In addition, it is preferable
from a statistical point of view to calculate the percent change in the
rate of insurance over time using a consistent data source (78 FR
50632). We also used the most recent CBO estimates in the calculation
of Factor 2 for FY 2015 and FY 2016, and we continue to believe

[[Page 56952]]

that the CBO projections of the insurance coverage are the most
appropriate and consistent basis on which to calculate Factor 2 for FY
2017. We note that CBO's coverage projections for CY 2016 and CY 2017
reflect changes in the rate of uninsurance arising from participation
in the health insurance exchanges, Medicaid and CHIP enrollment, and
changes in employer-sponsor, nongroup, and other insurance coverage. In
addition, the estimate reflects other individuals who choose to remain
uninsured, despite being eligible for Medicaid or having access to
coverage through an employer, the exchange, or from an insurer.
Therefore, the CBO estimates do take into account some uncertainties
under the Affordable Care Act, including the decisions by States as to
whether to expand their Medicaid programs, the different outcomes of
Medicaid expansions and changes in insurance coverage status over time.
For detailed explanations outlining the methodology and assumptions
used by CBO, we refer readers to the CBO Web site and particularly in
the Appendix of the March 2016 Updated Budget Projections: 2016-2026
(which are available at https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51384-MarchBaseline.pdf).
With respect to the commenter's concern about employing actual data
to reconcile the projections employed to determine Factor 2, in the FY
2014 IPPS/LTCH PPS final rule, we stated that employing actual data
would impose an unacceptable delay in the final determination of
uncompensated care payments (78 FR 50632). Actual data on the rates of
insurance and uninsurance do not become available until several years
after the payment year, and the initial data for a year will continue
to be adjusted for several years after that as further data become
available. Furthermore, by stating that the Secretary's calculations
should be based on ``estimates'' provided by the CBO, the statute
clearly contemplates the use of such estimates on a prospective basis
without reconciliation. Accordingly, we continue to believe that
determining Factor 2 prospectively is consistent with the statute and
conducive to administrative efficiency, finality, and predictability in
payments.
Comment: Several commenters requested that CMS work with Congress
to take steps to mitigate the effect of the reduction in the overall
amount available to make uncompensated care payments for FY 2017. Some
commenters requested that CMS use its authority to decrease the
magnitude of the proposed reduction in uncompensated care payments. One
commenter requested that CMS maintain the percentage of uninsurance
that it had applied in the 2015 calculation until more accurate
projections can be made, accounting for those States that have not yet
expanded Medicaid. Several commenters asked CMS to ensure the payment
methodology does not harm access to care in rural areas.
Response: We thank the commenters for their alternative
suggestions. The statute requires us to implement the uncompensated
care payment methodology in its entirety for FY 2014 and each
subsequent fiscal year. Therefore, we do not believe there is a
statutory basis to delay or modify the implementation of Factor 2. The
statute also does not provide us with a basis to use the percentage of
uninsurance we applied for FY 2015 because section 1886(r)(2)(B)(i)(II)
requires us to use the data on the percent of individuals who are
uninsured in the most recent period for which data are available, and
such data are available for FY 2017. Finally, although we understand
the commenters' concerns regarding access to care in rural areas, the
statute does not include any exception to the methodology for computing
uncompensated care payments for hospitals by geographic location or
geographic classification. Therefore, hospitals in rural areas are
subject to the same reductions as hospitals elsewhere in the country.
Comment: Several commenters requested that any proposed changes to
the methodology that will be used to calculate Factor 2 for FY 2018 and
subsequent years be transparent and open for comment in next year's
proposed rule. One commenter asked CMS to elaborate on future changes
and questioned whether using the CBO's projections of the rate of
uninsurance would still be a viable option for determining Factor 2 for
future years.
Response: The statute permits the use of a data source other than
the CBO estimates to determine the percent change in the rate of
uninsurance beginning in FY 2018. Because we did not make a proposal to
change the Factor 2 methodology for FY 2018 and subsequent years in the
FY 2017 IPPS/LTCH PPS proposed rule, we do not believe it is
appropriate to discuss any potential changes to the methodology or the
viability of potential alternative data sources in this final rule. We
plan to address this issue in the FY 2018 IPPS/LTCH PPS proposed rule.
After consideration of the public comments we received, we
calculated the final Factor 2 as follows:
For this FY 2017 IPPS/LTCH PPS final rule, we used the most
recently available estimate of the uninsurance rate, which is based on
the CBO's March 2016 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 2016 estimate of individuals under the
age of 65 with insurance in CY 2016 is 90 percent. Therefore, the CBO's
most recent estimate of the rate of uninsurance in CY 2016 is 10
percent (that is, 100 percent minus 90 percent.) The CBO's March 2016
estimate of individuals under the age of 65 with insurance in CY 2017
is also 90 percent. Therefore, the CBO's most recent estimate of the
rate of uninsurance in CY 2017 available for the final rule is 10
percent (that is, 100 percent minus 90 percent.)
The calculation of the final 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 2016 CBO
estimate): 90 percent.
CY 2017 rate of insurance coverage (March 2016 CBO
estimate): 90 percent.
FY 2016 rate of insurance coverage: (90 percent * .25) +
(90 percent * .75) = 90 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 percent.

1-[bond]((0.10-0.18)[sol]0.18)[bond] = 1-0.4444 = 0.5555 (55.56
percent)
0.5556 (55.56 percent)-.002 (0.2 percentage points for FY 2017 under
section 1886(r)(2)(B)(i) of the Act) = 0.5536 or 55.36 percent
0.5536 = Factor 2

Therefore, the final Factor 2 for FY 2017 is 55.36 percent.
The FY 2017 Final Uncompensated Care Amount is: $10,797,476,782.62
x 0.5536 = $5,977,483,146.86.

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

------------------------------------------------------------------------
FY 2017 Uncompensated Care Total Available.......... $5,977,483,146.86
------------------------------------------------------------------------

c. Calculation of 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

[[Page 56953]]

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
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. In section IV.F.4.d. of the preamble of the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25089), we explained our belief
that since the introduction of the uncompensated care payment in FY
2014, hospitals have been submitting more accurate and consistent data
through Worksheet S-10 on the Medicare cost report (OMB control number
0938-0050) and that it would be 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.4.d. of the
preamble of the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25089) and
in section IV.F.4.d. of this final rule, we proposed a methodology and
timeline for incorporating Worksheet S-10 data and invited public
comments on that proposal. We address the public comments we received
on the proposal to incorporate Worksheet S-10 data for purposes of
determining Factor 3 starting in FY 2018 in that section of this final
rule.
In the FY 2017 IPPS/LTCH PPS proposed rule, we stated that we
believe it remains premature to propose the use of Worksheet S-10 data
for purposes of determining Factor 3 for FY 2017 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 payment methodology. Therefore, we indicated
that, for FY 2017, we remain concerned about the accuracy and
consistency of the data reported on Worksheet S-10 and proposed 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 (81 FR 25087). We
also proposed 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 (81 FR 25087).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25087), we also
proposed 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 requesting that CMS 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. We stated in the proposed rule that because we were proposing to
continue using insured low-income patient days as a proxy for
uncompensated care in FY 2017, we believed it was important to consider
the commenter's request regarding the data used to calculate Factor 3
for Puerto Rico hospitals. Accordingly, we proposed 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
examined this concept but were unable to identify a systematic source
for these data for

[[Page 56954]]

Puerto Rico hospitals. Specifically, we noted 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 stated that 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 acknowledged 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 solicited 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 proposed 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, we stated that 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 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 noted 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.4.d. of the preamble of the
proposed rule.
In summary, we invited public comments on the proposal 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. We proposed
to codify these proposals in our regulations at Sec.
412.106(g)(1)(iii)(C). We also invited 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.
Comment: Several commenters objected to the proposal to calculate
Factor 3 for FY 2017 based on a hospital's share of total Medicaid days
and Medicare SSI days as a proxy for measuring a hospital's share of
uncompensated care costs. These commenters believed that this method is
significantly inaccurate as a measure of a hospital's uncompensated
care burden. In particular, the commenters asserted that the low-income
insured days proxy does not capture the extent to which low-income
patients make up a hospital's overall patient population; that the use
of only inpatient days does not capture the significant amount of care
hospitals provide to low-income patients in the outpatient setting; and
that the use of only inpatient days does not account for the full
variation in the amount of resources required to treat low-income
patients. One commenter suggested that CMS consider modifications to
the low-income insured days proxy that the commenter believed would
more accurately measure each hospital's uncompensated care burden. The
commenter suggested CMS weight each hospital's SSI and Medicaid days in
relation to its total patient days, rather than using the SSI and
Medicaid days without any weights.
In addition, many commenters who objected to the proposal to use
the low-income insured days proxy for FY 2017 believed that its
continued use rewards providers in States where Medicaid has expanded,
and it is thus inappropriate as a proxy for uncompensated care costs.
One commenter stated that using Medicaid and Medicare SSI days to
calculate Factor 3 harms hospitals in States with lower Medicaid income
eligibility limits and high uncompensated care costs. As an example,
this commenter stated that hospitals in Wisconsin have comparably lower
Medicaid days, as the State government lowered Medicaid income
eligibility limits to 100 percent of the Federal poverty level, yet
losses associated with uninsured or underinsured patients remain high.
Another commenter stated that, in using low-income insured days to
determine a hospital's disproportionate patient percentage, most of the
dollars in empirically justified Medicare DSH payments are distributed
to hospitals with high Medicaid shares because in the commenter's view
Medicaid days are much more common than Medicare SSI days. The
commenter stated that there will be no direct payments for
uncompensated care costs in FY 2017 because Medicaid and Medicare SSI
days will continue to be used as a proxy for uncompensated care costs.
The commenter asserted that the net result is that the Medicare Part A
Trust Fund will, in effect, provide significant payments for treating
Medicaid patients, which are more numerous in Medicaid expansion
States.
Some commenters who opposed the low-income insured days proxy
believed that using data from Worksheet S-10, coupled with selective
auditing, would lead to better estimates of uncompensated care costs
than the low-income insured days proxy. These commenters asserted that
the use of Worksheet S-10 to distribute uncompensated care payments,
coupled with distributing traditional DSH payments based on the
disproportionate patient percentage formula, would create more balance
between Medicare support of Medicaid patients and Medicare support of
the uninsured. Some commenters recommended that

[[Page 56955]]

CMS transition as soon as possible away from the low-income insured
days proxy and towards the use of Worksheet S-10 data to determine
uncompensated care costs, as any delay would perpetuate current
inaccuracies and inequities. However, several commenters who disagreed
with the use of the low-income insured days proxy for FY 2017 were also
not comfortable using data from Worksheet S-10 until CMS changes the
form and instructions to improve the accuracy and consistency of the
data it collects. Several commenters who disagreed with continued use
of the low-income insured days proxy recommended that CMS use a new
data source for obtaining data on uncompensated care costs. Potential
data sources identified by commenters included a federally administered
DSH survey and proxy data from the Bureau of Labor Statistics.
Response: For the reasons we stated in the FY 2014, FY 2015, and FY
2016 IPPS/LTCH PPS final rules, we believe that data on utilization for
insured low-income patients are a reasonable proxy for the treatment
costs of uninsured patients in FY 2017. Moreover, due to the concerns
that continue to be expressed by a large majority of commenters
regarding the accuracy and consistency of the data reported on the
Worksheet S-10 in its current form, we continue to believe that these
alternative data on utilization for insured low-income patients, which
are currently reported on the Medicare cost report, remain a better
proxy for the amount of uncompensated care provided by hospitals in FY
2017. However, we remain convinced that Worksheet S-10 can 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.4.d of the preamble of this final rule.
As discussed in the FY 2016 IPPS/LTCH PPS final rule, in using
Medicaid and Medicare SSI days as a proxy for uncompensated care, we
recognize it would be possible for hospitals in States that choose to
expand Medicaid to receive higher uncompensated care payments because
they may have more Medicaid patient days than hospitals in a State that
does not choose to expand Medicaid. We note that the earliest Medicaid
expansions pursuant to the Affordable Care Act began in 2014. The data
that will be used to determine Factor 3 for FY 2017 are from 2011,
2012, and 2013, and therefore do not reflect the effects of these
Medicaid expansions. Thus, for the reasons discussed above, we believe
that data on insured low-income days remain the best proxy for
uncompensated care costs currently available to determine Factor 3 for
FY 2017.
Comment: One commenter requested that CMS consider using a proxy
for Puerto Rico hospitals' SSI days in computing the empirically
justified DSH payment amount, or 25 percent of the amount that would
have been paid for Medicare DSH prior to implementation of Section 3133
of the Affordable Care Act. The commenter stated that the use of a
proxy in the traditional Medicare DSH formula is a logically and
naturally derived conclusion of the proposal to use the overall
national average ratio of Medicare SSI days to Medicaid days as a proxy
for SSI days in the calculation of Factor 3 for Puerto Rico hospitals.
The commenter stated that there is sufficient precedent and legal
support for CMS to use a proxy for SSI days for empirically justified
Medicare DSH payments to Puerto Rico. Specifically, the commenter
stated that the law requires CMS to apply the formula in the same
manner and to the same extent in each jurisdiction. The commenter
asserted that by not addressing the ineligibility of beneficiaries in
the Territories, including Puerto Rico, to receive SSI, the empirically
justified DSH payment formula and its resulting payments are not
consistent with the requirement to make these payments in the same
manner and to same extent as they apply to subsection (d) hospitals.
The commenter stated that the result is that the jurisdiction with the
highest proportion of low income beneficiaries gets the lowest
disproportionate share payment, within the context of the empirically
justified DSH payment.
Another commenter believed that the use of a proxy for SSI days to
calculate Factor 3 for Puerto Rico hospitals should be accompanied by a
corresponding increase in Factor 1. The commenter stated that the
increase in Factor 1 is long overdue. The commenter noted that
traditional Medicare DSH payments are based in part on the Medicare/SSI
fraction, established under 42 U.S.C. 1395ww(d)(5)(D)(vi)(I), which is
the percentage of a hospital's inpatients who were entitled to Medicare
Part A benefits and were also entitled to Supplemental Security Income
(SSI) benefits under Title XVI of the Social Security Act when they
were receiving inpatient services at the hospital. The commenter
asserted that the problem for Puerto Rico is that it does not have an
SSI program, as Congress did not extend that program to Puerto Rico
when enacting the Title XVI SSI program. The commenter further
suggested that Congress had addressed Puerto Rico's lack of an SSI
program in 42 U.S.C. 1395ww(d)(9)(D), which they interpreted to provide
that Puerto Rico hospitals are paid DSH ``in the same manner and to the
extent'' as hospitals in the 50 States, and as such, inpatient days
should be included for Puerto Rico Medicare beneficiary residents who
would qualify for SSI benefits if they were residents of a State. The
commenter concluded that CMS' interpretation that only Title XVI SSI
program days ``count'' when calculating the DSH payment for Puerto Rico
hospitals turns the provision at 42 U.S.C. 1395ww(d)(9)(D) from one
that was intended to provide for a DSH payment to Puerto Rico hospitals
into one that prohibits such a payment.
Response: In the FY 2017 IPPS/LTCH PPS proposed rule, we did not
propose to adopt a proxy for Puerto Rico hospitals' SSI days in the
calculation of the empirically justified Medicare DSH payment.
Therefore, we consider this comment to be outside the scope of the
proposed rule. We note, however, that while section 1886(r)(2)(C)(i) of
the Act allows for the use of alternative data as a proxy to determine
the costs of subsection (d) hospitals for treating the uninsured for
purposes of determining uncompensated care payments, section 1886(r)(1)
of the Act requires the Secretary to pay an empirically justified DSH
payment that is equal to 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(d)(5)(F)(vi) of
the Act, which prescribes the disproportionate patient percentage used
to determine empirically justified Medicare DSH payments, specifically
calls for the use of SSI days in the Medicare fraction and does not
allow the use of alternative data, we disagree with the commenter that
there is legal support for CMS to use a proxy for Puerto Rico
hospitals' SSI days in the calculation of the empirically justified
Medicare DSH payment. As a result, there is also no basis for us to
change our estimate of Factor 1.
Comment: Several commenters supported the proposal to use 14
percent of Medicaid days as a proxy for Medicare SSI days for Puerto
Rico Hospitals. These commenters stated that they appreciated the
attention and effort of CMS to develop a fair and appropriate method to
estimate SSI days for Puerto Rico, as the SSI program is statutorily
unavailable to U.S. citizens residing in the Territories. One commenter
believed, however, that using a 50 State average ratio of Medicare SSI
days to Medicaid days did

[[Page 56956]]

not constitute an appropriate proxy in light of Puerto Rico's current
economic crisis.
One commenter recognized the Puerto Rico proxy as a positive step
taken by CMS, but reiterated its view that Puerto Rico hospitals have
been undercompensated since the beginning of the Medicare program in
1986. This commenter noted that the use of SSI eligibility as an
indicator of low-income Medicare patients effectively extends the
statutory exclusion of Puerto Rico from the SSI program to other
Federal programs from which U.S. citizens residing in the Territories
are clearly not excluded by statute. This commenter recommended that
CMS examine data to evaluate future proxy alternatives, such as using
data for Medicare beneficiaries with Medicaid eligibility (dual
beneficiaries). The commenter proposed that CMS initiate a plan to work
with hospitals in Puerto Rico to formally review and define cost report
data for recent years in relation to the documentation of hospital days
for dual beneficiaries. As a second step, the commenter recommended
that CMS allow hospitals in Puerto Rico to resubmit the pertinent
worksheets of the cost reports for past years, to appropriately
document the hospital days for dual beneficiaries, including those in
the integrated Medicare Platino program that works through membership
in the Medicare Advantage program.
Response: We appreciate the support for our proposal to use 14
percent of a Puerto Rico hospital's Medicaid days as a proxy for SSI
days. Because we are continuing to use insured low-income patient days
as a proxy for uncompensated care in FY 2017 and residents of Puerto
Rico are not eligible for SSI benefits, we believe it is important to
create a proxy for SSI days for Puerto Rico hospitals in the Factor 3
calculation. Regarding the comment recommending that we use 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, either within or outside Puerto Rico. We may
further address issues related to estimating the amount of
uncompensated care for hospitals in Puerto Rico in future rulemaking.
As we have done for every proposed and final rule beginning in FY
2014, in conjunction with the FY 2017 IPPS/LTCH PPS proposed rule, we
published 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 projected 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 contained a list of the mergers that we are
aware of and the computed uncompensated care payment for each merged
hospital. Hospitals had 60 days from the date of public display of the
FY 2017 IPPS/LTCH PPS proposed rule to review this table and notify CMS
in writing of any inaccuracies. Comments could be submitted to the CMS
inbox at [email protected]. We have addressed these comments
as appropriate in the table that we are publishing on the CMS Web site
in conjunction with the publication of this FY 2017 IPPS/LTCH final
rule. Hospitals will have until August 31, 2016, to review and submit
comments on the accuracy of the table. 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.
Comment: Some commenters provided detailed information regarding
specific merger situations involving their hospitals and requested that
CMS consider these mergers in determining Factor 3 for FY 2016. One
commenter expressed appreciation for the actions CMS took in the FY
2015 rulemaking to combine the low-income insured days of hospitals
that merged, where the surviving hospital has accepted assignment of
the provider agreement of the retired provider.
Response: We thank the commenters for their input. We have updated
our list of mergers based on information submitted by the MACs as of
June 2016. In addition, we have reviewed the commenters' submissions of
mergers not previously identified in the proposed rule and have updated
our list accordingly.
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

[[Page 56957]]

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. In
the FY 2016 IPPS/LTCH PPS final rule, 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, we stated
that 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
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. We stated in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25089) that, 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. We stated that
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, we believed 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 stated that 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 indicated that we believe 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25089), we proposed to use an average of data derived from three cost
reporting periods instead of one cost reporting period to compute
Factor 3 for FY 2017. That is, we would calculate a Factor 3 for each
of the three cost reporting periods and calculate the average. We would
calculate the 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 proposed to advance the most recent cost report years used to
obtain Medicaid days and Medicare SSI days in FY 2017 by one year and
to continue to extract Medicaid days data from the most recent update
of HCRIS. We note that, in the FY 2017 IPPS/LTCH PPS proposed rule, we
inadvertently stated that the most recent update of HCRIS would be the
March 2015 update of HCRIS. We clarify here that the most recently
available data for purposes of determining Factor 3 for FY 2017 is from
the March 2016 update of HCRIS. If the hospital does not have data for
one or more of the three cost reporting periods, we proposed to 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 two hospitals have
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 proposed 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 invited 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 proposed to 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 anticipated 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 indicated that
we expected 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

[[Page 56958]]

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
IPPS/LTCH PPS proposed rule (which is available via the Internet on the
CMS Web site), we computed 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. As discussed in the proposed rule (81 FR
25089), the FY 2014 SSI ratios were not available in time to be used in
the proposed rule. Therefore, for the proposed rule, we computed Factor
3 for FY 2013 using FY 2013 Medicaid days and FY 2013 SSI days.
However, we noted that we expected the FY 2014 SSI ratios to be
available to calculate Factor 3 for the FY 2017 IPPS/LTCH PPS final
rule.
For subsequent years, we proposed 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, we also
stated that we believed that it would be possible to begin
incorporating data from Worksheet S-10 into the computation of Factor 3
starting in FY 2018 and outlined a proposal for doing so using data
from three cost reporting periods in section IV.F.4.d. of the preamble
of the proposed rule.
Comment: Many commenters supported the proposal to expand the time
period for the data used to calculate hospitals' Medicaid and Medicare
Supplemental Security Income (SSI) inpatient days from one year to
three years, and specifically to use an average of data derived from
three cost reporting periods instead of one cost reporting period to
compute Factor 3 for FY 2017. The commenters believed that using 3
years of data would provide assurance that hospitals' uncompensated
care payments remain stable and predictable, and would not be subject
to unpredictable swings and anomalies in a hospital's low-income
insured days.
Response: We thank the commenters for their input. We appreciate
the commenters' support for the use of a 3-year blend in the low-income
insured days proxy methodology.
Comment: Several commenters expressed concern about the method CMS
has proposed to attribute data to each year when performing the
calculation of Factor 3 in the three-year proxy model for FY 2017.
Commenters noted that the proposed methodology could pose a problem for
some hospitals that file multiple cost reports in a single fiscal year.
One commenter stated, for example, that a hospital might file a 6-month
cost report and an 18-month cost report as the result of a merger
midway through the cost reporting period. The commenter noted that this
keeps the data separate for the individual and merged facilities but
also enables them to preserve the surviving hospital's cost-reporting
period in the future. The commenter believed that, in such an instance,
the proposed methodology would attribute 2 years of data to a single
year and no data to the following year. Thus, the commenter asserted
that, under the 3-year average methodology, the hospital's data would
be overstated because 3 years of data would be used to calculate two
Factor 3s that would then be averaged together to determine the final
Factor 3. Conversely, the commenter noted that if a hospital has only a
short cost reporting period beginning in a year, the hospital could be
disadvantaged by the calculation. This commenter asked CMS to modify
its proposal to appropriately attribute portions of the cost reporting
period to the period for which it is calculating a Factor 3.
Another commenter opposed the use of multiple cost reporting
periods if it would result in a hospital having more than 12 months of
data in the Factor 3 calculation for a year, and recommended that CMS
prorate the data down to a 12-month period. Similarly, commenters
recommended that CMS annualize cost report data for any cost reporting
period that is less than 12 months that began during the fiscal year
from which the data is taken. One commenter suggested that if a
hospital has two cost reporting periods that began during the same
fiscal year and one of those cost reporting periods is a 12-month cost
reporting period, only the 12-month cost reporting period should be
utilized.
One commenter questioned whether the rules pertaining to ``New
Hospitals'' adopted in previous rules apply to FY 2017. This commenter
asked specifically whether new hospitals will be paid through an
alternative methodology if full 12-month cost reports are not available
for one or more of the three cost reporting periods used to calculate
Factor 3. The commenter believed that using a partial cost reporting
period under this averaging methodology will harm new facilities, and
suggested that for new hospitals a partial cost reporting year should
be removed from the calculation. The commenter stated that this
methodology would be the most consistent with the payment it has
received through the Medicare Cost Report filing calculations related
to ``New Hospitals'' in the past.
Response: We appreciate the commenters raising these data concerns
and areas of needed clarification. We are finalizing our proposal to
calculate Factor 3 for FY 2017 using the average of data from three
cost reporting periods. 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 also are finalizing
our proposal 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 clarifying that if the hospital
does not have data for one or more of the three cost reporting periods,
we will compute Factor 3 for the periods available and average those.
In other words, we will divide the sum of the individual Factor 3s by
the number of cost reporting periods for which there are data. For new
hospitals that do not have data for any of the three cost reporting
periods used in the proposed Factor 3 calculation, we will apply the
new hospital policy finalized in the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50643). That is, the hospital will not receive either interim
empirically justified Medicare DSH payments or interim uncompensated
care payments; however, if it is later determined to be eligible to
receive empirically justified Medicare DSH payments based on its FY
2017 cost report, the hospital will also receive an uncompensated care
payment calculated using a Factor 3, where the numerator is the sum of
Medicaid days and Medicare SSI days

[[Page 56959]]

reported on the hospital's FY 2017 cost report. We did not make a
proposal to annualize cost reports to calculate Factor 3 in the FY 2017
IPPS/LTCH PPS proposed rule. We note that section 1886(r)(2)(c) of the
Act specifies that Factor 3 is equal to the percent that represents the
amount of uncompensated care for such hospital for a period selected by
the Secretary (as estimated by the Secretary, based on appropriate
data) divided by the aggregate amount of uncompensated care for all
subsection (d) hospitals that receive a payment under this subsection
for such period (as so estimated). In implementing this provision, we
believe it is appropriate to first select the period--in this case, 3
separate years of data--and then to utilize data from all cost reports
that align with these periods. However, we acknowledge that the
situations presented by commenters, including both long and short cost
reporting periods, pose unique challenges in the context of estimating
Factor 3. As a result, this is an issue that we intend to consider
further and may address in future rulemaking.
Comment: One commenter expressed concern about our policy of
distributing uncompensated care payments as a per-discharge add-on. The
commenter believed this policy is problematic because the per-discharge
add-on varies widely from hospital to hospital. The commenter noted
that the variability of the add-on payments in turn distorts the MS-DRG
prices and creates problematic incentives for MA plans. Therefore, the
commenter believed that it would be better to make a uniform interim
add-on payment to all DSH hospitals in a county, and any underpayments
or overpayments to an individual hospital could be corrected at year-
end settlement or on an interim basis during the year (as is already
necessary under the current system). Alternatively, the commenter
suggested that DSH payments be distributed to hospitals on a periodic
basis for their FFS and MA patients.
Response: We consider this comment to be outside the scope of the
proposed rule, as we did not propose any revision in our method of
making interim payments for uncompensated care. However, we would like
to make two observations in response to this recommendation. The first
observation is that we have received very few comments from the
hospital industry indicating that the problem cited by this commenter
actually exists. We would expect that, if hospitals were truly
disadvantaged in the manner cited by these commenters by our
methodology for making interim payment uncompensated care payments, we
would have received many more comments to that effect. The second
observation is that adopting the recommendation may pose, for some
hospitals, serious problems that may conceivably exceed the problem
that the recommendation is designed to solve. For example, reducing the
interim uncompensated care payments to high DSH hospitals to a
countywide average payment might cause serious cash flow problems
during the period before the interim payments could be adjusted or
settled. Similarly, low DSH hospitals might receive significantly
higher interim payments than would be warranted by their actual
uncompensated care data. As a result, these hospitals would have to
take financial management steps to ensure that they are capable of
making significant repayments when interim payments are adjusted or
settled.
Comment: One commenter stated that some of the participants in the
Allina litigation have been advised to include beneficiaries that are
enrolled in Medicare Part C and eligible for Medicaid on their cost
report as Medicaid days. However, the commenter noted that, rather than
reporting dually eligible MA days as Medicaid days in their cost
report, some providers are protesting these days and are not including
them when they file their filed cost reports. The commenter believed
that those providers who are protesting these days rather than
including them as Medicaid days are being harmed compared to the
providers that include them. The commenter requested that CMS clarify
its policy and adjust the days that are reported on Worksheet S-2 as
necessary for use in uncompensated care payment calculations. The
commenter asserted that hospitals are not being fairly paid for
uncompensated care because some providers are including dually eligible
MA days in their Medicare cost report.
Response: If hospitals are inappropriately reporting dually
eligible MA claims in the cost report as Medicaid days, the commenter
is correct that, absent review and/or adjustment by the MAC, it would
result in Factor 3 overstating the amount of uncompensated care
provided by those hospitals relative to other hospitals. We reiterate
our policy that MA beneficiaries who are also eligible for Medicaid are
patients entitled to Medicare Part A. Accordingly, their patient days
are included in the Medicare SSI ratio and therefore should not be
reported in the cost report as Medicaid days. Hospitals that exclude
the MA days of patients who are also eligible for Medicaid from
Worksheet S-2 are reporting these days appropriately.
After consideration of the public comments we received, we continue
to believe that using low-income insured days as a proxy for
uncompensated care costs provides a reasonable basis to determine
Factor 3 for FY 2017, as we work to improve Worksheet S-10 to
accurately and consistently capture uncompensated care costs.
Accordingly, in this final rule, we are finalizing for FY 2017 the
policy that we originally adopted in the FY 2014 IPPS/LTCH PPS final
rule, of employing 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 for FY 2017. We
also are finalizing our proposal to use 14 percent of Medicaid days as
a proxy for SSI days for Puerto Rico hospitals when determining Factor
3 for FY 2017; our proposal to continue the policies concerning the
process and data to be employed in determining Factor 3 in the case of
hospital mergers; our proposal to expand the time period of the data
used to determine Factor 3 from one cost reporting period to three cost
reporting periods as well as the accompanying methodology; and our
proposal to combine cost reports for hospitals with more than one cost
report within a cost reporting period. We are codifying these changes
for FY 2017 by amending the regulation at Sec. 412.106(g)(1)(iii)(C).
d. Calculation of Factor 3 for FY 2018 and Subsequent Years
(1) Background
In response to commenters' requests for a timeline and transition
for introducing Worksheet S-10 data into the calculation of Factor 3
(for example, we refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49524)), in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25089
through 25094), we discussed our proposed plans for 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

[[Page 56960]]

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 stated in the proposed rule that 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 the 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.
As we discussed in the FY 2017 IPPS/LTCH PPS proposed rule, 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. In the
proposed rule, we stated that 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, at the time of development of the proposed rule, we believed it
would be appropriate to use Worksheet S-10 as a data source for
determining Factor 3 starting in FY 2018. We discuss below our proposed
methodology for how we would begin to incorporate Worksheet S-10 data
into the calculation of Factor 3 of the uncompensated care payment
methodology.
(2) Data Source and Time Period for FY 2018 and Subsequent Years,
Including Methodology for Incorporating Worksheet S-10 Data
For the reasons explained in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR25090), we believed that it would be appropriate to begin to
incorporate Worksheet S-10 data into the computation of Factor 3 and
the allocation of uncompensated care payments, starting with Worksheet
S-10 data reported for FY 2014. Below is a description of the proposal
set forth in the proposed rule. Specifically, we proposed to continue
to use low-income insured patient days as a proxy 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 starting in FY 2017, would have
the effect of transitioning toward exclusive

[[Page 56961]]

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 proposed and are
finalizing a policy of calculating 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 is appropriate to continue to use low-income insured days
for the reasons we have previously described. Accordingly, to determine
Factor 3 for FY 2018, with a time period that includes three cost
reporting periods consisting of FY 2014 and two preceding periods, we
proposed to use Worksheet S-10 data for the FY 2014 cost reporting
period and the low-income insured days 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 proposed 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 proposed to use Medicaid days from FY 2012 and FY 2013 cost
reports and FY 2014 and FY 2015 SSI ratios. We stated our belief that
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 proposed to calculate a Factor
3 for each of the three cost reporting periods. Specifically, we
proposed 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 proposed 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 noted 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 stated
our belief that it would continue to be appropriate to advance the 3-
year time period used to compute Factor 3 by one year. Accordingly, we
proposed 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 believed 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 proposed
to use FY 2013, FY 2014, and FY 2015 cost reports to determine Factor 3
for FY 2019, we proposed 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 proposed 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 proposed to continue to advance the three cost reports used by
1 year, and we proposed 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 proposed to 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 solicited comments on the proposed data sources, time
periods, and method for calculating uncompensated care costs in FY 2018
and subsequent years.
Although we proposed to calculate Factor 3 for FY 2018 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, we stated that
readers might 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 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 had either
not submitted

[[Page 56962]]

a Worksheet S-10 with their FY 2014 cost report or found errors on a
submitted Worksheet S-10, we encouraged hospitals to work with MACs to
complete and revise, as appropriate, their FY 2014 Worksheet S-10 as
soon as possible.
Comment: A few commenters supported CMS' proposal to transition to
the use of Worksheet S-10 to derive uncompensated care costs for the
calculation of Factor 3. MedPAC stated that using Worksheet S-10 data,
in conjunction with select auditing of cost reports of hospitals
reporting the highest levels of uncompensated care, would lead to
better estimates of uncompensated care costs than the continued use of
the current proxy of Medicaid and SSI days. Several commenters
including MedPAC supported using Worksheet S-10 beginning in FY 2018
with a 3-year phase in. Other commenters recommended accelerating the
timeline for implementation of Worksheet S-10, for example, beginning
the transition in FY 2017 or shortening the phase in period. These
commenters noted that the metrics from Worksheet S-10 appear to provide
a better assessment of a hospital's uncompensated care costs than the
current metrics used, which assess low-income insured days.
Response: We appreciate the support for our proposal to begin to
incorporate Worksheet S-10 data into the computation of Factor 3 for FY
2018. However, as explained in more detail in response to comments
below, after considering the overwhelming amount of comments urging
additional delay in implementation of Worksheet S-10 data, we are not
finalizing our proposal to begin to incorporate Worksheet S-10 data
into the computation of Factor 3 for FY 2018. Instead, we believe it is
important that we have the opportunity to consider further the concerns
raised by commenters regarding the use of Worksheet S-10 data to
determine Factor 3. We expect to re-propose a policy of incorporating
Worksheet S-10 data into the computation of Factor 3 no later than FY
2021, as explained further below.
Comment: Many commenters opposed the use of Worksheet S-10 to
compute Factor 3 and allocate uncompensated care costs beginning in FY
2018. Commenters believed that the form does not measure the amount of
uncompensated care that section 3133 of the Affordable Care Act is
designed to compensate. These commenters stated that in their view,
data from Worksheet S-10 are not presently a reliable and accurate
reflection of uncompensated care costs. Many commenters expressed
concern about the lack of accurate and consistent data being reported
on Worksheet S-10, primarily due to what they perceive as a lack of
clear and concise line level instructions. Commenters stated that
significant modifications should be made to Worksheet S-10 and the
corresponding instructions as to how to report information for each
line to clarify the intent.
Commenters also called for audits of Worksheet S-10 and audit
guidelines for charity care and bad debt. These commenters supported
the transition through a phase-in approach once CMS ensures the
accuracy and consistency of the data from Worksheet S-10. One commenter
noted that CMS may wish to monitor changes in hospital-specific data
from Worksheet S-10 from year to year to determine if further guidance
is needed regarding how to accurately complete the form and monitor
Worksheet S-10 data for accuracy.
Many commenters cited the report from Dobson DaVanzo,
``Improvements to Medicare Disproportionate Share Hospital (DSH)
Payments Report: Benchmarking S-10 Data Using IRS Form 990 Data and
Worksheet S-10 Trend Analyses,'' which concluded that hospitals are
doing a better job of reporting their uncompensated care data on
Worksheet S-10 than they did a few years ago. However, these commenters
disagreed with CMS about the significance of this observation. One
commenter stated that even if it is true in the aggregate that
hospitals are reporting data more accurately on Worksheet S-10, the
zero-sum nature of the calculation of uncompensated care payments is
such that the remaining inaccuracy and lack of uniformity in the data
reported can have a very large impact on hospitals. The commenter
asserted that if hospitals, for whatever reason, over-report their
uncompensated care, they benefit financially from doing so, while those
that do not aggressively report suffer financial harm. The commenter
concluded that, for this reason, the possibility that some hospitals
are generally ``doing better'' with reporting data is not good enough.
All hospitals must do better, and until they do, the commenter believed
that data from Worksheet S-10 are not accurate enough for public
policymaking purposes. Other commenters asserted that the Dobson/
DaVanzo study does not illustrate or even evaluate whether data from
Worksheet S-10 are a reasonable proxy for the costs hospitals incur in
providing care to the uninsured. These commenters pointed out that
their own analyses indicate that the most notable aberrations in
Worksheet S-10 data reporting occur among public hospitals, which do
not file a Form 990 and are therefore missing from the Dobson/DaVanzo
analysis.
Many commenters shared observations regarding concerns and
anomalies they identified in data from Worksheet S-10. A number of
commenters shared their own analyses that looked at the small
proportion of hospitals receiving a large share of uncompensated care
payments, and the proportion of hospitals that reported aberrant data
relating to uncompensated care costs. Along those lines, some
commenters noted that the current Worksheet S-10 can result in negative
uncompensated care values for some hospitals.
One commenter noted that it has been monitoring how hospitals have
been reporting data from Worksheet S-10 for the last 5 years and has
concluded that there is no single, uniform manner in which hospitals
report their uncompensated care. The commenter stated that the aberrant
numbers reported by some hospitals illustrate some combination of
misinterpretation of Worksheet S-10 instructions, the lack of clarity
of those instructions, and the possible attempts from providers to
maximize their Medicare DSH dollars.
Because many commenters were concerned that unclear reporting
instructions on Worksheet S-10 would result in inconsistent and
inaccurate reporting of data, commenters overwhelmingly requested that,
after more precise instructions are provided, CMS apply a strict
auditing process for information reported on the Worksheet S-10 before
it is used to determine uncompensated care costs. They believed that
simply tying information reported on Worksheet S-10 to payment and
requiring its regular use will not improve the accuracy of the data.
Other commenters indicated that if CMS finalizes a FY 2018 start date,
audits with the existing instructions and interpretation would need to
commence immediately. In addition, commenters requested that CMS ensure
that its contractors administer an auditing process consistently and
make the instructions for such an audit public. Some commenters
requested that instructions be provided to MACs on how to update
hospitals' 2014 Worksheet S-10 data, and that CMS provide guidance and
documentation to MACs clarifying that CMS expects MACs to accept
amended and/or corrected cost reports. They suggested that CMS look to
the process used to audit and review the data used for the Medicare
wage index annually.

[[Page 56963]]

Specifically, the commenters requested that CMS develop timetables for
the cut-off of submissions or changes to the data; validate reporting
against hospital policies; create a separate audit protocol for all-
inclusive rate providers (AIRPs) in order to ensure uncompensated care
costs are adequately captured; address the appropriateness of reporting
variability from year to year; and that MACs be engaged to audit these
data to ensure validity. A commenter also suggested that CMS institute
a fatal edit in the cost report audit process for negative or zero
uncompensated care costs, or consider including Level 1 cost report
edit checks in the cost report software to flag unusual and missing
data. Similarly, commenters requested that CMS provide hospitals with
FAQs and host educational events to ensure proper cost reporting, while
also providing a means to appeal adjustments to the Worksheet S-10.
One commenter added that, currently, there are no published audit
instructions for Medicare contractors to follow when reviewing non-
Medicare charity care and non-Medicare bad debt. The commenter stated
that it had undergone ``meaningful use audits'' in which the Medicare
contractor disallowed charity care costs, and that, based on its
experience, this commenter believed that an FY 2018 start date would
not provide sufficient time for hospitals to improve their Worksheet S-
10 reporting. In addition, commenters recommended that CMS perform an
in-depth review of the FY 2014 data for a limited number of hospitals
to identify key issues for a full review of FY 2015 and later data. The
commenters believed that such a review should be performed by a single
MAC for consistency and should include: hospitals with unusual data on
Worksheet S-10, including CCRs and different charges as compared to
Worksheet C; selective auditing of cost reports of hospitals reporting
the highest levels of uncompensated care; and a random mix of other
hospitals by type location, or other criteria as applicable.
Commenters requested that CMS implement a process for providing
hospitals an opportunity to comment on proposed revisions to clarify
the instructions for the completion of Worksheet S-10 to ensure that
hospitals receive clear guidance on how to report uncompensated care
costs. One commenter suggested that CMS institute a supplemental data
collection because CMS chose to use a time period that already has
passed as the Worksheet S-10 reporting period for the Factor 3
calculation for FY 2018.
Another commenter suggested that CMS change the instruction for
line 22 of Worksheet S-10 from ``Enter payments received or expected
for services delivered during this cost report period'' to ``Payments
received during the period covered by the cost report.''
Response: In previous rulemaking cycles, commenters both in favor
of and opposed to use of a proxy for calculation of Factor 3, requested
that CMS provide a timeline and implementation process for when and how
the Worksheet S-10 would be used for determining uncompensated care
costs (for example, we refer readers to the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49524)). In response to those requests, and based on what
appeared to be growing evidence that Worksheet S-10 was improving over
time, and based on the fact that hospitals were made aware as of FY
2014 that Worksheet S-10 could eventually become the data source for
computing Factor 3, we proposed starting to incorporate Worksheet S-10
data from FY 2014 cost reports into the calculation of Factor 3 for FY
2018. Specifically, using a timeframe that includes three cost reports
(that is, FY 2012, FY 2013, and FY 2014) to compute Factor 3 for FY
2018 based on a 3-year average, we proposed to use low-income insured
patient days from FY 2012 and FY 2013 cost reports as a proxy for
uncompensated care costs, and Worksheet S-10 data from the FY 2014 cost
report. We stated that this averaging approach would have a
transitioning effect by incorporating data from Worksheet S-10 into the
calculation of Factor 3 starting in FY 2018 (81 FR 25091).
However, after reviewing and considering all comments, we believe
it would be appropriate to institute certain additional quality control
and data improvement measures prior to moving forward with
incorporating Worksheet S-10 data into the calculation of Factor 3.
Consequently, we are not finalizing our proposal to begin to
incorporate Worksheet S-10 data into the computation of Factor 3 for FY
2018 at this time. Instead, our intent is to begin to incorporate
Worksheet S-10 data into the computation of Factor 3 once these
additional measures are in place, and no later than FY 2021. We believe
additional time may be needed to make certain modifications and
clarifications to the cost report instructions for Worksheet S-10, as
well as explore suggestions made by the commenters for ensuring
universal submission of Worksheet S-10 by hospitals when filing their
cost reports (such as software edits to flag negative, unusual, or
missing data or a missing worksheet S-10). As commenters recommended,
we will consider issuance of FAQs and hosting of educational seminars
for hospitals and MACs as appropriate, coinciding with the issuance of
revised cost report instructions. We also intend to explore development
of more specific instructions and more uniform review protocols for
Worksheet S-10 data. We believe that postponing the final decision as
to how and when to incorporate Worksheet S-10 data into the calculation
of Factor 3 is necessary, given the significant concerns expressed by
commenters regarding the Worksheet S-10 data. Substantive cost report
changes may not realistically be implemented in time for FY 2018, as
originally proposed. Furthermore, after we complete the substantive
work to revise and issue cost report revisions and attending policy
clarifications, we would prefer to provide sufficient time for
hospitals to report data using the revised instructions and for the
results of cost report changes and MAC reviews to be reflected in the
data reported on Worksheet S-10. Under normal circumstances, commenters
are aware that there is typically a 3- to 4-year lag between the
ratesetting year and the cost report data that CMS is using to develop
those rates. For example, to develop the FY 2017 wage index, we are
using FY 2013 cost report data. Accordingly, there could be a 4-year
lag before prospective changes to Worksheet S-10 would result in data
that could be used to calculate Factor 3. That is, we would need time
to draft and implement cost report revisions, hospitals would need time
to file cost reports reflecting those new cost report revisions, and
the MACs would need time to review those cost reports. While some cost
report clarifications could apply retroactively, some revisions to
Worksheet S-10 must apply prospectively to ensure consistent
application to other policies impacted by Worksheet S-10, such as EHR
or Medicare bad debt payments. Accordingly, we believe that cost
reporting periods beginning during FY 2017 would be the first cost
reports available that would reflect revised Worksheet S-10 data. Thus,
we anticipate that the revised Worksheet S-10 data, as first reflected
for cost reporting periods starting during FY 2017, would be available
for use in determining uncompensated care costs no later than in FY
2021. We will consider further whether the current Worksheet S-10 data
or a proxy should be used to calculate Factor 3 for years

[[Page 56964]]

between FY 2017 and FY 2021 in future rulemaking.
With regard to the commenters' request for additional information
about the review process that we will instruct the MACs to institute,
it may not be identical to the annual desk review process for the IPPS
wage index that many commenters have recommended, but we intend to
provide standardized instructions to the MACs to guide them in
determining when and how often a hospital's Worksheet S-10 should be
reviewed. Although it may be relatively simple to provide guidance to
MACs to flag and review negative or missing data on the Worksheet S-10,
we intend to give consideration to establishment of measures to
identify ``aberrant'' data for further review, such as, but not
necessarily limited to, hospitals with unusual data on Worksheet S-10,
including different CCRs and charges as compared to Worksheet C. In
addition, we will consider the commenters' recommendation that we
instruct MACs to audit selectively the cost reports of hospitals
reporting the highest levels of uncompensated care, as well as a random
mix of other hospitals by type location or other criteria as
appropriate. Accordingly, the instructions for the MACs for review of
Worksheet S-10 will include not only general guidance for review, but
also, where appropriate, special instructions for review of certain
unique categories of hospitals, such as the All Inclusive Rate
Providers (AIRPs), and other mostly government-owned hospitals with
unique charity care or charging practices (CMS Pub 15-1, Section 2208.1
describes AIRPs as ``hospitals having an all-inclusive rate (one charge
covering all services) or a no-charge structure,'' for whom the
``approved methods for apportioning allowable cost between Medicare and
non-Medicare patients'' are not readily adaptable, and therefore,
provides for ``alternative methods of apportionment'' for these
facilities.). However, we will not make the MACs' review protocol
public, as commenters have requested. All CMS desk review and audit
protocols are confidential and are for CMS and MAC use only. We also
refer readers to Change Request 9648, Transmittal 1681, titled ``The
Supplemental Security Income (SSI)/Medicare Beneficiary Data for Fiscal
Year 2014 for Inpatient Prospective Payment System (IPPS) Hospitals,
Inpatient Rehabilitation Facilities (IRFs), and Long Term Care
Hospitals (LTCH),'' issued on July 15, 2016 (available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2016-Transmittals-Items/R1681OTN.html). In this transmittal, as a first step
in the process of ensuring complete submission of Worksheet S-10 by all
eligible DSH hospitals, we instruct MACs to accept amended Worksheets
S-10 of FY 2014 cost reports submitted by hospitals (or initial
submissions of Worksheet S-10 if none have been submitted previously)
and to upload them to the Health Care Provider Cost Report Information
System (HCRIS) in a timely manner. The transmittal states that, for
revisions to be considered, hospitals must submit their amended FY 2014
cost report containing the revised Worksheet S-10 (or a completed
Worksheet S-10 if no data were included on the previously submitted
cost report) to the MAC no later than September 30, 2016.
The issuance of these special instructions in CR 9648 is one of
multiple steps we intend to take over the next several years to ensure
more accurate and uniform reporting of uncompensated care costs on
Worksheet S-10. As a result of taking these steps and instituting
Worksheet S-10 modifications, clarifications, and MAC reviews, we
believe that revised Worksheet S-10 data will be available for use in
the calculation of Factor 3 in the near future, and no later than FY
2021. With regard to how Factor 3 will be computed in FY 2018 and
subsequent years, we intend to explore whether there is an appropriate
proxy for uncompensated care that could be used to calculate Factor 3
until we determine that data from the revised Worksheet S-10 can be
used for this purpose. We will undertake notice-and-comment rulemaking
to address the issue of the appropriate data to use to determine Factor
3 for FY 2018 and subsequent fiscal years. We also anticipate proposing
to continue to use data from three cost reports, as we are doing to
calculate Factor 3 for FY 2017, which would have a transitioning effect
as we described in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25091).
Comment: Many commenters stated that the proposed 3-year phase in
period for Worksheet S-10 is not long enough, and requested that CMS
consider alternative lengths. Commenters suggested a variety of lengths
for a transition, such as 5 years or 10 years, to mitigate wide swings
in hospital payments from year to year and to allow hospitals more time
to ensure accurate reporting based on any revised instructions CMS may
issue.
Some commenters suggested alternative schedules and methods for the
phase in of data from Worksheet S-10 to calculate Factor 3. Summaries
that illustrate the breadth of commenters' suggestions for alternative
schedules and methods for transitioning to Worksheet S-10 are presented
below.
Commenters cited the 10-year transition to the capital
PPS, the 4-year transition for indirect medical education reduction in
the Balanced Budget Act, and the 5-year transition of certain data
elements out of the wage index calculation as examples that could be
used as a model for the transition to Worksheet S-10 data.
One commenter suggested a 5-year phase in period in which
S-10 data would be used to allocate 20 percent of the payments in 2018,
40 percent in 2019, 60 percent in 2020, 80 percent in 2021, and would
account for 100 percent of payments in 2022. This transition would
involve using 3 years of Medicare SSI days and Medicaid days in each
year, and transitioning to using 3 years of S-10 data over the 5-year
phase-in. Specifically, under a 5-year phase-in approach, 2018 would
use 2014 S-10 cost report data, 2019 would use 2014 and 2015 S-10 cost
report data, 2020 would use 2014, 2015, and 2016, and so forth.
Another commenter suggested a 6-year transition beginning
in FY 2019 with Worksheet S-10 data accounting for 5 percent of the
Factor 3 for each hospital in FY 2019, and then doubling each year, to
10, 20, 40, and 80 percent, and finally full adoption of Worksheet S-10
data in 2024. The commenter argued that this transition would allow
time for initial revisions to the Worksheet S-10 form and instructions
and further revisions based on reporting and audit experience before
the Worksheet S-10 data become the sole source for the Factor 3
calculation. The commenter added that it would also provide States more
time to expand their Medicaid programs.
Several commenters suggested adopting a stop-loss policy
that mitigates losses to those most negatively impacted by the
incorporation of Worksheet S-10 data, using percentiles or other
statistical measures to define and cap losses to certain hospitals in a
budget-neutral manner.
One commenter suggested CMS consider a series of
transition policies such that no hospital sees more than a 5-percent
change in overall uncompensated care payments in any given year, and
one commenter requested that CMS implement a maximum cap of 10 percent
on any redistribution of uncompensated care funds for a minimum of 10
years.
One commenter stated that CMS should commit to smoothing
variability by using no fewer than 2 years' worth of Worksheet S-10
data, as opposed to

[[Page 56965]]

beginning the Worksheet S-10 data phase-in by combining 1 year of
Worksheet S-10 data with 2 years of patient-day data.
Several commenters suggested that CMS consider using a hybrid
methodology that includes both a hospital's low-income insured days and
uncompensated care costs from Worksheet S-10 to calculate Factor 3. For
example, one commenter recommended that, beginning in FY 2020, when CMS
proposed to transition entirely to Worksheet S-10 data, CMS instead use
a weighted average of low-income insured days and uncompensated care
costs from Worksheet S-10, with the low-income insured days weighted 25
percent and the Worksheet S-10 data weighted 75 percent. Other
commenters urged CMS to consider a permanent blend of the current proxy
of Medicaid days and SSI days, and Worksheet S-10 data, weighted
equally in the calculation of Factor 3 for distribution of
uncompensated care payments to begin at a future date.
Several commenters believed that there is a need to develop
alternative methods or data sources for calculating Factor 3. One
commenter suggested a new Factor 3 calculation that would be equal to
the quotient of a hospital's cost-adjusted discharges attributable to
uninsured patients for a base year divided by the average cost-adjusted
discharges in the base year for all hospitals eligible for Medicare DSH
uncompensated care payments in the payment year. The commenter believed
that this approach would create a single, auditable data source for
determining hospitals' uncompensated care for use in calculating
hospitals' Medicare DSH uncompensated care payments. This commenter
also stated that this would require revising Worksheet S-10 to require
hospitals to report the number of discharges and outpatient visits
attributable to uninsured individuals. The commenter added that the
revised form would require hospitals to report four values associated
with services delivered to this population: The number of discharges,
outpatient claims, charges, and payments. This information would be
reported separately for patients who are and who are not covered by
State or local indigent care programs. The commenter believed that the
new Factor 3 would be equal to the quotient of a hospital's cost-
adjusted discharges attributable to uninsured patients for a year
divided by the average cost-adjusted discharges in the base year for
all hospitals eligible for Medicare DSH uncompensated care payments in
the payment year. The commenter stated that its suggested 10-step
process to determine hospitals' Medicare DSH uncompensated care
payments would offer four advantages over the proposed regulation for
FY 2018: It would maintain the incentives under the IPPS for the
efficient and high-quality delivery of health care services; it would
avoid the use of CCRs; it would better align Medicare and Medicaid DSH;
and it would better reflect the costs for which the Factor 3 data are
intended to be a proxy, as defined in the statute.
Response: We appreciate the comments regarding alternative
transition timelines to incorporating Worksheet S-10 data into the
calculation of Factor 3 and alternative methods for computing proxies
for uncompensated care costs. However, as we have noted above, we are
not finalizing our proposal to begin to incorporate Worksheet S-10 data
into the computation of Factor 3 in FY 2018 at this time. Instead, we
expect to begin to incorporate Worksheet S-10 data into the computation
of Factor 3 by FY 2021 once we have taken certain quality control and
data improvement measures and also implemented an audit process, as we
described above. We believe that postponing our decision regarding when
to begin incorporating data from the Worksheet S-10 is necessary to
allow us time to consider what changes to the cost report may be
necessary and to implement an audit process. When we have determined
that it is appropriate to use Worksheet S-10 data, we anticipate
proposing to continue to use data from three cost reports, as we are
doing for the calculation of Factor 3 for FY 2017, which would have a
transitioning effect as we described in the proposed rule (81 FR
25091). At this time, we do not expect that a longer transition will be
necessary. With regard to how Factor 3 will be computed in FY 2018 and
the intervening years until data from the revised Worksheet S-10 are
available, we intend to explore whether there is an appropriate proxy
for uncompensated care that could be used to calculate Factor 3 until
we determine that revised Worksheet S-10 data can be used for this
purpose. We will undertake further notice-and-comment rulemaking to
address the issue of the appropriate data to use to determine Factor 3
for FY 2018 and subsequent fiscal years.
Comment: As noted previously, several commenters expressed concern
over the proposal to combine data from the multiple cost reports so
that a hospital may have a Factor 3 calculated using more than one cost
report that begins during a given Federal fiscal year. One commenter
found that 39 hospitals included Worksheet S-10 data from multiple cost
reporting periods within their FY 2014 Worksheet S-10 data. Some of
these cost reporting periods represent more than 12 months of data. In
the commenter's view, individual hospital data on the Worksheet S-10
need to represent a 12-month period so that the data are evenly
weighted among all DSH hospitals for purposes of determining Factor 3.
The commenter believed that inconsistencies in the length of cost
report periods would result in erroneous uncompensated care payment
allocations. The commenter suggested that, to resolve this, CMS could
prorate the data down to an equivalent 12-month period.
Response: As we stated in the proposed rule (81 FR 25089), we
believe that using data from more than one cost reporting period,
instead of prorating short or long cost report data to 12 month
equivalents, mitigates undue fluctuations in the amount of
uncompensated care payments to hospitals from year to year and provides
a stabilizing effect from one year to the next. In addition, as
discussed above in the section related to the calculation of Factor 3
for FY 2017, in the instance where a hospital has more than one cost
reporting period starting within a fiscal year, we are finalizing our
proposal to combine data from multiple cost reports so that a hospital
would have a Factor 3 calculated using more than one cost report
starting within the fiscal year, as doing so would provide the most
complete dataset for the hospital for that fiscal year, and would
smooth out fluctuations in the data. At this point, we expect to
propose to continue to use three cost reports of data to calculate
Factor 3 in FY 2018 and subsequent years, although we may reevaluate
this approach if warranted.
In summary, we are not finalizing our proposal to begin to
incorporate Worksheet S-10 data into the computation of Factor 3 for FY
2018, and we are not finalizing the proposed regulations text changes
at Sec. 412.106(g)(C)(4) through (7) regarding FY 2018 and subsequent
fiscal years. In light of the significant concerns expressed by
commenters, we are postponing the decision regarding when to begin
incorporating data from Worksheet S-10 and proceeding with revisions to
the cost report instructions to address the commenters' concerns in an
appropriate manner. We believe that revised Worksheet S-10 data will be
available to use in the calculation of Factor 3 in the near future, and
no later than FY 2021. With regard to how Factor 3 will be computed in
FY 2018

[[Page 56966]]

and subsequent years, we intend to explore whether there is an
appropriate proxy for uncompensated care that could be used to
calculate Factor 3 until we determine that data from the revised
Worksheet S-10 data can be used for this purpose. We will undertake
further notice-and-comment rulemaking to address the issue of the
appropriate data to use to determine Factor 3 for FY 2018 and
subsequent fiscal years. We also anticipate proposing to continue to
use data from three cost reports to calculate Factor 3, as we are doing
for the calculation of Factor 3 for FY 2017, which would have a
transitioning effect as we described in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25091).
(3) 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:

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

------------------------------------------------------------------------
Cost of charity care...................... (line 23)
+ Cost of non-Medicare bad debt expense... (line 29)
------------------------------------------------------------------------
Cost of non-Medicare uncompensated (line 30)
care.
------------------------------------------------------------------------

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).
As we stated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25092), 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 proposed 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.
In the FY 2017 IPPS/LTCH PPS proposed rule, we discussed that 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 Medicaid shortfalls advance two arguments:
Medicaid payment shortfalls represent noncovered 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25092), we stated
that we believe these arguments for excluding Medicaid shortfalls from
the definition of uncompensated care are compelling. In addition, we
stated that we believe that it is advisable to adopt a definition that
is used by several government agencies and key stakeholders. Therefore,
we proposed 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 proposed to exclude Medicaid
shortfalls reported on Worksheet S-10 from the definition of
uncompensated care for purposes of calculating Factor 3. We proposed to
codify this definition in the regulation at Sec. 412.106(g)(1)(iii)(C)
and invited public comment on our proposed definition. We stated that
we believe that uncompensated care costs as reported on line 30 of
Worksheet S-10 best reflect our proposed definition of uncompensated
care, but we welcomed public input on this issue.
Comment: Many commenters provided a broad range of detailed
suggestions related to reporting requirements for specific lines of
Worksheet S-10. Commenters suggested the following general
modifications to the manner in which uncompensated care costs are
captured on Worksheet S-10:
A number of commenters observed that the instructions for
Worksheet S-10 are inconsistent with generally accepted accounting
principles (GAAP) and differ from the accounting practices of the
majority of hospitals. Therefore, the commenters requested that CMS
amend the cost reporting instructions to require hospitals to report
amounts based on GAAP. Commenters suggested that the Worksheet S-10
instructions be amended to require hospitals to report the same bad
debt and charity care amounts they report on their financial

[[Page 56967]]

statements, which are GAAP appropriate.
Commenters noted that because Worksheet S-10 is derived
from data reported on the Medicare cost report, charges and payments
for physician services are currently excluded. However, the commenters
stated that hospitals provide physician services to patients with
little or no access to private physicians. They noted that safety-net
hospitals in low-income communities particularly provide these
services. The commenters believed that establishing an uncompensated
care cost methodology that takes these services into account would
encourage providers to furnish these services.
Commenters requested clarification of whether charity care
charges should be reported for inpatient hospital services, outpatient
hospital services, or both. They requested the ability to report these
charges on separate lines and to apply separate CCRs to these separate
sets of costs.
Commenters noted that the instructions for line 26 include
Medicare bad debts for services provided beyond the inpatient and
outpatient setting, and interpreted this to mean that hospitals should
include non-Medicare bad debts for services provided in the following
settings for which expenses are included on the hospital cost report:
Skilled nursing beds (both swing beds and distinct part facilities),
distinct part inpatient rehabilitation units, distinct part LTCHs,
distinct part psychiatric units, dialysis centers, CMHCs, RHCs and
FQHCs. The commenters asked CMS to confirm in the final rule that this
interpretation is correct.
Similarly, commenters requested that CMS define any
additional distinct part units or services that are not listed in the
instructions for line 26 but should be included in that line when
reporting non-Medicare bad debt. As an example, one commenter noted
that there is no cost sharing for home health services in the Medicare
benefit design and therefore it is not listed as an item/service to
include in line 26. However, if CMS truly intends for the bad debt
expense to represent the ``entire hospital complex,'' the commenter
stated that distinct part home health agencies should be included, as a
hospital could still accrue related bad debt from home health services
furnished to the uninsured or underinsured.
Commenters advised requiring Medicaid DSH payments and
Medicaid supplemental payment information to be reported on separate
lines, and to offset all of these payments against Medicaid costs
reported on Worksheet S-10. Commenters requested separate reporting of
a number of payments, including direct payments to hospitals, Medicaid
DSH, and supplementary payments including upper payment limits,
intergovernmental transfers, certified government expenditures,
provider taxes, other government payments, and payments for local or
state indigent care.
One commenter suggested that CMS integrate payer mix into
Worksheet S-10, as providers with a substantial commercial payer mix
often have operating margins that help offset uncompensated care costs.
The commenter recommended that CMS examine methods to adjust the
uncompensated care amount for payer mix.
One commenter noted that CCRs in Worksheet S-10 are
reported with Reasonable Compensated Equivalency (RCE) limits applied.
The commenter cited the discussion in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50161), which states that RCE limits have no effect on IPPS
provider payments. Therefore, the commenter believed that if the CCR in
Worksheet S-10 is used, IPPS hospital's payments would be affected by
RCE limits, and RCE disallowances should therefore be removed from the
CCR on Line 1 of Worksheet S-10.
Commenters observed that CCRs for ``parts of hospitals''
such as facility-based skilled nursing facilities and inpatient
rehabilitation facilities are very different from the CCRs for acute
care hospitals paid under the IPPS. The commenters questioned the
appropriateness of including parts of hospitals in the CCR in Worksheet
S-10.
Response: Some of the commenters express concerns and raise
questions that have not been raised before, while others have been
raised in previous rulemaking. We intend to address many of these
comments as part of our planned clarifications and revisions to
Worksheet S-10. As mentioned above in response to previous comments, at
this time, we are not finalizing the proposed regulations text changes
at Sec. 412.106(g)(C)(4) through (7) regarding the data that would be
used to estimate the amount of hospital uncompensated care for FY 2018
and subsequent fiscal years. In these proposed regulation text changes,
we had proposed to define uncompensated care costs for FY 2018 and
subsequent years to mean charity care costs plus non-Medicare bad debt
costs. Our intent is still to begin to incorporate Worksheet S-10 data
into the computation of Factor 3 in the near future, and no later than
FY 2021. When we undertake rulemaking to propose to incorporate
Worksheet S-10 data, we also expect to propose the same definition of
uncompensated care costs--charity care costs plus non Medicare bad debt
costs, because we believe it is advisable to adopt a definition that is
used by several government agencies and key stakeholders.
With regard to the comments asking whether Worksheet S-10 data
should reflect inpatient or outpatient services, or both, we note that
the cost report instructions at Section 4012 of the PRM-II, Pub. 15-2,
state: ``Worksheet S-10--Hospital Uncompensated and Indigent Care
Data--Section 112(b) of the Balanced Budget Refinement Act (BBRA)
requires that short-term acute care hospitals (Sec. 1886(d) of the
Act) submit cost reports containing data on the cost incurred by the
hospital for providing inpatient and outpatient hospital services for
which the hospital is not compensated'' (emphasis added). In a similar
vein, the CCR used on Worksheet S-10, line 1 is from Worksheet C, Part
I, line 202. This CCR reflects costs and charges of all hospital
inpatient departments and outpatient department and clinics. Thus,
Worksheet S-10 is designed to capture uncompensated care costs
associated with the hospital under all of the hospital's Medicare
provider agreements, including provider-based facilities. However,
Worksheet S-10 is not intended to capture uncompensated care related to
physician services. We note that at various points on Worksheet S-10,
the instructions state, ``Include payments for all covered services
except physician or other professional services'' (emphasis added).
Finally, with regard to the comment that the CCRs on Worksheet S-10
are reported with the RCE limits applied, we believe the commenter is
mistaken. Line 1 of Worksheet S-10 instructs hospitals to compute the
CCR by dividing the costs from Worksheet C, Part I, line 202, column 3,
by the charges on Worksheet C, Part I, line 202, column 8. The RCE
limits are applied in column 4, not in column 3; thus, the RCE limits
do not affect the CCR on line 1 of Worksheet S-10.
Comment: Many commenters expressed concerns relating to, and
provided suggestions for, calculating charity care and bad debt as
captured on Worksheet S-10:
Commenters expressed confusion about what is identified as
an indigent care program, and when charity care and Medicaid noncovered
charges are components of charity care. These commenters stated that
the instructions for line 20 in Worksheet S-10 provide

[[Page 56968]]

that ``Charges for non-covered services provided to patients eligible
for Medicaid or other indigent care program . . . can be included, if
such inclusion is specified in the hospital's charity care policy and
the patient meets the hospital's charity care criteria.'' Commenters
believed that government providers are misreporting data related to
charity care by including all charges for their indigent care/general
relief patient populations in the definition while not accounting for
offsetting payments. The commenters expressed their view that these
programs are not uncompensated, but are funded through State and local
tax assessments. Therefore, the commenters requested that CMS require
that patient charges cannot be included in the cost of charity care
unless the related services are not covered by an indigent care
program.
Commenters raised a similar concern about line 20
regarding a possible discrepancy between considering noncovered charges
for Medicaid patients as eligible for charity care, but not allowing
noncovered charges for patients that have some commercial coverage to
be considered charity care. Some commenters believed that this approach
understates charity care costs for patients who participate in high
deductible plans, which is becoming more common.
One commenter stated that CMS' instructions for reporting
charity care on Worksheet S-10 are inconsistent with the instructions
given by other State and Federal programs which instruct hospitals to
report charity care based upon the hospital's financial policy and
consistent with its mission statement, financial ability, and other
circumstances. Another commenter stated that because section 501(r) of
the Internal Revenue Code requires hospitals to establish financial
assistance policies and to reduce charges for services furnished to
individuals who qualify for assistance under those policies as a
requirement for tax-exemption as a charitable hospital organization,
those policies, including the eligibility criteria established under
those policies, necessarily must be regarded as the hospital's
``charity care criteria'' for purposes of Worksheet S-10, to ensure
consistency in reporting.
Commenters stated that hospitals report charity care
amounts for patients that qualify for partial charity inconsistently,
and requested that CMS clarify how amounts should be reported for
patients that qualify for partial charity care, for both an uninsured
individual as well as a patient with financial responsibility after his
or her insurance pays.
Many commenters believed that the definition of bad debt
is unclear and that the methodology CMS uses to arrive at the cost of
bad debt significantly understates the uncompensated care expense that
hospitals incur as a result of uncollectable amounts. For example,
commenters requested that CMS clarify whether recoveries received
during the cost reporting period should be deducted from the non-
Medicare bad debt claimed on line 26.
In addition, commenters expressed their view that line 26
comingles bad debt for both uninsured patients and patients who have
some form of insurance but are not able to meet their cost sharing
responsibility. Commenters stated that applying a CCR to calculate cost
is not accurate when the amounts have already been reduced from gross
charges. These commenters believed that applying the hospital's CCR to
the amount on line 26 understates the costs associated with deductibles
and coinsurance for insured patients written off to bad debt. They
noted that, given the increased cost sharing many insured individuals
currently face, a growing portion of a hospital's bad debt is related
to unpaid deductibles, coinsurance, and copayments. The commenters
recommended that CMS revise Worksheet S-10 to require separate
reporting for bad debt written off for the uninsured and for those who
are insured but cannot afford their cost sharing, similar to the
instructions for line 20.
Response: The commenters have raised various issues that directly
relate to reporting of charity care and bad debt costs on Worksheet S-
10. We intend to consider these issues as we review Worksheet S-10 and
will make clarifications or revisions to the Worksheet S-10
instructions, as appropriate, to address these concerns.
Comment: Commenters noted that using data from Worksheet S-10 to
calculate Factor 3, as opposed to using the current low-income insured
days proxy, has serious implications for entire States. One commenter
stated that the proposed policy to transition to Worksheet S-10 would
result in a $3 billion shift in Medicare DSH funding across providers
and States. This commenter believed that the reductions in payments
resulting from this redistribution would have a significant deleterious
impact on hospitals in parts of the country that have relied on DSH
funding to support services for vulnerable populations. The commenter
stated that, given unforeseeable factors that have affected Medicaid
and insurance expansion across States, these massive funding
redistributions are not aligned with the goals of the Affordable Care
Act and could not have been predicted or intended by Congress. Another
commenter provided specific examples from its own analysis of how the
use of Worksheet S-10 data to estimate hospital uncompensated care
costs would reward hospitals in States that have chosen not to expand
their Medicaid programs and punish those that have done so. Many
commenters noted that the States losing DSH dollars are States that
have expanded their Medicaid programs, as the current proxy captures
Medicaid days and Worksheet S-10 does not. Meanwhile, the commenters
stated, States that would likely gain the most Medicare uncompensated
care dollars are those States that have not expanded their Medicaid
programs, and as a result their uncompensated care is relatively high.
Many commenters generally believed it should not be public policy to
harm States that have responded positively to new opportunities created
through legislation and to reward those that have rejected them.
Response: We understand the commenters' concerns regarding the
effects on hospitals' payments of moving from calculating Factor 3
using a proxy based on low-income days to the use of uncompensated care
data from Worksheet S-10. We believe that postponing the decision
regarding when to begin incorporating data from Worksheet S-10 data
into the calculation of Factor 3 will allow us time to consider what
revisions to the cost reporting instructions may be necessary to ensure
that uncompensated care cost data are reported appropriately and
consistently.
Comment: Many commenters expressed opinions regarding the
definition of uncompensated care as captured by Worksheet S-10.
Numerous commenters believed that shortfall from Medicaid underpayment
should be included in the definition of uncompensated care. These
commenters argued that from a policy perspective, it is vitally
important to include Medicaid losses to ensure that hospitals in
Medicaid-expansion states are not disadvantaged vis-[agrave]-vis
hospitals in non-expansion States, as noted by commenters that
described the differential impact of the use of Worksheet S-10 data in
States that have expanded Medicaid compared to States that have not.
The commenters stated that including Medicaid losses in the definition
of uncompensated care would align with the Medicaid DSH program and the
IRS method of calculating the

[[Page 56969]]

community benefit provided by nonprofit hospitals. Other commenters
requested that, in addition to Medicaid shortfall, shortfall from SCHIP
and State and local indigent care programs should be included in
uncompensated care costs.
However, other commenters supported the exclusion of Medicaid
shortfalls from the definition of uncompensated care. These commenters
believed that section 3133 does not allow for the inclusion of Medicaid
shortfalls in the Factor 3 calculation, based on the statutory language
at section 1886(r)(2)(C)(i) of the Act, which refers to the costs of
hospitals treating the ``uninsured.'' One commenter noted that, under
section 3133, Congress required that the Factor 2 calculation include a
reduction of the amount determined under Factor 1 (that is, the amount
by which the aggregate amount of DSH payments that would have been made
under section 1886(d)(5)(F) of the Act for the fiscal year exceeds the
aggregate amount of empirically justified DSH payments under section
1886(r)(1) for that fiscal year) equal to the growth in the insured
population from a base year, and it does so by reference to specific
CBO estimates of the insured patient rate. The commenter stated that
Congress was well aware that the CBO includes the growth in the
Medicaid population within the insured rate, and therefore Congress did
not intend that Medicaid patients would be considered uninsured for
purposes of determining Factor 3. Another commenter believed that it is
inappropriate for Medicare to include Medicaid shortfall when
estimating uncompensated care costs because the ``shortfall'' will
depend on a specific hospital's cost structure and the Medicaid
payments they receive. In addition, the commenter stated that computing
losses for Medicaid patients is operationally problematic for several
reasons. The commenter indicated that one operational complexity stems
from Medicaid paying hospitals a single DSH payment that in part covers
costs of the uninsured and in part covers estimates of a hospital's
Medicaid ``shortfall,'' and it is not clear how CMS would determine how
much Medicaid ``shortfall'' is left after the Medicaid DSH payments are
made. In addition, the commenter noted that hospitals in some states
return a portion of their Medicaid revenue to the state through
provider taxes. The commenter stated that it would be difficult for CMS
to arrive at a net ``shortfall'' figure, given the lack of reported
data on the net value of Medicaid DSH payments less provider taxes.
Commenters also noted that compensating hospitals for Medicaid
shortfalls as part of a Medicare payment could provide an incentive for
Medicaid to underpay hospitals for services provided to Medicaid
patients.
In addition to comments about Medicaid shortfalls, commenters
stated that the Affordable Care Act directed that the uncompensated
care payments should account for uncompensated care costs for the
uninsured, and argued that the data reported on the Worksheet S-10 do
not include all costs for treating the uninsured. One of these
commenters stated that Worksheet S-10 needs to be amended to allow for
reporting discounts provided to the uninsured as part of the total
uncompensated care costs. The commenter noted that on Worksheet S-10,
uncompensated care costs are specifically defined to ``not include
courtesy allowances or discounts given to patients'' (the cost report
instructions at CMS Pub. 15-2, Section 4012). The commenter stated that
this definition has created confusion, and it is unclear if
``courtesy'' applies to both ``allowance'' and ``discounts,'' or
whether the term ``discounts'' is unmodified by ``courtesy.''
Commenters observed that States differ in how they define uncompensated
care costs, and that not all costs incurred by hospitals in treating
the uninsured are categorized as charity care and bad debt, such as
discounts to the uninsured who are unable to pay or unwilling to
provide income information. The commenters requested that all costs
related to treating the uninsured be included in the definition of
uncompensated care costs, including discounts to the uninsured,
regardless of whether they are officially called ``discounts.''
Commenters noted that Worksheet S-10 does not distinguish discounts to
the uninsured from charity care and bad debt and expressed concern that
hospitals that attempt to collect on a full debt with no discount
receive the same or higher uncompensated care total as hospitals that
provide discounts. One commenter provided examples that it asserted
demonstrate that excluding the cost of discounts to uninsured patients
``favors'' hospitals unwilling to discount care over those that do.
Specifically, in the examples, the cost of uncompensated care for a
particular uninsured patient is the same at each hospital. However, the
commenter asserted that as a result of the current Worksheet S-10
instructions to exclude discounts given to the uninsured, the cost of
uncompensated care at one of the hospitals in the example is
undercounted. The commenter believed that this policy ``favors
hospitals unwilling to discount care over those that do,'' and could
create a disincentive for hospitals to ``maintain generous uninsured
discount programs.''
Commenters noted that section 3133 of the Affordable Care Act does
not mention charity care or even gross non-Medicare bad debt; it simply
focuses on the uncompensated care costs of the uninsured. These
commenters noted that the instructions of Worksheet S-10 appear to
exclude uninsured status explicitly: ``Do not include charges for . . .
uninsured patients given discounts without meeting the hospital's
charity care criteria.'' The commenters believed that because the
instructions to Worksheet S-10 state that ``this worksheet does not
produce the estimate of the cost of treating uninsured patients
required for disproportionate share payments under the Medicaid
program'' (the instructions at the beginning of Worksheet S-10, section
4012 of CMS Pub. 15-2), this indicates that Worksheet S-10 does not
capture the information relevant to the purposes of section 3133 of the
Affordable Care Act.
Response: In general, we will endeavor to address commenters'
concerns in future cost report clarifications so as to ensure that
Worksheet S-10 is an appropriate instrument to use to implement section
3133 of the Affordable Care Act. With regard to the comments regarding
Medicaid shortfalls, as we stated in the proposed rule (81 FR 25092),
we believe there are compelling arguments for excluding Medicaid
shortfalls from the definition of uncompensated care, including the
fact that several key stakeholders do not consider Medicaid shortfalls
in their definition of uncompensated care, and that it is best to allow
Medicare uncompensated care payments to target hospitals that have a
disproportionate share of uncompensated care for patients with no
insurance coverage. Accordingly, as discussed above in response to
previous comments, we anticipate re-proposing through rulemaking a
definition of uncompensated care costs that includes charity care and
non-Medicare bad debt as part of our intent to begin to incorporate
Worksheet S-10 data into the computation of Factor 3, no later than FY
2021. With regard to the comments that States differ in how they define
uncompensated care costs, and that hospitals' costs of treating the
uninsured are not always categorized as charity care and bad debt, such
as discounts to the uninsured who are

[[Page 56970]]

unable to pay or unwilling to provide income information, we believe
the commenters are referring to the Worksheet S-10 instructions for
Line 20, which state, in part, ``Do not include charges for either
uninsured patients given discounts without meeting the hospital's
charity care criteria or patients given courtesy discounts.'' We
believe that hospitals have the discretion to design their charity care
policies as appropriate, and may include discounts offered to uninsured
patients as ``charity care.'' However, we will also further consider
the concern raised by the commenter as to whether inadvertent
disincentives may be occurring under CMS' current instructions, and we
may consider revisions to the instructions on line 20 of Worksheet S-10
to further clarify when patient discounts would be considered charity
care versus bad debt.
(4) Other Methodological Considerations for FY 2018 and Subsequent
Fiscal Years
In the past several years, we have received technical comments from
stakeholders regarding the timing of reporting charity care and the
CCRs used in determining uncompensated care costs. In the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25093), we discussed these issues and how
we proposed to incorporate them into the calculation of uncompensated
care costs for purposes of determining uncompensated care payments for
FY 2018 and subsequent fiscal years as follows:
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. In
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25093), we acknowledged
these concerns, and stated that 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.
Comment: Many commenters supported the proposal 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.
Commenters requested clarification about how CMS intends to implement
the change. One commenter asked whether the revision to Worksheet S-10
to report charity care based on the date of the write-off would be a
prospective change, or whether it would change previously filed reports
from 2014, 2015, or 2016. Another commenter requested that CMS clarify
whether charity care should exclude accounts reported in previously
filed cost reports to avoid a double reporting of charity care costs.
Commenters noted that providers will need additional time to implement
this change, as hospitals will need to revisit numbers reported in 2012
and 2013 to accurately report 2014 costs.
Response: We will revise line 20 of Worksheet S-10 to instruct
hospital to report the payment obligation for care ``that was written
off during this cost reporting period, regardless of when the services
were provided.'' This change must be effective prospectively for cost
reporting periods beginning on or after October 1, 2016, because line
20 as it currently exists is used to calculate EHR incentive payments
(in accordance with the policy stated in the final rule for the
Electronic Health Record Incentive Program (75 FR 44456), and
instituting a change to the instructions on line 20 without a
prospective effective date would constitute retroactive rulemaking.
Additional clarifications regarding charity care exclusions reported in
previously filed cost reports may be forthcoming.
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). In the FY 2017 IPPS/LTCH PPS proposed rule, we noted that
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 have
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

[[Page 56971]]

calculation of the MS-DRG relative weights) from which it is
appropriate to exclude GME because GME is paid separately from the
IPPS, we are hesitant to adjust the CCRs in the narrower context of
calculating uncompensated care costs. Therefore, in the proposed rule,
we stated that we do not believe it is appropriate at this time to
modify the calculation of the CCR on line 1 of Worksheet S-10 to
include GME costs in the numerator.
Comment: Commenters noted that the CCR used on Worksheet S-10 to
convert charges to costs implicitly includes direct GME charges in the
denominator, and therefore requested that the CCR on Worksheet S-10 be
revised to include direct GME payments in the cost numerator. One
commenter noted that because GME costs are a significant component of
inpatient and outpatient services at teaching hospitals, not including
GME in the numerator of the CCR significantly understates the cost of
care and thus the losses incurred by these hospitals as a result of
uncompensated care. The commenter pointed out that Medicare and State
Medicaid programs contribute their share of GME costs, and CMS permits
teaching hospitals to revise their CCRs to include GME costs under the
Medicaid DSH program because Medicaid payments cover GME. Finally, the
commenter stated that Schedule H of IRS Form 990 specifically includes
GME losses as a component of uncompensated care. Several commenters
suggested using the costs from Worksheet B, Part I, column 24, Line 118
in the numerator of the CCR, while another commenter recommended that,
for accuracy of the data, CMS should limit the use of the Worksheet B
to determine CCRs to teaching hospitals that report GME FTEs.
Response: As described in the proposed rule (81 FR 25093), we have
analyzed the effect on all hospitals' uncompensated care costs when GME
costs are included in the numerator of the CCR using data from FY 2011
and 2012 cost reports. 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, we found that including GME costs in the numerator of the CCR
results in an increased share of uncompensated care payments being made
to teaching hospitals. 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 rate-setting 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, we continue to believe
that it is not appropriate at this time to modify the calculation of
the CCR on line 1 of Worksheet S-10 to include GME costs in the
numerator. Accordingly, we do not anticipate proposing to include GME
costs in the numerator of the CCR when we begin to incorporate
Worksheet S-10 data into the calculation of Factor 3.
Trims to Apply to CCRs on Line 1 of Worksheet S-
10. In the FY 2017 IPPS/LTCH PPS proposed rule, we noted that
commenters also have suggested that uncompensated care costs reported
on Worksheet S-10 should be audited due to the 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
stated in the proposed rule that we are considering proposals that
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 considered 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 for the fiscal year that is contemporaneous
to the particular Worksheet S-10 data) would be removed from the
calculation. We proposed 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 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.
The analysis that 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
showed 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-Service-Payment/AcuteInpatientPPS/dsh.html under the Downloads section.)
Alternatively, we considered 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

[[Page 56972]]

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)].
Comment: Several commenters supported CMS' proposal to trim
hospitals' CCRs to ensure reasonable CCRs are used to convert charges
to costs for purposes of determining uncompensated care costs. These
commenters agreed with CMS that this trim will prevent some of the
large variance outliers from artificially influencing the distribution
percentages.
While some commenters agreed that identifying aberrant CCRs through
an edit is appropriate, many commenters objected to the ``double trim''
methodology outlined in the FY 2017 IPPS/LTCH PPS proposed rule for FY
2018 and subsequent years. One commenter recommended that hospitals
with extremely high CCRs be audited and an appropriate CCR determined,
versus arbitrarily trimming these high CCRs to a statewide average.
Several commenters expressed concern over the proposed CCR trim
methodology because hospitals that are considered ``all-inclusive rate
providers'' are not required to complete Worksheet C, Part I, which is
used for reporting CCR on Line 1 of Worksheet S-10. Commenters
expressed their view that the proposed CCR trim methodology
inappropriately modifies the uncompensated care costs for these
hospitals, and that a high CCR could be accurate if the hospital's
charges are close to costs, as is usually the case for ``all-inclusive
rate providers.'' Commenters believed that CMS should correct the
methodology to ensure these hospitals are not inappropriately captured
in this double trim methodology. Similarly, commenters recommended that
CMS not apply a trim to hospital CCRs until it identifies the reasons
for variations in CCRs and gives hospitals that have legitimate reasons
for having higher CCRs adequate time to produce CCRs that are usable
for converting costs to charges on the cost report. One commenter
suggested that, instead of applying a trim, CMS evaluate CCRs on cost
reports to identify misreported, erroneous values and not penalize
hospitals that are accurately reporting information under a CMS-
sanctioned methodology. The commenter recommended that if CMS intends
to require that hospitals revise their charge structures and cost
apportionment methodologies, CMS provide hospitals sufficient lead time
to bring their systems in line with these requirements.
Several commenters provided alternative approaches to the CCR trim
methodology. These commenters recommended using the ceiling derived
from the 2014 CCRs, which was published in the FY 2015 IPPS/LTCH PPS
final rule. Commenters also recommended that CMS use the sum of the
operating and capital CCR ceilings because the CCRs derived in
Worksheet C are based on both operating and capital costs. Under this
methodology, the commenter-recommended ceiling for the first trim was
1.402 instead of 1.146 as proposed. Commenters also suggested that CMS
truncate CCRs at the second trim ceiling unless a hospital's MAC
validates the reported CCR.
Response: We appreciate the support and additional information
provided by the commenters related to applying trims to the CCRs. We
intend to further explore which trims are appropriate to apply to the
CCRs on line 1 of Worksheet S-10, including whether it is appropriate
to apply a unique trim to certain subsets of hospitals, such as All
Inclusive Rate Providers. With regard to the comment recommending that
CMS use the sum of the operating and capital CCR ceilings because the
CCRs derived in Worksheet C are based on both operating and capital
costs, after considering this matter, we agree that Worksheet C CCRs do
reflect both the operating and capital costs of a hospital, and it may
be appropriate to apply a CCR ceiling that is the sum of both the
operating and capital CCRs. We intend to consider this recommendation
further when preparing to use Worksheet S-10 data to compute Factor 3,
and will undertake rulemaking in advance on this matter.
Other Related Comments
Comment: Several commenters expressed concern that the use of data
from Worksheet S-10 to calculate uncompensated care costs does not take
into account the Indian Health Service's (IHS') unique funding
structure and therefore may jeopardize all of IHS's uncompensated care
payments. The commenters stated that CMS has indicated that due to
their unique funding structure, Indian Health Care Providers (IHCPs) do
not have uncompensated care costs under Worksheet S-10. The commenters
indicated that because funding for the costs of patient care is
provided through congressional appropriations, all care is considered
compensated, even though appropriations fund only approximately 59
percent of the health care needs for American Indians/Alaska Natives.
The commenters also stated that many Tribes and Tribal organizations
invest non-Federal resources in their health care programs to furnish
care that could easily be classified as uncompensated care because
IHCPs may not charge beneficiaries to receive care and thus, may not
have the accounting methods to track these costs. As a result, the
commenters stated that IHCP hospitals are currently unable to support
charity care and non-Medicare bad debt consistent with the proposed
definition of uncompensated care in the proposed rule. The commenters
estimated that if the proposals in the proposed rule are finalized,
they will decrease IHS's collections significantly, negatively
impacting an already underfunded health system and leading to reduced
quality of care and the loss of life.
Commenters acknowledged a previous conversation with CMS and IHS to
attempt to resolve these issues, but requested that CMS engage in
further analysis and meaningful Tribal consultation before issuing the
final rule. The commenters stated that comments on the rulemaking
process are not considered meaningful consultation per Executive Order
13175 or in CMS Tribal consultation policy approved December 5, 2015,
and that additional Tribal consultation is necessary.
Response: We appreciate these comments and acknowledge that the use
of data from Worksheet S-10 to calculate uncompensated care costs does
not take into account the unique funding structure of IHS hospitals and
therefore using these data to determine Factor 3 may have an unintended
impact on the uncompensated care payments to these hospitals. We intend
to continue working with IHS and

[[Page 56973]]

Tribal stakeholders to devise an appropriate solution for estimating
uncompensated care for these facilities and will undertake further
rulemaking as appropriate to address this issue.
Comment: One commenter requested that Puerto Rico hospitals be
excluded from the use of Worksheet S-10 to calculate uncompensated care
costs. The commenter noted that Puerto Rico's socioeconomic reality and
the statutory treatment of its hospitals under Medicaid and Medicare
Part A may result in an unintended penalty for its providers, and
standard forms, data collections or categories may not be appropriate
in Puerto Rico. As an alternative, the commenter supported delaying the
use of Worksheet S-10 data to calculate Factor 3 for hospitals in
Puerto Rico until disparities are corrected. The commenter requested
that CMS work with Puerto Rico hospitals to conduct a specific study of
uncompensated versus undercompensated care before moving away from the
current uncompensated care formula.
Response: We understand the unique challenges faced by hospitals in
Puerto Rico with regard to calculating uncompensated care costs. We
note that we are finalizing our proposal to use a proxy for Medicare
SSI days for hospitals in Puerto Rico for FY 2017. In the event that we
continue to use Medicare SSI days as a proxy for uncompensated care in
subsequent years, we anticipate that we would propose to continue to
employ this proxy for Puerto Rico.
In summary, we are not finalizing our proposal to begin to
incorporate Worksheet S-10 data into the computation of Factor 3 for FY
2018, and we are not finalizing the proposed regulations text changes
at Sec. 412.106(g)(C)(4) through (7) regarding FY 2018 and subsequent
fiscal years. In light of the significant concerns expressed by
commenters, we are postponing the decision regarding when to begin
incorporating data from Worksheet S-10 and proceeding with revisions to
the cost report instructions to address the commenters' concerns in an
appropriate manner. We believe that revised Worksheet S-10 data will be
available to use in the calculation of Factor 3 in the near future, and
no later than FY 2021. With regard to how Factor 3 will be computed in
FY 2018 and subsequent fiscal years, we intend to explore whether there
is an appropriate proxy for uncompensated care that could be used to
calculate Factor 3 until we determine that revised Worksheet S-10 data
can be used for this purpose. We will undertake further notice-and-
comment rulemaking to address the issue of the appropriate data to use
to determine Factor 3 for FY 2018 and subsequent fiscal years. We also
anticipate proposing to continue to use data from three cost reports to
calculate Factor 3, as we are doing for the calculation of Factor 3 for
FY 2017, which would have a transitioning effect as we described in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25091).

G. Hospital Readmissions Reduction Program: 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
are 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 clarified 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 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); and specified the
calculation of aggregate payments for excess readmissions for FY 2016
(80 FR 49537 through 49542).

[[Page 56974]]

3. Policies for the FY 2017 Hospital Readmissions Reduction Program
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25094 through
25098), we:
Proposed that the public reporting of excess readmission
ratios be posted on an annual basis to the Hospital Compare Web site as
soon as is feasible following the preview period.
Discussed the methodology to include the addition of the
CABG applicable condition in the calculation of the readmissions
payment adjustment for FY 2017.
We note that, during the comment period for the FY 2017 IPPS/LTCH
PPS proposed rule, we received public comments that were not related to
our specific proposals for the Hospital Readmissions Reduction Program
and therefore considered out of the scope of the proposed rule. Some of
the out of scope comments were related to a wide range of aspects of
the Hospital Readmissions Reduction Program and its readmissions
measures. For example, there were recommendations that we risk-adjust
for socioeconomic and sociodemographic status; that statutory changes
be made to the program payment structure and previously finalized
program definitions; and that we consider adjusting for skilled nursing
facilities' (SNF) quality in calculating scores under the Hospital
Readmissions Reduction Program. While we appreciate the commenters'
feedback, we consider these topics to be out of the scope of the
proposed rule. Therefore, we are not addressing most of these comments
in this final rule.
Comment: Several commenters appreciated that CMS did not propose
new conditions or make substantial changes to the program in this
year's rule and suggested that this may be an indication that further
improvements in aggregate readmission rates may not be achievable.
Response: We appreciate the input and will take this feedback into
consideration in future measure selection and rulemaking.
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 socioeconomic and sociodemographic status (SES/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 National Quality Forum (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. This trial entails 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. Several measures developed by CMS have
been brought to NQF since the beginning of the trial. CMS, in
compliance with NQF's guidance, has tested sociodemographic factors in
the measures' risk models and made recommendations about whether or not
to include these factors in the endorsed measure. We intend to continue
engaging in the NQF process as we consider the appropriateness of
adjusting for sociodemographic factors in our outcome measures.
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. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25095), for FY
2017, consistent with the definition specified at Sec. 412.152, we
proposed 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 proposed 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.
We did not receive public comments related to this proposal.
Therefore, we are finalizing as proposed, without modification, the
applicable period of the 3-year time period of July 1, 2012 to June 30,
2015 to calculate the excess readmission ratios and the readmission
payment adjustment factors for FY 2017

[[Page 56975]]

under the Hospital Readmissions Reduction Program.
6. 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 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25095 through
25098), we discussed the proposed methodology to include this
additional measure in the calculation of the readmissions payment
adjustment for FY 2017. Specifically, we proposed 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 proposed 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 the proposed rule, for FY 2017, we proposed 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 noted that, for the purpose of modeling the proposed FY 2017
readmissions payment adjustment factors for the proposed rule, we used
excess readmissions ratios for applicable hospitals from the FY 2016
Hospital Readmissions Reduction Program applicable period. For this FY
2017 IPPS/LTCH PPS final rule, applicable hospitals 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).
For FY 2017, we proposed to use MedPAR data from July 1, 2012
through June 30, 2015. Specifically, for the proposed rule, we used 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

[[Page 56976]]

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 this final rule, as we proposed, we used
the same MedPAR files as listed above for claims within FY 2012, FY
2013 and FY 2014, and for claims within FY 2015, we used 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 proposed to follow this same approach.
In the proposed rule, for FY 2017, we proposed 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
proposed 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 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, under our proposal, 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 proposed to continue to 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 proposed 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, the 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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

[[Page 56977]]

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 proposed 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 did not propose 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 proposed the following methodology for FY 2017 as displayed in
the chart below.

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 invited public comment on these proposals.
Comment: Commenters supported the proposed calculation for the new
CABG readmission measure, and program efforts to maintain focus on
cardiology and cardiovascular care. Another commenter noted that the
proposed calculation will include the CABG readmission measure in the
payment formula in alignment with other program measures. One commenter
expressed concern that the addition of the CABG measure may result in
double counting of cases under both CABG and AMI, and recommended that
cases should only count under either AMI or CABG to prevent double
counting.
Response: We appreciate the commenters' support and will continue
to monitor and analyze the impact of our measure selection for further
adjustments to the Hospital Readmissions Reduction Program. We refer
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53376) for
further discussion on preventing double counting.
We are finalizing, as proposed and without modification, the
methodology to include the addition of the CABG applicable condition in
the calculation of the readmissions payment adjustment for FY 2017.
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

[[Page 56978]]

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 the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25098), we clarified 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.
Comment: Numerous commenters urged CMS to continue to ensure there
is an adequate period of at least 30 days for hospitals to review their
rate calculations and make necessary corrections before the rates are
publicly displayed. One commenter supported the opportunities to allow
hospitals to review their readmission data in a timelier fashion as
part of the formal review period. Several commenters requested that CMS
calculate and more frequently report to hospitals their performance on
the readmission measures.
Response: We appreciate the commenters' input and support. In the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51672 through 51673), we
adopted the same preview and correction process and timeframe used for
subsection (d) hospitals for the rates calculated for the Hospital
Readmissions Reduction Program. That is, we provide hospitals with an
opportunity to preview their readmission rates for 30 days prior to
posting them on the Hospital Compare Web site. We note that hospitals
have the opportunity to correct the rate calculations and not the
underlying data. This process meets the statutory requirement in
section 1886(q)(6)(B) of the Act which requires the Secretary to ensure
that a subsection (d) hospital has the opportunity to review and submit
corrections before the information is made public. In addition to the
statutory requirements, we also considered hospitals' experience with
the measure and the data production timeline when proposing the 30-day
preview period. While the Hospital Readmissions Reduction Program is
fairly new, subsection (d) hospitals are already familiar with the
three 30-day risk-standardized readmission measures that the program
uses to determine payment adjustment. Because hospitals are working
with measures in which they have prior experience from the Hospital IQR
Program, we believe that a 30-day preview period is sufficient for
hospitals to review and correct their excess readmission ratios.
Due to the complexity of these measures and the need for
bootstrapping in measure calculations, significant programming
resources are required. It takes several months to complete the
production and extensive quality assurance procedures needed to
calculate results for more than 3,500 hospitals. As a result, we will
not be able to begin the preview period earlier than late June. Also,
we will not be able to extend the preview period to more than 30 days.
This is because if hospitals find data problems that we determine to be
attributable to our calculation or programming errors, we will need
adequate time between mid-July and the end of September to: (1)
Recalculate the excess readmission ratios; (2) regenerate and
redisseminate corrected results to hospitals in time for payment
adjustment in early October (the beginning of the subsequent fiscal
year); and (3) publicly report the excess readmission ratios on the
Hospital Compare Web site to meet the statutory reporting requirements
under section 1886(q)(6) of the Act.
Comment: A few commenters asked that CMS establish a regular
deadline for the release of annual data on hospital excess readmission
ratios and also make clear when the data will be made available to the
public on the Hospital Compare Web site. One commenter specifically
requested that excess readmission ratios be posted to the Hospital
Compare Web site more often than annually and prior to October.
Response: We appreciate the commenters' feedback. The 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 56979]]

After consideration of the public comments we received, we are
finalizing the clarification that the 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.

H. Hospital Value-Based Purchasing (VBP) Program: 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 $1.8 billion, based on
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 16A associated with this final 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 updated slope of the linear exchange function used to calculate
those proxy value-based incentive payment adjustment factors is
2.7717318150. This slope, along with the estimated amount available for
value-based incentive payments, is also published in Table 16A.
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. 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
\24\ 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 \25\ by December 2016 for use in
the FY 2018 payment year. However, AHRQ needs a full year of nationally
representative ICD-10 coded data before it can complete development of
risk-adjusted models based on a national reference population. At this
time, a risk adjusted ICD-10 version of the modified PSI 90 software is
not expected to be available until late CY 2017. We refer readers to
section VIII.A.6.b. of the preamble of this final rule relating to the
Hospital IQR Program for a discussion of the modified PSI 90 measure
update.
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\24\ International Classification of Diseases (ICD-10-CM/PCS)
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
\25\ 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, in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25099 through 25100), we proposed to shorten the
performance period for the FY 2018 program year. We proposed

[[Page 56980]]

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 proposed (and are finalizing) similar
modifications to the FY 2018 reporting period for the PSI 90 measure
for the HAC Reduction Program, as discussed in section IV.I.3.b. of the
preamble of this final rule, and for the Hospital IQR Program, as
discussed in section VIII.A.6.b.(4) of the preamble of this final rule.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25100), we
discussed that we are aware that the FY 2019 program year also has a
performance period that contains ICD-9 and ICD-10 data and that we
would 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. Because an ICD-10 version of the current PSI 90 is
not being developed, we intend to propose to remove the PSI 90 measure
from the Hospital VBP Program beginning with the FY 2019 program year
in next year's rulemaking.
We noted that in proposing a shortened performance period for the
PSI 90 measure, a prior reliability analysis of the PSI 90 measure
showed that the majority of hospitals attain a moderate or high level
of reliability for the PSI 90 measure after a 12-month period.\26\
Further, this reliability analysis is based on older data that does not
include improvements in present on admission (POA) coding, which is
likely to improve reliability. We believe that the data we will collect
is likely to be reliable during a 15-month performance period. We do
not anticipate any delay for hospitals to review their TPSs for the FY
2018 program year during the review and correction period.
---------------------------------------------------------------------------

\26\ 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.
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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 stated our belief 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 stated that 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 discussed this future proposed adoption in
section IV.H.2.b. of the preamble of the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25100) and reaffirm this intention in section IV.H.2.b. of
the preamble of this final rule.
We invited public comments on this proposed plan to shorten the
performance period for the PSI 90 measure for the FY 2018 program year.
Comment: A few commenters supported the proposal to adopt a 15-
month performance period for FY 2018 to account for the transition from
ICD-9-CM to ICD-10-CM/PCS.
Response: We thank the commenters for their support.
Comment: Many commenters did not support the proposal to shorten
the performance period for PSI 90 in the FY 2018 program year to 15
months of data because commenters are concerned that shortening the
performance period will degrade the measure's reliability. In addition,
several commenters were concerned that only 81 percent of hospitals
achieve median reliability with 12 months of data and 86 percent
achieve median reliability with 18 months of data. Many commenters
recommended suspending or removing the use of PSI 90 in the Hospital
VBP Program beginning with the FY 2018 program year. Some commenters
also recommended suspending or removing the measure for at least the FY
2018 and FY 2019 program years because of the inability to calculate
the measure using ICD-10 data. One commenter recommended that CMS
change the PSI 90 performance period to a 24-month performance period
(October 1, 2013 through September 30, 2015) because this commenter
believed that 24 months would ensure the measure results are more
reliable and enable the use of only ICD-9-CM data.
Response: We note that the measure reliability analysis the
commenters have cited does not apply a case minimum threshold like the
one the Hospital VBP Program applies. Thus, we believe that a 15-month
performance period is sufficiently reliable, particularly in light of
the case minimum of three cases for any of the underlying PSI 90
indicators as finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR
53609). Because we believe the measure is sufficiently reliable with 15
months of data, we do not believe we need to suspend or remove the
measure or extend the measure's performance period for the FY 2018
program year. We appreciate the commenter's suggestion that we use
October 1, 2013 to September 30, 2015 as a 24-month performance period
for the PSI 90 measure in the FY 2018 program year, but it overlaps
substantially with the performance period for the PSI 90 measure in the
FY 2017 program year (which runs from October 1, 2013 to June 30, 2015
(78 FR 50692)).
Comment: Many commenters did not support shortening the performance
period for the FY 2018 program year because commenters believe there
are numerous flaws in the measure, including gaming, selective
reporting, and surveillance/ascertainment bias. Several commenters
recommended that CMS remove the PSI 90 measure from the program and
replace it with more reliable measures of patient safety. One commenter
recommended that if CMS retains the PSI 90 measure in the FY 2018
program year, CMS change the measure so that the PSI 07 Central Venous
Catheter-related Bloodstream Infection Rate excludes cases with a
length of stay of less than 2 days. This commenter further recommended
extending the length of stay exclusion criterion for PSI 07 Central
Venous Catheter-related Bloodstream Infection Rate to 4 days to remain
consistent with the length of stay outlined in other PSI components.
Response: We thank the commenters for their suggestions, but we do
not believe the PSI 90 measure is flawed. The PSI 90 measure was
developed using a scientifically rigorous process that involved the
input of technical experts and stakeholders. Further, AHRQ has
supported a series of validation studies, based on detailed abstraction
of medical records, that have informed AHRQ's PSI development process,
including making further refinements to indicators and working

[[Page 56981]]

with others to improve coding practices. We refer commenters to the
AHRQ PSI Development zip file and AHRQ Composite Measures Workgroup
document available at: http://www.qualityindicators.ahrq.gov/modules/psi_resources.aspx. We believe that the PSI 90 measure in its current
form is reliable, valid, and appropriate to retain in the Hospital VBP
Program for the FY 2018 program year because it appropriately
encourages robust hospital attention to patient safety. We also believe
that the length of stay exclusion criterion of 2 days in the PSI 07
Central Venous Catheter-related Bloodstream Infection Rate is adequate
because positive blood cultures within the first 2 days of admission
are likely to reflect a bloodstream infection that was present on
admission, rather than a bloodstream infection associated with care
provided by the hospital. We note that the modified PSI 90 no longer
includes PSI 07 Central Venous Catheter-related Bloodstream Infection
Rate. However, AHRQ plans to maintain PSI 07 Central Venous Catheter-
related Bloodstream Infection Rate as a separate PSI and it is included
in an 11-indicator version of PSI 90 that is not NQF-endorsed.
Suggestions regarding potential PSI measure revisions can be made
directly to: [email protected].
Comment: A few commenters did not support the continued use of the
PSI 90 measure in the Hospital VBP Program for the FY 2018 and FY 2019
program years because the Hospital VBP Program will be misaligned with
the Hospital IQR Program and the HAC Reduction Program, which have both
proposed to adopt the modified PSI 90 measure in the FY 2017 IPPS/LTCH
PPS proposed rule. A few commenters recommended that CMS adopt the
modified PSI 90 measure in the Hospital VBP Program beginning with the
FY 2018 program year.
Response: We thank the commenters for their suggestions, but we
note that we are unable to adopt the modified PSI 90 measure beginning
with the FY 2018 program year due to certain statutory requirements in
the Hospital VBP Program that are not required in the Hospital IQR
Program or the HAC Reduction Program. As we noted in the proposed rule,
section 1886(o)(2)(A) of the Act requires the Hospital VBP Program to
select measures that have been specified for the Hospital IQR Program.
The Hospital IQR Program is finalizing the modified PSI 90 measure in
this FY 2017 IPPS/LTCH PPS final rule (see section VIII.A.6.b. of the
preamble of this final rule). In addition, 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. The Hospital IQR
Program is finalizing the modified PSI 90 measure in this final rule
but measure data have not yet been posted on Hospital Compare, and we
are required to wait one full year after data has been posted before
that measure's performance period may begin in the Hospital VBP
Program. 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. We anticipate adopting the modified PSI 90 measure in future
rulemaking as soon as we have met the statutory requirements laid out
in the Act.
Comment: One commenter expressed concern with the currently adopted
PSI 90 measure because it may penalize hospitals that have a robust
surveillance program or that have strict policies on what physicians
include in their notes.
Response: We acknowledge commenter's concerns regarding the
currently adopted PSI 90, but note that there is little evidence that
hospitals that may have a less robust surveillance program underreport
diagnoses for the PSI 90 indicators. Further, there is high degree of
sensitivity (true positives) with respect to indicator diagnoses among
hospitals.
Comment: Numerous commenters requested that we remove the currently
adopted version of the PSI 90 measure. Specifically, many commenters
noted that using the currently adopted version of the measure in the
Hospital VBP Program would not align with the Hospital IQR Program and
the HAC Reduction Program, both of which are using the modified PSI 90
measure in their programs.
Response: While we understand commenters' concerns, we have decided
to retain the currently adopted version of the PSI 90 measure for the
FY 2018 program year because we have the option to shorten the
performance period so that performance standards can be calculated
using the ICD-9 AHRQ QI software. We believe that this measure meets
the program goal of providing important information on hospital
performance on patient safety and adverse events. We recognize that the
performance period for the current PSI 90 measure cannot be shortened
in the FY 2019 program year because ICD-10 AHRQ QI software for the
currently adopted measure will not be available. In light of this, we
intend to propose to remove the PSI 90 measure from the Hospital VBP
Program beginning with the FY 2019 program year in next year's
rulemaking. We also intend to propose to adopt the modified PSI 90
measure for the Hospital VBP Program in future rulemaking as soon as it
is feasible, which we discuss further in section IV.H.2.b. of the
preamble of this final rule.
After consideration of the public comments we received, we are
finalizing the proposal to shorten the performance period for the PSI
90 measure for the FY 2018 program so that it runs from July 1, 2014
through September 30, 2015 as proposed.
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 led to several measure changes.\27\
Due to statutory requirements \28\ 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.6.b. of the
preamble of this final rule relating to the Hospital IQR Program for a
discussion of the modified PSI 90 measure update.
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\27\ 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.
\28\ 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.
---------------------------------------------------------------------------

Comment: Several commenters supported CMS' intent to propose to
adopt the modified PSI 90 measure. One commenter specifically supported
the modified specification of component indicators PSI 12 Perioperative
Pulmonary Embolism (PE) or Deep Vein Thrombosis (DVT) Rate and PSI 15
Unrecognized Abdominopelvic Accidental Puncture/Laceration Rate as well
as the removal of PSI 07 Central Venous Catheter-related Bloodstream
Infection Rate. One commenter encouraged CMS to adopt the modified PSI
90 measure as soon as possible because this measure has been reendorsed
by the NQF following modification. One commenter noted

[[Page 56982]]

that the modifications to the measure identify harmful healthcare
events that are potentially preventable. One commenter believed that
the modified measure addresses prior concerns including the weighting
of components, issues with public reporting, and biases in the
distribution of incentive payments.
Response: We thank commenters for their support of our intent to
propose the modified PSI 90 in future rulemaking.
Comment: Several commenters expressed concern that the software
hospitals use to monitor and assess their performance has not yet been
updated to reflect ICD-10 coding, which hinders hospitals' ability to
monitor performance and continually improve their quality of care. The
commenter urged CMS to work with AHRQ to update the software as soon as
possible.
Response: We acknowledge the comments received and are working with
AHRQ to have the ICD-10 measure software available as soon as possible.
Comment: Several commenters recommended that CMS reevaluate the PSI
90 measure for appropriateness in the program because it is susceptible
to surveillance bias, measures components that may not be preventable
through evidence-based practices, lacks appropriate and necessary
exclusions associated primarily with large academic centers, and is
based on administrative claims data that do not capture the full scope
of patient-level risk factors. The commenters also believe that it may
disproportionately impact teaching hospitals because they tend to have
a larger volume of surgical cases.
Response: While we acknowledge commenters' preference for chart-
abstracted measures, administrative claims data are valid for quality
measurement and significantly less burdensome on hospitals for quality
reporting. Many teaching hospitals do as well or better on the measure
than non-teaching hospitals, and many of the PSI components are
preventable through evidenced-based practices. We have previously
addressed commenters' concerns regarding the use of administrative
claims, coding issues, and the impact on academic hospitals. We refer
commenters to this discussion in the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50684) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50064).
Comment: One commenter did not support CMS' intent to propose to
adopt the modified PSI 90 measure because this commenter believed the
measure, despite modifications, continues to lack the level of
accuracy, reliability, and validity necessary to ascertain high-
performing facilities.
Response: We acknowledge commenter's concerns and will consider
them when we consider a future proposal to adopt the modified PSI 90
measure for the Hospital VBP Program. We refer the commenter to section
VIII.A.6.b. of the preamble of this final rule where we discuss the
modified PSI 90 and similar concerns in the context of the Hospital IQR
Program, including why we believe the modified PSI 90 is sufficiently
accurate, reliable, and valid, and section IV.I.3.a. of the preamble of
this final rule in the context of the HAC Reduction Program.
Comment: One commenter did not support CMS' intent to propose to
adopt the modified PSI 90 measure because the commenter believed that
the modified measure does not take into account clinical considerations
involved in transplant surgery. The commenter noted that the risk
adjustment methodology is not specific to transplantation and lacks
adjustments for severity of illness and donor characteristics.
Specifically, the commenter stated that the PSI 09 Postoperative
Hemorrhage or Hematoma Rate component indicator of the measure does not
properly exclude transplant patients, which is inappropriate because
perioperative hemorrhage or hematoma is common after liver, kidney, and
many other transplants despite high quality care. Further, the
commenter stated that the PSI 10 Postoperative Acute Kidney Injury Rate
component indicator inappropriately includes liver transplant patients,
many of whom develop acute renal failure after a transplant despite
high quality care.
The commenter stated that the PSI 11 Postoperative Respiratory
Failure Rate component indicator inappropriately includes liver and
kidney transplant patients, many of whom have high incidences of acute
respiratory failure, mechanical ventilation, and reintubation after a
transplant despite high quality care. Finally, the commenter stated
that the PSI 12 Perioperative PE or DVT Rate component indicator
inappropriately includes liver and kidney transplant patients, many of
whom develop deep vein thrombosis despite high quality care.
Response: We acknowledge commenter's concerns and will share the
feedback with the measure steward, AHRQ, as well as take the concerns
into consideration when we consider a future proposal to adopt the
modified PSI 90 measure for the Hospital VBP Program. We refer the
commenter to section VIII.A.6.b. of the preamble of this final rule
where we discuss the modified PSI 90 and similar concerns in the
context of the Hospital IQR Program and section IV.I.3.a. of the
preamble of this final rule in the context of the HAC Reduction
Program.
Comment: One commenter did not support CMS' intent to propose to
adopt the modified PSI 90 measure in the Hospital VBP Program because
the underlying PSIs rely on administrative claims data and are
inaccurate in assessing postoperative complications. The commenter
believed the component indicators of the modified PSI 90 are flawed by
gaming, selective reporting, and surveillance/ascertainment bias.
Specifically, the commenter did not support PSI 12 Perioperative PE
or DVT Rate because the commenter believed it is susceptible to
surveillance bias and not a valid measure of quality. The commenter
suggested using a comprehensive prophylaxis measure because it is a
better measure of quality in VTE prevention and more widely used. While
the commenter supported the decreased weighting of PSI 12 Perioperative
PE or DVT Rate and PSI 15 Unrecognized Abdominopelvic Accidental
Puncture/Laceration, commenter expressed concern that they were still
weighted too high and that high-quality hospitals may be unfairly
deemed poor performers due to methodological flaws in the weighting.
The commenter did not support the continued inclusion of PSI 15
Unrecognized Abdominopelvic Accidental Puncture/Laceration because no
large-scale assessment has been done to assess the validity of the
component indicator and it is difficult to determine if a reoperation
was directly related to the accidental puncture/laceration.
The commenter recommended that the exclusion criteria in PSI 04
Stratum 4A be broadened to include diagnoses that reflect a
hypercoagulable state. The commenter recommended broadening the
exclusion criteria in Stratum 4B to include cases that started in Major
Diagnostic Category (MDC) 4 but advanced to Pre-MDC. The commenter
recommended broadening the exclusion criteria in Stratum 4C to include
sepsis diagnosis codes that are present on admission. The commenter
recommended broadening the exclusion criteria of Stratum 4D to include
cases that started in MDC 4 or 5 but advanced to Pre-MDC and cases that
are present on admission. The commenter recommended removing the
inclusion criterion of K92.1 melena in Stratum 4E. The commenter also
recommended broadening the exclusion criteria for

[[Page 56983]]

Stratum 4E to focus on the Present on Admission Indicator rather than
the principal diagnosis position and also exclude Pre-MDC.
The commenter recommended broadening the exclusion criteria of PSI
03 Pressure Ulcer Rate to include those from Appendix I-
Immunocompromised State Diagnosis and Procedure Code in the PSI
Technical Specifications Update manual. The commenter recommended
broadening PSI 06 Iatrogenic Pneumothorax Rate to include pneumothorax
related to CPR. The commenter recommended broadening the exclusion
criteria of PSI 07 Central Venous Catheter-related Blood Stream
Infection Rate to include cases with a length of stay of less than 2
days. The commenter recommended broadening the exclusion criteria of
PSI 08 In-Hospital Fall with Hip Fracture Rate to include anything
falling within Appendix H: Cancer Diagnosis Codes regardless of
metastasis and regardless of Present on Admission status. The commenter
recommended broadening the exclusion criteria of PSI 09 Postoperative
Hemorrhage and Hematoma Rate to include Abnormal Coagulation Profile
R79.1 as an exclusion criterion with present on admission, and creating
a new seroma ICD-10 code. The commenter recommended changing the
exclusion criteria of PSI 10 Postoperative Acute Kidney Injury Rate to
a time based element in hours as opposed to the number of postoperative
days and including sinus bradycardia and sinus tachycardia cardiac
arrhythmias in the exclusion criteria.
The commenter recommended changing the numerator inclusion criteria
of the PSI 11 Postoperative Respiratory Failure Rate to vent time,
reintubation criteria, and broadening the exclusion criteria to include
cases that started in MDC 4 or 5 but advanced to the Pre-MDC. The
commenter recommended broadening the exclusion criteria of PSI 12
Perioperative PE or DVT Rate to include inheritable hypercoagulable
conditions, acquired hypercoagulable conditions, and present on
admission status. The commenter also recommended that PSI 12
Perioperative PE or DVT Rate be excluded from public reporting and pay-
for-performance programs. The commenter recommended modifying PSI 13
Postoperative Sepsis Rate to delete the inclusion criteria for post-
procedural shock. The commenter recommended extending the exclusion
criteria of PSI 14 Postoperative Wound Dehiscence Rate to a length of
stay of 4 days. The commenter recommended excluding from PSI 12
Perioperative PE or DVT Rate inheritable hypercoagulable conditions:
Factor V Leiden, Factor VIII, Factor IX, Factor XI, and the acquired
hypercoagulable conditions: Cancer, recent trauma or surgery, central
venous catheter placement, obesity, supplemental estrogen use including
oral contraceptives, hormone replacement therapy, prolonged bed rest or
immobility, heparin induced thrombocytopenia, previous history of DVT/
PE, myeloproliferative disorders such as polycythemia vera or essential
thrombocytosis, inflammatory bowel syndrome, HIV/AIDS, and nephrotic
syndrome. For PSI 13 Postoperative Sepsis Rate, the commenter
recommended deleting the inclusion criteria of post-procedural shock,
unspecified T811OXA as it may not be related to sepsis and does not
reflect the true spirit of the measure. For PSI 14 Postoperative Wound
Dehiscence, the commenter recommended extending the exclusion criteria
to a length of stay of 4 days to remain consistent with criteria in
other PSI components.
Response: We thank the commenter for the suggestions, especially
with regard to measure specifications, such as weighting of components
and inclusion and exclusion criteria, and we will share them with the
measure steward, AHRQ. We acknowledge commenter's concerns and will
consider them when we consider a future proposal to adopt the modified
PSI 90 for the Hospital VBP Program. We refer the commenter to section
VIII.A.6.b. of the preamble of this final rule where we discuss the
modified PSI 90 and similar concerns in the context of the Hospital IQR
Program and section IV.I.3.a. of the preamble of this final rule in the
context of the HAC Reduction Program.
Comment: A few commenters did not support CMS' intent to propose to
adopt the modified PSI 90 measure because the commenters stated that
all measures should be publicly reported for at least one year before
being proposed for a performance program.
Response: We agree that all measures should be publicly reported
for at least one year before being used in the Hospital VBP Program,
and we are required to do so by statute. We intend to propose to adopt
the modified PSI 90 measure in a manner that complies with all the
statutory requirements, including the public reporting requirement.
Comment: A few commenters supported CMS' intent to propose to adopt
the modified PSI 90 measure to replace the current PSI 90 measure, but
would prefer that neither version of the measure be used in the program
because of major concerns with the components of the measure. One
commenter believed the PSI 90 measure is reliable for internal quality
improvement efforts, but not as a basis for comparing hospital quality.
Another commenter requested that CMS improve the NHSN measures'
methodology so that it can be relied upon as the best source of safety
measurement.
Response: We acknowledge commenter's concerns and will consider
them when we consider a future proposal to adopt the modified PSI 90
for the Hospital VBP Program; however, as we noted above, the PSI 90
measure was developed using a scientifically rigorous process that
involved the input of technical experts and stakeholders. We refer the
commenter to section VIII.A.6.b. of the preamble of this final rule
where we discuss the modified PSI 90 and similar concerns in the
context of the Hospital IQR Program and section IV.I.3.a. of the
preamble of this final rule in the context of the HAC Reduction
Program.
Comment: One commenter did not support the use of the modified PSI
90 measure in the program as a composite measure because the commenter
believed each of the component indicators should be reported
separately, which will increase transparency for consumers and
providers.
Response: We appreciate commenter's suggestion. However, since we
have adopted the composite measure for the Hospital VBP Program, we
believe it is appropriate to publish hospitals' performance on that
measure as a composite score, rather than its individual components, as
a reflection of performance measured and scored under the Hospital VBP
Program. The composite measure is the basis for awarding achievement
and improvement points, not its underlying indicators, and we believe
it is appropriate to focus the public reporting of Hospital VBP Program
scores on the measures that receive points. We note that hospital
performance on the individual component indicators of PSI 90 as
calculated in the Hospital IQR Program are publicly available in
downloadable datasets located at: https://data.medicare.gov/data/hospital-compare because we agree with the commenter about the
importance of this information to consumers and providers.

[[Page 56984]]

3. Retention Policy, Domain Name Change, 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. 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 reclassified the Hospital VBP Program measures into
domains based on the 6 priorities of the CMS Quality Strategy. In the
FY 2014 IPPS/LTCH PPS final rule (78 FR 50702), we combined 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, in
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25100 through 25101), we
proposed 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 stated
our belief that this domain name captures 2 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.
Efficiency and Cost Reduction............. Make Care Affordable.
Clinical Care............................. Promote Effective Prevention
and Treatment of Chronic
Disease.
Promote Effective
Communication and
Coordination of Care.
Person and Community Engagement........... Strengthen Persons and Their
Families as Partners in
Their Care.
Work with Communities to
Promote Best Practices of
Healthy Living.
N/A.......................................
------------------------------------------------------------------------

We invited public comments on this proposal.
Comment: Several commenters supported renaming the Patient- and
Caregiver-Centered Experience of Care/Care Coordination domain to the
Person and Community Engagement domain because it simplifies the domain
reference and aligns with the CMS Quality Strategy. One commenter noted
that the name change accurately represents the purpose of the measures
included in the domain.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing the proposed domain name change from the Patient- and
Caregiver-Centered Experience of Care/Care Coordination to the Person
and Community Engagement domain. We will begin referring to the domain
by its new name beginning with the FY 2019 program year.
c. 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,
in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25101), we proposed
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.'' \29\ 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

[[Page 56985]]

NHSN for quality improvement and public reporting efforts.
---------------------------------------------------------------------------

\29\ ``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 invited public comments on this proposal.
Comment: Many commenters supported the inclusion of selected ward
non-ICU locations for the CAUTI and CLABSI measures beginning with the
FY 2019 program year. Several commenters noted that the expansion will
reduce confusion by aligning these measures with the Hospital IQR
Program. Several commenters believed the expansion will encourage
system-wide adoption of infection prevention protocols and allow
hospitals that do not have ICU locations to use NHSN tools and
resources in their quality improvement efforts. One commenter noted
that a significant proportion of community hospitals have smaller ICUs,
meaning lower total number of device days, which can lead to the
inability to calculate standardized infection ratios because the
expected number of infection events is < 1. The commenter believed that
the inclusion of ward (non-ICU) locations will lessen this limit in
calculation of this measure.
Response: We thank the commenters for their support.
Comment: One commenter recommended that, before implementing these
measures in selected ward (non-ICU) locations, CMS provide these
locations with the mechanisms to begin voluntarily collecting data in
order to use that data in calculating performance standards for
subsequent years of the program.
Response: The refined NHSN CAUTI and CLABSI measures that include
select ward locations were finalized in the Hospital IQR Program in the
FY 2014 IPPS/LTCH PPS final rule and data collection began on January
1, 2015 (78 FR 50787). Because the Hospital VBP Program uses Hospital
IQR Program data, and hospitals have been publicly reporting on this
measure for greater than one year, we do not believe additional
voluntary reporting is necessary.
After consideration of the public comments we received, we are
finalizing the proposal to expand the NHSN CAUTI and CLABSI measures to
include the selected ward (non-ICU) locations beginning with the FY
2019 program year.
d. Summary of Previously Adopted Measures and Newly Finalized Measure
Refinements for the FY 2019 Program Year
In summary, for the FY 2019 program year, we are adopting the
following measure set:

Previously Adopted Measures and Newly Finalized Measure Refinements for
the FY 2019 Program Year
------------------------------------------------------------------------
Short name Domain/measure name NQF #
------------------------------------------------------------------------
Person and Community Engagement Domain*
------------------------------------------------------------------------
HCAHPS......................... HCAHPS + 3-Item Care 0166
Transition Measure. 0228
------------------------------------------------------------------------
Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI.................... Hospital 30-Day, All- 0230
Cause, Risk-
Standardized Mortality
Rate (RSMR) Following
Acute Myocardial
Infarction (AMI)
Hospitalization.
MORT-30-HF..................... Hospital 30-Day, All- 0229
Cause, Risk-
Standardized Mortality
Rate (RSMR) Following
Heart Failure (HF)
Hospitalization.
MORT-30-PN..................... Hospital 30-Day, All- 0468
Cause, Risk-
Standardized Mortality
Rate (RSMR) Following
Pneumonia
Hospitalization.
THA/TKA........................ Hospital-Level Risk- 1550
Standardized
Complication Rate
(RSCR) Following
Elective Primary Total
Hip Arthroplasty (THA)
and/or Total Knee
Arthroplasty (TKA).
------------------------------------------------------------------------
Safety Domain
------------------------------------------------------------------------
CAUTI**........................ National Healthcare 0138
Safety Network (NHSN)
Catheter[dash]Associat
ed Urinary Tract
Infection (CAUTI)
Outcome Measure.
CLABSI**....................... National Healthcare 0139
Safety Network (NHSN)
Central
Line[dash]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.
CDI............................ National Healthcare 1717
Safety Network (NHSN)
Facility[dash]wide
Inpatient Hospital-
onset Clostridium
difficile Infection
(CDI) Outcome Measure.
PSI 90......................... Patient Safety for 0531
Selected Indicators
(Composite Measure).
PC-01 Elective Delivery...... 0469
------------------------------------------------------------------------
Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB........................... Payment-Standardized 2158
Medicare Spending Per
Beneficiary (MSPB).
------------------------------------------------------------------------
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.
* In section IV.H.3.b. of the preamble of this final rule, we finalized
changing 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.
** As discussed in section IV.H.3.c. of the preamble of this final rule,
we are finalizing inclusion of selected ward (non-ICU) locations in
the measure.

[[Page 56986]]

4. Finalized 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 MSPB measure beginning
with the FY 2015 program year to incentivize hospitals to redesign care
systems in order to provide coordinated, 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 postdischarge, 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 discussed below)
provides a standard observation period by which to compare all
hospitals. For all of the reasons described above, in the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25102 through 25105), we proposed to add
2 condition-specific payment measures in the Hospital VBP Program that
can be directly paired with existing clinical outcome measures in the
program.
We invited public comments on the proposed measures as detailed
below. We further invited 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.
Comment: Several commenters supported the continued use of the MSPB
measure in the Hospital VBP Program and the development of additional
measures to add to the Efficiency and Cost Reduction domain to create
incentives for greater coordination between hospitals and physicians.
One commenter recommended that CMS seek to broaden the scope of its
efficiency measures for the FY 2018 rulemaking cycle. One commenter
recommended that CMS adopt additional cost and efficiency measures and
that any new cost and efficiency measures be paired with corresponding
quality measures because they provide a link to balance cost and
quality. Another commenter recommended that CMS consider adopting other
macro-level measures of efficiency and cost reduction, such as: (1)
Total Medicare cost per capita; (2) Medicare spending per beneficiary
in the last 2 years of life; and (3) Medicare spending per beneficiary
in the last 6 months of life.

[[Page 56987]]

Commenters noted that the proposed payment measures, when paired
with the mortality measures, can help to incentivize incorporation of
evidence-based processes of care to reduce cost-per-episode while
improving quality of care, potentially through improved patient
monitoring and management. One commenter believed the proposed measures
are appropriate indicators of efficiency since they allow for clinical
comparisons without external factors like age and comorbidities. One
commenter believed these measures may encourage the use of innovative
technologies that assist in providing high quality care while reducing
overall costs. One commenter believed these measures allow for specific
actionable feedback to hospitals to implement improvements. One
commenter believed these measures increase incentives for hospitals to
better manage patients' chronic conditions after discharge and avoid
subsequent visits to the emergency department and readmissions.
Response: We appreciate the commenters' support. We note that we
are unable to adopt any additional efficiency measures for the FY 2018
program year due to statutory restrictions. We thank the commenters for
the suggestions of future measures to adopt for the domain, and we will
take that into account for future measure development and rulemaking.
We encourage commenters to submit any fully developed measures for
consideration for the Measures Under Consideration List as part of the
pre-rulemaking process (details available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Pre-Rule-Making.html).
Comment: One commenter recommended that CMS take advantage of the
agency's development of episode groupers, which are intended to assign
specific services to a particular episode, when implementing any
measure of episode costs.
Response: The episode groupers define episodes by DRGs and not ICD-
10-CM codes. The goal of the AMI Payment and HF Payment measures is to
provide information on the value of care by comparing payments for an
episode of care with performance on quality measures, like CMS' 30-day
mortality measures. Thus, it is important that the patient cohorts are
as closely aligned as possible between payment and quality measures.
This would not be possible if we used the AMI or HF episode grouper.
Comment: One commenter supported expansion of the domain to include
condition-specific payment measures but recommended that CMS
standardize the process for validating elements on claims submitted for
the purpose of quality reporting because, without a standardized
validation process, observed differences in performance rates cannot be
assumed to reflect differences in care alone.
Response: We appreciate commenter's support of the payment
measures. We interpret the commenter's recommendation regarding
validating elements on claims to refer to the claims review process.
All claims data submitted by hospitals for the Hospital VBP Program are
reviewed by Medicare Claims Review Programs, which are a collection of
initiatives responsible for reviewing claims according to Medicare
rules and regulations.
(1) 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.\30\ 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.\31\ This variation in
payment suggests there is opportunity for improvement.
---------------------------------------------------------------------------

\30\ 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.
\31\ 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 postdischarge. 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 (NQF #0230), 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25103), we
proposed to adopt 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.\32\ 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

[[Page 56988]]

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) factors.
---------------------------------------------------------------------------

\32\ ``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 noted 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 proposed 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.
In regard to MAP stakeholder concerns regarding the need to adjust
for SDS, we noted that the AMI Payment measure already incorporates a
risk-adjustment methodology that accounts for age and comorbidities. 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 SDS
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 SDS on hospitals' results on our
measures; however, we remain committed to monitoring for unintended
consequences.
We invited public comments on this proposal.
Comment: A few commenters supported the addition of the AMI Payment
measure. Two commenters noted it will be linked to the MORT-30-AMI
measure, which will allow CMS to begin comparing quality and efficiency
in treating this condition. One commenter supported the measure because
it is NQF-endorsed and addresses a condition that is a significant
driver of cost for the Medicare program.
Response: We thank the commenters for their support.
Comment: One commenter did not support the addition of the AMI
Payment measure because patients can have different types of AMI which
would be treated differently with varying costs. The commenter noted
that the measure specifications do not delineate between the 2 types of
AMI admissions, and therefore will not provide hospitals with
information on whether the hospital successfully managed resource
utilization with respect to the treatment received.
Response: While we recognize there are subtypes of myocardial
infarction, the goal of the AMI Payment measure is to provide
information on the value of care for a specific-condition rather than
subtypes of a condition. This measure is meant to be paired with the
MORT-30-AMI measure in order to gain a better understanding of the
value of care for a hospital's patients.
Comment: One commenter did not support adding the AMI Payment
measure to the Hospital VBP Program because AMI is a high-volume
condition that commenter believed, particularly with the overlap in the
MSPB measure, would disproportionately impact hospital performance in
the Efficiency and Cost Reduction domain and mask performance around
other conditions.
Response: While performance on the MSPB measure may correlate with
performance on the condition-specific payment measures for some
hospitals, we continue to believe that the AMI Payment measure will
provide condition-specific information to hospitals that can be
interpreted in the context of overall payment and incentivize targeted
improvements in care. Though the adoption of the AMI Payment and HF
Payment measures will dilute the weight of the MSPB measure in the
Efficiency and Cost Reduction domain (from 25 percent of the TPS to
8.33 percent of the TPS), we continue to believe they are important new
measures for the Hospital VBP Program.
Comment: One commenter did not support adding the AMI Payment
measure to the Hospital VBP Program because this commenter believed the
predictive models used in developing the measure do not apply equally
well to hospitals providing complex services, such as advanced heart
failure care.
Response: We appreciate the commenter's concern about complex
patient factors, such as advanced heart failure, that may contribute to
the cost of care. The payment measures are risk-adjusted in order to
account for differences in case-mix, or patient complexity, between
hospitals. For each patient, the claims for the 12 months prior to the
measured hospitalization are examined to identify additional clinical
conditions that patients may have which could contribute to costs of
care. These conditions are included in the risk-model for the measure
to ensure that all hospitals are assessed fairly and avoid putting
hospitals at risk of appearing to have patient costs that are higher
than other hospitals due to the clinical complexity of their patients.
We also received several comments that applied to both the AMI
Payment and HF Payment measures:
Comment: Many commenters did not support the addition of the
payment measures because they are not risk-adjusted for SDS factors.
One commenter believed that the current risk adjustment for patient
age, prior procedures, and comorbidities is insufficient to fully
capture what influences resource use. Another commenter requested that
CMS clearly articulate the risk adjustment methodology for the AMI
Payment and HF Payment measures because risk adjustment will help
ensure hospitals are not inadvertently penalized for treating sick and
more complex patients. One commenter recommended that CMS exclude
hospitals operating in health professional shortage areas from the
payment measures in order to mitigate the impact of operating in a
health professional shortage area. One commenter believed the
condition-specific payment measures should include risk adjustment or
stratification for SDS factors because otherwise hospitals caring for
at-risk patients may be unfairly penalized.
Response: As we noted in the FY 2017 IPPS/LTCH PPS proposed rule,
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. This trial entails 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. Several measures

[[Page 56989]]

developed by CMS have been brought to NQF since the beginning of the
trial. CMS, in compliance with NQF's guidance, has tested
sociodemographic factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for sociodemographic
factors in our outcome measures.
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.
For more details regarding risk adjustment of the AMI Payment and
HF Payment measures, we refer the commenters to the measure methodology
reports and measure risk adjustment statistical model available in the
AMI, HF, and PN Payment Updates zip file at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Comment: Many commenters did not support the addition of the
condition-specific payment measures because they will overlap with the
MSPB measure in the Efficiency and Cost Reduction domain. Several
commenters recommended that we remove episodes of AMI Payment and HF
Payment from the MSPB calculation, such as excluding costs associated
with episode-based payment measures from broader payment measures.
Several other commenters recommended removing the MSPB measure if CMS
adopts the condition-specific payment measures. One commenter believed
the overlap between these condition-specific measures and the MSPB
measure may lead to unnecessary confusion among hospitals, sending
mixed signals to hospitals about their resource use performance, rather
than facilitating a meaningful assessment of resource use. One
commenter also noted that it will be possible for hospitals to score
well on the MSPB measure, but poorly on the AMI Payment or HF Payment
measures, even though the measures will capture many of the same
services.
Response: While we acknowledge that there may be some overlap
between the MSPB and these condition-specific payment measures, we
believe that the condition-specific measures are of critical importance
to improving efficiency of care. Including condition-specific measures
alongside the MSPB measure provides hospitals with actionable feedback
that will better equip them to implement targeted improvements, in
comparison to an overall payment measure alone. Moreover, these
condition-specific measures will allow consumers, providers, and payers
to make a more fully informed assessment of value of care.
Comment: Many commenters did not support the addition of condition-
specific payment measures because the commenters believed the measures
inappropriately assign costs to the hospitals. A few commenters
believed it is physicians that control the majority of decisions that
impact spending across an episode of care and it will be difficult to
isolate and ascribe responsibility for a beneficiary's overall spending
to a given hospital. Another commenter noted that the measures capture
all costs associated with the patient, including postdischarge care,
which may be outside the scope of the admitting hospital. One commenter
noted that hospitals have little control over spending during the
defined episode with the exception of preventable readmissions. A few
commenters recommended CMS work with the hospital community to develop
and implement efficiency metrics of spending that hospitals directly
influence. Other commenters recommended limiting inclusion of payments
used in the calculation of the measures to only payment directly
related to the condition-specific index admission, because commenters
believed this would be a more accurate proxy for factors within a
hospital's control than all spending over a 30-day period.
Response: We continue to believe that hospitals that provide
quality inpatient care and conduct appropriate discharge planning can
work with providers and suppliers in coordinating efficient follow-up
care. When examining variation in payments, consideration of the
episode-of-care triggered by admissions is meaningful for several
reasons. First, hospitalizations represent a brief period of illness
that require ongoing management postdischarge, 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 practice variations
in the full care of the illness that can result in increased payments.
Third, a 30-day preset window provides a standard observation period by
which to compare all hospitals. Lastly, the AMI Payment and HF Payment
measures are meant to be paired with the MORT-30-AMI measure and the
MORT-30-HF measure, respectively, to capture payments for Medicare
patients across all care settings, services, and supplies, except for
Medicare Part D (that is, inpatient, outpatient, skilled nursing
facility, home health, hospice, physician/clinical laboratory/ambulance
services, durable medical equipment, prosthetics/orthotics, and
supplies).
We thank commenters for the recommendations and note that we have
developed, and will continue to develop, efficiency measures in
consultation with clinical and measurement experts, key stakeholders
(including the hospital community), and the public. We disagree with
commenters that all payment measures should be limited to only payments
directly related to the index admission because, as noted above, we
continue to believe that inclusion of payments on a broad range of
services does incentivize quality care and care coordination.
Transitions to outside facilities and readmissions to the hospitals may
be the result of quality failures that have led to poor clinical
outcomes.
Comment: A few commenters expressed concern about adding the
condition-specific payment measures into the Hospital VBP Program
because the commenters believe these measures do not capture quality of
care, despite directly pairing with the mortality measures, and will
not provide hospitals with actionable data for quality improvement
efforts. One commenter did not believe the payment measures are
appropriately aligned by comparable populations/performance periods/
risk-adjusted methodologies.
Response: We disagree with the commenters that the condition-
specific payment measures will not provide hospitals with actionable
data for quality improvement efforts. By adopting condition-specific
payment measures and viewing results alongside quality measure results,
we believe that consumers, payers, and providers will be able to better
assess the overall value of care. We believe that adopting condition-
specific payment measures for the Hospital VBP Program that are
directly paired with clinical outcome measures, aligned by comparable
populations, performance periods, or risk-adjustment methodologies,
helps move toward achievement of this goal. We also believe that
adopting condition-specific payment measures will create stronger
incentives for appropriately reducing practice pattern variation to

[[Page 56990]]

achieve the aim of lowering the cost of care and creating better
coordinated care for Medicare beneficiaries.
In regard to the commenter who did not believe the payment measures
are appropriately aligned, we note that the AMI Payment and HF Payment
measures do have populations, outcome timeframes, and approaches to
risk adjustment that are comparable with the MORT-30-AMI and MORT-30-HF
outcome measures. We refer the commenter to the measure methodology
reports in the AMI, HF, PN, COPD, and Stroke Mortality Update zip file
and the AMI, HF, and PN Payment Updates zip file at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Comment: A few commenters recommended that CMS adjust the
Efficiency and Cost Reduction domain to mitigate the impact of quality
of care in SNFs and other postacute settings on the hospitals'
performance in the Efficiency and Cost Reduction domain because
hospitals are not able to proactively steer beneficiaries to high-
quality SNFs. The commenters also noted that receiving patients from
low-quality postacute care settings may impact hospitals' performance
on the Efficiency and Cost Reduction domain.
Response: We disagree with commenters' recommendation to adjust the
Efficiency and Cost Reduction domain to mitigate the potential impact
of low quality SNFs or other postacute care settings. Payment measures
are not risk-adjusted for patients' admission source (for example,
SNFs) because admission source factors are associated with the
structure of the healthcare system, rather than solely patients'
clinical comorbidities. The payment measures are, however,
appropriately risk-adjusted for patient comorbidities that are
clinically relevant and have a strong relationship with the outcome.
Further, we have established several postacute care quality programs,
including SNF, IRF, and Home Health Quality Reporting Programs, as well
as a SNF VBP Program, to assist hospitals and the public in identifying
high-value postacute care providers. We continue to believe that
hospitals that are committed to providing quality inpatient care can
work with SNFs and other postacute care providers and suppliers to
ensure efficient postdischarge care for the patients they serve.
Comment: A few commenters did not support the use of condition-
specific payment measures in the program because commenters believe
that hospitals should only be rewarded or penalized based on a broad
all-condition, 30-day payment measure, like the MSPB measure, which
evaluates both quality of care and cost of care.
Response: We disagree with the commenter that the condition-
specific payment measures would not evaluate both quality and cost of
care because we believe the payment measures, in light of other quality
measures in the program, are an appropriate indicator of efficiency. We
further note that the condition-specific payment measures align with
the condition-specific mortality measures to provide specific feedback
to hospitals to implement targeted improvements. We continue to believe
that an episode-of-care triggered by admission is meaningful to the
program.
Comment: A few commenters did not support the condition-specific
measures because they took issue with the NQF endorsement of the
measures. One commenter believed the condition-specific payment
measures are not endorsed by NQF. Another commenter did not support the
addition of the condition-specific measures because the commenter and
others have appealed the measures' NQF endorsement on the grounds that
the NQF measure review committee did not consider appropriate risk
adjustment for SDS factors. These commenters recommended that CMS not
adopt condition-specific measures in the Hospital VBP Program, but
instead provide condition-specific cost of care data to hospitals to
help them understand what is driving MSPB performance.
Response: The AMI Payment (NQF #2431) and HF Payment (NQF #2436)
measures are NQF-endorsed as reliable and valid as of 2014. We continue
to believe it is important to publicly report this data in order to
allow consumers, providers, and payers to make a more fully informed
assessment of value of care.
Comment: One commenter recommended that CMS reach out to
stakeholders for feedback during the development of payment measures.
Response: We routinely solicit public comment on our payment
measures and other measures under development. For current and future
opportunities, we encourage the commenter to visit the CMS Quality
Measures Public Comment page at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html. In addition, there are also opportunities
for stakeholders to serve on Technical Expert Panels and provide
technical input to CMS and the measure contractors on the development,
selection, and maintenance of measures. We refer the commenter to the
following Web site for more information: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/TechnicalExpertPanels.html.
Comment: One commenter expressed concern that condition-specific
measures do not capture all outcomes relevant to understanding the care
that patients received, such as readmissions and subsequent cardiac
events.
Response: We disagree that the condition-specific measures do not
capture all outcomes like readmissions and subsequent cardiac events.
The condition-specific payment measures do capture payments for all
care, including readmissions and subsequent cardiac events, across
multiple care settings, services, and supplies during the 30-day
episode of care.
Comment: One commenter recommended that instead of adding
condition-specific payment measures to the Hospital VBP Program now,
CMS should first examine methods of pairing cost and payment measures
so that they signal value to beneficiaries.
Response: We believe that adding the AMI Payment and HF Payment
measures now will provide actionable feedback to hospitals on the
overall value of their services to beneficiaries.
After consideration of the public comments we received, we are
finalizing the proposal to add the AMI Payment measure to the Hospital
VBP Program beginning with the FY 2021 program year.
(2) 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

[[Page 56991]]

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.^{33 34} 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.\35\ This variation in payment suggests there is opportunity
for improvement.
---------------------------------------------------------------------------

\33\ Russo CA, Elixhauser, A. Hospitalizations in the Elderly
Population, 2003. Agency for Healthcare Research and Quality. 2006.
\34\ Heidenriech PA, Trogdon JG, Khavjou OA, Butler J, Dracup K,
Ezekowitz MD, 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.
\35\ 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 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 postdischarge. 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25104), we
proposed to adopt 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.\36\ 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 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 final rule and in our discussion of the AMI
Payment measure in section IV.H.4.a.(2) of the preamble of this final
rule.
---------------------------------------------------------------------------

\36\ ``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.
---------------------------------------------------------------------------

We noted 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.\37\ 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.
---------------------------------------------------------------------------

\37\ Ryan AM, Tompkins CP. Efficiency and Value in Healthcare:
Linking Cost and Quality Measures. Washington, DC: NQF; 2014.
---------------------------------------------------------------------------

We invited public comments on this proposal.
Comment: Several commenters supported the addition of the HF
Payment measure. One commenter supported the addition of the HF Payment
measure because it links the HF Payment measure to the MORT-30-HF (NQF
#0229) measure and will allow CMS to begin comparing quality and
efficiency in treating this condition. One commenter supported the
measure because it is NQF-endorsed and addresses conditions that are
significant drivers of cost for the Medicare program.
Response: We thank the commenters for their support.
Comment: One commenter supported the use of a 3-year baseline
period for the HF Payment measure because a longer baseline period can
account for the longer-term predictive value of health events such as
HF better than a 1-year baseline period.
Response: We thank the commenter for its support. We note that the
HF Payment measure will only have a 24-month performance period for its
first year in the program, but we are adopting a 36-month performance
period for future program years in section IV.H.6.c.(2) of this final
rule.
Comment: One commenter expressed general concern about the HF
Payment measure's risk adjustment methodology and requested additional
information regarding the discrimination and calibration for the
measure's predictive models.
Response: We note that the HF Payment measure was submitted before
NQF, which endorsed the measure with the current risk adjustment
methodology. For more information regarding the risk adjustment
methodology, we refer readers to the AMI, HF, PN, and Hip and Knee
Arthroplasty Payment Updates zip file available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Comment: One commenter asked CMS to clarify whether patients in
advanced states discharged into palliative or hospice care are excluded
from the HF Payment measure's denominator.
Response: The HF Payment measure does not exclude heart failure
patients discharged into palliative care or hospice care or who
transition to hospice or palliative care during the index admission.
Instead, the measure excludes index admissions for patients enrolled in
the Medicare hospice program any time in the 12 months prior to the
index admission, including the first day of the index admission. We
adopted this policy because the transition of patients to hospice or
palliative care during the admission may be the result of quality
failures that have led to poor clinical outcomes.
After consideration of the public comments we received, we are
finalizing the proposal to add the HF

[[Page 56992]]

Payment measure to the Hospital VBP Program beginning with the FY 2021
program year.
(3) Finalized Scoring Methodology for the AMI Payment and HF Payment
Measures
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25105 through
25106), we proposed 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 proposed 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 proposed to set the achievement thresholds at
the median AMI spending ratio and HF spending ratio across all
hospitals during the performance period. We proposed 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 whose 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 whose 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 proposed 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 proposed 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
whose 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 referred readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51654 through 51656) and to 42 CFR
412.160 where we discussed the MSPB measure's identical scoring
methodology in detail.
In order to codify this scoring methodology for the proposed
payment measures, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25105 through 25106), we proposed 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25106), we also
considered and sought 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 stated that 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 invited 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.
Comment: Several commenters did not support the addition of the AMI
Payment and HF Payment measures because few conditions have large
enough volume to support a reliable metric. The commenters recommended
that CMS use condition-specific cost measures broadly and that CMS not
base financial incentives on them. One commenter asserted that because
not all hospitals will have sufficient volume to be scored on each
condition-specific measure, the statistical reliability of the
condition-specific measures is likely to be weaker than the MSPB
measure.
Response: We disagree with the commenter that hospitals will not be
able to report statistically reliable information on the condition-
specific payment measures because, as we proposed in the FY 2017 IPPS/
LTCH PPS proposed rule, hospitals must report a minimum number of 25
cases to receive a payment measure score (81 FR 25117). We believe the
case minimum will ensure that each hospital's payment measure rate is
sufficiently reliable to generate a score that meaningfully
distinguishes hospital performance on the measures. We also disagree
with the commenter's assertion that the statistical reliability of the
condition-specific payment measures is likely to be weaker than the
MSPB measure. The statistical model that CMS uses to calculate the
payment measures allows for the inclusion of hospitals with relatively
few cases by taking into account the uncertainty associated with sample
size.
Comment: A few commenters did not support the proposed scoring
methodology for the payment measures because half of hospitals will
receive no achievement points on these measures. The commenters
recommended that CMS score the payment measures the same way that other
quality measures are scored, with the achievement threshold set based
on the median during the baseline period.
Response: While we acknowledge the commenter's concerns regarding
the potential to achieve maximum achievement points, we believe scoring
the payment measures in the same way as the MSPB measure is
appropriate. We continue to believe it is more helpful for hospitals to
be compared against

[[Page 56993]]

performance standards constructed from more current performance period
data, rather than baseline period data, given potential changes in
Medicare payment policy, changes in market forces, and changes in
utilization practices.
Comment: One commenter expressed concern that the current structure
does not provide hospitals with meaningful information to improve
efficiency because it does not allow for interpretation of cost and
quality measures in tandem.
Response: We are aware that the quality measures and payment
measures are not scored in tandem at this moment, but we believe the
information provided by the payment measures provides more granular
information to hospitals that can be interpreted in the context of
overall payment and in conjunction with their performance on the
mortality measures.
After consideration of the public comments we received, we are
finalizing the proposal to score the AMI Payment and HF Payment
measures using the same scoring methodology as the MSPB measure and to
amend our regulations at 42 CFR 412.160 to reflect this policy.
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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 21505), we
solicited 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.
There are various different ways value could be incorporated into
the Hospital VBP Program. We sought public comments on 2 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 9 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 welcomed the public's feedback and suggestions on how to
appropriately incorporate the concept of value in the Hospital VBP
Program, and we invited specific suggestions on how to measure or score
value that will be meaningful to consumers, purchasers, and providers.
Comment: Several commenters supported CMS' intent to explicitly
assess value of care. A few commenters further supported CMS' proposal
to develop and implement specific measures of value because commenters
believe it will result in a program that is simple, uncomplicated, and
easily understood by consumers and providers. One commenter recommended
that CMS resolve issues regarding SDS factors before implementing value
scoring into the program.
Response: We thank the commenters for their suggestions, and we
will take them into consideration in the future if we choose to propose
to adopt value scoring.
Comment: One commenter recommended that CMS develop a value scoring
methodology that would not reward hospitals with high mortality rates
and low spending per patient. The commenter recommended that CMS use
performance and baseline periods to score the value measures.
Response: We thank the commenter for its suggestions and will take
them into consideration for future rulemaking.
Comment: A few commenters did not support CMS' proposed approach to
measuring value by creating a ratio using paired condition-specific
quality and cost measures. One commenter noted that this would further
complicate the Hospital VBP Program's structure and could result in
hospitals diverting more resources toward analyzing performance rather
than focusing on improvement. A few commenters believe that such an
approach could incentivize the provision of care that unintentionally
leads to longer-term negative outcomes: Use of lower-cost/lower-quality
implants; decreased length of stay; and insufficient use of physical
therapy or home health care. A few commenters noted that the existing
measures are limited in scope and were not designed to measure value;
for example, THA/TKA is too narrow to capture the value of the
underlying procedure, which should include factors like quality of
life, duration of implant, and other issues beyond the 90-day timeframe
of the THA/TKA measure. One commenter recommended CMS develop a measure
that draws from patient-reported outcome measures, the American Joint
Replacement Registry, and other sources to capture the value to the
patient of the full life of a joint implant. These commenters generally
suggested that if CMS implements value scoring, that CMS develop new
value measures.
Response: We thank the commenters for their suggestions, and we
will take them into consideration for future rulemaking.
Comment: A few commenters expressed general support for adopting a
scoring methodology using composite ``value'' scores and recommended
that CMS submit any newly developed composite measures to NQF for
endorsement, as well as use them in the Hospital IQR Program before
adding them to the Hospital VBP Program.

[[Page 56994]]

Response: We thank the commenters for their suggestions, and we
note that any new measures the Hospital VBP Program considers for
adoption, including any composite measures of ``value,'' will be
submitted to the MAP and adopted into the Hospital IQR Program before
we adopt it in the Hospital VBP Program, as required by statute.
Comment: A few commenters recommended that CMS explore using a
scoring methodology that provides tandem scores for quality and cost
measures, but they noted that implementing such a methodology would
require additional work to identify and adopt quality and cost measures
that can be aggregated into value scores. A few commenters would not
support using a scoring methodology resembling the Physician Value-
Based Payment Modifier in the Hospital VBP Program because the
Physician Value-Based Payment Modifier uses broad categories to assess
performance, which commenters believed would not capture hospital
performance as precisely as the current linear-based methodology. One
commenter expressed concern with value scoring in the program because
CMS will have difficulty identifying controllable expenses for the
denominator and defining meaningful quality metrics for the numerator.
Response: We thank all of the commenters for their suggestions, and
we will take them into consideration in the future if we choose to
propose to adopt a new value scoring methodology or otherwise modify
the existing scoring methodology of the Hospital VBP Program.
b. Finalized 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 pneumonia 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 (now on or
about July 27, 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.'' \38\ The full
measure specifications are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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\38\ ``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.\39\ 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.\40\ 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.
---------------------------------------------------------------------------

\39\ 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.
\40\ 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.
---------------------------------------------------------------------------

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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25106 through
25107), we proposed this measure refinement for the Hospital VBP
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 one 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 proposed to add it to the Clinical
Care domain beginning with the FY 2021 program year.
We invited public comments on this proposal.
Comment: Several commenters supported CMS' proposal to expand the

[[Page 56995]]

MORT-30-PN measure because this update will align the Hospital VBP
Program and Hospital IQR Program measures. One commenter noted that the
expansion addresses coding variations and will ensure better collection
of complete and comparable data across hospitals.
Response: We thank the commenters for their support.
Comment: One commenter recommended that CMS have the American
Hospital Association ICD-10 clinic review pneumonia coding for ICD-10
to see if changes are needed in these codes to capture coding variation
for causes of aspiration pneumonia.
Response: We thank commenter for the recommendation and note that
CMS is currently updating all measures from ICD-9 to ICD-10 through a
systematic process of assessing the changes in all codes used in
measure cohorts to ensure that the cohorts remain valid and capture the
intended conditions. For those individuals who are interested in
participating in future ICD-10 Coordination and Maintenance Committee
meetings, information on the Committee can be found on the CMS Web site
at: https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. We encourage public
participation at these meetings either in person, by conference lines,
or by the livestream provided by CMS.
Comment: Many commenters did not support the addition of the MORT-
30-PN updated measure because it is not NQF-endorsed. These commenters
believe the endorsement process will allow the field to better
understand the potential causes of coding differences. Specifically,
many commenters are concerned that the inclusion of: (1) Patients with
a principal discharge diagnosis of aspiration pneumonia; and (2)
patients with a principal discharge diagnosis of sepsis (excluding
severe sepsis) with a secondary diagnosis of pneumonia coded as present
on admission may inadvertently conflate pneumonia as a discrete medical
event with other underlying disease conditions.
Response: The MORT-30-PN measure with the expanded cohort was
submitted to the NQF Pulmonary and Critical Care Project 2015-2016,
with information on the project available at: http://www.qualityforum.org/Projects/n-r/Pulmonary_and_Critical_Care_Measures/Pulmonary_and_Critical_Care_Project.aspx. The MAP conditionally
supported the measure, pending NQF endorsement. Because the original
measure was previously endorsed and the intent of the measure has not
changed, we anticipate the measure will be reendorsed with the expanded
cohort.
We agree with commenters that aspiration pneumonia may be the
result of a range of potential causes. We expanded the cohort to
include the aspiration pneumonia population to more fully capture the
complete population of hospital patients receiving management and
treatment for pneumonia, and thereby capture the morbidity and
mortality of this important cohort. We appreciate the commenters'
concerns that community acquired pneumonia and aspiration pneumonia
have different causes and associated risks (for example, recurrent
aspiration due to other comorbidities).
While the pathological causes of aspiration pneumonia are slightly
different from the causes of community acquired pneumonia, in routine
clinical practice, evidence shows it can be very challenging for
physicians to differentiate aspiration syndromes, including pneumonitis
and pneumonia, from other types of pneumonia included in the measure.
This is reflected in the tremendous variation across hospitals in the
use of aspiration pneumonia diagnosis codes. This variation suggests
that hospitals are not consistently distinguishing between these
conditions as distinct subtypes regardless of patients' comorbid
conditions. Thus, we continue to believe the modified expanded cohort
for the measure balances the need to be more clinically comprehensive
while also accurately capturing pneumonia mortality.
Comment: Several commenters did not support the inclusion of the
MORT-30-PN update in the Hospital VBP Program because it does not
adjust for differences in patient population.
Response: We disagree with commenters that the updated MORT-30-PN
measure does not adjust for differences in patient population. The risk
adjustment model adequately accounts for the varying severity and
comorbidities of patients across the modified cohort; therefore, we
believe that hospitals will not be unfairly penalized for treating
sicker patients. We refer the commenter to the measure methodology
report and measure risk adjustment statistical model in the AMI, HF,
PN, COPD, and Stroke Mortality Update zip file at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Comment: One commenter did not support the MORT-30-PN expansion
because commenter believed that it moves beyond the measure's original
scope of community-acquired pneumonia and because hospitals that are
successful in preventing the progression from pneumonia to sepsis will
appear worse than hospitals with more septic patients.
Response: The purpose of expanding the MORT-30-PN measure cohort
was to more fully capture patients that were previously excluded due to
the variation in the use of sepsis codes, which systematically excluded
these patients from the measure population. We believe that the MORT-
30-PN (updated cohort) achieves this purpose by capturing patients with
pneumonia who may progress to sepsis by expanding the measure cohort to
include patients with a principal discharge diagnosis of sepsis
(excluding severe sepsis) with a secondary diagnosis of pneumonia coded
as present on admission. This ensures that patients with a principal
discharge diagnosis code of sepsis, who also presented with pneumonia,
will be included at all hospitals allowing for a more consistent cohort
across hospitals. This expansion should not therefore hurt the
performance of hospitals successful in preventing sepsis.
Comment: A few commenters did not support the MORT-30-PN update
because the impact of the update has not yet been publicly reported.
The commenters noted that the measure developer indicated that an
increase in mortality rates may be attributed to the expanded cohort,
but no information is available about how specific hospitals perform.
The commenters suggested waiting to adopt the new measure until
hospitals have had sufficient time to review and analyze their
performance on the expanded measure. One commenter recommended that CMS
implement a phased-in approach to the expanded measure that would first
allow for public reporting before implementing the expanded measure in
the Hospital VBP Program.
Response: We acknowledge that hospitals will not have an
opportunity to review publicly reported data before the measure is
finalized in the Hospital VBP Program; however, the measure has been
refined to more fully capture the mortality of patients with pneumonia,
which we believe is important to capture in the Hospital VBP Program as
soon as possible.
We also note that hospitals will have time to review and analyze
their performance on the expanded measure prior to the FY 2021 program
year because the update to the MORT-30-PN measure was implemented by
the Hospital IQR Program before we are finalizing it in the Hospital
VBP

[[Page 56996]]

Program. The updated MORT-30-PN measure data will be first posted on
Hospital Compare on or around July 27, 2016. Because the performance
period for the updated MORT-30-PN measure will not begin until
September 1, 2017 (instead of August 1, 2017, discussed in more detail
below), hospitals will have one full year to review and assess their
performance on the expanded measure prior to the beginning of the
performance period.
Comment: A few commenters did not support the MORT-30-PN measure's
expansion to include aspiration pneumonia because commenters believe
the majority of patients with aspiration pneumonia are medically frail
patients with comorbidities that predispose them to recurrent
aspiration events and therefore represent a higher risk for
complications, readmissions, and death despite evidence-based treatment
and prevention strategies. The commenters also noted that the measure
will capture different cohorts of patients with different baseline
factors that influence morbidity and mortality, such as patients with
psychiatric and substance abuse comorbidities, and commenter believed
penalizing hospitals treating these patients may impact availability of
services for these patients.
Response: We appreciate the commenters' concerns about the extent
of the refinement of this measure and the inclusion of patients with
greater illness severity. In particular, we understand commenters'
concerns that aspiration pneumonia can have different causes and
associated risks (for example, recurrent aspiration due to other
comorbidities). However, while the pathological causes of aspiration
pneumonia are slightly different from the causes of community acquired
pneumonia, in routine clinical practice, evidence shows it can be very
challenging for physicians to differentiate aspiration syndromes
including pneumonitis and pneumonia, from other types of pneumonia
included in the measure. This is reflected in the tremendous variation
across hospitals in the use of aspiration pneumonia diagnosis codes.
This variation suggests that hospitals are not consistently
distinguishing between these conditions as distinct subtypes regardless
of patients' comorbid conditions. Expanding the measure cohort would
ensure that the measure is clinically comprehensive.
Moreover, the treatment of patients hospitalized for pneumonia,
aspiration pneumonia, or sepsis due to pneumonia is very similar and
involves treatment with antibiotics, IV fluids, and symptom management.
In addition, although some patients with aspiration pneumonia, such as
medically frail patients, have a higher predicted mortality risk, many
of the associated comorbidities are captured in the MORT-30-PN (updated
cohort) measure's risk-adjustment methodology. Of note, due to the
increased number of patients that are included in the expanded cohort,
we reselected risk-adjustment variables to ensure that the measure does
not bias hospital performance as well as accounts for the differences
in risk among the subgroup of patients. For example, the risk model
includes clinical history of stroke, as well as conditions associated
with frailty, such as neuromuscular disease, and dementia. We refer
readers to the measure methodology report and measure risk adjustment
statistical model, Condition-Specific Measures Updates and
Specifications Report Hospital-Level 30-Day Risk-Standardized Mortality
Measures--Pneumonia Mortality Version 10, in the AMI, HF, PN, COPD, and
Stroke Mortality Update zip file available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
After consideration of the public comments we received, we are
finalizing the proposal to add the MORT-30-PN (updated cohort) to the
Hospital VBP Program beginning with the FY 2021 program year.
5. 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.\41\
In 2012, Medicare beneficiaries had 121,744 CABG surgery admissions,
with or without percutaneous coronary intervention or valve
surgery.\42\ 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.\43\ 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.\44\
---------------------------------------------------------------------------

\41\ Fingar, K.R., Stocks, C., Weiss, A.J. and Steiner, C.A.,
2014. Most frequent operating room procedures performed in US
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.
\42\ Culler SD, Kugelmass AD, Brown PP, Reynolds MR, Simon AW.
Trends in coronary revascularization procedures among Medicare
beneficiaries between 2008 and 2012. Circulation. 2014 Dec
22:CIRCULATIONAHA-114.
\43\ 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.
\44\ Pennsylvania Health Care Cost Containment Council. Cardiac
Surgery in Pennsylvania 2011-2013. Harrisburg; 2013:60.
---------------------------------------------------------------------------

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.\45\ 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

[[Page 56997]]

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.\46\ Variation in risk-standardized
mortality rates among U.S. hospitals suggests that there is room for
improvement.
---------------------------------------------------------------------------

\45\ September 2015 Medicare Hospital Performance Report on
Outcome Measures: Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
\46\ 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.
---------------------------------------------------------------------------

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.\47\
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\47\ 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.
---------------------------------------------------------------------------

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25107), we
proposed 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.'' \48\
Based on the continued high risk of mortality after CABG
hospitalizations, we proposed to add this measure to the Clinical Care
domain beginning with the FY 2022 program year.
---------------------------------------------------------------------------

\48\ ``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.
---------------------------------------------------------------------------

We invited public comments on this proposal.
Comment: Many commenters supported the MORT-30-CABG measure because
it is NQF-endorsed and MAP-supported, noting that the measure addresses
a high-volume, high-cost procedure with performance variation and
including the measure will reduce mortality through improved
coordination and planning. One commenter noted that an all-cause, risk-
adjusted mortality measure for patients who undergo CABG surgery will
provide hospitals with an incentive to reduce mortality through
improved coordination of perioperative care and discharge planning. One
commenter supported adding the MORT-30-CABG measure because the
commenter believed the measure increases incentives for hospitals to
better manage patients' chronic conditions after discharge.
Response: We thank the commenters for their support.
Comment: One commenter did not support the addition of the MORT-30-
CABG measure because it captures mortality that could be unrelated to
the procedure and beyond the hospital's control. The commenter
suggested adding language excluding cases where patients die from
causes unrelated to the CABG procedure.
Response: The measure assesses all-cause mortality rather than
CABG-specific mortality for several reasons. First, limiting the
measure to CABG-related mortalities may limit the focus of efforts to
improve care to a narrow set of approaches as opposed to encouraging
broader initiatives and innovative approaches aimed at improving the
overall in-hospital care. Second, cause of death may be unreliably
recorded and it is often not possible to exclude quality issues and
accountability based on the documented cause of mortality.
Comment: Several commenters did not support the addition of the
MORT-30-CABG for the FY 2022 program year. Commenters expressed concern
that the MORT-30-CABG measure's reliability is inadequate and depends
heavily upon whether a hospital has a sufficient volume of eligible
patients. One commenter stated the measure is not NQF-endorsed. One
commenter believed the data the MORT-30-CABG measure captures will
overlap with the MORT-30-AMI measure.
Response: We disagree with commenters that the MORT-30-CABG measure
is not reliable. We note that the NQF has endorsed the measure as
reliable and valid (NQF #2558). For more information regarding measure
reliability, we refer the commenter to the version 1.0 measure
methodology report in CABG Mortality zip file at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Further, while we acknowledge commenter's concern regarding the
overlap between the MORT-30-AMI and MORT-30-CABG measures, we believe
it is important that both measures represent the full spectrum of
admissions eligible for the cohort for each individual measure to
ensure the validity of the individual measures as endorsed by the NQF.
We also find that the overlap is minimal between the measures, with
prior analysis showing less than 7 percent of the AMI cohort included
in the CABG measure cohort.
Comment: Some commenters recommended that CMS include adequate
risk-adjustment modifications to the measure that addresses both SDS
and clinical factors.
Response: 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. This trial entails 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. Several measures developed by CMS have been brought to NQF since
the beginning of the trial. CMS, in compliance with NQF's guidance, has
tested sociodemographic factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for sociodemographic
factors in our outcome measures.
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

[[Page 56998]]

they apply to our quality programs at such time as they are available.
Comment: A few commenters expressed concern that the MORT-30-CABG
measure, as well as other previously finalized measures, does not
exclude patients that desire comfort care, such as hospice services,
because these patients have been found to impact mortality measure data
and hospital performance for patients with pneumonia. One commenter
recommended that CMS modify the measure to exclude patients that desire
comfort care rather than treatment. Likewise, another commenter
recommended that CMS exclude hospice patients from all mortality
measures.
Response: The MORT-30-CABG measure does not exclude patients who
transition to hospice care following the index admission because such
transitions may be the result of quality failures that have led to poor
clinical outcomes. However, all mortality measures proposed and
finalized for the Hospital VBP Program, except for the MORT-30-CABG
measure, do exclude index admissions for patients enrolled in the
Medicare hospice program any time in the 12 months prior to the index
admission, including the first day of the index admission, because
these patients are likely continuing to seek comfort care only; thus,
mortality is not necessarily an adverse outcome or signal of poor
quality care for these patients. We note, however, that the MORT-30-
CABG measure does not exclude hospice patients because any patient
undergoing CABG surgery likely has survival as the primary goal.
After consideration of the public comments we received, we are
finalizing the proposal to add the MORT-30-CABG measure beginning with
the FY 2022 program year.
6. Previously Adopted and Newly Finalized 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 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. In the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25107 through 25108), we proposed 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 (Person and Community Engagement Domain Beginning With the FY
2019 Program Year)
Since the FY 2015 program year, we have adopted a 12-month baseline
period and a 12-month performance period for measures in the re-named
Person and Community Engagement domain (previously 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25108), we
proposed 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 proposed to adopt a performance period that
runs on the calendar year 2 years prior to the applicable program year.
We proposed to adopt a baseline period that runs on the calendar year 4
years prior to the applicable program year. Applying these new
policies, for the FY 2019 program year, the baseline period for the re-
named Person and Community Engagement domain would run from January 1,
2015 through December 31, 2015. The performance period would run from
January 1, 2017 through December 31, 2017.
We received no public comments on this proposal. Therefore, we are
finalizing the proposal to adopt a performance period for the Person
and Community Engagement domain that runs on the calendar year 2 years
prior to the applicable program year and to adopt a baseline period
that runs on the calendar year 4 years prior to the applicable program
year, for the FY 2019 program year and all future program years.
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. In the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25108), we proposed 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 proposed to adopt a performance period that runs on the calendar
year 2 years prior to the applicable program year. We proposed to adopt
a baseline period that runs on the calendar year 4 years prior to the
applicable program year. Applying these 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.
We received no public comments on this proposal. Therefore, we are
finalizing the proposal to adopt a performance period for the MSPB
measure that runs on the calendar year 2 years prior to the applicable
program year and to adopt a baseline period that runs on the calendar
year 4 years prior to the applicable program year, for the FY 2019
program year and all future program years.
(2) AMI Payment and HF Payment Measures in the FY 2021 Program Year
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25103 through
25105), we also proposed to adopt the AMI Payment and HF Payment
measures as 2 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, in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25108 through 25109), we proposed to
adopt a 36-month baseline period and a 24-month performance period.
Therefore, for the FY 2021 program year, we proposed to adopt a 24-
month performance period that runs from July 1, 2017 to June 30, 2019.
We proposed 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

[[Page 56999]]

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.\49\ 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).
---------------------------------------------------------------------------

\49\ Shrout P, Fleiss J. Intraclass Correlations: Uses in
Assessing Rater Reliability. Pyschol Bull. Mar 1979;86(2):420-428.
---------------------------------------------------------------------------

For both the 36-month and the 24-month performance periods, we
obtained 2 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) \50\ for both the 36-month and 24-month
performance periods.
---------------------------------------------------------------------------

\50\ Ibid.
---------------------------------------------------------------------------

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 2 independent
assessments of each hospital was 0.775. For the 24-month performance
period, the ICC for the 2 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.\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 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
to calculate the HF Payment measure's score, 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 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 2 independent
assessments of each hospital was 0.83. For the 24-month performance
period, the ICC for the 2 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.\52\
---------------------------------------------------------------------------

\52\ 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.
Comment: A few commenters did not support the proposal to adopt the
AMI Payment and HF Payment measures with a 24-month performance period
in the FY 2021 program year because commenters believe the measures
should have consistent baseline and performance periods across program
years in order to fairly and accurately compare performance from
program year to program year. Several commenters recommended that CMS
delay adoption of the AMI Payment and HF Payment measures until the FY
2022 program year when CMS can adopt 36-month performance periods. One
commenter supported the use of a three-year baseline period because a
longer baseline period can account for the longer-term predictive value
of health events such as AMI or HF better than a one-year baseline
period.
Response: We note that the AMI Payment and HF Payment measures will
only have a 24-month performance period for the FY 2021 program year,
the first year these measures are in the program, but we are adopting a
36-month performance period for the FY 2022 program year, as detailed
in the next section below. We continue to believe that the 24-month
performance period for FY 2021 is sufficiently reliable to accurately
assess the resource use by hospitals and would not substantially change
hospitals' performance on the measure.
After consideration of the public comments we received, we are
finalizing the proposal to adopt a 24-month performance period and 36-
month baseline period for both the AMI Payment and HF Payment measures
for the FY 2021 program year.
(3) AMI Payment and HF Payment Measures in the FY 2022 Program Year
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25109), for the
FY 2022 program year, we proposed to adopt a 36-month performance
period and a 36-month baseline period for the

[[Page 57000]]

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
proposed to adopt a 36-month performance period that runs from July 1,
2017 to June 30, 2020. We proposed to adopt a 36-month baseline period
that runs from July 1, 2012 to June 30, 2015.
After consideration of the public comments we received, we are
finalizing the proposal to adopt a 36-month performance period and 36-
month baseline period for the AMI Payment and HF Payment for the FY
2022 program year.
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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25109), we proposed to adopt a 12-month baseline period and a 12-month
performance period for all measures in the Safety domain 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 proposed to adopt a
performance period that runs on the calendar year 2 years prior to the
applicable program year. We proposed to adopt a baseline period that
runs on the calendar year 4 years prior to the applicable program year.
Applying these new policies, for the FY 2019 program year, the baseline
period for all measures in the Safety domain would run from January 1,
2015 through December 31, 2015. The performance period would run from
January 1, 2017 through December 31, 2017.
We received no public comments on this proposal. Therefore, we are
finalizing the proposal to adopt a performance period for all remaining
measures in the Safety domain (we refer readers to the discussion below
regarding the PSI 90 measure) that runs on the calendar year 2 years
prior to the applicable program year and to adopt a baseline period
that runs on the calendar year 4 years prior to the applicable program
year, for the FY 2019 program year and all future program years.
As discussed in section IV.H.2.a. of the preamble of this final
rule, we are finalizing our proposal to adopt a shortened performance
period for the PSI 90 measure in the FY 2018 program year, which will
be July 1, 2014 through September 30, 2015. As stated earlier, the
baseline period for the PSI 90 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).\53\ In the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25109), for the FY 2022 program year, we
proposed 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 new
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 proposed
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.
---------------------------------------------------------------------------

\53\ 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.
---------------------------------------------------------------------------

We received no public comments on this proposal. Therefore, we are
finalizing the proposal to adopt a 36-month performance period and 36-
month baseline period for the FY 2022 program year for the measures
currently adopted in the Clinical Care domain.
(2) MORT-30-PN (Updated Cohort) Measure in the FY 2021 Program Year
In order to adopt the new MORT-30-PN (updated cohort) measure into
the Hospital VBP Program as early as feasible, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25110), we proposed to adopt a 36-month
baseline period and a 23-month performance period for the FY 2021
program year. We proposed to adopt a 23-month performance period
because the measure will not have been posted on Hospital Compare for
one year until July 21, 2017 (now on or about July 27, 2017). We
proposed 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) measure's 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 2 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
2 independent assessments of each hospital was 0.69. For the 23-month
data performance period, the agreement

[[Page 57001]]

between the 2 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.\54\
---------------------------------------------------------------------------

\54\ 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 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 performance period will 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, in the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25110), for the MORT-30-PN (updated
cohort) measure, we proposed 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.
Comment: One commenter supported our inclusion of the MORT-30-PN
measure for the FY 2021 program year with a 23-month performance
period.
Response: We thank the commenter for its support.
Comment: A few commenters did not support the 23-month performance
period for the MORT-30-PN measure in the FY 2021 program year because
commenters believed the measure is only moderately reliable, which is
insufficient for a payment program. One commenter did not believe CMS
has proven that the measure is reliable with a shorter performance
period, and the commenter recommended that CMS refrain from pushing to
adopt measures for the Hospital VBP Program when doing so would require
using shortened performance periods.
Response: As we note in the proposed rule (81 FR 25108), 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.\55\ For the 23-month performance period the ICC
was 0.58, which is consistent with other NQF-endorsed claims-based
measures in the Hospital VBP Program. Therefore, we believe the measure
is sufficiently reliable to include in the program.
---------------------------------------------------------------------------

\55\ Shrout P, Fleiss J. Intraclass Correlations: Uses in
Assessing Rater Reliability. Pyschol Bull. Mar 1979;86(2):420-428.
---------------------------------------------------------------------------

Since publication of the FY 2017 IPPS/LTCH PPS proposed rule, we
have become aware of operational issues that may delay publication of
MORT-30-PN measure data on Hospital Compare by 1-2 weeks but past
August 1, 2016. Under section 1886(o)(2)(C)(i) of the Act, the Hospital
VBP Program must 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. As a result, we believe it is necessary
to delay the beginning of the performance period for the MORT-30-PN
measure one additional month, from August 1, 2017 to September 1, 2017.
We continue to believe the MORT-30-PN measure will be sufficiently
reliable using 22 months of data because this is not a significant
reduction in the amount of data used to calculate performance scores
under the measure, and finalizing MORT-30-PN with the updated cohort
will substantially increase the denominator of this measure. For these
reasons, we are finalizing that instead of beginning the performance
period for the MORT-30-PN measure for FY 2021 on August 1, 2017, the
performance period will begin on September 1, 2017.
After consideration of the public comments we received, we are
finalizing our proposal to adopt the MORT-30-PN (updated cohort)
measure with a 22-month performance period and 36-month baseline period
for the FY 2021 program year.
(3) MORT-30-PN (Updated Cohort) Measure in the FY 2022 Program Year
For the FY 2022 program year and subsequent years, in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25110), we proposed 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 proposed 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.
Comment: A few commenters did not support the 35-month performance
period for the MORT-30-PN measure in the FY 2022 program year because
the commenters believe that CMS has not demonstrated that the measure
is highly accurate.
Response: Since the MORT-30-PN measure was found to be
statistically reliable at 23 months, we believe that the measure will
be even more reliable at 35 months. As noted above, due to operational
concerns associated with timely publication of MORT-30-PN data on
Hospital Compare, we are delaying the start of the FY 2021 performance
period by one month, to September 1, 2017. For these same reasons, we
are finalizing that instead of beginning the performance period for the
MORT-30-PN measure for FY 2022 on August 1, 2017, the performance
period will begin on September 1, 2017. We do not believe shortening
the FY 2022 MORT-30-PN performance period by one month will affect the
reliability of the measure because it will not significantly impact the
amount of data used to calculate performance scores under the measure.
After consideration of the public comments we received, we are
finalizing our proposal to adopt the MORT-30-PN (updated cohort)
measure with a 34-month performance period and 36-month baseline period
for the FY 2022 program year. In the FY 2023 program year and
subsequent years, we intend to lengthen the MORT-30-PN (updated cohort)
performance period to a full 36-month performance period beginning in
July, instead of September.
f. Summary of Previously Adopted and Newly Finalized 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

[[Page 57002]]

we are adopting in this final rule (and include previously adopted
baseline and performance periods for the Clinical Care domain).

Newly Finalized 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 adopting a shortened 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 final rule.

Previously Adopted and Newly Finalized Baseline and Performance Periods
for the FY 2019 Program Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Person and Community Engagement
HCAHPS + 3-Item Care January 1, 2015- January 1, 2017-
Transition. December 31, 2015. December 31,
2017.
Clinical Care
Mortality (MORT[dash]30- July 1, July 1,
AMI, MORT-30-HF, MORT[dash]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
PC-01 and NHSN measures January January
(CAUTI, CLABSI, SSI, CDI, MRSA). 1, 2015-December 1, 2017-December
31, 2015. 31, 2017.
PSI 90................. July 1, July 1,
2011-June 30, 2015-June 30,
2013. 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[dash]30- July 1, July 1,
AMI, MORT-30-HF, MORT[dash]30- 2010-June 30, 2015-June 30,
PN) *. 2013. 2018.
THA/TKA *.............. July 1, July 1,
2010-June 30, 2015-June 30,
2013. 2018.
------------------------------------------------------------------------
* Previously adopted baseline and performance periods that remain
unchanged (80 FR 49562 through 49563).

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

[[Page 57003]]

Newly Finalized Baseline and Performance Periods for the FY 2022 Program
Year
------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Clinical Care
Mortality (MORT[dash]30- July 1, July 1,
AMI, MORT-30-HF, MORT-30-COPD, 2012-June 30, 2017-June 30,
MORT[dash]30-CABG). 2015. 2020.
THA/TKA................ April 1, April 1,
2012-March 31, 2017-March 31,
2015. 2020.
MORT[dash]30-PN July 1, September
(updated cohort). 2012-June 30, 1, 2017-June 30,
2015. 2020.
Efficiency and Cost Reduction
MSPB................... January January
1, 2018-December 1, 2020-December
31, 2018. 31, 2020.
Payment (AMI Payment, July 1, July 1,
HF Payment). 2012-June 30, 2017-June 30,
2015. 2020.
------------------------------------------------------------------------

7. 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
defined 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 2
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. Increase of Immediate Jeopardy Citations From Two to Three Surveys
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25111 through
25112), we proposed to amend our regulations at 42 CFR 412.160 to
change the definition of the term ``Cited for deficiencies that pose
immediate jeopardy'' to increase the number of surveys where 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
2 to 3. In other words, we proposed 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 3 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 2 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 proposed 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 3 or more
times during the applicable performance period, rather than 2, 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 3 or more deficiencies
that pose immediate jeopardy should be excluded from the Hospital VBP
Program. We stated in the proposed rule that this proposal would ensure
that we continue to assure high quality care while being as inclusive
of hospitals as possible.
We invited public comments on this proposal.
Comment: Many commenters supported CMS' proposal to increase the
number of immediate jeopardy citations required to trigger Hospital VBP
Program exclusion from 2 to 3 during the applicable performance period
because hospitals should be encouraged to participate in the program
and because such citations could result in excluding a hospital from
the program for several program years. One commenter supported the
proposal to increase the number of citations, and noted that an
immediate jeopardy citation could be too broad and far-reaching under
the current policy.
Response: We thank the commenters for their support.
Comment: One commenter did not support the proposal to increase the
number of citations before being excluded from the program because it
sets a low bar so that hospitals that average 1 immediate jeopardy
citation per year or less can participate in the Hospital VBP Program.
The commenter noted that an immediate jeopardy situation is a serious
citation for a hospital to receive.
Response: We agree with the commenter that an immediate jeopardy
citation should be considered seriously. Many immediate jeopardy
citations have involved systematic issues of patient safety. However,
they can also vary by level of patient safety risk and by location. We
therefore believe that limiting exclusion from the Hospital VBP Program
to those hospitals that have been cited for immediate jeopardy 3 or
more times during the applicable performance period, rather than 2,
would continue to appropriately

[[Page 57004]]

exclude hospitals that are cited for jeopardizing patient safety
without excluding a hospital from participation in the Hospital VBP
Program prematurely. In addition, when the immediate jeopardy policy
was initially implemented in the Hospital VBP Program, the performance
periods were shorter. Now, with significantly longer performance
periods (up to 36 months), we believe it is more appropriate to allow
hospitals with up to 3 immediate jeopardy citations to continue to
participate in the Hospital VBP Program.
Comment: One commenter recommended that CMS limit ineligibility for
hospitals cited for deficiencies that pose immediate jeopardy to one
fiscal year at most because commenter believed this reflects Congress'
statutory intent in the Act.
Response: In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53611), we
interpreted the statute to mean that a hospital that meets the
definition of ``cited for deficiencies that pose immediate jeopardy''
during any of the finalized performance periods for any measure in a
given program year would be excluded from participating in that program
year. Several commenters objected to the interpretation of the statute
based on the possibility of immediate jeopardy citations during a
relatively wide date range, resulting in hospitals being excluded from
several program years (77 FR 53614). We responded by stating in that
final rule (77 FR 53614) that ``we believe that we must exclude
hospitals so cited during any finalized performance period for a fiscal
year regardless of the length of the applicable performance period.''
We continue to believe that is the correct interpretation of section
1886(o)(1)(C) of the Act.
Comment: One commenter recommended several additional policies for
CMS to consider with regard to the immediate jeopardy policy in the
Hospital VBP Program. First, commenter recommended that CMS adopt an
immediate jeopardy appeals process through which hospitals can appeal
citations before an objective entity outside of HHS without being
excluded from Medicare or the Hospital VBP Program because commenter
believed this reflects Congress' statutory intent in the Act. Second,
commenter requested that CMS interpret and change the regulatory
definitions at 42 CFR 412.160 such that the word ``cited'' would mean
after appeal rights have been exhausted and the citation has been
upheld as valid. The commenter also requested that appeal rights be
guaranteed separate from any appeal rights under the Medicare condition
of participation (CoP) and EMTALA. Third, commenter requested that when
a hospital is issued multiple immediate jeopardy citations for the same
factual findings, that is, the same patient issues, they be counted as
one immediate jeopardy citation.
Response: We thank the commenter for its suggestions and we will
take them into consideration if we decide to make additional changes to
the immediate jeopardy policies in the future.
After consideration of the public comments we received, we are
finalizing our proposal to amend our regulations at 42 CFR 412.160 to
change the definition of the term ``Cited for deficiencies that pose
immediate jeopardy'' to increase the number of surveys where 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
2 to 3.
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 CoP 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 FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25112), in the
case of EMTALA-related immediate jeopardy citations only, we proposed
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. We
recognize 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).

[[Page 57005]]

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25112), we
proposed to revise our regulations at 42 CFR 412.160 to reflect the
above proposal and specify use of the date of CMS' final issuance of
Form CMS-2567 to the hospital for EMTALA immediate jeopardy
citation(s). We also proposed to 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 default date for potential exclusion from
the Hospital VBP Program.
We invited public comments on this proposal.
We did not receive any public comments on this proposal. Therefore,
we are finalizing our proposal to amend our regulations at 42 CFR
412.160 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. We are also finalizing our
proposal to use the survey end date as the default date for potential
exclusion from the Hospital VBP Program when one onsite hospital survey
results in both hospital CoP immediate jeopardy citation(s) as well as
EMTALA immediately jeopardy citations(s).
8. 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, Colon and
Abdominal Hysterectomy SSI, and MRSA Bacteremia measures);
The PSI 90 measure;
The THA/TKA measure;
The PC-01 measure;
The MSPB measure; and
The 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 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.
The numerical values for the performance standards displayed in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25113 through 25116)
represented estimates based on the most recently available data, and we
have updated the numerical values in this final rule to reflect new
data in the charts below.
Comment: A few commenters did not support the PC-01 benchmark of 0
because The Joint Commission states that 2 to 4 percent is an expected
rate for early elective delivery and commenters believed that some
hospitals (such as academic medical centers and obstetric hospitals)
experience a higher number of uncommon or rare conditions justifying
the need for early-term elective delivery and are, therefore, unable to
meet the current benchmark.
Response: As stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49549), in response to similar comments, we disagree with the assertion
that the benchmark of 0 percent is unrealistic because not all
justifications for an elective delivery are included in the ICD-10-CM
Justification Table. As we previously noted, the benchmark is intended
to represent a level of excellent performance to which hospitals
generally should aspire. While no measure can account for every
possible situation, the measure specifications (available at: https://manual.jointcommission.org/releases/TJC2015B2/MIF0166.html) provide a
large number of ICD-10-CM Principal Diagnosis Code or Other Diagnosis
Codes for conditions possibly justifying elective delivery prior to 39
weeks gestation. Furthermore, the 0 percent benchmark for PC-01 was
calculated from the mean of the top 10 percent for all hospitals during
the baseline period; therefore, attaining this benchmark is not
unrealistic. We continue to believe that hospitals should aspire to
prevent elective deliveries from being performed before the gestational
age of 39 weeks without a medical indication.
b. Previously Adopted and Newly Finalized 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)), in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25113), we proposed to adopt the
following additional performance standards for the FY 2019 program
year. We noted that the numerical values for the performance standards
displayed in the proposed rule represented estimates based on the most
recently available data, and that we intended to update the numerical
values in this final rule. We noted 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. The table below has been updated from the FY 2017 IPPS/LTCH
PPS proposed rule and represents the most recently available data.

[[Page 57006]]

Previously Adopted and Newly Finalized 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 0.464................. 0.000
Network (NHSN) Catheter-
associated Urinary Tract
Infection (CAUTI) Outcome
Measure.
CLABSI *........................... National Healthcare Safety 0.427................. 0.000
Network (NHSN) Central
line-associated
Bloodstream Infection
(CLABSI) Outcome Measure.
CDI *.............................. National Healthcare Safety 0.816................. 0.012
Network (NHSN) Facility-
wide Inpatient Hospital-
onset Clostridium
Difficile Infection (CDI)
Outcome Measure.
MRSA Bacteremia *.................. National Healthcare Safety 0.823................. 0.000
Network (NHSN) Facility-
wide Inpatient Hospital-
onset Methicillin-
resistant Staphylococcus
aureus (MRSA) Bacteremia
Outcome Measure.
Colon and Abdominal Hysterectomy American College of 0.832........ 0.000
SSI **. Surgeons--Centers for 0.698........ 0.000
Disease Control and
Prevention (ACS-CDC)
Harmonized Procedure
Specific Surgical Site
Infection (SSI) Outcome
Measure.
PC-01 *............................ Elective Delivery.......... 0.010038.............. 0.000000
PSI 90 * .............. Patient Safety for Selected 0.840335.............. 0.589462
Indicators (Composite).
----------------------------------------------------------------------------------------------------------------
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.
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 renaming the Person and Community
Engagement domain beginning with the FY 2019 program year, as discussed
in section IV.H.3.b. of the preamble of this final rule). The 9
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 9
dimensions, Achievement Points (0-10 points) and Improvement Points (0-
9 points) are calculated, the larger of which is summed across the 9
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 9 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 consider scores across all 9 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 ranges from 0 to 100 points. The table below has
been updated from the FY 2017 IPPS/LTCH PPS proposed rule and
represents the most recently available data.

Performance Standards for the FY 2019 Program Year
Person and Community Engagement Domain *
----------------------------------------------------------------------------------------------------------------
Achievement
HCAHPS survey dimension Floor threshold Benchmark
(percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses....................................... 28.10 78.69 86.97

[[Page 57007]]

Communication with Doctors...................................... 33.46 80.32 88.62
Responsiveness of Hospital Staff................................ 32.72 65.16 80.15
Pain Management **.............................................. 22.31 70.01 78.53
Communication about Medicines................................... 11.38 63.26 73.53
Hospital Cleanliness & Quietness................................ 22.85 65.58 79.06
Discharge Information........................................... 61.96 87.05 91.87
3-Item Care Transition.......................................... 11.30 51.42 62.77
Overall Rating of Hospital...................................... 28.39 70.85 84.83
----------------------------------------------------------------------------------------------------------------
* We are finalizing the re-naming 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, as
discussed in section IV.H.3.b. of the preamble of this final rule.
** For more information on the Pain Management dimension, please refer to the Hospital VBP Program proposal in
the CY 2017 OPPS/ASC PPS proposed rule (81 FR 45755 through 45757).

We invited public comments on the proposed HCAHPS performance
standards.
Comment: One commenter recommended reweighting the Communication
about Medicines dimension of the proposed performance standards within
the HCAHPS Survey because this commenter believed that medication mix-
ups with opioid drugs are a leading cause of readmissions of senior
citizens after a hospital stay.
Response: We disagree with the commenter that we should reevaluate
the weighting of the Communication about Medicines dimension within the
HCAHPS Survey because we do not believe there is a link between the
three questions on the HCAHPS Survey that comprise the Communication
about Medicines dimension and the rate of senior citizens' readmission
to hospitals. The three questions include: ``During this hospital stay,
were you given any medicine that you had not taken before?;'' ``Before
giving you any new medicine, how often did hospital staff tell you what
the medicine was for?;'' and ``Before giving you any new medicine, how
often did hospital staff describe possible side effects in a way you
could understand?'' We believe that asking questions on communications
about medicines will encourage hospitals to ensure their staff are
properly communicating medication information to patients. Patients'
understanding of their medication is critical to reducing medication
errors and improving quality and safety.
Comment: One commenter expressed concern about the HCAHPS Survey's
ability to form a valid assessment of patient experience, based in part
on its low response rate.
Response: Hospitals must report a minimum number of 100 completed
HCAHPS surveys for a hospital to receive a Patient and Community
Engagement domain score (see section IV.H.9.b. of the preamble of this
final rule). We continue to believe that this requirement appropriately
balances our desire to enable as many hospitals as possible to
participate in the Hospital VBP Program and the need for the TPSs to be
sufficiently reliable to provide meaningful distinction between
hospitals' performance on quality measures.
Comment: Several commenters recommended disassociating the Pain
Management dimension questions from the HCAHPS Survey because
commenters believe it is linked to the over-prescription of pain
medication in the United States. One commenter suggested modifying the
question based on the Emergency Department Patient Experience of Care
(ED PEC) survey tool (currently being developed) which allows for
different levels of pain and discomfort.
Response: With regard to comments related to the Pain Management
dimension in the Hospital VBP Program, we refer readers to the Hospital
VBP Program proposal in the CY 2017 OPPS/ASC PPS proposed rule (81 FR
45755 through 45757) and request that they resubmit their comments to
that proposed rule before the comment period closes on September 6,
2016. For more details on that proposal and on how to submit comments
for CMS' consideration, we refer readers to that proposed rule (81 FR
45755 through 45757).
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.

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).
----------------------------------------------------------------------------------------------------------------

[[Page 57008]]

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 Finalized 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). In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25103
through 25105), we proposed to add 2 measures, AMI Payment and HF
Payment, beginning with the FY 2021 program year, which we are adopting
as discussed in section IV.H.4.a. of the preamble of this final rule.
The table below has been updated from the FY 2017 IPPS/LTCH PPS
proposed rule and represents the most recently available data. The
previously adopted and newly finalized performance standards for these
measures are set out below.

Previously Adopted and Newly Finalized 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 *[dagger]... Hospital-Level Risk- 0.031157............... 0.022418.
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-Level,
Associated with a 30-Day Payment Associated Risk-Standardized
Episode-of-Care for Acute with a 30[dash]Day Payment Associated
Myocardial Infarction (AMI). Episode-of-Care across with a 30-Day Episode-
all hospitals during of-Care across all
the performance period. hospitals during the
performance period.
HF Payment *................... Hospital-Level, Risk- Median Hospital-Level, Mean of the lowest
Standardized Payment Risk-Standardized decile Hospital-Level,
Associated with a 30-Day Payment Associated Risk-Standardized
Episode-of-Care for Heart with a 30[dash]Day Payment Associated
Failure (HF). Episode-of-Care across with a 30-Day Episode-
all hospitals during of-Care across all
the performance period. hospitals during the
performance period.
----------------------------------------------------------------------------------------------------------------
Previously adopted performance standards.
* Lower values represent better performance.

[[Page 57009]]

[dagger] After publication of the FY 2016 IPPS/LTCH PPS final rule, we determined there was a display error in
the performance standards for this measure. We have since undertaken a technical update for these performance
standards in order to ensure that hospitals have the correct performance standards for the applicable
performance period. The corrected performance standards are displayed here.
Finalized to be scored the same as the MSPB measure, as discussed in section IV.H.4.a.(3) of the preamble of
this final rule.

We did not receive any public comments on the proposed performance
standards for the FY 2021 program year. Therefore, we are adopting the
performance standards listed above.
e. Performance Standards for Certain Measures for the FY 2022 Program
Year
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25116), we
proposed 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 proposed MORT-30-CABG, which
we are adopting as discussed in section IV.H.5. of the preamble of this
final rule. The table below has been updated from the FY 2017 IPPS/LTCH
PPS proposed rule and represents the most recently available data.

Newly Finalized 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- 0.029833............... 0.021493.
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-Level,
Associated with a 30-Day Payment Associated Risk-Standardized
Episode-of-Care for Acute with a 30-Day Episode- Payment Associated
Myocardial Infarction (AMI). of-Care across all with a 30-Day Episode-
hospitals during the of-Care across all
performance period. hospitals during the
performance period.
HF Payment *................... Hospital-Level, Risk- Median Hospital-Level, Mean of the lowest
Standardized Payment Risk-Standardized decile Hospital-Level,
Associated with a 30-Day Payment Associated Risk-Standardized
Episode-of-Care for Heart with a 30-Day Episode- Payment Associated
Failure (HF). of-Care across all with a 30-Day Episode-
hospitals during the of-Care across all
performance period. hospitals during the
performance period.
----------------------------------------------------------------------------------------------------------------
* Lower values represent better performance.
Finalized to be scored the same as the MSPB measure, as discussed in section IV.H.4.a.(3) of the preamble of
this final rule.

We did not receive any public comments on the proposed FY 2022
performance standards. Therefore, we are finalizing our proposal to
adopt the performance standards listed above.
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 4 domains
in the FY 2018 program year for hospitals that receive a score in all
domains. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25117), for
the FY 2019 program year, we noted that we did not propose to remove
any measures nor did we propose to adopt any new measures. We

[[Page 57010]]

also did not propose 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 finalizing the re-naming 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, as discussed in section IV.H.3.b. of the preamble of
this final rule.

Comment: One commenter supported CMS' weighting of the Efficiency
and Cost Reduction domain in the scoring methodology.
Response: We thank the commenter for its support.
Comment: A few commenters did not support the proposed weighting of
the Person and Community Engagement domain for the FY 2018 program year
because evidence has shown significant variation in scores due to
differences in acuity level and region of the country and because one
study found that patient satisfaction was independent of hospital
compliance with quality of care processes and safety culture. The
commenters recommended that CMS conduct a patient-level study to better
understand the relationship between HCAHPS scores and outcomes, looking
at factors like patient severity, SDS factors, and region.
Response: We disagree that the Person and Community Engagement
domain is weighted too heavily in hospitals' TPSs because we believe
this domain measures important elements of the patient's experience of
inpatient care. We have adjusted HCAHPS scores for certain patient-
level factors that are beyond the hospital's control but which affect
survey responses. These factors include patient severity, as indicated
by self-reported overall health, and patient's highest level of
education, considered the most accurate single measure of socioeconomic
status for older adults. Meterko, Wright et al. found that clinical
measures of severity mattered little in adjusting patient experience
scores that already accounted for standard HCAHPS adjustors.\56\
Because valid adjustors must vary within hospitals, it is not possible
to adjust for region without removing true regional variation in
quality.\57\ More information about HCAHPS patient-mix adjustment can
be found on the official HCAHPS Web site at: http://www.hcahpsonline.org/modeadjustment.aspx. HCAHPS scores are not
adjusted for hospital-level factors. While we have conducted and
published research on the relationship between HCAHPS scores and
hospital-level factors, patient outcomes cannot be directly assessed
because the HCAHPS surveys submitted to CMS are not patient-
identifiable.
---------------------------------------------------------------------------

\56\ ``Mortality among Patients with Acute Myocardial
Infarction: The Influences of Patient-Centered Care and Evidence-
Based Medicine.'' M. Meterko, S. Wright, H. Lin, E. Lowy, and P.D.
Cleary. Health Services Research, 45 (5): 1188-1204. 2010.
\57\ The Effects of Survey Mode, Patient Mix, and Nonresponse on
CAHPS Hospital Survey Scores.'' M.N. Elliott, A.M. Zaslavsky, E.
Goldstein, W. Lehrman, K. Hambarsoomian, M.K. Beckett and L.
Giordano. Health Services Research, 44 (2): 501-518. 2009.
---------------------------------------------------------------------------

Comment: One commenter recommended that, in the future, CMS
increase the weight of the Efficiency and Cost Reduction domain to
equal that of the Clinical Care and Safety domains because the
commenter believed doing so would balance the Hospital VBP Program's
focus on cost and quality equally.
Response: We appreciate the commenter's suggestion and will take
that into consideration in future rulemaking. For the FY 2019 program
year, we believe that the Efficiency and Cost Reduction domain at 25
percent of hospitals' TPSs appropriately weights cost and quality in
the Hospital VBP Program.
Comment: One commenter did not support the 25 percent weight for
the Efficiency and Cost Reduction domain because it overlaps with the
HAC Reduction Program's penalties. The commenter expressed concern that
the high weighting of the domain may encourage hospitals to avoid
taking high-risk patients or to sacrifice quality of care following
discharge by placing patients in a lower cost postacute care setting.
Response: We disagree with the commenter that the weighting of the
Efficiency and Cost Reduction domain is too high. We believe the HAC
Reduction Program and the Hospital VBP Program are both important
quality programs but have different objectives. We do not have reason
to believe that the weighting of the domain has caused hospitals to
avoid high-risk patients or sacrifice quality of care in order to
improve their score on the MSPB measure.
Comment: A few commenters recommended that CMS reallocate domain
weights to emphasize the importance of measures of patient outcomes,
which is where hospitals have the greatest ability to control and
effectuate change. The commenters specifically recommended reducing the
weight of the Efficiency and Cost Reduction domain because the current
25 percent weighting assigns a high amount of weight to a single
measure, MSPB, which does not directly address patient outcomes. One
commenter noted that the Efficiency and Cost Reduction domain can
sometimes be driven more by the physician's orders and the Person and
Community Engagement domain can fluctuate based on trivial matters not
related to healthcare delivery.
Response: While we agree that the Hospital VBP Program should
encourage providers to improve patient outcomes, we believe that
equally weighting the 4 domains is appropriate for the FY 2019 program
year based on the distribution of the measures we are finalizing in
this final rule. We believe the Efficiency and Cost Reduction domain is
appropriately weighted, despite not directly addressing patient
outcomes, because it encourages hospitals to assess cost in conjunction
with quality of care. We note that we are adopting the AMI and HF
Payment measures, as discussed in section IV.H.4. of the preamble of
this final rule, so that beginning with the FY 2021 program year, MSPB
will no longer be the only measure in the Efficiency and Cost Reduction
domain. We believe expanding the number of measures in this domain will
further improve the link between payment and patient health outcomes as
the program moves towards value scoring. We also believe that hospitals
can effect change through the measures in each of the four domains in
the Hospital VBP Program.
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 3 of 4
quality domains in order to receive a TPS, and hospitals with
sufficient data on only 3 domains will have their TPSs proportionately
reweighted (79 FR 50084 through 50085). We did not propose any changes
in the FY 2017 IPPS/LTCH PPS proposed rule.
Under these policies, in order to receive a TPS for the FY 2019
program year and future years:

[[Page 57011]]

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 score (which, in
section IV.H.3.b. of the preamble of this final rule, we are renaming
to the Person and Community Engagement domain beginning with the FY
2019 program year).
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 2 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 3 measure scores
within the Safety domain.
++ Hospitals must report a minimum of 3 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 1 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 did not propose 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.

I. 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. For a detailed discussion of the statutory basis
of 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
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.
2. 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. In
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25117 through 25118), we
did not propose any changes to this measure set for FY 2017. We also
did not propose 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).
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 data
collected during the 24-month period from July 1, 2013 through June 30,
2015. 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 are using data
collected during CYs 2014 and 2015.

[[Page 57012]]

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.\58\ 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.
---------------------------------------------------------------------------

\58\ Available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&cid=1228773343598.
---------------------------------------------------------------------------

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25118 through
25119), for FY 2017, we proposed 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.
We note that we received public comments on the design of the HAC
Reduction Program, requests to modify the payment adjustment
computation, and for CMS to work with Congress to amend the law to
create a phased-in or sliding-scale penalty. While we appreciate the
commenters' feedback, we consider these topics to be out of the scope
of the proposed rule. Therefore, we are not addressing most of them in
this final rule. All other topics out of scope of the proposed rule
will be taken into consideration when developing policies and program
requirements for future years.
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.\59\ 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.
---------------------------------------------------------------------------

\59\ 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, in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25118 through 25119), we proposed 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 need 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 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 invited 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.
Comment: Many commenters supported the proposal to clarify the term
``complete data'' and agreed that using less than 12 months of measure
data may not provide a statistically valid reflection of hospital
performance. Commenters commended CMS' efforts to ensure data
reliability as a critical component of accurately assessing
performance. One commenter recommended that complete data should
require at least 24 months of data. Commenters noted that in the
proposed rule, CMS stated that the PSI 90 measure was most reliable
with a 24-month performance period.
Response: We understand that reliable data is a critical component
of accurately assessing hospital performance and thank commenters for
their support. We note that the analysis performed by Mathematica
showed that PSI composite achieves moderate reliability at a majority
of hospitals for reporting periods of 6 months or longer. We further
note that the proposed data requirements establish a minimum data
requirement of at least 12 months.\60\ We believe the proposed
requirements balance the needs of the program and allows the composite
measure to continue to play a vital role in ensuring patient safety and
provide alignment across our value-based and quality reporting
programs.
---------------------------------------------------------------------------

\60\ Ibid.
---------------------------------------------------------------------------

After consideration of the public comments we received, we are
finalizing the definition of complete data discussed above as proposed.

[[Page 57013]]

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.\61\ 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).
---------------------------------------------------------------------------

\61\ 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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25119), we
proposed 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 opened on January 1 and
it intended 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 opened on January 1 and it did not intend to
participate in the Hospital IQR Program (that is, no NOP is filed), it
would have to 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 invited public comments on our proposal to adopt these policies
related to the data submission requirements beginning in the FY 2017
HAC Reduction Program.
Comment: Commenters supported and applauded CMS for establishing a
reasonable deadline for beginning the submission of measure data
following the opening of a new hospital. Commenters noted that
clarifying and establishing a process for new hospitals affords
patients who receive care at those facilities the same benefits to
transparent quality data that has been available in long established
facilities. One commenter recommended that CMS establish a single date
under which HAC Reduction Program reporting must begin, regardless of a
hospital's decision about participation in the Hospital IQR Program.
Response: We thank commenters for their input and support. We
believe these submission requirements support our continued goal of
aligning our value-based and quality reporting programs in order to
minimize provider burden and incentivize high-quality care. We note
that the intention of the submission requirements is to make use of the
available data for each hospital and encourage hospitals to report HAI
data to CDC NHSN.
After consideration of the public comments we received, we are
finalizing the data submission requirements discussed above as
proposed.
3. Implementation of the HAC Reduction Program for FY 2018
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25119 through
25123), for FY 2018, we proposed 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. Adoption of Modified PSI 90: Patient Safety and Adverse Events
Composite (NQF #0531)
(1) Background
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25119 through
25121) we proposed 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 the modified 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 03 Pressure Ulcer Rate; (2) PSI 06 Iatrogenic Pneumothorax
Rate; (3) PSI 07 Central Venous Catheter-Related Blood Stream
Infections Rate; (4) PSI 08 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;

[[Page 57014]]

and (8) PSI 15 Accidental Puncture and Laceration Rate.\62\
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\62\ 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 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,\63\ the NQF Patient Safety Committee
deferred its 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 PSI 90, which subsequently
completed NQF maintenance re-review and received reendorsement on
December 10, 2015.
---------------------------------------------------------------------------

\63\ 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 PSI 90 measure's extended NQF reendorsement led to several
changes to the measure.\64\ 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 three new indicators: (1) PSI 09 Perioperative
Hemorrhage or Hematoma Rate; (2) PSI 10 Postoperative Acute Kidney
Injury Requiring Dialysis Rate (formerly titled ``Physiologic and
Metabolic Derangement Rate''); and (3) PSI 11 Postoperative Respiratory
Failure Rate. Third, the measure 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.
---------------------------------------------------------------------------

\64\ 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 consider these changes to the modified PSI 90 to be substantive
changes to the measure. Therefore, we proposed 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 (MUC ID 15-604) was
included on a publicly available document entitled ``2015 Measures
Under Consideration for December 1, 2015'' \65\ in compliance with
section 1890A(a)(2) of the Act, and was reviewed by the Measures
Application Partnership (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.'' \66\ The measure received support
for inclusion in the HAC Reduction Program as referenced in the MAP
Final Recommendations Report.\67\
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\65\ 2015 Measures Under Consideration List available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\66\ MAP Final Recommendations available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_Hospitals.aspx.
\67\ 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 In-Hospital Fall With Hip Fracture Rate; \68\
---------------------------------------------------------------------------

\68\ Previously titled ``Postoperative Hip Fracture'' prior to
v6.0.
---------------------------------------------------------------------------

PSI 09 Perioperative Hemorrhage or Hematoma Rate; *
PSI 10 Postoperative Acute Kidney Injury Requiring
Dialysis Rate; * \69\
---------------------------------------------------------------------------

\69\ Previously titled ``Postoperative Physiologic and Metabolic
Derangement'' prior to v6.0.
---------------------------------------------------------------------------

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 Unrecognized Abdominopelvic Accidental Puncture/
Laceration Rate.^{70 71}
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\70\ Previously titled ``Accidental Puncture or Laceration
Rate'' prior to v6.0.
\71\ http://www.qualityforum.org/QPS/0531.
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(* 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,\72\ 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.
---------------------------------------------------------------------------

\72\ 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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[[Page 57015]]

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, the rates
of each component PSI are weighted based on statistical and empirical
analyses of volume, level of excess clinical harm associated with the
PSI, and disutility (the measure of the severity of the adverse events
associated with each of the harms, that is, outcome severity, or least
preferred states from the patient perspective). 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 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 FFS 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 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 Elixhauser Comorbidity Software
(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 proposed 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 invited public comment on
our proposal to adopt the modified PSI 90 measure (NQF #0531) for the
HAC Reduction Program for FY 2018.
Comment: Many commenters supported adopting the modified measure,
noting that the modified PSI 90 measure was recently endorsed by NQF,
addresses past measure concerns, and reflects events within the
hospital's control. Commenters appreciated that the measure was
modified to incorporate harms associated with safety events into the
weighting of the component indicators. Commenters also noted that the
components currently include significant indicators of patient safety
events that hospitals could prevent through incorporation of evidence-
based processes including enhanced patient monitoring. Finally,
commenters stated that this modified version is an improvement and
strongly supported its use as a component for evaluation of safety and
payment incentives for the reduction of medical harm.
Response: We thank commenters for their support and continue to
believe that the HAC Reduction Program encourages improvement in
patient safety over the long-term for all hospitals. HACs are often
preventable conditions like central line associated bloodstream
infections, catheter associated urinary tract infections, and other
complications or conditions that arise after a patient was admitted to
the hospital for the treatment of another condition. These conditions
cost Medicare and the private sector billions of dollars each year and
take a significant toll on patients and families. In most cases,
hospitals can prevent HACs when they follow protocols, procedures and
evidenced-based guidelines. We base our measure selection decisions for
the HAC Reduction Program on measures currently available, risk
adjusted, and reflective of hospital performance. Factors such as
endorsement by the NQF and support by the NQF-convened MAP, which
represents stakeholder groups, are also taken into account in deciding
which measures to adopt. All the measures finalized for inclusion in
the HAC Reduction Program are NQF-endorsed and were recommended for
inclusion in the program by the MAP. We have identified patient safety
and the reduction of HACs as a high priority through our CMS and
National Quality Strategies.
Comment: One commenter thanked CMS for the proposed removal of PSI
07 from the PSI 90 measure.
Response: We thank the commenter for its support.
Comment: Commenters appreciated that the revised measure re-weights
individual component PSIs to better reflect the importance and
preventability of particular safety events. However, numerous
commenters stated that these updates do not address the serious
deficiencies with the measure noted by MedPAC and academic researchers.
Commenters also expressed concern that CMS continues to use claims data
to determine payment adjustments. Commenters specifically noted that
claims-based measures are risk-adjusted based on diagnostic codes and
specificity of coding on an administrative claim, not on any clinical
data related to a patient. These commenters stated that claims data
cannot and do not fully reflect the details of a patient's history,
course of care and clinical risk factors. As a result, the commenters
stated that the rates derived from the measures are highly inexact.
Commenters stated that PSI data may assist hospitals in identifying
patients whose particular cases merit deeper investigation, but that
they are poorly suited to drawing meaningful conclusions about hospital
performance on safety issues. These commenters stated that the measure
does not drive quality improvement. Commenters recommended that CMS
review this measure to determine the appropriateness of both the
current and modified measures in the performance programs moving
forward and strongly urged CMS to phase the measure out of the HAC
Reduction Program and other programs.
Response: We continue to believe the PSI 90 measure is an important
measure of patient safety and these modifications help to broaden and
strengthen the measure. We disagree with commenters

[[Page 57016]]

that claims-based measures in general and PSIs in particular have not
demonstrated that they are accurate, reliable, and valid indicators of
quality and safety of care. Regarding the administrative data elements
of PSI 90, we note that there are previously conducted studies that
validate the relationship between administrative claims data and
medical records.\73\ These studies demonstrate that administrative
claims data can provide sufficient clinical information to assess
patient safety. We refer readers to the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50091) for a further discussion of this issue. Further,
over the past decade, AHRQ has supported a series of validation studies
based on detailed abstraction of medical records.\74\ These studies
informed AHRQ's PSI development process, including further refinements
to indicators, working with others to improve coding practices, and
retirement of a few indicators.
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\73\ (1) Zrelak PA, Romano PS, Tancredi DJ, Geppert JJ, Utter
GH. Validity of the AHRQ Patient Safety Indicator for Postoperative
Physiologic and Metabolic Derangement based on a national sample of
medical records. Medical Care 2013; 51(9):806-11. (2) Utter GH,
Zrelak PA, Baron R, Tancredi DJ, Sadeghi B, Geppert JJ, Romano PS.
Detecting postoperative hemorrhage or hematoma from administrative
data: The performance of the AHRQ Patient Safety Indicator. Surgery
2013; 154(5):1117-25. (3) Borzecki AM, Cevasco M, Chen Q, Shin M,
Itani KM, Rosen AK. How valid is the AHRQ Patient Safety Indicator
``postoperative physiologic and metabolic derangement''? J Am Coll
Surg. 2011 Jun; 212(6):968-976. (4) Borzecki AM, Kaafarani H,
Cevasco M, Hickson K, Macdonald S, Shin M, Itani KM, Rosen AK. How
valid is the AHRQ Patient Safety Indicator ``postoperative
hemorrhage or hematoma''? J Am Coll Surg. 2011 Jun; 212(6):946-953.
\74\ A list of all AHRQ validation studies is available at:
http://www.qualityindicators.ahrq.gov/Resources/Publications.aspx.
---------------------------------------------------------------------------

We disagree with commenters that the PSIs are not are accurate,
reliable, and valid indicators of quality and safety of care. Many of
these claims-based indicators have been endorsed by the NQF, which
includes a review process that assesses reliability and validity.\75\
We note that NQF endorsed the modified PSI 90, including the risk-
adjustment methodology of the component indicators, as reliable and
valid (NQF #0531).\76\ Further, we believe the modified PSI 90 does
provide actionable information and specific direction for prevention of
patient safety events, because hospitals can track and monitor
individual PSI rates and develop targeted improvements to improve
patient safety. For further guidance on PSI monitoring and strategies
for applying quality improvements to PSI data, we refer readers to the
Toolkit for Using the AHRQ quality indicators available at: http://www.ahrq.gov/professionals/systems/hospital/qitoolkit/index.html.
---------------------------------------------------------------------------

\75\ More information on the NQF endorsement process is
available in the NQF Review and Update of Guidance for Evaluating
Evidence and Measure Testing- Technical Report available at: http://www.qualityforum.org/Publications/2013/10/Review_and_Update_of_Guidance_for_Evaluating_Evidence_and_Measure_Testing_-_Technical_Report.aspx.
\76\ Measure information is available at: http://www.qualityforum.org/QPS/0531.
---------------------------------------------------------------------------

We emphasize that improving patient safety is our primary objective
for the HAC Reduction Program
Comment: One commenter noted that a recent study published in
Medical Care \77\ found there was limited validity for the AHRQ PSI and
HAC Reduction Program measures when measured against the reference
standard of a medical chart review. Commenters stated that only 5 of
the measures had sufficient data for pooled meta-analysis. These
commenters stated that only PSI 15 (Accidental Puncture and Laceration)
met the proposed threshold for validity, based on a positive predictive
value (PPV) of 0.80 and higher. Commenters also stated that coding
errors were found to be the most common reasons for discrepancies
between the medical record review and administrative databases.
Commenters requested that CMS reevaluate the appropriateness of
including the PSI 90 measure for use in its future public reporting and
pay-for-performance programs.
---------------------------------------------------------------------------

\77\ Winters BD, Bharmal A, Wilson RF, et al. Validity of the
Agency for Health Care Research and Quality Patient Safety
Indicators and the Centers for Medicare and Medicaid Hospital-
acquired Conditions: A Systematic Review and Meta-Analysis. Medical
Care. 2016 [ePub ahead of print].
---------------------------------------------------------------------------

Response: We appreciate the commenters' input and would like to
emphasize that improving patient safety is our primary objective for
the HAC Reduction Program. We note that NQF endorsed the modified PSI
90 measure as a valid measure (NQF #0531); further, experts agree that
this measure is scientifically rigorous. We also note that NQF reviewed
the risk-adjustment methodology of the component indicators during its
last cycle of NQF endorsement, and endorsed the modified PSI 90 measure
as valid and reliable. We continue to work with the measure steward to
improve the measure. We also continually review alternative measures,
related to patient safety, to determine their appropriateness for
inclusion in the HAC Reduction Program. We also refer readers to the
AHRQ Quality Improvement Toolkit for additional guidance to facilitate
improvements to documentation and coding at: http://www.ahrq.gov/sites/default/files/wysiwyg/professionals/systems/hospital/qitoolkit/b4-documentationcoding.pdf.
Comment: Commenters recommended that use of the modified PSI 90
measure in any of the CMS pay-for-performance programs start no sooner
than October 1, 2016, noting that this timeline will give organizations
time to understand and prepare for the newly revised measure.
Commenters further noted that the software which AHRQ has made
available to hospitals for the purpose of monitoring performance has
not been updated to reflect ICD-10 coding. Commenters expressed concern
about the proposed performance period, claiming that adding indicators
after the performance period has ended do not allow for concurrent
coding correction or concurrent process improvement. Commenters
recommended CMS work with AHRQ to make this software available as soon
as possible so that hospitals are able to monitor performance in an
ongoing way in order to provide for continuous quality improvement.
Commenters further recommended that CMS temporarily remove this measure
from public reporting and inclusion in any pay-for-performance scoring
and reimbursement until the ICD-10 version of PSI 90 is available.
Response: We understand that there are concerns regarding the
transition to ICD-10. However, we disagree that the use of the modified
PSI 90 measure should start no sooner than October 1, 2016. Hospitals
and other healthcare facilities have known about ICD-10 coding for some
time and have had the opportunity to implement ICD-10 coding
procedures. All measure specifications have been translated to and
updated for corresponding ICD-10 code specifications and we were fully
prepared to accept ICD-10-based claims data beginning October 1, 2015
in accordance with established program timelines. AHRQ originally
sought public comment in the Federal Register on November 26, 2013 (78
FR 70558 through 70559) on the proposed conversion of the AHRQ QIs to
ICD-10 CM/PCS codes. At that time, the proposed ICD-10 CM/PCS mappings
and specifications were posted on the AHRQ QI Web site for review at:
http://www.qualityindicators.ahrq.gov/icd10/default.aspx. Since that
time, the AHRQ QIs and the ICD-10 mappings have been continuously
updated and refined, as new ICD-10 codes are released and CMS' MS-DRG
classification of ICD-10 codes is refined.
We further note that we are finalizing the proposal to use only
ICD-9 claims data for FY 2018. This will provide the necessary time for
AHRQ to develop a

[[Page 57017]]

risk adjusted software version capable of using ICD-10 claims data for
FY 2019. One of the factors in the decision to delay the use of ICD-10
claims data until FY 2019 was to allow for the necessary one year of
ICD-10 data collection required for AHRQ to create a risk adjusted
software version. We will also monitor and assess measure
specifications with respect to ICD-10 code specifications and potential
impacts on measure performance and payment incentive programs.
Comment: Commenters recommended that CMS revise ICD-10 codes to
more appropriately capture PSI measures. For PSI 12, commenters noted
that ICD-10 codes do not currently exist to appropriately code DVT in
the soleal vein or peroneal vein. Commenters recommended the addition
of codes for the appropriate capture of PSI 12. For PSI 13, commenters
noted the Third International Consensus Definition Task Force published
a recommended new definition of sepsis in March 2016.\78\ These
commenters recommended that, as this new definition is adopted as a
medical standard, revised ICD-10 codes be developed that reflect the
new definition, to appropriately capture and report PSI 13.
---------------------------------------------------------------------------

\78\ Singer M, Deutschman CS, Seymour CW, et al: The Sepsis
Definitions Task Force The Third International Consensus Definitions
for Sepsis and Septic Shock (Sepsis-3). Journal of the American
Medical Association (JAMA, Feb 22, 2016). Accessed at: http://jama.jamanetwork.com/article.aspx?articleid=2492881#Abstract.
---------------------------------------------------------------------------

Response: Many claims-based measures have updated ICD-10 codes
contained in the Measure Information Forms (MIFs) on the NQF Web site.
We also note that AHRQ's proposed changes for ICD-10-CM/PCS conversion
of its quality indicators are available at: http://www.qualityindicators.ahrq.gov/icd10/default.aspx. AHRQ reviews all
ICD-10-CM/PCS coding updates and integrates new codes regularly. AHRQ
is also working with CMS to align coding classification systems.
Comment: One commenter expressed concern with the inclusion of PSI
03. Commenters noted that the measure is inconsistent with recent work
completed by the National Pressure Ulcer Advisory Panel (NPUAP) in
April 2016 and may be providing misleading information to the public if
not corrected. In addition, commenters stated that the reporting of
data is further complicated by inconsistencies between existing ICD
codes and current practice, making it difficult to report accurately.
Commenters believed that it would be a serious error to continue to
collect misleading information, which arbitrarily skews reports and can
hinder rather than facilitate patient understanding in their review of
this measure. Commenters requested CMS suspend data collection for PSI
03 until such time this measure can be brought in line with NPUAP's
definitions. Commenters further requested CMS request of AHRQ the
following: Modification of PSI 03 to include only stage III and IV
pressure injuries (ulcers); modification of pressure injuries (ulcers)
to be consistent with the April 2016 NPUAP definitions, in particular,
the consideration that not all deep tissue pressure injury (DTP) wounds
evolve into a significant tissue injury; and that DPTI should be
generally excluded from the PSI 03 measure definition and only included
once they reveal the actual extent of pressure injury.
Response: As noted in the technical specifications (http://www.qualityindicators.ahrq.gov/Modules/PSI_TechSpec.aspx and http://www.qualityindicators.ahrq.gov/Modules/PSI_TechSpec_ICD10.aspx), PSI 03
is currently limited to stage III and IV pressure injuries as well as
unstageable injuries (which are considered clinically equivalent to
stage III or IV, because they represent ``obscured full-thickness skin
and tissue loss''). We appreciate the suggestion to review the April
2016 revisions by the NPUAP. AHRQ has already considered the revisions
and its potential impact on PSI 03 with ICD-10 coding guidelines. At
this time, we do not believe the revisions have a material impact on
the incidence of PSI 03. Because it is not yet clear whether all deep
tissue pressure injuries (DTPI) should be counted in quality
measurement programs, or only those that evolve into ulcers, and NPUAP
noted that DPTI ``results from intense and/or prolonged pressure and
shear forces at the bone-muscle interface,'' AHRQ believes that it is
still appropriate to count DPTI as a significant pressure-related soft
tissue injury and to capture it in PSI 03 based on current ICD-10
indexing. All of the PSIs are reviewed, refined, and updated annually.
AHRQ will continue to monitor the coding guidelines with respect to the
NPUAP revisions and its potential impact on the technical
specifications of PSI 03.
Comment: One commenter recommended that the exclusion criteria of
PSI 04 Stratum 4A be broadened to include diagnoses that reflect a
hypercoagulable state. The commenter recommended broadening the
exclusion criteria in Stratum 04B to include cases that started in MDC
4, but advanced to the Pre-MDC. The commenter recommended broadening
the exclusion criteria in Stratum 4C to include sepsis diagnosis codes
that are present on admission. The commenter also recommended
broadening the exclusion criteria of Stratum 4D to include cases that
started in MDC 4 or 5 but advanced to the Pre-MDC and cases that are
present on admission. In addition, the commenter recommended removing
inclusion criteria of K921 melena in Stratum 04E. The commenter also
recommended broadening the exclusion criteria for Stratum 04E to focus
on the Present on Admission Indicator rather than the principal
diagnosis position and also excluding Pre-MDC.
Response: We will continue to monitor and analyze the impact of our
measure selection for further adjustments to the HAC Reduction Program.
Suggestions regarding potential PSI measure revisions can be made
directly to [email protected]
Comment: One commenter supported the inclusion of PSI 09 in the
modified PSI 90 measure. This commenter noted that perioperative
hemorrhage is a high-volume condition, with up to five percent of
cardiac surgery patients potentially requiring additional surgery to
control bleeding. The commenter also noted that perioperative
hemorrhage is a high-cost condition, with complications that require an
increased hospital length of stay and longer ICU time resulting in an
increased economic burden relative to patients without these events.
The commenter stated that in many instances these conditions can be
prevented in many surgeries through appropriate use of a flowable
hemostatic matrix which will help to improve patient safety and reduce
the costs of care.
Response: We thank the commenter for its feedback and we continue
to believe that the HAC Reduction Program encourages improvement in
patient safety over the long-term for all hospitals.
Comment: Commenters expressed concern that the PSI 09 component may
apply to a number of transplant patients. Commenters indicated that
perioperative hemorrhage or hematoma is normal after liver transplant,
and is frequent after kidney transplant, and the repercussions of these
and other transplantation procedures are not indicative of poor quality
care. Commenters further noted that liver transplants result in
significant blood loss in nearly every case, and poor performance on
this measure can be driven by the number of liver transplants
performed. Commenters recommend that transplantation should be added to
the exclusion list a priori

[[Page 57018]]

and requested that that liver transplant patients be excluded from the
PSI 09 denominator.
Response: We do not agree with the commenters' recommendation that
liver transplant patients should be excluded from the PSI 09
denominator. While we appreciate commenters' observation that
transplant patients may have an elevated risk of hemorrhage or
hematoma, we note that the risk-adjustment model for PSI 09 explicitly
accounts for the increased risk associated with solid organ
transplantation. For more information on the PSI 09 risk model, we
refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf).
Comment: One commenter expressed concern that the PSI 10 component
of the measure is inappropriate for liver transplantation. The
commenter stated that while the measure excludes patients with
preoperative renal failure, many liver transplant patients with
relatively normal baseline renal function get Acute Renal Failure after
transplant despite high quality care, due to hemodynamic factors and
the nature of the drugs involved in the performance of the procedure
and its aftermath. The commenter recommended that liver transplantation
be added to the exclusion list.
Response: We do not agree with commenter that liver transplant
patients should be excluded from the PSI 10 denominator. While we
appreciate commenter's observation that liver transplant patients may
have an elevated risk of acute kidney failure, we note that the risk-
adjustment model for PSI 10 explicitly accounts for the increased risk
associated with hepatic failure. For more information on the PSI 10
risk model, we refer the commenter to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf.
Comment: One commenter expressed concern with the PSI 11 component
of the measure because acute respiratory failure, mechanical
ventilation, and reintubation are fairly common for both liver and
kidney procedures and do not suggest poor quality of care. This
commenter stated that transplants have high incidences of acute
respiratory failure, mechanical ventilation, and reintubation meeting
the specifications set forth in this measure, due to the fluid shifts,
medication, neurological status, and potential for infection involved
in this complex surgery. The commenter recommend that liver and kidney
transplantation should be added to the exclusion list for this measure.
Response: We understand commenter's concerns, however, we disagree
with the commenter that liver and kidney transplantation should be
added to the exclusion list. We note that the risk-adjustment model for
PSI 11 explicitly accounts for the increased risk associated with solid
organ transplantation. Liver transplantation (MDRG 7702) is associated
with an adjusted odds ratio of 48.3 in AHRQ's v5.0 risk model for PSI
11, whereas kidney transplantation (MDRG 1101) is not empirically
associated with increased odds of PSI 11. For more information, we
refer the commenter to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf.
Comment: Commenters thanked CMS for the proposed changes to PSI 12
and appreciated that the modified weighting methodology that accounts
for patient harm dropped from 34 to 18 percent. However, commenters
expressed concern about the vulnerability of PSI 12 to surveillance
bias. Commenters noted that studies have shown that hospitals with
increasing numbers of structural quality characteristics (that is,
larger hospitals with more accreditations, more complex patients, and
engagement in quality initiatives that typically suggest high quality
care) have better venous thromboembolism (VTE) prophylaxis, but
actually have higher VTE rates, or an increase in PSI 12 event
rates.\79\ Commenters stated that hospitals with more sophisticated
tools and technology used to track VTE show higher rates of VTE and are
being penalized for doing a better job at detection. Commenters stated
that performance on PSI 12 may reflect differences in VTE imaging use
rather than differences in quality of care, and the inclusion of PSI 12
could unfairly penalize hospitals with increased vigilance in VTE
detection. One commenter recommended that PSI 12 be removed from pay-
for-performance programs.
---------------------------------------------------------------------------

\79\ Bilimoria, Karl Y., Jeanette Chung, Mila H. Ju, Elliott R.
Haut, David J. Bentrem, Clifford Y. Ko, and David W. Baker.
``Evaluation of Surveillance Bias and the Validity of the Venous
Thromboembolism Quality Measure.'' JAMA 310.14 (2013): 1482-489.
Web. 26 May 2016.
---------------------------------------------------------------------------

Response: CMS and AHRQ recognize the commenters' concerns about
surveillance bias for PSI 12 Perioperative PE or DVT Rate and the issue
was addressed in the NQF Patient Safety Steering Committee in 2015.
Surveillance bias is a non-random type of systemic bias where a
diagnosis is more likely to be observed the more vigilant one is in
looking for it. In the case of DVT or PE, hospitals may underdiagnose
or over diagnose DVT or PE depending how often they screen or perform
diagnostic testing to look for these diagnoses. Several research teams
have examined DVT and PE rates and surveillance bias.\80\ However,
studies have not specifically examined whether the observed rates
reflect underdiagnoses of DVT or PE at low-testing hospitals, over
diagnosis of DVT or PE at high-testing hospitals, or the underlying
true incidence of symptomatic DVT or PE.
---------------------------------------------------------------------------

\80\ Bilimoria KY, Chung J, Ju MH, et al. Evaluation of
surveillance bias and the validity of the venous thromboembolism
quality measure. JAMA. 2013;310(14):1482-1489; Holcomb CN, DeRussy
A, Richman JS, Hawn MT. Association Between Inpatient Surveillance
and Venous Thromboembolism Rates After Hospital Discharge. JAMA
Surg. 2015;150(6):520-527; Ju MH, Chung JW, Kinnier CV, et al.
Association between hospital imaging use and venous thromboembolism
events rates based on clinical data. Ann Surg. 2014;260(3):558-566
and Pierce CA, Haut ER, Kardooni S, et al. Surveillance bias and
deep vein thrombosis in the national trauma data bank: The more we
look, the more we find. The Journal of Trauma. 2008;64(4):932-936;
discussion 936-937. Haut ER, Chang DC, Pierce CA, et al. Predictors
of posttraumatic deep vein thrombosis (DVT): Hospital practice
versus patient factors-an analysis of the National Trauma Data Bank
(NTDB). The Journal of trauma. 2009;66(4):994-9.
---------------------------------------------------------------------------

While some hospitals might hypothesize that increased surveillance
is desirable, there is no evidence to support the hypothesis that
``increased vigilance in DVT or PE detection'' is desirable, from the
perspective of patients and their families. Over diagnosis of DVT or PE
among patients may lead to overtreatment, and overtreatment is not
inconsequential as there are known adverse effects associated with
treatment of DVT and PE. Thus, while we acknowledge commenter's
concerns regarding surveillance bias, we believe that PSI 12 is an
important component indicator of the modified PSI 90 measure, because
it encourages hospitals not only to prevent DVT or PE, but also to
appropriately assess a patient's risk for DVT and PE to prevent over
diagnosis and underdiagnoses. Because of the negative economic and
health consequences associated with DVT or PE diagnosis, we believe
that preventing underdiagnoses and over diagnosis is critical to
improving patient safety.
Lastly we disagree with commenter that PSI 12 Perioperative PE or
DVT Rate lacks appropriate exclusions. Measure exclusions were reviewed
by the NQF Patient Safety Steering Committee in 2015 and the measure
was re-endorsed as reliable and valid. We note that AHRQ removed
isolated thrombosis of calf veins (ICD-9-CM

[[Page 57019]]

453.42) from the version 6.0 specification reviewed by the NQF Patient
Safety Steering Committee in 2015 in order to minimize the impact of
clinically unimportant distal thromboses on hospital-specific PSI 12
rates. However, suggestions regarding potential PSI measure revisions
can be made directly to: QIsuppor[email protected]
Comment: One commenter suggested using a comprehensive prophylaxis
measure because it is a better measure of quality in VTE prevention and
more widely used.
Response: CMS and external stakeholders believe measures in the
hospital reporting programs should focus on the outcomes of care rather
than processes of care, which is consistent with PSI 12. The AHRQ PSIs
are based on actual clinical events or outcomes rather than processes
of care. Focusing on outcomes has the advantages of representing
clinically meaningful events that: Affect the care and outcomes of
hospitalized patients, often leading to lost time from work, school, or
family responsibilities (or even death); have significant public health
and economic implications, require additional resources for treatment
and follow-up care; are better aligned with the preferences and values
of patients and families; and are sensitive to a variety of different
care processes and ``bundles'' of processes, not just pharmacologic
prophylaxis.
Comment: One commenter expressed concern regarding the PSI 12
respecifications and noted that it is important within these
specifications to identify the exact ICD-10 codes that represent
``isolated deep venous thrombosis of calf veins.'' The commenter noted
that, in ICD-10, there are codes for deep venous thrombosis of distal
lower extremity, calf veins, and tibial vein, all of which are
considered ``calf veins.'' The commenter recommend that CMS consider
these codes in PSI 12.
Response: CMS and AHRQ are aware of the issue and are working to
clarify the diagnosis codes for DVT involving distal deep veins of the
lower extremity in ICD-10-CM coding. In the meantime, we note that
version 6.0 of PSI 12 excludes the following ICD-10-CM diagnosis codes
from the numerator specification: I82.441-I82.443, I82.449, I82.491-
I82.493, I82.499, I82.4Z1-I82.4Z3 and I82.4Z9 (acute embolism and
thrombosis of the tibial vein and deep vein of the lower extremity).
Comment: One commenter expressed concern that changes in
coagulation in the early postoperative period may lead to increased
incidence of clotting disorders including DVT after transplant
procedures and also may be caused by large bore IVs.\81\ In addition,
transplant patients often get products that promote clotting due to
inherent coagulopathy, and some patients have clotting disorders that
cause hypercoagulability. The commenter noted that this measure
excludes surgeries involving interruption of the vena cava, and stated
that all liver transplants involve such interruption. This commenter
recommended that liver and kidney transplant be added to the exclusion
list because DVT is not indicative of poor quality care for these
procedures due to the frequency of DVT in transplantation.
---------------------------------------------------------------------------

\81\ Bore refers to the size of a needle use for an IV.
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Response: We appreciate commenter's observation that PSI 12
excludes cases where a procedure for interruption of the vena cava
occurs before or on the same day of the first operating room procedure;
cases meeting this criterion should be excluded, because inferior vena
cava (IVC) filter placement (which is by far the most common example of
surgical interruption of the vena cava) is appropriate only for
patients who cannot tolerate, or have already failed, conventional
pharmacologic prophylaxis. IVC filters are placed in high-risk patients
with the knowledge that they increase the risk of deep vein thrombosis
distal to the device while decreasing the risk of embolization to the
pulmonary circulation.
We disagree with commenter that liver and/or kidney transplants
must be placed on the exclusion list, just because these patients have
an elevated risk of thrombosis. We note that the risk-adjustment model
for PSI 12 explicitly accounts for the increased risk associated with
solid organ transplantation. For example, liver transplantation (MDRG
7702) is associated with an adjusted odds ratio of 3.2 in AHRQ's v5.0
risk model for PSI 12. For more information, we refer the commenter to:
http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf.
Comment: One commenter requested that CMS add an exclusion for any
patient who has a tracheostomy. The commenter noted that it is not the
surgery that puts that patient at risk for PE or DVT, it is the medical
problem that leads to the patient needing a tracheostomy that puts the
patient at increased risk for PE or DVT.
Response: We will continue to monitor and analyze the impact of our
measures selection for further adjustments to the HAC Reduction
Program. We agree that some medical conditions which lead to a
tracheostomy \82\ may also increase patients' risk for PE or DVT.
However, we do not believe that just because a patient has a
tracheostomy they are at increased risk for PE or DVT and should be
excluded. We note that most of the medical conditions that can lead to
tracheostomy are already captured by the extensive set of risk factors
variables used in the risk adjustment for PSI 12. Further suggestions
regarding potential PSI measure revisions can be made directly to:
[email protected]
---------------------------------------------------------------------------

\82\ A tracheotomy or a tracheostomy is an opening surgically
created through the neck into the trachea (windpipe) to allow direct
access to the breathing tube and is commonly done in an operating
room under general anesthesia. Definition obtained from: http://www.hopkinsmedicine.org/tracheostomy/about/what.html.
---------------------------------------------------------------------------

Comment: Commenters appreciated the modifications to PSI 15, but
requested that CMS update its guidance regarding the correct coding of
PSI 15 to ensure that abdominopelvic punctures or lacerations inherent
to a surgery are not incorrectly coded as accidental.
Response: Suggestions regarding potential PSI measure revisions can
be made directly to: [email protected]
Comment: One commenter did not support PSI 15 because no large-
scale assessment has been done to assess the validity of the measure
component, and it is difficult to determine if a reoperation was
directly related to the accidental puncture/laceration. The commenter
recommended that PSI 15 (Accidental Puncture or Laceration) be improved
considerably by adding the requirement for a reoperation to occur that
is related to the accidental puncture or laceration.
Response: We thank the commenter for its feedback. Suggestions
regarding potential PSI measure revisions can be made directly to:
[email protected]
Comment: One commenter recommended broadening the PSI 03 Pressure
Ulcer Rate exclusion criteria to include those from Appendix I-
Immunocompromised State Diagnosis and Procedure Code; broadening the
PSI 06 Iatrogenic Pneumothorax Rate to include pneumothorax related to
CPR; broadening the PSI 07 CVC Related Blood Stream Infection Rate
exclusion criteria to include cases with a length of stay of less than
2 days; broadening the PSI 08 Post Op Hip Fracture exclusion criteria
to include anything falling within Appendix H: Cancer Diagnosis Codes
regardless of metastasis and regardless of Present on Admission status;
broadening the PSI 09

[[Page 57020]]

Perioperative Hemorrhage and Hematoma Rate exclusion criteria to
include Abnormal Coagulation Profile R79.1 as an exclusion criterion
with present on admission and creating a new seroma ICD-10 code;
changing the exclusion criteria of PSI 10 Postoperative Physiologic and
Metabolic Derangement Rate to a time based element in hours as opposed
to the number of postoperative days and including Sinus Bradycardia and
Sinus Tachycardia cardiac arrhythmias in the exclusion criteria;
changing the inclusion criteria of the PSI 11 Postoperative Respiratory
Failure Rate in the numerator inclusion criteria, vent time,
reintubation criteria and broadening the exclusion criteria to include
cases that started in MDC 4 or 5 but advanced to the Pre-MDC;
broadening the PSI 12 Perioperative Pulmonary Embolism or Deep Vein
Thrombosis exclusion criteria to include inheritable hypercoagulable
conditions, acquired hypercoagulable conditions, present on admission
status; excluding PSI 12 from public reporting and pay-for-performance
programs; modifying the PSI 13 Postoperative Sepsis Rate to delete the
inclusion criteria for post-procedural shock; and extending the
exclusion criteria of PSI 14 Postoperative Wound Dehiscence Rate to a
length of state of four days.
Response: We thank the commenter for its feedback. Suggestions
regarding potential PSI measure revisions can be made directly to:
[email protected]
After consideration of the public comments we received, we are
finalizing the adoption of the modified PSI 90: Patient Safety and
Adverse Events Composite (NQF #0531) discussed above as proposed.
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'' during which data are
collected 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25121
through 25122), we proposed, beginning in FY 2017 and for subsequent
years, to permit flexibility to use a period other than 2 years from
which data are collected in order to calculate the Total HAC Score
under the HAC Reduction Program. We also proposed 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 \83\ (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 \84\ 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. A full year of nationally representative ICD-10 coded data must
be available for the development risk-adjusted models based on a
national reference population.
---------------------------------------------------------------------------

\83\ International Classification of Diseases, (ICD-10-CM/PCS)
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
\84\ 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 proposed 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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25121), we erroneously referenced the incorrect date for the end of the
FY 2019 performance period. We had stated that ``For the FY 2019 HAC
Reduction Program, we proposed to use the 21-month performance period
from October 1, 2015 through September 30, 2017.'' Accordingly, we
issued a correction notice (81 FR 37176). The 21-month performance
period should be October 1, 2015 through June 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, the impact of suspending the measure, 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 proposed
to use the 24-month performance period from January 1, 2016 through
December 31, 2017 (CYs 2016 and 2017).
We believe that using a 15-month (FY 2018 only) and a 21-month (FY
2019

[[Page 57021]]

only) performance period for Domain 1 and a 24-month performance period
for Domain 2 balances the needs of the HAC Reduction Program and allows
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 invited 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.
Comment: Many commenters supported the proposal to limit the
performance periods. Commenters stated that although many hospitals
typically benefit from a longer reporting period, in this case they
recognize that combining ICD-9 and ICD-10 data would create confusion.
One commenter recommended that CMS transition quality measures to full
ICD-10 and not rely upon ICD-9 codes in the new performance periods.
Response: We thank commenters for their feedback and agree that
combining ICD-9 and ICD-10 data would create confusion. We believe this
policy 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
reporting burden and program disruption.
Comment: Many commenters expressed concern that reducing the
performance period to 15 months in FY 2018 will undermine the
reliability of the results. Commenters supported CMS' decision of not
combining claims data for ICD-9 and ICD-10. However, commenters believe
that all measures should be reported first in the Hospital IQR Program
for one year before the performance period in a payment program begins.
Commenters stated that reporting measures in the Hospital IQR Program
provides transparency, allows stakeholders to gain experience
submitting measures, and allows time to identify errors and unintended
consequences. Commenters recommended that CMS suspend PSI 90 from
inclusion in calculating scores for the Hospital VBP Program and HAC
Reduction Program and suspend it from public reporting on Hospital
Compare until a 24-month performance period can be re-established, or
until AHRQ has satisfactorily demonstrated that the shorter performance
period will produce equitable results.
Response: We understand stakeholder concerns about the potential
impacts to hospital performance on quality measures when ICD-10 was
implemented on October 1, 2015, as well as suggestions for more
extensive testing to understand the impacts before any payments or
penalties are implicated. As part of the ICD-10 transition planning
that has taken place over the past several years, we have performed
testing and analyses across the agency with respect to system readiness
and claims payment, and continue to provide extensive education and
outreach to providers, vendors, and other payers through the CMS ICD-10
Web site.\85\ All measure specifications have been translated to and
updated for corresponding ICD-10 code specifications and we were fully
prepared to accept ICD-10-based claims data beginning October 1, 2015
in accordance with established program timelines.
---------------------------------------------------------------------------

\85\ https://www.cms.gov/Medicare/Coding/ICD10/index.html.
---------------------------------------------------------------------------

In response to commenters' specific concerns regarding PSI 90, we
note that the NQF found the modified PSI 90 to be reliable using 12
months of data.\86\ We further note that we base our measure selection
decisions for the HAC Reduction Program on measures currently
available, risk adjusted, and reflective of hospital performance. We
also take NQF endorsement and support by the MAP into account in
deciding which measures to adopt. All the measures finalized for
inclusion in the HAC Reduction Program are NQF-endorsed and were
recommended for inclusion in the HAC Reduction Program by the MAP.
---------------------------------------------------------------------------

\86\
Modified_Version_of_PSI90_NQF0531_Composite_Measure_Testing_151022.pd
f available in the Patient Safety for Selected Indicators (modified
version of PSI90) zip file at: http://www.qualityforum.org/ProjectMeasures.aspx?projectID=77836.
---------------------------------------------------------------------------

We further note that the HAC Reduction Program and the other value-
based and quality reporting programs are separate programs with
different purposes and policy goals. We note that the PSI 90 measure
covers topics of critical importance to quality improvement in the
inpatient hospital setting and to patient safety. We selected this
quality measure because we believe that hospital acquired conditions
comprise some of the most critical patient safety areas, therefore
justifying the use of the measure in more than one program. Although
the measure exists in more than one program, the measure is used and
calculated for very distinct purposes. Accordingly, we believe that the
critical importance of this measure to patient safety warrants
inclusion in the HAC Reduction Program.
Comment: One commenter noted that the reduced performance period of
21 months for FY 2019 payment determination listed in the proposed rule
indicates the period October 1, 2015 through September 30, 2017, which
is a total of 24 months. The commenter requested that CMS provide
clarification as to which months will be used to determine performance
for FY 2019.
Response: In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25121),
we erroneously referenced the incorrect date for the end of the FY 2019
performance period. Accordingly, we issued a correction notice updating
September 30, 2017 to read June 30, 2017 (81 FR 37176). We are
confirming that the FY 2019 HAC Reduction Program will use the 21-month
performance period from October 1, 2015 through June 30, 2017.
Comment: Commenters requested that CMS continue working with
hospitals, measure developers and all other stakeholders to address the
potential unintended consequences of combining measure data collected
under ICD-9 and ICD-10. Commenters recommended that CMS undertake an
analysis of any performance differences resulting from the transition
to ICD-10 for all of the measures used in the pay-for-performance
program, with the results of those analyses be made publicly available.
Commenters noted that such data would help inform about any potential
unintended biases and measure performance changes resulting from the
use of the new codes.
Response: We will continue to work with stakeholders during the
ICD-10 transition to monitor and assess impacts and to address any
potential issues that may occur. We continue to publish comprehensive
documentation of all ICD-10 resources by quality program and/or measure
type. We also plan to continue to conduct national provider calls and
other presentations to help stakeholders understand the potential
impact of ICD-10 on their measure performance. We encourage
stakeholders to subscribe to our listserv titled ``Hospital Inpatient
Value-Based Purchasing (HVBP) and Improvement'' to receive notification
of scheduled events. Stakeholders may join at: https://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic/ListServe/Register. For those individuals

[[Page 57022]]

who are interested in participating in future ICD-10 Coordination and
Maintenance Committee meetings, information on the Committee can be
found on the CMS Web site at: https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. We
encourage public participation at these meetings either in person, by
conference lines, or by the livestream provided by CMS.
After consideration of the public comments we received, we are
finalizing the definition of applicable period at 42 CFR 412.170 and
the 15-month FY 2018 performance period discussed above as proposed. We
are finalizing the FY 2019 performance period as the 21-month
performance period October 1, 2015 through June 30, 2017.
c. 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,\87\ other hospitals without Domain 2 scores are potentially
treated the same as low performers in the same decile.
---------------------------------------------------------------------------

\87\ 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 \88\
z-scores. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25122
through 25123), we proposed to use Winsorized z-scores for FY 2018.
---------------------------------------------------------------------------

\88\ 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

[[Page 57023]]

the national mean. For each measure, a 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:

Z-Score = (Hospital's Measure Performance--Mean Performance for All
Hospitals) Standard Deviation for All Hospitals

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,\89\ 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.
---------------------------------------------------------------------------

\89\ 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 invited public comments on our proposal to adopt the z-score method
for calculating measure results beginning in the FY 2018 HAC Reduction
Program.
Comment: Many commenters commended CMS' willingness to consider
changes to the underlying scoring methodology. Commenters noted that
the shift away from the decile-based scoring approach to a Winsorized
z-score more accurately represents a hospital's performance in relation
to the national mean, rather than forcing scores into deciles.
Commenters stated that this transition promotes a better statistical
methodology, resulting in a smoother distribution of scores and
avoiding unintended anomalies that result from the current decile-based
scoring method.
Response: We thank commenters for their support and agree that the
transition promotes a better statistical methodology.
Comment: Commenters recommended that CMS closely monitor the
effects the new scoring methodology may have among essential hospitals
that serve a larger volume of vulnerable patients and to evaluate
whether any particular category of hospital is disproportionately
impacted by the change.
Response: We understand commenters' concerns and we believe these
improvements mark progress towards enhancing our ability to distinguish
hospital performance and we will continue to monitor the impacts of the
scoring change.
Comment: Commenters requested that CMS provide robust guidance and
support to hospitals to avoid confusion as the agency implements its
new methodology. Commenters also requested CMS provide hospitals with
the ability to compare their current performance scoring with the
proposed methodology. One commenter asked if the z-scores would be
publicly reported and how hospitals will receive their scores.
Response: We thank commenters for their input and note that we plan
to provide education and outreach as we work with hospitals to inform
them about the new methodology and any potential impacts of the scoring
change. We note that each hospital will receive a Hospital-Specific
Report (HSR) containing its results prior to public reporting. We will
work to ensure that the HSRs and accompanying documents contain the
information hospitals need to understand their performance in the
program. The results will be publicly reported on Hospital Compare
according to already established timelines. We appreciate commenters'
suggestion of providing hospitals with the ability to compare their
results under the current performance scoring and the proposed scoring
and we will work to determine the feasibility of providing these data.
Comment: Commenters recommended that CMS reevaluate the scoring of
Domain 2. Commenters stated they would like to see the same process
used in Domain 2 as is used in Domain 1 if there are zero adverse
events. Commenters noted that the current scoring of Domain 2 is
ignoring perfect performance and puts some hospitals at an unfair
advantage.
Response: We thank commenters for their input. We believe the z-
score methodology further improves alignment between the HAC Reduction
Program scoring domains by making the distributions of domain scores
more comparable and placing them on the same scale. Neither the current
nor the proposed methodology ignore hospitals with zero observed
infections; in both cases they would receive a measure score of zero
unless they have insufficient data. Under Domain 2, hospitals are
considered to have insufficient data when they have less than one
predicted infection for a given measure and do not receive a measure
score in this scenario. We believe this criterion is comparable to the

[[Page 57024]]

insufficient data requirements in Domain 1.
Comment: Commenters supported the proposal to change the scoring
methodology. However, commenters expressed concern that this new
methodology increases the penalization rate among moderately high DSH
hospitals (50 to 64 percent) from 28 percent to 35 percent. Commenters
noted that while this increase may only affect 11 additional hospitals,
it shifts the penalties for this program towards academic hospitals,
which are already at a disadvantage in other value-based programs.
Response: We appreciate commenters' concerns and note that rather
than reducing the penalty burden on any particular category of
hospitals, the proposed scoring change aims to correct an identified
limitation in the HAC Reduction Program: The penalization of hospitals
with no Domain 2 score and zero adverse events in Domain 1. Hospitals
with only Domain 1 data received higher Total HAC Scores than hospitals
contributing data in both domains contributing to a misalignment. We
believe that the proposed scoring approach corrects this misalignment
and along with previously finalized modifications to Domain 2,
including additional measures, expansion of patient care locations, and
re-baselining, will substantially reduce the number of hospitals with
no Domain 2 score moving forward.
Comment: Some commenters did not support the use of Winsorized z-
scores and expressed concern that neither the proposed z-score approach
nor the current decile-based scoring is adequate to identify meaningful
differences in performance across hospitals. These commenters stated
that an AHA-commissioned analysis estimating the impact of the proposed
scoring changes and comparing them to the current decile-based approach
found that the percentages of large hospitals, high-DSH payment
hospitals, and teaching hospitals penalized under the z-score method
are minimally different from the current scoring method.
Commenters further conducted a simulation analysis to determine
whether hospitals in particular performance categories had Total HAC
Scores that are statistically different from the payment penalty
threshold score. These commenters placed hospitals into ventiles (that
is, division of the population into 20 approximately equal groups)
(with higher ventiles indicating worse performance) of Total HAC
Scores. Commenters then calculated the percentage of hospitals whose
performance was statistically different from the penalty threshold
score in each ventile. Commenters found that as the performance ventile
increased, the percentage of hospitals whose performance scores are
statistically different from the performance threshold score declined.
In some cases, (that is, the 15th and 16th ventiles under the decile
scoring method and the 17th ventile under the z-score method),
virtually no hospitals had Total HAC Scores that were statistically
different from the payment penalty threshold score.
Commenters also stated that it does not appear that the z-score
approach would make it any more likely that CMS would penalize 25
percent of hospitals. Commenters stated their analysis showed that
under either method, 25 percent of hospitals would be penalized in FY
2017. Commenters recommend that CMS consider adopting a scoring
methodology that recognizes both improvement and achievement but noted
that the current legislative language does not permit that kind of
flexibility. Commenters stated they saw little merit to changing the
scoring approach at this time, given that hospitals have gained an
understanding of the decile-based scoring approach and that there are
minimal differences in the distribution of penalties.
Response: We thank commenters for their input and note that a TEP
convened in late 2015 and early 2016 supported this approach. Rather
than reducing the penalty burden on any particular category of
hospitals, the proposed scoring change aims to correct an identified
limitation in the HAC Reduction Program: The penalization of hospitals
with no Domain 2 score and zero adverse events in Domain 1. We note
that under decile-based scoring, hospitals with insufficient data to
calculate a Domain 2 score received higher Total HAC Scores due to only
having a Domain 1 score. The proposed scoring change aims to correct
this problem by applying Winsorized z-scores, a continuous scoring
approach that brings the domains into alignment. The proposed approach
essentially eliminates ties in Total HAC Scores, reduces effects on
outliers, and enhances the ability to distinguish among hospitals of
varying quality and ensuring consistent penalization of exactly 25
percent of hospitals. This approach also enhances our ability to
distinguish among hospitals of varying quality, unlike deciles, where
two hospitals with very different scores might be in the same decile.
Coupled with Winsorization, which diminishes the impact of outlying
measure scores on the program while preserving information about
hospitals' relative performance, the proposed methodology represents a
substantial improvement in the HAC Reduction Program.
Comment: Some commenters recommended that CMS explore additional
scoring methods that could adjust for skewed distributions and avoid
penalizing hospitals with no adverse events. Commenters agreed with CMS
that the z-score will reduce ties. However, commenters noted that z-
scores are best used with a normal distribution and are not appropriate
for the CDC NHSN measures in Domain 2, which are skewed to the left
(that is, many hospitals have low infection rates), unlike Domain 1,
which has an approximately normal distribution. Commenters recommend
CMS consider scoring methods that account for the skew in the
distribution and do not penalize hospitals with zero adverse events,
including p-values for the CDC NHSN measures in Domain 2.
Response: We thank commenters for their input and recommendations.
Although Winsorized z-scores do not directly account for this skew, the
methodology preserves information about hospitals' relative performance
and reduces the likelihood of penalization for hospitals with zero
adverse events. We note that Winsorization is not intended to produce a
symmetric distribution; rather, it aims to reduce the impact of extreme
values. We will continue to monitor the HAC Reduction Program and take
the commenters' concerns under consideration as we strive to improve
the Program.
Comment: Commenters expressed concern that the program's scoring
methodology is extremely complex and requires a greater degree of
transparency so hospitals can understand how this potential change
could impact their Medicare payments as well as how they benchmark
against peer hospitals. Commenters requested that CMS perform
additional analysis on the proposed scoring methodology to determine
whether certain types of hospitals are disproportionately impacted
under the new approach. Commenters noted that grouping all hospitals
into one population to be analyzed is not statistically sound.
Commenters stated that there are simply too many differences between
hospitals across the nation to perform accurate risk adjustments so
that all hospitals are evaluated and scored fairly. Commenters
recommend that CMS utilize peer cohorts, groupings, or stratification
and compare only hospitals with similar volumes and demographics. One
commenter

[[Page 57025]]

requested that CMS release a public use file showing the impact of the
switch to the Winsorized z-score to allow hospitals to prepare for
financial impacts.
Response: We understand commenters' concerns, however, we disagree
with commenters' argument that the scoring methodology is extremely
complex. We note that TEP members emphasized the proposed methodology
offers ease of implementation, transparency, and familiarity to a wide
range of stakeholders given their use in other quality measurement
initiatives. We also note that the Five-Star Quality Rating System has
already adopted Winsorization as part of its rating methodology. To
address commenters' specific concerns about peer cohorts, groupings, or
stratification, we remind readers that we discussed the ongoing work of
NQF, ASPE, MedPAC and other stakeholders regarding risk adjustment in
the FY 2016 IPPS/LTCH PPS final rule (80 FR 49572). We will closely
examine their findings and recommendations and consider how they apply
to our quality programs.
Comment: Commenters expressed concern about the continuing shifts
in all of the three performance-based programs due to measures moving
in and out of the programs, changing domain weights, and performance
and base years. Commenters noted that hospitals are overwhelmed with
competing methodologies, varying target rates, and multiple confusing
and mixed messages that these measures present when applied under
different programs.
Response: We understand commenters' concerns and note that we work
to provide education and outreach, as well as public materials, to
assist stakeholders with understanding each program. We strive to make
the HAC Reduction Program as transparent and straightforward as
possible and note that the HAC Reduction Program, the Hospital VBP
Program, and the Hospital Readmission Reduction Program have different
policy goals. The measures and methodology selected for the HAC
Reduction Program cover topics of critical importance to quality
improvement in the inpatient hospital setting and to patient safety.
After consideration of the public comments we received, we are
finalizing the changes to the scoring methodology discussed above as
proposed.
4. 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25123), we
welcomed public comment and suggestions for additional HAC Reduction
Program measures that will help achieve the program goals in these or
other measurement areas.
Comment: Commenters recommended that CMS not include measures based
solely on current availability, but rather to include measures that:
(1) Have standardized data collection processes; (2) external data
validation programs to ensure the accuracy of the data; and (3) have
support and endorsement of providers as valid measures to assess
quality and cost of care. Commenters noted that by including measures
that meet this criteria, CMS will ensure provider engagement and
implement a process of assessing quality, cost, and value of care that
is transparent. Commenters noted that quality measurement should become
more focused on a small number of metrics that emphasize patient-
reported and patient-generated data.
Commenters encouraged CMS to add additional measures that address
adverse drug events, ventilator-associated events, diagnostic errors,
and a broader scope of surgical site infections. One commenter believes
that more can be done to improve the early detection and treatment of
sepsis in the inpatient setting. One commenter recommended that CMS
should add the Severe Sepsis and Septic Shock Management Bundle (NQF
#0500) to the HAC Reduction Program. One commenter recommended CMS
include measures that incorporate appropriate imaging technology. One
commenter noted that there are numerous guidelines regarding the use of
ultrasound and a reduction in HACs such as punctures, ruptures,
pneumothorax, excessive bleeding, lacerations.
One commenter requested that CMS encourage quality-related
activities around blood management and urged CMS to adopt a blood and
blood products quality strategy that recognizes blood as a valuable
resource that should be preserved through blood management and
monitored via quality measures. One commenter requested that CMS adopt
quality measures that pertain to wound care in general and continue to
work with healthcare professionals and industry in the development of
new wound care measures. One commenter stated that the U.S. Wound
Registry would serve as an excellent resource in this regard, as it
includes numerous wound care measures, some of which could be adopted
for inpatient hospital quality programs with little or no modifications
to the specifications. One commenter believed that the HAC Reduction
Program should include an additional option for Domain 1 that would
provide hospitals the ability to report an electronic measure of
patient harm derived from electronic health records (EHRs). Finally,
one commenter recommended that CMS create a quality measure on Surgical
Site Infection (SSI) rates following C-section because it would further
drive hospitals to boost their quality of care initiatives around this
high-volume surgery.
Response: We thank the public for these views and we will consider
them as we develop future policy.
5. 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/

[[Page 57026]]

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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25123), we did not
propose any changes to this policy at this time.
6. 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 Program. In the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25123 through 25124), we did
not propose 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 and 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 CY 2011 OPPS/ASC 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 CY 2011
OPPS/ASC final rule with comment period (75 FR 72212 through 72238),
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434 through 53448), and
the FY 2015 IPPS/LTCH final rule (79 FR 50122-50140).
2. Change in New Program Growth From 3 Years to 5 Years
a. Urban and Rural Hospitals
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25124), 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

[[Page 57027]]

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 refer to as the ``3-year window'' for ease of reference in the
proposed rule and this final 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 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. 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 Pub. L. 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 Pub. L.
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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25125), we
proposed to revise the regulations at Sec. 413.79(k) (and which, in
turn, would

[[Page 57028]]

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 would 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 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 proposed 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 clarified under the 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). In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25126), we proposed to revise Sec. 413.79(k)(7),
which specifies the effect on rural track FTE limitations when
previously rural areas become urban areas due to updates in the OMB
standards for delineating urban and rural areas, because the existing
paragraphs under Sec. 413.79(k)(7) discuss the ``3-year'' growth
period. Consequently, we stated in the proposed rule that 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. 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25126),
we proposed 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 acknowledged 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 proposed 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25126), we proposed 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 would 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

[[Page 57029]]

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 invited public comment on this proposal.
Comment: Commenters supported the policy changes as proposed.
Response: We appreciate the commenters' support.
Comment: Some commenters objected to the fact that CMS did not
exempt rural training track programs from the 3-year rolling average
and the IME IRB ratio cap in the proposal. These commenters claimed
that immediate implementation of the rolling average and the IME IRB
ratio cap are ``extremely detrimental'' to hospitals' ability to
establish new rural tracks, as the training costs would not be fully
paid in the initial years of the program's establishment.
Response: We understand the payment concerns resulting from
immediate application of the rolling average and IRB cap to rural track
programs. However, we note that we did not propose any changes with
regard to these policies. Rather, we reiterated our current policy, as
reflected in the regulations at Sec. 412.105(f)(1)(v)(F) for IME and
Sec. 413.79(d)(7) for direct GME, effective for cost reporting periods
beginning on or after April 1, 2000. In the FY 2017 IPPS/LTCH proposed
rule (81 FR 25125), we referred to the August 1, 2003 IPPS final rule
(68 FR 45456 through 45457), where we clarified our existing policy
that 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.
Comment: One commenter requested that CMS confirm that a FTE
resident cap adjustment for a rural teaching hospital participating in
the rural track is only permitted in those cases where the approved
residency program meets the CMS criteria for being a newly established
program.
Response: We confirm the commenter's statement. Section
1886(h)(4)(H)(iv) of the Act provides for a FTE resident cap adjustment
for an urban hospital that establishes separately accredited rural
tracks; the statute does not provide for a similar adjustment to rural
hospitals participating in rural tracks. Accordingly, only if the
program is considered new for Medicare payment purposes can the rural
teaching hospital also receive a resident cap adjustment for the
program. Under Sec. 413.79(e)(3), any time that a rural hospital
participates in training residents in a new program, the rural hospital
may receive an increase to its FTE resident caps. We refer readers to
the FY 2010 IPPS/LTCH PPS final rule for the criteria identifying a new
program for Medicare payment purposes (74 FR 43908 through 43917).
Comment: Many commenters expressed concern about the future of
primary care and family practice in rural areas of the country. The
commenters requested that CMS make additional policy changes that
result in greater numbers of primary care physicians. One commenter
specifically requested changes that would facilitate increased training
of residents in emergency medicine. The commenters also requested that
CMS allow additional opportunities through which rural hospitals, as
well as urban hospitals that form rural training track programs, can
increase their FTE resident caps and direct GME PRAs. Along those
lines, some commenters requested that CMS revise its definition of a
teaching hospital so that hospitals can choose to train residents but
remain exempt from limits like FTE resident caps and PRAs. A number of
commenters suggested that CMS relax its definition of ``newly
established program'' to allow urban hospitals to establish new rural
tracks that can establish their own cap limits. Another commenter
requested that CMS allow any approved residency program in any
specialty that meets the definition of ``rural track or integrated
rural track'' at Sec. 413.75 to be treated as such, even if it does
not have approval as a rural track from the relevant accrediting body.
Response: We believe that these comments are outside of the scope
of our proposal. The proposal was limited to conforming the window in
which rural training track programs can establish their rural track FTE
limitation to the 5-year window in which a new teaching hospital can
establish new FTE resident caps, as described in the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53416 through 53424). Therefore, we are not
addressing these comments in this final rule.
Comment: Commenters asked CMS to clarify the circumstances under
which rural hospitals can increase their FTE resident caps.
Response: Rural hospitals are permitted to receive cap adjustments
for participating in training residents in new medical residency
training programs at any time. 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 (77 FR 53416 through 53424) 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. In addition,
to determine if a program is a new medical residency training program
for which a rural hospital could receive cap adjustments, as opposed to
an expansion of an existing program, we refer readers to the discussion
and criteria in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43908
through 43917). In that final rule, we explained that in order to
determine whether a program is new and whether, as a result, a hospital
qualifies for an FTE cap adjustment, the supporting factors that a
hospital should consider are (but not limited to) as follows:
Is the program director new?
Is the teaching staff new?
Are there new residents?
In determining whether a particular program is a newly established
one, it may also be necessary to consider factors such as the
relationship between hospitals (for example, common ownership or a
shared medical school or teaching relationship) and the degree to which
the hospital with the original program continues to operate its own
program in the same specialty. In addition, the following factors could
also be considered:
Has this program been relocated from a hospital that
closed?
If so, was this program part of the closed hospital's FTE
cap determination?
More generally, is this program part of any existing
hospital's FTE cap determination?
We would not consider a transferred program to be new in the case
where the program director, teaching staff, and residents are the same
as another program that closed in another hospital and the first
hospital remains open, or when an FTE cap that was associated with the
first program is still available for use by an existing provider.

[[Page 57030]]

Comment: One commenter requested that CMS provide a detailed
example of how the urban cap adjustment and (if applicable) the rural
cap adjustment are calculated at the start of the sixth year of the
rural training track. The commenter requested that the example specify
how the cap calculation is impacted by time spent by residents in the
urban training site versus the rural training site.
Response: We appreciate the commenter's request for a detailed
example of the calculation of the urban (and rural, if applicable) FTE
resident caps adjustments after the close of the fifth program year of
the rural track, as it provides the opportunity to clarify this
calculation in the context of rural tracks, which we did not do in the
proposed rule. The rural track FTE limitation for the urban hospital,
and the FTE resident cap adjustment for the rural hospital (if the
rural track is a new program), would be calculated in the same manner
as the FTE resident caps are calculated for urban hospitals first
participating in training residents in new programs and rural hospitals
participating in new programs at Sec. Sec. 413.79(e)(1) and (e)(3).
Because the goal of our proposal was to conform the policies for
calculating the rural track FTE limitation and FTE resident cap
adjustment to those adopted in FYs 2013 and 2015, effective for rural
track training programs started on or after October 1, 2012, we are
conforming the methodology for calculating the rural track FTE
limitations at Sec. 413.79(k) to the methodology that is already at
Sec. Sec. 413.79(e)(1) and (c)(3) for calculating the FTE resident
caps of new teaching hospitals. The regulations at Sec. Sec.
413.79(e)(1) and (e)(3) state that the FTE resident cap adjustment is
the sum of the product of 3 factors: (1) The highest total number of
FTE residents trained in any program year, during the fifth year of the
first new program's existence at all of the hospitals to which the
residents in that program rotate; (2) the number of years in which
residents are expected to complete the program, based on the minimum
accredited length for each type of program; and (3) the ratio of the
number of FTE residents in the new program that trained at the hospital
over the entire 5-year period to the total number of FTE residents that
trained at all hospitals over the entire 5-year period. This
methodology accounts for the common scenario where residents spend time
training at more than one hospital (and also nonprovider settings)
during the 5-year growth window, and apportions the total FTE resident
caps between or among the participating hospitals. The FY 2015 IPPS/
LTCH PPS final rule (79 FR 50106 through 50107) contains an example of
how the FTE resident caps are calculated after 5 years, and are
apportioned between participating hospitals, one hospital being a new
teaching hospital that qualifies for FTE resident cap adjustments, and
one being an existing teaching hospital with an already established FTE
resident caps. The formula requires determining the share of the
overall FTE resident caps at both hospitals to ensure proper
apportionment. Therefore, this methodology is used to determine and
apportion the FTE resident caps of the urban hospital, when the rural
track is not a new program, or the urban and rural hospitals, when the
rural track program is a new program. Although the example in the FY
2015 IPPS/LTCH PPS final rule (79 FR 50106 through 50107) illustrates
the methodology, we are providing an additional example where residents
train at an urban hospital, a rural hospital, and at a rural
nonprovider site. Under Sec. 413.78(g), if a hospital (or hospitals,
urban or rural) incurs the cost of the resident's salary and fringe
benefits while training at the nonprovider site and meets the other
conditions set forth in the regulations, the hospital may count that
FTE training time for IME and direct GME purposes, on the hospital's
cost report in the current training year, but also when determining the
hospital's share of the new program FTE resident cap adjustments.
Following is the example:
Urban Hospital and Rural Hospital jointly sponsor a separately
accredited rural track program. The program is in family medicine (3
years minimum accredited length), and is accredited for a total of 6
residents, 2 in each program year (PGY). The Urban Hospital and Rural
Hospital do have previously existing FTE resident caps; however,
neither trains residents in an existing family medicine program. The
family medicine rural track is newly created, and meets the newness
criteria as described in the FY 2010 IPPS/LTCH PPS final rule (74 FR
43908 through 43917) and other applicable requirements at Sec.
413.78(g). Therefore, Rural Hospital may receive an increase to its FTE
resident caps for the rural track program. In addition, Urban Hospital
complies with the criteria at Sec. 413.79(k)(5). The residents spend
PGY1 at Urban Hospital, and then the PGY2s and PGY3s rotate to a rural
area, to train at both Rural Hospital and Rural Clinic (a nonprovider
site). The PGY2 and PGY3 residents, while mostly assigned to the rural
area, do come back to the Urban Hospital for some required training.
However, the residents spend more than 50 percent of the duration of
the 3 year program in the rural area. Therefore, Urban Hospital
qualifies to receive a rural track FTE limitation. Rural Hospital
incurs the cost of the salaries and fringe benefits of the residents
for the time spent training at Rural Clinic and meets other applicable
requirements at Sec. 413.78(g) to be able to count the time residents
spend training at the Rural Clinic. The rotations and the cap
calculation are as follows:

----------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5
----------------------------------------------------------------------------------------------------------------
PGY1 2.0 Urban Hospital......... PGY1 2.0 Urban PGY1 2.0 Urban PGY1 2.0 Urban PGY1 2.0 Urban
Hospital. Hospital. Hospital. Hospital.
PGY2 0.......................... PGY2 2 @.90 Rural PGY2 2 @.90 Rural PGY2 2 @.90 Rural PGY2 2 @.90 Rural
Hospital and Hospital and Hospital and Hospital and
Rural Clinic Rural Clinic Rural Clinic Rural Clinic
(1.8), 2 @.10 (1.8), 2 @.10 (1.8), 2 @.10 (1.8), 2 @.10
Urban Hospital Urban Hospital Urban Hospital Urban Hospital
(.20). (.20). (.20). (.20).
PGY3 0.......................... PGY3 0............ PGY3 2 @.95 Rural PGY3 2 @.95 Rural PGY3 2 @.95 Rural
Hospital and Hospital and Hospital and
Rural Clinic Rural Clinic Rural Clinic
(1.9), 2 @.05 (1.9), 2 @.05 (1.9), 2 @.05
Urban Hospital Urban Hospital Urban Hospital
(.10). (.10). (.10).
TOTAL 2.0....................... TOTAL 4.0......... TOTAL 6.0......... TOTAL 6.0......... TOTAL 6.0 5 Year
Total = 24.
----------------------------------------------------------------------------------------------------------------

Urban Hospital's 5 YEAR FTE TOTAL = 11.1.
Rural Hospital's 5 YEAR FTE TOTAL (includes time at Rural Clinic) =
12.9.
5 Year FTE Total = 24.
Step 1: Highest number of FTE residents training in any program
year

[[Page 57031]]

during fifth year across all participating hospitals is 2.0:
PGY 1s = 2.0.
PGY 2s = 2.0.
PGY 3s = 2.0.
Step 2: 2.0 x 3 (minimum accredited length) = 6.
Step 3: Urban Hospital's cap adjustment is based on the ratio of
training at Urban Hospital over all 5 years to the total training that
is occurring at all sites over all 5 years: 6 x [11.1/(24)] = 2.76.
Step 4: Rural Hospital's cap adjustment is based on the ratio of
training at Rural Hospital and Rural Clinic over all 5 years to the
total training that is occurring at all sites over all 5 years: 6 x
[12.9/(24)] = 3.24.
2.76 + 3.24 = 6.0, the total cap assignment does not exceed the
total number of accredited slots. Urban Hospital's rural track FTE
limitation is 2.76. Rural Hospital's FTE cap adjustment is 3.24. (We
note that this calculation is done separately for IME and direct GME
caps respectively.)
We also proposed to amend the regulations at Sec. 413.79(k) (and
which, in turn, would affect IME adjustments under Sec.
412.105(f)(1)(x)) to reflect that, effective with rural track programs
started on or after October 1, 2012, the rural track FTE limitation is
calculated consistent with the methodology for new programs at Sec.
413.79(e)(1) for urban hospitals and (e)(3) for rural hospitals.
After consideration of the public comments we received, we are
finalizing our proposed revision of the regulations at Sec. 413.79(k)
(and which, in turn, will affect IME adjustments under Sec.
412.105(f)(1)(x)), with the technical corrections described below, 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
(subject to the rolling average at Sec. 413.79(d)(7) and the IME ratio
cap at Sec. 412.105(a)(1)(i), if, applicable), 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 will take effect.
In finalizing the proposed revisions to Sec. 413.79, we reviewed
the regulatory text as a whole and are making some technical
corrections to the regulations text throughout Sec. 413.79(k) as
follows:
At Sec. 413.79(k)(1)(ii), we are removing the phrase ``or
the rural hospital(s)'' from this paragraph because it is technically
inaccurate; Sec. 413.79(k)(1) specifies what the urban hospital may
include in its FTE count and the regulation text at Sec.
413.79(k)(1)(ii) inadvertently references training at the rural
hospital, which cannot be included. Therefore, we are revising the
regulation text by removing the phrase ``or the rural hospital(s)''.
The provision now specifies that, 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 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.
Throughout Sec. 413.79(k), we are replacing the term
``nonhospital'' site with ``nonprovider'' site, consistent with section
5504 of the Affordable Care Act, titled ``Counting Resident Time in
Non-Provider Settings,'' which refers to ``nonprovider setting[s]''
instead of ``nonhospital setting.''
At Sec. 413.79(k)(4), we are updating and correcting the
reference to counting time in nonprovider settings from ``Sec.
413.78(d)'' to ``Sec. 413.78(d) through (g)''.
At Sec. 413.79(k)(4)(ii)(B)(2), we are inserting the
italicized language to clarify the mathematical calculation, as
follows: The ratio of the length of time in which the residents are
training at the rural nonprovider site(s) only to the total duration of
the program. The inserted italized language clarifies the precise ratio
by which to apportion the urban hospital's rural track FTE limitation
to reflect the amount of time the FTE residents spend at the rural
nonprovider site. (We note that we had proposed to revise Sec.
413.79(k)(4)(ii) as part of our proposal that, effective with rural
track training programs started on or after October 1, 2012, 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. In addition to this proposed change to the regulations text
that we are finalizing, we are finalizing, with modification, Sec.
413.79(k)(4)(ii)(B)(2) to insert the italicized language above to
clarify the mathematical calculation.)
3. Notice of Closure of Teaching Hospital and Opportunity To Apply for
Available Slots
a. Background
Section 5506 of the Patient Protection and Affordable Care Act
(Pub. L. 111-148), as amended by the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, the
``Affordable Care Act''), ``Preservation of Resident Cap Positions from
Closed Hospitals,'' authorizes the Secretary to redistribute residency
slots after a hospital that trained residents in an approved medical
residency program closes. Specifically, section 5506 of the Affordable
Care Act amended the Act by adding subsection (vi) to section
1886(h)(4)(H) of the Act and modifying language at section
1886(d)(5)(B)(v) of the Act, to instruct the Secretary to establish a
process to increase the FTE resident caps for other hospitals based
upon the FTE resident caps in teaching hospitals that closed ``on or
after a date that is 2 years before the date of enactment'' (that is,
March 23, 2008). In the November 24, 2010 CY 2011 Outpatient
Prospective Payment System (OPPS) final rule (75 FR 72212), we
established regulations and an application process for qualifying
hospitals to apply to CMS to receive direct graduate medical education
(GME) and indirect medical education (IME) FTE resident cap slots from
the hospital that closed. We made certain modifications to those
regulations in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434), and
we made changes to the Section 5506 application process in the FY 2015
IPPS/LTCH final rule (79 FR 50122 through 50134). The procedures we
established apply both to teaching hospitals that closed on or after
March 23, 2008, and on or before August 3, 2010, and to teaching
hospitals that closed after August 3, 2010.
b. Notice of Closure of the Pacific Hospital of Long Beach, CA and
Application Process--Round 8
CMS has learned of the closure of Pacific Hospital of Long Beach,
Long Beach, CA (CCN 050277). The purpose of this notice is to notify
the public of the closure of this teaching hospital, and to initiate
another round of the application and selection process described in
section 5506 of the Affordable Care Act. This round will be the eighth
round (``Round 8'') of the application and selection process. The table
below contains the identifying information and IME and direct GME

[[Page 57032]]

caps for the closed teaching hospital, which is part of the Round 8
application process under section 5506 of the Affordable Care Act.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct GME cap
IME cap (including (including +/-MMA
CCN Provider name City and state CBSA code Terminating date +/- MMA Sec. 422 Sec. 422 \1\
\1\ adjustments) adjustments)
--------------------------------------------------------------------------------------------------------------------------------------------------------
050277.......................... Pacific Hospital of Long Beach, CA..... 31084 August 1, 2013..... 14.47 + 6.00 19.92 + 6.00
Long Beach. section 422 section 422
increase = 20.47 increase =
\2\. 25.92.\3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, redistributed unused IME and
direct GME residency slots effective July 1, 2005.
\2\ Pacific Hospital's 1996 IME FTE cap is 14.47. Under section 422 of the MMA, the hospital received an increase of 6 to its IME FTE cap: 14.47 + 6.00
=20.47. We note that, under 42 CFR 412.105(d)(4), IME cap slots associated with an increase received under section 422 of the MMA are to be paid with
a multiplier of 0.66.
\3\ Pacific Hospital's 1996 direct GME FTE cap is 19.92. Under section 422 of the MMA, the hospital received an increase of 6 to its direct GME FTE cap:
19.92 + 6.00 =25.92. We note that under 42 CFR 413.77(g), direct GME FTE cap slots associated with an increase received under section 422 of the MMA
are to be paid using the appropriate locality-adjusted national average PRA.

c. Notice of Closure of the Huey P. Long Medical Center, Pineville, LA
and Application Process--Round 9
CMS has learned of the closure of Huey P. Long Medical Center,
Pineville, LA (CCN 190009). The purpose of this notice is to notify the
public of the closure of this teaching hospital, and to initiate
another round of the application and selection process described in
section 5506 of the Affordable Care Act. This round will be the ninth
round (``Round 9'') of the application and selection process. The table
below contains the identifying information and the IME and direct GME
caps for the closed teaching hospital, which is part of the Round 9
application process under section 5506 of the Affordable Care Act:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct GME Cap
IME Cap (including (including +/- ACA
CCN Provider name City and state CBSA code Terminating date +/- ACA Sec. 5503 Sec. 5503 \1\
\1\ adjustments) adjustments)
--------------------------------------------------------------------------------------------------------------------------------------------------------
190009.......................... Huey P. Long Pineville, LA...... 10780 June 30, 2014...... 13.00-1.96 section 13.00-1.96 section
Medical Center. 5503 reduction = 5503 reduction =
11.04 \2\. 11.04.\3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Section 5503 of the Affordable Care Act of 2010 (ACA), Public Laws 111-148 and 111-152, redistributed unused IME and direct GME residency slots
effective July 1, 2011.
\2\ Huey P. Long Medical Center's 1996 IME FTE cap is 13.00. Under section 5503 of the ACA, the hospital received a reduction of 1.96 to its IME FTE
cap: 13.00-1.96 = 11.04.
\3\ Huey P. Long Medical Center's 1996 direct GME FTE cap is 13.00. Under section 5503 of the ACA, the hospital received a reduction of 1.96 to its
direct GME FTE cap: 13.00-1.96 = 11.04.

d. Notice of Closure of St. Joseph's Hospital, Philadelphia, PA and
Application Process--Round 10
CMS has learned of the closure of St. Joseph's Hospital,
Philadelphia, PA (CCN 390132). The purpose of this notice is to notify
the public of the closure of this teaching hospital, and to initiate
another round of the application and selection process described in
section 5506 of the Affordable Care Act. This round will be the 10th
round (``Round 10'') of the application and selection process. The
table below contains the identifying information and the IME and direct
GME caps for the closed teaching hospital, which is part of the Round
10 application process under section 5506 of the Affordable Care Act:

--------------------------------------------------------------------------------------------------------------------------------------------------------
IME Cap (including Direct GME Cap
+/- MMA Sec. 422 (including +/- MMA
CCN Provider name City and state CBSA code Terminating date \1\ and ACA Sec. Sec. 422 \1\ and
5503 \2\ ACA Sec. 5503 \2\
adjustments) adjustments)
--------------------------------------------------------------------------------------------------------------------------------------------------------
390132.......................... St. Joseph's Philadelphia, PA... 37964 March 13, 2016..... 9.51-0.43 section 9.51-0.43 section
Hospital. 422 reduction-0.73 422 reduction-
section 5503 0.73 section 5503
reduction = 8.35 reduction =
\3\. 8.35.\4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, redistributed unused IME and
direct GME residency slots effective July 1, 2005.
\2\ Section 5503 of the Affordable Care Act of 2010 (ACA), Public Laws 111-148 and 111-152, redistributed unused IME and direct GME residency slots
effective July 1, 2011.
\3\ St. Joseph's Hospital's 1996 IME FTE cap is 9.51. Under section 422 of the MMA, the hospital received a reduction of 0.43 to its IME FTE cap, and
under section 5503 of the ACA, the hospital received a reduction of 0.73 to its IME FTE cap: 9.51-0.43-0.73 = 8.35.
\4\ St. Joseph's Hospital's 1996 direct GME FTE cap is 9.51. Under section 422 of the MMA, the hospital received a reduction of 0.43 to its direct GME
FTE cap, and under section 5503 of the ACA, the hospital received a reduction of 0.73 to its direct GME FTE cap: 9.51-0.43-0.73 = 8.35.

[[Page 57033]]

e. Application Process for Available Resident Slots
The application period for hospitals to apply for slots under
section 5506 is 90 days following notification to the public of a
hospital closure. Therefore, hospitals wishing to apply for and receive
slots from the above hospitals' FTE resident caps must submit
applications directly to the CMS Central Office no later than October
31, 2016. The mailing address for the CMS Central Office is included on
the application form. Applications must be received by the October 31,
2016 deadline date. It is not sufficient for applications to be
postmarked by this date.
We note that an applying hospital may apply for any or all of the
three rounds of section 5506 applications that were announced in this
final rule. However, a separate application must be submitted for each
round for which a hospital wishes to apply.
After an applying hospital sends a hard copy of a section 5506
application to the CMS Central Office mailing address, it must also
send an email to: [email protected]. In the email, the
hospital should state: ``On behalf of [insert hospital name and
Medicare CCN#], I, [insert your name], am sending this email to notify
CMS that I have mailed to CMS a hard copy of a section 5506 application
under Round [8, or 9, or 10] due to the closure of [Pacific Hospital of
Long Beach, or Huey P. Long Medical Center, or St. Joseph's Hospital].
If you have any questions, please contact me at [insert phone number]
or [insert your email address].'' An applying hospital should not
attach an electronic copy of the application to the email. The email
will only serve to notify the CMS Central Office to expect a hard copy
application, which should be mailed to the CMS Central Office.
In the CY 2011 OPPS/ASC final rule with comment period, we did not
establish a deadline by when CMS will issue the final determinations to
hospitals that receive slots under section 5506 of the Affordable Care
Act. However, we review all applications received by the deadline, and
notify applicants of our determinations as soon as possible.
We refer readers to the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dgme.html to
download a copy of the application form (Section 5506 CMS Application
Form) that hospitals are to use to apply for slots under section 5506.
We also refer readers to this same Web site to access a copy of the FY
2015 IPPS/LTCH PPS final rule (79 FR 50122 through 50140) and a list of
additional section 5506 guidelines for an explanation of the policy and
procedures for applying for slots, and the redistribution of the slots
under sections 1886(h)(4)(H)(vi) and 1886(d)(5)(B)(v) of the Act.

K. Rural Community Hospital Demonstration Program

1. Background
Section 410A(a) of Pub. L. 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
Is not designated or eligible for designation as a CAH
under section 1820 of the Act.
Section 410A(a)(4) of Pub. L. 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 Pub. L. 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

[[Page 57034]]

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 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

[[Page 57035]]

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 50742 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 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

[[Page 57036]]

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
approach described below.
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. Budget Neutrality Methodology for FY 2017 and Reconciliation for FYs
2011 Through 2016
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 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.
a. Budget Neutrality Methodology for FY 2017
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25130), we
proposed a different methodology as compared to previous years for
analyzing the costs attributable to the demonstration for FY 2017. We
noted 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, we stated in the proposed rule that the participation period
for the 14 hospitals that entered the demonstration following the
mandate of the Affordable Care Act and that were still participating
was to 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). As discussed in the proposed rule, 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25130), we noted
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 noted 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

[[Page 57037]]

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, as we stated in the proposed rule, 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
FY 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 proposed 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 invited public comments on this proposal.
We did not receive any public comments on this proposal. Therefore,
in this final rule, we are finalizing, without modification, our
proposal as described above to forego the process of estimating the
costs attributable to the demonstration for FY 2017, and to instead
calculate the actual costs of the demonstration and any resulting
budget neutrality adjustment factor for FY 2017 once the finalized cost
reports for cost reporting periods beginning in FY 2016 become
available.
b. Budget Neutrality Offset Reconciliation for FYs 2011 Through 2016
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49591), we stated
that we intended to discuss in the 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. In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25130), 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
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 did not receive any public comments on this proposal. Therefore,
in this final rule, we are finalizing our proposal, without
modification, to reconcile, at one time, 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, when all of
the finalized cost reports for cost reporting periods beginning in FYs
2011 through 2016 are available.
As discussed in the proposed rule, 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. 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 stated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25131)
that 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 invited public comments on this
issue.
We did not receive any public comments on this issue. We will
continue to examine this issue.

L. 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

[[Page 57038]]

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 such 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 be signed by either 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. Effective Date
As discussed in the proposed rule (81 FR 25131), 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 held a listening session on December 21, 2015, to provide
stakeholders further opportunity to provide comment on the NOTICE Act.
We thank those individuals who shared their input. The agency reviewed
all comments submitted, as well as those comments provided during the
public listening session in developing the provisions of the proposed
rule. This final rule is effective as specified in the ``Effective
Date'' section of this final rule. The standardized notice, the MOON,
is going through the PRA approval process and is subject to a 30-day
public comment period that begins on the date of publication of this
final rule. Following review of comments and final approval of the MOON
under the PRA process, hospitals and CAHs must fully implement use of
the MOON no later than 90 calendar days from the date of PRA approval
of the MOON.
2. Implementation of the NOTICE Act Provisions
a. Notice Process
We proposed 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,
of 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 proposed 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.
Comment: One commenter stated the NOTICE Act and MOON will continue
to increase the cost of care and suggested that CMS require hospitals
and CAHs to provide the information required by the NOTICE Act to
patients in a lower cost environment. The commenter recommended that
patients receive the NOTICE Act required information when signing up
for Medicare, or as part of an annual visit.
Response: We appreciate the commenter's recommendation and interest
in providing the notice required by the NOTICE Act in a less costly
setting. The NOTICE Act specifically requires hospitals and CAHs to
deliver both a written notice and an oral explanation of the notice to
individuals who receive observation services as an outpatient for more
than 24 hours. The statute does not afford an alternative method of
delivering the required notice, for example, during an annual wellness
or other visit to a doctor, or to beneficiaries when signing up for
Medicare. Consistent with the NOTICE Act, we believe that furnishing
information related to being an outpatient receiving observation
services when those services are furnished will have the most impact.
After consideration of the public comments we received, we are
finalizing the notification process provisions of the proposed rule
with respect to the method of delivery without modification.
b. Notification Recipients
Section 1866(a)(1)(Y) of the Act requires hospitals and 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 proposed under
the

[[Page 57039]]

new Sec. 489.20(y) that the notification required by section
1866(a)(1)(Y) of the 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 Medicare Part B would still receive notice even though the
observation services received as an outpatient fall under the Part B
benefit and would not be covered or payable by Medicare for that
person.
A beneficiary enrolled in a Medicare Advantage (MA) 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. MA regulations related to selection and credentialing of contract
providers at Sec. 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, CAH, 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 required to be 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'' encompasses these authorized qualified nonphysician
practitioners for the purposes of our proposed and final policy
regarding implementation of the NOTICE Act provisions in the proposed
and final rules. Individuals receiving observation services must 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
in 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 proposed that the provisions in the
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.
Comment: Many commenters suggested that CMS expand delivery of the
MOON beyond Medicare beneficiaries who receive observation services as
an outpatient at hospitals or CAHs for more than 24 hours. A few
commenters requested clarification of who was required to receive a
notice. In terms of expanding the delivery requirements, some
commenters suggested that CMS require hospitals and CAHs to provide the
MOON to all Medicare beneficiaries in outpatient status. Other
commenters suggested that CMS require delivery of the MOON to any
outpatient who has spent a night in the hospital, is in the hospital
over 24 hours, and has not been admitted or had a long stay.
One commenter requested clarification about whether the NOTICE Act
requires delivery of the MOON to a patient in extended outpatient
recovery requiring an overnight stay, which the commenter explained
were not observation services. Similarly, another commenter requested
that CMS clarify that the NOTICE Act provisions do not apply to
outpatients without an order for observation services.
Response: We appreciate all of the recommendations submitted by the
commenters. The NOTICE Act explicitly states that hospitals and CAHs
are required to furnish notice to an individual who receives
observation services as an outpatient at such hospital or CAH for more
than 24 hours, and we proposed to implement this provision (delivery of
the MOON) requiring hospitals and CAHs to provide the required notice
to just that population of notification recipients. We do not believe
it would be appropriate to expand the population of notification
recipients, as the statute expressly provides the scope of that
population. Therefore, we do not require hospitals and CAHs to furnish
the MOON to outpatients other than those who have received observation
services as outpatients for more than 24 hours, as set forth in the
statute. However, as we explain below, hospitals and CAHs may deliver
the MOON to individuals receiving observation services as an outpatient
before such individuals have received more than 24 hours of observation
services, and be in compliance with the written delivery requirements
set forth in the NOTICE Act.
Comment: One commenter noted that several States require that a
notice similar to the MOON be delivered to a different population than
that specified under the NOTICE Act; for example, some States require
notice be furnished to all outpatients, regardless of whether they
received observation services. The commenter stated it would be
beneficial to allow hospitals and CAHs flexibility to deliver the MOON
to a broader population of Medicare beneficiaries to minimize confusion
among beneficiaries, administrative complexity for providers, and in
recognition that the financial implications for beneficiaries start
once services begin. The commenter recommended that CMS allow broader
distribution of the MOON to include outpatients in general to
accommodate both State and Federal laws. Several other commenters made
similar recommendations.
Response: We appreciate the recommendations and acknowledge that,
in some States, notice of outpatient status is required for all
outpatients, regardless of the payer and irrespective of whether the
patient has received observation services. We understand the
commenters' interest in minimizing duplication of effort and
information provided to a Medicare beneficiary who requires care in a
hospital or CAH. However, the NOTICE Act specifically requires
hospitals and CAHs to deliver notice (written and oral), as prescribed
by the Secretary, to Medicare beneficiaries who receive observation
services as an outpatient for more than 24 hours. The MOON satisfies
the written NOTICE Act requirement for a designated population of
Medicare beneficiaries receiving a specific set of services, as
provided for at section 1866(a)(1)(Y) of the Act. In some cases,
delivering the MOON may also fulfill State notice requirements for the
Medicare population. Hospitals and CAHs will need to make that
determination on a State-by-State basis. Where State law, in pertinent
part, requires notification to Medicare beneficiaries who receive
observation services as an outpatient for more than 24 hours and
requires such notice to

[[Page 57040]]

contain content that is not included in the MOON, hospitals may utilize
the free text field in the MOON's ``Additional Information'' section
for communicating such additional content. Hospitals and CAHs will need
to determine whether providing such additional information in this
field of the MOON will satisfy State law requirements. Hospitals and
CAHs subject to State law notice requirements may also attach an
additional page to the MOON to supplement the ``Additional
Information'' section in order to communicate additional content
required under State law, or may attach the notice required under State
law to the MOON. Nevertheless, we do not believe it would be
appropriate to require hospitals and CAHs to deliver the MOON, or an
amended version of the MOON, to patients who have not received
observation services and who are not entitled to benefits under the
Medicare program because the NOTICE Act was not aimed at some other,
larger patient population. The MOON contains information specific to
individuals entitled to receive benefits through Medicare that receive
observation services in the hospital outpatient setting. Therefore, we
are not accepting the commenters' recommendation.
Comment: One commenter asserted that proposed Sec. 489.20(y)
requiring hospitals and CAHs to deliver notice (the MOON) to
individuals receiving observation services as an outpatient for more
than 24 hours, even if the individual is subsequently admitted as an
inpatient, violates the intent of the NOTICE Act. The commenter stated
that requiring hospitals and CAHs to provide the MOON to an individual
subsequently admitted as an inpatient is unduly burdensome, serves no
purpose, and provides no informational benefit to beneficiaries or
their families. Another commenter agreed with CMS' proposal to require
hospitals and CAHs to deliver notice to individuals receiving
observation services as an outpatient for more than 24 hours, even if
the individual is subsequently admitted as an inpatient, because the
time as an outpatient receiving observation services does not count
toward the 3 consecutive day inpatient hospital stay requirement for
coverage of post-hospital SNF care. However, the commenter stated that
the MOON did not adequately explain the implications on cost-sharing
and coverage of post-hospital SNF care in such a situation.
Response: We appreciate these comments. However, we disagree with
the suggestion that providing the MOON to an individual who is
subsequently admitted as an inpatient serves no purpose and provides no
informational benefit to beneficiaries or their families. We agree with
the commenter who asserted that it is important to provide the MOON to
individuals who are subsequently admitted as an inpatient because the
time the individual spent as an outpatient receiving observation
services does not count toward the 3 consecutive day inpatient hospital
stay requirement for coverage of post-hospital SNF care. While not all
patients who are admitted ultimately receive post-hospital SNF care
following discharge, the implications of receiving observation services
on an outpatient basis for individuals who eventually receive such care
can be significant, which is why information is required to be included
in the notice to beneficiaries (that is, written notification that
explains the implications of such status on subsequent eligibility for
coverage for services furnished by a SNF, as specified in section
1866(a)(1)(Y)(ii)(II) of the Act). Moreover, we believe the NOTICE Act
requires hospitals and CAHs to deliver notice to individuals who
receive more than 24 hours of observation services, and are
subsequently admitted as an inpatient.
We acknowledge that cost-sharing for an individual receiving
observation services as an outpatient will change if the individual is
subsequently admitted as an inpatient. Related outpatient services
directly preceding an inpatient admission may fall under the payment
window for outpatient services for which the costs are treated as costs
of inpatient services (also known as the 3-day payment window), as
discussed in the Medicare Claims Processing Manual (Pub. 100-4),
Chapter 3, Section 40.3 and Chapter 4, Section 10.12. Outpatient
services that fall under the 3-day payment window prior to an inpatient
admission will be subject to Part A cost-sharing rules. We expect that
this information will be communicated by hospital staff to the
individual during the oral explanation of the notification. In
addition, if an individual who receives more than 24 hours of
observation services as an outpatient is admitted as an inpatient prior
to the delivery of the MOON, in the ``Additional Information'' section
of the MOON the hospital should explain that, as an inpatient, the
individual may have Part A cost-sharing responsibilities. Therefore, we
are not accepting the recommendations of the commenters suggesting that
the hospitals and CAHs be able to forego the delivery of the MOON in
cases where individuals receiving observation services as outpatients
are later admitted as inpatients.
Comment: Several commenters noted that it will be difficult and/or
unnecessary to provide the MOON to MA enrollees and requested that CMS
consider eliminating the proposed requirement that MOON delivery
include MA enrollees. According to one commenter, MA plans often deny
an inpatient admission after the patient is discharged from the
hospital and will only approve the stay as outpatient observation
following the individual's discharge from the inpatient hospital stay.
Another commenter believed it was unnecessary to include the managed
Medicare population in the proposed requirement because this population
is not affected by the same coverage guidelines as original Medicare
beneficiaries, such as the requirement for a 3-day qualifying inpatient
hospital stay for coverage of post-hospitalization SNF care. Commenters
believed that providing the MOON to enrollees in MA plans will result
in confusion if the information related to coverage and cost sharing is
not applicable to an MA enrollee and that it adds an unnecessary burden
on the hospital staff.
Response: We recognize that MA plans may have certain rules that
differ from original Medicare and that these variances may result in
some of the information in the MOON being inapplicable to some MA
enrollees. For example, under an MA plan's benefit structure, the
enrollee may not need to have a 3-day qualifying inpatient hospital
stay in order to qualify for coverage of post-hospital SNF care.
However, we do not believe it would be appropriate to exclude MA
enrollees from the requirement that a hospital or CAH deliver the MOON
to any beneficiary who receives observation services as an outpatient
for more than 24 hours. In developing the MOON, we have attempted to
mitigate the potential variation between original Medicare and MA by
directing MA enrollees who receive the MOON to contact their plans for
specific information that may be relevant to the receipt of outpatient
observation services. As described in the proposed rule, the MOON must
be delivered while the individual is in the hospital receiving
outpatient observation services. Specifically, section 1866(a)(1)(Y) of
the Act and under proposed new Sec. 489.20(y), hospitals and CAHs must
provide notice to an individual who receives observation services as an
outpatient for more than 24 hours, and such notice must be furnished no
later than 36 hours after observation services are

[[Page 57041]]

initiated, or sooner if the individual is transferred, discharged, or
admitted as an inpatient. If, as described in the commenter's example,
the individual is initially admitted to a hospital or CAH as an
inpatient, the requirement to deliver the MOON does not apply (in cases
where the individual receives outpatient observation services for fewer
than 24 hours prior to the inpatient admission), notwithstanding any
later determination by the MA plan (following the individual's
discharge) related to the inpatient hospital admission. It is our
expectation that a contracted hospital and the MA plan coordinate and
communicate regarding the appropriate level of care while the enrollee
is receiving care in the contracted hospital in accordance with the
requirements at Sec. 422.112 related to continuity of care and
integration of services.
As noted in the preamble to the proposed rule, a beneficiary
enrolled in a MA 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 MA regulations related to selection and
credentialing of contract providers at Sec. 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. Given the statutory language in
section 1866 of the Act and the regulatory requirements in 42 CFR part
422 related to provider agreements, we do not agree with commenters,
and do not believe it would be appropriate to exclude hospitals and
CAHs from the NOTICE Act requirements with respect to MA enrollees.
Therefore, hospitals and CAHs must furnish the MOON to MA enrollees who
receive observation services as an outpatient for more than 24 hours as
set forth in this final rule.
Comment: One commenter requested that CMS remove the requirement
that hospitals and CAHs deliver the MOON to Medicare beneficiaries who
are not enrolled in Medicare Part B. The commenter believed it would be
inappropriate to provide information on the rules for insurance
coverage to individuals who do not have that coverage.
Response: We appreciate the commenter's suggestion. However, one
intent of the NOTICE Act is to inform beneficiaries of costs they might
not otherwise be aware of relating to their classification as either an
outpatient receiving observation services or an inpatient. A
beneficiary who receives observation services as an outpatient (which
are covered under Medicare Part B), who is enrolled in Medicare Part A,
but does not have Part B coverage, may be unaware that he or she may be
financially responsible for the full cost of the services he or she is
receiving, due to lack of Part B coverage. We believe providing the
MOON to beneficiaries who do not have Part B coverage will serve to
inform such beneficiaries of the financial consequences consistent with
the NOTICE Act. Therefore, we are not adopting the commenter's
recommendation.
Comment: One commenter requested that CMS explain whether hospitals
and CAHs must deliver the MOON when the primary payer is a commercial
plan and the secondary payer is Medicare or MA.
Response: The provisions of the NOTICE Act amended section 1866 of
the Act and apply to hospitals and CAHs furnishing services to
individuals entitled to benefits under Title XVIII of the Act, whether
or not the services are payable under Title XVIII. If an individual is
entitled to benefits under Title XVIII (and receives observation
services as an outpatient for more than 24 hours), the notice
requirement applies, regardless of whether Medicare is the secondary
payer. The applicability of the notice requirement depends on whether
the individual is entitled to benefits under Title XVIII, not on
whether Medicare makes payment (primary or otherwise).
After consideration of the public comments we received, we are
finalizing the notification recipients provisions of the proposed rule
without modification.
c. Timing of Notice Delivery
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25132), and as provided at section 1866(a)(1)(Y) of the Act, we
proposed 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 our proposed and final policy regarding
implementation of the NOTICE Act provisions in the FY 2017 IPPS/LTCH
PPS proposed and final rules, 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 proposed 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 proposed 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 and orders the discontinuation of inpatient services and
initiation of outpatient observation services (that is, a Condition
Code 44 situation), we stated in the proposed rule that 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

[[Page 57042]]

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 discussed in the proposed rule and as stated in the notice
announcing CMS Ruling CMS-1455-R (78 FR 16614), the Part B Inpatient
Billing Ruling, in cases where 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 notification
requirements would not apply for these individuals because their status
would also remain inpatient.
Comment: Several commenters indicated that it would be difficult
from an operational perspective to deliver the MOON within a narrow
window of 12 hours following the beneficiary's receipt of more than 24
hours of observation services and the requirement that the notice be
furnished within 36 hours of the initiation of observation services.
Some commenters recommended the notice be furnished within 24 hours or
48 hours following the initiation of observation services as an
outpatient. Other commenters indicated that if State regulations
require notice of observation services as an outpatient be furnished to
patients within 24 hours of the initiation of observation services as
an outpatient, the State policy should be followed in order to provide
the most protection possible to the consumer. Another commenter
requested that CMS clarify whether there are consequences for having
the MOON delivered and signed before 24 hours of observation services
are furnished. The commenters urged CMS to use its regulatory
discretion and create flexibility on the timing of delivery of the
notice and to establish clear standards for consistent implementation
across State lines.
One commenter opined that the statute provides latitude for CMS to
permit an earlier delivery of the MOON to the Medicare beneficiary. The
commenter explained that the NOTICE Act requires delivery of notice to
outpatients who receive observation services for more than 24 hours,
but does not preclude a hospital or CAH from voluntary delivery of the
notice prior to an individual's receipt of 24 hours of observation
services. The commenter further explained, given that some of the
implications to be explained in the notice are present from the
initiation of observation services, it may be beneficial for
beneficiaries to receive the notice earlier. Earlier delivery of the
notice, in the commenter's opinion, would provide flexibility for
hospitals and CAHs in States with conflicting laws to satisfy both
Federal and State requirements, while minimizing provider burden. The
commenter recommended that CMS allow hospitals and CAHs to provide the
MOON to a patient prior to furnishing 24 hours of observation services,
but no later than 36 hours following the initiation of observation
services. Several other commenters made a similar recommendation.
Response: We appreciate the many comments submitted on the issue of
the timing of delivery of notice under the NOTICE Act. Section
1866(a)(1) of the Act, as amended by the NOTICE Act, requires hospitals
and CAHs to deliver notice, consisting of a written notice (as
specified by the Secretary of HHS following promulgation of rules) and
an oral explanation of the notice, to each individual who receives
observation services as an outpatient for more than 24 hours. Under the
statute, the notice and explanation must be delivered no later than 36
hours after the time such individual begins receiving observation
services (or, if sooner, upon release). We specified in proposed Sec.
489.20(y) that the notification required by section 1866(a)(1)(Y) of
the 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. As we stated in the
proposed rule, for outpatients who are receiving observation services
but not for more than 24 hours, hospitals and CAHs would not be
required to deliver notice (81 FR 25132).
We agree with the commenter who suggested that the statute provides
latitude to permit a hospital or CAH to voluntarily deliver notice
prior to an individual's receipt of more than 24 hours of observation
services as an outpatient. The NOTICE Act requires notice to
individuals receiving more than 24 hours of observation services as an
outpatient. While hospitals are not required to deliver notice to an
individual who has not received more than 24 hours of observation
services as an outpatient, nothing in the statute precludes hospitals
and CAHs from delivering notice before an individual has received more
than 24 hours of observation services as an outpatient, provided the
information contained in the notice is accurate. Hospitals and CAHs
that are subject to State laws requiring written notice to outpatients
receiving observation services within 24 hours of the initiation of
services, for example, may deliver the MOON to those individuals it
believes will trigger the required notice under the NOTICE Act during
the State-mandated timeframes and still be in compliance with the
timing of notice delivery requirement of the NOTICE Act (provided the
MOON is delivered not later than 36 hours after the time such
individual begins receiving outpatient observation services, or, if
sooner, upon release (that is, sooner, if transferred, discharged, or
admitted as an inpatient)). Accordingly, we are revising proposed Sec.
489.20(y) to clarify that hospitals and CAHs may deliver the MOON
before an individual has received more than 24 hours of observation
services as an outpatient.
However, we reiterate that the notice required by the NOTICE Act
must be delivered within the timeframe established in statute; that is,
no later than 36 hours after the time an individual begins receiving
observation services as an outpatient, or if sooner, upon release. As
specified in proposed Sec. 489.20(y), the 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. Delivering notice after this timeframe (for example, within
48 hours of the initiation of observation services, as suggested by one
commenter) would not comply with the NOTICE Act requirement for timing
of notice delivery. Therefore, we are not accepting the commenters'
recommendations to allow hospitals and CAHs to deliver the notice as
required by the NOTICE Act later than 36 hours after the individual
entitled to notice

[[Page 57043]]

begins receiving observation services as an outpatient.
While, as previously stated, nothing in the statute precludes
hospitals and CAHs from delivering notice before an individual has
received more than 24 hours of observation services as an outpatient,
provided the information contained in the notice is accurate, we note
that we do not encourage hospitals and CAHs to deliver the MOON at the
initiation of outpatient observation services. Routine and systematic
delivery of the MOON by a hospital or CAH at the initiation of
observation services would, in effect, render the MOON a notice of
receiving outpatient observation services, as all patients receiving
observation services would be given the MOON independent of the length
of time they received observation services. In addition, at the
initiation of outpatient observation services, patients may be
completely preoccupied with concern for their safety and well-being, as
they may be unsure of their diagnosis at a time when the signs and
symptoms of their presenting condition(s) may be at the height of their
clinical acuity. At the initiation of outpatient observation services,
patients also may be overwhelmed and confused by notices and hospital
paperwork that are presented at the time, often simultaneously. For
these reasons, we reiterate that the NOTICE Act requires notice be
provided to individuals who receive observations services as an
outpatient for more than 24 hours, not later than 36 hours after the
time the individual begins receiving such services, or, if sooner, upon
release, but that the statute does not preclude earlier delivery, and
that we encourage hospitals and CAHs to not deliver the MOON at the
initiation of outpatient observation services.
Comment: Several commenters requested that CMS clarify when the 24
hour timeframe for receiving observation services as an outpatient
begins. The commenters requested clarification as to whether the
timeframe starts: (1) After services begin following the written order
for observation services; (2) when related services commence if such
services commence before the written order was executed and the patient
occupies an outpatient bed count; or (3) based on the documentation of
when nursing care began. Several commenters requested that CMS clarify,
in situations where a resident orders observation services, whether the
commencement of the 24-hour period for determining eligibility for the
MOON begins when the resident writes the order or when the attending
physician ``confirms'' that order.
Response: We appreciate the commenters' request for clarification
regarding the time at which outpatient observation services are
initiated for the purpose of determining when more than 24 hours of
outpatient observation services have been received. In the proposed
rule, we stated, ``For purposes of this proposed rule, consistent with
existing billing rules, observation services are initiated when a
physician orders such services'' (81 FR 25132). We then explained our
existing billing rules contained in the CMS Internet Only Manual (IOM).
``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.' ''
As the commenters noted, there may be times when an individual is
subject to an order for observation services, but is not actually
receiving observation services. For example, following an order for
observation services in an emergency department, a hospital may need to
wait to begin furnishing observation services until a bed is available
for the patient. In this situation, services are considered initiated
when observation services commence.
In this final rule, we are clarifying our explanation in the
preamble of the proposed rule that the start of observation services,
for the purposes of determining when more than 24 hours of observation
services have been received, is the clock time as documented in the
patient's medical record at which observation services are initiated
(furnished to the patient) in accordance with a physician's order.
With respect to the request for clarification of the effect of a
resident's order for services on the counting of hours of observation
care, we stated the following in our proposed rule that ``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'' (81
FR 25132). Therefore, to the extent that a resident is authorized by
State licensure law and hospital staff bylaws to order outpatient
services, once observation services are initiated in accordance with
the resident's order, the 24 hour time period will commence.
Comment: One commenter stated that, for the purpose of determining
when a hospital or CAH must notify a patient under the NOTICE Act, that
is, when an individual receives observation services as an outpatient
for more than 24 hours, the counting of hours to trigger the
notification requirement could be interpreted as elapsed or clock time
(meaning starting the 24-hour clock at the time of the physician's
order for observation services as an outpatient and ending with the
discharge order from observation), or billable time (meaning tracking
and counting only those hours which would be billable as outpatient
observation services upon claim submission). The commenter recommended
that CMS require hospitals and CAHs to use billable time when counting
the hours of observation services received for the purpose of
triggering the notification requirement. Another commenter recommended
that CMS use elapsed time and not billable observation hours to
determine when an individual has received 24 hours of observation
services.
Response: We appreciate the comments and recommendations submitted
on this issue. The NOTICE Act requires hospitals and CAHs to deliver
notice to an individual who receives observation services as an
outpatient for more than 24 hours, and requires delivery of the notice
no later than 36 hours after the time such individual begins receiving
observation services (or, if sooner, upon release). We believe using
elapsed time rather than billed time is more consistent with the plain
language of the statute for the purpose of determining when an
individual is required to receive notice and when such notice must be
delivered. Therefore, for purposes of identifying the 24-hour timeframe
for which an individual has received observation services, and thus is
required by the NOTICE Act to receive notice by the hospital or CAH,
observation time will be measured as the elapsed time in hours
beginning at the clock time documented in the patient's medical record,
which coincides with the time that observation care is initiated in
accordance with a physician's order. For example, an individual for
whom observation services are initiated, in accordance with a physician
order at 3:19 p.m. on Monday would meet the more than 24-

[[Page 57044]]

hour threshold to require delivery of notice, after 3:19 p.m. the
following day (Tuesday), and delivery of the notice would be required
by 3:19 a.m. on the subsequent day (Wednesday), or sooner, if the
individual is discharged, transferred, or admitted.
Comment: One commenter requested that CMS clarify when the 24-hour
time period ends for the purposes of determining whether a patient has
received more than 24 hours of observation services as an outpatient,
when the physician orders the discharge of the patient or when the
patient leaves the building.
Response: Observation time ends when all medically necessary
observation services are completed. To be clear, this could be before
discharge when the need for observation services has ended, but other
medically necessary services not meeting the definition of hospital
observation services are provided (in which case, the additional
medically necessary services received after the completion of
observation services would be billed separately or be included as part
of the emergency department or clinic visit). Alternatively, the end
time of observation services may coincide with the time the patient is
actually discharged from the hospital or admitted as an inpatient.
Comment: One commenter requested CMS to clarify how the MOON will
work with the 2-midnight policy.
Response: The NOTICE Act requirements regarding delivery of notice
to an individual who receives observation services as an outpatient for
more than 24 hours, and no later than 36 hours after the time such
individual begins receiving observation services (or, if sooner, upon
release), do not impact or change the current requirements and guidance
related to the 2-midnight policy previously issued by CMS. Hospitals
will be required to adhere to all existing requirements of the 2-
midnight policy, as well as adhere to the requirements set forth by the
NOTICE Act. We remind commenters that the 2-midnight policy has been
put forth by CMS to give hospitals and physicians guidance as to when
an inpatient admission is eligible for Part A payment. The NOTICE Act
requires hospitals to inform patients who have remained outpatients of
the hospital and received observation services for more than 24 hours
that they are not hospital inpatients and are subject to potentially
different cost-sharing requirements and postacute care benefits than
someone who has been admitted as an inpatient. We note that a scenario
could arise whereby a patient is admitted to the hospital immediately
after being a hospital outpatient receiving observation services for
greater than 24 hours. In such a scenario, the inpatient admission may
be payable under Medicare Part A under the 2-midnight policy and, as
stated earlier, the hospital or CAH would still be required to furnish
the MOON to the patient within 36 hours after the time the individual
begins receiving observation services.
Comment: One commenter recommended that CMS require delivery of
notice before the initiation of observation services, similar to the
Advance Beneficiary Notice of Noncoverage (ABN), so that a patient can
decide prior to incurring financial liability whether to receive the
services or leave the hospital. The commenter believed that if the
hospital does not notify the patient in advance of the initiation of
observation services, the patient should be relieved of financial
liability.
Response: We appreciate the recommendations of the commenter.
However, the NOTICE Act established a requirement for notice
specifically to an individual who receives observation services as an
outpatient for more than 24 hours. We are not adopting the commenter's
recommendation.
Comment: One commenter indicated that CMS significantly misstated
when and how observation status is used. The commenter stated that use
of Condition Code 44 is not rare and despite the 2-midnight policy,
patients who remain in the hospital for multiple days often are coded
as outpatients.
Response: As we have previously stated in Chapter 1, Section 50.3
of the Medicare Claims Processing Manual, CMS set the policy for the
use of Condition Code 44 to address those relatively infrequent
occasions, such as a late-night weekend admission when no case manager
is on duty to offer guidance, when internal review subsequently
determines that an inpatient admission does not meet hospital criteria
and that the patient would have been registered as an outpatient under
ordinary circumstances. Use of Condition Code 44 is not intended to
serve as a substitute for adequate staffing of utilization management
personnel or for continued education of physicians and hospital staff
about each hospital's existing policies and admission protocols. As
education and staffing efforts continue to progress, the need for
hospitals to correct inappropriate admissions and to report Condition
Code 44 should become increasingly rare.
After consideration of the public comments we received, we are
finalizing the provisions of the proposed rule for timing of notice
delivery with modifications as noted above.
d. Requirements for Written Notice
In the proposed rule (81 FR 25133), we proposed 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 proposed 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 proposed at Sec. 489.20(y)(1)(i)
that the 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 proposed 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 proposed 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,

[[Page 57045]]

the proposed MOON would include this information in plain language
written for beneficiary comprehension.
Comment: Numerous commenters submitted comments regarding the
general formatting and readability of the MOON. Several commenters
expressed concern that the MOON was too complex for patients to have a
full understanding of the issues included in the notice and the
implications of being an outpatient receiving observation services.
Some commenters did not consider the MOON to be written in ``plain
language.'' Some commenters suggested the reading level of the MOON was
too advanced for the typical beneficiary. Another commenter noted that
the MOON is written at a 12.1 grade level and cited a study that claims
that the average American's reading level proficiency is generally to
be considered to be 5th to 7th grade level. Some commenters made
suggestions on how the MOON could be reordered and simplified to
improve understandability and effectiveness. Commenters also believed
there were duplicative time and date fields as well as unnecessary
fields for physician and hospital names when that information can be
found in the beneficiary's medical record, or can be otherwise printed
on the top of the notice, in the case of the hospital name. One
commenter requested that the MOON have more room for the beneficiary's
name and date of birth, while another commenter requested that the MOON
be limited to one page. Another commenter provided copies of State-
issued observation notices as examples that CMS may wish to consider
during this notice development process. Other commenters suggested
specific language for revising the notice. One commenter proposed
incorporating a question and answer format on the MOON. Some commenters
were concerned with which physician (admitting or attending) name
should be included on the MOON. Other commenters did not want a
requirement to include a physician name on the notice, as many
physicians at a hospital can be involved with a beneficiary's
outpatient care.
Response: We agree with the commenters that some fields are
unnecessary when the information is contained in the patient's medical
record. To that end, we have reduced the number of fillable fields on
the MOON. Specifically, the fields for physician name and the date and
time observation services began are no longer on the notice. In
addition, we removed the field for the hospital name. Consistent with
requirements for current beneficiary notices, and as will be detailed
in future guidance, hospitals will be permitted to preprint the MOON to
include their hospital name and logo at the top of the notice.
In response to the suggestion to condense the MOON into a single
page, we are unable to do so, as condensing the notice, as suggested,
would negatively affect its readability; for example, reducing the
notice to one page would require use of an extremely small font size.
However, we note that hospitals may print the MOON as two sides of a
single page. Finally, we have drafted the MOON to contain all of the
elements of notice we believe are required under the NOTICE Act. We
have taken commenters' suggestions for specific wording changes under
advisement and note that CMS' Office of Communications has performed a
plain language review, and we have incorporated appropriate changes,
wherever possible. The MOON has been revised and the updated draft is
subject to a 30-day comment period in accordance with the requirements
of the Paperwork Reduction Act (PRA). This revised MOON will not be
final until any public comments have been received and considered. We
do not routinely use specific readability tests on beneficiary
publications. We appreciate the commenters' concerns and have made
changes to the MOON, as discussed above, in order to help ensure
maximum readability and comprehension. We believe the notice is now
more streamlined and easier to comprehend. In addition to these
revisions, as with most beneficiary notices, we expect that the MOON
will be updated periodically based on our continued experience with the
notice, through the PRA renewal process, which requires reapproval
every 3 years.
Comment: Numerous commenters submitted comments related to the
notice section containing contact information to express quality of
care concerns to QIOs. Some commenters suggested moving this section
further down or to the end of the notice. Other commenters suggested
removing this information entirely. Some commenters explained that
inclusion of this contact information would be confusing to
beneficiaries and could mislead them as to the purpose of this notice.
One commenter recommended revising the language to specifically state
that QIOs do not have the authority to change a patient's status from
outpatient to inpatient. Some commenters believed that the inclusion of
QIO contact information may encourage calls to the QIO expressing that
the beneficiary should be an inpatient, rather than outpatient, and
regard the outpatient status as a quality of care issue, rather than a
level of service issue. Another commenter suggested that CMS amend the
QIO scope of work to account for additional inquiries that may result
when required MOON delivery begins. One commenter believed the
information about filing complaints about quality of care with MA plans
is unnecessary. That commenter expressed concern that because
outpatient status is not appealable, this contact information may cause
unnecessary confusion.
Response: We agree with the commenters' suggestion to keep the
focus of the MOON on status as an outpatient and related coverage and
cost-sharing implications. Therefore, we have removed the QIO contact
section from the MOON.
Comment: One commenter suggested that CMS remove the requirement
directing a patient to contact 1-800-MEDICARE with questions, and
replace that entire paragraph with hospital contact information. The
commenter reasoned that because hospitals provide robust financial
counseling services, physician advisors, care management teams, among
others, they can better answer beneficiary questions in a friendly, in-
person manner. Conversely, another commenter recommended removing the
language referring beneficiaries with questions to hospital staff and
physicians. This commenter believed that beneficiary questions
regarding coverage and financial responsibility for receiving
observation services as an outpatient are more appropriately directed
to 1-800-MEDICARE. Another commenter suggested that CMS establish a
point of contact in addition to 1-800-MEDICARE for questions related to
the MOON.
Response: We disagree with the comments summarized above. The
inclusion on the MOON of 1-800-Medicare contact information is
consistent with other beneficiary notices. In addition to observation
stay questions, beneficiaries may have other concerns related to
Medicare billing, coverage, and associated issues.
We are maintaining the MOON's direction of patients to hospital
personnel, in general, rather than to specific hospital contacts, to
afford hospitals flexibility in the contact information they provide.
However, hospitals may use the ``Additional Information'' section to
specify particular hospital staff members and their contact
information.
Finally, we believe that beneficiary information needs are
satisfied by the existing options of using 1-800-Medicare as well as
using hospital staff.

[[Page 57046]]

Beneficiaries have access to broad benefit and coverage information
through 1-800-Medicare, and case-specific information from their
hospitals. Therefore, we do not believe an additional point of contact
is not necessary.
Comment: Several commenters explained that the MOON does not
clearly state that the patient is not an inpatient for the purposes of
meeting the 3 consecutive day inpatient hospital qualifying stay for
coverage of post-hospital SNF care. One commenter suggested that the
MOON explain the potential financial implications of being classified
as an outpatient, rather than an inpatient, in simple, easy to
understand terms. Another commenter noted that the MOON includes
complex phrases such as ``observation stay'' and ``prior qualifying
inpatient hospital stay'' without explanation. The commenter stated if
these specific terms must be used, they should be defined in the
notice. Many commenters suggested clarifying Part B coverage
information and moving that language up in the ordering of the notice.
One commenter suggested specific language to more clearly convey the
information contained in this section.
Response: We agree with the commenters that this important
information regarding coverage of post-hospital SNF care and Part B
coverage should be more clearly stated and prominently displayed on the
notice. To that end, we have simplified this language as part of the
MOON's plain language changes and moved it near the top of the MOON.
Comment: Several commenters indicated that the NOTICE Act requires
hospitals to explain the reason patients are classified as outpatients
rather than inpatients. The commenters recommended that the MOON
include a section for physicians to indicate the reason for outpatient
status. Another commenter suggested that the MOON contain standard
language explaining that the decision to classify a beneficiary as an
outpatient, rather than admit as an inpatient, is based on Medicare
regulations, without regard to cost-sharing responsibilities or skilled
nursing facility eligibility. One commenter requested that CMS provide
standard narratives to be used by hospitals when explaining the
possible reasons for outpatient classification. Conversely, another
commenter was satisfied with the MOON's standard language regarding the
``reason'' for observation services. However, this commenter believed
this language was not clearly and prominently communicated on the
notice.
Response: We agree with the commenters who suggested that the MOON
should contain a field where a hospital will be required to state the
specific reason a beneficiary is an outpatient, rather than inpatient.
We believe this recommendation is consistent with the statute,
specifically section 1866(a)(1)(Y)(ii)(I) of the Act. The MOON now
contains a free text field where the specific reason for receiving
observation services as an outpatient shall be completed by the
hospital or CAH. We may consider, in the future, the other suggestions
commenters made to improve the MOON, such as checkboxes with common
reasons for the patient's outpatient status or suggested narratives for
insertion in this section.
Comment: Several commenters asked that CMS clarify what additional
information is expected to be included in the ``Additional
Information'' section on the MOON.
Response: We generally do not specify expected language for the
additional information sections of beneficiary notices. However, we
believe hospitals and CAHs may use this section to include information
such as unique circumstances regarding the particular patient (such as
Medicare Accountable Care Organization (ACO) information), notation
that a beneficiary refused to sign the MOON, hospital waivers of the
beneficiary's responsibility for the cost of self-administered drugs,
Part A cost sharing responsibilities if the beneficiary is subsequently
admitted as an inpatient, or specific information for contacting
hospital staff.
Comment: Several commenters urged CMS to clarify whether hospitals
and CAHs will be required to provide the MOON to Medicare beneficiaries
in States that already have a requirement to notify all patients of
their status as an outpatient receiving observation services. The
commenters expressed concern that furnishing two separate notices to
beneficiaries would be counterproductive, burdensome on providers, and
potentially confusing for patients. Some commenters requested CMS
provide flexibility to hospitals to create their own notice that would
comply with the requirements of the NOTICE Act. Some commenters
requested CMS to address whether a hospital that complies with
substantially equivalent requirements imposed under State law could be
considered to be in compliance with the requirements of the NOTICE Act
when furnishing a State-mandated notice. Some commenters recommended
that where a hospital meets applicable State requirements related to
observation notification, CMS deem the hospital to have met the NOTICE
Act requirements. One commenter requested that where there is an
existing State law that overlaps the requirements of the NOTICE Act,
CMS clarify which requirements take precedence and expressly preempt
the State law.
Response: The NOTICE Act requires hospitals and CAHs to furnish
written notice specified by the Secretary pursuant to rulemaking,
containing such language as the Secretary prescribes, consistent with
the statute. Given the statutory language of the NOTICE Act, we believe
the Federal standardized notice (the MOON) must be delivered to
Medicare beneficiaries entitled to notice under the NOTICE Act,
consistent with the provisions of this final rule, notwithstanding any
similar notice that hospitals may previously had to deliver to such
patients under State law or otherwise. In some cases, delivering the
MOON may also fulfill State notice requirements for the Medicare
population. Hospitals and CAHs will need to make that determination on
a State-by-State basis. As we previously explained, where State law
requires content that is not included in the MOON, hospitals may
utilize the free text field in the MOON (``Additional Information'')
for communicating such additional content. Hospitals and CAHs subject
to State law notice requirements may also attach an additional page to
the MOON to supplement the free text field in order to communicate
additional content required under State law, or may attach the notice
required under State law to the MOON. To the extent that there are
requirements in a State law that directly conflict with or contradict
requirements in the NOTICE Act, we will expect to address those issues
of preemption as they are brought to our attention. However, at this
time, we are not aware of any such State laws that contradict or
conflict with the provisions of the NOTICE Act.
We believe the delivery of the MOON, an OMB standardized notice
with consistent language, to all Medicare beneficiaries entitled to
notice under the NOTICE Act best fulfills the requirements of the
statute. Requiring the use of an OMB standardized notice ensures that
all required statutory language is included, that the notice is written
and formatted to be easily understandable to beneficiaries, and that
the specific notice has been subject to public comment and input
through the PRA process. Therefore, we are not adopting the commenters'
recommendations.
Comment: One commenter asked whether hospitals that provide their

[[Page 57047]]

own notice to all patients receiving observation services as
outpatients would still need to provide the MOON to Medicare
beneficiaries who have received 24 hours of observation services as an
outpatient.
Response: We recognize that some hospitals may voluntarily issue a
notice to outpatients, or in some cases to outpatients who have
received observation services, informing patients of the implications
of being an outpatient on cost-sharing and benefits. However, the
NOTICE Act requires hospitals and CAHs to furnish written notice
specified by the Secretary through rulemaking, containing such language
as the Secretary prescribes consistent with the statute. Given the
statutory language and intent of the NOTICE Act, we believe the Federal
standardized notice (the MOON) must be delivered to Medicare
beneficiaries entitled to notice under the NOTICE Act, consistent with
the provisions of this final rule, notwithstanding any similar notice
that hospitals may previously have had to deliver to such patients
pursuant to State law or otherwise.
Comment: One commenter recommended that, if an inpatient admission
occurs prior to delivery of the MOON, the MOON be annotated with date
and time of the inpatient admission so the patient is aware that
outpatient status has ended and inpatient status has begun.
Response: We agree with the commenter that, if an inpatient
admission occurs prior to delivery of the MOON, the MOON should be
annotated with date and time of the inpatient admission. Therefore, we
are requiring that, in the event that a patient is subsequently
admitted as a hospital inpatient directly after receiving observation
services for more than 24 hours, and the inpatient admission occurs
prior to delivery of the MOON, the MOON be annotated with the date and
time of the inpatient admission. Additional guidance regarding elements
for the free text field of the MOON will be provided in the CMS
Internet Only Manual.
Comment: One commenter indicated that the MOON does not include
language specific to beneficiaries aligned with certain Medicare
Accountable Care Organizations (ACO), such as Pioneer and Next
Generation, where certain eligibility requirements for post-hospital
SNF care may have been waived. The commenter recommended that CMS
clarify that, in these situations, it is not necessary to include
information related to post-hospital SNF care coverage implications of
outpatient status where the 3 consecutive day inpatient hospital stay
requirement has been waived.
Response: We appreciate the information from the commenter. As
required by the NOTICE Act, we have created a notice that includes
statutorily required information and other information needed for
patients to understand their status as an outpatient, the distinction
between being an outpatient and an inpatient, and the implications for
being an outpatient receiving observation services. In addition, the
NOTICE Act requires hospital and CAH staff to provide an oral
explanation of the information contained in the written notice. We
expect that, as part of the oral explanation, hospital staff will be
available to answer questions that patients may have to assist them in
understanding these concepts and the effects on their financial
responsibility. Where there are exceptions to general rules for a very
limited beneficiary population, such as waivers of the 3 consecutive
day inpatient hospital stay requirement for beneficiaries aligned with
particular ACOs, we would expect this information to be conveyed as
part of the oral explanation or included in the ``Additional
Information'' section of the MOON if the hospital or CAH is aware of
the applicable exception. Because the MOON is a standard form approved
by OMB, hospitals and CAHs will not be permitted to alter the included
language, only the information to be included in the free text fields.
To the extent that waivers of the post-hospital SNF coverage
requirements become more prevalent and apply to a broader segment of
the Medicare population, we will reconsider including such information
in the MOON.
Comment: Several commenters suggested that the MOON be revised to
reflect a recent policy statement issued by the HHS Office of Inspector
General (OIG) regarding hospitals that discount or waive amounts owed
by Medicare beneficiaries for self-administered drugs dispensed in
outpatient settings. Other commenters suggested any language related to
costs owed by beneficiaries for self-administered drugs dispensed in an
outpatient setting be removed in light of the OIG policy statement. The
OIG policy statement is located at: http://oig.hhs.gov/compliance/alerts/guidance/policy-10302015.pdf. The OIG policy statement assures
hospitals that they will not be subject to OIG administrative sanctions
if they discount or waive amounts that Medicare beneficiaries owe for
self-administered drugs they receive in outpatient settings when those
drugs are not covered by Part B, subject to certain specified
conditions.
Response: We appreciate the commenters' recommendation. While we
disagree that the language in the MOON should be omitted based on the
referenced OIG policy permitting hospitals to discount or waive amounts
owed by Medicare beneficiaries for self-administered drugs dispensed in
outpatient settings, we agree that revisions to the MOON instructions
are needed. Hospitals have discretion to take such actions based on the
OIG policy statement, and the information on self-administered drugs
that we proposed to be included in the MOON will be relevant for
beneficiaries receiving care in hospitals that have not elected to
waive or discount such amounts. In circumstances where the hospital
does waive or discount costs for self-administered drugs, the hospital
can include an explanation in the free-text field of the MOON
(``Additional Information'') and/or provide an oral explanation to the
individual. However, this is not required by the NOTICE Act. We have
added language to the MOON instructions indicating that the hospital
waiving or discounting the beneficiary's responsibility for the cost of
self-administered drugs is an appropriate use of the ``Additional
Information'' free text field of the MOON.
Comment: Several commenters requested specification on whether it
was necessary for hospitals to retain a signed copy of the completed
MOON in the patient's medical record and the requirements for doing so.
One commenter asked whether hospitals could document in the medical
record that the MOON was provided to the patient and an oral
explanation was furnished without retaining a copy of the notice.
Another commenter requested that CMS clarify hospitals can obtain an
electronic signature and retain the MOON only in electronic form. One
commenter requested CMS to clarify if there is a mechanism for
hospitals to provide, when necessary, evidence the notice was delivered
to the patient.
Response: Consistent with longstanding practice in implementing
beneficiary notices, we will require that hospitals and CAHs retain a
signed copy of the MOON. Such a practice assures both hospitals and
CAHs and surveyors that the appropriate notices have been delivered as
required. However, in the past, we have permitted providers to
determine the method of storage. This same flexibility will be afforded
to hospitals and CAHs delivering the MOON. Hospitals and CAHs may

[[Page 57048]]

choose to retain a signed notice as a hard copy or electronically.
After consideration of the public comments we received, we are
finalizing the proposed requirements for written notice without
modification.
e. Outpatient Observation Services and Beneficiary Financial Liability
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25133 through 25134), 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, and 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.\90\ As
an outpatient receiving observation services, a beneficiary may incur
financial liability for Medicare Part B copayments,\91\ 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 MA 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, or 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.
---------------------------------------------------------------------------

\90\ ``Are You a Hospital Inpatient or Outpatient? If You Have
Medicare--Ask!'' CMS Product No. 11435. May 2014.
\91\ 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 separately payable 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 Sec. 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. 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.
Comment: Several commenters suggested that CMS revise language on
the MOON regarding cost-sharing to reflect the fact that claims for
most patients who receive observation services as an outpatient for 24
hours will be paid under a comprehensive APC (C-APC) under the OPPS
that imposes a single copayment rather than a copayment for every
service received. Other commenters also recommended that CMS remove or
simplify the language included in the MOON regarding Part B cost-
sharing for doctor services as the copayment requirement for doctor
services are not affected by the decision to admit the patient as an
inpatient or order observation services as an outpatient.
Response: The commenters are correct that, effective January 1,
2016, CMS established a C-APC for comprehensive observation services
(C-APC 8011). To qualify for the C-APC payment, beneficiaries must have
received 8 or more hours of hospital observation services in
conjunction with a qualifying hospital visit, during a nonsurgical
encounter. Under the C-APC payment policy, we note that, instead of
paying copayments for a number of separate services that are generally
individually subject to the copayment liability cap at section
1833(t)(8)(C)(i) of the Act, beneficiaries can expect to pay a single
copayment for the comprehensive service that would be subject to the
copayment liability cap. As a result, we expect that this

[[Page 57049]]

policy likely reduces the possibility that the overall beneficiary
liability exceeds the copayment liability cap for most of these
outpatient encounters involving observation services. Observation
services that do not meet the criteria for payment under C-APC 8011
will not be paid under the C-APC and cost-sharing requirements for each
individual separately payable service (up to the copayment liability
cap at section 1833(t)(8)(C)(i) of the Act) will apply.
While Part B cost-sharing amounts for physician services do not
differ based on the inpatient or outpatient status of the beneficiary,
we still believe it is required to include information about the Part B
cost-sharing for physician services as it is part of the total cost-
sharing for which the beneficiary is responsible.
Comment: One commenter referenced the statement in the preamble of
the proposed rule that CMS has produced informational publications for
beneficiaries that advise MA enrollees to check with their plans for
information on coverage of outpatient observation services. The
commenter recommended that hospitals and CAHs be required to distribute
copies of this publication to beneficiaries as part of the standard
notice procedures.
Response: The MOON contains language advising MA enrollees to
contact their plan for specific information on coverage for outpatient
observation services. The language in the MOON was based on the
language used in the referenced CMS publication on observation services
(``Are You a Hospital Inpatient or Outpatient?''). As such, we do not
believe there is value in requiring hospitals and CAHs to assume the
burden of distributing a CMS publication that is readily available to
Medicare beneficiaries and which includes the same instruction as the
MOON regarding the importance of contacting the individual's plan for
specific coverage information. Therefore, we are not accepting the
commenter's suggestion.
f. Delivering the Medicare Outpatient Observation Notice
As discussed in the proposed rule (81 FR 25134), an English
language version of the proposed MOON was submitted to OMB for
approval. We stated in the proposed rule that 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, consistent with section
1557 of the Affordable Care Act and section 504 of the Rehabilitation
Act of 1973
Comment: A number of commenters recommended that CMS provide the
MOON in additional languages other than English and Spanish. Some
commenters specifically requested that the MOON be provided in
languages spoken by the lower of 5 percent or 1,000 Medicare
beneficiaries. Other commenters recommended that CMS provide
translation of the document into at least the top 15 languages
nationally. Some commenters more generally requested that CMS make the
notice available in additional languages over time.
Response: We appreciate commenters' concerns that beneficiaries
have access to the MOON in a language they understand. As stated above
and in the proposed rule, we will provide the MOON in both English and
Spanish. We believe hospitals and CAHs already have in place various
procedures to ensure that beneficiaries are able to understand notices
and information delivered to them, and we expect they can further
utilize those procedures to deliver the MOON. In addition, we believe
that the requirements under section 1557 of the Affordable Care Act and
Title VI of the Civil Rights Act of 1964, as listed above, mandate that
hospitals and CAHs have the responsibility to provide language
assistance to LEP individuals, and that these requirements apply to
delivery of the MOON. Therefore, we are not accepting the commenters'
recommendations.
Comment: Some commenters recommended that CMS allow hospitals and
CAHs to provide solely oral interpretation of the English-based version
of the MOON for at least 6 months after the MOON is finalized for more
common languages (except Spanish once the Spanish-based version is
finalized) and permanently for less common languages.
Response: As noted above and in the proposed rule, we expect
hospitals and CAHs to employ their usual procedures to ensure
beneficiaries are able to comprehend language included in the MOON. We
understand that these procedures may include use of oral interpretation
using translators. We believe it is the responsibility of hospitals and
CAHs to ensure they are fulfilling statutory requirements regarding the
provision of the notice.
Comment: Numerous commenters expressed concern that hospitals and
CAHs will not have sufficient time to prepare for MOON implementation.
The commenters recommended that CMS provide transition time for
hospitals to implement the provisions of this final rule; recommended
implementation periods ranged from at least 3 to more than 6 months.
Several commenters requested that CMS delay monitoring and enforcement
until the MOON is translated into the requisite number of foreign
languages to meet anti-discrimination requirements for individuals with
limited English proficiency. One commenter requested that CMS specify
the date when MOON delivery must begin. In addition, the commenter
requested clarification of whether a hospital would be required to
deliver the notice only to outpatients whose observation services begin
on or after the implementation date, or if hospitals must also include
patients already receiving outpatient services as of the implementation
date.
Response: We are clarifying that the MOON is on a separate approval
track from this implementing regulation, as discussed above. The MOON
is following the established OMB notice approval process under the PRA
and is being published for the 30-day comment period along with this
final rule as part of the PRA process.
We expect final PRA approval of the MOON around the time the
implementing regulations are effective. Therefore, the implementation
period for hospitals and CAHs will begin sometime after the effective
date of this final rule and will be announced on the CMS Beneficiary
Notices Initiative Web site at: https://www.cms.gov/Medicare/Medicare-General-Information/BNI/index.html and in an HPMS memorandum to MA
plans. During this implementation period, hospitals and CAHs will have
time to prepare for

[[Page 57050]]

implementation, consistent with past implementation practices for
beneficiary notices. Hospitals and CAHs will be required to deliver the
MOON to applicable patients who begin receiving observation services as
outpatients on or after the notice implementation date. As we stated in
the proposed rule, we have been working toward implementation since the
NOTICE Act was passed. We recognize that the effective date of this
final rule will be at some date after the statutory implementation date
of August 6, 2016, has passed. We are striving to balance the statutory
requirements to provide notice to the specified population with the
desire to provide the affected industry sufficient time to put systems
and business processes in place to implement the NOTICE Act
requirements. Under the PRA approval process, the public will have 30
days to comment on the revised MOON following publication of this final
rule and, OMB will review the MOON after the comment period. Once the
MOON has been approved, hospitals and CAHs must fully implement use of
the MOON and comply with all of the NOTICE Act requirements no later
than 90 calendar days from the date of PRA approval of the MOON. This
implementation schedule takes into consideration the statutory
requirements of the NOTICE Act, as well as our longstanding experience
in developing implementation schedules for new beneficiary notices.
Comment: Many commenters requested a delay in monitoring and
enforcement of MOON delivery. Several commenters recommended graduated
enforcement. One commenter requested that CMS explain the repercussions
for a hospital failing to provide proper notice to Medicare
beneficiaries, and whether failure to provide this notification would
result in termination of the hospital from participation in the
Medicare program. The commenter recommended that CMS only sanction
hospitals for a pattern of notice delivery failure, and follow the same
process currently in place for conditions of participation enforcement
regarding substantial condition level violations. One commenter
requested clarification of the consequences for failure to obtain or
retain a signed notification prior to the patient being discharged.
Several commenters suggested that CMS impose a graduated enforcement
scheme beginning with notice and education of regulatory requirements
and potential noncompliance so the hospital or CAH may develop and
carry out a corrective action plan. Another commenter recommended that
CMS establish a clear standard--developing consistent implementation
across State lines and providing necessary audit protocols to
surveyors. One commenter recommended that in cases where the MOON was
not delivered to an individual as required, the beneficiary receive
covered inpatient care paid under Medicare Part A. Finally, one
commenter requested auditing guidelines published before the end of a
``grace period'' prior to the implementation date.
Response: We appreciate the commenters' interest in the oversight
of MOON delivery. All monitoring and enforcement of the MOON will be
consistent with our oversight procedures for other hospital delivered
notices. We are reviewing our surveying protocols to identify changes
that may be needed to facilitate effective monitoring and enforcement
of these requirements. These revised procedures will be developed and
implemented in the normal course of business.
Comment: One commenter noted that CMS did not provide guidance in
the proposed rule specifying the hospital or CAH staff responsible for
MOON delivery. The commenter believed that hospitals and CAHs should be
responsible for this determination. Another commenter requested that
CMS clarify what staff would be appropriate for delivering the MOON.
One commenter believed that any trained member of the hospital staff
should be permitted to deliver the MOON, but stated that the CMS burden
estimate in the proposed rule appears to anticipate that it will be a
nurse. The commenter explained that, in its experience, hospitals are
more likely to use social workers, discharge planners, or
administrative staff.
Response: We generally do not prescribe what staff must deliver a
notice to a beneficiary. We agree with the commenter that the hospital
or CAH is in the best position to determine the appropriate staff
member to deliver the MOON. We clarify that inclusion of a particular
occupation in a burden estimate reflects our attempts to best
approximate, while not underestimating, the anticipated costs of notice
delivery. This occupation choice does not serve as a notice delivery
staff requirement.
After consideration of the public comments we received, we are
finalizing the proposed provisions for delivering the MOON without
modification.
g. Oral Notice
In the proposed rule (81 FR 25134), pursuant to the statutory
requirement at section 1866(a)(1)(Y)(i) of the Act, we proposed under
proposed new regulation at 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 stated
in the proposed rule that 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.
Comment: Some commenters questioned how hospitals should handle and
document the oral explanation required by the NOTICE Act. One commenter
requested that CMS allow public comment on any guidance issued on the
oral explanation in CMS operating manuals. This commenter questioned if
the oral component is required, and whether the patient's signature on
the MOON would be considered sufficient documentation that the oral
notice was given and understood by the patient or the patient's
representative. Another commenter stated that delivery of the MOON is
unnecessary and suggested that the intent of the notice requirement
should be satisfied by the oral explanation by the hospital staff
followed by documentation and confirmation of the explanation in the
patient's electronic medical record. One commenter recommended that CMS
allow hospitals to deliver the oral explanation with a video
presentation. The commenter indicated that staff would be present to
answer questions and provide additional explanation where necessary, in
addition to the video explanation.
Response: The statute requires that there be an oral explanation of
the written notification, or MOON. We believe it is essential that
hospital staff

[[Page 57051]]

are available to provide a verbal explanation and answer questions in
the interest of beneficiaries fully understanding the MOON. A video
presentation of the MOON is acceptable if an individual is available to
answer questions. Finally, the NOTICE Act requires hospitals and CAHs
to deliver both a written notice and an oral explanation of the notice
when notice delivery is required. Therefore, we do not believe
providing only an oral notice is permissible under the statute.
Comment: One commenter expressed concern that hospitals [and CAHs]
would be required to maintain around the clock staff who are trained to
deliver the MOON. The commenter stated that it would place an enormous
burden on hospitals [and CAHs] and would be costly to implement.
Response: We believe that hospitals and CAHs furnishing observation
services are sufficiently staffed to furnish such observation services
and that hospitals and CAHs would appropriately train the staff that
furnishes observation services to deliver the MOON, as required, in the
applicable cases.
After consideration of the public comments we received, we are
finalizing the proposed provisions for oral notice without
modification.
h. Signature Requirements
As specified in the proposed rule (81 FR 25134), 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
proposed 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 proposed 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.
Comment: Several commenters requested that CMS clarify procedures
for obtaining a signature when a patient is unable to sign the MOON due
to a medical or mental condition or when someone is under duress and no
representative is available. One commenter found the MOON to be unclear
with respect to how providers can determine when it is appropriate to
seek alternative signatures and who (patient family member or other
caregiver) should be engaged to sign the MOON. Some commenters
recommended that CMS allow a hospital representative to annotate the
notice to indicate the patient was unable to sign and that no patient
representative was available, in the same manner CMS proposed to permit
staff to sign and date the MOON when a beneficiary refuses to sign.
Other commenters believed that a notice that is not understandable is
defective. Several commenters recommended that CMS require that a
hospital or CAH deliver the MOON only to a patient able to comprehend
it, and, if not, provide the notice to a representative able to do so.
The commenters suggested that failure to do so will result in a
defective notice. Another commenter recommended that hospitals be
required to provide written and oral notification to the patient's
family member, caregiver, or power of attorney, similar to existing
procedures related to notice delivery and comprehension for the ABN.
One commenter expressed concern that the proposed rule did not set
standards for assuring competency of the patient who is given the
notice and ``acknowledges receipt.'' The commenter explained that
patients who have diminished capacity due to pain or medication or
other conditions may not understand either the notice or its
implications, and recommended that CMS address competency and assuring
that the patient understands the notice in the final rule.
Response: The NOTICE Act requires hospitals and CAHs to deliver
written notice to an individual who has received more than 24 hours of
observation services as an outpatient, and requires hospitals and CAHs
to document acknowledgment of receipt of the notice by obtaining a
signature of the individual or the person acting on the individual's
behalf. The NOTICE Act also provides a mechanism for hospitals and CAHs
to comply with the acknowledgment requirement if the individual or
person acting on behalf of the individual refuses to sign the written
notice. To the extent that additional guidance related to delivery of
notice is necessary, we will issue instructions in the CMS Internet
Only Manual.
Comment: One commenter stated that requiring a signature of the
hospital staff when a patient refuses to sign the MOON raises ethical
concerns for physicians and other hospital providers who may believe
they do not have the right to sign a document when they are not
financially responsible for, or legally acting on the patient's behalf.
The commenter recommended that CMS instead include a check or initial
box to indicate that a patient or caregiver refused to sign.
Response: We appreciate the concerns raised by the commenter.
However, the NOTICE Act expressly requires that if such individual
entitled to notice or person acting on such individual's behalf refuses
to provide signature, the MOON be signed by the staff member of the
hospital or CAH who presented the written notification and includes the
name and title of such staff member, a certification that the
notification was presented, and the date and time the notification was
presented (in accordance with section 1866(a)(1)(Y)(ii)(IV)(bb) of the
Act). We believe accepting something in lieu of signature of the
individual, person acting on individual's behalf, or relevant staff
member would not be appropriate. Therefore, we are maintaining this
proposed signature requirement in this final rule.
Comment: Several commenters suggested that the signature of a
beneficiary reflect notice comprehension as well as receipt of the
notice.
Response: We clarify that a notice signature will reflect notice
receipt as well as comprehension, consistent with statutory
requirements that the notice be written and formatted using plain
language, be made available in appropriate languages, and be
accompanied by an oral explanation. The MOON makes clear that the
signature attests to both receipt and understanding of the notice. We
will be publishing guidance, pursuant to our usual approval process, to
further guide hospitals and CAHs in delivery of the MOON. We plan for
this guidance to be available to hospitals and CAHs before notice
delivery is required, which will be at the end of the implementation
period after the MOON receives final approval.
After consideration of the public comments we received, we are
finalizing the proposed signature requirements without modification.

[[Page 57052]]

i. No Appeal Rights Under the NOTICE Act
As indicated in the proposed rule (81 FR 25134), 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
proposed to amend the regulations at Sec. 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.
Comment: Several commenters submitted comments regarding appeal
rights and the MOON. One commenter expressed concern that the proposed
rule explicitly prevents Medicare beneficiaries from appealing their
``observation status determination.'' The commenter stated that the
proposed MOON is the only instance in which Medicare beneficiaries
receiving a notice of denial of coverage are not given a process to
appeal the determination, and further stated that delivery of the MOON
corresponds with noncoverage of post-hospital SNF care upon hospital
discharge and impacts coverage of care while in the hospital. The
commenter recommended CMS remove proposed regulatory language in Sec.
405.926(u) that states Medicare beneficiaries receiving the MOON do not
have appeal rights. Another commenter believed that the MOON should
inform beneficiaries of their right to appeal observation services
received as an outpatient. Another commenter believed that the MOON
should explain that a patient does not have an immediate right to
appeal their status as an outpatient receiving observation services as
well as the fact that their physician does not have the authority to
change their status. One commenter recommended that CMS clarify why
beneficiaries may not challenge their status as an outpatient and the
provision of observation services.
Response: We thank the commenters for the recommendations. However,
we believe that the comments reflect concerns outside the scope of the
NOTICE Act or a misunderstanding of the nature of the notice required
under the legislation. We disagree with the commenter's assertion that
delivery of the MOON constitutes a determination of noncoverage of
post-hospital SNF care. We also disagree with the commenter's
characterization of the proposed MOON constituting a notice of denial
of coverage in general. Finally, we do not believe the MOON is the
appropriate document to communicate appeal rights; the Medicare Summary
Notice (MSN) fulfills that purpose. Therefore, we are not accepting the
commenters' recommendations.
The MOON is a required informational/educational notice regarding
patient status provided by a hospital or CAH when the beneficiary is
still in the hospital or CAH and receives observation services as an
outpatient for more than 24 hours. The MOON explains the current status
of the patient as an outpatient and not an inpatient, in addition to
the implications of being an outpatient receiving observation services.
As we explained in the proposed rule, delivery of the MOON does not
constitute an initial determination issued in response to a claim for
benefits, and the MOON itself is not a notice of an initial
determination (81 FR 25134). Furthermore, delivery of the MOON by a
hospital or CAH does not constitute a denial of coverage of any
services, and does not constitute a noncoverage decision with respect
to post-hospital SNF care as asserted by the commenter. In fact,
generally beneficiaries will still be receiving care when the MOON is
delivered and will sometimes be formally admitted as inpatients after
delivery of the MOON.
The NOTICE Act does not provide for appeal rights regarding the
notice itself, which makes sense given the nature of the document, as
explained above. The NOTICE Act also does not afford any new appeal
rights beyond those already available (under section 1869 of the Social
Security Act), nor does the NOTICE Act limit or restrict currently
available appeal rights. Consistent with the legislation, the proposed
rule did not propose to expand or limit appeal rights. For the reasons
discussed above, we are not adopting the various recommendations with
respect to amending the MOON to include appeal rights or an explanation
of the lack of appeal rights.
As we have stated repeatedly, the decision to admit a beneficiary
as an inpatient is a complex medical decision made by the physician in
consideration of various factors, including the beneficiary's age,
disease processes, comorbidities, and the potential impact of sending
the beneficiary home. It is the responsibility of the physician to make
the complex medical determination of whether the beneficiary's risk of
morbidity or mortality dictates the need to remain at the hospital
because the risk of an adverse event would otherwise be unacceptable
under reasonable standards of care, or whether the beneficiary may be
discharged. We expect that the NOTICE Act and implementing policies
will result in beneficiaries having a better understanding of the care
they are receiving.
After consideration of the public comments we received, we are
finalizing the proposed revision to Sec. 405.926(u) without
modification.
j. Out of Scope Public Comments
We received several comments that were outside the scope of the
provisions of the proposed rule, and we are not responding to them in
this final rule. These comments were related to (1) defining inpatient
care; (2) alternate notification for transition to inpatient status;
(3) increased protection for inappropriate placement; (4) beneficiary
education and outreach; (5) standardized language for hospitals to use
when a beneficiary does not meet inpatient criteria after internal
utilization review; (6) requirement for hospital pharmacies to work
with MA and Part D plans on an in-network basis; (7) waiver of therapy
cap; (8) waiver of functional limitation reporting; and (9) physician
education and outreach in regards to handling beneficiary concerns and
complaints.
k. Provisions of the Final Regulations
After consideration of the public comments we received, we are
finalizing the addition of paragraph (u) to Sec. 405.926 as proposed.
The proposed addition of paragraph (y) to Sec. 489.20 is being revised
to clarify that hospitals and CAHs may deliver the MOON before an
individual has received more than 24 hours of observation services as
an outpatient.

M. 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 discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25134 through 25135), 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, with our corresponding final policy decisions.

[[Page 57053]]

2. 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25134), we
proposed to revise Sec. 413.17(d)(1) to remove the parenthetical
reference to a provider's nomination of a contractor.
We did not receive any public comments regarding this proposal.
Therefore, we are finalizing our proposal to revise Sec. 413.17(d)(1)
to remove the parenthetical reference to a provider's nomination of a
contractor.
3. 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 the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25135), we proposed 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
proposed 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.
We did not receive any public comments regarding these proposals.
Therefore, we are finalizing our proposal to correct the entity title
of a ``Federally qualified health center'' in Sec. 413.24(f)(4)(i). We
are also finalizing our proposal to add ``histocompatibility
laboratories'' to the list of providers required to submit cost reports
in a standardized electronic format in Sec. 413.24(f)(4)(i).
4. Technical Changes to 42 CFR 413.24(f)(4)(ii) Relating to Electronic
Submission of Cost Reports and Due Dates
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25135), we
proposed 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 the Federal Register at 62 FR 26 through 31.
For the same reasons articulated in section IV.M.3. of the preamble
of the proposed rule (81 FR 25135), we also proposed 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 proposed to remove the duplicate word
``contractor'' from the second sentence of this paragraph.
We did not receive any public comments regarding these proposals.
Therefore, we are finalizing our proposal to make 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 SNFs and 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 published in the Federal Register at 62 FR
26 through 31. We also are finalizing our proposal to revise Sec.
413.24(f)(4)(ii) 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 final rule.
In addition, we are correcting a typographic error to Sec.
413.24(f)(4)(ii) by removing the duplicate word ``contractor'' from the
second sentence of this paragraph.
5. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25135), we
proposed 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 proposed 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 the proposed rule (81 FR 25135). In
addition, we proposed 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 proposed to correct a typographical error that occurred in
the Medicare cost report certification statement set forth in Sec.
413.24(f)(4)(iv)

[[Page 57054]]

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).
We did not receive any public comments regarding these proposals.
Therefore, we are finalizing our proposals without modification 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 also are
finalizing our proposal 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 final rule. In addition, we are
finalizing our proposal 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.
Furthermore, we are finalizing our proposal to correct a
typographical error that occurred in the Medicare cost report
certification statement set forth in the regulations text at Sec.
413.24(f)(4)(iv) by inserting 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.
6. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25135), we
proposed 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 proposed to correct in the proposed rule.
We did not receive any public comments regarding these proposals.
Therefore, we are finalizing our proposal 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.

N. Finalization of Interim Final Rule With Comment Period Implementing
Legislative Extensions Relating to the Payment Adjustments for Low-
Volume Hospitals and the Medicare-Dependent, Small Rural Hospital (MDH)
Program

In the interim final rule with comment period (IFC) that appeared
in the Federal Register on August 17, 2015 (80 FR 49594 through 49597),
we addressed the legislative extension of the MDH program as well as
certain provisions relating to payment to low-volume hospitals under
the IPPS made by the Medicare Access and CHIP Reauthorization Act of
2015 (MACRA) Public Law 114-10. (For the remainder of this section, we
will refer to this IFC as the ``August 2015 IFC''.) Section 204 of the
MACRA extended the temporary changes to the low-volume hospital
qualifying criteria and payment adjustment under the IPPS, originally
provided for by the Affordable Care Act, for discharges occurring on or
after April 1, 2015 through FY 2017 (September 30, 2017). Section 205
of the MACRA extended the MDH program for hospital discharges occurring
on or after April 1, 2015 through FY 2017 (September 30, 2017).
In this final rule, we discuss the provisions of the August 2015
IFC, acknowledge the public comments received (which we determined were
all outside the scope of the provisions of the IFC), and state the
final policy (which we are not modifying from the IFC).
1. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)
a. 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 to be
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 policy at
Sec. 412.101 to reflect the changes to the qualifying criteria and 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 payment adjustment originally provided for by the
Affordable Care Act have been extended by subsequent legislation as

[[Page 57055]]

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 section 204 of the Medicare
Access and CHIP Reauthorization Act of 2015 (MACRA), Public Law 114-10.
The extension provided by section 204 of the MACRA is discussed in
greater detail in section IV.L.2.b. of the preamble of the August 2015
IFC and this final rule. For additional details on the implementation
of the previous extensions, through March 31, 2015, 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); and the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49998 through 50001).
b. Implementation of Provisions of the MACRA for FY 2015
Section 204 of the MACRA provided for an extension of the temporary
changes to the low-volume hospital qualifying criteria and payment
adjustment for discharges occurring on or after April 1, 2015, through
FY 2017 (that is, for discharges occurring on or before September 30,
2017). As discussed in the August 2015 IFC (80 FR 49594), we addressed
the extension of the temporary changes to the low-volume hospital
payment policy for the last half of FY 2015, that is, for discharges
occurring on or after April 1, 2015, through September 30, 2015, in
instructions issued in Change Request 9197, Transmittals 3263 and 3281.
Generally, hospitals that were receiving the low-volume hospital
payment adjustment for FY 2015 as of March 31, 2015 continued to
receive the adjustment for the second half of FY 2015, as long as the
hospital continued to meet the applicable qualifying low-volume
hospital criteria.
In the instructions issued in Change Request 9197, for discharges
occurring on or after April 1, 2015, through September 30, 2015,
consistent with the existing regulations at Sec. 412.101(b)(2)(ii), we
stated that the same discharge data used for the low-volume adjustment
for discharges occurring during the first half of FY 2015 will continue
to be used for discharges occurring during the last half of FY 2015, as
these data were the most recent available data at the time of the
development of the FY 2015 payment rates. Specifically, for FY 2015
discharges occurring on or after April 1, 2015, through September 30,
2015, the low-volume hospital qualifying criteria and payment
adjustment (percentage increase) is determined using FY 2013 Medicare
discharge data from the March 2014 update of the MedPAR files. These
discharge data can be found in Table 14 of the Addendum to the FY 2015
IPPS/LTCH PPS final rule, which is available via the Internet on the
CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2015-IPPS-Final-Rule-Home-Page-Items/FY2015-Final-Rule-Tables.html. We note that, consistent with past
practice, Table 14 is a list of IPPS hospitals with fewer than 1,600
Medicare discharges and is not a listing of the hospitals that qualify
for the low-volume adjustment for FY 2015; it does not reflect whether
or not the hospital meets the mileage criterion (that is, the hospital
must also be located more than 15 road miles from any other IPPS
hospital). In order to receive the applicable low-volume hospital
payment adjustment (percentage increase) for FY 2015 discharges, a
hospital must meet both the discharge and mileage criteria. We
discussed the conforming changes to the regulations at Sec. 412.101
consistent with the extension of the temporary changes to the low-
volume hospital definition and payment adjustment provided by section
204 of the MACRA in section IV.L.2.c. of the preamble of the August
2015 IFC.
c. Low-Volume Hospital Definition and Payment Adjustment for FY 2016
As discussed in the August 2015 IFC (80 FR 49595) and above, 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. Under the prior
extension, in accordance with section 105 of PAMA, those temporary
changes in the low-volume hospital payment policy were to be in effect
for discharges on or before March 31, 2015 only. We stated in the
August 2015 IFC that, due to the timing of the development of the FY
2016 IPPS/LTCH PPS proposed rule and the enactment of the MACRA, we
were unable to address the extension of the changes in the low-volume
hospital payment policy for FY 2016 (or the last half of FY 2015, as
discussed in section IV.L.2.b. of the preamble of the August 2015 IFC)
in that proposed rule. In the August 2015 IFC, we revised the
regulations at Sec. 412.101 to conform to the provisions of section
204 of the MACRA.
To implement the low-volume hospital payment adjustment for FY 2016
consistent with provisions of the MACRA, in accordance with existing
Sec. 412.101(b)(2)(ii) and consistent with our historical approach, we
updated the discharge data source used to identify qualifying low-
volume hospitals and calculate the payment adjustment (percentage
increase). Under existing 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. The applicable low-volume
percentage increase, as originally provided for by the Affordable Care
Act, 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 2016,
consistent with our historical policy, qualifying low-volume hospitals
and their payment adjustment are determined using the most recently
available Medicare discharge data from the March 2015 update of the FY
2014 MedPAR file, as these data are the most recent data available at
the time of the development of the FY 2016 IPPS/LTCH PPS final rule and
the August 2015 IFC. Table 14 listed in the Addendum of the FY 2016
IPPS/LTCH PPS final rule (which is available via the Internet on the
CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp) listed the ``subsection (d)'' hospitals with fewer
than 1,600 Medicare discharges based on the claims data from this FY
2014 MedPAR file and their potential low-volume payment adjustment for
FY 2016. Consistent with past practice, we noted that this list of
hospitals with fewer than 1,600 Medicare discharges in Table 14 did not
reflect whether or not the hospital meets the mileage criterion.
Eligibility for the low-volume hospital payment adjustment for FY 2016
also is dependent upon meeting the mileage

[[Page 57056]]

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 2016 also is dependent upon meeting (in the case of a
hospital that did not qualify for the low-volume hospital payment
adjustment in FY 2015) or continuing to meet (in the case of a hospital
that did qualify for the low-volume hospital payment adjustment in FY
2015) the mileage criterion specified at revised Sec.
412.101(b)(2)(ii) (that is, the hospital is located more than 15 road
miles from any other subsection (d) hospital).
In order to receive a low-volume hospital payment adjustment under
Sec. 412.101 for FY 2016, consistent with our previously established
procedure, a hospital must notify and provide documentation to its MAC
that it meets the discharge and distance requirements under Sec.
412.101(b)(2)(ii), as revised. Specifically, for FY 2016, a hospital
must have made a written request for low-volume hospital status that
was received by its MAC no later than September 1, 2015, in order for
the applicable low-volume hospital payment adjustment to be applied to
payments for its FY 2016 discharges occurring on or after October 1,
2015. Under this procedure, a hospital that qualified for the low-
volume payment adjustment in FY 2015 may continue to receive a low-
volume payment adjustment for FY 2016 without reapplying if it
continues to meet the Medicare discharge criterion established for FY
2016 and the mileage criterion. However, the hospital had to send
written verification that was received by its MAC no later than
September 1, 2015, stating that it continues to be more than 15 miles
from any 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 distance criterion as documented in a
prior low-volume hospital status request. We stated that if a
hospital's written request for low-volume hospital status for FY 2016
was received after September 1, 2015, and if the MAC determines that
the hospital meets the criteria to qualify as a low-volume hospital,
the MAC will apply the applicable low-volume hospital payment
adjustment to determine the payment for the hospital's FY 2016
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).)
In the August 2015 IFC, we made conforming changes to the existing
regulations text at Sec. 412.101 to reflect the extension of the
changes to the qualifying criteria and the payment adjustment
methodology for low-volume hospitals through FY 2017 (that is, through
September 30, 2017) in accordance with section 204 of the MACRA. In
general, these conforming changes consisted of replacing the phrase
``through FY 2014, and the portion of FY 2015 before April 1, 2015''
with ``through FY 2017'' each place it appears, and replacing the
phrase ``the portion of FY 2015 beginning on April 1, 2015, and
subsequent fiscal years'' with the phrase ``FY 2018 and subsequent
fiscal years'' each place it appears. Specifically, we revised
paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d) of Sec.
412.101. Under these revisions to Sec. 412.101, beginning with FY
2018, consistent with section 1886(d)(12) of the Act, as amended, the
low-volume hospital qualifying criteria and payment adjustment
methodology will revert to that which was in effect prior to the
amendments made by the Affordable Care Act and subsequent legislation
(that is, the low-volume hospital payment adjustment policy in effect
for FYs 2005 through 2010).
2. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.
412.108)
a. Background for MDH Program
Section 1886(d)(5)(G) of the Act provides special payment
protections, under the IPPS, to a Medicare-dependent, small rural
hospital (MDH). (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).)
Since the extension of the MDH program through FY 2012 provided by
section 3124 of the Affordable Care Act, the MDH program has been
extended by subsequent legislation as follows: First, section 606 of
the ATRA (Pub. 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 (Pub. 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 (Pub. L. 113-93) extended the MDH program through the first
half of FY 2015 (that is, for discharges occurring before April 1,
2015). Most recently, section 205 of the MACRA (Pub. L. 114-10)
extended the MDH program though 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 interim final rule with comment
period (79 FR 15025 through 15027); the FY 2014 notice (79 FR 34446
through 34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022
through 50024); and the August 2015 IFC (80 FR 49596).
b. MACRA Provisions for Extension of the MDH Program
Section 205 of the MACRA provided for an extension of the MDH
program for discharges occurring on or after April 1, 2015, through FY
2017 (that is, for discharges occurring on or before September 30,
2017). Specifically, section 205 of the MACRA amended sections
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking
``April 1, 2015'' and inserting ``October 1, 2017''. Section 205 of the
MACRA also made conforming amendments to sections 1886(b)(3)(D)(i) and
1886(b)(3)(D)(iv) of the Act.
In the August 2015 IFC (80 FR 49596), we made conforming changes to
the regulations at Sec. 412.108(a)(1) and (c)(2)(iii) to reflect the
extension of the MDH program provided for by the MACRA. We stated in
that IFC that, due to the timing of the development of the FY 2016
IPPS/LTCH PPS proposed rule and the enactment of the MACRA, we were
unable to address the extension of the MDH program for FY 2016 (or the
last half of FY 2015) in that proposed rule. After the MACRA was
enacted, we addressed the extension of the MDH program for the last
half of FY 2015 (that is, for discharges occurring on or after April 1,
2015, through September 30, 2015) in instructions issued in Change
Request 9197, Transmittals 3263 and 3281.
As explained in Change Request 9197, consistent with the previous
extensions of the MDH program and the regulations at Sec. 412.108,
generally, a provider that was classified as an MDH as of March 31,
2015, was reinstated as an MDH effective April 1, 2015, with no need to
reapply for MDH classification. However, if the MDH had classified as

[[Page 57057]]

an SCH or cancelled its rural classification under Sec. 412.103(g)
effective on or after April 1, 2015, the effective date of MDH status
may not be retroactive to April 1, 2015. For more details regarding MDH
status for the second half of FY 2015, we refer the reader to Change
Request 9197.
3. Statement of Final Policy
We received 14 timely pieces of correspondence in response to the
August 2015 IFC. We have determined that all of this correspondence
contains public comments on issues that were outside the scope of the
provisions of the IFC. Therefore, we are finalizing the provisions of
the August 2015 IFC without modification.
4. Collection of Information Requirements
The August 2015 IFC and this final rule do not impose information
collection and recordkeeping requirements. Consequently, it need not be
reviewed by the Office of Management and Budget under the authority of
the Paperwork Reduction Act of 1995 (44 U.S.C. 35).
5. Impact of Legislative Extensions
In the August 2015 IFC, we presented the estimated effects of the
provisions. This impact has not changed. Therefore, below we are
presenting the impact as set forth in that IFC.
a. Effects of the Payment Adjustment for Low-Volume Hospitals for FY
2016
Based on the latest available data at the time of the August 2015
IFC, we estimated that approximately 593 hospitals will qualify as a
low-volume hospital in FY 2016. We projected that the extension for FY
2016 of the temporary changes to the low-volume hospital definition and
the payment adjustment methodology provided for by the MACRA will
result in an increase in payments of approximately $322 million in FY
2016 as compared to payments to qualifying hospitals without the
extension of the temporary changes to the low-volume hospital
definition and the payment adjustment methodology.
b. Effects of the Extension of the MDH Program for FY 2016
Hospitals that qualify as MDHs receive the higher of operating IPPS
payments made under the Federal standardized amount or the payments
made under the Federal standardized amount plus 75 percent of the
amount by which the hospital-specific rate (a hospital-specific cost-
based rate) exceeds the Federal standardized amount. Based on the
latest available data we had for 163 MDHs at the time of the August
2015 IFC, we projected that 90 MDHs will receive the blended payment
(that is, the Federal standardized amount plus 75 percent of the amount
by which the hospital-specific rate exceeds the Federal standardized
amount) for FY 2016. We estimated that those hospitals will experience
an overall increase in payments of approximately $96 million as
compared to payments they would have received had the MDH program not
been extended for FY 2016.

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

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.
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25135 through 25136), in accordance with the regulations at Sec.
412.108(b)(5), 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 reporting periods 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 clarified
in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25136) 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

[[Page 57058]]

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, as we noted in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25136), 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. We note that we did not receive any
public comments on this clarification.

P. 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. As discussed in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25136 through 25138), 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 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 related 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
continued 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

[[Page 57059]]

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 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, we stated in the FY 2017 IPPS/LTCH
PPS proposed rule that 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 0.998 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 0.998 is
removed. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25138), we
proposed 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, 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, we stated in the proposed
rule that 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 percent
reduction to the 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 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 proposed 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, we take this action in the specific
context of this unique situation.
In summary, for the reasons described above, in the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25138), we proposed 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 proposed 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 invited public comments on all aspects of these proposals. As we
stated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25138), the
foregoing discussion and proposals constituted the final notice
required by the Court in the Shands Jacksonville Medical Center, Inc.
v. Burwell, No. 14-263 (D.D.C.) and related cases.
Comment: The vast majority of commenters recognized the unique
nature of this situation and supported prospectively removing the 0.2
percent reduction to the rates and making a temporary one-time
prospective increase to the FY 2017 rates to address the effect of the
0.2 percent reduction to the rates for FYs 2014 through 2016. One
commenter suggested that, instead of a temporary one-time prospective
increase to the FY 2017 rates, CMS adjust over a 3-year FY 2017-FY 2019
time period because the reduction was in place over the 3-year FY 2014-
FY 2016 time period.
Response: We appreciate the commenters' recognition of the unique
nature of this situation and their support for prospectively removing,
beginning in FY 2017, the 0.2 percent reduction to the rates put in
place beginning in FY 2014, and making a temporary one-time prospective
increase to the FY 2017 rates to address the effect of the 0.2 percent
reduction to the rates for FYs 2014 through 2016. We do not agree with
the commenter who suggested that we should adjust over a 3 year FY
2017-FY 2019 time period because the reduction was in place over the 3-
year FY 2014-FY 2016 time period. The nearest prospective time period
that we can use to address the effect of the 0.2 percent reduction to
the rates for FYs 2014 through 2016 is FY 2017. As we stated in the
proposed rule, our goal is a transparent, expedient, and
administratively feasible method. Delaying addressing the effect for
FYs 2014 through 2016 over 3 years rather than the more immediate 1
year method we proposed is not an expedient method of resolving this
issue.
Comment: Some commenters raised concerns about the adequacy of the
proposed adjustment relative to their estimates of the impact of the 2-
midnight policy to date. These commenters included statements that:
Stakeholders had provided CMS with data that indicated that the 2-
midnight policy had been a net savings with respect to Medicare
expenditures; CMS

[[Page 57060]]

did not address the utilization shift between inpatient and outpatient
cases caused by the 2-midnight policy which CMS referred to in the FY
2014 proposed and final rules and which is in the opposite direction of
what CMS assumed; CMS should adopt a rate increase to offset an
asserted decline in expenditures resulting from the 2-midnight policy;
contrary to CMS' assumptions about the 2-midnight policy, rather than
cases shifting between inpatient and outpatient, the entire population
of relevant hospital episodes declined over time; and CMS actuary's
analysis was flawed for numerous reasons, including because it assumed
that the entire deviation from the historical trend line was
attributable to the 2-midnight policy.
Response: We believe these commenters are mischaracterizing our
proposal. In making our proposal, we were not attempting to determine a
new point estimate of the effect of the 2-midnight policy for the
purposes of then proposing (1) a prospective adjustment to the rates
for the net effect of that new estimate relative to the -0.2 percent
adjustment we put in place in FY 2014 and (2) a temporary one-time
adjustment to the rates in FY 2017 to address the net effects of that
new estimate over the FY 2014-FY 2016 time period. Rather than
determine a new point estimate, we proposed to remove the -0.2 percent
adjustment we did make and address the effect of that adjustment for
FYs 2014 through 2016. As we have indicated in prior rulemaking, we
were not required by statute to make an adjustment to the rates for the
effect of the 2-midnight policy. We chose to do so at the time for the
reasons stated in the prior rulemaking. However, for the reasons stated
in the proposed rule, we proposed to no longer make any adjustment for
the 2-midnight policy and address the FY 2014-FY 2016 effects of the
adjustment we did make. For many of the reasons commenters presented to
us in prior rulemaking, we no longer are confident that the effect of
the 2-midnight policy on the number of discharges paid under the IPPS
may be measured in this context. As a result, we proposed to make no
adjustment (and account for the past effects of the adjustment we had
made), not to make a new adjustment.
We currently do not intend to revisit the issue of making an
adjustment for the 2-midnight policy in future rulemaking. However, if
we were to make a proposal in future rulemaking, we would take into
account all of the public comments received to date on the impact of
the 2-midnight policy and any public comments received on a future
proposal.
Comment: Commenters indicated that a very small number of hospitals
would not benefit from the adjustments to the FY 2017 rates. Hospitals
that were paid under the IPPS for all or part of FY 2014, 2015, or
2016, but will not be paid under the IPPS for all of FY 2017 (either
because they closed or converted to a different type of hospital) would
not receive the full benefit of the payment adjustments. The commenters
requested that CMS establish an exceptions process to address this
issue. One commenter also indicated that new hospitals would receive
the benefit of the FY 2017 adjustment even though they were not
affected by the -0.2 percent adjustments for FY 2014, 2015, and 2016.
Response: We recognize that for closed, converted, or new
hospitals, our proposed prospective method generally has a differential
positive or negative impact compared to hospitals that were IPPS
hospitals for all of the FY 2014-FY 2017 time period. We generally
believe that, given the prospective nature of our method and our goal
to adopt a transparent, expedient, and administratively feasible
approach, these differential impacts are an appropriate consequence.
However, after considering the public comments received, we agree that
we should provide a process to address the situation of closed or
converted hospitals. Due to the small number of hospitals impacted, we
will address closed and converted hospitals as part of the cost report
settlement process. These hospitals should identify themselves to their
MACs so that the appropriate cost report adjustment can be applied.
Comment: Some commenters stated the multiplicative effect of the FY
2017 0.6 percent adjustment would not fully compensate hospitals for
the effect of the -0.2 percent adjustment for FYs 2014 through FY 2016
for reasons that included the recent trend of a decline in inpatient
admissions.
Response: We recognize that our proposed method of a prospective
1.006 adjustment for FY 2017 generally may have a differential positive
or negative impact on an individual hospital relative to an attempt to
estimate hospital by hospital the impact of the 2-midnight adjustment
for FYs 2014, 2015, and 2016. As stated in the prior response, we
generally believe that, given the prospective nature of our method and
our goal to adopt a transparent, expedient, and administratively
feasible approach, these differential impacts are an appropriate
consequence. We also note that attempts to make prospective adjustments
to the 1.006 factor would need to rely on estimates of factors that
have been objected to by commenters in the prior rulemaking related to
the -0.2 percent adjustment, such as estimates regarding projected
inpatient utilization levels.
Comment: Some commenters stated that the FY 2017 adjustment to
address the effects of the -0.2 percent adjustment for FYs 2014, 2015,
and 2016 does not compensate hospitals that are party to the lawsuit
for interest and/or all hospitals for the time value of money. Some
commenters suggested that CMS refine the 1.006 percent adjustment to
account for this or otherwise address the issue.
Response: We will not contest that hospitals that are party to the
Shands Jacksonville Medical Center, Inc. v. Burwell, No. 14-263
(D.D.C.) and other currently pending cases that challenge the -0.2
percent adjustment should receive interest under section 1878(f)(2) of
the Act. For these hospitals, we will slightly increase the 1.006
factor by a uniform factor consistent with the interest rates used for
this purpose in effect for the relevant time periods for paying
interest. We disagree with commenters who indicated that we should pay
all hospitals interest or for the time value of money.
After consideration of the public comments we received, we are
finalizing our proposal to adjust the FY 2017 IPPS rates through a
permanent adjustment of 1.002 and temporary one-time prospective
adjustment of 1.006, which will be removed by including a factor of (1/
1.006) in the calculation of the FY 2018 rates.

V. 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 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

[[Page 57061]]

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 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. Changes in Payments for Hospitals Located in Puerto Rico
The existing regulations at 42 CFR 412.374 relating to the capital
IPPS 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 have historically computed 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 was 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. Under existing regulations at 42 CFR 412.374, capital
IPPS payments to hospitals located in Puerto Rico are 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 discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25139), 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. (For additional information on
section 601 of the Consolidated Appropriations Act, 2016, we refer
readers to section IV.A. of the preamble of this final rule.) 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).
Consistent with historical practice, under the broad authority of
the Secretary granted under section 1886(g) of the Act, in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25139), we proposed 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 proposed 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.
We did not receive any public comment on this proposal or the
proposed revisions to Sec. 412.374. Therefore, we are finalizing our
proposal, with one technical correction modification to the proposed
revisions to Sec. 412.374. We are making a technical correction to the
heading of Sec. 412.374(e) to comport with our finalized policies and
the finalized text of paragraph (e). In the proposed rule, we
inadvertently stated in the heading of proposed Sec. 412.374(e) that
the policies in that paragraph are for FYs 2016 and later, instead of
FY 2017 and later. In this final rule, we are revising the heading of
Sec. 412.374(e) to read ``FY 2017 and subsequent fiscal years,''
consistent with the effective date of our finalized policies, which are
for discharges on or after October 1, 2016 (that is, FY 2017).

[[Page 57062]]

As such, under revised Sec. 412.374, for discharges occurring on or
after October 1, 2016, capital IPPS payments to hospitals located in
Puerto Rico will be based on 100 percent of the capital Federal rate.
As we noted in the proposed rule and are noting in this final rule,
this 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. As discussed in section I.I. of Appendix A (Economic
Analyses) of this final rule, this change will 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.

C. Annual Update for FY 2017

The 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 final rule. Consistent with our finalized policy
discussed under section V.B.3. of the preamble of this final rule 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 are discontinuing the use of the Puerto Rico
capital rate in the calculation of capital IPPS payments to hospitals
located in Puerto Rico, effective October 1, 2016 (FY 2017).
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 the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25136 through 25138) and section IV.P. of
the preamble of this final rule, in Shands Jacksonville Medical Center,
Inc. v. Burwell, No. 14-263 (D.D.C.) and related 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 the
proposed rule (81 FR 25136 through 25138), we discussed 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 continued to recognize that the 0.2
percent reduction issue is unique in many ways. As we discussed 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25136
through 25138) and section IV.P. of the preamble of this final rule.)
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25139 through 25140), 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 of these factors into account, consistent with the approach
proposed for the operating IPPS rates, we stated that 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 in section V.B.3. of the
proposed rule, we proposed 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 proposed
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 the proposed rule, we stated that 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 proposed 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. We invited public comments on these proposals.
In section IV.P. of the preamble of this final rule, we summarize
and respond to public comments on our proposals 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 and 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. After
consideration of the public comments and for the reasons described in
section IV.P. of the preamble of this final rule, we are finalize these
proposals. We note that we did not receive any public comments that

[[Page 57063]]

specifically addressed our proposed adjustments to the national capital
Federal rate. Accordingly, as stated in section IV.P. of this final
rule, we are finalizing our proposal to adjust the FY 2017 national
capital Federal rate through a permanent adjustment of 1.002 and
temporary one-time prospective adjustment of 1.006, which will be
removed by including a factor of (1/1.006) in the calculation of the FY
2018 rates.
As we noted in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25140), in section II.D. of the preamble of that rule, we presented 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 proposed 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 did not propose 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. We refer readers to section II.D. of the preamble of this
final rule for a discussion of the recoupment adjustment to the
operating IPPS standardized amount for FY 2017.

VI. Changes for Hospitals Excluded From the IPPS

A. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25140), 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
was 2.8 percent (that is, the estimate of the market basket rate-of-
increase). We indicated in the proposed rule that if more recent data
became available for the final rule, we would use them to calculate the
IPPS operating market basket update for FY 2017. For this FY 2017 IPPS/
LTCH PPS final rule, based on IHS Global Insight, Inc.'s 2016 second
quarter forecast (which is the most recent data available), we
calculated the FY 2010-based IPPS operating market basket update for FY
2017 to be 2.7 percent. Therefore, the FY 2017 rate-of-increase
percentage that is 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 2.7 percent, in accordance with the applicable regulations at
42 CFR 413.40.

B. Report on Adjustment (Exceptions) Payments

Section 4419(b) of Public Law 105-33 requires the Secretary to
publish annually in the Federal Register a report describing the total
amount of adjustment payments made to excluded hospitals and hospital
units by reason of section 1886(b)(4) of the Act during the previous
fiscal year.
The process of requesting, adjusting, and awarding an adjustment
payment is likely to occur over a 2-year period or longer. First,
generally, an excluded hospital must file its cost report for the
fiscal year in accordance with Sec. 413.24(f)(2) of the regulations.
The MAC reviews the cost report and issues a notice of provider
reimbursement (NPR). Once the hospital receives the NPR, if its
operating costs are in excess of the ceiling, the hospital may file a
request for an adjustment payment. After the MAC receives the
hospital's request in accordance with applicable regulations, the MAC
or CMS, depending on the type of adjustment requested, reviews the
request and determines if an adjustment payment is warranted. This
determination is sometimes not made until more than 180 days after the
date the request is filed because there are times when the request
applications are incomplete and additional information must be
requested in order to have a completed request application. However, in
an attempt to provide interested parties with data on the most recent
adjustment payments for which we have data, we are publishing data on
adjustment payments that were processed by the MAC or CMS during FY
2015.
The table below includes the most recent data available from the
MACs and CMS on adjustment payments that were adjudicated during FY
2015. As indicated above, the adjustments made during FY 2015 only
pertain to cost reporting periods ending in years prior to FY 2015.
Total adjustment payments given to excluded hospitals during FY 2015
are $19,959,036. The table depicts for each class of hospitals, in the
aggregate, the number of adjustment requests adjudicated, the excess
operating costs over the ceiling, and the amount of the adjustment
payments.

[[Page 57064]]

----------------------------------------------------------------------------------------------------------------
Excess cost Adjustment
Class of hospital Number over ceiling payments
----------------------------------------------------------------------------------------------------------------
Children's...................................................... 3 $1,615,731 $779,321
Cancer.......................................................... 1 30,816,372 18,758,695
Religious Nonmedical Health Care Institution (RNHCI)............ 4 645,819 421,020
-----------------------------------------------
Total....................................................... 8 -33,077,922 19,959,036
----------------------------------------------------------------------------------------------------------------

C. 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
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25140 through 25141), 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
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 Law 110-275, as
amended, limits participation in the demonstration to eligible entities
in not more than 4 States. Section 123(f)(1) of Public Law 110-275
requires the demonstration project to be conducted for a 3-year period.
In addition, section 123(g)(1)(B) of Public Law 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 Law 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. In the
FY 2017 IPPS/LTCH PPS proposed rule, we indicated that we would be
selecting CAHs to participate in the demonstration, with the period of
performance for each CAH expected to start August 1, 2016.
In the proposed rule, we indicated that we had specified the
payment enhancements for the demonstration, and were 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 would 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, in the proposed rule, we
proposed 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 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 indicated that we
would 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 stated that we did
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

[[Page 57065]]

implemented, we proposed to comply with the budget neutrality
requirement by reducing payments to all CAHs, not just those
participating in the demonstration. We stated that 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 Law 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. For the FY
2017 IPPS/LTCH PPS proposed rule, we estimated 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). We stated in the proposed rule that the final budget
neutrality estimates for the FCHIP demonstration would 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. Therefore, we proposed 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 proposed a 3-year period for recoupment
to allow for a reasonable timeframe for the payment reduction and to
minimize any impact on CAHs' operations.
Comment: Two commenters supported the FCHIP demonstration, but
believed that it is inappropriate to recoup Medicare payments from all
CAHs nationwide in order to achieve budget neutrality, especially
because such a reduction will apply to CAHs that are not eligible to
participate in the demonstration.
Response: We appreciate the commenters' support for the FCHIP
demonstration and acknowledge the concerns expressed regarding
recoupment of Medicare payments from all CAHs nationwide. We emphasize
that the recoupment would apply only as a contingency plan, in the
event that the demonstration costs exceed savings. Our actuarial
analysis has estimated that the impact would be no greater than 0.03
percent of CAHs' total Medicare payments within 1 fiscal year. In
addition, we will conduct any such recoupment over a period of 3 cost
reporting years, in order to allow for a reasonable timeframe for any
payment reduction and minimize the impact on CAHs' operations.
We refer readers to the CMS Web site at: https://innovation.cms.gov/initiatives/Frontier-Community-Health-Integration-Project-Demonstration/ for up-to-date information on the FCHIP
demonstration. We are finalizing, as proposed, a policy that, in the
event we determine that aggregate payments under the demonstration
exceed the payments that would otherwise have been made, CMS will
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 for the FCHIP demonstration and the time needed to conduct
the budget neutrality analysis, in the event the demonstration is found
not to have been budget neutral, any excess costs will be recouped over
a period of 3 cost reporting years, beginning in CY 2020.

VII. 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

[[Page 57066]]

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) 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 refer readers to the interim final
rule with comment period (IFC) published in the Federal Register (which
we will refer to as the April 21, 2016 IFC for the remainder of this
preamble) implementing this provision (81 FR 23428). We are responding
to public comments and finalizing the provisions of the April 21, 2016
IFC implementing this provision in section VII.A.3. of this final rule.
We received several comments that were outside the scope of the
proposed rule requesting modifications to our existing regulations. We
appreciate the commenters' feedback, and we will take these comments
into consideration as we contemplate future revisions to the LTCH PPS
that we would make through the notice-and-comment rulemaking process.
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
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 the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25173), we proposed to amend the existing
regulations relating to the limitation on charges to address

[[Page 57067]]

beneficiary charges for LTCH services provided by subclause (II) LTCHs
as part of our refinement of the payment adjustment for subclause II
LTCHs under Sec. 412.526. We also proposed 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.
We note that, as discussed in section VII.G. of the preamble of
this final rule, we did not receive any public comments in response to
these proposals and are finalizing them as proposed, without
modification.
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 (health IT) 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 health IT products, including
electronic health record (EHR) technology certified under the ONC
Health IT 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 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 (ISA)
(available at: https://www.healthit.gov/sites/default/files/2016-interoperability-standards-advisory-final-508.pdf), which suggests the
best available standards and implementation specifications for health
IT, terminology, content/structure, and services to enable
interoperability. The ISA also includes 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. A Draft 2017 Interoperability Standards
Advisory will be published this summer, and will have a 60-day public
comment period. The Final Interoperability Standards Advisory will be
published in December 2016.

B. 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 fails 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

[[Page 57068]]

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
of the 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.)
In response to the proposed rule, we received several comments
related to the specific mechanics of the site neutral payment rate.
However, because we did not make any proposals concerning the mechanics
of the site neutral payment rate in the proposed rule, we consider
these comments to be outside the scope of the proposed rule. We will
take these comments under consideration for future rulemaking and
provide subregulatory guidance as necessary and appropriate.
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 regarding subclause (II) LTCH) instead of referencing
``Sec. 412.522'' (payment provisions regarding the site neutral
payment rate) (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''.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25144), we
proposed to revise Sec. 412.503 to correct this cross-reference error.
Comment: Several commenters supported our proposed technical
correction of the definition of a ``subsection (d) hospital'' in Sec.
412.503. Some commenters further requested that CMS make additional
changes, for example, including specific categories of hospitals in
addition to hospitals paid under the IPPS, which meet the statutory and
regulatory definition of a ``subsection (d) hospital,'' to this
definition in order to ensure that all hospitals meeting the regulatory
and statutory definition of a ``subsection (d) hospital'' are treated
appropriately for purposes of the LTCH PPS. Other commenters requested
that CMS make similar changes to a subregulatory transmittal related to
this definition.
Response: We appreciate the commenters' support for our proposed
technical correction. We believe that our regulations are sufficiently
clear to ensure that all hospitals meeting the statutory definition of
a ``subsection (d) hospital'' are treated appropriately for purposes of
the LTCH PPS, despite the fact that certain categories of hospitals are
not expressly mentioned in our regulatory definition and that our
regulatory definition of a ``subsection (d) hospital'' in Sec.
412.503, as corrected, is fully consistent with the statutory
definition. However, we will take into consideration the commenters'
requests as we review and amend, as appropriate, our subregulatory
guidance on this issue in order to ensure that we appropriately apply
the regulatory and statutory definition of a ``subsection (d)
hospital'' when determining LTCH PPS payments under the dual rate
payment structure at Sec. 412.522.
After consideration of the public comments we received, we are
finalizing the technical correction to the definition of a ``subsection
(d) hospital'' in Sec. 412.503 as proposed, without modification.
3. Finalization of Interim Final Rule With Comment Period: Temporary
Exception to the Site Neutral Payment Rate Under the LTCH PPS for
Certain Severe Wound Discharges From Certain LTCHs
In the interim final rule with comment period (IFC) that appeared
in the Federal Register on April 21, 2016 (81 FR 23428 through 23438)
(referred to as the ``April 21, 2016 IFC'' for the remainder of this
section), we implemented the provisions of section 231 of the
Consolidated Appropriations Act, 2016 (Pub. L. 114-113) and amended our
regulations at 42 CFR 412.522 to reflect those policies. Section 231 of
Public Law 114-113 amended section 1886(m)(6) of the Act by revising
subparagraph (A)(i) and adding new subparagraph (E), which established
a temporary exception to the site neutral payment rate for certain
severe wound care discharges occurring prior to January 1, 2017, from
LTCHs identified by the amendment made by section 4417(a) of the
Balanced Budget Act of 1997 that are located in a rural area (as
defined in section 1886(d)(2)(D) of the Act) or treated as being so
located pursuant to section 1886(d)(8)(E). Because the statute
contained no effective date and required rulemaking to implement, we
determined that the issuance of an IFC was the most appropriate
mechanism to use to ensure that the affected LTCHs received the longest
period of relief under the statute.
In this final rule, we summarize the provisions of the April 21,
2016 IFC relating to the temporary exception to the site neutral
payment rate for certain severe wound care discharges from certain
LTCHs, summarize the public comments received, present our responses to
those public comments, and state the final policies, which reflect
limited modifications of the policies set forth in the April 21, 2016
IFC. However, as we did not receive any public comments on our
implementing regulation text, and as the limited modifications of our
policies in response to public comments do not necessitate any changes
to the implementing regulation text, we are finalizing those regulatory
provisions without further discussion or modification.

[[Page 57069]]

a. Overview of the Policies Implementing Section 231 of Public Law 114-
113
As we discussed in our April 21, 2016 IFC, section 231 of Public
Law 114-113 limits the temporary exception to LTCHs identified by the
amendment made by section 4417(a) of the BBA (which, as we discussed in
the IFC, is a phrase that has been defined through prior rulemakings)
that are located in a rural area (as defined in section 1886(d)(2)(D)
of the Act (providing a geographic definition of ``rural'' based on a
hospital's location outside of OMB's Metropolitan Statistical Areas
(MSAs)) or treated as being so located pursuant to section
1886(d)(8)(E) of the Act) (referencing IPPS' geographic
reclassification rules, which required interpretation to apply it in
the LTCH context). Furthermore, the statute limited the temporary
exception to discharges in which the individual ``has'' a severe wound,
which we interpreted as either discharges for individuals who had been
successfully treated for a severe wound while receiving care in the
eligible LTCH, or discharges for individuals who were discharged with a
severe wound after having been treated for a severe wound while
receiving care in the eligible LTCH. Finally, the statute further
limited the temporary exception to severe wounds as identified within
the categories listed in the statute, some of which required additional
interpretation in order to implement.
As set forth in the April 21, 2016 IFC, these interpretations were
then codified in amendments to Sec. 412.522 of the LTCH PPS
regulations, which, as the statute contained no effective date and as
rulemaking was required to implement the statute, became effective on
the IFC's publication date. Also as discussed in the IFC, we believed
that our use of an IFC as the means of establishing the required
interpretations (as opposed to full notice and comment rulemaking)
afforded the longest period of relief possible under the authorizing
statute, while preserving the opportunity to comment on our
implementing policies.
For more detail on the policies adopted in the April 21, 2016 IFC,
we refer readers to 81 FR 23428. We address the comments received in
response to those policies, and our responses to those comments below.
b. Interpretation of the Phrase ``Identified by the Amendment Made by
Section 4417(a) of the Balanced Budget Act of 1997''
As discussed in the April 21, 2016 IFC (81 FR 23428), the phrase
``identified by the amendment made by section 4417(a) of the Balanced
Budget Act of 1997'' has been interpreted by CMS to mean hospitals
within hospitals (HwHs) that were participating in Medicare, but
excluded from the hospital IPPS on or before September 30, 1995 (that
is, hospitals which are described under Sec. 412.23(e)(2)(i)) that
meet the criteria of Sec. 412.22(f) (81 FR 23430 through 23432).
As further discussed in the April 21, 2016 IFC, Sec. 412.22(f)
generally requires that, in order to have grandfathered status, an HwH
must continue to operate under the same terms and conditions,
including, but not limited to, the number of beds. A limited exception
to this general policy allowed eligible hospitals to increase beds
between October 1, 1995, and September 30, 2003, without loss of their
grandfathered status. A second exception allows grandfathered HwHs to
increase square footage or decrease the number of beds for cost
reporting periods beginning on or after October 1, 2006, while still
retaining grandfathered status.
As the phrase ``identified by the amendment made by section 4417(a)
of the Balanced Budget Act of 1997'' had already been interpreted in
this manner, the April 21, 2016 IFC adopted the same meaning of the
phrase for purposes of implementing section 231 of Public Law 114-113.
For additional information on hospitals ``identified by the amendment
made by section 4417(a) of the Balanced Budget Act of 1997,'' we refer
readers to the April 21, 2016 IFC (81 FR 23431 through 23432).
Comment: While we did not receive any public comments in response
to our interpretation ``identified by the amendment made by section
4417(a) of the Balanced Budget Act of 1997'' set forth in the April 21,
2016 IFC, one commenter requested clarification as to whether certain
hospitals would be considered ``identified by the amendment made by
section 4417(a) of the Balanced Budget Act of 1997'' (that is, a
grandfathered HwH) for the purposes of the 25-percent threshold policy
(discussed in section VII.F. of the preamble of this final rule).
Specifically the commenter asked whether: (1) An LTCH which changed
host hospitals, (2) an LTCH which is no longer co-located, (3) an LTCH
which did not increase overall beds, but moved some to a remote
location, and (4) an LTCH which did not increase overall beds, but
moved some to a satellite location would be considered a grandfathered
HwH. The commenter requested CMS to consider all of these hospitals
``grandfathered HwHs'' so long as they did not increase their overall
bed capacity.
Response: We appreciate the commenter's support for excluding LTCHs
which expanded bed capacity from grandfathered HwHs that are eligible
for the temporary exception, consistent with the April 21, 2016 IFC.
However, as we explained in that IFC, none of the hospitals described
by the commenter would be considered grandfathered HwHs because none of
those hospitals would meet the requirements of Sec. 412.22(f)
(requiring, with limited exceptions, that the LTCH continue to operate
under the same terms and conditions). By changing host hospitals, the
hospital described in scenario (1) would have changed the terms and
conditions under which it operated and, therefore, does not meet the
requirements of Sec. 412.22(f). Furthermore, the LTCHs described in
scenarios (2), (3), and (4) would no longer meet the definition of an
``HwH'' LTCH as the LTCHs in scenario (2) would become a freestanding
LTCH, and LTCHs in scenarios (3) and (4) would be satellite LTCH
facilities, none of which are HwHs. As the requirements of Sec.
412.22(f) can only be met by HwHs, and the LTCH configurations in
scenarios (2), (3) and (4) are not HwHs they are not grandfathered
HwHs.
After consideration of the public comments we received, we are
finalizing our interpretation of the phrase ``identified by the
amendment made by section 4417(a) of the Balanced Budget Act of 1997''
as set forth is the April 21, 2016 IFC, without modification.
c. Meaning of the Phrase ``Located in a Rural Area or Treated as Being
So Located''
Section 1886(m)(6)(E)(i)(I)(bb) of the Act, as added by section 231
of Public Law 114-113, limits application of the temporary exception to
LTCHs that are located in a rural area (as defined in subsection
(d)(2)(D)) or ``treated as being so located'' pursuant to subsection
(d)(8)(E). As discussed in the April 21, 2016 IFC, section
1886(d)(2)(D) of the Act establishes a geographic definition of
``rural'' based on location outside of OMB's MSAs. This statutory
definition of rural area is consistent with the existing definition of
rural area under the LTCH PPS set forth at Sec. 412.503. Therefore, in
the April 21, 2016 IFC (81 FR 23432), we established that ``located

[[Page 57070]]

in a rural area'' in section 1886(m)(6)(E)(i)(I)(bb) of the Act refers
to LTCHs which are currently located in a rural area as defined under
Sec. 412.503 (81 FR 23432). As discussed in the April 21, 2016 IFC,
the phrase ``treated as being so located pursuant to subsection
(d)(8)(E)'' required interpretation as section 1886(d)(8)(E) of the Act
only applies to subsection (d) hospitals, and LTCHs, by definition at
section 1886(b)(1) of the Act, are not subsection (d) hospitals.
Section 1886(d)(8)(B) of the Act, as applied to urban subsection
(d) hospitals is implemented at Sec. 412.103, and establishes the
procedures by which an urban IPPS hospital may apply for
reclassification as a rural hospital, the process for reviewing such
applications, and the conditions under which applications will be
approved (81 FR 23432). To apply these policies and procedures to LTCHs
in the context of the temporary exception, we revised our LTCH
regulations at Sec. 412.522(b)(2) to--
Limit reclassification applications under the LTCH PPS to
grandfathered HwHs.
Limit the application and effect of any reclassifications
granted to grandfathered HwHs to the eligibility determination for the
temporary exception, and
Adopt the existing rural IPPS reclassification process and
procedures as stated under Sec. 412.103 for the LTCH PPS.
Furthermore, in adopting these policies and procedures, we
highlighted that a reclassified grandfathered HwH LTCH will not be
treated as rural for any other reason, including, but not limited to,
the 25-percent threshold policy and wage index, and that any rural
treatment under these LTCH PPS policies and procedures will expire at
the same time as the temporary exception (that is, December 31, 2016).
Comment: MedPAC opposed allowing LTCHs to seek rural
``reclassification'' based on the Commission's general opposition to
the current wage index system.
Response: As we explained in the April 21, 2016 IFC, we were
required to give meaning to an LTCH being ``treated as being so
located'' under section 1886(d)(8)(E) of the Act. We achieved this by
allowing limited reclassification in the LTCH PPS context, by having it
apply solely for the purpose of eligibility for the temporary exception
established under section 231 of Public Law 114-113. As implemented, we
believe that our policy had no effect on the MedPAC's wage index
related reclassification concerns. It merely allows eligible LTCHs to
reclassify as rural for the purposes of qualifying for the temporary
exception to the site neutral payment rate under the LTCH PPS for
certain severe wound care discharges from certain LTCHs. It is not
applicable in the LTCH PPS for any other purpose, including but not
limited to, the 25-percent threshold policy and the wage index, and
such treatment is effective only until the expiration of the temporary
exception (that is, December 31, 2016).
Furthermore, as MedPAC offered no alternative that would give
meaning to the phrase ``treated as being so located'' under section
1886(d)(8)(E) of the Act, we continue to believe our interpretation to
be the most appropriate way to interpret ``treated as being so
located'' in this context.
Comment: One commenter supported our interpretation of ``treated as
being so located'' under section 1886(d)(8)(E) of the Act in relation
to section 231 of Public Law 114-113. Other commenters requested that
CMS expand the scope of the temporary exception to either allow
additional hospitals or discharges to be excluded from the site neutral
payment rate.
Response: We appreciate the commenter's support for our
implementation of the phrase ``treated as being so located'' under
section 1886(d)(8)(E) of the Act in relation to section 231 of Public
Law 114-113. In response to the commenters who requested expansion of
the temporary exception beyond the LTCHs and discharges defined in
section 231 of Public Law 114-113, as we stated in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49602), we do not have the authority to pay
LTCH discharges that fail to meet the patient-level criteria for
payment at the LTCH PPS standard Federal payment rate at a rate other
than the site neutral payment rate unless the discharge meets the
eligibility criteria for the temporary exception for certain severe
wound discharges. Therefore, we lack the authority to implement
additional exceptions as the commenters suggested.
After consideration of the public comments we received, we are
finalizing our implementation of the meaning of the phrases ``located
in a rural area'' under section 1886(d)(2)(D) of the Act and ``treated
as being so located'' under section 1886(d)(8)(E) of the Act, without
change.
d. Interpretation of the Phrase ``Individual Discharged Has a Severe
Wound''
Section 1886(m)(6)(E)(i)(II) of the Act, as added by section 231 of
Public Law 114-113, provides that the temporary exception for certain
discharges from the application of the payment policy for site neutral
payment rate cases discharged from certain LTCHs is applicable when the
``individual discharged has a severe wound.'' We stated in the April
21, 2016 IFC (81 FR 23433) that the use of the present tense in regard
to the word ``has'' when addressing a severe wound is internally
inconsistent. A strict and literal read of the statute would require
temporary exception from the application of the payment policies for
site neutral payment rate cases only representing an individual who,
presently, ``has severe a wound'' at the time of his or her discharge
from the LTCH and, therefore, payments for cases representing patients
whose wounds are either healed or no longer severe at the time of
discharge would be made under our existing regulations (that is, the
LTCH would receive payment for the case discharge at the site neutral
payment rate unless the discharge met the existing exclusion criteria).
As we stated in the April 21, 2016 IFC (81 FR 23433), we interpreted
this phrase in the provision of the statute to include discharges for
cases representing patients who received treatment for a ``severe
wound'' at the LTCH, regardless of whether the wound was present and
severe at the time of discharge.
Comment: One commenter supported the interpretation.
Response: We appreciate the commenter's support and are finalizing
our interpretation of a patient who ``has'' a severe wound as a patient
who ``had'' a severe wound, without modification.
e. Statutory Definition of the Term ``Severe Wound''
Section 1886(m)(6)(E)(ii) of the Act, as added by section 231 of
Public Law 114-113, defines a ``severe wound'' as a Stage 3 wound,
Stage 4 wound, unstageable wound, non-healing surgical wound, infected
wound, fistula, osteomyelitis or wound with morbid obesity as
identified in the claim from the LTCH. For purposes of implementing
this statutory definition in the April 21, 2016 IFC (81 FR 23433),
after consultation with our clinical advisors, we interpreted the term
``wound'' as: An injury, usually involving division of tissue or
rupture of the integument or mucous membrane with exposure to the
external environment. In that same IFC, we also established that the
phase ``as identified in the claim'' to mean as identified based on the
ICD-10-CM diagnosis codes reported on the claim where--

[[Page 57071]]

The ICD-10-CM diagnosis codes contain sufficient
specificity for this purpose; or
Through the use of a payer-specific condition code where
the ICD-10-CM diagnosis codes lack sufficient specificity for this
purpose.
For six of the eight statutory categories included in the statutory
definition of ``severe wound'' (Stage 3 wound, Stage 4 wound,
unstageable wound, non-healing surgical wound, fistula, and
osteomyelitis), we stated that we believe these types of severe wounds
can be identified through the use of specific ICD-10-CM diagnosis
codes, which are reported on the LTCH claim. We indicated that the list
of ICD-10-CM diagnosis codes that we will use to identify severe wounds
for this group of six statutory categories can be found in the table
entitled ``Severe Wound Diagnosis Codes by Category for Implementation
of Section 231 of Public Law 114-113'' posted on the CMS Web site at:
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the regulation ``CMS-1664-
IFC.'' Our clinical advisors compiled this list of codes by reviewing
ICD-10-CM diagnosis codes for the statutorily enumerated categories of
severe wounds and selecting the codes that satisfied our definition of
a ``wound.'' We noted in the April 21, 2016 IFC that under our
definition of a wound, the ICD-10-CM diagnosis codes used to identify
severe wounds in the osteomyelitis category are also part of the ICD-
10-diagnosis codes used to identify severe wounds in the fistula
category and, therefore, no separate identification of ICD-10-CM
diagnosis codes for osteomyelitis is necessary (81 FR 23433).
The remaining two statutory categories included in the definition
of ``severe wound'' (infected wound and wound with morbid obesity), as
stated in the April 21, 2016 IFC, lack ICD-10-CM diagnosis codes with
sufficient specificity to identify the presence of a ``severe wound.''
This is a result of the number of codes that are used to identify
wounds and infections being too numerous to identify and compile such
an exhaustive list. We stated that because we cannot specify ICD-10
diagnosis codes to appropriately identify severe wounds classified in
these categories, for the purposes of this provision, in the April 21,
2016 IFC, we defined a ``wound with morbid obesity'' as a wound in
those with morbid obesity that require complex, continuing care
including local wound care occurring multiple times a day, and an
``infected wound'' as a wound with infection requiring complex,
continuing care including local wound care occurring multiple times a
day. In order to operationalize these definitions in the absence of
ICD-10-CM diagnosis codes, we utilize payer-only condition codes on the
claim for processing (81 FR 23433).
As we stated we would in the April 21, 2016 IFC, we issued
additional operational instructions regarding the use of the designated
payer-only condition code in Change Request 9599, Transmittals 1654 and
1675. (We note that Change Request 9599 was originally issued on April
29, 2015 as Transmittal 1654, and reissued on June 16, 2016, as
Transmittal 1675 to correct certain technical errors.) We note, as we
did in the April 21, 2016 IFC, that while the use of this payer-only
condition code is the most expedient operational method we have of
implementing the statutory definition provided by the provisions of
section 231 of Public Law 114-113 in the timeframe allowed, the
continued use of a payer-only condition code may not be feasible if the
scope of this provision is expanded. Given the current limitations on
the number of LTCHs that meet the requirements to qualify for the
exception granted by this provision under the statutory criteria (that
is, grandfathered HwHs that are located in a rural area or reclassify
as rural, as previously described in this section), the ability to
identify the other statutory categories of severe wounds, and the
limited timeframe of the exception's duration, we stated that we
expected the number of claims necessitating the use of this payer-only
condition code will be minimal.
Comment: Several commenters objected to the use of ``including
local wound care occurring multiple times a day'' in the definitions of
``infected wound'' and ``wound with morbid obesity.'' These commenters
stated that the best clinical practices do not necessarily call for
local wound care multiple times a day, and, although severe, in those
instances, medically appropriate care for what they believed were
``severe'' wounds would not be considered for a ``severe wound'' under
the provisions implementing section 231 of Public Law 114-113. For
example, some commenters construed our ``including local wound care
occurring multiple times a day'' to require multiple dressing changes
as a necessary criterion under these categories, and expressed concern
that the use of ``including local wound care occurring multiple times a
day'' would exclude discharges that did not involve dressing changes
from the definition of a severe wound (and from the exclusion from the
site neutral payment rate).
Response: Our use of the phrase ``including local wound care
occurring multiple times a day'' was intended to be illustrative, not
demonstrative. In other words, it is our intent that ``local wound care
occurring multiple times a day'' is an example of a wound with
infection or a wound with morbid obesity ``requiring complex,
continuing care.'' To address commenters' concerns and alleviate
further confusion, we are modifying the definitions of ``infected
wound'' and ``wound with morbid obesity'' included in the April 21,
2016 IFC as follows. For the purposes of determining whether a
discharge included treatment for a severe wound eligible for the
temporary exception provided by section 231 of Public Law 114-113, in
this final rule, we are establishing that an ``infected wound'' is ``a
wound with infection requiring complex, continuing care'' and a ``wound
with morbid obesity'' is ``a wound in those with morbid obesity that
requires complex, continuing care.'' Local wound care occurring
multiple times a day (which may involve dressing changes) is one way to
demonstrate that a wound requires ``complex, continuing care,'' but not
the only way.
Comment: Several commenters submitted requests for the inclusion of
additional ICD-10 diagnosis codes that they believe qualify as
descriptions of severe wounds under the categories of Stage 3 wounds,
Stage 4 wounds, unstageable wounds, non-healing surgical wounds,
fistula, and osteomyelitis, and, as such, should be added to the list
of codes presumptively considered as ``severe wounds'' in our ICD-10
diagnosis code-based automated claims processing implementation
approach (that is, they asked us to add the codes they identified to
the table of ``Severe Wound Diagnosis Codes by Category for
Implementation of Section 231 of Pub. L. 114-113'' posted on the CMS
Web site). Several commenters also asserted that the ICD-10 diagnosis
codes for necrotizing fasciitis and gangrene should be presumptively
considered as ``severe wounds'' under the category of an ``infected
wound'' (and, therefore, be added to the table), and should not require
the use of the payer-only condition codes to identify such discharges
as meeting the exception from payment at the site neutral payment rate.
Response: We reviewed all of the ICD-10 diagnosis codes requested
by commenters and found that that some of those codes do meet the
definition of a severe wound set forth in the April 21, 2016 IFC. These
codes will be added to the final table, which will be posted on

[[Page 57072]]

the CMS Web site. Other suggested codes, did not meet the definition of
a ``severe wound,'' and will not be added to the final table.
For example, we disagree with commenters' assertions regarding ICD-
10 diagnosis codes for necrotizing fasciitis and gangrene. While we
acknowledge that necrotizing fasciitis and gangrene may be serious
enough to qualify as a ``severe wound'' in some cases, the ICD-10
diagnosis codes for these types of infections do not capture the
severity of the wound sufficiently enough to ensure that every use of
the code represents a case which would meet our definition of an
``infected wound'' under our implementation of the provisions of
section 231 of Public Law 114-113. Therefore, we conclude that the
suggested codes for necrotizing fasciitis and gangrene lack sufficient
clinical specificity to ensure that their every use would be for a
wound which meets our definition (which would be required to merit
presumptive application of the statutory exception for certain severe
wounds). We will continue to apply the payer-only condition code in
instances in which wounds associated with necrotizing fasciitis and
gangrene (or other infection) do qualify as severe wounds under the
category of ``infected wounds.''
Comment: One commenter noted that, under the ICD-10-CM
classification system, there are coding conventions that require
specific sequencing of codes based on instructional notes, such as
``code first'' and ``use additional code.'' According to the commenter,
these diagnosis codes describe conditions that should be reported as
the principal diagnosis, followed by the code identifying a severe
wound. This commenter recommended the addition of certain ICD-10 codes
to account for these coding conventions.
Response: We appreciate the commenter's review of the list of ICD-
10-CM diagnosis codes used to identify severe wounds for purposes of
implementing section 231 of Public Law 114-113. While coding guidance
is outside the scope of this final rule, we note that we collaborate
with the American Hospital Association through the Coding Clinic for
ICD-10-CM and ICD-10-PCS to promote proper coding. With that said, our
implementation of the exception for certain ``severe wounds'' provided
by the provisions of section 231 of Public Law 114-113 only requires
the presence of an ICD-10 code on the claim. The sequence of the
diagnosis codes on the claim is not relevant for purposes of the
provision. For these reasons, we are not adopting the commenter's
recommendation, but we will continue to encourage LTCHs to follow
official ICD-10-CM/PCS Coding Guidelines and conventions, which can be
found on the Web sites at: http://www.cdc.gov/nchs/icd10cm.htm and
http://www.cms.gov/medicare/coding/icd10/.
Comment: One commenter believed that CMS was granted no discretion
with regard to what constitutes a ``severe wound'' under the statute
because the term was defined by the statute. The commenter requested
that CMS add every ICD-10 code that identified any of the categories of
wounds in our table.
Response: While we agree that the term ``severe wound'' was defined
in the statute, that fact did not obviate the need to interpret the
terms used by the statute to define ``severe wound.'' While the statute
enumerated the universe of categories into which severe wounds would be
classified, it did not define how they should be ``identified in the
claim.'' Nor did the statute define what a ``wound'' is.
Thus, in order to implement the statute, we found it necessary to
define ``wound,'' and to give meaning to Congress' use of the phrase
``severe wound'' in the context of the named categories. ``Infected
wound'' and ``wound with morbid obesity'' cannot be interpreted in the
abstract--they must be read in context, and the context is a provision
granting exceptions to certain ``severe wound'' discharges. As we
stated in the April 21, 2016 IFC, in order to do that, we implemented a
definition of a ``wound'' (as, logically, there must be a wound in
order for there to be a severe wound) and that definition must be
distinct from the definition of a ``severe wound'' lest the word
``severe'' be rendered superfluous (meaning that we must define a
``wound'' in such a way as to distinguish between ``severe'' wounds,
which are to be excluded from the site neutral payment rate, and
``nonsevere'' wounds, which are not to be excluded from the site
neutral payment rate). We continue to believe that interpreting the
statute so as to require that each of the enumerated categories require
a demonstration of the condition being a ``severe'' wound is a
reasonable interpretation of the statute. This is particularly
important for the infected wounds and wounds with morbid obesity, as
these categories lack any clinically standard definition, and represent
a gambit of clinical circumstances, from a paper cut on a patient with
morbid obesity or an infected cut (either of which meets the definition
of a ``wound,'' but neither of which would be expected to require
``complex, continuing care'' or would be labeled ``severe'') to
necrotizing fasciitis (which can represent a severe wound which
requires complex, continuing care). Therefore, in developing the list
of ICD-10 diagnosis codes for identifying, on the LTCH claim, Stage 3
wounds, Stage 4 wounds, unstageable wounds, non-healing surgical
wounds, fistula, and osteomyelitis solely based on the presence of an
ICD-10 diagnosis code, we include only such codes with sufficient
clinical specificity to first, indicate the presence of a ``wound,''
and second, differentiate between severe and non-severe wounds, due to
the statutory requirement that we determine what constitutes a ``severe
wound'' as ``identified in the claim'' (that is, from information on
the LTCH claim). As we are identifying infected wounds and wounds with
morbid obesity through the use of a payer-only condition code, we
established our regulatory definition of these categories so that all
uses identify wounds which are severe. For these reasons, we disagree
with the commenter and are not including every ICD-10 code, which could
represent one of the statutory categories of wounds. To the extent that
any code requested by any commenter was sufficiently specific so as to
indicate a severe wound of the types listed, we have added it to our
table.
Comment: Several commenters requested that CMS apply the temporary
exception to all discharges where the claim includes a code for a body
mass index (BMI) that indicates morbid obesity.
Response: As we stated in the April 21, 2016 IFC, the mere presence
of ICD-10-CM diagnosis codes for morbid obesity paired with a code for
a wound does not provide any information on the severity of the wound;
that is, ICD-10 diagnosis codes do not differentiate between a
diagnosis that is a ``severe'' wound and a diagnosis that is a
``nonsevere'' wound. As such, we are not making any changes to our
approach for identifying wounds with morbid obesity, and will continue
to identify severe wounds in the category of ``wounds with morbid
obesity'' solely through the use of the payer-only condition code as
established in the April 21, 2016 IFC.
After consideration of the public comments we received, as
discussed previously in this section, we are revising our definitions
of an ``infected wound'' and a ``wound with morbid obesity,'' and
including additional ICD-10 diagnosis codes to the listing that
identifies codes that will be presumptively considered severe wounds
for purposes of our automated

[[Page 57073]]

claims processing implementation approach. All other policies
implementing the provisions of section 231 of Public Law 114-113 remain
the same as implemented in the April 21, 2016 IFC, without
modification.
f. Provisions of This Final Rule
In summary, we are finalizing the provisions of the April 21, 2016
IFC with the following modifications: (1) We are revising our
definitions of a ``wound with morbid obesity'' and an ``infected
wound,'' and adding additional ICD-10 diagnosis codes to our list of
such codes to identify cases that meet our established definition of a
``severe wound'' for the six severe wound categories other than the
categories of a ``wound with morbid obesity'' and an ``infected
wound.'' The provisions implementing section 231 of Public Law 114-113,
as set forth in the April 21, 2016 IFC and discussed below, are
effective for LTCH discharges from qualifying LTCHs, for discharges on
or after April 21, 2016, through December 31, 2016.
g. Waived Proposed Rulemaking and Delay of Effective Date
In the April 21, 2016 IFC (81 FR 23435), we found notice-and-
comment rulemaking and a delay in the effective date to be both
unnecessary as well as impracticable and contrary to public interest.
Section 231 of Public Law 114-113 required revision of the existing
regulations to implement the LTCH wound care exception, thereby
limiting any discretion we might otherwise have had to immediately
implement the statutory mandate as a self-implementing statute. In
addition, given the statutory expiration of the provisions of section
231 of Public Law 114-113 on January 1, 2017, we noted that the use of
notice-and-comment rulemaking in the face of the congressionally
imposed end date of the relief would have significantly limited the
qualifying discharges to which the statute applies. We stated that by
implementing and codifying the provisions of the statute through an IFC
and subsequent final rule rather than full notice-and-comment
rulemaking and waiving the usual 60-day delay of effective date
requirement, we believed that our implementation of the waiver would
ensure the maximum period of relief, consistent with our interpretation
of the statute. We found, on these bases, that there was good cause to
waive notice-and-comment rulemaking and the delay in effective date
that would otherwise be required.
Comment: Several commenters requested that CMS make the effective
date of the provision implemented in the April 21, 2016 IFC retroactive
to January 1, 2016. One commenter stated that implementing the statute
through an IFC is contrary to Congressional intent.
Response: As the statute did not contain an effective date and
required rulemaking to implement, having a regulation with an effective
date prior to the date of the rulemaking would require retroactive
rulemaking. While we have the authority to engage in retroactive
rulemaking, that authority is limited to situations where it is
necessary to comply with a statutory requirement or for the public
interest. Had the statute contained an effective date, we may have been
required to perform retroactive rulemaking in order to comply with that
requirement. However, as the statute did not contain an effective date,
retroactive rulemaking was not required. Additionally, we do not
believe that retroactive rulemaking is necessary for the public
interest as, by implementing the statutory requirement through an IFC,
we were able to provide a meaningful period of relief without engaging
in retroactive rulemaking. With respect to the commenter's statement
regarding Congressional intent, we note that the commenter provided no
evidence of our having violated the Congressional intent of this
statutory provision. The materials cited by the commenter, while
related to wound care, rural health, and/or the LTCH PPS, were not
directly related to section 231 of Public Law 114-113, nor were they
Congressionally authored. In implementing section 231 of Public Law
114-113, we reviewed the legislative history and found nothing in that
history that provides insight into Congress' intent. Therefore, we
believe that we are not required to engage in retroactive rulemaking in
implementing section 231 of Public Law 114-113.
h. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (the PRA), Federal
agencies are required to publish notice in the Federal Register
concerning each proposed collection of information. Interested persons
are invited to send comments regarding our burden estimates or any
other aspect of this collection of information, including any of the
following subjects: (1) The necessity and utility of the proposed
information collection for the proper performance of the agency's
functions; (2) the accuracy of the estimated burden; (3) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) the use of automated collection techniques or other
forms of information technology to minimize the information collection
burden.
However, in the April 21, 2016 IFC (81 FR 23435), we stated that we
had requested an emergency review of the information collection
referenced later in this section. In compliance with the requirement of
section 3506(c)(2)(A) of the PRA, we submitted the following for
emergency review to the Office of Management and Budget (OMB). We
requested an emergency review and approval under 5 CFR 1320.13(a)(2)(i)
of the implementing regulations of the PRA in order to implement the
provisions of section 231 of Public Law 114-113 as expeditiously as
possible. We stated that public harm was reasonably likely to ensue if
the normal clearance procedures were followed because the approval of
this information collection is essential to ensuring that otherwise
qualifying grandfathered urban HWHs are not unduly delayed in
attempting to obtain relief provided by the temporary exception by
applying to be treated as rural before the temporary exception expires
on December 31, 2016.
We stated in the April 21, 2016 IFC that, for the purposes of
implementing subparagraph (E) of section 1886(m)(6) of the Act as
provided by Public Law 114-113, we revised our regulations at Sec.
412.522(b)(2)(ii)(B)(2) to utilize the same administrative mechanisms
used in the existing rural reclassification process for urban
subsection (d) hospitals under Sec. 412.103, described later in this
section. We also stated that we will allow grandfathered LTCH HwHs
(previously defined in that IFC) to apply to their CMS regional office
for treatment as being located in a rural area for the sole purpose of
qualifying for this temporary exception from the application of the
site neutral payment rate.
We stated in the April 21, 2016 IFC that, for urban subsection (d)
hospitals, and now temporarily LTCHs, we implemented the rural
reclassification provision in the regulations at Sec. 412.103. In
general, the provisions of Sec. 412.103 provides that a hospital
located in an urban area may be reclassified as a rural hospital if it
submits an application in accordance with our established criteria. The
hospital must also meet certain conditions, which include being located
in a rural census tract of a MSA, or in an area designated by any law
or regulation of the State as a rural area, or designated as a rural
hospital by State law or regulation. Paragraph (b) of Sec. 412.103
sets forth application

[[Page 57074]]

requirements for a hospital seeking reclassification as rural under
that section, which includes a written application mailed to the CMS
regional office that contains an explanation of how the hospital meets
the condition that constitutes the request for reclassification,
including data and documentation necessary to support the request. As
provided in paragraphs (c) and (d) of Sec. 412.103, the CMS regional
office reviews the application and notifies the hospital of its
approval or disapproval of the request within 60 days of the filing
date, and a hospital that satisfies any of the criteria set forth Sec.
412.103(a) is considered as being located in the rural area of the
State in which the hospital is located as of that filing date.
We noted in the April 21, 2016 IFC that this policy only allows
grandfathered LTCH HwHs to apply for this reclassification, and the
rural treatment will only extend to this temporary exception for
certain wound care discharges from the site neutral payment rate
(meaning a grandfathered HwH LTCH will not be treated as rural for any
other reason, including, but not limited to, the 25-percent threshold
policy and wage index policies). We also noted that the any rural
treatment under Sec. 412.103 for a grandfathered HwH LTCH expires at
the same time as this temporary provision (that is, December 31, 2016).
In the April 21, 2016 IFC (81 FR 23436), we estimated that each
application will require 2.5 hours of work from each LTCH (0.5 hours to
fill out the application and 2 hours of recordkeeping). Based on the
current information we had received from the MACs, out of the
approximately 120 current LTCHs that existed in 1995, which is a
necessary but not sufficient condition to be a grandfathered HWH, there
are approximately 5 hospitals that currently meet the criteria of being
a grandfathered HWH and would not be precluded from submitting an
application. We noted that as the MACs continue to update the list of
grandfathered HWH that the number of potential applicants could
increase. Because it is possible that the number of applicants could
rise to 10 or more, in an abundance of caution, we treated this
information collection as being subject to the PRA. Therefore, we
estimated that the aggregate number of hours associated with this
request across all currently estimated eligible hospitals will be 12.5
(2.5 hours per hospital for 5 hospitals). We estimated a current,
average salary of $29 per hour (based on the ``2015 Median usual weekly
earnings (second quartile), Employed full time, Wage and salary
workers, Management, professional, and related occupations'' from the
Current Population Survey, available at the Web site: http://www.bls.gov/webapps/legacy/cpswktab4.htm) plus 100 percent for fringe
benefits ($58 per hour). Therefore, we estimated the total one-time
costs associated with this request will be $725 (12.5 hours x $58 per
hour).
In the April 21, 2016 IFC, we stated that written comments and
recommendations from the public would be considered for this emergency
information collection request if received by April 28, 2016. We
requested OMB review and approval of this information collection
request by May 5, 2016, with a 180-day approval period. We gave two
access Web sites and a telephone number in the IFC where the public
could obtain copies of a supporting statement and any related forms for
the proposed collection(s).
We did not receive any public comments in response to this
information collection request and, therefore, are finalizing it as it
was set forth in the April 21, 2016 IFC, without modification. OMB
approved the Emergency PRA package on May 9, 2016, for the
aforementioned burden, which is under OMB control number 0938-0907.
i. Regulatory Impact Analysis
We have examined the impact of the April 21, 2016 IFC as required
by Executive Order 12866 on Regulatory Planning and Review (September
30, 1993), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 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, 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). In the April 21, 2106 IFC, we projected that two rural
LTCHs would qualify for the temporary exception to the site neutral
payment rate for certain LTCHs for certain discharges provided by
section 231 of Public Law 114-113, based on the best data available at
that time. We were not able to determine which, if any, LTCHs may be
treated as rural in the future by applying and being approved for a
reclassification as rural under the provisions of Sec. 412.103. We
stated that, given that LTCHs are generally concentrated in more
densely populated areas, we did not expect any LTCHs to qualify under
Sec. 412.103. As such, as indicated in the April 21, 2016 IFC (81 FR
23436 through 23436), at that time, our projections related to the
temporary exception to the site neutral payment rate for certain LTCHs
for certain discharges provided by section 231 of Public Law 114-113,
were limited to LTCHs that are geographically located in a rural area.
Based on the most recent data for these two LTCHs, including the
identification of FY 2014 LTCH discharges with a ``severe wound,'' we
estimated the monetary impact of the IFC with respect to that LTCH PPS
provision is approximately a $5 million increase in aggregate LTCH PPS
payments had this statutory provision not been enacted. This estimate
did not reach the economic threshold and this provision did not cause
the IFC to be considered a major rule. At this time, we continue to
estimate that the implementation of section 231 of Public Law 114-113
will result in approximately a $5 million increase in aggregate LTCH
PPS payments had this statutory provision not been enacted, which does
not reach the economic threshold and this provision did not cause the
IFC to be considered a major rule.
The RFA also requires agencies to analyze options for regulatory
relief of small entities if a rule has a significant impact on a
substantial number of small entities. For purposes of the RFA, small
entities include small businesses, nonprofit organizations, and small
governmental 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

[[Page 57075]]

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: https://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 stated that we
believe the provisions of the April 21, 2016 IFC may have an impact on
some small entities, but for the reasons previously discussed in that
IFC and reiterated above, we could not conclusively determine the
number of such entities impacted. Because we lack data on individual
hospital receipts, we stated in the April 21, 2016 IFC that we could
not determine the number of small proprietary LTCHs. Therefore, we
assumed that all LTCHs are considered small entities for the purpose of
the RFA. MACs are not considered to be small entities. Because we
acknowledged that many of the potentially affected entities are small
entities, we stated that the discussion in this section regarding
potentially impacted hospitals constituted our regulatory flexibility
analysis. In stating our final policies in this final rule, we continue
to acknowledge that many of the potentially affected entities are small
entities and, therefore, the discussion in this section regarding
potentially impacted hospitals, constitute our regulatory flexibility
analysis.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule 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 604 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 a metropolitan
statistical 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. Therefore, for purposes of the IPPS and the LTCH PPS, we will
continue to classify these hospitals as urban hospitals.
The provisions of section 231 of Public Law 114-113, for which we
are setting forth in this final rule, by definition affect rural LTCHs
that qualify, and will result in an increase in payment for those
qualifying LTCHs' discharges that meet the definition of a severe
wound. However, as discussed in the April 21, 2016 IFC and as
previously discussed in this section, based on the data currently
available, we estimate there are only two LTCHs that currently meet the
criteria. Therefore, we do not believe that the provisions of section
231 of Public Law 114-113 set forth in this final rule will have a
significant impact on the operations of a substantial number of small
rural LTCHs.
Section 202 of the Unfunded Mandates Reform Act of 1995 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 is approximately $146 million. The April 21, 2016 IFC did
not, and this final rule will not, have any consequential effect on
State, local, or tribal governments, nor will they affect private
sector costs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct requirement costs on state and local governments,
preempts state law, or otherwise has Federalism implications. Because
the IFC and this final rule do not impose any costs on State or local
governments, the requirements of Executive Order 13132 are not
applicable.
In accordance with the provisions of Executive Order 12866, the
April 21, 2016 IFC and this final rule were reviewed by the Office of
Management and Budget.

C. 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 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 will be 757 MS-DRG groupings based on the
changes discussed in section II.F. of the preamble of this final 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

[[Page 57076]]

medical problems characteristic of LTCHs.
In this section of the final rule, we provide a general summary of
our existing methodology for determining the FY 2017 MS-LTC-DRG
relative weights under the LTCH PPS.
As we proposed, in this final 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 final 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
final rule). In addition, in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25145), we proposed 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 the proposed rule.
Furthermore, for FY 2017, in using data from applicable LTCH cases
to establish proposed MS-LTC-DRG relative weights, we proposed 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
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 relative weights for the large number of
low-volume MS-LTC-DRGs, we proposed 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 proposed 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 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 final
rule.)
Comment: A few commenters expressed concern that a number of MS-
LTC-DRGs that historically have the greatest number of LTCH standard
Federal rate cases each year would have lower weights for FY 2017
relative to the weights they had in prior fiscal years. The commenters
believed this is counterintuitive because they expect relative weights
for those MS-LTC-DRGs to increase because they have the largest number
of LTCH cases and LTCH discharges are concentrated in a relatively
small number of MS-LTC-DRGs. These commenters recommended that CMS
analyze and report on the decreasing trend in the relative weights for
high-volume MS-LTC-DRGs.
Response: We agree with the commenters that LTCH discharges are
concentrated in a relatively small number of MS-LTC-DRGs, and as LTCHs
gain experience under the new dual rate LTCH PPS payment structure, the
concentration of cases grouped to those ``high volume'' MS-LTC-DRGs
will increase based on the types of LTCH PPS standard Federal payment
rate cases LTCHs treat under the new statutory patient criteria.
However, we disagree with the commenters that there is a direct
relationship between an increase in the number of cases in an MS-LTC-
DRG and the annual change in the relative weights after recalibration.
As provided under Sec. 412.515, each MS-LTC-DRG, is assigned an
appropriate weight that reflects the estimated relative cost of
hospital resources used within that group compared to discharges
classified within other groups. Furthermore, Sec. 412.517(a) requires
that the MS-LTC-DRG classifications and weighting factors are adjusted
annually to reflect changes in treatment patterns; technology; number
of discharges; and other factors affecting the relative use of hospital
resources. The MS-LTC-DRG relative weights are designed to reflect the
average of resources used to treat representative cases of the
discharges within each MS-LTC-DRG. In general, the MS-LTC-DRG relative
weights are determined by dividing the average charge for each MS-LTC-
DRG by the average charge across all MS-LTC-DRGs. Accordingly, those
MS-LTC-DRGs with an increase in average charge of less than the
increase in average charge across all MS-LTC-DRGs will experience a
reduction in their relative weight because the average charge for each
of those MS-LTC-DRGs is being divided by a larger number (that is, the
average charge across all MS-LTC-DRGs). (Similarly, MS-LTC-DRGs with an
increase in average charge of more than the increase in average charge
across all MS-LTC-DRGs will experience an increase in their relative
weight because the average charge for each of those MS-LTC-DRGs is
being divided by a smaller number.) (70 FR 47335)
In light of the commenters' concern, we reviewed the FY 2015 LTCH
claims data used for the proposed rule and found that the average
charge for the ``high volume'' MS-LTC-DRGs noted by commenters are
increasing between the proposed FY 2017 relative weights as compared to
the FY 2016 relative weights. However, many of these MS-LTC-DRGs
experienced an increase in average charge that was less than the
overall increase in the average charge for all MS-LTC-DRGs. For
example, MS-LTC-DRG 207 showed an increase in average charge of 6.6
percent. However, the overall average charge for all MS-LTC-DRGs
increased by over 7.5 percent. Thus, because the average charge for MS-
LTC-DRG 207 increased less as compared to the increase in the overall
average charge, the proposed relative weight for FY 2017 decreased a
small amount (approximately 0.7 percent). The comparison of the average
charge for an MS-LTC-DRGs to the average charge of all MS-LTC-DRGs

[[Page 57077]]

reflects the resources (and costs) used by LTCHs to treat patients in a
given MS-LTC-DRG relative to the resources (and costs) used by LTCHs to
treat all patients. When updated LTCH claims data for a particular MS-
LTC-DRG show either an increase in the average charge of the MS-LTC-DRG
that is less than the overall increase in the average charge across all
MS-LTC-DRGs or a decrease in the average charge of a particular MS-LTC-
DRG, we believe that the decrease in the relative weights for such MS-
LTC-DRGs is appropriate because the updated LTCH claims data reflect
more recent changes in treatment patterns, technology, number of
discharges, and other factors affecting the relative use of hospital
resources.
Comment: One commenter questioned the use of the historical LTCH
claims data in the ratesetting methodology, including calculation of
the MS-LTC-DRG relative weights, given that these data precede the
revised dual rate LTCH PPS payment structure.
Response: As we discussed in the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49615), we solicited stakeholder input during the FY 2015
rulemaking cycle regarding the calculation of the MS-LTC-DRG relative
payment weights under the new dual rate statutory LTCH PPS payment
structure. Most commenters recommended that the MS-LTC-DRG relative
weights under the new statutory structure should be calculated using
only the data from cases that meet the statutory patient-level criteria
for exclusion from the site neutral payment rate (or cases that would
have qualified for exclusion had the dual rate LTCH PPS payment
structure been in effect at the time of discharge). As we discussed in
that same final rule, we believe that the costs and resource use for
cases paid at the site neutral payment rate in the future may be lower
on average than the costs and resource use for LTCH cases in our
historical data that would have been paid at the site neutral payment
rate if the statutory changes were in place when the discharges
occurred, even if the proportion of site neutral payment rate cases in
future data remains similar to the historical data. Therefore, we
believe that the MS-LTC-DRG relative weights could become distorted
over time and could also lead to less stability in the MS-LTC-DRG
relative weights. For these reasons, we established our methodology for
calculating the FY 2016 MS-LTC-DRG relative weights under the new dual
rate LTCH PPS payment structure using only data from cases that would
have been LTCH PPS standard Federal payment rate cases had the new LTCH
PPS statutory patient-level criteria been in effect at the time of the
discharge (80 FR 49615). We proposed to continue to employ this
approach to calculate the FY 2017 MS-LTC-DRG relative weights because
we continue to believe that computing the MS-LTC-DRG relative weights
using only data from LTCH PPS cases that are (or would have been) paid
the LTCH PPS standard Federal payment rate will result in the most
appropriate payments under LTCH PPS.
After consideration of the public comments we received, we are
finalizing our proposals for calculating the MS-LTC-DRG relative
weights for FY 2017, without modification.
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 that varies based on the
MS-LTC-DRG to which a beneficiary's discharge 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 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 were required to be implemented 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 final 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

[[Page 57078]]

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 MAC 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. 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, in the FY 2017 IPPS/LTCH PPS proposed rule, we proposed 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 the proposed rule (81 FR 25146). Accordingly, the MS-LTC-
DRGs for FY 2017 presented in the proposed rule and this final rule are
the same as the MS-DRGs that will be used under the IPPS for FY 2017.
In addition, because the MS-LTC-DRGs for FY 2017 are the same as the
MS-DRGs for FY 2017, the other changes that affect MS-DRG (and by
extension MS-LTC-DRG) assignments under GROUPER Version 34 as discussed
in section II.G. of the preamble of this final rule, including the
changes to the MCE software and the ICD-10-CM/PCS coding system, also
will 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 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 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 2016 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 the dual rate LTCH PPS payment structure were in effect at the
time of the discharge). (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 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25147), we
proposed 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

[[Page 57079]]

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 methodology for determining the MS-
LTC-DRG relative weights for FY 2017, and we discuss the effects of our
policies concerning the data used to determine the FY 2017 MS-LTC-DRG
relative weights on the various components of our existing methodology
in the discussion that follows.
c. Data
For this final rule, consistent with our proposals regarding the
calculation of the MS-LTC-DRG relative weights for FY 2017, we obtained
total charges from FY 2015 Medicare LTCH claims data from the March
2016 update of the FY 2015 MedPAR file, which are the best available
data at this time, and we are using Version 34 of the GROUPER to
classify LTCH cases. Consistent with our historical practice, we used
those data and the Version 34 of the MS-LTC-DRGs in establishing the FY
2017 MS-LTC-DRG relative weights in this final rule. To calculate the
FY 2017 MS-LTC-DRG relative weights under the dual rate LTCH PPS
payment structure, as we proposed, we are continuing 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 began by first evaluating
the LTCH claims data in the March 2016 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 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 96
hours of ventilation services is 5A1955Z, effective October 1, 2016)
(80 FR 49626 through 49627). We note that, for purposes of developing
the FY 2017 MS-LTC-DRG relative weights using our current methodology,
we did not make any proposals regarding the identification of cases
that would have been excluded from the site neutral payment rate under
the statutory provision that provided for temporary exception from the
site neutral payment rate under the LTCH PPS for certain severe wound
care discharges from certain LTCHs provided by Public Law 114-113, had
our implementation of that law and 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 final rule would have met the criteria to be
excluded from the site neutral payment rate under that exception (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 have met the
criteria had the applicable statutes been in effect at the time of the
discharge), such data do not include any discharges 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 exception been
in effect at the time of the discharge.
Furthermore, consistent with our historical methodology, as we
proposed, we are excluding 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 and our proposals, we are excluding any Medicare Advantage
(Part C) claims in the resulting data. Such claims were identified
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 MS-LTC-
DRG relative weights for FY 2017.
In summary, in general, we identified the claims data used in the
development of the FY 2017 MS-LTC-DRG relative weights in this final
rule, as we proposed, by trimming claims data that would have been paid
the site neutral rate had the dual payment rate structure been in
effect (except for discharges which would have been excluded from the
site neutral payment under the temporary exception for certain severe
wound care discharges from certain LTCHs), as well as the claims data
of 10 all-inclusive rate providers reported in the March 2016 update of
the FY 2015 MedPAR file and any Medicare Advantage claims data. (We
note that there were no data from any LTCHs that are paid in accordance
with a demonstration project reported in the March 2016 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 used the remaining data (that is, the applicable LTCH data)
to calculate the 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25148), we proposed to continue to use a hospital-
specific relative value (HSRV) methodology to calculate the 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

[[Page 57080]]

55985). Specifically, under this methodology, we reduced 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 an 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, as we
proposed, we are continuing 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 final 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 was 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 an 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 an LTCH with high average charges as
less resource intensive than they would be at an LTCH with low average
charges. For example, a $10,000 charge for a case at an 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 an 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 MS-LTC-DRG Relative
Weights
For purposes of determining the 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 proposed to continue to use applicable LTCH cases to establish the
same volume-based categories to calculate the FY 2017 MS-LTC-DRG
relative weights (81 FR 25148).
In determining the FY 2017 MS-LTC-DRG relative weights, when
necessary, as we proposed, we made 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 final 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. 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 proposed to continue to employ the quintile methodology
for low-volume MS-LTC-DRGs, such that we grouped the ``low-volume MS-
LTC-DRGs'' (that is, 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 81 FR 25148)). In cases where the initial assignment of a low-
volume MS-LTC-DRG to a quintile resulted in nonmonotonicity within a
base-DRG, as we proposed, we make adjustments to the resulting low-
volume MS-LTC-DRGs to preserve monotonicity, as discussed in detail in
section VII.C.3.g. (Step 6) of the preamble of this final rule.
In this final rule, based on the best available data (that is, the
March 2016 update of the FY 2015 MedPAR files), we identified 261 MS-
LTC-DRGs that contained between 1 and 24 applicable LTCH cases. This
list of MS-LTC-DRGs was then divided into one of the 5 low-volume
quintiles, each containing 52 MS-LTC-DRGs (260/5 = 52). We assigned the
low-volume MS-LTC-DRGs to specific low-volume quintiles by sorting the
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 MS-LTC-DRGs with less
than 25 applicable LTCH cases was not evenly divisible by 5 and,
therefore, as proposed, we employed our historical methodology for
determining which of the low-volume quintiles contain the additional
low-volume MS-LTC-DRG. However, based on the data available for this
final rule, the number of MS-LTC-DRGs with less than 25 applicable LTCH
cases is evenly divisible by 5. Therefore, we no longer need to employ
our historical methodology for determining which of the low-volume
quintiles contain the additional low-volume MS-LTC-DRG. Specifically,
for this final rule, after organizing the MS-LTC-DRGs by ascending
order by average charge, we assigned the first 52 (1st through 52nd) of
low-volume MS-LTC-DRGs (with the lowest average charge) into Quintile
1. The 52 MS-LTC-DRGs with the highest average charge cases were
assigned into Quintile 5. This results in each of the 5 low-volume
quintiles containing 52 MS-LTC-DRGs. Table 13A, listed in section VI.
of the Addendum to this final rule and available via the Internet on
the CMS Web site, lists the composition of the low-volume quintiles for
MS-LTC-DRGs for FY 2017.
In order to determine the FY 2017 relative weights for the low-
volume MS-LTC-DRGs, we used the five low-volume quintiles described
previously. We determined a relative weight and (geometric) average
length of stay for each of the five low-volume quintiles using the
methodology described in

[[Page 57081]]

section VII.C.3.g. of the preamble of this final rule. We assigned the
same relative weight and average length of stay to each of the low-
volume MS-LTC-DRGs that make up an individual low-volume quintile. We
note that, as this system is dynamic, it is possible that the number
and specific type of MS-LTC-DRGs with a low-volume of applicable LTCH
cases will 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 FY 2017 MS-LTC-DRG Relative Weights
In this final rule, as we proposed, we are continuing to use our
current methodology to determine the FY 2017 MS-LTC-DRG relative
weights.
In summary, to determine the FY 2017 MS-LTC-DRG relative weights,
we grouped applicable LTCH cases to the appropriate MS-LTC-DRG, while
taking into account the low-volume quintiles (as described above) and
cross-walked no-volume MS-LTC-DRGs (as described later in this
section). After establishing the appropriate MS-LTC-DRG (or low-volume
quintile), as proposed, we calculated the 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, as we proposed, we
adjusted the number of applicable LTCH cases in each MS-LTC-DRG (or
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), as proposed, we calculated ``relative adjusted weights'' for
each 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 FY 2017 MS-LTC-DRG
relative weights is 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 an LTCH because
these stays do not fully receive or benefit from treatment that is
typical in an LTCH stay, and full resources are often not used in the
earlier stages of admission to an 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 an LTCH by including data from these very short stays. Therefore,
consistent with our existing relative weight methodology and as
proposed, in determining the FY 2017 MS-LTC-DRG relative weights, we
removed 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 FY 2017 MS-LTC-DRG relative
weights is 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, as we proposed, we are continuing 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 final rule, we refer to 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 FY 2017 MS-LTC-DRG
relative weights, consistent with our historical approach and as we
proposed, we adjusted 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 made this adjustment by counting an
SSO case as a fraction of a discharge based on the ratio of the length
of stay of the case to the average length of stay for the MS-LTC-DRG
for non-SSO cases. This has the effect of proportionately reducing the
impact of the lower charges for the SSO cases in calculating the
average charge for the MS-LTC-DRG. This process produces the same
result as if the actual charges per discharge of an SSO case were
adjusted to what they would have been had the patient's length of stay
been equal to the average length of stay of the MS-LTC-DRG.
Counting SSO cases as full LTCH cases with no adjustment in
determining the FY 2017 MS-LTC-DRG relative weights would lower the FY
2017 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the
relatively lower charges of the SSO cases would bring down the average
charge for all cases within a MS-LTC-DRG. This would result in an
``underpayment'' for non-SSO cases and an ``overpayment'' for SSO
cases. Therefore, as we proposed, we are continuing to adjust for SSO
cases under Sec. 412.529 in this manner because it will 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 FY 2017 MS-LTC-DRG relative weights on an
iterative basis.
Consistent with our historical relative weight methodology and as
we proposed, we calculated the 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 calculated 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 multiplied by the LTCH's
case-mix index to produce an adjusted hospital-specific relative charge
value for the case. We used an initial case-mix index value of 1.0 for
each LTCH.
For each MS-LTC-DRG, we calculated the FY 2017 relative weight by
dividing the SSO-adjusted average of the hospital-specific relative
charge values for applicable LTCH cases for the

[[Page 57082]]

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 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 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) was
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
were then used to calculate a new set of MS-LTC-DRG relative weights
across all LTCHs. This iterative process continued until there was
convergence between the relative weights produced at adjacent steps,
for example, when the maximum difference was less than 0.0001.
Step 5--Determine a FY 2017 relative weight for MS-LTC-DRGs with no
applicable LTCH cases.
Using the trimmed applicable LTCH cases, consistent with our
historical methodology and as we proposed, we identified the MS-LTC-
DRGs for which there were no claims in the March 2016 update of the FY
2015 MedPAR file and, therefore, for which no charge data was available
for these 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 generally assigned a relative
weight to each of the no-volume MS-LTC-DRGs based on clinical
similarity and relative costliness (with the exception of
``transplant'' MS-LTC-DRGs, ``error'' MS-LTC-DRGs, and 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 final 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 cross-walked each no-volume MS-LTC-DRG to another MS-LTC-DRG for
which we calculated a relative weight (determined in accordance with
the methodology described above). Then, the ``no-volume'' MS-LTC-DRG
was assigned the same relative weight (and average length of stay) of
the MS-LTC-DRG to which it was cross-walked (as described in greater
detail in this section of the final rule).
Of the 757 MS-LTC-DRGs for FY 2017, we identified 357 MS-LTC-DRGs
for which there are no trimmed applicable LTCH cases (the number
identified includes the 8 ``transplant'' MS-LTC-DRGs, the 2 ``error''
MS-LTC-DRGs, and the 15 ``psychiatric or rehabilitation'' MS-LTC-DRGs,
which are discussed below). We assigned relative weights to each of the
357 no-volume MS-LTC-DRGs that contained trimmed applicable LTCH cases
based on clinical similarity and relative costliness to 1 of the
remaining 400 (757-357 = 400) MS-LTC-DRGs for which we calculated
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'' MS-LTC-
DRGs as the MS-LTC-DRGs to which we cross-walked 1 of the 334 ``no
volume'' MS-LTC-DRGs.) Then, we generally assigned the 334 no-volume
MS-LTC-DRGs the relative weight of the cross-walked MS-LTC-DRG. (As
explained below in Step 6, when necessary, we made adjustments to
account for nonmonotonicity.)
We cross-walked the no-volume MS-LTC-DRG to an MS-LTC-DRG for which
we calculated relative weights based on the March 2016 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 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 MS-LTC-DRGs in FY 2017, the relative weights assigned
based on the cross-walked MS-LTC-DRGs will result in an appropriate
LTCH PPS payment because the crosswalks, which are based on clinical
similarity and relative costliness, are expected to generally require
equivalent relative resource use.
We then assigned the relative weight of the cross-walked MS-LTC-DRG
as the relative weight for the no-volume MS-LTC-DRG such that both of
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight (and average length of
stay) for FY 2017. We note that, if the cross-walked MS-LTC-DRG had 25
applicable LTCH cases or more, its relative weight (calculated using
the methodology described in Steps 1 through 4 above) was assigned to
the no-volume MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which
the no-volume MS-LTC-DRG was cross-walked had 24 or less cases and,
therefore, was designated to 1 of the low-volume quintiles for purposes
of determining the relative weights, we assigned the relative weight of
the applicable low-volume quintile to the no-volume MS-LTC-DRG such
that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and
the cross-walked MS-LTC-DRG) have the same relative weight for FY 2017.
(As we noted previously, in the infrequent case where nonmonotonicity
involving a no-volume MS-LTC-DRG resulted, additional adjustments as
described in Step 6 are required in order to maintain monotonically
increasing relative weights.)
For this final rule, a list of the no-volume MS-LTC-DRGs and the
MS-LTC-DRGs to which each was cross-walked (that is, the cross-walked
MS-LTC-DRGs) for FY 2017 is shown in Table 13B, which is listed in
section VI. of the Addendum to this final rule and is available via the
Internet on the CMS Web site.
To illustrate this methodology for determining the relative weights
for the FY 2017 MS-LTC-DRGs with no applicable LTCH cases, we are
providing the following example, which refers to the no-volume 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 final rule for MS-LTC-DRG 061
(Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC). We
determined that MS-LTC-DRG 070 (Nonspecific Cerebrovascular Disorders
with MCC) is similar clinically and based on resource use to MS-LTC-DRG
061. Therefore, we assigned the same relative weight (and average
length of stay) of MS-LTC-DRG 70 of 0.9098 for FY 2017 to MS-LTC-DRG
061 (we refer readers 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 will vary in the
future.

[[Page 57083]]

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 relative weights in this final rule.
For FY 2017, consistent with our historical relative weight
methodology and as we proposed, we are establishing a relative weight
of 0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or
Implant of Heart Assist System with MCC (MS-LTC-DRG 001); Heart
Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG
002); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG
005); Liver Transplant without MCC (MS-LTC-DRG 006); Lung Transplant
(MS-LTC-DRG 007); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG
008); Pancreas Transplant (MS-LTC-DRG 010); 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 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 as we proposed, we are establishing a relative weight of 0.0000 for
the 2 ``error'' 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 MS-LTC-
DRGs cannot be properly assigned to an MS-LTC-DRG according to the
grouping logic.
In this final rule, for FY 2017, as we proposed, we are
establishing a relative weight equal to the respective FY 2015 relative
weight of the MS-LTC-DRGs for the following ``psychiatric or
rehabilitation'' 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
and rehabilitation'' MS-LTC-DRGs will always be paid at the site
neutral payment rate, and, therefore, those 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'' MS-
LTC-DRGs in FY 2017, as we proposed, we assigned a relative weight to
these MS-LTC-DRGs for FY 2017 that is 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'' 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'' 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 establishing a relative weight (and
average length of stay thresholds) equal to the respective FY 2015
relative weight of the MS-LTC-DRGs for the 15 ``psychiatric or
rehabilitation'' 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 final rule and is available via the Internet on the CMS Web site,
reflects this final policy.
Step 6--Adjust the 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 may 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.

[[Page 57084]]

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 FY 2017 MS-LTC-DRG relative
weights, consistent with our historical methodology and as we proposed,
we are continuing to combine MS-LTC-DRG severity levels within a base
MS-LTC-DRG for the purpose of computing a relative weight when
necessary to ensure that monotonicity is maintained. 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 FY 2017 MS-LTC-DRG
relative weights in this final rule by applying this methodology are
denoted in 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.
Step 7--Calculate the 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 and as we proposed, we are updating the MS-LTC-DRG
classifications and relative weights for FY 2017 based on the most
recent available LTCH data for applicable LTCH cases, and continuing to
apply a budget neutrality adjustment in determining the FY 2017 MS-LTC-
DRG relative weights.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25152 through
25153), to ensure budget neutrality in the update to the MS-LTC-DRG
classifications and relative weights under Sec. 412.517(b), we
proposed to continue to use our established two-step budget neutrality
methodology.
Comment: One commenter questioned how the low-volume MS-LTC-DRGs or
MS-LTC-DRGs with no applicable LTCH cases impact the budget neutrality
process.
Response: Under our established two-step budget neutrality
methodology, we first calculated and applied a normalization factor to
the recalibrated relative weights; and then we calculated and applied a
budget neutrality adjustment factor. Under both of these steps, the
low-volume MS-LTC-DRGs are reflected in the budget neutrality
calculation, and generally MS-LTC-DRGs with no applicable LTCH cases
are not reflected in the budget neutrality calculation, as explained
below.
As described in the proposed rule (81 FR 25153), to calculate the
proposed normalization factor for FY 2017, we grouped applicable LTCH
cases using the proposed FY 2017 Version 34 GROUPER, and the
recalibrated proposed FY 2017 MS-LTC-DRG relative weights to calculate
the average case-mix index (CMI); we grouped the same applicable LTCH
cases using the FY 2016 GROUPER Version 33 and MS-LTC-DRG relative
weights and calculated the average CMI; and computed the ratio by
dividing the average CMI for FY 2016 by the average CMI proposed for FY
2017. That ratio was the proposed normalization factor. Because the
calculation of the normalization factor involves the relative weights
for the MS-LTC-DRGs that contained applicable LTCH cases to calculate
the average CMIs, any low-volume MS-LTC-DRGs are included in the
calculation (and the MS-LTC-DRGs with no applicable LTCH cases are not
included in the calculation).
As described in the proposed rule (81 FR 25153), to calculate the
budget neutrality adjustment factor, we simulated estimated total FY
2017 LTCH PPS standard Federal payment rate payments for applicable
LTCH cases using the proposed FY 2017 normalized relative weights and
GROUPER Version 34; simulated estimated total FY 2016 LTCH PPS standard
Federal payment rate payments for applicable LTCH cases using the FY
2016 MS-LTC-DRG relative weights and the FY 2016 GROUPER Version 33;
and calculated the ratio of these estimated total payments by dividing
the simulated estimated total LTCH PPS standard Federal payment rate
payments for FY 2016 by the simulated estimated total LTCH PPS standard
Federal payment rate payments for FY 2017. The resulting ratio was the
proposed budget neutrality adjustment factor. The calculation of the
budget neutrality factor involves the relative weights for the LTCH
cases used in the payment simulation, which includes any cases grouped
to low-volume or to MS-LTC-DRGs with no applicable LTCH cases, and
generally does not include payments for cases MS-LTC-DRG with no
applicable LTCH cases. (Occasionally, a few LTCH cases (that is, those
with a covered length of stay of 7 days or less, which are removed from
the relative weight calculation in step 2) that are grouped to an MS-
LTC-DRG with no applicable LTCH cases are included in the payment
simulations used to calculate the budget neutrality factor. However,
the number and payment amount of such cases have a negligible impact on
the budget neutrality factor calculation).
In this final rule, to ensure budget neutrality in the update to
the MS-LTC-DRG classifications and relative weights under Sec.
412.517(b), as we proposed, we are continuing to use our established

[[Page 57085]]

two-step budget neutrality methodology. Therefore, in this final rule,
in the first step of our MS-LTC-DRG budget neutrality methodology, for
FY 2017, as we proposed, we calculated and applied 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 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 normalization factor for FY 2017 (the first step
of our budget neutrality methodology), we used the following three
steps: (1.a.) Used 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 FY 2017 GROUPER (that is,
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.) grouped 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.) computed 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 MS-LTC-DRG relative weights for
FY 2017, each recalibrated MS-LTC-DRG relative weight was multiplied by
the normalization factor of 1.28408 (determined in Step 1.c.) in the
first step of the budget neutrality methodology, which produced
``normalized relative weights.''
In the second step of our MS-LTC-DRG budget neutrality methodology,
as we proposed, we calculated 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 final 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.) Simulated
estimated total FY 2017 LTCH PPS standard Federal payment rate payments
for applicable LTCH cases using the normalized relative weights for FY
2017 and GROUPER Version 34 (as described above); (2.b.) simulated
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.) calculated
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 FY 2017 MS-LTC-DRG relative weights, each normalized
relative weight was then multiplied by a budget neutrality factor of
1.0011126 (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 FY 2017 MS-LTC-DRG relative weights
in this final rule, consistent with our existing methodology, we
applied a normalization factor of 1.28408 and a budget neutrality
factor of 1.0011126. 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, lists the MS-LTC-DRGs and their respective 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. 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).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25153 through
25167), we proposed 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, which are for cost
reporting periods beginning on and after October 1, 2012, and before
October 1, 2013. We proposed 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 proposed to use for
determining the operating and capital portions of the proposed 2013-
based LTCH market basket.

[[Page 57086]]

2. Overview of the 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 the proposed rule, we proposed 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 2013-Based LTCH Market Basket Cost Categories and
Weights
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25154), we
invited public comments on our proposed methodology for deriving the
2013-based LTCH market basket. We received one general comment
regarding our proposed 2013-based LTCH market basket.
Comment: One commenter supported CMS' proposed methodology to
revise and rebase the LTCH market basket.
Response: We appreciate the commenter's support.
We summarize and respond to any public comments received regarding
the specifics of our proposed methodology under the applicable sections
below, and provide final decisions regarding each proposed methodology
in the relevant section.
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 proposed to use 2013 as the base year because we believed that
the 2013 Medicare cost reports represented 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 proposed 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 proposed 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 resulted 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 were 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 stated
that 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.
Comment: One commenter requested that CMS identify whether the 6
percent of total LTCH providers that CMS excluded when applying the LOS
edit had any significant characteristics whereby their exclusion could
have an impact on the calculation of rates and/or weights. The
commenter further inquired whether the exclusion of these providers is
creating a biased system.
Response: As stated in the proposed rule, our goal when deriving
cost shares for the LTCH market basket is to use Medicare cost reports
for those facilities that serve Medicare beneficiaries, and

[[Page 57087]]

are reflective of case-mix and practice patterns associated with
providing services to Medicare beneficiaries in LTCHs. Therefore, we
proposed to limit our selection of Medicare cost reports to those from
LTCHs that have a Medicare average LOS that is within a comparable
range of their total facility average LOS. We believe that applying the
LOS edit results in a more accurate reflection of the structure of
costs for Medicare covered days.
In response to the comment, we performed a sensitivity analysis
where we recalculated the major cost weights using the Medicare cost
report data for all LTCHs, as opposed to our proposed methodology of
excluding approximately 6 percent of LTCH providers based on the
Medicare and total facility LOS. We found that the effect on the cost
weights was small; the difference from the proposed major cost weights
ranged from 0.0 percentage point to 0.7 percentage point, in absolute
terms, and averaged 0.1 percentage point across the six major cost
weights. We then also derived a LTCH market basket using these
recalculated cost weights and found that, in any given year of the
projection period, there was no difference in the growth rates between
this market basket and the proposed market basket (when rounded to the
tenth of one percentage point).
In summary, our analysis does not support the commenter's
suggestion that the exclusion of those LTCH providers that had a
Medicare LOS that was outside a comparable range of their total LOS
resulted in estimates that were biased. We believe that these excluded
providers are not reflective of case mix and practice patterns
associated with providing services to Medicare beneficiaries in LTCHs,
and therefore should be excluded as we proposed. Furthermore, the
exclusion of these providers does not have a material impact on the
cost weights or market basket update.
After consideration of the public comments we received, we are
adopting our proposed LOS trim methodology as final.
Using the resulting set of Medicare cost reports, we proposed 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 cost weights. We describe the detailed
methodology for obtaining costs for each of these seven cost categories
below.
(1) Wages and Salaries Costs
We proposed 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 proposed 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 proposed 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.
We did not receive any public comments on our proposed methodology
for deriving wages and salaries costs. Therefore, we are adopting our
proposed methodology as final.
(2) Employee Benefit Costs
Similar to the 2009-based LTCH-specific market basket, we proposed
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 have 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 proposed 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.
We did not receive any public comments on our proposed methodology
for deriving employee benefits costs. Therefore, we are adopting our
proposed methodology as final.
(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 proposed to derive the contract labor cost weight for the
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 proposed to use Worksheet S-3, Part II to calculate the
contract labor cost weight in the proposed 2013-based LTCH market
basket.
We did not receive any public comments on our proposed methodology
for deriving contract labor costs. Therefore, we are adopting our
proposed methodology as final.
(4) Pharmaceutical Costs
We proposed to calculate pharmaceutical costs using 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

[[Page 57088]]

cost center (Line 73). A similar methodology was used for the 2009-
based LTCH-specific market basket using the CMS Form 2552-96.
We did not receive any public comments on our proposed methodology
for deriving pharmaceutical costs. Therefore, we are adopting our
proposed methodology as final.
(5) Professional Liability Insurance Costs
We proposed 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
118.10, Columns 1 through 3. A similar methodology was used for the
2009-based LTCH-specific market basket using the CMS Form 2552-96.
We did not receive any public comments on our proposed methodology
for deriving professional liability insurance costs. Therefore, we are
adopting our proposed methodology as final.
(6) Capital Costs
We proposed that capital costs be equal to Medicare allowable
capital costs as reported on Worksheet B, Part II, Column 26. We
proposed 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.
We did not receive any public comments on our proposed methodology
for deriving capital costs. Therefore, we are adopting our proposed
methodology as final.
b. Final Major Cost Category Computation
In addition to our policies to derive costs for the major cost
categories for each provider using the Medicare cost report data as
previously described, we proposed to address outlier cases using the
following steps. First, for each provider, we proposed 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
proposed 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 proposed 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.
This trim was applied after first keeping only those providers that had
a cost weight greater than zero and less than 100 percent. After the
costs for outlier cases were removed in this manner, we proposed to sum
the costs for each category across all remaining providers, and then
divided 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 proposed 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 referred readers to Table VII-1
below for the resulting proposed cost weights for these major cost
categories (which, as we indicate later, we are finalizing).

Table VII-1--Major Cost Categories and Their Respective Cost Weights as
Calculated From Medicare Cost Reports
------------------------------------------------------------------------
Proposed and
final 2013- based 2009-based LTCH-
LTCH market specific market
Major cost categories basket cost basket cost
weight (percent weight (percent
of total 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 was
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 was 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 proposed 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
was 86 percent. Therefore, we proposed 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 referred 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 (which,
as we indicate later, we are finalizing) and the 2009-based LTCH-
specific market basket.

[[Page 57089]]

Table VII-2--Wages and Salaries and Employee Benefits Cost Weights After
Contract Labor Allocation
------------------------------------------------------------------------
Proposed and
final 2013- based 2009-based LTCH-
Major cost categories LTCH cost weight specific cost
(percent of total weight (percent
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 was 0.3 percentage
point higher, while the employee benefit cost weight was 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 was 0.4 percentage
point lower than the compensation cost weight for the 2009-based LTCH-
specific market basket.
We did not receive any public comments on our proposed methodology
for deriving the major cost weights for the 2013-based LTCH market
basket. Therefore, we are adopting our proposed methodology as final.
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 proposed 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.\92\ 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
become available. Instead of using the less detailed Annual I-O data,
we proposed 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 2013-based LTCH market basket. For
example, the cost for ``Food: Direct Purchases'' represented 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 represented 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).
---------------------------------------------------------------------------

\92\ http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
---------------------------------------------------------------------------

Using this methodology, we proposed 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.
We did not receive any public comments on our proposed methodology
for deriving the detailed operating cost weights for the 2013-based
LTCH market basket. Therefore, we are adopting our proposed methodology
as final.
d. Derivation of the Detailed Capital Cost Weights
As described in section VII.D.3.b. of the preamble of this final
rule, we proposed 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 proposed to then separate this
total capital-related cost weight into more detailed cost categories.
Using 2013 Medicare cost reports, we were able to group capital-
related costs into the following categories: Depreciation, Interest,
Lease, and Other Capital-Related costs. For each of these categories,
we proposed 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 proposed 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 resulted 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
proposed 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 proposed 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
assumed that approximately 6.2 percent (62.3 percent

[[Page 57090]]

x 0.1) of total capital-related costs represent lease costs
attributable to overhead, and we proposed to add this 6.2 percent to
the 5.9 percent Other Capital-Related cost category weight. We then
proposed 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 comprised 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 was 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
was allocated to the Other Capital-Related cost category. Therefore,
the resulting proposed Other Capital-Related cost weight was 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 proposed to further divide the Depreciation and
Interest cost categories. We proposed to separate the Depreciation cost
category into the following two categories: (1) Building and Fixed
Equipment and (2) Movable Equipment. We also proposed 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
proposed 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 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 proposed to
allocate lease expenses among the Depreciation, Interest, and Other
Capital cost categories. We determined that leasing building and fixed
equipment expenses accounted for 86 percent of total leasing expenses,
while leasing movable equipment expenses accounted for 14 percent of
total leasing expenses. We proposed 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 resulted
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 proposed 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 was 23 percent.
As we stated in the proposed rule, 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 final rule to separate the total capital-related cost weight of
9.7 percent into more detailed cost categories and weights.
We did not receive any public comments on our proposed methodology
for deriving the detailed capital cost weights for the 2013-based LTCH
market basket. Therefore, we are adopting our proposed methodology as
final. Table VII-3 below provides the proposed and final detailed
capital cost shares obtained from the Medicare cost reports.

Table VII-3--Detailed Capital Cost Weights for the 2013-Based LTCH
Market Basket
------------------------------------------------------------------------
Proposed and
Proposed and final detailed
final cost shares capital cost
obtained from shares after
Cost categories Medicare cost allocation of
reports (percent lease expenses
of total costs) (percent of total
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. 2013-Based LTCH Market Basket Cost Categories and Weights
Similar to the 2012-based IRF and 2012-based IPF market baskets,
the proposed and final 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 proposed to include the Apparel and Machinery and Equipment
in the Miscellaneous Products cost category and the Postage in the All-
Other Nonlabor-Related Services cost category. We note that the
machinery

[[Page 57091]]

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 2013-based LTCH market basket. For the 2013-based
LTCH market basket, we also proposed 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.
We did not receive any public comments on our proposed detailed
operating cost weights for the 2013-based LTCH market basket.
Therefore, we are adopting our proposed detailed operating cost weights
as final.
Table VII-4 below shows the proposed and final cost categories and
weights for the final 2013-based LTCH market basket compared to the
2009-based LTCH-specific market basket.

Table VII-4--2013-Based LTCH Cost Weights Compared to 2009-Based LTCH
Cost Weights
------------------------------------------------------------------------
Proposed and
final 2013-based 2009-based LTCH
Cost category LTCH cost cost weight
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 Insurance 0.9 0.8
All Other Products and Services. 33.2 33.3
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.

4. Selection of Price Proxies
After computing the cost weights for the 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 proxies that we proposed for the operating portion of the 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 proposed 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 proposed 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

[[Page 57092]]

services bought by the typical consumer. Because they may not represent
the price encountered by a producer, we proposed to use CPIs only if an
appropriate PPI was not available, or if the expenditures were 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 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
met these criteria.
Table VII-7 lists the price proxies that we proposed for the 2013-
based LTCH market basket. Below we present a detailed explanation of
the price proxies that we proposed for each cost category weight. We
note that many of the proxies that we proposed to use for the 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 2013-Based LTCH
Market Basket
(1) Wages and Salaries
We proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed to use 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 2013-based
LTCH market basket.
(5) Water and Sewage
We proposed 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 proposed to use proxy price changes in hospital professional
liability 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed to update
the blended weights using 2007 Benchmark I-O data, which we also
proposed to use for the 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 show more
weight for organic chemical products and less weight for inorganic
chemical products compared to the 2002 Benchmark I-O data.

[[Page 57093]]

Table VII-5 below shows the proposed (which, as we indicate later,
we are finalizing) weights for each of the four PPIs used to create the
blended PPI.

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

(11) Medical Instruments
We proposed to use a blend for the Medical Instruments cost
category. The 2007 Benchmark Input-Output data show an approximate 50/
50 split between Surgical and Medical Instruments and Medical and
Surgical Appliances and Supplies for this cost category. Therefore, we
proposed to use 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 stated in the proposed rule
that 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 proposed 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 stated in the proposed rule that 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
We proposed 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 proposed 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 using 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 proposed 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 proposed 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 proposed 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 stated in the proposed rule that 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.
We did not receive any public comments on our proposed price
proxies for the operating portion of the 2013-based LTCH market basket.
Therefore, we are adopting our proposed price proxies for the operating

[[Page 57094]]

portion of the 2013-based LTCH market basket as final.
b. Price Proxies for the Capital Portion of the 2013-Based LTCH Market
Basket
(1) Capital Price Proxies Prior to Vintage Weighting
We proposed 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 proposed 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 final
rule.
We proposed 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 stated in
the proposed rule that 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.
We did not receive any public comments on our proposed price
proxies for the capital portion of the 2013-based LTCH market basket.
Therefore, we are adopting our proposed price proxies for the capital
portion of the 2013-based LTCH market basket as final.
(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. We stated in the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25161) that the vintage-weighted
capital-related portion of the 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
proposed 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 nonvintage 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 proposed 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 proposed 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 separated 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
2013-based LTCH market basket. We proposed 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 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

[[Page 57095]]

weights, we proposed 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 final rule. For the interest vintage weights,
we proposed 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 proposed 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 proposed
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 proposed 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.
We did not receive any public comments on our proposed vintage
weights for the 2013-based LTCH market basket. Therefore, we are
adopting our proposed vintage weights as final.
The vintage weights for the capital-related portion of the proposed
and final 2013-based LTCH market basket and the 2009-based LTCH-
specific market basket are presented in Table VII-6 below.

Table VII-6--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 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 is applied to the 2017q3 price proxy level, year 17 vintage weight
is applied to the 2016q3 price proxy level, and so forth.

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 2013-Based LTCH Market Basket
Table VII-7 below shows both the operating and capital price
proxies that we proposed and are using as final for the 2013-based LTCH
market basket.

[[Page 57096]]

Table VII-7--Price Proxies for the 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 Industry 1.1
for Petroleum Refineries
and PPI Commodity for
Natural Gas.
Water & Sewerage.......... CPI-U for Water and 0.1
Sewerage Maintenance.
Professional Liability Insurance ......................... 0.9
Malpractice............... CMS Hospital Professional 0.9
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 From 1.1
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 Rubber 0.6
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: Labor- ECI for Total 3.5
related. Compensation for Private
Industry Workers in
Professional and Related.
Administrative and ECI for Total 0.9
Facilities Support Compensation for Private
Services. Industry Workers in
Office and
Administrative Support.
Installation, Maintenance ECI for Total 2.0
& Repair Services. Compensation for
Civilian Workers in
Installation,
Maintenance, and Repair.
All Other: Labor-related ECI for Total 1.9
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 Less 1.4
related Services. 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 domestic 0.5
municipal bonds (Bond
Buyer 20 bonds)--vintage
weighted (18 years).
For Profit................ Average yield on Moody's 1.8
Aaa bonds--vintage
weighted (18 years).
Other Capital-Related Costs..... CPI-U for Rent of Primary 2.0
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.

d. FY 2017 Market Basket Update for LTCHs
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25164), for FY
2017 (that is, October 1, 2016, through September 30, 2017), we
proposed 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
was 2.7 percent. Therefore, consistent with our historical practice of
estimating market basket increases based on the best available data, in
the proposed rule, we proposed a market basket update of 2.7 percent
for FY 2017. Furthermore, because the proposed FY 2017 annual update
was based on the most recent market basket estimate for the 12-month
period (2.7 percent) at the time of the proposed rule, we also proposed
that if more recent data became 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.
Based on IGI's second quarter 2016 forecast with history through
the first quarter of 2016, the projected market basket update for FY
2017 is 2.8 percent. Therefore, consistent with our

[[Page 57097]]

historical practice of estimating market basket increases based on the
best available data, we are finalizing a market basket update of 2.8
percent for FY 2017 based on the 2013-based LTCH market basket. (As
discussed in greater detail in section V.A.2. of the Addendum to this
final rule, we are establishing an annual update of 1.75 percent to the
LTCH PPS standard Federal payment rate for FY 2017 under Sec.
412.523(c)(3)(xiii) of the regulations.)
Using the current 2009-based LTCH-specific market basket and IGI's
second quarter 2016 forecast with history through the first quarter of
2016, the FY 2017 market basket update would also be 2.8 percent
(before taking into account any statutory adjustment). Table VII-8
below compares the final 2013-based LTCH market basket and the 2009-
based LTCH-specific market basket percent changes.

Table VII-8--2013-Based LTCH Market Basket and 2009-Based LTCH-Specific Market Basket Percentage Changes, FY
2011 Through FY 2019
----------------------------------------------------------------------------------------------------------------
2013-Based LTCH 2009-Based LTCH
Fiscal Year (FY) market basket index market basket index
percent change percent change
----------------------------------------------------------------------------------------------------------------
Historical data:
FY 2011....................................................... 2.3 2.6
FY 2012....................................................... 1.9 2.3
FY 2013....................................................... 2.0 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....................................................... 2.8 2.8
FY 2018....................................................... 2.9 2.9
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. second quarter 2016 forecast.

Over the time period covering 2011 through 2015, the average growth
rate of the 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 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 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. FY 2017 Labor-Related Share
As discussed in section V.B. of the Addendum to this final 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 Costs from the 2009-based LTCH-
specific market basket.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25165), 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
proposed to include in the labor-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 final
rule, for the proposed 2013-based LTCH market basket, we proposed and
are finalizing 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

[[Page 57098]]

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 proposed 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 stated in the proposed rule that 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 proposed
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 proposed 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 proposed to apportion the
NAICS 55 expense data by this percentage. Therefore, we proposed 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 was the sum of the FY
2017 relative importance of each labor-related cost category.
We did not receive any public comments on our proposed methodology
for determining the FY 2017 labor-related share based on the 2013-based
LTCH market basket. Therefore, we are finalizing our methodology as
proposed.
Consistent with our policy to update the labor-related share with
the most recent available data, the labor-related share for this final
rule reflects IGI's second quarter 2016 forecast of the 2013-based LTCH
market basket. Table VII-9 below shows the FY 2017 relative importance
labor-related share using the 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
FY 2017 Final Proposed labor- FY 2016 Final
labor-related related share labor-related
share \1\ \2\ share \3\
----------------------------------------------------------------------------------------------------------------
Wages and Salaries........................................... 46.5 46.6 44.6
Employee Benefits............................................ 7.3 7.3 8.1
Professional Fees: Labor-Related............................. 3.5 3.5 2.2
Administrative and Facilities Support Services............... 0.9 0.9 0.5
Installation, Maintenance, and Repair Services \4\........... 2.1 2.1
All Other: Labor-Related Services............................ 1.9 1.9 2.5
--------------------------------------------------
Subtotal................................................. 62.2 62.3 57.9
Labor-related portion of capital (46%)....................... 4.3 4.3 4.1
--------------------------------------------------
Total Labor-Related Share................................ 66.5 66.6 62.0
----------------------------------------------------------------------------------------------------------------
\1\ Based on the 2013-based LTCH market basket, IHS Global Insight, Inc. 2nd quarter 2016 forecast.
\2\ Based on the proposed 2013-based LTCH market basket, IHS Global Insight, Inc. 1st quarter 2016 forecast.
\3\ Federal Register, 80 FR 49478.
\4\ 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.

[[Page 57099]]

The labor-related share for FY 2017 is the sum of the FY 2017
relative importance of each labor-related cost category, and reflects
the different rates of price change for these cost categories between
the base year (2013) and FY 2017. The sum of the 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 62.2 percent, as shown in Table VII-9 above.
As we proposed, we established 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 is 9.3 percent of the 2013-based
LTCH market basket in FY 2017, as we proposed, we are taking 46 percent
of 9.3 percent to determine the labor-related share of capital-related
costs for FY 2017 (.46 x 9.3). The result is 4.3 percent, which we
added to 62.2 percent for the operating cost amount to determine the
total labor-related share for FY 2017. Therefore, the labor-related
share that we used for the LTCH PPS in FY 2017 is 66.5 percent. This
labor-related share is determined using the same methodology as
employed in calculating all previous LTCH labor-related shares.
The FY 2017 labor-related share using the 2013-based LTCH market
basket is 4.5 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 4.5 percentage points 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 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 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 final 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 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 points
difference is attributable to the higher ``All Other'' residual cost
category weight of the 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 2013-based LTCH market
basket and the 2002 data used in the 2009-based LTCH-specific market
basket.
Roughly one-quarter of the 4.5 percentage points difference between
the FY 2017 labor-related share using the 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 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 FY 2013 to the payment
year between the 2009-based LTCH-specific market basket and the 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 52.6 percent in
FY 2016, a reduction of 0.4 percentage point. For the 2013-based LTCH
market basket, the base weight of 53.9 percent in 2013 is 0.1
percentage point lower than the relative importance in FY 2017 (53.8
percent). 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. Changes to the LTCH PPS Payment Rates and Other 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 are used
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).)

[[Page 57100]]

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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25167 through
25169), we presented 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 proposed
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 update to the LTCH PPS standard Federal
payment rate for FY 2017 is presented in section V.A. of the Addendum
to this final rule. The components of the proposed and final 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.d. of the
preamble of this final rule). In addition, we are making an adjustment
to the LTCH PPS standard Federal payment rate to account for the
estimated effect of the 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.B. of the Addendum to
this final rule).
2. 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). In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25153 through
25167), we proposed to rebase and revise the 2009-based LTCH-specific
market basket, primarily based on Medicare cost report data for LTCHs
for 2013, which we are adopting in this final rule after consideration
of public comments. We refer readers to section VII.D. of the preamble
of the proposed rule and this final rule for a complete discussion of
the LTCH market basket and a description of the methodologies we used
for determining the operating and capital-related portions of the 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 final 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
``fiscal year'' rather than ``rate year'' for 2011 and subsequent
years.
b. 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 rebasing and revising the
2009-based LTCH-specific market basket to reflect a 2013 base year. As
explained in section VII.D. of the preamble of this final rule, we used
2013 Medicare cost reports because these represent the most recent,
complete set of Medicare cost report data for purposes of calculating
cost weights for the LTCH market basket, and we believe that the 2013-
based LTCH market basket appropriately reflects the cost structure of
LTCHs. In this final rule, we are using the 2013-based LTCH market
basket to update the LTCH PPS standard Federal payment rate for FY
2017, as we proposed.
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)(F) 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

[[Page 57101]]

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. 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 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 final rule. (For additional
information on the history of the LTCH QRP, including the statutory
authority and the selected measures, we refer readers to section VII.C.
of the preamble of this final rule.)
e. 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 second quarter 2016
forecast, the FY 2017 full market basket increase for the LTCH PPS
using the finalized 2013-based LTCH market basket is 2.8 percent, as
discussed in section VII.D.4.d. of the preamble of this final rule. The
current estimate of the MFP adjustment for FY 2017 based on IGI's
second quarter 2016 forecast is 0.3 percent, as discussed in section
VII.E.2.c. of the preamble of this final rule. Consistent with our
historical practice, as we proposed, we used 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 this
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,
as we proposed, we reduced the full FY 2017 market basket increase by
the FY 2017 MFP adjustment. To determine the market basket update for
LTCHs for FY 2017, as reduced by the MFP adjustment, consistent with
our established methodology, we subtracted the FY 2017 MFP adjustment
from the 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, as we proposed, we further reduced the
adjusted market basket update (that is, the full market basket increase
less the 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 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 final rule, in accordance with the statute, we reduced the
FY 2017 full market basket increase of 2.8 percent (based on IGI's
second quarter 2016 forecast of the 2013-based LTCH market basket) by
the FY 2017 MFP adjustment of 0.3 percentage point (also based on IGI's
second quarter 2016 forecast). Following application of the
productivity adjustment, the adjusted market basket update of 2.5
percent (2.8 percent minus 0.3 percentage point) was then further
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 establishing an annual market basket update under to
the LTCH PPS standard Federal payment rate for FY 2017 of 1.75 percent
(that is, the most recent estimate of the LTCH PPS market basket

[[Page 57102]]

increase of 2.8 percent, less the MFP adjustment of 0.3 percentage
point, and less the 0.75 percentage point required under section
1886(m)(4)(F) of the Act). Accordingly, we are finalizing our proposed
revision to Sec. 412.523(c)(3) by adding a new paragraph (xiii), which
specifies 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 1.75 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 further reduced the 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 establishing an annual update to the LTCH PPS standard Federal
payment rate of -0.25 percent (that is, 1.75 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 used a 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 this final rule. (We note that, consistent
with historical practice, we also adjusted the 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. of the Addendum to this final rule).)
3. 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)(2)(ii)
of the regulations, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25169), we proposed 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 was 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)(viii)), which is discussed in section VI. of
the preamble of the 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(c)(3)(viii).
Based on IGI's 2016 first quarter forecast, with historical data
through the 2015 fourth quarter, in the proposed rule, we estimated
that the FY 2010-based IPPS operating market basket update for FY 2017
was 2.8 percent (that is, the estimate of the market basket rate-of-
increase). Therefore, we proposed that the 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) was 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 the proposed rule. Consistent with our historical practice of using
the best available data, we also proposed we would use a more recent
estimate of the market basket increase to determine the FY 2017 rate-
of-increase percentage to determine the FY 2017 target amounts for
``subclause (II) LTCHs'' in this final rule.
Comment: Commenters agreed with the proposed rate-of-increase
percentage to determine the FY 2017 target amounts for ``subclause (II)
LTCHs'' and understood that it was subject to change based on more
recent data in the final rule.
Response: We appreciate the commenters' review and agreement with
our proposal regarding the rate-of-increase percentage for ``subclause
(II) LTCHs'' for FY 2017.
Accordingly, for this final rule, we used IGI's 2016 second quarter
forecast, with historical data through the 2016 first quarter, to
estimate the final FY 2010-based IPPS operating market basket update
for FY 2017 of 2.7 percent (that is, the estimate of the market basket
rate-of-increase). Therefore, the rate-of-increase percentage that will
apply to the FY 2016 target amounts in order to determine the target
amount for cost reporting periods beginning in FY 2017 for ``subclause
(II) LTCHs'' under Sec. 412.526(c)(1)(i) is 2.7 percent. As proposed,
this rate-of-increase percentage is the same as 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)(viii)), which is discussed in section VI. of the
preamble of this final rule.

F. 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
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; therefore,
subsequent cost reporting periods are unaffected by exceeding 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-

[[Page 57103]]

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 may result from the co-location of facilities which can
create 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 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 payment 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, we 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 and new Sec. 412.538 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, in the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25169 through 25173), we proposed to revise
our existing policies in an effort to simplify the application of the
25-percent threshold policy.
Specifically, we proposed to sunset both Sec. Sec. 412.534 and
412.536 and adopt a unified 25-percent threshold policy at new Sec.
412.538. We stated in the proposed rule that if finalized, this
proposal 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), we proposed that 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 further proposed that LTCH discharges that reached
high-cost outlier 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

[[Page 57104]]

included in the determination of whether an LTCH has exceeded its
applicable threshold. In conjunction with this proposal, we proposed to
make 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 also
proposed 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 proposed 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 proposed determining 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 that discharged
the patient and, therefore, we believed that using the CCN to identify
the discharging LTCH and the referring hospital is an appropriate and
administratively straight-forward process to implement this proposed
revision. We stated that we believed that this approach would simplify
the application of the 25-percent threshold policy because it would
provide 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). We proposed that
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 proposed, 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, exceeds ``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 applicable 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 proposed to sunset these
provisions, we proposed 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 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 proposed a 50-percent applicable threshold for rural LTCHs (as
defined under Sec. 412.503) in lieu of the generally applicable 25-
percent threshold. We stated in the proposed rule that 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), 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 proposed to maintain at proposed new Sec. 412.538(e)(3)
the current special treatment of an LTCH

[[Page 57105]]

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 proposed 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. Further, we proposed to codify definitions for the terms
``MSA'' (which we proposed to define as an Metropolitan Statistical
Area, as defined by the Executive Office of Management and Budget) and
``MSA-dominant area'' (which we proposed 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 further proposed 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 stated that 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 stated that 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 policy criteria. For these reasons, at that time we
did 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 proposed 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).
Comment: MedPAC supported CMS' proposal to continue to apply the
25-percent policy to all discharges, including site neutral payment
rate cases. In addition, MedPAC noted that the effect of the new dual
rate payment system on LTCHs and their admission practices, including
their relationship with referring hospitals, is not yet understood, and
therefore it is appropriate to maintain the 25-percent policy and apply
it to all discharges.
Response: We appreciate MedPAC's support of our proposal.
Comment: Several commenters requested that CMS rescind the 25-
percent policy. Many of these commenters argued that because of the new
statutory patient-level criteria in the LTCH PPS, the 25-policy
threshold policy is unnecessary. Some commenters stated that CMS
indicated in prior rulemakings that the revised LTCH PPS would render
the 25-percent threshold policy unnecessary. Other commenters argued
that the policy does not specifically aid beneficiaries. Some
commenters suggested ``updating'' the policy in light of changes in the
statute that occurred after the 25-percent threshold policy was
established, such as the IMPACT Act, or to exclude discharges from
Centers for Medicare and Medicaid Innovations (Innovation Center)
payment models from application of the policy. One commenter stated
that repealing the policy was consistent with CMS' decision to exclude
grandfathered HwHs from the policy. Some commenters suggested that, as
an alternative to repealing the policy, CMS extend the statutory
moratorium on the implementation of the policy for an additional 2
years, until the expiration of the moratorium of new LTCHs (under
current law, that moratorium expires October 1, 2017), or, in the
alternative, until the transition to the application of the site
neutral payment rate has been completed and analyzed. Some other
commenters stated that CMS had told Congress that CMS would not change
the 25-percent threshold policy until the effects of the application of
the site neutral payment rate had been analyzed, or until CMS had
delivered its Report to Congress on the 25-percent threshold policy.
Response: As we stated both in the proposed rule and many times
during our modifications to the 25-percent threshold policy, there is a
statutory preclusion on LTCH units under section 1886(d)(1)(B) of the
Act. The clinical criteria are not relevant to this preclusion (that
is, the patient-level clinical criteria to determine which patients are
``appropriate'' for the LTCH PPS standard Federal payment rate did not
change the statutory preclusion on LTCH ``units'' in hospitals). The
clinical criteria also are not relevant to preventing two Medicare
payments for what is essentially one episode of care. Therefore, we
believe that the 25-percent threshold policy is still warranted in
order to ensure compliance with this statutory prohibition and to
prevent Medicare from making two payments for what is essentially one
episode of care. We disagree with commenters' arguments that the 25-
percent threshold policy does not aid beneficiaries, given that one of
our goals in implementing the 25-percent threshold policy is to protect
the Medicare Trust Fund, which will help to ensure access to care for
Medicare beneficiaries. Additionally, whether our policies that enforce
the statutory preclusion on LTCH units benefits beneficiaries is not
relevant to our duty to enforce the preclusion on LTCH units.
With regard to the commenters who requested that we ``update'' the
25-percent threshold policy in light of changes in the statute, none of
the changes removed the statutory preclusion on LTCH units or addressed
the prevention of two Medicare payments for what is essentially one
episode of care. In response to the request to exclude discharges paid
under an Innovation Center payment model from the policy, to the extent
the payment under the model is based in-part on the LTCH PPS payment
rates,

[[Page 57106]]

we believe it is appropriate for the LTCH PPS payment rates portion of
the payment to be subject to the applicable 25-percent threshold
policy. The Innovation Center payment model status is irrelevant to the
establishment of PPS payment policy in other contexts as well, for
example in IPPS ratesetting. The comment asserting that repeal of the
25-percent threshold policy is consistent with CMS' decision to exclude
grandfathered HwHs from that policy is factually inaccurate. As we
stated in the proposed rule, CMS implemented the regulatory exclusion
for grandfathered HwHs as that exclusion was required by section
1206(b)(1)(B) of the Pathway for SGR Reform Act (Pub. L. 113-67). Aside
from subclause (II) LTCHs, no other LTCHs were provided such statutory
exclusion. With respect to the comment that CMS indicated we would
repeal the policy, we note that we received substantially similar
comments in response to the FY 2016 IPPS/LTCH PPS proposed rule. We
reiterate what we stated in response to those comments that we did not
indicate in prior rulemakings that these policies were unnecessary. We
stated that, at that time, the policies may no longer be necessary in
light of the intended changes to the LTCH PPS (80 FR 49613).
In regard to the suggestion that we extend the statutory moratorium
on the full implementation of the 25-percent threshold policy, we do
not believe it is necessary to further delay its application. As
discussed previously, we believe the 25-percent threshold policy is
still warranted to ensure compliance with this statutory prohibition
and to prevent Medicare from making two payments for what is
essentially one episode of care. Furthermore, we disagree with
commenters that we made any assurances to keep the 25-percent threshold
policy unchanged until the transition to the site neutral payment rate
had been completed or analyzed. As we stated in the proposed rule,
given the impending expiration on the statutory moratorium on the full
implementation of the 25-percent threshold policy, we 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. In light of the widespread confusion
expressed by stakeholders, we proposed revisions to our current 25-
percent threshold policy that would clarify the policy and would allow
for greater ease of understanding and implementation. We continue to
believe that such modifications are appropriate and warranted. In
regard to the commenter who requested that we wait until the Report to
Congress on the 25-percent threshold policy has been delivered to
Congress, we note that the referenced report was delivered in June 2015
and is, and has been, available upon request.
Comment: Several commenters requested that CMS exclude either site
neutral payment rate or LTCH PPS standard Federal payment rate
discharges from the 25-percent threshold policy. Many of the commenters
who requested the exclusion of site neutral discharges asserted that
applying the 25 percent policy to these discharges would result in
``double penalization,'' while commenters who requested the exclusion
of LTCH PPS standard Federal rate payment rate discharges asserted that
it was not appropriate to reduce payment for cases meeting the patient-
level clinical criteria under the dual rate LTCH PPS payment structure.
Some commenters asserted that it may be difficult for LTCHs to admit
patients with at least 3 days of ICU treatment without exceeding their
applicable percentage thresholds.
Response: As we stated earlier, the patient-level clinical criteria
and site neutral payment rate are not relevant to the statutory
preclusion on LTCH units. Excluding certain discharges paid under the
LTCH PPS from the 25-percent threshold policy would fundamentally
undermine the policy. In regard to concerns of ``double penalization''
for site neutral payment rate discharges under the 25-percent threshold
policy, under our current regulations, in general, it is not possible
for a site neutral payment rate discharge to receive a payment
adjustment (that is, a lower payment) due to the 25-percent threshold
policy. This is because site neutral payment rate discharges are
generally paid the lower of the IPPS comparable amount or the estimated
costs of the case, and, should the hospital's applicable percentage
threshold be exceeded, the hospital would generally be paid the least
of the IPPS equivalent amount, the IPPS comparable amount, or the cost.
However, the IPPS equivalent amount and the IPPS comparable amount
would generally be expected to be equivalent to one another. As such,
we would not expect those paid at the site neutral rate to suffer any
consequence as a result of the adjustment under the 25-percent rule
policy. We note that we considered excluding site neutral payment rate
discharges from both the numerator and denominator of the calculation.
However, we did not propose this policy because whether a discharge is
paid at the LTCH PPS standard Federal payment rate or the site neutral
payment rate is not germane to whether an LTCH is behaving as a unit,
and, given this overriding concern, we do not believe it is appropriate
to exclude site neutral payment rate discharges from the 25-percent
threshold policy. While we understand the concerns of commenters that,
in certain areas, one or two IPPS hospitals may account for a
disproportionate percentage of ICU days, we note, again, that the
clinical criteria did not change the statutory preclusion on LTCH
units. Furthermore, such IPPS hospital discharges admitted to the LTCH
after receiving a high-cost outlier payment are treated as if they were
admitted from another referring hospital for purposes of the 25-percent
threshold policy (and therefore would not be counted as a discharge
from that referring hospital). In addition, special treatment is
provided for rural and MSA-dominant LTCHs, as discussed previously.
Comment: One commenter requested clarification as to why CMS did
not include a specific exception under the proposed 25-percent
threshold policy at new Sec. 412.538 for LTCHs receiving admissions
from urban-single IPPS hospitals, as is provided under the current 25-
percent threshold policies at Sec. Sec. 412.534 and 412.536, along
with the proposed continued special treatment for rural and MSA-
dominant LTCHs, which allows such LTCHs to have an increased applicable
threshold. Other commenters requested that CMS modify the existing
definition of ``MSA-dominant hospital'' to allow additional hospitals
to qualify for the increased applicable threshold, for example
hospitals located in Micropolitan areas or ``distinct regions'' within
MSAs to be subject to an increased threshold.
Response: As we stated in the proposed rule, our proposed
modification of the 25-percent threshold policy is meant to provide
simplicity and clarity. We proposed to maintain 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

[[Page 57107]]

than 25 percent of the total hospitals' Medicare discharges in the MSA
in which it is located. This proposed definition of MSA-dominant
hospitals encompass hospitals referred to in the current regulations as
``single urban hospitals'' (that is, the only other hospital in the
MSA) because such a hospital, by definition, would have discharged more
than 25 percent of the total hospital Medicare discharges in the MSA in
that it would have discharged 100 percent of the total hospital
Medicare discharges in the MSA. For this reason, we saw no reason to
specifically mention urban-single hospitals as a separate category of
hospitals subject to special treatment (that is, an increased
applicable threshold). Although we are not changing the regulation text
in response to this comment, we note that because urban-single
hospitals are MSA-dominant hospitals, LTCHs receiving patients from
urban-single hospitals will be subject to the same applicable threshold
as all MSA-dominant hospitals. With respect to the commenter requesting
an increased threshold for Micropolitan statistical areas, we note that
these areas are treated as rural for the purposes of the 25-percent
threshold policy. With respect to the request to provide an increased
threshold for ``distinct regions'' of MSAs, although the commenter
provided one anecdotal example of what it believed should be considered
a ``distinct region,'' it did not offer a definition of the term or set
out criteria for what would be considered a ``distinct region'' within
an MSA, and, even if it had, adoption of such a concept is outside the
scope of the proposed rule. With that said, as the commenter provided
no policy specifics or recommendations, we cannot evaluate the
``distinct region'' suggestion and continue to believe that the use of
MSAs is reasonable.
Comment: Several commenters requested that CMS increase the
applicable threshold for rural and MSA-dominant LTCHs to 75 percent.
These commenters argued that these LTCHs would face difficulty
complying with the proposed applicable thresholds. One commenter
requested that CMS increase the applicable threshold for all LTCHs.
Response: The proposed applicable thresholds for rural and MSA-
dominant LTCHs are consistent with the applicable thresholds under the
current 25-percent threshold policy once the statutory moratorium on
the full application of that policy expires. While we understand the
concerns raised by commenters, we continue to believe the applicable
thresholds originally established under the existing 25-percent
threshold policy are appropriate because of the statutory prohibition
on LTCH units, which does not include an exception for rural or MSA-
dominant hospitals. We established the increased applicable threshold
in order to acknowledge that these hospitals do not have access to the
range of referral sources other hospitals do, while at the same time
realizing the need to prevent the existence of LTCH units, which is
prohibited by the statute. Similarly, we do not believe it is
appropriate to increase the applicable threshold for non-MSA dominant
LTCHs. For these reasons, we are not adopting the commenters'
suggestions to increase the applicable thresholds from the proposed
values.
Comment: Several commenters objected to CMS' proposal to identify
LTCHs and referring hospitals based on CCNs, and to apply the policy to
all locations operating under a CCN. Some commenters argued that this
would make it harder for LTCHs with multiple locations to comply with
the policy, while other commenters argued that this disadvantaged
hospitals that may have multiple campuses operating under the same CCN
because the application of the 25-percent threshold policy on a
location-specific basis can allow an LTCH with multiple locations to
discharge more patients admitted from a single referring hospital
without receiving adjusted payment under the regulations. Other
commenters requested that CMS continue applying the policy on a
location-specific basis. Some commenters expressed concern for LTCHs
with ``one primary referring hospital.''
Response: As we stated in the proposed rule, we believe that
identifying LTCHs and their referring hospitals based on CCN rather
than individual location or locations would simplify the application of
the 25-percent threshold policy because it provides transparency in
identifying both the discharging LTCH and the referring hospital, and
alleviate confusion in the industry. We proposed these changes in
response to questions from the provider community which indicated a
great deal of confusion surrounding the intricacy of the interactions
between the current 25-percent threshold policies at Sec. 412.534 and
Sec. 412.536. By basing the policy on LTCHs and referring hospitals as
a whole, we believe that hospitals will more easily understand how a
given discharge will be counted in the application of the policy. To
the extent that the proposed changes make it ``harder'' for LTCHs to
comply with the policy, we note that the goal of the policy is to
prevent inappropriate patient shifting and LTCHs behaving as units of
referring hospitals. In regard to LTCHs that may have been able to
increase their overall admittance of patients from a single referring
source under the location-based 25-percent threshold by spreading such
admissions across locations, thereby increasing the opportunity for
inappropriate patient shifting and allowing the LTCH as a whole to
behave as a unit, such arrangements directly contradict our goals, and
were a failing of the current policy. For these reasons, we believe
that using CCNs rather than location as the basis for the 25-percent
threshold policy is more appropriate, given our policy concerns and
goals. While we understand that hospitals may operate multiple campuses
under the same CCN, as explained previously, we nonetheless believe
that application based on CCN is the simplest and generally most
accurate way to determine the referral source of an LTCH discharge for
both CMS and LTCHs. As for concerns about LTCHs with ``one primary
referring hospital,'' we would like to state that this is the exact
type of arrangement the 25-percent threshold policy is meant to deter
as a way of ensuring the statutory prohibition of LTCH units is
followed. Furthermore, we remind commenters that LTCH discharges that
reach high cost outlier status at the referring hospital would not be
subject to the 25-percent threshold policy (that is, such discharges
would only be included in an LTCH's total Medicare discharges and would
not count as having been admitted from that referring hospital), and to
the extent the LTCH is exclusively located in an MSA-dominant area or
rural area, the LTCH would have an increased applicable threshold under
proposed special treatment for exclusively MSA-dominant or exclusively
rural LTCHs. As no commenters offered an alternative to CCN application
(other than a request to maintain the current location-specific
approach, which caused considerable confusion and proved problematic
for the reasons discussed previously), we are not making changes in
response to these comments.
Comment: Several commenters objected to CMS' proposal to require
all locations of an LTCH to be rural or MSA-dominant in order for the
hospital to be subject to an increased applicable threshold. Many of
these commenters stated that if one location of the LTCH was rural or
MSA-dominant, the

[[Page 57108]]

hospital should be subject to the increased applicable threshold.
Response: The exception for rural and MSA-dominant LTCHs was made
to address the reality that LTCHs in those circumstances may not have
access to the range of referral sources other LTCHs do while achieving
the policy goal of preventing the creation of de facto LTCH units. We
believe that the increased applicable threshold initially established
under the old policy and continued into the streamlined policy strikes
the appropriate balance of these competing concerns. As we stated in
the proposed rule, 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 because 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 policy criteria.
We note that although commenters opposed our proposal to require all
locations of an LTCH to be rural or MSA-dominant in order for the
hospital to be subject to an increased applicable threshold, they did
not offer any direct counter argument against our belief that multisite
LTCHs should be able to draw as a whole from a diverse population. For
these reasons, we continue to believe that it is appropriate to require
all locations of LTCHs to be rural or MSA-dominant for a hospital to be
eligible for an increased applicable threshold, and are not adopting
the commenters' suggestions to provide for an increased applicable
threshold if one location of the LTCH was either rural or MSA-dominant.
Comment: Several commenters objected to CMS' proposal to apply the
revised 25-percent threshold policy based on discharge date rather than
cost reporting period. Some commenters argued this was inconsistent
with the historical application of the 25-percent threshold policy.
Other commenters stated that the proposed discharge-based start date of
October 1, 2016 is inconsistent with the current statutory moratorium
on the full application of the 25-percent threshold policy.
Response: Our intent in proposing to apply the 25-percent threshold
policy based on discharge date rather than cost reporting period was to
avoid perpetuation of the status quo in which different LTCHs are
subject to the existing 25-percent threshold policies under Sec.
412.534 and Sec. 412.536 at different times. By proposing to apply the
policy based on discharge date rather than cost reporting period, all
LTCHs would be subject to the same policy at the same time, which we
believed would provide for greater transparency and administrative
simplicity of the policy for both LTCHs and CMS. However, upon review,
we agree with commenters who stated that our proposed implementation
based solely on discharge date is contrary to the current statutory
moratorium on the full implementation of the current 25-percent
threshold policy. Therefore, in this final rule, we are revising our
regulations to specify that the revised 25-percent threshold policy at
Sec. 412.538 is applicable for discharges occurring on or after
October 1, 2016, that occur in cost reporting periods beginning on or
after July 1, 2016 (for hospitals that had not been subject to Sec.
412.534), or October 1, 2016 (for hospitals that had been subject to
Sec. 412.534). This revision will allow us to comply with the current
statutory moratorium and apply the new, revised 25-percent threshold
policy at Sec. 412.538 consistently to all LTCHs upon its expiration.
Therefore, in this final rule, we are revising our regulations to
specify that an LTCH will be subject to the revised 25-percent
threshold policy at Sec. 412.538 for discharges occurring on or after
October 1, 2016, that occur in its cost reporting periods for which it
is no longer subject to any statutory moratorium on the full
implementation of the current 25-percent threshold policy. In other
words, the first time an LTCH will be subject to the adjustment policy
at Sec. 412.538 is for its discharges occurring on or after October 1,
2016, that occur in its first cost reporting period that begins after
the statutory moratoria on the full implementation of the current 25-
percent threshold policy expire for the LTCH.
Specifically, we are revising our regulations to specify that the
revised 25-percent threshold policy at Sec. 412.538 is applicable for
discharges occurring on or after October 1, 2016, that occur in cost
reporting periods beginning on or after July 1, 2016 (for hospitals
that had not been subject to Sec. 412.534), or October 1, 2016 (for
hospitals that had been subject to Sec. 412.534). This revision will
allow us to comply with the current statutory moratorium and apply the
new, revised 25-percent threshold policy at Sec. 412.538 consistently
to all LTCHs upon the expiration of the current statutory moratorium.
The current 25-percent threshold policy at Sec. 412.534 is only
applicable to LTCHs (other than ``subclause (II)'' LTCHs) that have at
least one co-located location, that is, LTCH HwHs and satellite
facilities of LTCHs (except ``grandfathered HwHs'' which are exempt as
provided by the statute). The current 25-percent threshold policy at
Sec. 412.536 is applicable to all LTCHs (other than ``subclause (II)''
LTCHs and grandfathered HwHs'' which are exempt as provided by the
statute).
Considering the two 25-percent threshold policies
contemporaneously, LTCHs that are not subject to Sec. 412.534 (that
is, LTCHs which do not include a co-located location) are only subject
to the adjustments at Sec. 412.536. On the other hand, LTCHs that are
subject to the adjustment at Sec. 412.534 also are subject to the
adjustment at Sec. 412.536 (that is, they are LTCHs subject to both
policies at Sec. 412.534 and Sec. 412.536). Under current law, the
moratorium on the full application of the 25-percent threshold policy
under Sec. 412.536 expires beginning with LTCH cost reporting periods
beginning on or after July 1, 2016, while the moratorium on the full
application of the 25-percent threshold policy under Sec. 412.534
expires beginning with LTCH cost reporting periods beginning on or
after October 1, 2016. Consequently, although LTCHs that are subject to
both policies at Sec. 412.534 and Sec. 412.536 will no longer be
under the moratorium on the full application of Sec. 412.536 beginning
with their cost reporting periods beginning on or after July 1, 2016,
these LTCHs will continue to be under the moratorium on the full
application of Sec. 412.534 until their cost reports beginning on or
after October 1, 2016. As such, for LTCHs that are subject to both
policies at Sec. 412.534 and Sec. 412.536, the provision of new Sec.
412.538 cannot apply to all of such LTCHs' discharges until their cost
reports beginning on or after October 1, 2016. Consistent with the
premise of our proposal to simplify and consolidate the current 25-
percent threshold policies under new Sec. 412.538, we are establishing
that, for LTCHs that have been subject to both policies at Sec.
412.534 and Sec. 412.536 (that is, those LTCHs that include co-located
locations), Sec. 412.538 will apply for discharges occurring in cost
reporting periods beginning on or after October 1, 2016. Under our
finalized policy, this means that Sec. 412.536 will apply to all
locations of all LTCHs upon the expiration of the LTCH's statutory
moratorium, which expires on a rolling cost reporting period basis
(that is, an LTCH's first cost reporting period beginning on or after
July 1, 2016) until the LTCH becomes subject to the revised policy at
Sec. 412.538. For LTCHs that were not subject to the policy at

[[Page 57109]]

Sec. 412.534 (that is, those LTCHs that do not include co-located
locations and, therefore, had only been subject to the policy at Sec.
412.536), Sec. 412.538 will apply for discharges occurring on or after
October 1, 2016, in cost reporting periods beginning on or after July
1, 2016, which coincides with the statutory expiration on the full
application of Sec. 412.536. An LTCH will remain subject to the
policies at Sec. 412.534 and/or Sec. 412.536 as applicable until it
transitions to the new policy at Sec. 412.538. We also are making
conforming changes to our proposed sunset dates for Sec. Sec. 412.534
and 412.536.
Comment: Several commenters supported the proposal to exclude
Medicare Advantage discharges from the calculation of the 25-percent
threshold policy.
Response: We appreciate the commenters' support and are adopting
our proposal as final, without modification, to exclude Medicare
Advantage discharges in the application of the 25-percent threshold
policy.
Comment: One commenter stated that paragraphs (g) and (h) of
proposed new Sec. 412.538 were missing from the proposed regulation
text.
Response: Upon review of the proposed regulation text of Sec.
412.538, we found that in the proposed text of paragraph (e)(3), which
would codify the proposed special treatment for LTCHs located in an MSA
with an MSA-dominant hospital, we found, as commenters noted, erroneous
citations to a definition of ``MSA-dominant hospital'' in ``paragraph
(h)(3)(ii) of this section.'' However, our proposal was to add the
definition of ``MSA-dominant hospital'' to Sec. 412.503, and new Sec.
412.538 did not include paragraphs (g) or (h). We appreciate the
commenter bringing this cross-reference error to our attention, and in
this final rule have corrected the text of paragraph (e)(3) of Sec.
412.538 to cite the definition of ``MSA-dominant hospital'' as defined
in Sec. 412.503.
Comment: One commenter requested clarification about whether
certain LTCHs would be considered grandfathered HwHs (and thus excluded
from the 25-percent threshold policy).
Response: We respond to this comment in section VII.B.3. of the
preamble of this final rule where we discuss finalization of an IFC
(CMS-1664-IFC), which implements the temporary exception from the site
neutral payment rate for certain severe wound discharges from certain
LTCHs provided by the Consolidated Appropriations Act, 2016.
Out-of-Scope Comments: We note we also received several comments
outside the scope of the proposed rule seeking subregulatory guidance
which we intend to address in the future as appropriate.
We did not receive any public comments regarding our proposal to
add definitions of ``MSA,'' ``MSA-dominant area,'' and ``MSA-dominant
hospital'' to Sec. 412.503 and, therefore, are adopting those
proposals as final without modification.
After consideration of the public comments we received, we are
adopting the new 25-percent threshold policy, as proposed, with one
exception. In response to comments, we are revising Sec. Sec. 412.534,
412.536, and 412.538 to reflect the cost reporting period-based end
dates of the moratoria under the current statute, as discussed
previously. For hospitals that had not been subject to the policy at
Sec. 412.534, the revised policy is effective for discharges occurring
on or after October 1, 2016. For hospitals that had been subject to the
policy at Sec. 412.534, the revised policy is effective for discharges
occurring on or after October 1, 2016, in cost reporting periods
beginning on or after October 1, 2016. Prior to transition to the
single 25-percent threshold policy, a hospital is subject to both
policies at Sec. Sec. 412.534 and 412.536 to the same extent it would
have been absent the revisions to the policy. Under this 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 will be adjusted, unless the LTCH
is excepted from the adjustment under Sec. 412.538(a)(2)(3). In
addition, as we proposed, we are establishing that the applicable
percentage threshold will generally be 25 percent (with special
treatment for exclusively rural LTCHs and exclusively MSA-dominant
LTCHs). The 25-percent threshold policy will be applicable to all LTCHs
except ``subclause (II)'' LTCHs and ``grandfathered HwHs.'' Under these
policies, LTCH discharges that reached high-cost outlier status at the
referring hospital from which the patient was discharged directly to
the LTCH will be treated as though they had come from a different
referring hospital and, therefore, will not be counted as a Medicare
discharge from that referring hospital. We also are establishing that
MA discharges will not be included in this policy. In addition, the
revised 25-percent threshold policy will apply to all LTCH PPS
discharges (that is, both LTCH PPS standard Federal payment rate and
site neutral payment rate cases).
Under this revised policy, we will evaluate the ``applicable
percentage threshold'' based on the sum of the locations covered by the
LTCH's and referring hospitals' Medicare provider agreement, and
implement this policy using the LTCH's and the referring hospitals'
CCN. As we proposed, we are establishing that an LTCH's percentage of
Medicare discharges from a given hospital will 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 new Sec. 412.538, as
applicable, the LTCH PPS payment will be adjusted at cost report
settlement for the LTCH Medicare discharge that caused the LTCH to
exceed its applicable threshold and all discharges subsequent to that
discharge. Medicare discharges not in excess of the applicable
percentage threshold will continue to be unaffected by the 25-percent
threshold policy (that is, the payment for such discharges will not be
adjusted). As adjusted, the payment amount for an LTCH Medicare
discharge that is found to exceed the applicable percentage threshold
will continue to receive the lesser of the applicable LTCH PPS payment
amount or an IPPS equivalent amount.

G. 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

[[Page 57110]]

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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25173), we
therefore proposed to revise the limitation on charges to beneficiaries
policy and related billing requirements for subclause (II) LTCHs to
reflect 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 proposed to 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. We stated in the proposed rule that if the proposal is
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 the FY 2017 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 Pub. L. 113-67, we proposed to revise Sec.
412.507 to specify the limit on 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 proposed 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, we proposed under proposed
revised Sec. 412.507 to 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.
Comment: Two commenters supported the proposal to modify Sec.
412.507 to provide that subclause (II) LTCHs would be subject to the
same billing requirements applicable to hospitals that are paid on a
reasonable-cost basis under the TEFRA payment system. The commenters
also recommended that CMS make conforming changes to the applicable
section of the Medicare Claims Processing Manual, the Medicare claims
processing system, and cost report instructions.
Response: We appreciate the commenters' support of our proposed
changes to align our beneficiary charge policies under Sec. 412.507
with the reasonable cost-based ``TEFRA'' payment adjustments. As we
indicated in the proposed rule and noted above, if finalized, subclause
(II) LTCHs would be treated the same as PPS-excluded hospitals paid
under the TEFRA payment system for purposes of the limitation on
charges to beneficiaries and related billing requirements. Furthermore,
if adopted, we would make conforming changes to the Medicare claims
processing instructions, the Medicare claims processing system, and
cost report instructions, as applicable.
After consideration of the public comments we received, we are
finalizing our proposed changes to Sec. 412.507 for subclause (II)
LTCHs, as proposed, without modification.

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 57111]]

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.H. of
the preamble of this final rule. 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 FY 2017 IPPS/LTCH PPS proposed rule, we proposed changes to
the following Medicare quality reporting systems:
In section VIII.A. (81 FR 25174 through 25205), the
Hospital IQR Program.
In section VIII.B. (81 FR 25205 through 25213), the PCHQR
Program.
In section VIII.C. (81 FR 25213 through 25238), the LTCH
QRP.
In section VIII.D. (81 FR 25238 through 25244), the IPFQR
Program.
In addition, in section VIII.E. of the preamble of the FY 2017
IPPS/LTCH PPS proposed rule (81 FR 25244 through 25247), we proposed
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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25174), we did
not propose 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

[[Page 57112]]

the Web site at: http://www.medicare.gov/hospitalcompare. Other
information not reported to Hospital Compare may be made available on
other CMS Web sites, such as https://data.medicare.gov.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25174 through
25175), we did not propose 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175), we
did not propose 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175), we did
not propose any changes to these policies.
b. Removal of Hospital IQR Program Measures for the FY 2019 Payment
Determination and Subsequent Years
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175 through
25178), we proposed to remove the following 15 measures for the FY 2019
payment determination and subsequent years. Some of these measures we
proposed to remove in their entirety; one of these measures, VTE-6
Incidence of Potentially Preventable Venous Thromboembolism, we
proposed 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.
We received general comments related to the collective removal of
these 15 measures (13 eCQMs, including 2 measures in chart form, and 2
structural measures). We discuss these general comments first; comments
specific to individual measures are discussed further below.
Comment: The majority of commenters supported the proposed removal
of 13 eCQMs from the Hospital IQR Program beginning with the FY 2019
payment determination in an effort to move quality measurement toward
outcomes measures. Many commenters stated their belief that these
measures were topped out, and that the measures' complexity could not
be captured in an electronic form. A number of commenters also stated
their belief that the eCQM measure specifications were not feasible to
implement. Others noted removing these measures would decrease
administrative burden, minimize confusion among providers regarding
Hospital IQR Program data submission, and align the Hospital IQR
Program with other quality measurement efforts.
Response: We thank the commenters for their support of our proposal
to remove 13 eCQMs in an effort to move quality measurement toward
outcomes measures.
Comment: Several commenters supported CMS' efforts to reduce
reporting burden on hospitals, but expressed concern with the timeline
of the proposal to remove 13 eCQMs beginning with the FY 2019 payment
determination because hospitals may need time to adjust workflows and
work with IT vendors to add support for measures not previously
supported and ensure valid eCQMs are submitted. Commenters encouraged
CMS to consider the time, effort, and resources expended on reporting
these measures when deciding to remove them from the Hospital IQR
Program. One commenter noted that EHR vendors will phase out support
for these measures and clinicians may become skeptical about benefits
to workflow changes related to future measures if measures are
continuously added and removed. Another commenter urged CMS to provide
more lead time for the removal of measures that hospitals have
dedicated so many resources to developing and implementing.
Specifically, the commenter requested that for FY 2019, CMS maintain
the current requirements of reporting 4 eCQMs out of the current list
of 28, and remove the 13 measures proposed for removal for FY 2020 in
order to give hospitals more time to plan and prepare for
implementation.
Response: We understand the commenters' concern with removing eCQMs
that have been previously reported and implemented in an existing EHR
workflow, and we acknowledge the time, effort, and resources that
hospitals expend on reporting these measures. However, we believe that
removal of the 13 eCQMs beginning with the FY 2019 payment
determination will be less burdensome to hospitals overall than
continuing to keep them in the Hospital IQR Program. Our decision to
remove measures from the Hospital IQR Program is an extension of our
programmatic goal to continually refine the measure set and

[[Page 57113]]

to ensure that it consists of quality performance standards as well as
aligns with the Medicare and Medicaid EHR Incentive Program. It is one
of our goals to expand electronic reporting in the Hospital IQR
Program, which we believe will ultimately reduce burden on hospitals as
compared with chart-abstracted data reporting and improve patient
outcomes by providing more robust data to support quality improvement
efforts. We intend to introduce additional eCQMs into the program as
eCQMs that support our program goals become available.
In addition, we believe that the 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 3 years of reporting as part of a pilot).
Furthermore, for the CY 2016 reporting period/FY 2018 payment
determination, hospitals are required to submit one quarter's worth of
data for 4 eCQMs for the Hospital IQR Program (80 FR 49694). As we
stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49696), we
believe that it is appropriate to require reporting and validation of
eCQMs given that measures available now and those being developed for
the future are increasingly based on electronic standards.
We will continue working to provide hospitals with the education,
tools, and resources necessary to help reduce eCQM reporting burden and
more seamlessly account for the removal/addition of eCQMs. Further, we
will also consider the issues associated with new software, workflow
changes, training, et cetera as we continue to improve our education
and outreach efforts for eCQM submission and validation. We try to be
as proactive as possible in providing lead time about the removal of
measures from the Hospital IQR Program measure set. With regard to the
measures being removed for the FY 2019 payment determination, we
signaled our intent to remove these measures in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49644 through 49645). We refer readers to section
VIII.A.8.a. of the preamble of this final rule for a discussion of our
final policy regarding the number of eCQMs required for submission for
the FY 2019 payment determination and subsequent years.
Comment: A few commenters suggested that topped-out measures not be
removed from the Hospital IQR Program measure set. One commenter
opposed the proposal to remove the eCQMs that are topped out, stating
that the measures should not be retired until the eCQM reporting
process and validation have matured. The commenter further stated 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. Another commenter requested that any
topped-out eCQM that is removed from the Hospital IQR Program be kept
on reserve so that performance can be monitored as necessary to ensure
that performance and/or adherence to best practices do not decline. In
addition, the commenter suggested that an alternative use of topped-out
measures is inclusion as components of composite measures. Another
commenter recommended that CMS implement a periodic auditing system of
measures designated as topped-out. The commenter expressed the opinion
that such a system would ensure that performance remains satisfactorily
high and also detect reductions in the quality of care.
Response: We disagree that measures should not be retired until the
eCQM reporting process and validation have matured. While we recognize
the benefit of testing the accuracy of EHR reporting systems and
performance monitoring to ensure best practices do not decline, we must
balance the costs of continued inclusion of these measures in the
program and monitoring of successful measures that have high levels of
performance with the adoption of other measures which have greater
opportunities for improvement in clinical quality.
Comment: One commenter expressed concern that nine out of 15 eCQMs
proposed for required reporting in the Hospital IQR Program are
``topped-out'' and suggested that CMS remove the following nine
measures: AMI-8a--Primary PCI within 90 minutes of Hospital Arrival;
STK-02--Discharged on Antithrombotic Therapy; STK-03--Anticoagulation
Therapy for Atrial Fibrillation/Flutter; STK-05--Antithrombotic Therapy
by End of Hospital Day 2; STK-06--Discharged on Statin; STK-08--Stroke
Education; STK-10--Assessed for Rehab; VTE-01--Venous Thromboembolism
Prophylaxis; VTE-02--ICU VTE Prophylaxis. The commenter also expressed
concern about the audit requirements for these measures as EHRs are
updated and requested clarification of the data field requirements.
Response: While we acknowledge commenter's concern regarding
retaining eCQMs that are topped-out in their chart-abstracted form, we
note that we take several factors into consideration when retaining or
removing measures from the program. We refer readers to the FY 2016
IPPS/LTCH PPS final rule where we discuss our measure removal and
retention factors (80 FR 49641). These measures are not being
considered for removal in this final rule because we believe that these
measures have other valuable factors that warrant retention in the
program, such as: Alignment with CMS Quality Strategy goals; alignment
with other CMS programs, including other quality reporting programs, or
the EHR Incentive Program; and supporting efforts to move facilities
towards reporting electronic measures.
With regard to the commenter's concerns regarding ``audit
requirements,'' we interpret this to refer to changes in eCQM technical
mapping that may need to occur after an EHR is updated/upgraded. All
Hospital IQR Program eCQM electronic specifications and technical
release notes are readily available at the eCQI (Electronic Clinical
Quality Improvement) Resource Center: https://ecqi.healthit.gov/eh. We
encourage hospitals to test electronic capture of data following
updates and upgrades or to work with their vendors to do so. Further,
we encourage hospitals to internally test their preparedness to submit
eCQM data prior to annual reporting using an available presubmission
testing tool for electronic reporting--such as the CMS Pre-Submission
Validation Application (PSVA), which can be downloaded for free from
the Secure File Transfer (SFT) section of the QualityNet Secure Portal
at: https://cportal.qualitynet.org/QNet/pgm_select.jsp. We will also
continue working to provide hospitals and vendors with education on
eCQM data reporting fields and elements.
Comment: A few commenters did not support the removal of any of
these 13 eCQMs because it would reduce the number of eCQMs available
for hospitals to select for reporting. One commenter indicated that
this proposal would reduce hospitals' flexibility in choosing to report
measures that are meaningful to them and that align with their internal
efforts to improve quality.
Response: We understand the commenters' concerns with respect to
allowing hospitals' flexibility to choose to report on measures that
are meaningful to internal quality improvement efforts. However, as we
stated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49641), we strive
to ensure that our measure set consists of quality standards that align
with the

[[Page 57114]]

National Quality Strategy and our priorities for quality improvement as
outlined in the CMS Quality Strategy, available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMSQuality-Strategy.pdf. Our
decision to remove measures from the Hospital IQR Program measure set
is an extension of our programmatic goal to continually refine the
measure set and ensure that it consists of quality performance
standards. We again refer readers to the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49641) for our considerations in removing and retaining
measures as well as section VIII.A.8.a. of the preamble of this final
rule, where we finalize a policy to require submission of 8 eCQMs out
of 15 available eCQMs for the CY 2017 reporting period/FY 2019 payment
determination and the CY 2018 reporting period/FY 2020 payment
determination.
Comment: A commenter did not support the removal of measures
because it can hinder ongoing measurement and reduce performance
improvements. The commenter requested that CMS maintain a library of
measures that are not included in the Hospital IQR Program so that
hospitals and vendors can still support monitoring and improving these
removed measures.
Response: We disagree with commenter that the removal of these
measures may hinder measurement and reduce performance improvement.
Although hospitals are not publicly reporting data for measures that
have been removed from the Hospital IQR Program, hospitals are
encouraged to continue to monitor data for continuous quality
improvement. We appreciate the commenter's suggestion to maintain a
library of eCQMs that have been removed from the Hospital IQR Program
and will take it into consideration for the future.
Comments related to removal of specific measures are discussed in
more detail below.
(1) Removal of Structural Measures
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175, we
proposed 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, based on removal factor 4--performance on these measures does
not result in better patient outcomes (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 outweigh the
benefits. Therefore, we proposed to remove these two structural
measures from the Hospital IQR Program for the FY 2019 payment
determination and subsequent years.
Comment: Many commenters supported the proposed removal of the two
structural measures from the Hospital IQR Program because removing
these measures ensures that the measure set only includes measures that
result in better patient outcomes. A number of commenters asserted that
the measures do not provide pertinent information on patient outcomes,
do not reflect performance on process or outcomes, and do not add value
to the Hospital IQR Program's measure set. Some commenters also noted
that removing these measures would decrease the annual reporting burden
on hospitals.
Response: We thank the commenters for their support.
Comment: A few commenters supported the proposed removal of the two
structural measures from the Hospital IQR Program, but suggested that
this removal be implemented for the FY 2018 payment determination,
instead of the FY 2019 payment determination.
Response: We thank the commenters for their support and suggestion.
However, we will implement the removal of these measures for the FY
2019 payment determination as proposed, because the FY 2019 payment
determination is the earliest we can feasibly operationalize the
removal.
Comment: One commenter expressed concern with the proposed removal
of the Participation in a Systematic Clinical Database Registry for
Nursing Sensitive Care measure, because it has seen improvement from
this participation. The commenter suggested that any future quality
measures should match the registry's quality measures to encourage
alignment.
Response: We continue to believe that registries may facilitate
valuable quality improvement feedback to hospitals that may be more
meaningful beyond the information reported to the Hospital IQR Program
as structural measures. However, at this time we are unable to collect
this additional quality improvement data since we do not maintain the
registries. The structural measures themselves, as part of the Hospital
IQR Program, do not provide information on patient outcomes; hospitals
are asked only whether they participate in registries. Thus, we believe
it is important to consider other measures that provide more meaningful
and detailed information regarding quality of care and patient outcomes
while balancing program burdens. We note that we are committed to
promoting alignment in quality measures when feasible; however, many
registry measures are proprietary.
Comment: One commenter opposed the proposed removal of the
``Participation in a Systematic Clinical Database Registry for Nursing
Sensitive Care'' because public reporting of this measure is a lever to
promote continued hospital participation in a nursing-sensitive data
registry. The commenter expressed concern that if this measure were not
included in the Hospital IQR Program, the role of nursing professionals
would be diminished in the program. The commenter further noted that
this measure is low burden to report and urged CMS to retain this
measure until nursing sensitive process and outcome measures are
developed as eCQMs and reported in the Hospital IQR Program.
Response: We appreciate the commenter's position to retain this
measure, however, we note that the main intent of this structural
measure was to assess the level of registry participation. Because this
measure does not provide information on patient outcomes or quality of
care, we believe it is important to remove it from the program at this
time in light of the burden of reporting and consider other measures
that provide more meaningful and detailed information regarding quality
of care and patient outcomes. We believe that hospitals committed to
participating in a nursing registry will continue to do so. We agree
with the commenter that providing quality care requires all members of
the care team, including nurses, and we will continue to consider
measures for the Hospital IQR Program that incorporate the importance
of communication and coordination among members of the care team. We
will also consider the development of nursing sensitive process and
outcome measures for the Hospital IQR Program in the future.
Comment: One commenter opposed the proposed removal of the
``Participation in a Systematic Clinical

[[Page 57115]]

Database Registry for General Surgery'' from the Hospital IQR Program
because it believed that the inclusion of this measure encourages
hospital participation in risk-adjusted, audited clinical data
registries. Further, the commenter asserted that inclusion of such a
measure helps CMS ensure that hospital and physician programs are in
alignment.
Response: We note that the main intent of this structural measure
was to assess the level of registry participation. When considering
measures for the Hospital IQR Program, we attempt to align with other
programs whenever feasible, but because this measure does not provide
information on patient outcomes or quality of care, we believe it is
important to remove it from the program at this time in light of the
overall burden of reporting. We do not believe that the removal of this
measure will dis-incentivize hospitals committed to participating in
registries for quality improvement.
After consideration of the public comments we received, we are
finalizing the removal of these two structural measures from the
Hospital IQR Program for the FY 2019 payment determination and
subsequent years as proposed.
(2) Removal of ``Topped-Out'' Chart-Abstracted Measures
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175, we
proposed 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, we proposed to
remove the chart-abstracted versions of STK-4 and VTE-5 for the FY 2019
payment determination and subsequent years.
Comment: Many commenters supported the proposal to remove two
chart-abstracted measures, STK-4 and VTE-5, on the grounds that these
measures are topped-out and offer little room for performance
improvement among hospitals. Commenters also noted that removing these
measures would reduce administrative burden on hospitals and would move
CMS quality measurement efforts away from the use of clinical process
measures and more toward outcomes measures.
Response: We thank the commenters for their support of our proposal
to remove two chart-abstracted measures in an effort to move quality
measurement toward outcomes measures.
Comment: One commenter supported the removal of the topped out
chart-abstracted measures, but encouraged CMS to apply new stroke and
VTE measures to ensure continual quality improvement.
Response: We thank the commenter for the support. We will consider
new stroke and VTE measures for future rulemaking.
Comment: One commenter supported the removal of the STK-4 and VTE-5
chart-abstracted measures, but encouraged us to retain them as eCQMs.
Response: We believe that the burden of retaining both the STK-4
and VTE-5 measures as eCQMs outweighs the benefits. In addition to both
measures being topped out, we also considered other factors such as
feasibility of data collection and alignment with other programs. In
the case of VTE-5, a majority of hospitals do not have the ability to
capture the required eCQM data elements needed for VTE-5 and therefore
data collection is not feasible. Furthermore, removing these two
measures in both chart-abstracted and eCQM forms aligns the Hospital
IQR Program measure set with the Medicare and Medicaid EHR Incentive
Programs' measure sets. We refer readers to section VIII.E.2.b. of the
preamble to this final rule for the Medicare and Medicaid EHR Incentive
Programs' measure sets.
Comment: One commenter did not support the proposed removal of VTE-
5 because changes in practice patterns, including shorter hospital
stays after major surgery, make clear discharge planning around VTE
prevention more important moving forward. The commenter expressed the
opinion that removing this measure would reduce accountability for
appropriate transitions of care for patients at risk of VTE.
Response: Topped-out measures represent care standards that have
been widely adopted by hospitals. Measure performance among hospitals
is so high and unvarying for VTE-5 that meaningful distinctions and
improvements in performance can no longer be made. We believe that
hospitals committed to providing quality care will continue to provide
good quality care consistent with standard practice. In the past, we
have retained the electronic versions of some topped-out measures for
reasons such as promoting alignment between programs or to provide an
opportunity to monitor topped-out measures for performance decline. In
this case, VTE-5 is not only topped-out, but also, as stated above, a
majority of hospitals do not have the ability to capture the required
eCQM data elements needed for VTE-5. In addition, removing VTE-5
promotes alignment with the Medicare and Medicaid EHR Incentive
Programs. Finally, in the FY 2015 IPPS/LTCH PPS final rule (79 FR
50258), we received anecdotal comments about performance level
differences between chart-abstracted and eCQM data. We do not have
sufficient data to be able to confirm or refute the accuracy of those
comments (79 FR 50258), but these comments have prompted us to
reconsider our position that topped-out eCQMs provide an opportunity
for CMS to meaningfully monitor topped-out measures for performance
decline at this time. In consideration of all of these factors, we do
not believe that the burden of retaining the electronic version to
allow the comparison to old data outweighs the benefit. Therefore, we
believe that removal of VTE-5 in both chart-abstracted and eCQM form is
appropriate.
Comment: One commenter did not support the removal of the STK-4
chart-abstracted measure because the commenter believes there is still
a performance gap among hospitals for this measure, and recent
inclusion and exclusion criteria released earlier this year may
increase the number of patients eligible for this treatment. The
commenter suggested that CMS retain the STK-4 measure.
Response: We disagree with the commenter that a performance gap
among hospitals exists. We note that STK-4 is topped-out in its chart-
abstracted form, which under our definition means that measure
performance among hospitals is so high and unvarying that meaningful
distinctions and improvements in performance can no longer be made.

[[Page 57116]]

While we acknowledge that revised measure specifications have been
submitted to NQF, the revised measure would be required to proceed
through the pre-rulemaking process for measure selection before it
could be considered for adoption in the Hospital IQR Program. For
details regarding the pre-rulemaking process we refer commenter to
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Pre-Rule-Making.html.
Comment: One commenter requested that any topped-out chart-
abstracted measure that is removed from the Hospital IQR Program be
kept on reserve so that performance can be monitored as necessary to
ensure that performance and/or adherence to best practices do not
decline. In addition, the commenter suggested that an alternative use
of topped-out measures could instead be used as components of composite
measures.
Response: We currently do not have authority to maintain a
``reserve'' status for quality measures in the Hospital IQR Program. If
we interpret the commenter to mean that CMS should retain the measures
in the program as is, we disagree, and a new composite measure would be
required to proceed through the pre-rulemaking process for measure
selection before it could be proposed in formal rulemaking. For details
regarding the pre-rulemaking process we refer commenter to https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Pre-Rule-Making.html. We believe that
topped-out measures represent quality care standards that have been
widely adopted by hospitals, and retention of these measures, in the
absence of other mitigating factors such as alignment with other
programs, independently or as components of a composite measure, is
unnecessary because hospitals will continue to perform well on these
measures. Further, we must balance the costs and burden of continued
reporting and monitoring of a successful measure with high levels of
performance with the adoption of other measures where there are greater
opportunities for improvement in clinical quality. As stated above, we
also considered other factors such as alignment with other programs,
and determined that removal of STK-4 and VTE-5 promotes alignment with
the Medicare and Medicaid EHR Incentive Programs. However, we will take
the commenter's recommendation into consideration for the future if
statutory changes are made to the program.
After consideration of the public comments we received, we are
finalizing the removal of STK-4: Thrombolytic Therapy (NQF #0437) and
VTE-5: VTE Discharge Instructions for the FY 2019 payment determination
and subsequent years as proposed.
(3) Removal of Certain eCQMs
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175, we
proposed 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 proposed 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, more specific subset of eCQMs while
keeping the programs aligned.
We refer readers to sections VIII.A.8.a. and VIII.A.10.d. of the
preamble of this final rule for details on eCQM reporting requirements
for the Hospital IQR Program in alignment with the Medicare and
Medicaid EHR Incentive Programs. We also refer readers to section
VIII.A.3.b.(3) of the preamble of this final rule for discussion on the
removal of 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 proposed 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.
Comment: Many commenters supported the removal of 13 eCQMs from the
Hospital IQR Program measure set.
Response: We thank the commenters for their support.
(i) AMI-7a
We proposed 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 proposed 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 proposed to remove the
AMI-7a eCQM from the Hospital IQR Program for the FY 2019 payment
determination and subsequent years.
Comment: A commenter supported the removal of the AMI-7a because
most AMI patients receive percutaneous coronary intervention instead of
fibrinolytic therapy and the measure does not reflect current clinical
practice.
Response: We thank the commenter for its support of our proposal to
remove AMI-7a because it does not reflect current clinical practice.
Comment: One commenter did not support the proposal to remove the
AMI-7a measure because fibrinolytic therapy is still recommended when
PCI cannot be performed within 120 minutes of first medical contact.
Because it is still an important process of care, the commenter
recommended that CMS find ways to reduce collection burden instead of
removing the measure from the Hospital IQR Program. The commenter also
expressed concern that removing this measure could cause unintended
consequences, particularly for patients in rural settings where there
could be prolonged times to transfer a patient to a PCI-capable
hospital.
Response: As discussed above, in the FY 2016 IPPS/LTCH PPS final
rule, we previously removed the chart-abstracted version of AMI-7a
because the reporting burden outweighed the benefit of public reporting
on very few hospitals' measure rates. This measure's specifications
resulted in very high

[[Page 57117]]

denominator exclusion rates, and consequently, the vast majority of
abstracted acute myocardial infarction (AMI) cases were excluded from
AMI-7a measure rates. Further, most AMI patients receive percutaneous
coronary intervention (PCI) instead of fibrinolytic therapy (80 FR
49647). While we acknowledge the commenter's concern regarding
unintended consequences, particularly in rural settings, we carefully
weighed the benefits and burden of retaining this eCQM in the program.
Due to the high exclusion rates, we do not believe that trying to
reduce the collection burden of AMI-7a will reduce the exclusion rates
or otherwise outweigh the reporting costs to hospitals of retaining the
measure in the Hospital IQR Program. As discussed above, we intend to
focus on a smaller, more specific subset of eCQMs in both the Hospital
IQR Program and the Medicare and Medicaid EHR Incentive Programs. We
remain committed to monitoring for unintended consequences, such as
changes in AMI patient outcomes over time, by examining the results of
other outcome measures in the Hospital IQR Program, specifically MORT-
30-AMI and READM-30-AMI. We will revise the measure set through future
rulemaking if needed.
After consideration of the public comments we received, we are
finalizing the removal of the AMI-7a: Fibrinolytic Therapy Received
Within 30 minutes of Hospital Arrival eCQM from the Hospital IQR
Program for the FY 2019 payment determination and subsequent years as
proposed.
(ii) STK-4, AMI-2, AMI-10, SCIP-Inf-1a, and SCIP-Inf-2a
We proposed 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
final rule for discussion of 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 us with an opportunity to monitor ``topped-out'' measures
for performance decline. It also simplified alignment between the
Hospital IQR Program and Medicare EHR Incentive Program for eligible
hospitals and provided a more straightforward approach to educate
stakeholders on electronic reporting options (79 FR 50208).
As discussed above, we proposed 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 proposed 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.
Comment: A commenter supported the removal of the following eCQMs:
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 2 (POD2) With Day of Surgery
Being Day Zero, and PN-6: Initial Antibiotic Selection for Community-
Acquired Pneumonia (CAP). The commenter stated that removing these
measures from the Hospital IQR Program helps to reduce data collection
burden, rid the program of measures that no longer add value, and allow
hospitals to focus on measures that demonstrate areas for improvement.
Response: We thank the commenter for its support.
Comment: One commenter expressed concern regarding the proposed
removal of the SCIP-Inf-1a: Prophylactic Antibiotic Received Within One
Hour Prior to Surgical Incision (NQF #0527) measure due to a concern
that the removal of this measure could result in unintended reduction
in adherence to appropriate prophylactic antibiotic use prior to
surgery. The commenter stated that the prophylactic antibiotic measure
(NQF #0527) should be retained to supplement the proposed NHSN measure,
since it is the aim of hospitals to minimize antimicrobial use.
Response: We disagree with the commenter that removal of SCIP-Inf-
1a, which is topped-out, will result in the unintended reduction in
adherence to appropriate prophylactic antibiotic use prior to surgery.
Topped-out measures represent care standards that have been widely
adopted by hospitals. We believe that hospitals committed to providing
quality care will continue to provide good quality care consistent with
standard practice. In the past, we have retained the electronic
versions of some topped-out measures for reasons such as promoting
alignment between programs or to provide an opportunity to monitor
topped-out measures for performance decline. In this case, removing
SCIP-Inf-1a promotes alignment with the Medicare and Medicaid EHR
Incentive Programs. In addition, in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50258), we received anecdotal comments about performance
level differences between chart-abstracted and eCQM data. We do not
have sufficient data to be able to confirm or refute the accuracy of
those comments (79 FR 50258), but these comments have prompted us to
reconsider our position

[[Page 57118]]

that topped-out eCQMs provide an opportunity for CMS to meaningfully
monitor topped-out measures for performance decline at this time. In
consideration of these factors, we do not believe that the burden of
retaining the electronic version to allow the comparison to chart-
abstracted data outweighs the benefit. Therefore, we believe that
removal of SCIP-Inf-1a in eCQM form is appropriate.
We wish to clarify that we did not propose the NHSN Antimicrobial
Use Measure, but rather sought comments regarding potential inclusion
of the measure in the future. We do not agree that we should retain
SCIP-Inf-1a to supplement the NHSN Antimicrobial Use measure, because
if the NHSN measure is adopted into the Program in future years,
surgical prophylactic antibiotic use will be captured by the NHSN
measure. However, we applaud the commenter's commitment to antibiotic
stewardship and refer readers to the NHSN Antibiotic Use and Resistance
Module available at: http://www.cdc.gov/nhsn/acute-care-hospital/aur/.
Comment: One commenter supported the removal of the AMI-2 and AMI-
10 eCQMs because removal would reduce the administrative burden on
hospitals. However, the commenter suggested that these measures be kept
on reserve for reimplementation if necessary because they are important
processes in cardiovascular care.
Response: We thank the commenter for its support of our proposal to
remove the AMI-2 and AMI-10 eCQMs because removal will reduce hospital
administrative burden. We note that currently we do not have authority
to maintain a ``reserve'' status for quality measures in the Hospital
IQR Program. If we interpret the commenter to mean that CMS should
retain the eCQMs in the program as is, we disagree. We must balance the
costs and burden of continued reporting and monitoring of a successful
measure with high levels of performance with the adoption of other
measures where there are greater opportunities for improvement in
clinical quality. As stated above, we also considered other factors
such as alignment with other programs, and determined that removal of
AMI-2 and AMI-10 promotes alignment with the Medicare and Medicaid EHR
Incentive Programs. If we decide to reimplement these measures in the
future, as the commenter suggests, we are required to proceed through
the pre-rulemaking process for measure selection before they can be
considered for adoption in the Hospital IQR Program. For details
regarding the pre-rulemaking process we refer readers to: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Pre-Rule-Making.html.
Comment: Some commenters did not support the proposal to remove the
STK-4 eCQM, and expressed concern that removing this eCQM may lead to
poorer performance due to lack of accountability and reporting, as well
as send a message that CMS does not consider this an important process
of care for patients with ischemic stroke. Two commenters noted that
the national averages for the STK-4 measure is only 83 percent,
indicating an opportunity for hospitals to improve on this measure. One
commenter noted retention of the STK-4 eCQM is necessary because it
allows hospitals and CMS to compare the eCQM-reported rates with the
historically reported chart-abstracted measure. Another commenter
raised concerns with removing the STK-4 measure because it intended to
submit this measure as part of the CY 2016 eCQM reporting requirement.
Response: STK-4 meets our topped-out criteria per our analysis of
hospitals participating in the Hospital IQR Program. Further, because
of the use of structured data fields in eCQMs, eCQM data and chart-
abstracted data for the same measure may not always be one hundred
percent comparable. We do not believe that removal of STK-4 will lead
to poorer performance and accountability. As previously noted, we
believe topped-out measures represent care standards that have been
widely adopted by hospitals. We believe that hospitals committed to
providing quality care will continue to provide quality care consistent
with standard practice. In the past, we have retained the electronic
versions of some topped-out measures for reasons such as promoting
alignment between programs or to provide an opportunity to monitor
topped-out measures for performance decline. In this case, removing
STK-4 promotes alignment with the Medicare and Medicaid EHR Incentive
Programs.
In addition, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50258),
we received anecdotal comments about performance level differences
between chart-abstracted and eCQM data. We do not have sufficient data
to be able to confirm or refute the accuracy of those comments (79 FR
50258), but these comments have prompted us to reconsider our position
that topped-out eCQMs provide an opportunity for CMS to meaningfully
monitor topped-out measures for performance decline at this time. In
consideration of these factors, we do not believe that the burden of
retaining the electronic version to allow the comparison to old data
outweighs the benefit. Therefore, we believe that removal of STK-4 in
eCQM form is appropriate. In regard to the commenter's concern that it
will not be able to submit the STK-4 eCQM as part of the CY 2016
reporting period eCQM requirement, we note that the STK-4 eCQM was
proposed (and is being finalized) for removal for the FY 2019 payment
determination, which affects the CY 2017 reporting period, not the CY
2016 reporting period. The commenter may still submit the STK-4 eCQM
for the CY 2016 reporting period for the FY 2018 payment determination.
Comment: One commenter did not support the removal of AMI-10 and
AMI-2 because these measures continue to provide useful data to
hospitals.
Response: We refer readers to section VIII.A.3.b.(3)(a)(ii) of the
preamble of this final rule where we note that measure performance for
AMI-10 and AMI-2 is so high and unvarying that meaningful distinctions
and improvements in performance can no longer be made. Therefore, per
the Hospital IQR Program removal factor 1 (80 FR 49641), we have
decided to remove these measures from the measure set. In addition to
both measures being topped out, we also considered other factors such
as alignment with other programs and determined that removing these two
measures aligns the Hospital IQR Program measure set with the Medicare
and Medicaid EHR Incentive Programs' measure sets. We refer readers to
section VIII.E.2.b. of the preamble of this final rule for the Medicare
and Medicaid EHR Incentive Programs' measure sets.
Further, these measures have had a change in endorsement
designation by NQF (available at: http://www.qualityforum.org/QPS/QPSTool.aspx). In addition, as discussed above, we intend to focus on a
smaller, more specific subset of eCQMs for the Hospital IQR Program and
both the Medicare and Medicaid EHR Incentive Programs.
After consideration of the public comments we received, we are
finalizing the removal of 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 as proposed.
(b) HTN
We proposed to remove the HTN: Healthy Term Newborn (NQF #0716)
eCQM, because it is no longer feasible to implement the measure

[[Page 57119]]

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 continue to include a measure that is
no longer supported by the steward. As a result, we proposed to remove
the HTN eCQM from the Program for the FY 2019 payment determination and
subsequent years.
Comment: One commenter supported the proposal to remove HTN along
with AMI-7a, VTE-3, VTE-4, VTE-5, VTE-6, SCIP-Inf-1a, SCIP-Inf-2a,
SCIP-Inf-9, PN-6, and STK-4.
Response: We thank the commenter for its support.
After consideration of the public comment we received, we are
finalizing the removal of the HTN: Healthy Term Newborn (NQF #0716)
eCQM from the Hospital IQR Program for the FY 2019 payment
determination and subsequent years as proposed.
(c) PN-6 and SCIP-Inf-9
We proposed 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.\93\ 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
proposed 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.
---------------------------------------------------------------------------

\93\ 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.
---------------------------------------------------------------------------

Comment: One commenter supported the removal of SCIP-Inf-9: Urinary
Catheter Removed on Postoperative Day 2 (POD2) With Day of Surgery
Being Day Zero and PN-6: Initial Antibiotic Selection for Community-
Acquired Pneumonia (CAP) because removing these measures from the
Hospital IQR Program helps to reduce data collection burden, rid the
program of measures that no longer add value, and allow hospitals to
focus on measures that demonstrate areas for improvement.
Response: We thank the commenter for its support.
After consideration of the public comment received, we are
finalizing the removal of both PN-6: Initial Antibiotic Selection for
Community-Acquired Pneumonia (CAP) in Immunocompetent Patients (NQF
#0147) and SCIP-Inf-9: Urinary Catheter Removed on Postoperative Day 1
(POD1) or Postoperative Day 2 ((POD2) with Day of Surgery Being Day
Zero) eCQMs from the Hospital IQR Program for the FY 2019 payment
determination and subsequent years as proposed.
(d) VTE-3, VTE-4, VTE-5, and VTE-6
We proposed 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 final
rule, we proposed 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 proposed to focus on a smaller,
more specific subset of eCQMs in the Hospital IQR Program and both the
Medicare and Medicaid

[[Page 57120]]

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 proposed 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.
Comment: One commenter supported the proposal to remove AMI-7a,
VTE-3, VTE-4, VTE-5, VTE-6, SCIP-Inf-1a, SCIP-Inf-2a, SCIP-Inf-9, PN-6,
STK-04, and HTN. In addition to the reasons articulated by CMS for
removing these eCQMs, the commenter expressed concern that AMI-7a and
VTE-3, VTE-4, VTE-5, and VTE-6 require data produced and documented in
non-certified radiology systems that lack an automated interface
necessary to integrate data into certified EHRs for accurate
measurement. As a result, the data must be entered manually and this
process is very burdensome for providers and could result in great
inaccuracies in measure calculations. Another commenter supported the
removal of the VTE measures, because these measures have data elements
that cannot be captured by electronic reporting.
Response: We thank the commenters for their support.
Comment: One commenter requested that CMS retain the eCQM version
of the VTE-6 measure, stating that if CMS sees value in the chart-
abstracted form of the measure, then there should also be value in the
eCQM format. The commenter also offered that while many other entities
have had difficulty implementing this measure in its electronic form,
as noted in the proposed rule, it has had success with this measure.
Response: As we state in section VIII.A.3.b.(3)(d) of the preamble
of this final rule, the chart-abstracted version of VTE-6 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. While we support the commenter's
progress with successful data collection for this measure, a majority
of hospitals do not have the ability to capture required data elements
in discrete structured data fields to support this eCQM. 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.
Comment: One commenter suggested that CMS consider future measures
for venous thromboembolism, because it is a common condition for
hospitalized patients. The commenter expressed concern that with the
removal of VTE eCQMs, almost all of the measures related to VTE will be
removed from the Hospital IQR Program and given the prevalence and
impact of this condition, CMS should consider including more measures
that assess VTE to facilitate a renewed focus on improvement in this
area. The commenter is developing a comprehensive set of VTE guidelines
and plans to reach out to CMS in the future to discuss their
implementation in the context of quality measures.
Response: We recognize the importance of assessing VTE in relation
to improved patient outcomes for hospital inpatients and will consider
the addition of new measures of VTE in future rulemaking. We encourage
the commenter to continue their efforts of developing guidelines
related to VTE, and welcome future collaboration in this area of
clinical quality measurement.
After consideration of the public comments we received, we are
finalizing the removal of: (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 eCQMs from the
Hospital IQR Program for the FY 2019 payment determination and
subsequent years as proposed.
(4) Summary of Measures Finalized for Removal
The table below lists the measures we are finalizing for removal.
We invited 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. The
comments we received are discussed above.
We note that STK-04 and VTE-5 are listed twice--once as an eCQM and
again as a chart-abstracted measure.

Measures Finalized 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-04: 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 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.

[[Page 57121]]

4. Previously Adopted Hospital IQR Program Measures for the FY 2018
Payment Determination and Subsequent Years
The Hospital IQR Program has previously finalized 65 measures for
the FY 2018 payment determination 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) 0139
Central Line-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.
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............................... 0469
Sepsis........................................ Severe Sepsis and Septic Shock: Management 0500
Bundle (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.
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 0351
Serious Treatable Complications.
PSI 90........................................ Patient Safety for Selected Indicators 0531
(Composite Measure).
----------------------------------------------------------------------------------------------------------------

[[Page 57122]]

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............................... 0469
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 0438
Day 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
----------------------------------------------------------------------------------------------------------------
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.

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25180), we did
not propose to add or remove any measures for the FY 2018 payment
determination.
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
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25180), we did not
propose any changes to these policies.

[[Page 57123]]

6. Refinements to Existing Measures in the Hospital IQR Program for the
FY 2018 Payment Determination and Subsequent Years
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25180 through
25185), we proposed 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), beginning with the FY 2018
payment determination and subsequent years. We discuss these
refinements in more detail below. In addition, we refer readers to
section VIII.A.9.a. of the preamble of this final rule where we discuss
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. 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
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25180 through
25182), for the FY 2018 payment determination and subsequent years, we
proposed 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. In addition, we refer readers to section VIII.A.7.b. of the
preamble of this final rule where we discuss our adoption of the PN
Excess Days measure 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 proposed 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 previously 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 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. Recent evidence has shown an increase in the use of sepsis as
principal discharge diagnosis codes among patients hospitalized with
pneumonia.\94\ 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 \95\ 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.
---------------------------------------------------------------------------

\94\ 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.
\95\ 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.
---------------------------------------------------------------------------

The proposal to align the PN Payment measure cohort with those of
the MORT-30-PN, READM-30-PN, and newly adopted 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 newly adopted PN Excess Days
measures.
The proposed PN Payment measure (MUC ID 15-378), 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
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

[[Page 57124]]

Report (available at: http://www.qualityforum.org/map/).\96\
---------------------------------------------------------------------------

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

In the proposed rule we stated that with 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. This trial entails 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. Several measures developed by CMS have been brought to NQF since
the beginning of the trial. CMS, in compliance with NQF's guidance, has
tested sociodemographic factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for sociodemographic
factors in our outcome measures.
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.
We received general comments related to the efforts underway to
determine if risk-adjusting for SDS factors is appropriate for this and
other measures in the Hospital IQR Program and would like to address
them first.
Comment: Several commenters encouraged CMS to apply SDS factors to
quality measures, noting that these factors impact patient outcomes.
Further, the commenters stated that SDS factors should be included in
quality measures' risk-adjustment models to ensure that hospitals are
held accountable only for the factors under their control. In addition,
commenters expressed the opinion that accountability programs should
include risk adjustment for those SDS factors for which there is a
conceptual relationship with outcomes or processes of care and
empirical evidence of such an effect, for reasons unrelated to quality
of care.
Commenters also indicated that failing to adjust quality measures
for SDS factors can result in unintended consequences and can mislead
patients, payers, and policymakers who would be otherwise oblivious to
community factors that contribute to worsened patient outcomes.
Commenters suggested that CMS provide more in depth information related
to the current efforts underway to assess the impact of SDS factors on
quality measures. Some commenters noted that risk adjustment is of
particular importance for measures that are not entirely within the
control of the hospital such as resource use, readmissions, and 30-day
mortality. However, some commenters stated that measures that are
within the control of a hospital stay (that is, process measures)
should not be subject to this type of risk adjustment.
One commenter believed that adjusting quality metrics in this way
could result in a tiered health care system where consumers could not
expect to receive the same quality of care regardless of where they
live. A few commenters supported the concept of exploring the
implications of risk-adjusting quality measures for SDS factors in the
future, but requested that CMS work more readily to account for
hospitals that disproportionately treat low-income and more vulnerable
patient populations. In addition, the commenters expressed concern
about the challenges associated with the feasibility of valid and
reliable adjustment for SDS factors and noted that risk adjustment
should not be used as an excuse for poor performance or a reason not to
improve. The commenters expressed appreciation that CMS is abreast of
the efforts underway by NQF and ASPE, but urged CMS to be more
proactive with its own efforts to examine SDS factors in quality
measures.
Response: With respect to commenters' request that CMS work more
readily to account for hospitals that disproportionately treat
vulnerable patient populations and concerns about the challenges
associated with the feasibility of valid and reliable adjustment for
SDS factors, as noted above and in the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25208), 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 SDS on
providers' differential performance on our outcome and payment
measures.
In response to commenters' suggestion that CMS provide more in
depth information related to the current efforts underway to assess the
impact of SDS factors on quality measures, as discussed above, the NQF
is currently conducting a 2-year trial, in which new measures and
measures undergoing maintenance review will be assessed to determine if
risk-adjusting for sociodemographic factors is appropriate. This trial
entails temporarily allowing inclusion of sociodemographic factors in
the risk-adjustment approach for some performance measures. At the
conclusion of the trial, NQF is expected to 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. Several
measures developed by CMS have been brought to NQF since the beginning
of the trial. Under the guidance of NQF, we are making every effort to
be proactive in examining SDS factors in quality measures by testing
SDS factors in the measures' risk models and making recommendations
about whether or not to include these factors in the endorsed measure.
We are still awaiting final

[[Page 57125]]

recommendations from the NQF and intend to continue engaging in the NQF
process as we consider the appropriateness of adjusting for SDS factors
in our outcome measures. For more detailed information about measures
in the NQF SDS trial period, we refer commenters to: http://www.qualityforum.org/SES_Trial_Period.aspx. Furthermore, we are
awaiting the findings of an ASPE report on SDS factors in risk-
adjustment, which is expected to be available in the fall of 2016. We
will share the findings of these trials and reports with the public as
soon as they become available. Therefore, we are not currently changing
our risk-adjustment methodology with respect to SDS factors. We will
continue to consider such factors in our ongoing measure development
and maintenance activities.
Comment: One commenter expressed concern that the newly proposed
measures are not risk-adjusted for SDS factors, noting that they serve
a patient population that is affected by these factors, and without
risk adjustment, their hospital will be unfairly penalized under the
current program. Commenters also encouraged CMS to adjust readmission
measures for SDS factors because hospitals that care for vulnerable
populations, who are at higher risk for readmissions, are disadvantaged
when these factors are not considered for payment updates.
Response: We appreciate the commenter's concern that newly proposed
measures are not risk-adjusted for SDS factors, but 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. Moreover, we do not
think it is appropriate to include risk-adjustment for SDS factors at
this time until more information is learned from the NQF trial period
and ASPE's report. However, we will continue to consider such factors
in our ongoing measure development and maintenance activities.
With regard to the commenters' concerns about being unfairly
penalized or disadvantaged with regard to payment updates, we note that
the Hospital IQR Program is a pay for reporting, not a pay for
performance, quality program. This means that its payment
determinations are based on hospitals meeting all of the reporting
requirements, not performance on the measures, and that claims-based
measures, such as the newly proposed measures and the existing
readmission measures, have no additional reporting burden for hospitals
since the data are derived from administrative data.
Comment: One commenter urged CMS not to add any proposed measure
until it is appropriately risk adjusted and should suspend or remove
other readmission measures until they incorporate appropriate risk-
adjustment methodology because SDS factors can skew performance on
certain quality measures, such as those for readmissions. The commenter
stated that outcome measures do not accurately reflect hospitals'
performance if they do not account for SDS factors outside the
hospital's control that can complicate care and influence patients'
health care outcomes.
Response: We disagree with the commenter that we should not propose
any measure until it is risk adjusted for SDS factors. As we have
previously noted, we have not risk-adjusted measures for SDS factors
because we do not want to mask potential disparities or minimize
incentives to improve the outcomes of disadvantaged populations.
However, as noted in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25208), while we are monitoring providers' differential performance on
our outcome and payment measures, we are not currently changing our
risk-adjustment methodology with respect to SDS factors. We will
continue to consider such factors in our ongoing measure development
and maintenance activities.
(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
includes 48 variables.\97\ 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. 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.
---------------------------------------------------------------------------

\97\ 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.
---------------------------------------------------------------------------

(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

[[Page 57126]]

changes had been applied for FY 2016 payment determination. We note
that these statistics are for illustrative purposes only, and we did
not propose 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 as proposed is
also 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 did not propose 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 invited 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.
Comment: Some commenters supported the proposed expansion of the
cohort definition for the PN Payment measure. Commenters noted the
proposed measure refinement accommodates differences in coding patterns
and aligns the measure cohort and specifications for the pneumonia
population across the payment, readmission, and mortality outcome
measures, which will mitigate measurement bias. Further, commenters
noted that this measure would align the PN Payment measure with the
other pneumonia measures used in CMS hospital quality programs. One
commenter mentioned it would align the Hospital IQR Program with the
Hospital VBP Program.
Response: We thank the commenters for their support. We note that
the PN Payment measure is not currently included in the Hospital VBP
Program, but we will take feedback on the PN Payment measure for the
Hospital VBP Program into consideration for the future.
Comment: Several commenters urged CMS not to finalize the inclusion
of the revised Pneumonia Payment measure in the Hospital IQR Program
until the updated version has attained NQF endorsement.
Response: We acknowledge stakeholder concerns that these
refinements to the PN Payment measure have not yet been endorsed by
NQF, but we refer readers to our earlier discussion in section
VIII.A.6.a.(1) of the preamble of this final rule that the MAP
conditionally supported this refined measure during the 2016 MAP
Hospital Workgroup Meeting pending NQF review of the examination of SDS
factors and NQF review and endorsement of the measure update. The
refined PN Payment measure will be submitted to NQF as part of the next
Cost and Resource Use project which is expected to convene in the first
quarter of 2017. The original hospital-level, risk-standardized payment
associated with a 30-day episode-of-care for pneumonia (NQF #2579)
measure was previously NQF-endorsed, and we do not believe the intent
of this measure has changed.
Comment: A commenter encouraged CMS to properly risk adjust this
measure for SDS factors so that hospitals that serve complex patients
do not perform poorly.
Response: We appreciate the commenter's concern that this measure
be risk-adjusted so that hospitals that serve complex populations do
not perform poorly, but we continue to have concerns about holding
hospitals to different standards for the outcomes of

[[Page 57127]]

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. Moreover, as described
above, we do not think it is appropriate to include risk-adjustment for
SDS factors at this time until more information is learned from the NQF
trial period and ASPE's report. However, we will continue to consider
such factors in our ongoing measure development and maintenance
activities.
Comment: Several commenters did not support the inclusion of
aspiration pneumonia in the cohort. One commenter stated that the
expansion of the measure cohort would capture relatively different
cohorts of patients (particularly those with aspiration pneumonia),
with different baseline factors that influence recovery times and could
impact hospitals' performance on this measure. Commenters noted
aspiration pneumonia patients overall are a more complex population
with higher mortality rates, and aspiration pneumonia could be
attributable to a range of potential causes that are clinically
distinct despite the coding variation issue.
Response: We appreciate the commenters' concerns about the extent
of the refinement of this measure and the inclusion of patients who are
more complex (have greater illness severity). In particular, we
understand commenters' concerns that aspiration pneumonia can have
different causes and associated risks (for example, recurrent
aspiration due to other comorbidities). However, while the pathological
causes of aspiration pneumonia are slightly different from the causes
of community acquired pneumonia, in routine clinical practice, evidence
shows it can be very challenging for physicians to differentiate
aspiration syndromes including pneumonitis and pneumonia, from other
types of pneumonia included in the measure.^{98 99} This is
reflected in the tremendous variation across hospitals in the use of
aspiration pneumonia diagnosis codes. This variation suggests that
hospitals are not consistently distinguishing between these conditions
as distinct subtypes regardless of patients' comorbid conditions.
Expanding the measure cohort would ensure that the measure is
clinically comprehensive.
---------------------------------------------------------------------------

\98\ Lanspa MJ, Jones BE, Brown SM, Dean NC. Mortality,
morbidity, and disease severity of patients with aspiration
pneumonia. J Hosp Med. 2013 Feb;8(2):83-90. doi: 10.1002/jhm.1996.
Epub 2012 Nov 26.
\99\ Marik PE. Aspiration pneumonitis and aspiration pneumonia.
N Engl J Med. 2001 Mar 1;344(9):665-71.
---------------------------------------------------------------------------

Moreover, the treatment of patients hospitalized for pneumonia,
aspiration pneumonia, or sepsis due to pneumonia is very similar and
involves treatment with antibiotics, IV fluids, and symptom
management.\100\ In addition, although some patients with aspiration
pneumonia, such as medically frail patients, have a higher predicted
mortality risk (that is, are more complex), many of the associated
comorbidities are captured in the PN Payment measure's risk-adjustment
methodology. Of note, due to the increased number of patients that are
included in the expanded cohort, we reselected risk-adjustment
variables to ensure that the measure does not bias hospital performance
and it accounts for the differences in risk among the subgroup of
patients. For example, the risk model includes clinical history of
stroke, as well as conditions associated with frailty, such as
neuromuscular disease, and dementia.
---------------------------------------------------------------------------

\100\ Ibid.
---------------------------------------------------------------------------

Comment: One commenter indicated that the impact of the cohort
expansion on the other pneumonia measures remains unknown, as data is
not yet publicly available on Hospital Compare.
Response: The expansion of the cohort for the PN Payment measure
aligns this measure with the MORT-30-PN measure, READM-30-PN measure,
and the newly adopted PN Excess Days measure. The cohort expansion for
the CMS Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate
(RSRR) following Pneumonia Hospitalization measure (NQF #0506) and the
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Pneumonia Hospitalization measure were finalized in the FY
2016 IPPS/LTCH PPS final rule (80 FR 49660), and are expected to be
publicly reported on Hospital Compare beginning in 2016.
The 2016 measure results show that the mean RSMR for the MORT-30-PN
measure decreased from 16.3 percent for July 2013-June 2014 to 15.9
percent for July 2014-June 2015. The mean RSMR for READ-30-PN measure
decreased from 16.5 percent for July 2013-June 2014 to 16.4 percent for
July 2014-June 2015.\101\ Additional information on the impact of the
cohort change on the measures, including measure results, assessments
of the revised model, and the impact of the cohort change on the
categorization of hospital performance, can be found in the 2015
Reevaluation and Re-Specification Report of the Hospital-Level 30-Day
Risk-Standardized Measures Following Hospitalization for Pneumonia--
Version 8.2 (readmission) and 9.2 (mortality) (available in the AMI-HF-
PN-COPD-and-Stroke-Readmission Updates zip file at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). In
addition, measure specifications can be found in the 2016 Condition-
Specific Measures Updates and Specifications Report Hospital-Level 30-
Day Risk-Standardized Mortality Measures--Pneumonia Mortality Version
10.0 (available in the AMI-HF-PN-COPD-and-Stroke-Mortality Updates zip
file) and the 2016 Condition-Specific Measures Updates and
Specifications Report Hospital-Level 30-Day Risk-Standardized
Readmission Measures--Pneumonia Readmission Version 9.0 (available in
the AMI-HF-PN-COPD-and-Stroke-Readmission Updates zip file) on our Web
site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
Finally we note that, as established in the Hospital IQR Program,
hospitals have the opportunity to review their data, including their
performance on the refined versions of the measures, via their
hospital-specific reports (HSRs) during the preview period before
public reporting of the measures.
---------------------------------------------------------------------------

\101\ Dorsey K, Grady J, et al. 2016 Condition-Specific Measures
Updates and Specifications Report, Hospital-Level 30-Day Risk-
Standardized Mortality Measures. 2016. https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

Comment: One commenter expressed concern regarding the significant
overlap between the PN Payment measure and Medicare Spending per
Beneficiary (MSPB) measure. The commenter acknowledged the potential to
create alignment with the physician value-modifier and later merit-
based incentive payment system; however, the commenter indicated that
there is still a significant need for better alignment between the
hospital and physician specifications.
Response: The goal of the PN Payment measure is to complement other
quality measures already adopted to provide more holistic and
comprehensive information on the value of care provided for the
pneumonia condition specifically, while the MSPB measure solely
examines total Medicare spending per beneficiary and encompasses all
conditions. The PN Payment measure is meant to be considered in
conjunction with MORT-30-PN, READM-30-PN, and the newly

[[Page 57128]]

adopted PN Excess Days measures in order to gain a better understanding
of the value of care for a hospital's patients and the nation as a
whole. Moreover, several commenters conveyed support and appreciation
for the reporting of the PN Payment measure in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50229), noting that it provided a way to
optimally measure care for these patients. Therefore, we believe that
the PN Payment measure provides condition-specific feedback to
hospitals and can incentivize targeted improvements in care for
pneumonia patients.
Lastly, we acknowledge commenters request for better alignment
between the hospital and physician specifications. We strive to align
specifications across programs when feasible; however, some
specifications will remain different to accommodate for the
distinctions between quality care programs that focus on hospitals (for
example, the Hospital IQR Program) versus eligible professionals (for
example, the Physician Value-Based Payment Modifier Program).
After consideration of the public comments we received, we are
finalizing the refinement of 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 proposed.
b. Adoption of Modified PSI 90: Patient Safety and Adverse Events
Composite Measure (NQF #0531)
(1) Background
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25182 through
25285), we proposed 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 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 03 Pressure Ulcer
Rate; (2) PSI 06 Iatrogenic Pneumothorax Rate; (3) PSI 07 Central
Venous Catheter-Related Blood Stream Infections Rate; (4) PSI 08
Postoperative Hip Fracture Rate; (5) PSI 12 Perioperative Pulmonary
Embolism (PE) or Deep Vein Thrombosis (DVT) Rate; (6) PSI 13
Postoperative Sepsis Rate; (7) PSI 14 Postoperative Wound Dehiscence
Rate; and (8) PSI 15 Accidental Puncture and Laceration Rate.\102\
---------------------------------------------------------------------------

\102\ 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 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,\103\ 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.
---------------------------------------------------------------------------

\103\ 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.\104\ 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 Postoperative
Acute Kidney Injury Requiring Dialysis Rate (formerly titled
``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,
Unrecognized Abdominopelvic Accidental Puncture/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 proposed 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 also
proposed to modify the reporting periods for FYs 2018 and 2019 payment
determinations and subsequent years as detailed further below.
---------------------------------------------------------------------------

\104\ 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 note that the proposed modified PSI 90 measure (MUC ID 15-604)
was included on a publicly available document entitled 2015 Measures
Under Consideration for December 1, 2015 \105\ 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.'' \106\
The measure received support for inclusion in the Hospital IQR Program
as referenced in the MAP Final Recommendations Report.\107\
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\105\ 2015 Measures Under Consideration List Available at:
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\106\ MAP Final Recommendations. Available at: http://www.qualityforum.org/map/.
\107\ MAP Final Recommendations. Available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

(2) Overview of the Measure Changes
First, the name of the PSI 90 measure has changed from the
``Patient Safety for

[[Page 57129]]

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 In-Hospital Fall With Hip Fracture Rate; \108\
---------------------------------------------------------------------------

\108\ Previously titled ``Postoperative Hip Fracture'' prior to
v6.0.
---------------------------------------------------------------------------

PSI 09 Perioperative Hemorrhage or Hematoma Rate; *
PSI 10 Postoperative Acute Kidney Injury Requiring
Dialysis Rate; *\109\
---------------------------------------------------------------------------

\109\ Previously titled ``Postoperative Physiologic and
Metabolic Derangement'' prior to v6.0.
---------------------------------------------------------------------------

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 Unrecognized Abdominopelvic Accidental Puncture/
Laceration Rate.^{110 111}
---------------------------------------------------------------------------

\110\ Previously titled ``Accidental Puncture or Laceration
Rate'' prior to v6.0.
\111\ 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,\112\ 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 documentation of calf vein thrombosis
(which has uncertain clinical significance). Therefore, 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 Unrecognized Abdominopelvic Accidental Puncture/
Laceration Rate, was also respecified 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.
Based on these new specifications, the PSI 15 indicator name has been
changed as note above.
---------------------------------------------------------------------------

\112\ 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 57130]]

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 \114\ 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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\113\ International Classification of Diseases, (ICD-10-CM/PCS)
Transition--Background. Available at: http://www.cdc.gov/nchs/icd/icd10cm_pcs_background.htm.
\114\ 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 proposed to modify the reporting
periods for the FYs 2018 and 2019 payment determinations. For the FY
2018 payment determination, we proposed 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 proposed 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 proposed 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 proposed
similar modifications for FYs 2018 and 2019 payment determinations in
the HAC Reduction Program, as discussed in section IV.I.3.b. of the
preamble of this final rule, and similar modifications to the
performance period for the Hospital VBP Program FY 2018 program year,
as discussed in section IV.H.2. of the preamble of this final 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
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.\115\ 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.\116\ In
establishing the revised reporting periods for the modified PSI 90
measure, we also relied upon an analysis by Mathematica Policy Research
(MPR), 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.\117\ While not discussed in the proposed rule,
we would like to elaborate on the reliability of the shortened
reporting period. We took into account that the findings in the MPR
analysis are based on older data (7 months of data from March 2010-
September 2010), which do not reflect changes to current inter-hospital
variation over time due to quality improvements. The findings also
simulate results over a 2 year period based on 7 months of data; and
use an older version of the PSIs (analysis uses v4.2; NQF-endorsed uses
v6.0) that does not include improvements in POA coding, a composite
with 10 component indicators with a revised weighting scheme or
refinements to the component indicators. 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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\115\ 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.
\116\ ``Patient Safety 2015 Final Report'' is available at:
http://www.qualityforum.org/Publications/2016/02/Patient_Safety_2015_Final_Report.aspx.
\117\ 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.
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(5) 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 invited 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 the FY 2017 payment determination. We also invited
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.
Comment: Several commenters supported the proposed adoption of the
modified PSI 90, including the additional PSI components, the removal
of PSI components, and the updated weighting convention. Specifically,
commenters expressed support for the removal of PSI 07 Central Venous
Catheter-Related Blood Stream Infection Rate from the measure because
the removal of this indicator eliminates potential overlap with the
CLABSI measure (NQF #0139). Commenters also specifically supported the
inclusion of PSI 09 Perioperative Hemorrhage or Hematoma Rate and the
refinements to the definition of PSI 15 Unrecognized Abdominopelvic
Accidental Puncture/Laceration Rate. Commenters believed that changing
the weighting factors that assess harm adds value to the measure. In
addition, commenters agreed that mixing ICD-9 and ICD-10 data would

[[Page 57131]]

not be favorable for this measure. One commenter supported the proposal
to shorten the PSI 90 measure reporting period to account for the
transition from ICD-9-CM to ICD-10-CM/PCS. Finally, commenters noted
that the inclusion of this modified measure would help align with other
hospital quality programs.
Response: We appreciate the commenters' support of the adoption of
the modified PSI 90.
Comment: Some commenters suggested adding an exclusion criterion
for PSI 12 Perioperative PE or DVT Rate for any patient who has a
tracheostomy because it is not the surgery that places the patient at
risk for PE or DVT, rather it is the medical problem that leads to
tracheostomy that places the patient at increased risk for PE or DVT.
Response: We agree that some medical conditions, which lead to a
tracheostomy,\118\ may also increase patients' risk for PE or DVT.
However, we do not believe that just because a patient has a
tracheostomy they are at increased risk for PE or DVT and should be
excluded. We note that most of the medical conditions that can lead to
tracheostomy are already captured by the extensive set of risk factor
variables used in the risk adjustment for PSI 12. For more information
on the PSI 12 risk model, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf. Further suggestions regarding potential
PSI measure revisions can be made directly to: [email protected]
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\118\ A tracheotomy or a tracheostomy is an opening surgically
created through the neck into the trachea (windpipe) to allow direct
access to the breathing tube and is commonly done in an operating
room under general anesthesia. Definition obtained from http://www.hopkinsmedicine.org/tracheostomy/about/what.html.
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Comment: A few commenters encouraged CMS to work with AHRQ to
update the software required for monitoring PSI 90 measure performance
to account for the conversion to ICD-10-CM/PCS coding. Commenters also
expressed concern that the transition to ICD-10-CM/PCS codes has caused
inaccuracies in PSI reporting and evaluation. The commenters also noted
that some minor procedures are now being categorized as surgical and
some organizations are not reporting these minor procedures. Commenters
noted that PSI 90 is critical in pay-for-performance programs, thus it
is imperative that hospitals are able to monitor performance in an
ongoing manner.
Response: We applaud the commenters' commitment to continuous
monitoring of performance. We understand that it is imperative for
hospitals to monitor performance in an ongoing manner and are working
with AHRQ to have the risk-adjusted software available as soon as
possible. We note that one of the factors in our decision to delay the
use of ICD-10 claims data until FY 2019 was to allow for the necessary
one year of ICD-10 data collection required for AHRQ to create a risk
adjusted software version. For more information on the release plan for
ICD-10 risk adjusted software, we refer commenters to the AHRQ Quality
Indicators Software page available at: http://www.qualityindicators.ahrq.gov/Software/Default.aspx.
While we acknowledge commenters concerns that the transition to
ICD-10-CM/PCS codes has caused inaccuracies in PSI reporting and
evaluation, there is no evidence of which we are aware that supports
this assertion. However, we are actively monitoring for any potential
issues related to ICD-10 conversion. We note that all measure
specifications have been translated to and updated for corresponding
ICD-10 code specifications. AHRQ's changes for ICD-10-CM/PCS conversion
of its patient safety indicators are available at: http://www.qualityindicators.ahrq.gov/Modules/PSI_TechSpec_ICD10.aspx.
Lastly, we interpret commenters' concerns regarding ``minor
procedures'' to refer to non-operating room (OR) procedures. As noted
in the Frequently Asked Questions about using AHRQ Quality Indicators
(QIs), www.qualityindicators.ahrq.gov/FAQs_Support/FAQ_QI.aspx#, the
denominators of the AHRQ Patient Safety Indicators (PSIs) use the list
of major OR procedures that is developed and maintained by CMS (see
draft ICD-10 MS-DRG v32 definitions, Appendix E, at: https://www.cms.gov/ICD10Manual/version32-fullcode-cms/fullcode_cms/P0001.html). We acknowledge that some procedures that were previously
classified as a non-OR procedure in the ICD-9-CM MS-DRG list are
currently classified as an OR procedure in the draft ICD-10 MS-DRG v28.
AHRQ has addressed these discrepancies as they relate to the PSIs going
forward. Further, in the mid-July 2016 release of v6.0 ICD-10-CM/PCS
software, AHRQ refined the list of major OR procedures. We believe this
refined list of major OR procedures provides clear guidance regarding
classifying OR procedures and non-OR procedures to ensure accurate
reporting by all organizations. AHRQ welcomes input from the user
community on AHRQ QI ICD-10-CM/PCS v6.0. Please provide suggestions/
comments directly to: [email protected].
Comment: Several commenters did not support the proposed adoption
of the modified PSI 90 because of the susceptibility of PSI 12
Perioperative PE or DVT Rate to surveillance bias and lack of
appropriate measure exclusions.
Response: CMS and AHRQ recognize the commenters' concerns about
surveillance bias for PSI 12 Perioperative PE or DVT Rate and the issue
was addressed in the NQF Patient Safety Steering Committee in 2015.
Surveillance bias is a non-random type of systemic bias where a
diagnosis is more likely to be observed the more vigilant one is in
looking for it.\119\ In the case of DVT or PE, hospitals may
underdiagnose or over diagnose DVT or PE depending upon how often they
screen or perform diagnostic testing to look for these diagnoses.
Several research teams have examined DVT and PE rates and surveillance
bias.\120\ However, studies have not specifically examined whether the
observed rates reflect underdiagnosis of DVT or PE at low-testing
hospitals, over diagnosis of DVT or PE at high-testing hospitals, or
the underlying true incidence of symptomatic DVT or PE. While some
hospitals might hypothesize that increased surveillance is desirable,
there is no evidence to support the hypothesis that ``increased
vigilance in DVT or PE detection'' is desirable, from the perspective
of patients and their families. Over diagnosis of DVT or PE among
patients may lead to overtreatment, and overtreatment is not
inconsequential as there are known adverse effects associated with
treatment of DVT and PE. Thus, while we acknowledge commenter's
concerns regarding surveillance bias, we believe that PSI 12 is an
important component indicator of the modified PSI 90

[[Page 57132]]

measure, because it encourages hospitals not only to prevent DVT or PE,
but also to appropriately assess a patient's risk for DVT and PE to
prevent over diagnosis and underdiagnosis. Given the negative economic
and health consequences associated with DVT or PE diagnosis, we believe
that preventing underdiagnosis and over diagnosis is critical to
improving patient safety.
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\119\ Haut ER, Pronovost PJ. Surveillance bias in outcomes
reporting. JAMA. 2011 Jun 15;305(23):2462-3.
\120\ Bilimoria KY, Chung J, Ju MH, et al. Evaluation of
surveillance bias and the validity of the venous thromboembolism
quality measure. JAMA. 2013;310(14):1482-1489; Holcomb CN, DeRussy
A, Richman JS, Hawn MT. Association Between Inpatient Surveillance
and Venous Thromboembolism Rates After Hospital Discharge. JAMA
Surg. 2015;150(6):520-527; Ju MH, Chung JW, Kinnier CV, et al.
Association between hospital imaging use and venous thromboembolism
events rates based on clinical data. Ann Surg. 2014;260(3):558-566
and Pierce CA, Haut ER, Kardooni S, et al. Surveillance bias and
deep vein thrombosis in the national trauma data bank: the more we
look, the more we find. The Journal of Trauma. 2008;64(4):932-936;
discussion 936-937. Haut ER, Chang DC, Pierce CA, et al. Predictors
of posttraumatic deep vein thrombosis (DVT): hospital practice
versus patient factors--an analysis of the National Trauma Data Bank
(NTDB). The Journal of trauma. 2009;66(4):994-9.
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Lastly, we disagree with commenter that PSI 12 Perioperative PE or
DVT Rate lacks appropriate exclusions. Measure exclusions were reviewed
by the NQF Patient Safety Steering Committee in 2015 and the measure
was re-endorsed as reliable and valid. We note that AHRQ removed
isolated thrombosis of calf veins (ICD-9-CM 453.42) from the version
6.0 specification reviewed by the NQF Patient Safety Steering Committee
in 2015 in order to minimize the impact of clinically unimportant
distal thromboses on hospital-specific PSI 12 rates. However,
suggestions regarding potential PSI measure revisions can be made
directly to: [email protected]
Comment: Several commenters noted that the modifications to the PSI
90 measure do not address the many, well-documented concerns about the
reliability of individual claims data elements or the validity of the
PSIs. Commenters expressed the opinion that claims-based measures in
general, and PSIs in particular, have not demonstrated that they are
accurate, reliable, and valid indicators of quality and safety of care.
Other commenters cautioned against the measure's use of claims data due
to the composite structure because the composite lacks specific
direction for prevention strategy focus. Commenters also expressed
concern about the utility of the modified measure and its ability to
provide actionable information to providers. Lastly, commenters
expressed concern that the shortened reporting period will not produce
reliable data on hospital performance. Due to the modifications made to
the component PSIs and the new weighting scheme, commenters believed
that the previous reliability results do not provide sufficient
information on the reliability of the modified measure when a shortened
15-month reporting period is used.
Response: We disagree with commenters that claims-based measures in
general, and PSIs in particular, have not demonstrated that they are
accurate, reliable, and valid indicators of quality and safety of care.
Regarding the administrative data elements of PSI 90, we note that
there are previously conducted studies that validate the relationship
between administrative claims data and medical records.\121\ These
studies demonstrate that administrative claims data can provide
sufficient clinical information to assess patient safety. We refer
readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50091) for a
further discussion of this issue in the context of the HAC Reduction
Program. Further, over the past decade, AHRQ has supported a series of
validation studies based on detailed abstraction of medical
records.\122\ These studies informed AHRQ's PSI development process,
including further refinements to indicators, working with others to
improve coding practices, and retirement of a few indicators.
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\121\ (1) Zrelak PA, Romano PS, Tancredi DJ, Geppert JJ, Utter
GH. Validity of the AHRQ Patient Safety Indicator for Postoperative
Physiologic and Metabolic Derangement based on a national sample of
medical records. Medical Care 2013; 51(9):806-11. (2) Utter GH,
Zrelak PA, Baron R, Tancredi DJ, Sadeghi B, Geppert JJ, Romano PS.
Detecting postoperative hemorrhage or hematoma from administrative
data: The performance of the AHRQ Patient Safety Indicator. Surgery
2013; 154(5):1117-25. (3) Borzecki AM, Cevasco M, Chen Q, Shin M,
Itani KM, Rosen AK. How valid is the AHRQ Patient Safety Indicator
``postoperative physiologic and metabolic derangement''? J Am Coll
Surg. 2011 Jun;212(6):968-976. (4) Borzecki AM, Kaafarani H, Cevasco
M, Hickson K, Macdonald S, Shin M, Itani KM, Rosen AK. How valid is
the AHRQ Patient Safety Indicator ``postoperative hemorrhage or
hematoma''? J Am Coll Surg. 2011 Jun;212(6):946-953.
\122\ A list of all AHRQ validation studies is available at:
http://www.qualityindicators.ahrq.gov/Resources/Publications.aspx.
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Furthermore, many of these claims-based indicators have been
endorsed by the NQF, which includes a review process that assesses
reliability and validity.\123\ We note that NQF endorsed the modified
PSI 90, including the risk-adjustment methodology of the component
indicators, as reliable and valid (NQF #0531).\124\ Further, we believe
the modified PSI 90 does provide actionable information and specific
direction for prevention of patient safety events, because hospitals
can track and monitor individual PSI rates and develop targeted
improvements to improve patient safety. For further guidance on PSI
monitoring and strategies for applying quality improvements to PSI
data, we refer readers to the Toolkit for Using the AHRQ quality
indicators available at: http://www.ahrq.gov/professionals/systems/hospital/qitoolkit/index.html.
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\123\ More information on the NQF endorsement process is
available in the NQF Review and Update of Guidance for Evaluating
Evidence and Measure Testing--Technical Report available at: http://www.qualityforum.org/Publications/2013/10/Review_and_Update_of_Guidance_for_Evaluating_Evidence_and_Measure_Testing_-_Technical_Report.aspx.
\124\ Measure information is available at: http://www.qualityforum.org/QPS/0531.
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Lastly, while we acknowledge commenters' concerns that the previous
reliability results may not provide sufficient information on the
reliability of the modified measure for a shortened 15-month reporting
period, we note that this reliability analysis does not include the
modifications to the PSI 90, such as improvements in POA coding,
refinements to the component indicators, or a composite with 10
component indicators with a revised weighting scheme. We believe these
refinements and improvements enhance the reliability of the measure.
Moreover, we note that the NQF found the modified PSI 90 to be reliable
using specifically 12 months of data.\125\ We continue to believe the
modified PSI 90 measure is a scientifically rigorous measure that
provides actionable feedback to hospitals to improve patient safety and
quality of care.
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\125\
Modified_Version_of_PSI90_NQF0531_Composite_Measure_Testing_151022.pd
f available in the Patient Safety for Selected Indicators (modified
version of PSI90) zip file at: http://www.qualityforum.org/ProjectMeasures.aspx?projectID=77836.
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Comment: One commenter expressed concern that PSI 09 Perioperative
Hemorrhage or Hematoma Rate may apply to a number of transplant
patients and recommended that transplantation should be added to the
exclusion list a priori and requested that that liver transplant
patients be excluded from the PSI 09 denominator. The commenter
indicated that perioperative hemorrhage or hematoma is normal after
liver transplant, and is frequent after kidney transplant, and the
repercussions of these and other transplantation procedures are not
indicative of poor quality care. The commenter further noted that liver
transplants result in significant blood loss in nearly every case, and
poor performance on this measure can be driven by the number of liver
transplants performed.
One commenter expressed concern with the PSI 11 Postoperative
Respiratory Failure Rate because acute respiratory failure, mechanical
ventilation, and reintubation are fairly common for both liver and
kidney procedures and do not suggest poor quality of care. This
commenter stated that transplant surgeries have a high incidence of
acute respiratory failure, mechanical ventilation, and reintubation
meeting the specifications set forth in this measure, due to fluid
shifts, medications, neurological status, and potential for infection
involved in this complex surgery. Another commenter expressed concern
that PSI

[[Page 57133]]

10 Postoperative Acute Kidney Injury Requiring Dialysis Rate is
inappropriate for liver transplantation. The commenter stated that
while the measure excludes patients with preoperative renal failure,
many liver transplant patients with relatively normal baseline renal
function get acute renal failure after transplant despite high quality
care, due to hemodynamic factors and the nature of the drugs involved
in the performance of the procedure and its aftermath. These commenters
recommended that liver and kidney transplantation should be added to
the exclusion list for this measure.
Response: We do not agree with the commenters that liver transplant
patients should be excluded from the PSI 09, PSI 10, and PSI 11
denominators. While we appreciate one commenter's observation that
transplant patients may have an elevated risk of hemorrhage or
hematoma, we note that the risk-adjustment model for PSI 09 explicitly
accounts for the increased risk associated with solid organ
transplantation. For more information on the PSI 09 risk model, we
refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf.
Similarly, the risk-adjustment models for PSI 10 and PSI 11
explicitly account for the increased risk associated with hepatic
failure and solid organ transplantation, respectively. For more
information on the PSI 10 risk model, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf.
Comment: One commenter expressed concern that changes in
coagulation in the early postoperative period may lead to increased
incidence of clotting disorders including Deep Vein Thrombosis (DVT)
after transplant procedures and also may be caused by large bore
IVs.\126\ In addition, transplant patients often get products that
promote clotting due to inherent coagulopathy, and some patients have
clotting disorders that cause hypercoagulability. The commenter noted
that this measure excludes surgeries involving interruption of the vena
cava, and stated that all liver transplants involve such interruption.
This commenter recommended that liver and kidney transplant be added to
the exclusion list because DVT is not indicative of poor quality care
for these procedures due to the frequency of DVT in transplantation.
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\126\ Bore refers to the size of a needle used for an IV.
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Response: We appreciate commenter's observation that PSI 12
Perioperative PE or DVT Rate excludes cases where a procedure for
interruption of the vena cava occurs before or on the same day of the
first operating room procedure. Cases meeting this criterion should be
excluded, because inferior vena cava (IVC) filter placement (which is
by far the most common example of surgical interruption of the vena
cava) is appropriate only for patients who cannot tolerate, or have
already failed, conventional pharmacologic prophylaxis. IVC filters are
placed in high-risk patients with the knowledge that they increase the
risk of deep vein thrombosis distal to the device while decreasing the
risk of embolization to the pulmonary circulation.
However, we disagree with commenter that liver and/or kidney
transplants must be placed on the exclusion list, just because these
patients may have clotting disorders that cause hypercoagulability, get
products that promote clotting, or may have large bore IVs. We note
that the risk-adjustment model for PSI 12 Perioperative PE or DVT Rate
explicitly accounts for the increased risk of thrombosis (clotting)
associated with solid organ transplantation. Risk adjustment accounts
for differences in patient populations (transplant patients, etc.) to
allow for comparisons across providers. For example, liver
transplantation (MDRG 7702) is associated with an adjusted odds ratio
of 3.2 in AHRQ's v5.0 risk model for PSI 12. PSI 12 is designed to
improve surveillance prevention and awareness of perioperative DVT and
pulmonary embolism. Because of the morbidity and mortality associated
with these conditions, we continue to believe that PSI 12 is important
to improving perioperative quality of care and patient safety. For more
information on the PSI 12 risk model, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V50/Parameter_Estimates_PSI_50.pdf.
The measure steward, AHRQ, carefully considers all suggestions of
this type, and will consult with clinical experts as the Patient Safety
Indicators are updated in the future. Suggestions regarding potential
PSI measure revisions can be made directly to: [email protected].
After consideration of the public comments we received, we are
finalizing the adoption of the modified PSI 90 measure (NQF #0531) for
the Hospital IQR Program for the FY 2018 payment determination and
subsequent years as proposed. To summarize, we will use: (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. We will continue to use the previously adopted eight-
indicator version of the PSI 90 measure in the Hospital IQR Program for
the FY 2017 payment determination.
7. Additional Hospital IQR Program Measures for the FY 2019 Payment
Determination and Subsequent Years
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25185 through
25193), we proposed to add four new measures to the Hospital IQR
Program for the FY 2019 payment determination and subsequent years. We
proposed 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 proposed 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'' \127\ 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.\128\
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\127\ Measure Applications Partnership: List of Measures Under
Consideration (MUC) for December 1, 2015. Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\128\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
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Below, we discuss each of the above measures in more detail.
a. 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

[[Page 57134]]

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.\129\ We proposed 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.
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\129\ 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.
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We proposed 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.\130\ 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 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; \131\ (2) are not NQF-
endorsed; (3) may need to be adjusted for SDS; and (4) fail to link
outcomes to quality because they do not reflect appropriateness of
care.
---------------------------------------------------------------------------

\130\ Spreadsheet of MAP 2016 Final Recommendations. Available
at: http://www.qualityforum.org/map/.
\131\ 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 final rule
for a discussion of our policy on SDS factor risk adjustment. 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,\132\
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.
---------------------------------------------------------------------------

\132\ 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)

[[Page 57135]]

episodes of care for the condition are comprised of a substantial
proportion of payments and potential savings for postacute 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 postdischarge 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 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 \133\ 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.
---------------------------------------------------------------------------

\133\ 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] TR22AU16.000

---------------------------------------------------------------------------
where

Oij =observed episode payment for episode i in provider j,
Eij =epected episode payment for episode i in provider j,
OiEI =average observed episode payment across all episodes i
nationally, and
nj =total number of episodes for provider j.

Each of the three measures we proposed 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: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
We invited public comment on our proposals to add three clinical
episode-based payment measures for the FY 2019 payment determination
and subsequent years. General comments related to all three measures
are discussed below. Specific comments for each measure are discussed
even further below.
Comment: Several commenters supported the adoption of the proposed
clinical episode-based payment measures.
Response: We thank the commenters for their support.
Comment: Several commenters expressed concern that hospitals would
not be able to report statistically reliable information on such a
small number of hospital-specific observations, recommending instead
that CMS use condition-specific cost measures broadly and not base
financial incentives on them.
Commenters were also concerned that the majority of performance
variation reflects differences in services used by patients, but the
measures do not provide insight on whether the services were necessary
and appropriate, arguing that cost is not indicative of quality of
care. Some commenters believed that consumers are likely to associate
higher cost with better quality.
Response: We disagree with the commenters that a hospital will not
be able to report statistically reliable information on the condition-
specific, clinical episode-based payment measures. We note that the
conditions for these measures were selected specifically because these
conditions are high volume and constitute a significant share of
Medicare payments and potential savings, as detailed in the Background
sections corresponding to each measure in sections VIII.A.7.a.(2)(a),
VIII.A.7.a.(3)(a), and VIII.A.7.a.(4)(a) of the preamble of this final
rule. In addition, analysis of 2014 administrative claims data shows
that the majority of hospitals achieved moderate reliability (above
0.4) when using 20-episode case minimums for Aortic Aneurysm Procedure
and Spinal Fusion Clinical Episode-Based Payment Measure, and a 30-
episode case minimum for the Cholecystectomy and Common Duct
Exploration Clinical Episode-Based Payment Measure. For more details,
we refer readers to the measure methodology report available at:
https://www.qualitynet.org/dcs/

[[Page 57136]]

ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=12287756
14447.
We appreciate the commenter's recommendation not to use episode-
based cost measures for financial incentives, but note that the payment
incentive in the Hospital IQR Program is for reporting only, therefore,
there is no financial incentive associated with performance on these
specific measures. We agree with commenters that some consumers may
associate higher cost with better quality, and we will continue to
explore options to improve the manner in which data is presented on
Hospital Compare to enable consumers to make informed decisions about
their healthcare.
Comment: One commenter noted that the Hospital IQR Program does not
currently include appropriate outcome measures for many of these
conditions, nor has CMS proposed inclusion of new outcome measures.
This commenter urged CMS to identify and employ relevant health outcome
measures to provide context for these cost measures, so that the
function of the cost measures is not to simply reduce spending, even
when the spending is appropriate. Some commenters stated that there are
no concurrent outcome measures in the Hospital IQR Program and thus the
measures do not offer meaningful insight on whether or not outcomes are
better in places where more or fewer services are used.
Response: We interpret the commenters' reference to places where
more or fewer services are used to refer to hospital resource use.
While we agree that observation of cost alongside quality (outcome
measures) is an important concept, we believe that resource use
information, even in the absence of a corresponding (concurrent)
quality measure, provides useful and valuable information for consumers
and other stakeholders as they seek to make informed decisions about
facilities involved in the provision of their care. Furthermore, the
clinical episode-based payment measures only include costs from
services/procedures related to the condition, which would include
readmissions that are clinically related to the hospitalization. In
that sense, certain outcomes would be captured in these measures
through higher resource use. However, we appreciate the commenter's
suggestion and will consider it in future measure development.
Comment: One commenter observed that the proposed clinical episode-
based payment measures would help supplement the MSBP measure by
tracking resource use within these particular episodes of care, but
several commenters echoed the MAP's concern that these measures overlap
with the MSPB measure. One commenter expressed concern that these
measures overlap with other efficiency measures. One commenter
requested clarification about whether or not the proposed clinical
episode-based payment measures will be used as part of the MSPB measure
for the Hospital VBP Program in future payment years, stating that it
is important for all stakeholders to be fully aware how cost collection
under these measures may impact future quality scores and payment
adjustments.
Response: We interpret ``other efficiency measures'' to mean the
MSPB measure, and acknowledge that there may be some overlap between
the MSPB measure and these three episode-based payment measures.
However, 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). We believe that the
episode-based measures are of critical importance to improving
efficiency of care. Including episode-based measures alongside the MSPB
measure provides hospitals with actionable feedback that will better
equip them to implement targeted improvements, in comparison to an
overall payment measure alone. Moreover, these episode-based measures
will allow consumers, providers, and payers to make a more fully
informed assessment of value of care. In addition, any proposal to
adopt the clinical episode-based payment measures into the Hospital VBP
Program would be subject to future rulemaking.
Comment: One commenter expressed concern that claims do not
accurately reflect the provider performance across the entire patient
population that includes non-Traditional Medicare patients, while some
commenters specifically recommended including Medicare Advantage (MA)
patients in the measure population since fee-for-service is only a
small portion of the total patient population. To that end, some
commenters encouraged CMS to validate MA data and to supplement claims
data with MA data to assure valid and reliable reports of quality
provided to Medicare beneficiaries.
Response: We interpret the commenter's reference to ``non-
Traditional Medicare patients'' to refer to beneficiaries enrolled in
MA plans. We note that we do not receive claims data for beneficiaries
who are enrolled in the MA plans because Medicare pays these plans a
fixed amount. Therefore, we cannot include or supplement MA claims data
for measure calculation.
Comment: Some commenters did not support the measures because they
are not NQF-endorsed, noting that the MAP also recommended that the
measures be NQF-endorsed prior to being included in the Hospital IQR
Program because the endorsement process identifies needed refinements
or problems with measures which should be considered prior to program
adoption. Some commenters suggested that the measures have full support
of the clinical community prior to being included in the measure set.
Response: We believe the MAP provides valuable insights and we
consider and carefully weigh all of their recommendations. When we
disagree with these recommendations, we take care to explain our
rationale when proposing such measures. We refer readers to section
VIII.A.7.a.(1) of the preamble of this final rule for a discussion of
our rationale for including the Clinical Episode-Based Payment measures
in the Hospital IQR Program measure set. Likewise, we attempt to engage
stakeholders in the measure development process as much in possible,
including by working with them on TEPs and Environmental Working Groups
(EWGs).
Finally, whenever feasible, we adopt measures that are NQF-
endorsed, but note that sometimes there are important areas of clinical
concern for which NQF-endorsed measures do not exist. 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

[[Page 57137]]

measures will be submitted to NQF for endorsement as part of the next
Cost and Resource Use project.
Comment: Some commenters noted that the measures reflect the
actions of a group of healthcare providers, rather than just hospitals.
Other commenters also noted that the measures do not account for
national variation in the mix of services and degree of integration in
health care markets beyond the hospital's control. Some commenters
recommended that inclusion of these measures be delayed in the Hospital
IQR Program until all settings of postacute care have similar measures.
Response: We believe these measures reflect the actions of
hospitals and the care their patients receive postdischarge. Hospitals
providing quality inpatient care, conducting appropriate discharge
planning, and working with providers and suppliers on appropriate
follow-up care will likely perform well, because the Medicare
beneficiaries they serve will have a reduced need for excessive
postdischarge services. The risk adjustment methodology used for these
measures acknowledge the differences in a given hospital's patient case
mix, so that their performance can be compared to a national average.
We recognize that the structure of health care markets and practice
patterns vary geographically, beyond the variation in patient case mix.
However, as mentioned above, we believe that the aforementioned
opportunities for hospitals to exert control over postdischarge
services exist, regardless of the degree of integration of a health
system. In cases where systems are not well-integrated, there may be an
even greater opportunity for redesign of care processes to achieve high
performance on these measures. We are collaborating with our postacute
care quality programs and we will take the commenters' suggestions that
similar measures should be incorporated into those programs under
consideration. However, we do not believe that it would be appropriate
to delay adoption of this measure and the public reporting of this
valuable and actionable payment information until such time as any
similar, postacute care measures are implemented.
Comment: Some commenters did not believe claims data were adequate
to calculate measure scores for these measures. Another commenter
stated that the measure should be based on clinical data rather than
claims data.
Response: Because all measures in the Hospital IQR Program require
clinical data, we interpret the commenter's request that the measure
should be based on clinical data rather than claims data to refer to
the risk adjustment methodology since payment information must come
from a filed claim. We believe that using administrative claims data is
a valid approach to risk adjustment that adequately assesses the
difference in case-mix among hospitals. However, we also are continuing
to explore the use of patient clinical data (core clinical data
elements) derived from EHRs for risk adjustment in future measure
development (80 FR 49698 through 49704).
Comment: Some commenters cited concerns about the risk adjustment
and scoring of these measures. One commenter noted that it is
imperative to assess for risk-adjustment factors to ensure that
facilities are not financially penalized for serving vulnerable
populations and/or worsening care disparities. Another commenter
specifically suggested that the measures be SDS risk-adjusted to
account for the effects of poverty on the use of healthcare services.
Response: Because the Hospital IQR Program is a quality reporting
program and does not score measures for performance, we interpret
commenters' concerns regarding scoring to refer to measure calculation.
In response to concerns regarding risk adjustment and measure
calculation, we note that 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). The risk adjustment model adjusts for age, severity of illness,
and the MS-DRG of the hospitalization that triggers the episode. The
risk adjustment model also includes clinical subtypes that distinguish
relatively homogeneous subpopulations of patients whose health
conditions significantly influence the form of treatment and the
expected postdischarge outcomes and risks.
For each clinical subtype, the risk adjustment model is estimated
separately such that the measure compares observed spending for an
episode of a given clinical subtype only to expected spending among
episodes of that subtype. The Aortic Aneurysm Procedure Clinical
Episode-Based Payment Measure includes two clinical subtypes: (1)
Abdominal Aortic Aneurysm Procedure; and (2) Thoracic Aortic Aneurysm
Procedure. The Spinal Fusion Clinical Episode-Based Payment 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. In addition, postdischarge episode
payment is limited to services that are clinically related to the
reason for the initial hospitalization, which removes sources of
variation in episode spending that are out of the hospital's control.
The specifications for clinical subtypes and grouping rules for
postdischarge services were based on consensus decisions by a team of
clinical experts, which included CMS and non-CMS physicians. For a
complete list of the clinical experts whose input considered, we refer
readers to the report detailing the specifications of the episode-based
payment measures, entitled, ``Measure Specifications: Hospital Clinical
Episode-Based Payment Measures for Aortic Aneurysm Procedure,
Cholecystectomy and Common Duct Exploration, and Spinal Fusion''
available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
In response to the comments about risk-adjustment factors that
account for serving vulnerable populations and/or worsening care
disparities, as stated in section VIII.A.6.a.(1) of the preamble of
this final rule, several measures developed by CMS have been brought to
NQF since the beginning of the SDS trial. CMS, in compliance with NQF's
guidance, has tested SDS factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for SDS factors in our
outcome measures.
Furthermore, ASPE is conducting research to examine the impact of
SDS 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.
Comment: Despite concerns about these measures, some commenters
noted the potential benefit of sharing confidential cost reports to
providers, specifically those interested in bundled payments, so that
these providers can assess the drivers of high-cost payment episodes
and explore interventions. These commenters suggested that CMS provide
these cost reports while the measures undergo NQF review. Some
commenters suggested conducting a ``dry run'' of the measures in which
CMS would provide hospitals with

[[Page 57138]]

confidential reports, soliciting feedback on the usefulness of the
information. Another commenter requested that CMS publish supplementary
data demonstrating cost variations to better inform stakeholders of the
appropriateness of tracking these costs and to evaluate whether the
data show any evidence that higher quality hospital treatment may yield
lower postdischarge payment.
Response: In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49672), we
finalized a dry run for similar clinical episode-based payment
measures, which will be conducted in the summer of 2017 using CY 2016
data. The purpose of this dry run is to allow hospitals to gain
experience with clinical episode-based payment measures through
confidential feedback reports. We believe this dry run will enable
hospitals to gain experience with clinical episode-based payment
measures, including the three payment measures being adopted in this
final rule, and therefore another similar dry run is unnecessary.
We thank commenters for their support of the confidential hospital-
specific feedback reports. We currently provide confidential hospital-
specific feedback reports and supplemental files for the MSPB measure,
and we intend to create similar reports and supplemental files for
these clinical episode-based payment measures. We will coordinate with
measure stewards to try to develop a process for making these reports
available while measures are undergoing NQF review. We appreciate the
commenter's suggestion that we publish supplementary data of cost
variations and will take it into future consideration.
Comment: One commenter encouraged CMS to work collaboratively with
stakeholders to ensure that policies allow hospitals to provide the
best care for patients in the most appropriate setting as determined by
the physician.
Response: We thank the commenter for this suggestion and we will
continue to seek and consider stakeholder input as we improve the
Hospital IQR Program.
(2) 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.\134\ 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.
---------------------------------------------------------------------------

\134\ 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 postdischarge 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-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: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
(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 final rule.
We invited public comment on our proposal to adopt the Aortic
Aneurysm

[[Page 57139]]

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.
Comment: One commenter specifically opposed the proposed inclusion
of the AA Payment measure, noting that the measure is not NQF-endorsed
or supported by the MAP.
Response: We refer readers to our response in the section above in
which we respond to general comments on the clinical episode-based
payment measures.
Comment: One commenter recommended that the measure should be
subdivided into several different measures by: Location of the Aortic
Aneurysm; Type of Surgery that is performed; and Emergent or Non
Emergent Aortic Aneurysm.
Response: We disagree that the measure should be subdivided into
several different measures. The measure already risk adjusts for the
factors listed by the commenter, including through two clinical
subtypes based on the location of the procedure: (1) Abdominal Aortic
Aneurysm Procedure, and (2) Thoracic Aortic Aneurysm Procedure.
Creating separate measures would substantially reduce hospitals' sample
size and limit the number of hospitals included in the measure after an
episode case minimum is imposed.
After consideration of the public comments we received, we are
finalizing the adoption of the Aortic Aneurysm Procedure Clinical
Episode-Based Payment (AA Payment) measure to the Hospital IQR Program
for the FY 2019 payment determination and subsequent years as proposed.
(3) 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.\135\ 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.
---------------------------------------------------------------------------

\135\ Statistics based on Acumen's testing of episode definition
on Medicare FFS population using Medicare Parts A and B claims.
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(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: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
(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 final rule below.
We invited 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.
Comment: One commenter recommended that CMS modify the Chole and
CDE Payment measure to only include Cholecystectomy procedures without
CDE because of the low volume of these procedures in hospitals. The
commenter cautioned that inclusion of CDE will diminish the measure's
reliability because hospitals will be accountable for payments on
procedures they rarely perform.
Response: We thank the commenter, but believe it is important to
incentivize cost efficient care for cholecystectomies whether performed
with or without CDE. Reliability calculations on the Chole and CDE
Payment measure show

[[Page 57140]]

that a majority of hospitals have at or above moderate reliability
(above 0.4) when using a 30-episode case minimum.
We recognize that reliability may be limited for hospitals that
perform a small number of procedures; however, we select appropriate
case minimums for reporting before these measures are publicly reported
on Hospital Compare.
After consideration of the public comment we received, we are
finalizing the adoption of the Cholecystectomy and Common Duct
Exploration Clinical Episode-Based Payment (Chole and CDE Payment)
measure to the Hospital IQR Program for the FY 2019 payment
determination and subsequent years as proposed.
(4) 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.\136\ 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.
---------------------------------------------------------------------------

\136\ 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 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 through
24571). Based on public comments 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: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
(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 final rule below.
We invited 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.
Comment: Several commenters supported the proposed inclusion of the
SFusion Payment measure, noting the measure aligns with the NQS and can
help incentivize improved care coordination between hospitals and
postacute providers since the cost for these episodes is largely driven
by variation in postacute care utilization. One commenter stated that
inclusion of such a measure will provide CMS and providers with the
information necessary to narrow the growing variation in payment rates
associated with spinal fusion procedures, and bring quality to the
forefront in this important field. This commenter also

[[Page 57141]]

noted that studies conducted on the utility of ACTIFUSE (a bone void
filler) indicate that surgical adjunct technologies exist that can help
facilitate cost effectiveness while preserving positive patient
outcomes. Another commenter noted that the updated version makes the
lumbar fusion cohort more homogeneous.
Response: We thank the commenters for their support.
Comment: One commenter recommended that CMS only include subtypes
1, 2 and 3 in the proposed Spinal Fusion Clinical Episode-Based Payment
Measure, noting that measuring subtypes 4 and 5 (posterior/posterior-
lateral approach fusion--2 or 3 levels and combined fusions,
respectively) would compromise validity because those subtypes include
a wide breadth of procedures and heterogeneous patient population that
would make comparisons potentially unreliable.
Response: We thank the commenter for the suggestion on the SFusion
Payment measure. We believe that the Posterior/Posterior-lateral
Approach Fusion--2 or 3 Levels and Combined Fusions subtypes do not
include a wide breadth of procedures or heterogeneous populations. To
create homogenous cohorts of patients for which we can reasonably
compare resource use, the subtypes focus on patients hospitalized for
fusions of the lumbar spine and elective cases of degenerative disease
and do not include procedures that might indicate treatment for other
clinical conditions such as trauma, congenital, neoplastic, or
infectious processes. In addition, the measure uses risk adjustment to
account for various levels of clinical complexity in the patient
population that are beyond the influence of the attributed provider.
The risk adjustment model aligns 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).
In response to concerns about reliability, testing on the SFusion
Payment measure shows that a majority of hospitals have at or above
moderate reliability (above 0.4) when using a 20-episode case minimum.
Comment: One commenter expressed concern that CMS has released the
grouping rules based on ICD-9 codes whereas implementation will be
evaluating claims with ICD-10 codes for specific items included in the
Spinal Fusion Grouping Rules.
Response: We thank the commenter for its concern regarding the ICD-
10 transition. We plan to update the measure for ICD-10-CM/PCS
diagnosis and procedure codes prior to implementation of the measures.
Comment: A few commenters specifically did not support the proposal
to include the SFusion Payment measure. One commenter stated that the
measure does not account for the patient's diagnosis and does not
appear to account for other important patient complexity variables such
as SDS factors, obesity, tobacco use, and population health variables.
This commenter noted that these factors are outside of the provider's
control, add to the complexity of the case, and clearly impact patient
outcomes and therefore should be accounted for within the risk
adjustment of the measure.
Response: We thank the commenters for their input and note that the
measure does account for the patient's procedure and diagnosis to limit
the cohort of patients to those with high frequency elective cases of
degenerative disease. To create homogenous patient cohorts, MS-DRGs
indicating spinal fusions performed to treat other clinical conditions
such as malignancy or infection were not included in the list of
episode triggers. Of note, risk adjustment methodology also
incorporates diagnostic information and is discussed further below.
Furthermore, in developing the episodes, we separated more complex
cases (multi-level fusions) from less complex cases (single-level
fusions) into clinical subtypes. We also separated anterior, posterior,
and combined approach fusions and limited our number of levels involved
in fusion. These characteristics were related to the indication for the
fusion, and were a reasonable way to infer more diagnostic information.
We removed procedures and DRGs that were mostly used in trauma,
congenital, neoplastic, or infectious cases, and concentrated on cases
that mostly occurred with degenerative disease.
In response to the comments about risk adjusting for SDS factors,
we refer readers to section VIII.A.6.a.(1) in the preamble of this
final rule where we respond to similar comments.
In regard to the concern about not including population health
variables, these measures rely on Medicare administrative data and
therefore are limited to variables found in this data source. Codes for
obesity and tobacco are also not included in the risk adjustment model,
as the clinical experts who specified the measure determined that these
codes were unlikely to be uniformly coded on Medicare claims. We
believe that the other risk adjustment variables adequately adjust for
patient case mix by accounting for Hierarchical Condition Categories
(HCCs), clinical case mix categories, and prior inpatient and ICU
length of stay. The measure's risk adjustment methodology does account
for a range of diagnoses reflecting comorbidities that could impact
spinal fusion episode spending, including diabetes and other organ
system disease. We refer readers to the measure's risk adjustment
methodology available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
Comment: One commenter noted that stakeholders have no information
on the conditions and services being grouped into the episode and
counted in the overall cost of the episode. To be transparent, the
commenter suggested that CMS should specify a list of services it is
proposing for inclusion in each grouping option for the SFusion Payment
measure.
Response: We refer readers to the detailed specifications for all
of the clinical episode-based payment measures, which we referred
readers to in the proposed rule (81 FR 25189), in the Measure
Specifications: Hospital Clinical Episode-Based Payment Measures for
Aortic Aneurysm Procedure, Cholecystectomy and Common Duct Exploration,
and Spinal Fusion file posted on the QualityNet Web page at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447. These specifications provide details on the conditions and
services being grouped into the episode and counted in the overall cost
of the episode for the SFusion Payment measure.
Comment: Another commenter noted that the North American Spine
Society (NASS) expressed concern about the measure. This commenter
encouraged CMS to work with applicable parties to select and develop a
more accurate and useful measure.
Response: The SFusion Payment measure was developed in
collaboration with a team of clinicians with a range of expertise
including neurosurgery. For a complete list of the clinical experts
whose input considered for these clinical episode-based payment
measures, we refer readers to the report available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447. In addition, all three measures were reviewed by the MAP and
will be submitted to NQF for endorsement as part of the next Cost and
Resource Use project. We will continue to engage with stakeholders in

[[Page 57142]]

soliciting input on ways to refine these measures.
After consideration of the public comments we received, we are
finalizing the adoption of the Spinal Fusion Clinical Episode-Based
Payment (SFusion Payment) measure to the Hospital IQR Program for the
FY 2019 payment determination and subsequent years as proposed.
(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: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
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 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.\137\
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\137\ 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: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228775614447.
We did not receive any comments regarding the exclusion criteria
for the three clinical episode-based payment measures. We refer readers
to our discussions above, where we finalize the three clinical episode-
based payment measures as proposed.
b. 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.\138\
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.\139\
---------------------------------------------------------------------------

\138\ Agency for Healthcare Research and Quality (AHRQ).
Healthcare Cost and Utilization Project (HCUP) http://hcupnet.ahrq.gov/.
\139\ 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.
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Some of the costs for pneumonia can be attributed to high acute
care utilization for postdischarge 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.^{140 141}
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\140\ 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.
\141\ 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.
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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.\142\ However, during the postdischarge period, patients are not
only at risk of requiring readmission. ED visits represent a
significant proportion of postdischarge 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.^{143 144}
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\142\ 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.
\143\ 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).
\144\ 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.

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[[Page 57143]]

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,\145\ and significant
variation has been demonstrated in the use of observation services.
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\145\ 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.
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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 postdischarge
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 postdischarge period may therefore have low
readmission rates that do not more fully reflect the quality of
care.\146\
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\146\ Carlson J. Readmissions are down, but observational-status
patients are up and that could skew Medicare numbers. Modern
Healthcare. 2013.
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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 postdischarge: hospital
readmissions, observation stays, and ED visits. In the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25190 through 25192), we proposed 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 postdischarge 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 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 postdischarge acute care
utilization that have been endorsed by NQF or other consensus
organizations, we were unable to identify any NQF-endorsed (or other
consensus organization endorsed) measures that assess the full range of
postdischarge 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 (MUC ID 15-391) 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 MAP Hospital Workgroup. The measure was
conditionally supported pending the examination of 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/).\147\ We refer readers to section
VIII.A.6.a.(1) of the preamble of this final 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.
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\147\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
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(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

[[Page 57144]]

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 TEP 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 final rule.
The measure counts all use of acute care occurring in the 30-day
postdischarge 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 postdischarge period.
(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 newly adopted refined cohort for the PN Payment measure discussed
in section VIII.A.6.a. of the preamble of this final 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 postdischarge 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 postacute 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 measure (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.

[[Page 57145]]

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
postdischarge 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 invited public comment on our proposal to adopt the PN Excess
Days measure for the FY 2019 payment determination and subsequent years
as described above.
Comment: Several commenters supported the proposed adoption of the
PN Excess Days measure. Commenters noted adoption of this measure
demonstrates a movement away from the use of clinical process measures
and toward outcome measures in quality measurement. Commenters believed
that the proposed measure addresses the unintended consequence of
shifting patients outside of inpatient care. In addition, one commenter
indicated that this measure aligns with the NQS and addresses a
condition that is a significant driver of cost for the Medicare
program. Lastly, one commenter noted that variation in measure
performance resulting in excess days in acute care for pneumonia
patients will likely be driven by exacerbation of pneumonia leading to
more critical, and potentially preventable conditions, such as sepsis.
Response: We thank the commenters for their support.
Comment: Several commenters did not support the proposed inclusion
of the PN Excess Days measure, stating that only measures that have
been endorsed by the NQF should be considered for inclusion in the
Hospital IQR Program measure set. Commenters encouraged CMS to work
collaboratively with stakeholders to ensure that policies allow
hospitals to provide the best care for patients in the most appropriate
setting as determined by the physician.
Response: As we noted above, 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. While we considered other existing
measures related to care transitions and postdischarge acute care
utilization that have been endorsed by NQF or other consensus
organizations, we were unable to identify any NQF-endorsed (or other
consensus organization endorsed) measures that assess the full range of
postdischarge 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.
Furthermore, the PN Excess Days measure's cohort was reviewed by
clinical experts and a TEP and was subject to separate public input
prior to being proposed for the Hospital IQR Program. This measure was
also 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 MAP Hospital Workgroup. The measure was
conditionally supported pending the examination of 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/).\148\ We will continue to work
collaboratively with stakeholders in soliciting input on ways to refine
this measure in the future.
---------------------------------------------------------------------------

\148\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

Comment: Several commenters did not support the inclusion of the
proposed measure, noting that the risk-adjustment mechanism does not
take SDS factors into consideration.
Response: We refer readers to section VIII.A.6.a.(1) of the
preamble of this final rule where we have previously responded to
similar comments.
Comment: Some commenters did not support the proposal to adopt the
PN Excess Days measure because they believe that the measure addresses
outcomes already captured by the current readmission and MSPB measures.
One commenter requested more information about how the impact and
performance differs from the current readmission measure.
Response: Although the MSPB measure may include similar events, it

[[Page 57146]]

specifically examines resource use through Medicare payment for all
Medicare beneficiaries, whereas the PN Excess Days measure examines
excess days in acute care following discharge after hospitalization for
pneumonia. The PN Excess Days measure is intended to provide patients
and providers a perspective on variation among hospitals in the number
of days spent in acute care during the 30-day postdischarge period as
compared to what would be expected at an average hospital, in contrast
to the MSPB measure which assesses total spending per beneficiary. The
MSPB measure also includes spending in non-acute settings such as SNFs,
which are not part of the Excess Days outcome. Thus, the Excess Days
measure captures a range of specific postdischarge outcomes that are
important to patients, such as readmissions, observation stays, and ED
visits. 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.
In response to the commenter's request about how performance for
the PN Excess Days measure differs from the current readmission
measure, we interpret the commenter to be referring to the READM-30-PN
measure. That measure and the PN Excess Days measure assess different
outcomes. Although both measures count readmission, the READM-30-PN
measure only informs a hospital if a patient had a readmission, and
does not include all postdischarge outcomes that matter to patients,
such as having to return to the ED or spending time in the hospital
under observation, like the PN Excess Days measure does. The PN Excess
Days measure provides patients a more comprehensive and patient-
centered perspective on the 30-day postdischarge experience because it
includes not only readmissions, but also ED visits and observation
stays and captures the numbers of days in these settings.
Comment: One commenter believed that the proposed PN Excess Days
measure would not add additional value and does not address the effects
of the ``2-midnight'' policy.
Response: We understand that commenters have concerns about the
interaction between Medicare payment policy regarding admissions
spanning two midnights and the PN Excess Days measure. The ``2-
midnight'' policy provides guidance as to when an inpatient admission
is appropriate for payment under Medicare Part A, but does not help
beneficiaries to select providers or to understand postdischarge acute
care use. The proposed PN Excess Days measure aims to capture all
postdischarge acute care days, regardless of whether they are
considered outpatient or inpatient. Therefore, the ``2-midnight''
policy or any changes to such policy will not influence the outcome of
these measures, as all postdischarge days in acute care are captured
whether they are billed as outpatient or inpatient days. 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).
Comment: Several commenters expressed concern that hospitals might
be penalized twice for the same readmission, once through the existing
readmission measure in Hospital Readmissions Reduction Program and
again through the ``excess days'' measure in Hospital VBP Program (if
and when the ``excess days'' measures are incorporated into the
Hospital VBP Program).
Response: The Hospital VBP Program cannot adopt this measure, as
section 1886 (o)(2)(A) of the Act prohibits readmission measures under
the Hospital VBP Program. With respect to commenters' expressed concern
that hospitals might be penalized twice for the same readmission, since
readmission measures cannot be adopted into the Hospital VBP Program,
hospitals cannot be penalized through the existing readmission measure
in Hospital Readmissions Reduction Program and through the ``excess
days'' measure for the same condition in Hospital VBP Program.
For the Hospital IQR Program, the Excess Days measures are
calculated using Medicare administrative claims data, and regardless of
hospitals' performance on the measures, hospitals would receive credit
for submitting the information under the Hospital IQR Program.
Therefore, we do not believe hospitals would be penalized twice because
they are not being asked to submit additional information and payment
will not be adjusted based on performance of this measure. The PN
Excess Days measure is not being proposed for use in a pay-for-
performance program (such as the Hospital VBP Program), only for use in
the pay-for-reporting Hospital IQR Program.
Comment: Some commenters had reservations about the
interpretability of the measure score and providers' ability to take
meaningful actions that would have an impact on patient outcomes.
Response: We disagree that providers do not have the ability to
take meaningful actions that would have an impact on patient outcomes
as a result of adopting the PN Excess Days measure. The measure
spotlights 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. We believe the information provided to hospitals
through this measure will help inpatient and outpatient providers
better understand the trajectory of care for patients that have been
discharged from their facility. Specifically, hospitals will be able to
assess whether patients discharged from their facility have
readmissions, observation stays, and/or ED visits during the first 30
days after discharge from the hospital. Because the measure provides
more granular information regarding patient discharge outcomes, this
will assist hospitals in developing targeted quality improvement
activities aimed at improving transitions of care. We believe that the
measure will reduce readmissions, observation stays, and/or ED visits
by encouraging hospitals to further invest in interventions to improve
hospital care by better assessing the readiness of patients for
discharge and facilitating quality transitions to outpatient status.
Comment: Some commenters suggested that CMS provide hospital-
specific, confidential reports to hospitals to allow them to undertake
quality improvement efforts, without including the measure in the
Hospital

[[Page 57147]]

IQR Program or publicly reporting measure data.
Response: We disagree that the measure should not be included in
the program or publicly reported as this is an important aspect of
quality that addresses the NQS and CMS Quality Strategy priority to
promote effective communication and coordination of care that should be
measured. Hospitals will have the opportunity to review their data via
their hospital-specific reports (HSRs) during the preview period before
public reporting of this measure.
Comment: Several commenters did not support the proposal to adopt
the PN Excess Days measure due to a lack of clear or consistent
evidence to suggest hospitals are using observation stays and ED visits
to avoid being penalized for readmissions. Commenters also noted that
recent research from ASPE suggests that hospitals are not using
observation status as a way to avoid triggering a readmission or to
decrease readmission rates.
Response: We understand the commenters' concern regarding the
uncertainty of hospitals' use of observation stays in place of
readmissions. The development of this measure was not primarily
motivated by a concern that hospitals are using ED visits or
observation stays to avoid readmission, but rather to provide a more
comprehensive perspective on postdischarge events that are important to
patients.
Comment: One commenter noted that the PN Excess Days measure does
not account for situations when it may be appropriate for a patient to
return to the hospital for care. The commenter stated that there are
factors beyond the hospitals' control that may contribute to higher
excess days. A few commenters did not support the adoption of the
proposed PN Excess Days measure because the measure combines
readmissions, observation stays, and ED visits into a single number of
days, but each of these episodes reflect widely different approaches to
patient-centered care and cannot be interpreted from a single number.
One commenter expressed concern with the decision to equate the costs
and intensity in observation and ED care with that of inpatient care
when they are treated differently for payment purposes.
Response: We do not dismiss the importance of hospital-level care
and support hospitals using the level of care most appropriate for each
particular patient's condition. We agree with the commenter that some
returns to the acute care setting are necessary. The goal is not to
avoid all postdischarge acute care service utilization, but to identify
excess use of acute care postdischarge. Acute care utilization after
discharge (that is, return to the ED, observation stay, and
readmission), for any reason, is disruptive to patients and caregivers,
costly to the healthcare system, and puts patients at additional risk
of hospital-acquired infections and complications. Although some
factors are outside hospitals' control, when appropriate care
transition processes are in place (for example, a patient is discharged
to a suitable location, communication occurs between clinicians,
medications are correctly reconciled, timely follow-up is arranged),
fewer patients return to an acute care setting, whether for an ED
visit, observation stay, or hospital readmission during the 30 days
postdischarge. Numerous studies have found an association between
quality of inpatient or transitional care and early (typically 30-day)
readmission rates and ED visits for a wide range of conditions
including PN.^{149 150 151 152 153 154}
---------------------------------------------------------------------------

\149\ Dean NC, Bateman KA, Donnelly SM, Silver MP, Snow GL, Hale
D. Improved clinical outcomes with utilization of a community-
acquired pneumonia guideline. Chest. 2006;130(3):794-799.
\150\ Coleman EA, Parry C, Chalmers S, et al. 2006. The care
transitions intervention: results of a randomized controlled trial.
Arch Intern Med 166:1822-1828.
\151\ Coleman EA, Smith JD, Frank JC, Min SJ, Parry C, Kramer
AM. Preparing patients and caregivers to participate in care
delivered across settings: the Care Transitions Intervention. J Am
Geriatr Soc 2004;52(11):1817-25.
\152\ Mistiaen P, Francke AL, Poot E. Interventions aimed at
reducing problems in adult patients discharged from hospital to
home: a systematic metareview. BMC Health Serv Res 2007;7:47.
\153\ Leppin AL, Gionfriddo MR, Kessler M, et al. Preventing 30-
day hospital readmissions: a systematic review and meta-analysis of
randomized trials. JAMA Internal Med. 2014; 174(7):1095-107.
\154\ Hansen LO, Young RS, Hinami K, et al. Interventions to
reduce 30-day rehospitalization: a systematic review. 2011;
155(8):520-8.
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In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49688), similar
concerns were raised for two related measures, AMI and HF Excess Days,
around combining readmissions, observations stays, and ED visits into a
single number. We believe from a patient perspective, it is the count
of total days that is most meaningful and representative of the
disruption, which is why we combine day counts for each type of event
and do not separately report rates of each type of event. This day
count is also valuable for hospitals, because a hospital with a high
number of ED visits may still be able to achieve a low number of total
days in acute care by actively coordinating care from the ED and
avoiding rehospitalizations. The measure combines these three visit
types based on the concept that the rate of each type of event is not
as relevant to patients as the total days that they spend in acute care
settings. Therefore, the PN Excess Days measure provides a broader
perspective on postdischarge events than the current READM-30-PN
measure and is intended to incentivize improvements in care transitions
from the hospital so that patients are less likely to return to the
acute setting.
Regarding the commenter's concern with the decision to equate the
costs and intensity in observation and ED care with that of inpatient
care, we agree that all acute care utilization is not equal in its
disruption, cost, or risk to patients. In the PN Excess Days measure,
the weight of events (such as observation or ED care) is determined by
the intensity of care delivered to patients. Prolonged acute care is
more costly and worse from a patient perspective than a brief ED visit.
That is why we elected to report the PN Excess Days measure as a count
of days: Events lasting longer with more cost and disruption (such as
readmissions), therefore, naturally weigh more than brief events (such
as ED visits) in the overall day count.
Comment: One commenter specifically disagreed with counting ED
visits as half days, because the majority of ED visits last much less
time than that.
Response: We appreciate the commenter's concern on considering ED
treat-and-release visits as half a day. The average length of stay for
a treat-and-release patient from the ED is approximately four
hours.^{155 156} Furthermore, based on this information, we
received feedback from the TEP advising that we consider a treat-and-
release ED visit to be equivalent to one half day. A shorter length of
stay may not capture the full burden on the patient to return to the
hospital (for example, travel time and lost work time).
Comment: Some commenters expressed concern that ``excess days'' do
not represent an actionable or meaningful measure of quality for the
provider because more complex patients with comorbidities may require
more days in an acute care setting.
---------------------------------------------------------------------------

\155\ Horwitz LI, Green J, Bradley EH. United States emergency
department performance on wait time and length of visit. Annals of
emergency medicine. 2010;55(2):133-141.
\156\ Karaca Z, Wong HS, Mutter RL. Duration of patients' visits
to the hospital emergency department. BMC Emergency Medicine.
2012;12(1):1-14.
---------------------------------------------------------------------------

Response: We disagree with the commenters' concern that ``excess
days'' do not represent an actionable or meaningful measure of quality
for the

[[Page 57148]]

provider. We have developed the PN Excess Days measure to try to
provide important patient-centered information to providers. The
measure supports existing hospital incentives to further invest in
interventions and tools to improve hospital care, better respond to
individual patient preferences, better assess patient readiness for
discharge, and facilitate transitions to outpatient status. Such
interventions and tools will reduce the likelihood of patients having
any return to the hospital and make it more likely that patients who do
return have less severe illnesses which may require fewer days of care.
Comment: Some commenters opposed the addition of the PN Excess Days
measure, noting that the measure includes a cohort of patients with
multiple risk levels and is not a clear indicator of quality.
Response: We understand that hospitals have complex patients with
varying comorbidities. Although the cohort may contain patients with
different disease severity, and therefore, different levels of risk,
the measure accounts for this range of severity and risk because it is
risk-adjusted for 41 factors that are clinically relevant and have
strong relationships with the outcome of acute care utilization.
Furthermore, the measure is intended to help patients and providers
understand variations among hospitals in the days that are spent by
patients in acute care settings following a discharge for pneumonia.
The cohort for the PN Excess Days measure is aligned with the cohort
for the READ-30-PN measure. For more details about the risk-adjustment
methodology, we refer readers to the ``Excess Days in Acute Care after
Hospitalization for Pneumonia Version 1.0'' methodology report 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.
The measure's cohort was reviewed by clinical experts and a TEP and
was subject to a separate period for public input that was publicly
posted on CMS' Public Comment Web site for measures under development,
prior to being proposed for the Hospital IQR Program. During measure
development, public comment is sought via several avenues of
communication. These include: (1) Posting the call for public comment
to the CMS Measures Management System (MMS) Web site (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html); (2) sending emails to
stakeholders, including via CMS listservs; and (3) conducting outreach
through the Electronic Clinical Quality Improvement (eCQI) Resource
Center. These stakeholders agreed with harmonizing the cohort and risk-
adjustment model of the PN Excess Days measure with those of the READM-
30-PN measure. As a result, we believe this is a clinically coherent
cohort. As it is our practice, we will continue to monitor how hospital
performance may be influenced by hospital type.
Comment: Commenters expressed concern that no link to measure
specifications was provided in the proposed rule.
Response: As noted in the FY 2017 IPPS/LTCH PPS proposed rule (81
FR 25192), for measure specifications, we refer readers to the ``Excess
Days in Acute Care after Hospitalization for Pneumonia Version 1.0''
methodology report 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.
After consideration of the public comments we received, we are
finalizing the adoption of Excess Days in Acute Care after
Hospitalization for Pneumonia (PN Excess Days) measure for the FY 2019
payment determination and subsequent years as proposed.
c. Summary of Previously Adopted and Newly Finalized Hospital IQR
Program Measures for the FY 2019 Payment Determination and Subsequent
Years
The table below outlines the Hospital IQR Program measure set for
the FY 2019 payment determination and subsequent years, and includes
both previously adopted measures and measures newly finalized in this
final rule. Measures finalized for removal in section VIII.A.3.b. of
the preamble of this final rule are not included in this chart.

Hospital IQR Program Measure Set for the FY 2019 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) 0139
Central Line-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.
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............................... 0469
Sepsis........................................ Severe Sepsis and Septic Shock: Management 0500
Bundle (Composite Measure).
VTE-6......................................... Incidence of Potentially Preventable Venous (\+\)
Thromboembolism.
----------------------------------------------------------------------------------------------------------------

[[Page 57149]]

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 0351
Serious 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.
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 N/A
Measure.
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............................... 0469
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 0438
Day Two.
STK-06........................................ Discharged on Statin Medication................. 0439
STK-08........................................ Stroke Education................................ (\+\)
STK-10........................................ Assessed for Rehabilitation..................... 0441
VTE-1......................................... Venous Thromboembolism Prophylaxis.............. 0371

[[Page 57150]]

VTE-2......................................... Intensive Care Unit Venous Thromboembolism 0372
Prophylaxis.
----------------------------------------------------------------------------------------------------------------
Patient Survey
----------------------------------------------------------------------------------------------------------------
HCAHPS........................................ HCAHPS + 3-Item Care Transition Measure 0166, 0228
(CTM[dash]3).
----------------------------------------------------------------------------------------------------------------
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 finalized 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. 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).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25194 through
25196), we proposed 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 were made in conjunction with our proposals
discussed in section VIII.A.3.b.(3) of the preamble of this final rule
to remove 13 eCQMs from the Hospital IQR Program and proposals
discussed in sections VIII.A.10.d. and VIII.E.2.b. of the preamble of
this final 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 on a quarterly basis, regardless
of whether data also are submitted electronically, continues to apply.
a. Requirement That Hospitals Report on an Increased Number of 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 the
proposed rule, we proposed to require reporting of a full calendar year
of data for all available eCQMs in the Hospital IQR Program measure set
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
discussed in section VIII.A.3.b.(3) of the preamble of this final rule
to remove 13 eCQMs from the Hospital IQR Program and proposals
discussed in sections VIII.A.10.d. and VIII.E.2.b. of the preamble of
this final 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 final 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.
In the proposed rule, we stated that if our proposals to remove 13
eCQMs in section VIII.A.3.b.(3) of the preamble of the proposed rule
were 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 8 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 8 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 consistent with our goals to move towards
eCQM reporting and to align with the Medicare and

[[Page 57151]]

Medicaid EHR Incentive Programs. We believe that the 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 3 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.
We invited public comment on our proposal to require hospitals to
report on all eCQMs in the Hospital IQR Program measure set beginning
with the CY 2017 reporting period/FY 2019 payment determination.
Comment: A few commenters supported the proposed requirement that
hospitals report on all eCQMs in the Hospital IQR Program measure set
because: (1) The majority of hospitals have attested to having
implemented these eCQMs in the Meaningful Use program and many have now
had five years of experience; (2) almost all performance related issues
in these measures stem from difficulty aligning data sources, which in
turn causes clinical workflow and data mapping as the main problems,
but fixing these almost always improves the performance scores; (3) CMS
will not use these data for payment adjustments and public reporting,
which should give eligible hospitals and CAHs some level of comfort;
(4) eligible hospitals and their vendors are unlikely to submit any
eCQM data electronically on a volunteer basis; (5) CMS needs to have
these data for the type of analysis necessary for improvement; and (6)
the proposal aligns with the EHR Incentive Program and continues to tie
hospital payment to submission of quality data.
Response: We thank the commenters for their support of our original
proposal.
Comment: Many commenters supported the concept of electronic
reporting but did not support the proposed requirement that hospitals
report on all eCQMs in the Hospital IQR Program measure set beginning
with the CY 2017 reporting period because they believed the significant
increase in number of required eCQMs with such an aggressive timeline
would pose an undue burden on hospitals. Commenters raised specific
issues such as difficulty making required changes to health IT systems,
documentation or utilization of EHRs in much more granular detail than
is often necessary for clinical care, and workflow process changes in
the short period of time between the publication of this final rule and
the beginning of the CY 2017 reporting period. Commenters expressed
concern about the significant expenditure of resources that additional
required eCQM reporting imposes on hospitals in terms of both staff
time and finances. Several commenters did not support the proposed
requirement that hospitals report on all eCQMs in the Hospital IQR
Program because of concerns about general feasibility, accuracy,
validity, and reliability of electronically-submitted measures.
Commenters also expressed concern that the rush to implement the
changes necessary to satisfy reporting requirements for an additional
nine eCQMs by CY 2017 would result in errors and unreliable, inaccurate
data submissions. One commenter noted that the dramatic increase in
number of required eCQMs over such a short period of time could cause
delays in coding the files and therefore, cause delays in submitting
the eCQMs by the established deadline. In addition, the proposed
timeline fails to allow sufficient time if problems arise with the
Quality Reporting Document Architecture Category I (QRDA I) files and/
or pre-submission validation efforts. The commenter requested that CMS
consider moving the deadline to a more feasible date such as March 31,
2018 or later. Another commenter expressed concern that hospitals
currently are struggling with the degree of technical difficulty
involved in extracting the measures from their EHRs and noted that
hospitals have had limited experience with eCQM submission (the first
required transmission of four measures is not until the third or fourth
quarter of CY 2016). The commenter urged CMS to reconsider expansion of
this requirement until a review of the CY 2016 transmission results has
been completed and hospitals have received feedback.
Several commenters suggested that CMS consider amending the
proposal to require an addition of 2 to 4 eCQMs required for a total of
6 to 8, for the CY 2017 reporting period. One commenter recommended
that CMS reduce the proposed requirement to report on 8 eCQMs. Other
commenters requested that CMS retain the current requirement of 4 eCQMs
until hospitals have successfully operationalized reporting complete
and accurate data on existing required eCQMs before adding new
measures.
Response: We appreciate commenters sharing their concerns about the
challenges associated with eCQM reporting, including the significant
expenditure of resources required to make necessary changes to health
IT systems, documentation or utilization of EHRs, and workflow process
changes and acknowledge commenters' feedback that many hospitals may
not be ready to successfully report on all of the available eCQMs
beginning with the CY 2017 reporting period/FY 2019 payment
determination. In response to commenter concerns that the proposed
timeline fails to allow sufficient time if problems arise with the QRDA
I files and/or pre-submission validation efforts, that we should push
back the deadline, and that hospitals have had limited experience with
eCQM submission, we disagree. 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 3
years of reporting as part of a pilot).
More specifically, previously we have requested electronic QRDA I
submission. As described in the FY 2014 IPPS/LTCH PPS final rule (78 FR
50905), electronic reporting pilots for the EHR Incentive Program from
2012 and 2013 included electronic reporting using the QRDA I file
format. Further, in that same rule, we encouraged the use of QRDA I
files since we finalized a proposal that would allow hospitals to begin
voluntarily reporting eCQMs (78 FR 50817 through 50818). Therefore, we
believe that hospitals have had adequate time to understand and correct
any processing issues that may arise during data submission and we
believe that the CY 2017 reporting period/FY 2019 payment determination
is the appropriate time to require additional eCQM reporting. Delaying
the implementation of electronic reporting would hinder our efforts to
validate, and thereby improve the reliability and validity of
electronic data.
We believe that increasing the requirements for hospitals to report
measures electronically is consistent with our goal to make progress
towards eventual reporting on all eCQMs in the Hospital IQR Program,
but we also appreciate commenters' feedback to continue to do so in a
stepwise manner. We believe that retaining the reporting requirements
previously established for the CY 2016 reporting period/FY 2018 payment
determination (that is, require reporting on 4 eCQMs) would not help in
this improvement approach.
We believe that increasing the number of required eCQMs to be
reported from 4, as currently required, but requiring a lesser number
of eCQMs than originally proposed (that is, all available eCQMs)

[[Page 57152]]

would continue to allow hospitals flexibility and choice in reporting
eCQMs, while still furthering our goal of moving towards full
implementation of reporting on all eCQMs in a stepwise manner while
being responsive to hospitals' concerns about timing, readiness, and
burden associated with the increased number of measures required to be
reported. However, we note that it is still our intent to require
reporting on all eCQMs in the Hospital IQR Program in the near future.
We believe that reducing the required number of eCQMs from all, as
proposed, to 8 for the CY 2017 and CY 2018 reporting periods balances
hospitals' request to have more time to improve and refine their eCQM
reporting capabilities, including to address challenges such as data
mapping issues, while still furthering CMS' goals to expand electronic
data reporting and validation.
In determining the number 8, we considered that reporting of 8
eCQMs is about midway between the current required reporting of 4 eCQMs
and the proposed required reporting of all 15 eCQMs. We note that
hospitals have had several years to report data electronically for the
Medicare and Medicaid EHR Incentive Programs and the Hospital IQR
Program (3 prior years of pilot reporting and 3 prior years of
voluntary reporting). In addition, because 95 percent of hospitals
currently attest to successful eCQM reporting under the EHR Incentive
Program, we believe that the majority of hospitals should be ready to
successfully report on more than 4 eCQMs beginning with the CY 2017
reporting period/FY 2019 payment determination. We believe that only
requiring 6 eCQMs (only 2 more than already required) as suggested by
some commenters, does not adequately advance our goal of moving toward
requiring all eCQMs in the near future. We must balance the importance
of keeping pace with evolving electronic standards and the timing cycle
for the regulatory adoption of standards when adopting policies for the
Hospital IQR Program.
As described in section VIII.A.11.b.(3) of the preamble of this
final rule, we intend to address concerns about the reliability of
electronic data through validation. In order to be able to effectively
validate eCQM data, we need to continuously assess more data. Moreover,
we believe that it is appropriate to require reporting and validation
of eCQMs given that measures available now and those being developed
for the future are increasingly based on electronic standards (80 FR
49696). Lastly, requiring 8 eCQMs promotes alignment between the
Hospital IQR Program measure set and the Medicare and Medicaid EHR
Incentive Programs.
Therefore, after consideration of the public comments we received,
we are finalizing a modified version of our proposal. Instead of
requiring hospitals to report on all eCQMs in the Hospital IQR Program
measure set beginning with the CY 2017 reporting period/FY 2019 payment
determination, we are finalizing a policy to require submission of 8
self-selected eCQMs out of the available eCQMs in the Hospital IQR
Program for the CY 2017 reporting period/FY 2019 payment determination
and CY 2018 reporting period/FY 2020 payment determination. In other
words, hospitals would submit a full calendar year (that is, 4
quarters) of data by an annual submission deadline for 8 of the
available eCQMs whether reporting only for the Hospital IQR Program or
if reporting for both the Hospital IQR Program and the Medicare and
Medicaid EHR Incentive Programs for both the FY 2019 and 2020 payment
determinations. We intend to determine requirements for beyond the FY
2020 payment determination in future rulemaking.
Although we are not finalizing our original proposal to require
reporting on all eCQMs, we encourage hospitals to continue refining
their electronic reporting implementation activities to successfully
achieve electronic data capture and reporting despite mapping and
integration issues or to work with their vendors to do so. In addition,
we encourage early testing and the use of presubmission testing tools
to reduce errors and inaccurate data submissions in eCQM reporting. As
time passes, we expect that hospitals will continue to build and refine
their EHR systems and gain more familiarity with reporting eCQM data,
resulting in more accurate data submissions with fewer errors. We
believe that the best way to encourage hospitals to invest in improving
their EHR systems is by requiring reporting of additional eCQMs.
Comment: Some commenters recommended that CMS increase its
education and outreach efforts to help hospitals better prepare for
eCQM reporting. Other commenters recommended that CMS continue outreach
to EHR vendors, hospital quality staff, and other affected stakeholders
to identify and address structural problems prior to increasing the
number of required eCQMs. Further, the commenter requested that CMS
take into consideration the factors associated with difficulties in
eCQM reporting, such as new software, changes to workflows, training
staff, and testing, that may require additional time to vet as a means
of ensuring hospital readiness.
Response: As we move forward with advancing electronic submission
of quality measures and eCQM validation, we will bolster our education
and outreach efforts and ensure that all affected stakeholders have the
opportunity to provide feedback on the implementation of eCQM
reporting. We will continue to share these results in education and
outreach to hospitals. We will also consider the issues associated with
new software, workflow changes, training, et cetera as we continue to
improve our education and outreach efforts for eCQM submission and
validation.
Comment: A few commenters did not support required reporting of any
eCQMs in the Hospital IQR Program measure set because of challenges
associated with eCQM reporting. Some commenters noted that the
infrastructure and reporting functionality for eCQMs are not mature
enough to facilitate mandatory electronic reporting for hospitals.
Other commenters indicated that EHR vendors are not prepared for the
functional and operational demands of an increase in eCQM reporting. A
few commenters urged CMS to reach out to EHR vendors and other
stakeholders to identify underlying structural problems and barriers to
successful reporting on these measures. One commenter stated that the
increase in required eCQMs may jeopardize hospitals' efforts to meet
the current requirements, as vendors are not prepared to handle
providers' requests to augment their eCQMs on an annual basis. Further,
this commenter urged CMS to align vendors and providers requiring
vendors to support all eCQMs in certified EHR products that are
required by CMS. A few commenters expressed concern about the role of
the EHR vendors, not the hospitals, in using the correct version of
specifications.
Another commenter expressed the opinion that although eCQMs are
supposed to reduce provider burden for quality reporting, in reality
they increase provider burden by disrupting workflow and requiring
providers to document detailed information in structured fields which
may not appropriately reflect the clinical situation, while negatively
impacting the quality of the data being reported. The commenter urged
CMS to set standards for EHR vendors to ensure the EHR is structured in
a way that fits in with the clinical work flow to restore focus to
patient-centered care that

[[Page 57153]]

promotes high quality outcomes and lower costs. One commenter also
noted that the eCQM specifications have serious flaws that prove
challenging with current clinical workflows, given how EHRs track
orders and documentation and in some cases the measure specifications
do not accurately measure the quality of care delivered, absent the
development of manual workarounds that divert time and resources from
patient care. These commenters recommended delaying any mandatory
reporting of eCQMs until these concerns are resolved.
Response: We thank the commenters for their recommendations but
note that we believe requiring electronic reporting aligns with CMS and
HHS policy goals to promote quality through performance measurement and
that in the intermediate- to long-term, electronic reporting will both
improve the accuracy of the data and reduce reporting burden for
providers. Our focus is to improve hospital quality. However, we
encourage hospitals that retain vendors to work closely together to
ensure that a contract is in place which supports the hospital's
quality reporting requirements and the annual update of quality
measures. We believe that vendor retention would help to alleviate some
of the concerns associated with the infrastructure and reporting
functionality for eCQMs as expressed by some commenters.
When hospitals work with their vendors to ensure that EHRs are
appropriately structured in a way that fits in with the clinical work
flow to yield reliable data through eCQMs, we believe that eCQMs
promote high quality outcomes and lower costs while ultimately decrease
reporting burden on hospitals.
In response to commenters' concerns that EHR vendors are not
prepared for the functional and operational demands of an increase in
eCQM reporting, we note that hospitals have had several years to report
data electronically for the Medicare and Medicaid EHR Incentive
Programs and the Hospital IQR Program (3 years of pilot reporting and 3
years of voluntary reporting). As stated previously, 95 percent of
hospitals attest to successful electronic clinical reporting under the
Medicare EHR Incentive program. We thank commenters for their
suggestion to reach out to EHR vendors and other stakeholders to
identify underlying structural problems and barriers to successful
reporting on these measures, and we will continue to work with
stakeholders to overcome barriers to successful eCQM reporting.
We appreciate the commenter's concern that an increase in required
eCQMs may jeopardize hospitals' efforts to meet the current
requirements, as vendors are not prepared to handle providers' requests
to augment their eCQMs on an annual basis, but we believe that our
finalized policy requiring a lesser number of eCQMs than originally
proposed (that is, all available eCQMs) provides hospitals with
sufficient time to augment their eCQMs and satisfy electronic reporting
requirements. We will take the commenter's note about the alignment of
vendors and their concern about the role of the EHR vendors, not the
hospitals, in using the correct version of specifications, into account
as we work to improve our education and outreach efforts.
In response to concerns about the burden and difficulty with
technical mapping, we recognize that technical mapping may initially be
burdensome for some hospitals, however, we believe that the efforts to
properly map data elements to structured data fields will be beneficial
in both improved accuracy of the data reported and reduced reporting
burden in the intermediate- to long-term. In addition, we believe that
if hospitals and EHR vendors and health IT developers continue to
refine EHR systems to appropriately structure them commensurate with
the clinical work flow, this will lead to improved accuracy,
reliability, and completeness of the eCQM data, which will promote high
quality outcomes and lower costs while ultimately decreasing reporting
burden on hospitals as compared with chart-abstraction of quality
measure data.
Finally, we refer readers to our modified final policy to only
require 8 eCQMs as discussed above. We believe this policy balances the
burden on hospitals and vendors with our policy goal to move towards
increased electronic reporting. In addition, as we describe in section
VIII.A.11.b.(3) of the preamble of this final rule, we are modifying
our validation process to include electronic clinical quality measures.
The implementation of eCQM data validation will be able to better
reconcile the observed measure specification issues.
Comment: A few commenters expressed concern that requiring
reporting on all available eCQMs would require facilities to provide
data for measures that reflect services they do not provide. Commenters
acknowledged the ``zero denominator'' reporting option, but maintained
that reporting a zero denominator would still place undue burden on
facilities. One commenter stated that the increase in reporting would
force facilities to implement new builds, new workflows, and could
potentially have to do substantial rework with the Clinical Quality
Language (CQL) \157\ implementation for measures not previously
reported. A few commenters asked for clarification about whether they
would be required to submit eCQM data for PC-05 and CAC-3 since they
have not previously submitted data on these measures.
---------------------------------------------------------------------------

\157\ Clinical Quality Language (CQL) is an HL7 draft standard
that is part of the effort to harmonize standards between electronic
clinical quality measures (eCQMs) and clinical decision support
(CDS). CQL provides the ability to express computer logic that is
human readable yet structured enough for processing a query
electronically. More information is available at the eCQI Resource
Center at: https://ecqi.healthit.gov/cql.
---------------------------------------------------------------------------

One commenter requested that CMS increase the minimum case
exemption threshold for eCQMs because it is difficult to implement
eCQMs when there are low benefits to the hospital due to small patient
populations. Another commenter expressed the opinion that reporting on
an increased number of eCQMs has no direct correlation to improvement
in quality because there are instances where a facility would be
required to report on an eCQM that refers to care that is not provided
at that hospital. Some commenters suggested that reporting for all of
the available eCQMs should not be mandatory and that hospitals should
be allowed to select which specific eCQMs to report on to ensure the
information captured would prove meaningful.
Response: We acknowledge the commenters' concern with small patient
populations and will explore the minimum case exemption threshold for
eCQMs as we continue to evolve our electronic reporting requirements in
future rulemaking. We currently allow hospitals to enter a value of
zero to demonstrate that they had no clinical cases. We refer readers
to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50323 through 50324)
where we discuss the details of our requirements for the minimum
exemption threshold. As previously stated in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49695), for the CY 2017 reporting period/FY 2019
payment determination and CY 2018 reporting period/FY 2020 payment
determination, utilization of the zero denominator declaration and case
threshold exemptions are considered as part of the criteria for
successful submissions when reporting eCQMs for the to the Hospital IQR
and Medicare and Medicaid EHR Incentive Programs. Therefore, we do not
believe any undue

[[Page 57154]]

burden will be placed on hospitals that elect to utilize this
declaration, as it is a policy that has been in place for 2 calendar
years of reporting. The submission of zero denominator declarations and
case threshold exemptions for the CY 2016 reporting period continues to
be completed through the QualityNet Secure Portal.
Further, as we learn more through eCQM validation, we intend to
publicly report the eCQM data results so that hospitals that do not
provide care for certain populations will be able to benchmark
(evaluate by comparison with results provided by hospitals that do
provide care for those populations) data. We understand the importance
of having accurate measure data, however, the only way to readily
identify issues is to review more data. We believe that our finalized
policy to require submission of only 8 eCQMs serves to incrementally
increase electronic reporting, as suggested by commenters, while also
allowing us to collect data derived from EHRs to further our plans for
electronic data collection and validation. In addition, the finalized
policy to require submission of 8 eCQMs allows hospitals the
flexibility to select the eCQMs that are least burdensome and do not
require new builds, new workflows, or rework with the CQL
implementation for measures not previously reported. Implementation of
any new measure not previously reported will impose some additional
burden, but our finalized policy enables hospitals to choose and
prioritize which eCQMs to build into their systems in the order most
convenient for their particular circumstances and case mix. Moreover,
allowing hospitals to select 8 eCQMs addresses the commenter's concern
that reporting on an increased number of eCQMs has no direct
correlation to improvement in quality because there would not be
instances where a facility would be required to report on an eCQM that
refers to care that is not provided at that hospital; hospitals have
the option of reporting those eCQMs that are most relevant to their
patient population to ensure that information captured proves
meaningful. We refer readers to section VIII.A.8.a. of the preamble of
this final rule for details about our finalized policy to require
submission of only 8 eCQMs.
Comment: Some commenters stated that requiring hospitals to collect
electronic data for measures that still have flawed specifications is
inefficient and burdensome.
Response: We disagree that specifications are flawed and encourage
hospitals to work with vendors to gain experience with the eCQM
specifications and how to fully integrate them into their EHRs. We
believe that our modified policy to require submission of 8 self-
selected eCQMs out of the available eCQMs in the Hospital IQR Program
provides hospitals flexibility to select eCQMs for which they have
familiarity with the technical specifications and for services they do
provide.
Comment: One commenter cited difficulty manipulating the reporting
Structured Query Language (SQL), obscure or unnecessary measure data
points, the redundancy of the measure data points, and the bottleneck
created by the role of EHR vendors and developers in the reporting
workflow. Specifically, the commenter stated that modifications of the
SQL require the acquisition of professionals with specialized skills in
the functionality and utility of CEHRT, a strong working knowledge of
programming and an understanding of the eCQM process. The commenter
asserted that highly-skilled professionals are expensive to acquire and
difficult to retain within hospitals.
Response: In response to the commenter that cited difficulty
manipulating the reporting SQL, obscure or unnecessary measure data
points, the redundancy of the measure data points, and the bottleneck
created by the role of CEHRT vendors in the reporting workflow, we
believe that increased reporting would help to mature workflows, and
over time, mitigate some, if not all, of these additional concerns. We
acknowledge the commenter's assertion that highly-skilled professionals
are expensive to acquire and difficult to retain within hospitals,
however, we believe that as more professionals gain knowledge,
training, and experience with electronic standards and reporting and
fill this need in the labor market, this challenge will be reduced. In
addition, we encourage hospitals to work with and retain their vendors
to fulfill their EHR system needs. When hospitals work more closely
with their vendors to ensure that EHRs are appropriately structured in
a way that fits in with the clinical work flow to yield reliable data
through eCQMs, we believe that eCQMs promote high quality outcomes and
lower costs while ultimately decrease reporting burden on hospitals. We
encourage hospitals to be educated about the existing practices, while
still reserving the right to establish protocols that most accurately
and efficiently support their clinical workflow.
Comment: One commenter stated that the best practice guidelines
released by the EHR vendor or developer often require use of EHR
functions or physician documentation in a much more granular detail
than is often necessary for clinical care.
Response: We disagree that the best practice guidelines released by
the CEHRT vendor require physician documentation or utilization of EHR
sections in a much more detailed manner than is necessary for clinical
care. We believe that detailed documentation of care provided in EHRs
will help bolster the clinical care that is offered and will provide
information that is invaluable for quality reporting programs to
facilitate better patient outcomes.
Comment: One commenter recommended that CMS develop a system or
strategy for notification of eCQMs likely to be retired in the next 12
to 24 months as well as a system or strategy that alerts hospitals
about eCQMs that are being considered for addition to the Hospital IQR
Program in the next 2 years. Another commenter requested that CMS
provide a 2-year lead time prior to eCQM requirements because it takes
significant time to implement these measures.
Response: We appreciate the commenter's recommendation to notify
hospitals of eCQMs likely to be retired as well as eCQMs that are being
considered for addition to the Hospital IQR Program in the next 2
years. We intend to continue using the rulemaking process with notice
and comment period to establish and communicate timelines for
implementation, as well as to remove and adopt new measures. In
response to commenters' request for more advance notice as to eCQM
reporting requirements, in this final rule we are finalizing a
modification from our proposal with requirements for both the CY 2017
reporting period/FY 2019 payment determination and the CY 2018
reporting period/FY 2020 payment determination. We note that in the FY
2016 IPPS/LTCH PPS final rule, we signaled our intent to increase the
number of eCQMs required for reporting (80 FR 49693 through 49698) and
to remove 13 eCQMs (80 FR 49644 through 49645) in future rulemaking. We
also noted in that rule (80 FR 49698 through 49704) that we would
consider alternative measure types (hybrid measures) in future
rulemaking.
Further, in section VIII.A.9.c. of the preamble of this final rule,
we discuss future considerations of behavioral health measures, some of
which could potentially be developed as eCQMs in the future. We also
refer readers to the Hospital OQR Program discussion in the FY 2017
OPPS/ASC PPS proposed rule

[[Page 57155]]

(81 FR 45721) for additional discussion of possible future eCQMs that
are under development for the outpatient hospital setting. In addition
to using the rulemaking process, we will continue to provide ongoing
education and outreach to stakeholders through Special Open Door Forums
(information available at: https://www.cms.gov/outreach-and-education/outreach/opendoorforums/ODFspecialODF.html) and periodic training
sessions. In addition, stakeholders may learn about and provide
feedback on newly developed eCQMs during the measure development
process, the NQF public comment period, and/or the MAP's pre-rulemaking
public comment period.
Comment: One commenter suggested that AMI-8a not be included among
the required eCQMs because it is not discrete data.
Response: While we acknowledge that there may be challenges
associated with electronic reporting of AMI-8a due to the non-discrete
data which could pose collection issues because the values are spread
over a range of data points, we do not believe these challenges warrant
removal of the measure from the Hospital IQR Program at this time. As
stated in section VIII.10.d.(2) of the preamble of this final rule,
hospitals may 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. We recognize and support the use of
third-party vendors to assist in data submission in required formats as
needed to reduce burden on hospitals.
Comment: One commenter recommended that CMS launch an effort to
develop a clinical quality measurement infrastructure necessary to
transition federal pay-for-performance programs into utilizing both
process improvement measurement and outcomes measurement derived from
CEHRT to alleviate the reporting burden associated with collecting data
from different parts of the EHR enterprise. Another commenter
recommended that CMS include measures for which critical data elements
are entered directly into the CEHRT or can be obtained through provider
financial systems flowing to the CEHRT to minimize the need for data
abstracted from non-certified systems which necessitates double data
entry by providers. Further, one commenter believed that redundant
structured data points require a duplication of work efforts.
Response: We thank the commenters for their suggestions. As we have
previously stated, we believe that reporting measures as eCQMs is
valuable and we are working to refine the eCQM measure set in the
Hospital IQR and Medicare and Medicaid EHR Incentive Programs, as well
as to develop and adopt eCQMs for other quality reporting programs,
with the longer-term goal of using eCQMs for value-based purchasing
programs. We continuously strive to develop strategies and systems to
facilitate fully transitioning to eCQMs across providers and programs
in a way that minimizes reporting burdens for hospitals and increases
the validity of the data.
Comment: One commenter expressed concern that the proposed list of
eCQMs does not allow for comparison with chart-abstracted measures and
suggested that there should be greater overlap between eCQMs and chart-
abstracted measures. Other commenters expressed concern that eCQM data
submission to CMS has not been fully tested at this point and
recommended that expanding the required number of eCQMs should be
delayed until there has been successful transmission of data. Until EHR
standards are better structured to yield reliable data through eCQMs,
one commenter urged CMS to defer to chart abstraction so that the
clinical team can focus on quality care and the abstractors can
abstract and report high quality data without diverting the attention
of the clinical team from patient care to documentation and quality
reporting.
Response: As described 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 do 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 chart-
abstracted measure data, we believe that we must collect more eCQM data
and develop a process for validating the accuracy of that data. We
believe that adopting an eCQM validation process in the Hospital IQR
Program, as discussed in section VIII.11.b. of the preamble of this
final rule and analyzing the results from eCQM data validation,
beginning with an analysis of CY 2016 reported data, will allow us to
examine concerns about the accuracy of eCQM data so that we may begin
publicly reporting eCQM data in future years.
Comment: One commenter requested clarification about when eCQM data
will be made publicly available. Several commenters explicitly
supported CMS' decision to continue to not publicly report eCQM data
until the data are verified and reliable, noting that one quarter's
worth of data would not provide a statistically valid sample from which
to assess a hospital's performance and that it would be premature to
report these data due to challenges associated with reliability and
validity. Another commenter specifically recommended that the data
collected by eCQMs not be publicly reported on Hospital Compare until
electronic reporting improves and benchmarks are freely available.
One commenter made the following recommendations with respect to
future public reporting of eCQM data: (1) One year prior to the
proposed inclusion year, the eCQM should be announced in the proposed
rule for the following year, with the opportunity for public comments;
(2) in the first year, data should be reported to CMS to assure
validity and plausibility, but not publicly reported; and (3) assuming
that year one results are demonstrated to be valid and plausible, the
data should be collected and reported publicly in year two and
subsequent years. In addition, this commenter recommended that CMS
provide additional education about how to interpret the publicly
reported data because publicly reported scores can be confusing to
consumers.
Response: We thank the commenters for their support. In the FY 2014
IPPS/LTCH PPS final rule (78 FR 50815 through 50818), we adopted a
policy under which we would only publicly report eCQM data in the
Hospital IQR Program if we deem that the data are accurate enough to be
publicly reported (78 FR 50816). We believe that our current policy to
delay public reporting of eCQM data submitted by hospitals for the CY
2017 reporting period/FY 2019 payment determination in conjunction with
the adoption of an eCQM validation process in this final rule is
consistent with our stated policy on eCQM public reporting.
We agree with the commenters that suggested we implement a quality
process to ensure that eCQMs are accurate, which is why we are
finalizing our proposal to examine electronic measures through our
validation process and refer readers to section VIII.A.11.b.(3) of the
preamble of this final rule for more details. We believe that
implementing an eCQM validation process in the Hospital IQR Program and
analyzing the results from eCQM data validation, beginning with an
analysis of CY 2017 reported data, will allow us to examine concerns
about the accuracy of eCQM data so that we may begin publicly reporting
eCQM data in the future.
With respect to the commenter's suggestions about future public
reporting of eCQM data, we will take

[[Page 57156]]

these recommendations into account as we continue to develop and refine
our electronic reporting policies.
Comment: One commenter requested clarification on the meaning of
``all available eCQMs.'' The commenter asked if the term refers to
submitting all the 2017 eCQMs in 2017, submitting all the 2017 eCQMs
applicable to their patient populations, or only submitting the 2017
eCQMs currently built in their CEHRT systems. The commenter noted that
if ``all available eCQMs'' means all available for 2017 (and not what
is available in the current EHR build), hospitals will be required to
reengage their vendors to allocate valuable HIT resources currently
focused on complying with the new 2016 IPPS electronic submission
requirements and timeline.
Response: We define the term ``all available eCQMs'' to mean all of
the eCQMs included in the Hospital IQR Program measure set at the
beginning of CY 2017 for the FY 2019 payment determination. We
recognize the challenges associated with eCQM reporting and encourage
hospitals to continue refining their electronic reporting
implementation activities to successfully achieve electronic data
capture and reporting despite mapping and integration issues or work
with their vendors to do so. However, instead of requiring all
available eCQMs as proposed, we are only requiring 8 eCQMs and refer
readers to our final policy for eCQMs as discussed above.
Comment: Several commenters expressed concern that hospitals unable
to submit eCQMs would be penalized under the Medicare EHR Incentive
Program in addition to the Hospital IQR Program. The commenters
believed that a provider that is unable to submit eCQM data should only
be penalized under the Medicare EHR Incentive Program and not by both
programs.
Response: We disagree that the requirements for electronic
reporting in the Hospital IQR Program duplicates penalties. In an
effort to align with the Medicare and Medicaid EHR Incentive Programs,
we have specified that hospitals meeting electronic reporting
requirements for the Hospital IQR Program will be considered to have
successfully reported the eCQM requirement to the Medicare and Medicaid
EHR Incentive Programs as well. In addition, we note that our data show
that 95 percent of hospitals already attest to successful eCQM
reporting under the EHR Incentive Program and, accordingly, we believe
that the majority of hospitals will be able to successfully report
eCQMs, meeting both the Medicare and Medicaid EHR Incentive Programs'
CQM reporting requirements and the Hospital IQR Program requirements.
Finally, for hospitals that find they are unable to meet the eCQM
submission deadline and meet our criteria for an eCQM-related
Extraordinary Circumstances Extension/Exemption (ECE), we note that we
are adopting our proposal to extend the deadline for requesting an
eCQM-related ECE to April 1 following the end of the reporting calendar
year, as discussed in section VIII.A.15.b. of the preamble of this
final rule.
Comment: One commenter supported CMS' efforts to align the Hospital
IQR Program with the EHR Incentive Programs but did not support the
proposed requirement that hospitals report on all eCQMs in the Hospital
IQR Program measure set because providers invest considerable resources
to revise and validate the eCQMs and face the following challenges: (1)
Consistent with findings of CMS' eCQM validation pilot, significant
discrepancies between manually abstracted measures and eCQMs; (2) eCQM
vendor tools are not able to generate accurate measure results because
EHRs were not designed to capture data elements required for eCQM
reporting during the course of care requiring clinical staff to enter
data in multiple places to ensure the data are available for eCQM
reporting; and (3) hospitals with multiple vendor systems across
clinical departments have encountered difficulty ensuring these
disparate systems are interfacing appropriately with quality measure
systems and appropriately mapping data fields in order to generate the
required QRDA I files for submission to CMS. The commenter observed
that as a result of these challenges, hospitals have not had an
opportunity to strategically refine their systems to capture the
necessary data elements and conduct the requisite testing. The
commenter urged CMS to continue the 2016 reporting requirements in 2017
to give hospitals time to thoughtfully modify their internal processes
in concert with their vendors to improve eCQM reporting.
Response: We thank the commenter for this support. As described 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 chart-abstracted
measure data, we believe that we must collect more eCQM data and
develop a process for validating the accuracy of that data. Further,
the 2015 eCQM Validation Pilot did not compare manual chart-abstracted
data to eCQM data, rather, the data elements for validation were
derived from the hospitals' EHR. We received many comments that
suggested we implement a quality process to ensure that eCQMs are
accurate, which is why we are finalizing our proposal to implement an
eCQM validation process in section VIII.A.11.b of the preamble of this
final rule. We believe analysis of results from eCQM data validation
will serve to alleviate concerns about the accuracy of eCQM data so
that we may begin publicly reporting eCQM data in future years. We
recognize the challenges associated with electronic reporting and
encourage hospitals to work with their vendors to achieve electronic
capture and reporting despite mapping and integration issues.
As stated above, we believe that the best way to encourage
hospitals to invest in improving their EHR systems is by requiring
reporting of additional eCQMs. Consequently, we believe that retaining
the reporting requirements from FY 2016 would not help in this
improvement approach. However, as previously stated, we are modifying
our proposal to finalize requirement of 8 eCQMs in direct response to
commenters' suggestions that we incrementally increasing the reporting
requirements. Lastly, we believe that our finalized policy to require
the submission of only 8 eCQMs for the CY 2017 and CY 2018 reporting
periods, which provides an additional full year for refining reporting
capabilities on 8 eCQMs, will provide hospitals adequate time to
address mapping issues.
Comment: Some commenters questioned whether the proposal to
increase the number of required eCQMs for reporting functions to
promote better quality care. The commenters expressed the opinion that
this proposal seems to drive a particular data collection mechanism,
and while they supported the continued use of EHRs to collect
meaningful data, they are concerned about the feasibility and accuracy
of eCQMs.
Response: While we appreciate the commenter's concern about whether
an increase in the number of eCQMs will promote better quality of care,
we believe that if hospitals and EHR vendors continue to refine EHR
systems to appropriately structure them commensurate with the clinical
work flow, this will lead to improved accuracy, reliability, and
completeness

[[Page 57157]]

of the eCQM data, which will promote higher quality outcomes and lower
costs while ultimately decreasing reporting burden on hospitals as
compared with chart-abstraction for quality measure data. We note that
2015 is not the first year CMS has requested eCQM data submission. As
described in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50905),
electronic reporting pilots for the EHR Incentive Program from 2012 and
2013 included eCQM reporting. We understand the importance of having
feasible and accurate measure data, however, the only way that we will
be able to readily identify issues is to assess more data. We believe
that our policy to only require submission of 8 eCQMs serves to
incrementally increase electronic reporting, as suggested by
commenters, while also allowing us to collect data derived from EHRs to
further our plans for electronic data collection and validation.
Moreover, we believe that it is appropriate to require reporting and
validation of eCQMs because measures available now and those being
developed for the future are increasingly based on electronic standards
(80 FR 49696).
Comment: A few commenters recommended that CMS maintain the current
eCQM reporting requirement and allow hospitals to voluntarily report on
additional eCQMs. The commenter stated that this approach would allow
more time for the reconciliation and upgrading of the resources
necessary (that is, EHRs) to handle additional measure specifications.
One commenter suggested requiring a smaller number of eCQMs,
specifically, the following six measures: CAC-3--Pediatric Asthma--Home
Management Plan of Care Given to Patient/Caregiver; ED-1--Median Time
from ED Arrival to ED Departure for Admitted ED Patients; ED-2--Admit
Decision time to ED departure Time for Admitted Patients; EHDI-1a--
Newborn Hearing Screening Prior to Discharge; PC-01--Early Elective
Delivery; PC-05--Exclusive Breastfeeding.
Response: We appreciate the commenters' recommendation to maintain
the current eCQM reporting requirement and allow hospitals to
voluntarily report on additional eCQMs, however hospitals have already
had 3 years to voluntarily report on eCQMs. As stated above, we believe
that mandatory reporting is necessary to advance our policy goal to
move facilities towards reporting electronic measures. In response to
overwhelming concern about the issues related to the proposal to
require reporting on all available eCQMs, we direct the commenter to
our finalized policy to require submission of 8 eCQMs, described in
section VIII.A.8.a. of the preamble to this final rule. Rather than
requiring hospitals to report on particular eCQMs, as suggested by one
commenter, we hope that allowing hospitals to self-select 8 eCQMs based
upon their own patient mix and consistent with internal quality
improvement efforts will increase flexibility and reduce burden.
After consideration of the public comments we received, we are
finalizing a modified version of our proposal. Specifically, instead of
requiring hospitals to report on all available eCQMs for the CY 2017
reporting period/FY 2019 payment determination and subsequent years as
proposed, we are finalizing a policy that hospitals must report on at
least 8 self-selected eCQMs from the available eCQMs in the Hospital
IQR Program for the CY 2017 reporting period/FY 2019 payment
determination and the CY 2018 reporting period/FY 2020 payment
determination. We intend to propose to increase the number of required
eCQMs for reporting in the Hospital IQR Program for the CY 2019
reporting period/FY 2021 payment determination and future years through
rulemaking.
b. 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 reporting period/FY 2019 payment
determination is the appropriate time to require increased 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. Therefore, we proposed that for the CY
2017 reporting period/FY 2019 payment determination and subsequent
years, hospitals must submit one year's worth (that is, four quarters)
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 sought to proactively address some stakeholder concerns
associated with increasing the number of eCQMs for which reporting will
be required by aligning data submission deadlines between the Hospital
IQR Program and the Medicare EHR Incentive Program to help reduce some
reporting burden on hospitals. 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 final rule.
We invited public comment on our proposal to require hospitals to
report a full year of eCQM data.
Comment: Several commenters supported the proposed requirement that
hospitals report a full year of eCQM data.
Response: We thank the commenters for their support.
Comment: Many commenters did not support the proposed requirement
that hospitals report a full year of eCQM data because of the burden it
would impose on hospitals. One commenter indicated that the increase
would be four times greater than previous years and would cause
increased difficulties for hospitals transitioning to a new EHR system.
Commenters noted that EHR vendors are still struggling to overcome the
barriers encountered during the first year of eCQM reporting because
the designing, building, reviewing, and testing that takes place
between hospitals and vendors is extremely expensive and extensive. A
few commenters suggested an incremental approach requiring reporting on
only 8 eCQMs for two quarters for the first increase. Several
commenters specifically expressed concern that the period of time
between when the final rule is published and the beginning of the CY
2017 reporting period is too short to make the appropriate health IT
and workflow adjustments to accommodate transmission of a full year of
eCQM data.
One commenter noted that requiring hospitals to submit a full year
of eCQM data for the CY 2017 reporting period would require hospitals
to begin data collection on a full year of data prior to completion of
the first deadline to report only one quarter of data which is February
28, 2017.
Another commenter acknowledged that once an eCQM is in place, it
can continue to gather data beyond implementation, but expressed
concern that the ability of EHR vendors and health care providers to
have all 15 eCQMs in place by January 1, 2017 is unreasonable. The
commenter suggested that CMS continue the current reporting

[[Page 57158]]

period of one of the two final quarters of the reporting year.
Response: We appreciate the commenters' concerns that reporting a
full year of eCQM data may impose a greater burden on hospitals than
reporting one quarter of eCQM data, but in response to the commenter's
concern that the increase would be four times greater than previous
years and would cause increased difficulties for hospitals
transitioning to a new EHR system, we disagree. We believe that the
burden associated with submitting a full year of eCQM data will not be
substantially greater than the burden associated with transmission of a
single quarter of data. As described in section VII.A.10.d of the
preamble of this final rule, the CMS data receiving system requires
that each QRDA I file include data for one patient, per quarter, per
reporting CCN. Whether hospitals and vendors are transitioning to a new
EHR or utilizing an established system, this reinforces the importance
of reporting eCQMs from a properly certified and successfully mapped
system. Once hospitals establish their protocols to ensure this is
maintained, hospitals and vendors should not experience much added
burden reporting an additional 3 quarters of data. The CMS data
receiving system will re-open late spring 2017 to receive test QRDA I
files and production QRDA I files for the CY 2017 reporting period eCQM
data submissions. Providing this option allows hospitals and vendors
greater flexibility to submit QRDA I files on a quarterly, semi-annual,
or annual basis rather than waiting to submit all QRDA I files during
the last two months of the submission period.
We encourage all hospitals to submit files early, as well as to use
one of the available presubmission testing tools for electronic
reporting--such as the CMS 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. We refer readers to section
VIII.A.11.b.(5) of the preamble of this of this final rule for more
information about the PSVA.
In response to the commenter's concern that EHR vendors are still
struggling to overcome the barriers encountered during the first year
of eCQM reporting because the designing, building, reviewing, and
testing that takes place between hospitals and vendors is extremely
expensive and extensive, we acknowledge the time, effort, and resources
that hospitals expend on building these measures. However, we disagree
with commenters' suggestion to take an incremental approach requiring
reporting on only 8 eCQMs for two quarters for the first increase.
Although reporting a full year of eCQM data for the CY 2017 reporting
period would require hospitals to begin data collection on a full year
of data prior to completion of the first deadline to report only one
quarter of data which is February 28, 2017, we believe that hospitals
have had adequate time to prepare. We disagree that the period of time
between when the final rule is published and the beginning of the CY
2017 reporting period is too short to make the appropriate health IT
and workflow adjustments to accommodate transmission of a full year of
eCQM data. We believe that the FY 2019 payment determination is the
appropriate time to require reporting of a full year of eCQM data
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 3 years of reporting as
part of a pilot). In addition, we believe that our finalized policy
requiring a lesser number of eCQMs than originally proposed (that is, 8
eCQMs instead of all available eCQMs) provides hospitals with
sufficient time to augment their eCQMs and satisfy electronic reporting
requirements. We believe this policy will also lessen burden on
hospitals.
Comment: Some commenters expressed concern that the increase in the
volume of information being reported might increase susceptibility to
inaccurate data. A few commenters did not support the proposed
requirement that hospitals report a full year of eCQM data because they
believed the proposal is premature due to hospitals' inability to
ensure that eCQM data is accurate and reliable.
Response: We believe that collecting as much data from hospitals as
feasible is an important step toward helping hospitals to report more
accurate and reliable data. In section VIII.A.11.b. of the preamble of
this final rule, we outline an addition to the Hospital IQR Program
validation process to include validation of eCQM data. Analysis of
validation results will help us to better understand the difficulties
hospitals are experiencing in reporting eCQM data and enable us to
provide assistance to help resolve those issues, ultimately resulting
in more accurate and reliable data which will improve patient outcomes.
Comment: One commenter suggested that CMS should delay this
proposal and focus more on validating eCQM data prior to requiring that
hospitals report the data on all eCQMs for a full year in the Hospital
IQR Program.
Response: We disagree with the commenter's suggestion that we delay
this proposal and focus more on validating eCQM data prior to requiring
hospitals report data on all eCQMs for a full year in the Hospital IQR
Program because we believe that collecting as much data from hospitals
as feasible is an important step toward helping hospitals to report
more accurate and reliable data.
Comment: Some commenters expressed concern that this effort will
take resources away from true quality improvement efforts.
Response: We disagree and believe that when EHRs are appropriately
structured in a way that fits in with the clinical work flow to yield
reliable data through eCQMs, eCQMs promote higher quality outcomes and
lower costs while ultimately decrease reporting burden on hospitals as
compared with chart-abstraction. Moreover, we believe that it is
appropriate to require reporting and validation of eCQMs given that
measures available now and those being developed for the future are
increasingly based on electronic standards (80 FR 49696).
Comment: One commenter questioned whether CMS has considered its
ability to receive data submissions for hundreds of thousands of cases
from hospitals within a 2 month period (January 1 through the Feb 28).
Response: We are working to ensure that CMS infrastructure is in
place to receive the full volume of eCQM data transmissions (for 8
eCQMs) from hospitals by the February 28, 2018 deadline for the CY 2017
reporting period and February 28, 2019 for the CY 2018 reporting
period. As stated above, the CMS data receiving system will re-open
late spring 2017 to receive test QRDA I files and production QRDA I
files for the CY 2017 reporting period eCQM data submissions. Providing
this option allows hospitals and vendors greater flexibility to submit
QRDA I files on a quarterly, semi-annual, or annual basis rather than
waiting to submit all QRDA I files during the last two months of the
submission period. As of the publication of this final rule, the CMS
data receiving system is open to receive QRDA I test file submissions
to allow hospitals and vendors to prepare and test their files for CY
2016 eCQM reporting requirements before the system will be available to
receive production files.
Comment: A few commenters noted that upgrading CEHRT to a new
edition of certification criteria during the same reporting period (CY
2017) that would

[[Page 57159]]

require hospitals report a full year of eCQM data could pose additional
implementation difficulties. Other commenters suggested as an
alternative to annual reporting of a full year of eCQM data, that CMS
require quarterly submission of the eCQM data, with submission being
required four and a half months after the end of the reporting quarter
to align the e-submission requirements with the Hospital IQR Program
chart-abstracted reporting requirements and with other quality
reporting programs, such as the SNF Quality Reporting Program and the
EHR Incentive Program, to ensure sufficient time for providers to
final-bill code all cases for a reporting quarter before being required
to generate QRDA files for submission to CMS, and to alleviate pressure
on providers, vendors, and the QualityNet team to put together and
submit the required information for eCQM data submission. Finally, a
few commenters noted that upgrading CEHRT to a new edition of
certification criteria during the same reporting period (CY 2017) that
would require hospitals report a full year of eCQM data could pose
additional implementation difficulties. One commenter expressed the
opinion that quarterly reporting would reduce the volume of data that
vendors and CMS must process at one time, give providers more frequent
benchmarking of their performance on these measures, and make the
timing of electronic reporting consistent with reporting of chart-
abstracted measures.
Response: We thank commenters for their suggestions. While we
acknowledge that upgrading to a new edition of certified EHR during the
same reporting period that would require hospitals report a full year
of eCQM data could pose additional implementation difficulties, we
believe that setting an annual submission deadline at two months
following the end of the reporting calendar year provides hospitals
more time to make necessary modifications to their health IT systems.
This annual submission deadline will allow hospitals the flexibility to
submit production files on a quarterly, semi-annual, or annual basis.
In addition, we encourage hospitals to test their preparedness to
submit eCQM data prior to the submission deadline of the applicable
reporting period by using one of the available presubmission testing
tools for electronic reporting as discussed in section VIII.A.11.b.(5)
of the preamble of this final rule.
Comment: One commenter expressed concern that CMS would increase
the amount of data electronically submitted without the benefit of
lessons learned from the first year of the electronic submission
requirement. The commenter urged CMS not to increase the amount of eCQM
data reported for CY 2017 until experience from the 2016 data
submission is available to inform proposals.
Response: We acknowledge the commenter's concern that we are
increasing the amount of data electronically submitted, by increasing
the eCQM reporting requirement from one quarter of data to a full year
of data, before data from the first year of required eCQM submission
for CY 2016 are available for us to analyze and garner lessons learned,
but we disagree that we should delay our proposal to require submission
of a full year of data. Hospitals have had several years to report data
electronically for the Medicare and Medicaid EHR Incentive Programs and
the Hospital IQR Program (3 years of pilot reporting and 3 years of
voluntary reporting). As stated previously, 95 percent of hospitals
attest to successful electronic clinical reporting under the Medicare
EHR Incentive program. As stated above, we believe that collecting as
much data from hospitals as feasible is an important step toward
helping hospitals to report more accurate and reliable data.
In section VIII.A.11.b. of the preamble of this final rule, we
outline an addition to the Hospital IQR Program validation process to
include validation of eCQM data. Analysis of validation results will
help us to better understand the difficulties hospitals are
experiencing in reporting eCQM data and enable us to provide assistance
to help resolve those issues, ultimately resulting in more accurate and
reliable data which will improve patient outcomes. Therefore, we
believe the CY 2017 reporting period is the appropriate time to move
forward with our proposed requirement that hospitals report a full year
of eCQM data.
Comment: One commenter expressed concern with the proposals to
align the EHR Incentive Programs and the Hospital IQR Program because
there are differences in the reporting time periods between the MU
measure reporting and the eCQM reporting. The commenter requested that
CMS change the eCQM reporting period in FY 2017 to one quarter to align
with the MU.
Response: We refer readers to section VIII.E.2.b. of the preamble
of this final rule in which reporting time periods for the Medicare and
Medicaid EHR Incentive Programs are aligning with the Hospital IQR
Program to require that hospitals report a full year of eCQM data by
the same submission deadline.
After consideration of the public comments we received, we are
finalizing the proposal that for the CY 2017 reporting period/FY 2019
payment determination and subsequent years, hospitals must submit one
year's worth (that is, 4 quarters) of eCQM data for each required eCQM
by the annual submission deadline as proposed.
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 will be publicly displayed (80 FR 49695 through
49698). We also finalized a policy that hospitals may choose to submit
electronic data on any of these 6 measures in their eCQM form, in
addition to the chart-abstraction requirements, in order to meet the
eCQM reporting requirement to report 4 self-selected eCQMs out of 28
available eCQMs (80 FR 49695 through 49698).
For the FY 2019 payment determination and subsequent years, as
discussed in section VIII.A.3.b.(3)(a)(ii) of the preamble of this
final rule, we are finalizing our proposal 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 final rule, we are finalizing our proposal to
remove the electronic versions of the VTE-5 and VTE-6 measures. Lastly,
in section VIII.A.3.b.(2) of the preamble of this final rule, we are
finalizing our proposal to remove the chart-abstracted versions of the
STK-4 and VTE-5 measures. Because these proposals are being finalized
as proposed, the STK-4 and VTE-5 measures are completely removed from
the Hospital IQR Program measure set, but the VTE-6 measure continues
to be included in its chart-abstracted form. Therefore, 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--that hospitals must
continue to submit data via chart abstraction (covering each of Q1, Q2,
Q3, and Q4) as previously required and that the results will be
publicly displayed.
We received the following comments on clarifying the reporting
requirements for ED-1, ED-2, PC-01, and VTE-6.
Comment: A few commenters recommended that the Hospital IQR Program
continue to require hospitals to submit chart-abstracted data for
measures ED-1, ED-2, and PC-01 and

[[Page 57160]]

that these measures should be prioritized for eCQM data collection as
well to facilitate data validation. The commenters requested that CMS
make publicly available the results of analysis comparing chart-
abstracted data with eCQM data for measures that are reported in both
forms because it would provide valuable information to inform decisions
about keeping or retiring measures and it would highlight issues
ascribed to differences between chart-abstraction methods and eCQM
measure specifications to help vendor and provider communities
understand these issues. Lastly, commenters encouraged CMS to require
CEHRT to adopt a standardized definition of ``admit decision'' and
recommended that CMS consult with existing consensus definitions and
experts in the field to help identify potential variance in the chart-
abstracted version and the eCQM versions of these measures.
Response: We thank the commenters for their support and suggestions
and will take these into consideration in developing future policy. In
addition, we direct readers to the Office of the National Coordinator
for recommendations on developing or new standards for health IT which
should be considered for future adoption.\158\
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\158\ Office of the National Coordinator, Health IT
Certification Program www.healthit.gov.
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Comment: Some commenters expressed concern that the submission of
eCQM data would not replace chart-abstracted and claims-based measures,
which must still be submitted in addition to eCQMs. The commenters
suggested that CMS allow hospitals to select the format in which to
report, to encourage more hospitals to make eCQMs more accurate.
Further, the commenters suggested that if hospitals submit eCQM data
for measures ED-1 and ED-2, that they not be required to submit chart-
abstracted data for these measures because chart-abstraction is
redundant and costly. The commenters requested that CMS consider
flexibility in requirements for submission of different measure types
because maintaining different reporting mechanisms is a daunting task
for hospitals and requires expertise in different areas of health IT,
as well as in clinician workflow and medical coding. One commenter
specifically requested that chart-abstracted measures be removed when
an eCQM is available because reporting on the same measure in two forms
duplicates efforts, creates variation in the data, and takes time away
from hospitals improving their electronic medical record systems.
Another commenter also noted that clinician documentation for the
generation of clinical quality measures is no easy feat, and that CMS
should be more cognizant of this. The commenter recommended that CMS
slow the pace of eCQM reporting and focus on testing and validation of
measures instead.
Response: We thank the commenters for their suggestion that we
allow hospitals to select the format in which to report on measures
specified both as eCQMs and as chart-abstracted measures, however, we
believe that in order to collect the highest quality data, at this
time, submission of data in both forms for the ED-1, ED-2, PC-01, and
VTE-6 measures is necessary. As described 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 do 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 chart-abstracted measure data, we believe that we must collect more
eCQM data and develop a process for validating the accuracy of that
data.
Moreover, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50815
through 50818), we adopted a policy under which we would only publicly
report eCQM data in the Hospital IQR Program if we determined that the
data are accurate enough to be reported. We believe that our current
policy to delay public reporting of eCQM data submitted by hospitals
for the CY 2017 reporting period/FY 2019 payment determination in
conjunction with the adoption of an eCQM validation process in this
final rule is consistent with our stated policy on eCQM public
reporting. Until we have determined that eCQM data are accurate enough
to be publicly reported, we believe it is important to collect the
chart-abstracted data on ED-1, ED-2, PC-01, and VTE-6 to be able to
continue publicly reporting, since these measures are not topped out
like the previously removed chart-abstracted measures and data on the
PC-01 chart-abstracted measure is used in the Hospital VBP Program. We
acknowledge that maintaining different reporting mechanisms is costly
and may appear redundant to hospitals and that it requires expertise in
different areas of health IT, as well as in clinician workflow, and
medical coding. Nevertheless, we believe the value of the additional
data outweighs the burden of collecting the data in both forms.
We disagree that reporting on the same measure in two forms
duplicates efforts, creates variation in the data, and takes time away
from hospitals improving their electronic medical record systems. Until
eCQM data is validated and ready to be publicly reported, it is
important to have sufficient data on the chart-abstracted versions of
the measures to continue publicly reporting on them. In addition,
because hospitals can choose which four eCQMs they report for CY 2016
and which 8 eCQMs they report for CY 2017 and CY 2018, it may be
several more years before we have collected sufficient, reliable data
for publicly reporting on these measures using eCQM data alone. We
believe that reporting chart-abstracted data will supplement eCQM data
on the same measure and that reporting data in both forms will
facilitate eCQM validation efforts.
Comment: One commenter supported the retention of VTE-6 in chart-
abstracted form because chart abstractors can manually find required
data elements in clinical notes and not structured data fields, but the
commenter noted that this rationale should be extended to many, if not
all, of the chart abstracted measures that are being considered for
eCQM reporting. The commenter encouraged CMS to utilize chart-
abstraction rather than an eCQM as the preferred method of data
collection and reporting for public reporting and pay-for-performance
programs because, while labor intensive, chart-abstraction focuses data
collection to a select set of professionals who can be trained to
provide high quality data for use in public reporting and pay-for-
performance programs and free clinical providers and physicians to
focus on providing patient-centered care without the distraction of
documenting in structured fields to the detail required for the
purposes of eCQM reporting.
Response: We appreciate the commenter's recommendation to continue
utilizing chart abstraction for quality reporting until EHR systems are
more mature, but as we stated in section VII.A.8.a. of the preamble of
this final rule, when hospitals work with their vendors to ensure that
EHRs are appropriately structured in a way that fits in with the
clinical work flow to yield reliable data through eCQMs, we believe
that eCQMs promote high quality outcomes and lower costs while
ultimately decrease reporting burden on hospitals as compared with
chart-abstraction.
In summary, for the FY 2019 payment determination and subsequent
years, we

[[Page 57161]]

clarify that requirements for the chart-abstracted versions of ED-1,
ED-2, PC-01, and VTE-6 remain the same as previously finalized--that
hospitals must continue to submit data via chart abstraction (covering
each of Q1, Q2, Q3, and Q4) as previously required and that the results
will be publicly displayed. This is regardless of whether data also are
submitted electronically in accordance with the applicable submission
requirements.
9. Possible New Quality Measures and Measure Topics for Future Years
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25196 through
25199), we provided 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.^{159 160} 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.^{161 162 163 164} 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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\159\ 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.
\160\ 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.
\161\ 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.
\162\ 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.
\163\ 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.
\164\ 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.\165\ 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.\166\
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 TEP, 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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\165\ NIH Stroke Scale. Available at: http://www.nihstrokescale.org/.
\166\ 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,^{167 168 169} and is part of the national guidelines
on stroke care.\170\ 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

[[Page 57162]]

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 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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\167\ 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.
\168\ 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.
\169\ 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.
\170\ 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.
---------------------------------------------------------------------------

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 (MUC ID 15-294) 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 MUC ID 15-294, (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.\171\ 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.\172\ 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.
---------------------------------------------------------------------------

\171\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
\172\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

(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 invited 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.
Comment: All commenters supported the inclusion of the NIH Stroke
Scale score in the Stroke 30-day Mortality Rate measure for future
inclusion in the Hospital IQR Program. Commenters noted it is a
significant improvement over the current Stroke 30-Day Mortality Rate
measure, which uses an administrative claims-based risk adjustment
model that does not include stroke severity. Some commenters suggested
that the current lack of risk adjustment for stroke severity could
cause misclassification of hospital performance, and that the more
rigorous risk adjustment facilitated by the NIH Stroke Scale will help
ensure that the measure accurately risk adjusts for different hospital
populations without unfairly penalizing high-performance providers.
In addition, commenters agreed that the NIH Stroke Scale is well
validated (having been vetted by the ASA and the AHA), highly reliable,
widely used, and a strong predictor of mortality and short- and long-
term functional outcomes. Several commenters supported the proposed
timeframe for the implementation of the refined Stroke 30-Day Morality
Rate measure, noting that data for the measure would not be required
until FY 2020, which allows hospitals sufficient time to adjust to
reporting NIH Stroke Scale scores.
Response: We thank the commenters for their support.
Comment: One commenter recommended that CMS also account for
decline or improvement in status that could be related to
interventions, by incorporating the NIH Stroke Scale score administered
at discharge. Commenters suggested that CMS consider whether the
measure will risk adjust for the score taken upon admission, during the
first 24 hours of the admission, or upon discharge. A commenter urged
CMS to consider standardizing the qualifications of the individual
administering the NIH Stroke Scale. In addition, one commenter
requested clarification as to how the NIH Stroke Scale score would be
reported to CMS.
Response: In regard to the timing of the NIH Stroke Scale score, we
note that the intent of the risk adjustment for stroke severity is to
account for patients' clinical status at the time they are admitted to
the hospital. Therefore, the refined Stroke 30-Day Morality Rate
measure would utilize the initial NIH Stroke Scale score, administered
upon admission. We refer readers to the current clinical guidelines
describing the qualifications and appropriate administration of the NIH
Stroke Scale. As noted in the FY 2017 IPPS/LTCH PPS proposed rule (81
FR 25196), the NIH Stroke Scale is expected to be added to ICD-10 in
October 2016, and could therefore be reported via claims submitted to
CMS. We will take the additional suggestions into consideration for
future policy.
Comment: A few of commenters supported the inclusion of the NIH
Stroke Scale for the Stroke 30-day Mortality Rate measure for future
inclusion in the Hospital IQR Program, pending NQF endorsement. One
commenter added that it would also support using the refined Stroke 30-
Day Morality Rate measure once it has been field-tested by hospitals.
Commenters noted that mortality is not the only outcome for stroke
patients that should be measured and recommended that CMS work with
measurement stakeholders and developers to explore more measures that
are highly meaningful to patients, such as cognitive or functional
outcomes. These commenters acknowledged that the addition of the NIH
Stroke Scale scores is a technical improvement, but cautioned CMS in
moving forward in

[[Page 57163]]

implementation of this measure until it is clear that the measure
provides an unambiguous and unbiased signal of the underlying quality
of care provided by the hospital.
Response: We thank commenters for their suggestions and support.
The refined Stroke 30-Day Morality Rate measure was submitted to the
NQF neurology project on January 15, 2016. We will continue to move
forward with the NQF endorsement process for the measure. We will take
this feedback regarding the timing of implementation and future stroke
outcomes measures into consideration as we conduct implementation
planning for the measure. We thank the commenters for their feedback
and we will consider it as we develop future policy.
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.\173\
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\173\ 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).\174\ The
Advisory Council makes recommendations to the Secretary regarding
policies to support the implementation of the National Strategy for
Combating Antibiotic-Resistant Bacteria \175\ and the National Action
Plan for Combating Antibiotic-Resistant Bacteria.\176\ 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.^{177 178 179}
Therefore, the CDC and several professional societies have published
guidelines and resources to support hospitals in implementing
antimicrobial stewardship programs.\180\
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\174\ Centers for Disease Control and Prevention. Presidential
Advisory Council on Combating Antibiotic-Resistant Bacteria.
Available from: http://www.hhs.gov/ash/carb/index.html.
\175\ National Strategy for Combating Antibiotic-Resistant
Bacteria, 2014. Available from: https://www.whitehouse.gov/sites/default/files/docs/carb_national_strategy.pdf.
\176\ 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.
\177\ 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.
\178\ 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.
\179\ 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.
\180\ 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.
---------------------------------------------------------------------------

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,'' \181\ 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
Recommendations.\182\ 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.\183\ The measure received
endorsement from NQF on December 10, 2015.\184\
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\181\ 2015 Measures Under Consideration List Available at:
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
\182\ Spreadsheet of MAP 2016 Final Recommendations Available
at: http://www.qualityforum.org/map/.
\183\ Ibid.
\184\ 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) \185\ and/or bar coded medication administration (BCMA)
system.\186\ 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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\185\ 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).
\186\ 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.
---------------------------------------------------------------------------

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.

[[Page 57164]]

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 \187\ and/or BCMA system.\188\ 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.
---------------------------------------------------------------------------

\187\ 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).
\188\ 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.
---------------------------------------------------------------------------

(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 antimicrobial use 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 invited public comment on the possibility of future inclusion of
the NHSN Antimicrobial Use measure (NQF #2720).
Comment: Many commenters supported the future inclusion of the NHSN
Antimicrobial Use measure in the Hospital IQR Program indicating that
it is critically important to reduce the amount of unnecessary
antibiotic prescriptions, help practitioners and public health
officials alike assess antibiotic use in hospitals based on medication
administration data that hospitals collect thereby helping to combat a
growing clinical and public health concern (antimicrobial resistance),
and improve the appropriateness of both antimicrobial use and patient
outcomes. In addition, one commenter noted that the measure will enable
facilities to monitor antibiotic use and guide stewardship efforts in
hospitals but recommended further validation and testing to ensure
accurate and meaningful application of the measure prior to its
inclusion. The commenter noted that inclusion of the measure would
encourage facilities to: (1) Benchmark antibiotic use; (2) assess
appropriateness of antibiotic prescribing; and (3) target stewardship
interventions and gauge their impact.
Another commenter noted that in order for measures of this kind to
become widely used, a broad interoperability standard needs to be
adopted across all vendors providing accessibility to the requisite
electronic drug administration data. A third commenter added that CMS
is the only entity that can address the overuse of antibiotics through
its Conditions of Participation and public reporting and payment
accountability tools. The commenter encouraged CMS to target this
measure for public reporting that is subsequently tied to payment
incentive programs. Similarly, another commenter stated that reporting
of antibiotic use data to the NHSN Antibiotic Use Reporting (AUR)
module is of great importance because doing so would provide vital
statistics on which stewardship of use of antibiotics can be assessed,
and help facilities evaluate their antimicrobial utilization over time.
The commenter noted that there are currently no national data on
antibiotic use, and at the broadest level it is difficult to chart
national improvement without having systematically collected antibiotic
use data from all acute care hospitals in the U.S. Lastly, one
commenter urged CMS to recognize that hospital antimicrobial
stewardship is only one aspect of the multifaceted and worldwide
efforts needed to address the increasing challenge of antimicrobial
resistance.
Response: We thank the commenters for supporting the future
inclusion of the Antimicrobial Use measure. We will take these comments
and suggestions into consideration in developing future policy.
Comment: One commenter supported future inclusion of the NHSN
Antimicrobial Use measure in the Hospital IQR Program, but suggested
that this measure should be voluntary because required reporting at
this time would place an undue burden on hospitals without a fully
integrated IT system.
Response: We thank the commenter for supporting the proposed future
inclusion of the Antimicrobial Use measure and will consider the
commenter's suggestion in developing future policy.
Comment: One commenter did not support future inclusion of the
Antimicrobial Use Measure, because better methods are available for
prescribing antibiotics than what is described in the measure text,
such as adherence to the local facility antibiogram for the type of
infection present and technologic identification of gene resistance
markers. The commenter also suggested that the measure data that is
provided is aged and indicated that the usage of the measure's data for
payment purposes is counterproductive to clinical improvement.

[[Page 57165]]

Response: We acknowledge the commenter's concern, but note that the
NHSN Antimicrobial Use Measure assesses antibiotic use (the amount of
antibiotics used) rather than appropriateness of use. The measure
result is not a definitive measure of appropriateness and should not be
interpreted in isolation to assess prescribing practices. Instead, the
Antimicrobial Use measure should prompt hospitals to do further
analysis of prescribing practices to assess overuse, underuse, or
appropriateness of use. This additional analysis to assess
appropriateness of use may include consulting the facility antibiogram,
the facility antimicrobial stewardship program, as well as other
evidence based treatment guidelines as appropriate.
We disagree with commenter's suggestion that NHSN measure data is
``aged'' and ``counterproductive to clinical improvement.'' The NHSN
has various analytic functions that enable hospitals to analyze their
own surveillance data at any time. We encourage hospitals to use these
functions for continuous quality improvement efforts. Additional
information regarding analysis is available on the NHSN Web site at:
http://www.cdc.gov/nhsn/ps-analysis-resources/index.html.
Comment: One commenter questioned whether the use of ``days of
therapy'' (DOT) is an adequate component of measurement, indicating
that not all health information systems will be able to extract a clean
result for this data point. Instead, the commenter suggested that the
``defined daily dose'' (DDD) be the unit of measurement, as it is more
readily available, more easily obtained, and provides useful
information.
Response: We appreciate the commenter's observations about
summarizing antimicrobial consumption using DDD. A major reason why
NHSN opted to use DOT is that DDD is not applicable in children (aged
>1 month) due to the large variation in body weight within this
population. Further, NHSN's experience with antimicrobial use
surveillance--in which over 140 hospitals ranging widely in bed size,
information technology resources, and geographic location have
successfully submitted antimicrobial use data to NHSN--suggests that
DOT data can be consistently collected and reported to NHSN. While
investments in a technical solution are necessary to enable data
extraction, aggregation, and reporting, the NHSN experience provides
clear evidence that information technology vendors and, in some
instances, health systems themselves, are capable of developing and
deploying those solutions.
Comment: A few commenters expressed concern about the vendor tool
currently used to collect data for the measure. Commenters indicated
that the tool is inefficient and urged the CDC to correct the problems
with the tool prior to program inclusion. One commenter noted that
hospitals have difficulty reporting directly to the module which
requires a direct HL7 feed, a functionality not offered by many EHR
vendors, and because the measure requires additional testing and
validation before introduction into public reporting or payment
programs.
Response: While the CDC continuously strives to be abreast of
issues that arise with vendor tools and to provide feedback as a method
of aiding in the maintenance of vendor tools, we will share the
commenters' concerns with the CDC. We will also take these comments
into consideration in developing future CMS policy.
Comment: One commenter suggested that the NHSN Antimicrobial Use
measure assess administration of antibiotics in the ED and those used
pre-operatively, noting that if hospitals only gather data from eMAR or
barcode-administration, the data on administration of antibiotics will
be overlooked, and therefore, the overall measure results will be
skewed. The commenter urged that CMS evaluate the administration of
antibiotics in the ED and operating room.
Response: We appreciate commenter's suggestion to include the
emergency department (ED) and operating room (OR) in the measure and
will share it with the CDC. Although the ED and OR are not included in
the measure, the NHSN Antibiotic Use and Resistance Module does allow
for optional submission of ED and OR data. For more information, we
refer readers to: http://www.cdc.gov/nhsn/acute-care-hospital/aur/.
Comment: One commenter supported the potential inclusion of the
NHSN Antimicrobial Use measure but recommended that the measure be
specified as an eCQM rather than a chart-abstracted measure.
Response: We thank the commenter for this support and we will share
the recommendation with the CDC.
Comment: A few commenters did not support the inclusion of the NHSN
Antimicrobial Use measure. A few commenters believed the measure would
place an information handling burden on hospitals, especially smaller
hospitals that would likely have to contract with an outside vendor.
The commenter encouraged CMS to consider another alternative for
reporting progress on antibiotic stewardship. Another commenter stated
that the measure is too broad and the measure calculation is unclear.
Response: We acknowledge the commenters' concerns and will consider
them should we propose to adopt the measure in future rulemaking. For
more information regarding measure calculation, we refer readers to the
Antibiotic Use and Resistance Module manual available at: http://
www.cdc.gov/nhsn/pdfs/pscmanual/11pscaurcurrent.pdf.
Comment: Many commenters supported the concept of antimicrobial
stewardship and inclusion of an antimicrobial use measure in the
Hospital IQR Program, but did not support inclusion of this NHSN
Antimicrobial Use measure for various reasons. Specifically, several
commenters objected to the measure because Standardized Antimicrobial
Administration Ratios (SAARs) measure the amount of antibiotics used
but does not account for the appropriateness of antibiotic use nor does
it separate community hospitals from academic hospitals when defining
the expected number. Commenters noted that including this measure in
the Hospital IQR Program and publicly reporting it on Hospital Compare
may create incentives for providers to lower the number of
antimicrobial days to improve their SAAR irrespective of the
appropriateness of antimicrobial use.
Commenters urged CMS to explore the use of a measure that looks at
both number of antimicrobial days and the appropriateness of use to
promote true antimicrobial stewardship and improved patient outcomes.
One commenter suggested that CMS develop process metrics around the
appropriate use of diagnostic test(s) that help determine if antibiotic
use is appropriate by first identifying the microbe causing the
infection prior to prescribing the antibiotic in cases where patient
health status allows for the diagnostic first and also the time to
effective treatment.
Some commenters also expressed concern that the testing sample used
to develop the measure was too small which could lead to unintended
consequences of reporting the measure on a nation scale and the use of
the measure in public reporting may result in misleading comparisons
complexity of the patient population can contribute to differences in
antibiotic use rates. These commenters suggested that CMS conduct
large-scale pilot studies to further evaluate and validate the metric

[[Page 57166]]

prior to including the SAAR as part of the measure set.
For all of these reasons, some commenters expressed concern that
these data have a high probability of misinterpretation by the public
and may provide inaccurate justification for hospitals to avoid
dedicating resources to antimicrobial stewardship programs if their
SAARs are already within goal. Other commenters expressed concern about
issues related to feasibility of public reporting, risk-adjustment, and
providing hospitals sufficient time for technical set-up required with
this measure.
Response: We acknowledge commenters' concerns regarding public
reporting, risk adjustment, and technical feasibility and will consider
the comments them should we propose to adopt the measure in future
rulemaking.
Comment: One commenter suggested that CMS explore additional
hospital strategies to support efforts to reduce the threat of
multidrug resistant organisms in the hospital setting. One noted
approach was addressing infection control through the use of technology
that relies on antiseptics, such as ionic silver and molecular iodine.
Another noted approach was the use of silver antimicrobial dressings,
following surgeries conducted on geriatric patients. This tactic can be
an important part of protocols to reduce surgical site infections and
further combat antibiotic resistance. Lastly, the commenter mentioned
that combining antimicrobial agents with anti-biofilm agents would be
effectual because the anti-biofilm would disrupt biofilm to expose
associated organisms to antibiotics.
Response: We thank the commenter for these suggestions and we will
consider them for the future.
Comment: Several commenters expressed the opinion that the NHSN
Antimicrobial Use measure is appropriate for use in quality improvement
efforts, but not for public reporting at this time. The commenters
urged CDC and CMS to work together to refine the measure should it be
considered in the future for public reporting.
Response: We thank the commenters for their suggestions and we will
continue to work with colleagues at the CDC to improve the measure's
feasibility for potential future public reporting.
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.'' \189\ Thus, there may be a gap in
understanding the quality of care given to inpatient psychiatric
patients not paid for under the IPFQR Program.
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\189\ 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.
---------------------------------------------------------------------------

To address this gap, we invited 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).
The comments we received and our responses are set forth below.
Comment: Several commenters supported the future inclusion of
behavioral health quality measures in the Hospital IQR Program. One
commenter noted that in small community hospitals, patients with
alcohol or drug abuse issues for medical detox, withdrawal, or overdose
are not routinely admitted to psychiatry after medical treatment, which
is largely problematic. Therefore, including measures of behavioral
health in the Hospital IQR Program to address these behavioral issues
will help to improve outcomes for this patient population. Another
commenter was particularly interested in measures that examine health
conditions such as schizophrenia and bipolar disorder and noted that
successful implementation of behavioral health measures in the Hospital
IQR Program should lead to subsequent inclusion in the Hospital VBP
Program. A few commenters specifically requested that tobacco cessation
and substance abuse treatment measures be included because of their
importance in treating inpatient populations. Another commenter
recommended the addition of the ``Substance Use Screening'' measures,
``Tobacco Use'' measures, the ``Screening for Metabolic Disorders''
measure, the ``Hours of Physical Restraint Use'' measure, and the
``Seclusion Use'' measure.
Response: We thank the commenters for this support of behavioral
health measures in the Hospital IQR Program to improve patient
outcomes. We will consider these recommendations should we propose to
adopt behavioral health measures in future rulemaking.
Comment: Some commenters supported the future inclusion of
behavioral health quality measures in the Hospital IQR Program, but
only if the population for these measures is correctly identified and
reliable. These commenters urged CMS to consider measures that better
reflect the quality of inpatient psychiatric care than Tobacco and
Substance Use, stating that these measures are currently structured so
that the inpatient stay can be focused on stabilizing the patient to be
transferred to the next appropriate level of care. The commenters urged
CMS to recognize the patient's right to refuse treatment so that if a
hospital educates and offers treatment to a patient, and the patient
refuses treatment for substance abuse, the measure would not capture
this as a reflection of poor care, but rather exclude the patient from
the measure population.
Commenters encouraged CMS to consider adopting the HBIPS-5 measure
(Discharge on multiple anti-psychotic medications with appropriate
justification for use), the Transition of Care Measures for all
inpatients (not just those with a psychiatric diagnosis), the Screening
for Metabolic Disorders with antipsychotic medications measure, and
other measures that capture the change in a patient's presenting
psychiatric condition between admission and discharge.
Response: We appreciate commenters' recommendations and will
consider them in developing future policy.
Comment: One commenter requested specific examples of measures from
the IPFQR Program to be able to give feedback. The commenter recognized
that there are measures from the IPFQR Program that may be appropriate
for the Hospital IQR Program, but indicated that inclusion of these
measures would require time to implement workflows. On the other hand,
some commenters cautioned CMS about adopting measures from the IPFQR
Program. Specifically, some commenters stated that while the hospital-
based inpatient psychiatric services (HBIPS) measures are the most
appropriate for this population, these measures have been phased-out
over time in favor of measures that are less applicable to this
specific patient population. Therefore, commenters urged CMS to
collaborate with stakeholders to develop new measures of behavioral
health.
Response: We thank commenters for sharing their suggestions and
concerns. We understand that the addition of any new measures may cause
workflow concerns, and we will consider these issues when evaluating
any behavioral health measures we propose to adopt in future
rulemaking.

[[Page 57167]]

Comment: One commenter did not support including quality measures
of behavioral health in the Hospital IQR Program in the future because
introducing these measures within an inpatient medical facility would
introduce workflow documentation challenges and likely result in
unintended consequences. Further, the commenter suggested that prior to
any measure migration there be a review of the appropriate regulations
(that is, HIPAA or State-specific guidance) regarding the sharing of
sensitive mental health data.
Response: We acknowledge commenter's concerns and recommendations
regarding the use of behavioral health measures in the Hospital IQR
Program and will consider them should we propose behavioral health
measures in future rulemaking.
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 sought 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 also sought 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 invited 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 also sought comment on potential future hospital
quality measures that incorporate health equity. The comments we
received and our responses are set forth below.
Comment: Several commenters supported future reporting of measures
in the Hospital IQR Program stratified by race, ethnicity, sex, and
disability status if feasible and statistically appropriate. Commenters
noted that stratification would contribute to greater transparency for
consumers and provide an incentive for hospitals to improve the
reporting of these factors. A few commenters recommended that CMS
consider stratifying by additional factors including primary language
and other social determinants of health because this type of data will
enable more accurate evaluation in coverage gaps and disparities,
particularly among minority and vulnerable populations, and are
essential to improving the impact of adult immunization efforts and
expanding coverage. Another commenter encouraged CMS to include age,
income, and education level along with any of the above demographic
factors it may use in stratification of measure reporting and suggested
that CMS consider enabling multiple cross-cutting factors to be applied
to any stratification to facilitate stratification by more than one
factor at the same time. Another commenter recommended that CMS also
consider stratification by age bands.
Several commenters also expressed the opinion that a uniform
approach to data collection and stratification is necessary to ensure
appropriate comparisons. One commenter suggested that, in order for the
stratification information that would be shared to be meaningful, the
standards used for the Hospital IQR Program for race, ethnicity, and
sex must align with the Medicare and Medicaid EHR Incentive Programs.
Further, this commenter stated that a standardized definition of
``disability'' needs to be developed, as currently one does not exist.
Another commenter urged CMS to engage in a national dialogue on this
important matter and to consider the Health Research and Educational
Trust (HRET) Disparities Toolkit as an appropriate place to start
discussion regarding a uniform data collection. Another commenter urged
CMS to engage in a national dialogue on this important matter as these
conversations are also ongoing across the health insurance exchange and
MA markets.
Response: We thank the commenters for their support and
suggestions. We will consider these recommendations should we propose
to adopt stratified measure reporting in future rulemaking.
Comment: Several commenters supported use of performance measure
stratification as a tool to identify and reduce health disparities, but
urged CMS to continue to explore appropriate risk adjustment of
measures, including risk adjustment for SDS factors. Commenters stated
that differences in performance measure outcomes due to actual
variation in the quality of care provided to subgroups of patients
should not be tolerated.
Response: We thank the commenters for their support and
recommendations. We will consider these recommendations should we
propose to adopt stratified measure reporting in future rulemaking.
Comment: A few commenters did not support future reporting of
measures in the Hospital IQR Program stratified by race, ethnicity,
sex, or disability status. One commenter raised specific concerns about
the method of data collection, indicating that patient demographic
information is collected by entry level registration staff who are
often not skilled in collecting sensitive information. In addition, the
commenter stated that the inclusion of this information would pose
additional administrative burden. Another commenter believed that the
reasons for variation in performance by patient characteristics may or
may not be related to hospital performance, and this type of reporting
therefore raises more questions than it answers and could lead to
misinterpretation and unintended consequences.
Response: We thank commenters for voicing their concerns and will
consider them should we propose to adopt stratified measure reporting
in future rulemaking.
Comment: One commenter suggested that CMS and AHRQ continue to
conduct research on the impact of socioeconomic determinants upon
health care outcomes. The commenter also requested that the results of
this research be shared publicly.
Response: As we have previously noted, we have not risk-adjusted
measures for SDS factors because we do not want to mask potential
disparities or minimize incentives to improve the outcomes of
disadvantaged populations. However, as stated in section VIII.A.6.a.(1)
of the preamble of this final rule, several measures developed by CMS
have been brought to NQF since the beginning of the SDS trial. CMS, in
compliance with NQF's guidance, has tested sociodemographic factors in
the measures' risk models and made recommendations about whether or not

[[Page 57168]]

to include these factors in the endorsed measure. We intend to continue
engaging in the NQF process as we consider the appropriateness of
adjusting for sociodemographic factors in our outcome measures.
Furthermore, ASPE is conducting research to examine the impact of
SDS 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. Moreover, we will continue to
collaborate with colleagues across HHS to evaluate the impact of SDS
factors on healthcare outcomes and to develop an effective and
transparent method for communicating results to the public.
Comment: Several commenters warned that it may not be a simple task
to stratify measures by race, ethnicity, sex, and disability because
specific considerations are required for every measure and each
reporting mechanism to implement such a requirement. Specifically, one
commenter noted that small denominator sample sizes are inherently
problematic, and, if further stratified by factors such as race, age,
and gender, will skew the reliability of the measure data. Therefore,
the commenter stated that the stratified data should not be used for
financial accountability programs. Instead, the commenter recommended
that CMS develop educational material that will assist stakeholders in
interpreting stratified quality measures. Another commenter supported
the concept of CMS gathering data in the ways that can best lead to
improved outcomes, but requested at minimum 18 months to implement
changes.
Response: We thank commenters for voicing their concerns and will
consider them in should we propose to adopt stratified measure
reporting in future rulemaking.
Comment: One commenter acknowledged the importance of the policy
aim to better understand health disparities and health equity, but
recommended delaying the inclusion of stratified measures in the
Hospital IQR Program until the collection of race, ethnicity, and
disability data have matured. The commenter noted that CMS requires the
capture of REAL (race, ethnicity, age, and language) data as part of
the Medicare and Medicaid EHR Incentive Programs, but that this
activity is relatively new and the quality of the REAL data captured
through the EHRs needs to be studied to determine whether it can be
used for this purpose. The commenter noted that Hospital Engagement
Networks (HENs) are required to work with hospitals to standardize the
collection of REAL data. This work, it stated, will continue in the
future through the newly created Hospital Improvement Innovation
Networks (HIINs), which will be required to identify gaps in the
collection of REAL data in their network and to provide interventions
and assistance to reduce these gaps leading to improvement of the
quality of REAL data in the next few years.
Response: We appreciate the comments regarding ongoing efforts to
standardize and improve the collection of race, ethnicity, age, and
language data. In addition, we acknowledge commenter's recommendation
for delaying stratification and will consider these comments should we
propose to adopt stratified measure reporting in future rulemaking.
Comment: One commenter expressed interest in learning the
submission requirements for patient characteristics data provided for
quality measures. The commenter also noted that the benefit of health
equity data would need to be weighed against any new data collection
burden.
Response: Submission requirements for patient characteristics vary
from measure to measure. If in the future we move forward with a
proposal to stratify measure data by race, ethnicity, sex, and
disability on Hospital Compare, we will balance the benefit health
equity data would provide against any new data collection burden
associated with measures not currently subject to REAL requirements. We
thank the commenters for their feedback and suggestions and we will
consider them as we develop future policies.
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 the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25199), we did not propose any
changes to these procedural requirements.
However, as discussed below in section VIII.A.11. of the preamble
of this final rule, we proposed 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 the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25199), we did not propose any changes to the data
submission requirements for chart-abstracted measures.

[[Page 57169]]

d. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25199 through
25201), we proposed 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 EHR technology certified to either the 2014 or 2015 Edition
of the Office of the National Coordinator for Health Information
Technology's (ONC's) certification criteria for health information
technology and which meets the electronic health record technology
(CEHRT) definition for the CY 2017 reporting period/FY 2019 payment
determination; and (2) requiring the use of EHR technology certified to
the 2015 Edition beginning with the CY 2018 reporting period/FY 2020
payment determination and subsequent years.
In addition, we proposed 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.
(2) Continuation of eCQM Certification Processes for the FY 2019
Payment Determination and Requirements 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 EHR technology certified to either the 2014
or 2015 Edition 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 Category I (QRDA I) file format (80 FR
49706-49708). 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).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25200), we
proposed to continue these eCQM certification policies. Specifically,
for the CY 2017 reporting period/FY 2019 payment determination (not
subsequent years), we proposed to require that hospitals report using
EHR technology certified to either the 2014 or 2015 Edition as
previously required. We note that we proposed 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 proposed 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) may 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 final rule for discussion of the
certification requirements for the Medicare EHR Incentive Program.
We invited comment on these proposals. In addition, we refer
readers to section VIII.A.11.b.(5) of the preamble of this final 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.
Comment: One commenter supported alignment with the Medicare and
Medicaid EHR Incentive Programs to use the QRDA I standard, to permit
the use of third party entities to submit QRDA I files, and to use
CEHRT for capturing and reporting data in QRDA I. The commenter
expressed concern that requiring electronic submission of eCQM data
using the most recent version of CEHRT might create a disconnect in the
timing cycle of the regulatory adoption of standards and the rapid
evolution of electronic standards for eCQM reporting. The commenter
recommended that CMS and ONC collaborate to establish a regulatory
framework that is more responsive to the speed at which standards are
developed, maintained, upgraded, and improved. One commenter supported
the intent to align the Medicare and Medicaid EHR Incentive Programs
and the Hospital IQR Program reporting requirements to reduce provider
burden and minimize confusion about reporting criteria across various
quality reporting programs, but expressed concern about the expansion
of eCQMs with the current state of EHR technology. One commenter urged
CMS, as part of its certification process, to seek stakeholder input
and to define standards for EHR organization and structure that allows
for documentation to fit into the clinical workflow and interact with
providers at the point-of-contact to guide them to provide timely and
appropriate care.
Response: We thank the commenter for this support. We appreciate
the commenter's concerns about the current timeframe of evolving
electronic standards and the timing cycle for the regulatory adoption
of standards. We will continue to seek stakeholder input and
collaborate with colleagues at ONC to define standards for EHR
organization and structure that allows for documentation to fit into
the clinical workflow and to ensure that our policies are responsive to
evolving electronic standards to the greatest extent feasible.
Comment: One commenter recommended that CMS not require a hospital
to combine eCQM data from two CEHRT solutions if a hospital switches
vendors during a reporting quarter or year but rather to submit only
one QRDA I file from the CEHRT solution on which the hospital was
utilizing for a majority of the reporting quarter because QRDA I files
do not allow for combining data from multiple sources while ensuring
that patient data is not repeated as a result of the combination.
Response: We thank the commenter for this suggestion, but we
disagree that QRDA I files do not allow for combining data from
multiple sources while ensuring that patient data are not repeated. We
expect that QRDA I files submitted for the Hospital IQR Program
electronic reporting requirement are one patient per file per quarter
and cumulative in nature, thus allow for the combination of data from
multiple sources to contain all the episodes of care and the measures
associated with the patient file for the same reporting quarter. When
QRDA I files are

[[Page 57170]]

submitted, the following four key elements are utilized to identify the
file:
CMS Certification Number (CCN);
CMS Program Name;
EHR Patient ID; and
Reporting period specified in the Reporting Parameters
Section.
Utilization of the four key elements for file identification, and
the requirement to ensure the QRDA I file is cumulative and
representative of one quarter of data, greatly reduces the likelihood
of receiving repeated patient data. We note, however, that the system
will overwrite the original file with the most recent submission if all
four key elements are an exact match.
We refer readers to the succession management criteria outlined
within the CMS Implementation Guide for Quality Reporting Document
Architecture Category I and Category III Eligible Professional Programs
and Hospital Quality Reporting (HQR) Version 1.0 for additional
details. The document is updated annually and posted on the eCQM
Library on the CMS Web site available at: https://www.cms.gov/regulations-and-guidance/legislation/ehrincentiveprograms/ecqm_library.html.
Comment: A few commenters requested clarification on the use of
abstraction to extract data from non-certified sources into CEHRT for
capture and reporting through QRDA I files. One commenter expressed
concern that a hospital might chart-abstract data to complete the data
set necessary to report on an eCQM because this duplicative
transcription process could lead to errors and conflict with the
medical record maintained in the certified EHR. Some commenters
expressed the opinion that clinical data used to satisfy eCQM reporting
should originate from a credible source, and if not, abstraction of
data from a non-certified source would undermine the integrity of the
EHR Incentive Program. The commenters recommended that chart-
abstraction should never be permitted for eCQMs and that reporting
should be based solely on information available in CEHRT through the
normal record management process in place at the hospital. One
commenter urged CMS to utilize chart abstraction for quality reporting
until the EHR transformation is made to allow clinicians to focus on
delivering high quality patient focused care without the distraction of
eCQM reporting using an EHR structure that has yet to evolve to support
true meaningful use.
Response: We appreciate the commenters' concerns about information
from non-certified sources into CEHRT for capture and reporting through
QRDA I files. Ideally, information available in CEHRT through normal
record management process should be in place and used to report on
eCQMs. However, many hospitals are still undergoing the time consuming
and labor intensive process of data mapping their EHR systems. Data
mapping is necessary in order to be able to capture required data
elements, such as diagnostic study results/reports or other measure
information, in discrete structured data fields to support the eCQMs
because they are often found as free text in clinical notes or PDF
documents attached to the medical record instead.
In recognition of the reality that hospitals are in a state of
transition, it is our intent to allow hospitals some flexibility in
reporting methods if necessary during this period of transition.
Therefore, at this time, we will continue to permit the use of
abstraction to extract data from non-certified sources into CEHRT for
capture and reporting through QRDA I files. However, we encourage
hospitals to continue making progress to fully achieve electronic data
capture and reporting or to work with their vendors to do so. We
acknowledge the commenters' concerns that using chart-abstracted data
to complete the data set necessary to report on an eCQM could result in
a duplicative transcription process that could lead to errors and
conflict with the medical record maintained in the CEHRT, but we
believe that the potential for error exists any time providers enter
information into an EHR. In order to identify mismatches and
inaccuracies in data, in this final rule we are finalizing a policy to
validate eCQM data beginning with the FY 2020 payment determination. We
refer readers to section VIII.A.11.b. of the preamble of this final
rule for more details on the validation process for eCQM data.
Comment: One commenter expressed concern with these proposals
because a number of hospitals have not successfully submitted QRDA I
files and CEHRT is not capable of generating QRDA I files for
submission without modifications. The commenter suggested that CMS
provide more detailed guidance, education, and support on QRDA I file
generation and release lessons learned to improve the process.
Response: We note that our data show that 95 percent of hospitals
already attest to successful eCQM reporting under the Medicare EHR
Incentive Program and, accordingly, we believe that the majority of
hospitals will successfully report eCQMs. We recognize that technical
mapping may be potentially burdensome, but we disagree that CEHRT is
not capable of generating QRDA I files for submission without
modifications. We encourage hospitals to work with their vendors to
overcome these issues. We encourage all hospitals to submit files
early, as well as to use one of the available presubmission testing
tools for electronic reporting--such as the CMS 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. We refer readers to section
VIII.A.11.b.(5) of the preamble of this final rule for more information
about the PSVA. In addition, we acknowledge the commenter's suggestion
to put additional focus on QRDA I file generation in our education and
outreach activities for the Hospital IQR Program.
After consideration of the public comments we received, we are
finalizing that hospitals must report using EHR technology certified to
either the 2014 or 2015 Edition for the CY 2017 reporting period/FY
2019 payment determination (not subsequent years) as proposed. We also
refer readers to section VIII.A.10.d.(5) of the preamble of this final
rule, in which we finalize alignment of this policy in the Medicare and
Medicaid EHR Incentive Programs. We are also finalizing, for the CY
2017 reporting period/FY 2019 payment determination and subsequent
years, that hospitals: (1) Must submit eCQM data via QRDA I files as
previously required; (2) may use a third party to submit QRDA I files
on their behalf; and (3) may 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 as proposed.
(3) 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 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, in the FY

[[Page 57171]]

2017 IPPS/LTCH PPS proposed rule (81 FR 25200), we proposed 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 and Medicaid EHR Incentive Programs. We also refer readers to
section VIII.E.2.c. of the preamble of this final rule for discussion
of the certification requirements for the Medicare and Medicaid EHR
Incentive Programs.
We invited 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.
Comment: Several commenters supported the proposals to align the
CEHRT requirements, measure set, and deadlines between the Medicare and
Medicaid EHR Incentive Programs and the Hospital IQR Program because
these proposals will decrease the burden on organizations that
currently report for both programs.
Response: We thank the commenters for their support.
Comment: One commenter expressed concern that the vendor community
will not have adequate time to deliver the updated products to the
market place in time for all providers to meet the 2018 reporting,
which would require use of version 2015 CEHRT. The commenter explained
that the proposed changes in eCQM reporting would necessitate
sufficient time for vendors and providers to test and deploy CEHRT. The
commenter acknowledged that measures need to evolve, but stated that a
balance needs to be reached such that the churn around development and
deployment is not endless. For this reason, the commenter urged CMS to
make greater strides to enact a ``predictable'' cycle from measure
development to provider data submission.
Response: We note that the 2015 Edition certification criteria is
available for testing beginning in 2016,\190\ but EHR technology
certified to the 2015 Edition will not be required until the CY 2018
reporting period. We recognize there is burden associated with
development and deployment, but we believe requiring use of the most
recent version of CEHRT is important in allowing us to collect relevant
electronic data. In addition, we are finalizing a modified version of
our proposal to require reporting on only 8 self-selected eCQMs
(instead of all eCQMs) to reduce burden, in part so that hospitals and
vendors can focus on implementation of the 2015 Edition. We refer
readers to section VIII.A.8.a. of the preamble of this final rule for
more details on this modification. We believe that these modified
requirements provide sufficient time for hospitals to test and deploy
CEHRT. While we appreciate the commenter's suggestion that we strive to
enact a ``predictable'' cycle from measure development to provider data
submission, we must balance the importance of keeping pace with
evolving electronic standards and the timing cycle for the regulatory
adoption of standards when adopting policies for the Hospital IQR
Program.
---------------------------------------------------------------------------

\190\ 2015 Edition CEHRT Information available at: https://www.healthit.gov/sites/default/files/final2015certedfactsheet.022114.pdf.
---------------------------------------------------------------------------

After consideration of the public comments we received, we are
finalizing the required use of EHR technology certified to the 2015
Edition for the CY 2018 reporting period/FY 2020 payment determination
and subsequent years as proposed. We also refer readers to section
VIII.A.10.d.(5) of the preamble of this final rule, in which we
finalize alignment of policies in the Medicare and Medicaid EHR
Incentive Programs.
(4) 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25200), 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 proposed
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 invited 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.
Comment: One commenter expressed support for the policy that the
submission period for reporting eCQMs electronically is the two months
following the close of the calendar year because this policy allows for
continued improvement over the course of the year without the
interruption of submission.
Response: We thank the commenter for its support. With regard to
the submission period for eCQM reporting, however, we note that we are
finalizing our proposal 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. We wish to clarify that the submission period would
not be limited to only a two-month submission window from the end of
the reporting period to the end of 2 months following the close of the
reporting period as commenter suggested (for example, for CY 2017

[[Page 57172]]

reporting, a submission window of January 1, 2018 through February 28,
2018). We anticipate that following the close of the CMS data receiving
system for CY 2016 reporting period eCQM data submissions, we will re-
open the system in late spring 2017 to be able to receive both QRDA I
test files and QRDA I production files for CY 2017 reporting period
eCQM data submissions. This would allow hospitals and vendors greater
flexibility to submit QRDA I files earlier as soon as each calendar
quarter ends rather than waiting to submit all QRDA I files during the
last two months of the submission period.
We encourage all hospitals and vendors to submit QRDA I files
early, as well as to use one of the presubmission testing tools for
electronic reporting, such as the CMS Pre-Submission Validation
Application (PSVA), to allow additional time for testing and to make
sure all required data files are successfully submitted by the
deadline. The PSVA can be downloaded from the Secure File Transfer
(SFT) section of the QualityNet Secure Portal at: https://cportal.qualitynet.org/QNet/pgm_select.jsp. We refer readers to section
VIII.A.11.b.(5) of the preamble of this of this final rule for more
information about the PSVA. We also refer readers to section
VIII.E.2.b. of the preamble of this final rule in which the submission
deadline for the Medicare EHR Incentive Program is finalized.
Comment: A few commenters supported the effort to align the
proposals for both the Hospital IQR Program and the EHR Incentive
Programs, but expressed concern about the same challenges in reporting
all eCQMs in both the Medicare and Medicaid EHR Incentive Programs and
in the Hospital IQR Program. The commenters urged CMS to maintain the
current requirements in the Hospital IQR Program and the Medicare and
Medicaid EHR Incentive Programs for CY 2017 to give hospitals time to
plan and prepare.
Response: We thank the commenters for their support. We refer
readers to section VIII.A.8.a. of the preamble of this final rule for
our discussion of the modified required number of eCQMs and our final
policy.
Comment: A commenter expressed concern with the proposals to align
the Medicare and Medicaid EHR Incentive Programs and the Hospital IQR
Program because there are differences in the available and required
number of eCQMs for reporting between IQR and the Medicare and Medicaid
EHR Incentive Programs. The commenter requested that CMS require the
same number of eCQMs regardless of how the eCQMs are reported.
Response: We are aligning the programs and finalizing the same
number of eCQMs that will be required to be reported for the Medicare
and Medicaid EHR Incentive Programs and the Hospital IQR Program (that
is, 8 of the available eCQMs in the programs). We refer readers to
section VIII.A.8.a. of the preamble of this final rule in which we
finalize a modified policy to require 8 eCQMs, and section VIII.E.2. of
the preamble of this final rule in which the measure set and the
required number of eCQMs to be reported for the Medicare and Medicaid
EHR Incentive Programs are finalized. We note that as part of our
alignment efforts, a hospital may report the same eCQMs for the
Hospital IQR Program and the Medicare and Medicaid EHR Incentive
Programs. With regard to the available set of eCQMs, the Medicare and
Medicaid EHR Incentive Programs have one additional eCQM available, ED-
3 (Median Time from ED Arrival to ED Departure for Discharged ED
Patients), that is applicable only for the outpatient hospital setting
(77 FR 54083 through 54087), and would not count towards meeting
Hospital IQR Program eCQM reporting requirements.
After consideration of the public comments we received, we are
finalizing the alignment of the Hospital IQR Program eCQM submission
deadline with that of the Medicare EHR Incentive Program--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 as
proposed. We also refer readers to section VIII.E.2.b. of the preamble
of this final rule where we discuss submission deadlines in the
Medicare EHR Incentive Program.
(5) Summary of Alignment
We are finalizing our proposals 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
------------------------------------------------------------------------

-------------------------------------------------------------------------
Removal of 13 eCQMs.
Requirement for submission of 8 self-selected eCQMs out of the
available eCQMs for the CY 2017 reporting period/FY 2019 payment
determination. *
Requirement for annual submission of four quarters of eCQM
data.
Required use of EHR technology certified to the 2014 or 2015
Edition of CEHRT for CY 2017 reporting period/FY 2019 payment
determination. **
------------------------------------------------------------------------
* The Hospital IQR Program is also finalizing the required reporting of
8 eCQMs for the CY 2018 reporting period/FY 2020 payment
determination.
** The Hospital IQR Program is also finalizing the required use of EHR
technology certified to the 2015 Edition for the CY 2018 reporting
period/FY 2020 payment determination. We note that in the proposed
rule (81 FR 25200 through 25201), this chart stated ``Proposed use of
2015 CEHRT for CY 2018 reporting period/FY 2020 payment
determination'' for the Hospital IQR Program and both the Medicare and
Medicaid EHR Incentive Programs. The Medicare and Medicaid EHR
Incentive Programs have not finalized this policy for CY 2018
reporting period/FY2020 payment determination. Technical revisions
made here for accuracy.

Alignment of Hospital IQR Program With Only the Medicare EHR Incentive
Program
------------------------------------------------------------------------

-------------------------------------------------------------------------
Required submission of eCQM data by the end of 2 months
following the close of the reporting period calendar year. *
------------------------------------------------------------------------
* We note that in the proposed rule (81 FR 25200 through 25201), this
chart stated ``proposed submission of eCQM data 2 months following the
close of the calendar year'' and did not accurately capture our
proposal and final policy that submission would be required by the end
of 2 months following the close of the reporting period calendar year.
Technical revisions made here for accuracy.

[[Page 57173]]

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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25201), we did
not propose any changes to our sampling and case thresholds policy;
however, we did receive several comments related to this policy.
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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25201), we did not propose 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 the FY 2017 IPPS/LTCH PPS proposed rule (81
FR 25201), we did not propose 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25201), we did not propose any changes to data submission and reporting
requirements for HAI measures reported via the NHSN.
11. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25201 through
25204), we proposed to update the validation process in order to
incorporate a process for validating eCQM data.
b. Modifications to the Existing Processes for Validation of Hospital
IQR Program Data
(1) Background
In the proposed rule, we proposed 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 Exemption (ECEs) 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 proposed that hospitals
would be required to submit timely and complete medical record
information from the Electronic Health Records (EHRs) 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 chart-abstracted measure data, we
believe that we must collect more eCQM data and develop a process for
validating the accuracy of those 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 the proposed rule, we proposed 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

[[Page 57174]]

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 eCQMs. In addition, all of the participating hospitals demonstrated
significant difficulty in reporting the ED-1 and ED-2 eCQMs 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 Education and Outreach 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. Additional details about
the 2015 Validation Pilot are available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1140537256076.
(3) Validation of 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 discussed in
section VIII.A.8.a. of the preamble of this final 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 proposed 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 proposed to validate eCQM data submitted by up to 200 hospitals
selected via random sample. Furthermore, we proposed 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 proposed 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 proposed 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 up
to 800 hospitals in the validation process, as described in the below
tables.

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

------------------------------------------------------------------------
Current Validation Process Number of Hospitals
------------------------------------------------------------------------
Chart-Abstracted Random.................................... 400
Chart-Abstracted Targeted.................................. 200
------------
Total.................................................. 600
------------------------------------------------------------------------
Proposed Validation Process Number of Hospitals
------------------------------------------------------------------------
Chart-Abstracted Random.................................... 400
Chart-Abstracted Targeted.................................. 200
eCQM Random................................................ 200
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total.................................................. 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 invited 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.
Comment: Several commenters supported the proposal to modify the
existing validation process for the Hospital IQR Program to include
validation of eCQM data for a variety of reasons. One commenter
believed validation of eCQM data will promote transparency about the
quality of the eCQM data being submitted as well as identify challenges
inherent with data validity and eCQM reporting. The commenter
recommended that CMS validate the accuracy of the content in the
structured fields to see how consistent it is with the rest of the
medical record because unless the accuracy of the structured fields is
assured, the quality of the data reported by eCQM reporting will
continue to be suspect and unfit for use in public reporting or pay-
for-performance programs.
Response: We thank the commenters for their support and we will
take recommendations related to the validation of the content in the
structured files and its impact on medical record accuracy into
consideration as we implement the validation of eCQM data. We
understand the importance of reliable and valid information and share
the commenter's desire to ensure the integrity of the data provided for
public

[[Page 57175]]

reporting and pay-for-performance programs.
Comment: One commenter expressed concern that insufficient testing
could result in unintended consequences to patient safety and health
care quality, but expressed concern that the validation pilot may be
too narrow for an accurate review. Another commenter noted that data
extracted from EHRs differ from the data obtained from chart-abstracted
measures and, therefore, currently are not reliable for display in a
public reporting program.
Response: We acknowledge the commenter's concern about insufficient
testing resulting in unintended consequences. We recognize that we must
thoroughly evaluate the electronic data provided to us in order to
promote patient safety and health care quality. We appreciate the
commenter's concern that the validation pilot may be too narrow for an
accurate review and to address this concern we are expanding the
validation process for eCQM data to include 200 hospitals initially.
After the first year of validation data is evaluated, we will be able
to more accurately determine the most appropriate mechanisms for
validating the information and consider if we need to expand the number
of participating hospitals.
In response to the commenter's point about differing data
extraction methods, we recognize that performance-level differences
between eCQM data and chart-abstracted measure data may exist, however,
we believe that we must collect more eCQM data and develop a process
for validating the accuracy of those data. Further, we do not intend to
publicly report eCQM data from the CY 2017 reporting period.
Comment: One commenter supported the proposed modifications to the
existing validation process to include the validation of eCQM data, but
expressed concern that the validation pilot focused only on the
apparent lack of outreach and education to explain the mismatch between
QRDA I and medical record abstraction to explain low level of accuracy.
The commenter noted that other possible explanations for low accuracy
include: Process workflows; data definitional issues; non-structured
data requiring manual input; and the level of data completeness and
reliability captured in CEHRT. The commenter recommended that CMS
pursue additional strategies to increase the validity and reliability
of the QRDA I reported measures. Also, because of the demonstrably poor
concordance between eCQMs and their chart-abstracted counterparts, the
commenter recommended that penalties be limited to pay-for-reporting,
rather than pay-for-performance, programs until there are significantly
better results. A few commenters expressed concern with the proposal to
begin validating eCQM data because hospitals and vendors require more
education and guidance to accurately report eCQM data. The commenters
suggested that CMS improve the resources available to healthcare
organizations regarding the implementation of eCQMs beyond validation.
Another commenter expressed interest in engaging with CMS to further
provide education to ensure that providers and vendors alike are
aligned.
Response: We thank the commenter for these observations and we will
consider these factors as we implement the validation process for eCQM
data. The findings of the validation pilot revealed that hospitals
indicated that they encountered difficulties in mapping the information
in the EHR systems to the QRDA I specifications due to the use of
unstructured data fields and multiple sources of information for
various events. As stated in the proposed rule (81 FR 25202), 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 eCQMs. In
addition, all of the participating hospitals demonstrated significant
difficulty in reporting the ED-1 and ED-2 eCQMs 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. The difficulties in
mapping, which were caused by missing information, resulted in failure
of the data to be translated to QRDA I. During the pilot, hospitals
also indicated that much of the required information is documented in
the hospital EHR system through free text notes, dictation, and scanned
PDF documents, rather than discrete data fields. For this reason, data
elements could not be extracted or mapped to create the data elements
in the QRDA I files. In addition, hospitals indicated that clinical
workflows and the use of clinical terminology did not align with the
eCQM specifications at the time of the pilot, which hindered efficient
data mapping by hospitals and their vendors. For more details on the
eCQM validation pilot test, titled ``The Hospital IQR eCQM Pilot
Summary,'' we refer readers to the pilot test findings available at:
https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1140537256076.
As a result of these findings, we have updated the eCQM
specifications to improve implementation and will continue outreach and
education efforts, particularly regarding data mapping techniques/
requirements to improve submission efforts moving forward. We
appreciate the commenter's interest in education and outreach and
encourage the commenter to engage with CMS. In addition, we will take
the commenters' feedback into consideration as we provide education and
outreach to hospitals and vendors about the eCQM validation
requirements and we will solicit feedback on additional strategies to
increase the validity and reliability of the QRDA I reported measures.
We intend to continuously evolve our resources to ensure that
healthcare organizations are equipped with the tools and knowledge to
not only successfully submit eCQM data for validation, but to ensure
that accurate and reliable data are submitted as part of regular eCQM
reporting, prior to validation.
We note that accuracy of the data submitted for eCQM validation
will have no impact on determination of the hospital's APU for at least
the first year of validation in CY 2018; however, hospitals selected
for eCQM validation still must submit timely (within 30 days of the
records request) and sufficient (at least 75 percent complete) medical
records to receive a full APU for the FY 2020 payment determination. We
refer readers to section VIII.A.11.b.(3)(e) of the preamble of this
final rule where we finalize our eCQM validation scoring policies.
Comment: A few commenters recommended delaying implementation of
the proposal to begin validating eCQM data because the current timeline
does not allow providers enough time to implement new processes in
order to prevent receiving a penalty under the proposed validation
policies. One commenter specifically recommended delaying validation by
24 months to allow providers to learn the rules of validation. Another
commenter noted that the EHR vendor guidance for mapping data elements
is not sufficient for full automation of the data extraction process
such that most of the mapping is completed by hospital staff using
their own procedures, resulting in a heavy burden for hospitals as well
as

[[Page 57176]]

high potential for inconsistency in measure reporting output, even
among hospitals using the same EHR vendor product. The commenter
recommended delaying implementation of the eCQM data validation
proposal to allow more time for vendors to develop standardized
procedures and hospitals to implement efficient workflows based on
these standardized procedures and encouraged CMS to ensure that
hospitals are reasonably able to comply with these new requirements. A
commenter stated that the experience of participants in the eCQM data
validation pilot suggests that more time is needed before data
validation can be successfully implemented in the broader Hospital IQR
Program.
Response: We thank the commenters for their recommendations, but we
disagree with the suggestion to delay implementation of an eCQM
validation process. We note that we will not conduct the first
validation of eCQM data until spring of 2018 to validate data from the
CY 2017 reporting period and that the measures accuracy of data
submitted for eCQM validation will have no impact on determination of
the hospital's APU for purposes of the Hospital IQR Program for at
least the first year this validation process is in effect. We believe
this timeline does allow providers enough time to implement new
processes and to learn the requirements of validation in order to
prevent receiving a penalty under the validation policies.
We acknowledge that the data extraction process has been such that
most of the mapping is completed by hospital staff using their own
procedures, resulting in a high potential for inconsistency in measure
reporting output, even among hospitals using the same EHR vendor
product. It is precisely those types of inconsistencies on which we
would be able to provide feedback to participating hospitals when
sharing their validation results. Precisely because the results of the
validation pilot demonstrated that there were significant inaccuracies
in reported eCQM data, we believe that validation of eCQM data is
critically important in order to guide improvement efforts and to
tailor education and outreach to help hospitals improve the quality of
the data they submit.
To address the suggestion of the creation of standardized data
extraction procedures, we will utilize any input provided from EHR
vendors during our education and outreach efforts that might be
beneficial in such procedures. We also recognize that hospitals may
have their own unique workflows, so input from both hospitals and EHR
vendors would be utilized to help establish ``best practices.''
Comment: Some commenters acknowledged the importance of eCQM
validation, but expressed concerns about the process, specifically,
variable methods of recording data within the EHR at the user level,
non-intuitive data collection requirements imposed by the measures and/
or product design, the differences between manually-abstracted and
electronically-abstracted measures, and the workflow changes required
for chart review. One commenter recommended that CMS consider the EHR
vendor role in the validation plan, and work with vendors to understand
some of these variations, as well as to identify EHR system functional
requirements and query vendors as to current product capabilities
relative to these requirements.
Response: Our proposed eCQM validation process is intended to help
hospitals identify and correct inconsistencies associated with varying
methods of recording data within the EHR and different interpretations
of data collection requirements at the user level in order to improve
the accuracy of data reported. Instituting an eCQM validation process
will help us to better understand how to help hospitals resolve these
data reporting concerns. We acknowledge that many hospitals will most
likely continue to have concerns about the accuracy of their data in
the first few years of required eCQM reporting. It is for this reason
that we have proposed and are finalizing that the measures accuracy of
data submitted for eCQM validation will have no impact on determination
of the hospital's APU for at least the first year (that is, the FY 2020
payment determination).
In response to the commenter's recommendation that we consider the
EHR vendor role in the validation plan and work with vendors to
understand some of these variations, identify EHR system functional
requirements, and query vendors as to current product capabilities
relative to these requirements, we acknowledge that EHR vendors could
provide feedback invaluable to the eCQM validation process. We will
make efforts, to the extent feasible, to include vendors in our
outreach and education efforts, to provide them an opportunity to share
their knowledge related to EHR system functional requirements and
product capabilities that can inform the validation process and help to
improve it over time.
Comment: One commenter recommended that, rather than focusing on
validating eCQM data, CMS only include an eCQM in a quality reporting
program if it has been fully tested by CMS to ensure the measure
functions as intended, is deemed feasible by an appropriate process
that considers the views of multiple applicable stakeholders, is fully
field tested, and is endorsed by NQF.
Response: We note that our data show that 95 percent of hospitals
already attest to successful eCQM reporting under the Medicare EHR
Incentive Program and, accordingly, we believe that the majority of
hospitals will successfully report eCQMs. Hospitals have had several
years to report data electronically for the Medicare and Medicaid EHR
Incentive Programs and the Hospital IQR Program (3 years of pilot
reporting and 3 years of voluntary reporting), which demonstrate that
the eCQMs included in the Hospital IQR Program measure set function as
intended and are feasible. In addition, as noted in the table in
section VIII.A.7.c. of the preamble of this final rule, almost all of
the eCQMs available in the Hospital IQR Program measure set for the FY
2019 payment determination are endorsed by the NQF (only the CAC-3 and
STK-08 eCQMs are not NQF-endorsed). Whenever feasible, we adopt
measures that are NQF-endorsed, but note that, sometimes, there are
important areas of clinical concern for which NQF-endorsed measures do
not exist. In these instances, we may elect to adopt measures that have
not yet been NQF-endorsed.
Comment: A number of commenters recommended that CMS share the
findings from the 2015 eCQM Validation Pilot as a method of keeping
stakeholders informed about the validation process. The commenters
noted that sharing this information will improve eCQM reporting
accuracy and also facilitate an educational forum that allows hospitals
and stakeholders to understand how to better implement eCQMs. One
commenter also stated CMS' transparency with the results will allow
hospitals to better understand the results and their general
applicability to the greater hospital community.
Response: We agree with commenters and note that a summary of the
findings from the eCQM validation pilot test we conducted, titled ``The
Hospital IQR eCQM Pilot Summary,'' is available on the QualityNet Web
site at: http://www.QualityNet.org/. Stakeholders were notified of the
availability of this summary of the findings on June 13, 2016 via
email. To access the summary, select the ``Data Validation'' link from

[[Page 57177]]

the ``Hospitals-Inpatient'' tab. On the Data Validation Overview page,
select the ``Resources'' link in the left-side navigation pane. A list
of communications regarding the Hospital IQR Program is available at:
https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228765304720.
Comment: One commenter recommended that CMS extend the EHR pilot
testing beyond two hospitals and two EHR systems, to gather adequate
information to understand how the eCQMs will work. The commenter
further recommended that CMS collect a minimum of one year's worth of
data from all hospitals and vendors chosen to participate in the EHR
pilot testing, and explained that these data should be considered
``test'' data and not released publicly, but instead be released to
hospitals for feedback to CMS. One commenter recommended additional
testing of the eCQMs to avoid the unnecessary use of resources by
facilities and CMS. Another commenter recommended that the
implementation of eCQM data validation be delayed and that CMS convene
stakeholders to discuss issues arising from the pilot project, clarify
operational validation procedures based on that input, and then
implement a larger pilot test before proposing and finalizing a
validation process.
Response: The CMS eCQM validation pilot included 29 hospitals and
29 EHR systems, which we believe is an adequate sample size for a
pilot. We disagree that eCQM validation should be delayed or that we
should conduct another pilot because implementation of a validation
process is intended to help hospitals identify and correct
inconsistencies in eCQM data to improve the accuracy of data reported.
Instituting an eCQM validation process will help us to better
understand how to help hospitals resolve these data reporting concerns.
Additional validation pilots would rely on voluntary participation by
hospitals, which will produce a small sample size, as noted above with
the 29 participating hospitals in the previous pilot.
We believe that implementing a broader validation process with
mandatory participation better serves to achieve our goals of improving
the accuracy of data reported and help us to better understand how to
help hospitals resolve data reporting concerns because it will include
a larger sample size. The objective of eCQM validation is to be
responsive to concerns related to the reliability and validity of eCQM
data, and ultimately to be able to confirm the accuracy of data
sufficient for public reporting. If we continue to conduct pilot
studies, we will continue to have inconclusive results based on a small
sample size. We note that our data show that 95 percent of hospitals
already attest to successful eCQM reporting under the Medicare EHR
Incentive Program and, accordingly, we believe that the majority of
hospitals will successfully report eCQMs; therefore, we do not believe
additional testing is necessary or that implementation of an eCQM data
validation process be delayed.
We note that we will not conduct the first validation of eCQM data
until spring of 2018 to validate data from the CY 2017 reporting
period, that the measures accuracy of data submitted for eCQM
validation will have no impact on determination of the hospital's APU
for at least the first year (that is, FY 2020 payment determination),
and that the results of the validation will not be publicly reported.
We believe that sharing eCQM validation results with hospitals will
provide invaluable feedback that will enable them to identify issues
and correct issues to improve their EHRs as well as the quality of
their eCQM data.
Comment: One commenter expressed concern regarding the results of
the eCQM validation pilot, which highlighted challenges for
implementing eCQMs including the burden associated with mapping
necessary data elements from the EHR to the appropriate QRDA format.
Response: We appreciate the commenter's concerns and acknowledge
the burden associated with mapping necessary data elements from the EHR
to the appropriate QRDA I format. We encourage hospitals to work with
their vendors to resolve these issues. Precisely because the results of
the validation pilot demonstrated that there were significant
inaccuracies in reported eCQM data, we believe that validation of eCQM
data is critically important in order to guide improvement efforts and
to tailor education and outreach to help hospitals improve the quality
of the data they submit.
Comment: One commenter opposed the eCQM validation proposal,
stating that the addition of the eCQM validation process puts undue
burden on facilities. The commenter noted that because QRDA I files
contain information from the electronic medical record, submitting the
complete medical record in PDF format will not provide the various
codifications contained in the EHR. Further, the commenter added that
the data reported will be more accurate and valuable if the rollout
includes fewer, well-tested measures.
Response: We believe that appropriately mapped QRDA I files contain
information from the EHR, and that submitting the complete medical
record in PDF format will provide the various information contained in
the EHR. We recognize that technical mapping may be potentially
burdensome and we encourage hospitals to work with their vendors to
overcome these issues. When hospitals work with their vendors to ensure
that EHRs are appropriately structured in a way that fits in with the
clinical work flow to yield reliable data through eCQMs, we believe
that eCQMs promote higher quality outcomes and lower costs while
ultimately decrease reporting burden on hospitals as compared with
chart-abstraction of quality measure data.
We disagree that reporting or validation of eCQMs puts undue burden
on facilities. We believe that it is appropriate to require reporting
and validation of eCQMs given that measures available now and those
being developed for the future are increasingly based on electronic
standards (80 FR 49696). We also note that progress on the meaningful
use of electronic health data is a national priority, as evidenced by
the HITECH Act and the EHR Incentive Programs' Meaningful Use
requirements. We believe that collection of eCQM data will enable
hospitals to efficiently capture and calculate quality data that can be
used to address quality at the point of care and track improvements
over time. We also believe that the removal of 13 eCQMs, as detailed in
section VIII.A.3.b. of the preamble of this final rule for the FY 2019
payment determination and subsequent years, appropriately addresses
that implementation of the validation process includes fewer, well-
tested measures as suggested by the commenter. We acknowledge that
there are initial costs, but believe that long-term benefits associated
with electronic data capture outweigh those costs. For these reasons,
we believe that it is appropriate to require hospitals to report on an
increasing number of eCQMs, as well as to implement a process to
validate the data as these go hand-in-hand.
Comment: One commenter expressed concern with the proposal to
validate eCQM data because the sample size may not be large enough to
ensure selection of 200 hospitals. The commenter suggested that
additional hospitals be included in the random sample to provide the
ability to substitute hospitals into the sample if they are

[[Page 57178]]

needed and to ensure that the match rate is 90 percent.
Response: We acknowledge that among those hospitals selected for
eCQM validation, some may be granted Extraordinary Circumstances
Exemptions 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. We believe that
the sample size of 200 hospitals, consistent with the targeted sample
size for chart-abstracted validation, will be sufficient even taking
into account the possibility that some hospitals selected for
validation may not participate in validation if they satisfy any of the
exclusion criteria. We may consider increasing the sample size in the
future.
Comment: One commenter supported the proposal to modify the
existing validation process to include validation of eCQM data, but
recommended changes to the proposed validation methodology.
Specifically, the commenter recommended that CMS: compare performance
rates for all populations within an eCQM to their chart-abstracted
counterparts, which would require comparable chart abstracted
specifications; convene a multi-stakeholder group to address the
detailed methodology of comprehensive data validation prior to
submission and conduct an audit post-submission; and establish a
National Test Collaborative for fully testing new eCQMs prior to their
implementation in CMS programs.
Response: We thank the commenter for its suggestions, and we will
take them into consideration as we implement the validation process for
eCQM data. In response to the commenter's suggestion that we compare
performance rates for all populations within an eCQM to their chart-
abstracted counterparts, we do not have data available to conduct such
comparisons at this time, but as our eCQM validation process matures,
we will take this recommendation into consideration in the future.
However, we note that eCQM data and chart-abstracted data are not
always one hundred percent comparable due to the use of structured data
fields in eCQMs and free text in chart-abstracted measures. In response
to the commenter's suggestion that we convene a multi-stakeholder group
to address the detailed methodology of comprehensive data validation
prior to submission and conduct an audit post-submission, we
acknowledge the importance of having multi-stakeholder input to inform
pre and post submission validation efforts, and we believe that input
from such a group would be meaningful as we continue to evolve our
validation policies. Currently, we gather this type of input from
Technical Expert Panels (TEPs) that assist in evaluating the
information collected during field testing as a part of the eCQM
development process. In addition, we gather feedback from stakeholders
via public comment during both the alpha and beta testing phases of
measure development. As such, we will make every effort to engage
stakeholders in a similar manner, through outreach and education about
eCQM validation. In response to the commenter's point about
establishing a National Test Collaborative, we will take this
recommendation into consideration in the future.
Comment: One commenter expressed concern that the validation
methodology could negatively impact hospitals because the CMS
contractor will look at free text fields, which likely are not reviewed
by the CEHRT tool.
Response: We acknowledge the commenter's concerns, but we disagree
that the validation methodology could negatively impact hospitals
because as we have stated above, accuracy of the data submitted for
eCQM validation will have no impact on determination of the hospital's
APU for at least the first year and the results of the validation will
not be publicly reported. Further, as discussed in section
VIII.A.10.d.(5) of the preamble of this final rule, we are finalizing
the required use of EHR technology certified to the 2015 Edition
beginning with the CY 2018 reporting period, to better ensure that the
information provided in the free text fields has been adequately
reviewed.
After consideration of the public comments we received, for the FY
2020 payment determination and subsequent years, we are finalizing our
proposals 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 proposed.
(b) Number of Cases
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25203), we
proposed 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 \191\ 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 final rule, below,
for more information on our submission requirements.
---------------------------------------------------------------------------

\191\ 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 invited 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.
We did not receive any comments on this proposal, and therefore, we
are finalizing 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 proposed.
(c) Submission Requirements
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25203), we
proposed 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.

[[Page 57179]]

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 proposed 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 proposed 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 proposed 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 invited public comment on our proposals regarding eCQM
validation submission requirements for the FY 2020 payment
determination and subsequent years as discussed above.
Comment: A few commenters supported the validation of eCQM data,
but recommended the timeline for submission be extended from 30 to 60
days to allow hospitals sufficient time to work with their EHR vendor
on compiling data and to reduce overall administrative burden.
Response: We thank the commenters for their support and their
recommendation to extend the submission timeline to 60 days. However,
we have selected the 30 day timeline to be consistent with chart-
abstracted and NHSN timelines for validation. We believe that aligning
the timelines between chart-abstracted and eCQM validation will
minimize confusion and burden on hospitals.
Comment: One commenter expressed concern about the timing of the
request for the validation information for eCQMs. Specifically, the
commenter took issue with the expansion of work required if a hospital
is selected for both chart-abstracted and eCQM validation, since the
selection for each process is random. Moreover, the commenter advised
that the eCQM data request should not occur at the same time the
quarterly request goes out for the chart-abstracted cases.
Response: As stated in the FY 2017 IPPS/LTCH PPS proposed rule (81
FR 25202), 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. For this reason, we proposed that if a hospital is selected for
chart-abstracted targeted or random validation, that hospital would be
excluded from the eCQM validation sample. We refer readers to section
VIII.A.11.b.(3)(a) of the preamble of this final rule, above, where we
finalize our exclusions.
Comment: A few commenters requested clarification about what
constitutes ``sufficient patient level information'' to successfully
pass validation, including a list of specific information to provide
for each eCQM that can be consistently applied across vendors and
providers. Commenters wanted to know which specific patient data would
be required for validation purposes and whether the medical record data
includes all encounters for a patient or only one encounter for a
patient.
Response: As we stated in the proposed rule (81 FR 25203),
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. Any patient information captured in the QRDA I file
should also be reflected in the PDF submission of the patient's EHR.
Medical record data include all encounters for a patient. The data
submission deadlines and additional details about the eCQM validation
procedures will be posted on the QualityNet Web site at: http://www.QualityNet.org/.
Comment: A few commenters supported the proposal to validate eCQM
data, but suggested that the data elements for validation be listed by
data element per measure. The commenters stated that this approach of
providing measure-specific details of the expected data elements needed
for the purpose of eCQM validation would make it more apparent to
hospitals which data are expected for eCQM validation. The commenters
further stated that having this specified list will streamline the
process of data submission by easing the burden of making sure the
necessary information is supplied.
Response: We thank the commenters for their support and we will
consider the suggestion that data elements for validation be listed by
data element per measure in the future. At this time, we believe that
providing measure-specific details would be premature. As we learn from
the first year of validation results, we will refine the process to
ensure it most efficiently captures the necessary information while
easing burden on hospitals.
After consideration of the public comments we received, we are
finalizing, for the FY 2020 payment determination and subsequent years,
the requirements to: (1) Require eCQM validation submission by 30
calendar days following the medical records request date listed on the
CDAC request form; (2) require sufficient patient level information
necessary to match the requested medical record to the original
Hospital IQR Program submitted eCQM measure data record; and (3)
require hospitals selected as part of the random sample for eCQM
validation to submit records in PDF file format through QualityNet
using the Secure File Transfer (SFT) as proposed.
(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 in the proposed rule (81 FR 25203), we did not propose
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 eight randomly selected medical charts on a quarterly basis
from which data were

[[Page 57180]]

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 re-abstracts 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: eCQM Validation Scoring
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25203 through
25204), for the FY 2020 payment determination, for hospitals selected
for eCQM validation, we proposed 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 proposed 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 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 proposed 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 proposed that hospitals would
not be required to attain at least a 75 percent validation score 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 would
still 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 proposed 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 invited public comment on our eCQM validation scoring proposals
for the FY 2020 payment determination as discussed above.
Comment: A few commenters expressed support for the proposal that
eCQM data submitted for validation would not affect a hospital's
validation score for the FY 2020 payment determination.
Response: We thank the commenters for their support.
Comment: One commenter did not support the policy that hospitals
would be penalized for failing to submit 75 percent of the sampled eCQM
data because multiple factors beyond a hospital's control, including
failure on the part of the EHR vendor, can impact the capture of data.
The commenter stated that hospitals should not be penalized if they
have made a good faith effort to accurately submit the data.
Response: We disagree with the commenter that hospitals should not
be penalized for failing to submit 75 percent of sampled records. If
selected for validation, a hospital would be required to submit at
least 75 percent of sampled records. The accuracy of that data will
have no impact on determination of the hospital's APU for at least the
first year. In other words, if the data in those records does not match
the data in the QRDA I files submitted, for example, if a data field in
a patient's EHR is not correctly mapped to the QRDA I file such that
the EHR indicates arrival time in the Emergency Department at 11:00am
but the QRDA I file indicates some other time or leaves the value of
that data field blank, the hospital would not receive any penalty for
the mismatch.
The purpose of these validation efforts is to ensure that the data
provided is reliable, feasible and valid. We believe that submission of
75 percent of the requested records is a necessary threshold to ensure
that we have an adequate amount of data to assess and validate. Some
commenters expressed concern that the initial sample size of 200
hospitals potentially could be too small, but we believe that
establishing a submission threshold of 75 percent of the requested
records will ensure that we receive an adequate amount of data to
provide reliable and valid results for the sample size of 200
hospitals. We encourage hospitals to work with their vendors to ensure
that EHRs are appropriately structured in a

[[Page 57181]]

way that fits in with the clinical work flow to yield reliable data
through eCQMs. We believe that eCQMs promote high quality outcomes and
lower costs while ultimately decrease reporting burden on hospitals.
If, however, the hospital has experienced an unforeseen circumstance
beyond the hospital's control that may meet our criteria for an
Extraordinary Circumstances Exemption (ECE), we suggest that the
hospital submit an ECE request.
After consideration of the public comments we received, we are
finalizing for the FY 2020 payment determination only and as proposed:
(1) To require submission of at least 75 percent of sampled eCQM
measure medical records in a timely and complete manner; and (2) that
the accuracy of eCQM data submitted for validation would not affect a
hospital's validation score. We are also finalizing to update our
regulations at 42 CFR 412.140(d)(2) to reflect the above proposals and
to specify that the 75 percent score required to receive full APU would
only apply to chart-abstracted validation as proposed.
(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
proposed (81 FR 25204) 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 final rule for more information
regarding the collection of information for eCQM validation.
We invited 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.
We did not receive any comments on this proposal, and therefore, we
are finalizing our policy to reimburse hospitals at a rate of $3.00 per
chart for eCQM validation for the FY 2020 payment determination and
subsequent years as proposed.
(5) eCQM Pre-Submission Testing
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25204), we
encouraged 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.\192\ 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.\193\
---------------------------------------------------------------------------

\192\ 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.
\193\ Data Mapping Definition Available at: https://www.techopedia.com/definition/6750/data-mapping.
---------------------------------------------------------------------------

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. In the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25204), we did not propose any
changes to the DACA requirements.
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. In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25204), we did not propose any changes to our
public display requirements.
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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25204 through 25205),
we did not propose any changes to the reconsideration and appeals
procedures.
15. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25205), we
proposed 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 proposed that these policies would apply beginning in FY 2017
as related to extraordinary circumstance events that occur on or after
October 1, 2016.
a. Extension of 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
extraordinary event that 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

[[Page 57182]]

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.
We invited public comment on our proposal related to the Hospital
IQR Program's ECE policy for non-eCQM circumstances beginning FY 2017
as related to extraordinary circumstance events that occur on or after
October 1, 2016 as described above.
Comment: Several commenters supported the proposal to extend the
current submission deadline for ECE requests for non-eCQM measures to
90 days because it promotes alignment with existing quality reporting
programs.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing our proposal to extend the general ECE request deadline for
non-eCQM circumstances to 90 calendar days following an extraordinary
circumstance event beginning FY 2017 as related to extraordinary
circumstance events that occur on or after October 1, 2016 as proposed.
b. Establishment of Separate Submission Deadline for ECE Requests
Related to eCQMs
In addition, we proposed 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 proposed 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 invited public comment on our proposal for the Hospital IQR
Program's ECE policy related to eCQMs beginning FY 2017 as related to
extraordinary circumstance events that occur on or after October 1,
2016 as described above.
Comment: Several commenters supported the proposal to establish a
submission deadline for ECE requests for eCQMs because it promotes
alignment with the Medicare and Medicaid EHR Incentive Programs. In
addition, commenters stated that this alignment would allow facilities
to adequately respond to events and assure patient safety prior to
submitting the request for an extension or exemption.
Response: We thank the commenters for their support.
Comment: A few commenters asked for clarification on the
circumstance for which an ECE request would be granted. Specifically,
the commenters asked if a hospital would be granted an exemption if its
EMR is under transition due to a change in vendors during the reporting
period. In addition, a commenter asked whether, during the transition
phase, the hospital would be required to include and report on all the
required eCQMs in both the older and newer EHR. Further, some
commenters recommended that CMS develop an expansive definition of
``extraordinary circumstances,'' which provides detail on applicable
technology difficulties (that is, switching EHR or third-party data
eCQM submission vendors during the reporting period).
Response: Our current policy allows hospitals to utilize the
existing ECE form to request an exemption from the Hospital IQR
Program's eCQM reporting requirement for the applicable program year
based on hardships preventing hospitals from electronically reporting.
Such hardships could include, but are not limited to, infrastructure
challenges (hospitals must demonstrate that they are in an area without
sufficient internet access or face insurmountable barriers to obtaining
infrastructure) or unforeseen circumstances, such as vendor issues
outside of the hospital's control (including a vendor product losing
certification) (80 FR 49695). With respect to the question of whether a
hospital would be required to include and report on all the required
eCQMs in both the older and newer EHR during an EHR transition phase,
we note that ECE requests are considered on a case by case basis. Our
decision whether to grant an ECE will be based on the specific
circumstances of the hospital and the evidence submitted to us as part
of the ECE request form.
After consideration of the public comments we received, we are
finalizing for beginning FY 2017 as related to extraordinary
circumstance events that occur on or after October 1, 2016, our
proposals to establish: (1) A separate submission deadline for ECE
requests with respect to eCQM reporting; and (2) a deadline of April 1
following the end of the reporting calendar year for ECE requests
related to eCQM reporting as proposed.

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. 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25205

[[Page 57183]]

through 25206), we proposed 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 a measure to be ``topped-out'' if there is
statistically indistinguishable performance at the 75th and 90th
percentiles and 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 proposed the
following criteria for consideration in determining whether to retain a
measure in the PCHQR Program, 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 welcomed public comments on these proposed measure removal and
retention criteria.
Comment: One commenter supported the proposed criteria for the
removal and retention of measures, and recommended flexibility in
determining whether measures are ``topped out,'' expressing concern
that the proposed criteria could lack validity when applied to the
small cohort of PCHs.
Response: We thank the commenter for its support. Although there
are only 11 PCHs, we believe if they are all achieving performance
within the top quartile that it is reasonable to review the measure to
determine whether it has been ``topped out.''
Comment: A commenter recommended that, if the measure retention and
removal criteria are adopted, CMS remove three existing PCHQR measures
as topped out (NQF #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; NQF
#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; and NQF #0220,
Adjuvant Hormonal Therapy).
Response: We thank the commenter for the recommendation and will
consider this recommendation in the future.
After consideration of the public comments we received, we are
finalizing the measure removal and retention policy as proposed.
3. Retention and 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 final rule for more information regarding these
previously finalized measures.
Comment: One commenter supported the continued inclusion of the
Influenza Vaccination Coverage Among Healthcare Personnel (HCP) in the
PCHQR Program.
Response: We thank the commenter for its support.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25206), we did
not propose for FY 2019 to remove any of the measures previously
finalized for the FY 2018 program year from the PCHQR measure set.
However, we did propose to update the Oncology: Radiation Dose Limits
to Normal Tissues (NQF #0382) measure, described below.
b. 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 proposed 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).\194\ 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.\195\ 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.\196\
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\194\ Available at: http://www.qualityforum.org/QPS/0382.
\195\ CDC Breast Cancer Statistics. Available at: http://www.cdc.gov/cancer/breast/statistics/.
\196\ 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

[[Page 57184]]

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.'' \197\ 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.
---------------------------------------------------------------------------

\197\ CMS List of Measures under Consideration. Available at:
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172.
---------------------------------------------------------------------------

We welcomed 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.
Comment: Two commenters supported the expansion of the Oncology:
Radiation Dose Limits to Normal Tissue (NQF #0382) measure
specifications to include breast and rectal cancers. One commenter that
supported the expansion urged delay until the expansion received NQF
endorsement.
Response: We thank the commenters for their support. We believe it
is important to continue to expand the PCHQR measures to provide
meaningful information to patients and facilities. The NQF endorsed the
measure with the expanded cohort in 2014. We are aligning our measure
with the updated NQF-endorsed specifications. Of note, the 2015 MAP's
conditional support was based only on NQF's regular, annual update, out
of which we expect to arise no significant concerns. NQF review is
still underway for the annual updates to this measure; the expanded
cohort, however, was endorsed by NQF in 2014. Our proposal would expand
the cohort pursuant to NQF's 2014 endorsement of the cohort expansion
and is not impacted by the regular annual review process in which NQF
engages on all measures. We considered the MAP's recommendations, and
the importance of aligning with NQF-endorsed specifications of measures
whenever possible, when we proposed this update for the PCHQR Program.
After consideration of the public comments we received, we are
finalizing the update to the measure specifications as proposed.
4. 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25206), we did not propose 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25206 through
25210), using the principles for measure selection in the PCHQR
Program, we proposed one new measure, described below.
b. Adoption of the Admissions and Emergency Department (ED) Visits for
Patients Receiving Outpatient Chemotherapy Measure
We proposed to adopt the Admissions and Emergency Department (ED)
Visits for Patients Receiving Outpatient Chemotherapy measure for the
FY 2019 program year and 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.\198\ Each year, about 22 percent of cancer
patients receive chemotherapy,\199\ with Medicare payments for cancer
treatment totaling $34.4 billion in 2011 or almost 10 percent of
Medicare fee-for-service (FFS) spending.\200\ With an increasing number
of cancer patients receiving chemotherapy in a hospital outpatient
department,\201\ 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.\202\ 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.^{203 204 205}
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\198\ American Cancer Society. ``Cancer Facts & Figures 2015.''
Available at: http://www.cancer.org/acs/groups/content/@editorial/documents/document/acspc-044552.pdf.
\199\ 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.
\200\ 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.
\201\ 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.
\202\ 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.
\203\ 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.
\204\ 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.
\205\ 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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[[Page 57185]]

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.\206\ 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.^{207 208}
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\206\ 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.
\207\ 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.
\208\ 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.\209\ 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.
---------------------------------------------------------------------------

\209\ Ibid.
---------------------------------------------------------------------------

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 proposed 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.
This proposed measure aligns with the 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).
These NQF-endorsed measures focus on processes of care related to
cancer care. Process measures NQF #0383 and NQF #0384, which are not
risk-adjusted, support the purpose of the proposed measure by
reinforcing that providers of outpatient care should 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. Furthermore, 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 2015 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 purpose 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. This trial entails 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.

[[Page 57186]]

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. Several measures developed by CMS have been brought to NQF since
the beginning of the trial. CMS, in compliance with NQF's guidance, has
tested sociodemographic factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for sociodemographic
factors in our outcome measures. 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 adopting 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 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.
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.\210\
---------------------------------------------------------------------------

\210\ 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 ^{211 212 213} 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.
---------------------------------------------------------------------------

\211\ 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.
\212\ 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.
\213\ 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
admissions and ED visits. 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 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

[[Page 57187]]

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.\214\ 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.
---------------------------------------------------------------------------

\214\ 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 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

[[Page 57188]]

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 invited 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.
Comment: A few commenters supported the inclusion of the Admissions
and Emergency Department Visits for Patients Receiving Outpatient
Chemotherapy measure into the PCHQR program.
Response: We thank the commenters for their support.
Comment: Several commenters generally opposed the adoption of the
proposed new measure because the MAP conditionally supported it pending
NQF endorsement, and the NQF has not formally announced its decision.
Other commenters opposed the adoption of the measure because of general
concerns with its validity and reliability, providing examples of ICD-
10 codes not related to chemotherapy or inpatient admissions in which a
patient received treatment for pain and nausea but in which the pain
and nausea was not related to chemotherapy treatment. One commenter
supported the measure provided it has been tested for validity and
reliability.
Response: We thank the commenters for their views regarding the MAP
review and NQF endorsement. In evaluating and selecting the measure for
inclusion in the PCHQR Program, we considered whether there were other
available measures that have been endorsed or adopted by the NQF, and
were unable to identify any other NQF-endorsed measures that assess
admissions and ED visits following outpatient chemotherapy. We
developed the measure using the same rigorous process that we have used
to develop other publicly reported outcomes measures. As part of that
process, we sought and received extensive input on the measure from
stakeholders and clinical experts.
We disagree with commenters regarding the proposed measure's
reliability and believe that this measure is sufficiently reliable to
be included in the PCHQR Program. Measure reliability was calculated
using a split sample of one year of data. We randomly split the patient
cohort at each hospital into two equal halves, calculated the measure
using each half, and then calculated the agreement between these two
(the ``test'' and the ``retest''). Following this test-retest
methodology, we calculated the Pearson correlation between the
performance rate estimates in each half-year sample to assess
reliability. We found the RSAR to have a reliability of 0.41 (95
percent confidence interval (CI): 0.37-0.45) and the RSEDR to have a
reliability of 0.27 (95 percent CI: 0.22-0.33) which, according to
Cohen's classification, represent moderate and borderline weak-to-
moderate reliability, respectively.\215\ The 95 percent CI gives us a
reasonable estimate of the true reliability range.
---------------------------------------------------------------------------

\215\ Jacob Cohen (1988). Statistical Power Analysis for the
Behavioral Sciences (2nd Edition). Lawrence Eribaum Associates.
---------------------------------------------------------------------------

Our reliability estimate was arguably limited by our use of a half
year of split data. We expected our reliability to be higher if we
increased the amount of data we used. Therefore, after submitting the
measure to NQF for endorsement review, we conducted additional
calculations of the reliability testing score, this time using the
Intraclass Correlation Coefficient (ICC) and the Spearman-Brown
prophecy formula. The Spearman-Brown prophecy formula is an accepted
statistical method that estimates the ICC based on what would be
expected if the sample size was increased. It therefore provides us
with an estimate of what the reliability score would be if CMS were to
use a full year of data for public reporting rather than the six months
of data that we used. Using the Spearman-Brown prophecy formula, we
estimated that our measure will have an ICC of 0.63 (95 percent CI:
0.58-0.68) for RSAR and 0.47 percent (95 percent CI: 0.40-0.53) for
RSEDR using a full year of data.
The NQF considers ICC values ranging from 0.41 to 0.60 as
``moderate'' reliability, and 0.61 to 0.80 as ``strong'' reliability.
Our calculated ICC values of 0.63 for RSAR and 0.47 for RSEDR are
interpreted as ``strong'' and ``moderate'' reliability, respectively.
We also disagree with the concerns regarding the validity of the
measure. This measure is an important signal of high quality care and
is specified in a way to appropriately differentiate between cancer
hospitals providing high and low quality care for these patients. This
measure assesses an aspect of care with documented unmet patient needs
resulting in reduction of patient's quality of life and increase in
healthcare utilization and costs. Several studies\216\ \217\ \218\
illustrate a gap in care for outpatients as they are ``invisible'' from
the system when they return home following treatment.
---------------------------------------------------------------------------

\216\ 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.
\217\ Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora, N. Pella,
E. Iaiza, E. Poletto, S.E. 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.
\218\ 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.
---------------------------------------------------------------------------

There are currently no outcome measures in the PCHQR Program, and
there remains a gap in care that leads to acute, potentially
preventable hospitalizations. We note that, on average, cancer patients
receiving chemotherapy have one hospital admission and two ED visits
per year, and therefore we believe it would be a disservice to patients
to delay inclusion of the current outcome measure in quality reporting
and quality improvement initiatives. This is why we proposed to adopt
this outcome measure for the PCHQR Program under the Secretary's
authority set forth at section 1866(k)(3)(B) of the Act.
Comment: Several commenters opposed the adoption of the proposed
new measure as currently specified because of concerns that the
diagnoses and symptoms that are the subject of the measure, such as
pneumonia, could be due to causes other than chemotherapy side effects
and are not appropriate to combine. One commenter also stated that the
list of ICD-10 codes contained in the measure submission documents
includes codes for diagnoses that are unrelated to chemotherapy, and
further suggested that the measure does not differentiate between
chemotherapy-related and unrelated admissions and emergency department
visits.
Response: Given the increase in outpatient hospital-based
chemotherapy, understanding and minimizing related unplanned admissions
and ED visits is a high priority. The 10 conditions that the measure
captures are commonly cited reasons for hospital visits among patients
receiving chemotherapy in the hospital outpatient setting, and are
potentially preventable through appropriately managed outpatient care
and increased communication with the

[[Page 57189]]

patient. This measure will help identify unplanned admissions and ED
visits in patients receiving outpatient chemotherapy by reviewing
claims in which these 10 conditions, considered potentially preventable
through appropriately-managed outpatient care, are listed as a primary
diagnosis or a secondary diagnosis accompanied by a primary diagnosis
of cancer. Admissions and emergency department visits for these
conditions is a potential signal of poor quality care and poor care
coordination. While the goal is not to reach zero admissions and ED
visits, the premise is that reporting this information will promote an
improvement in patient care over time for two reasons. First,
transparency in publicly reporting this measure will raise hospital and
patient awareness of unplanned hospital visits following chemotherapy.
Second, this reporting will incentivize hospital outpatient departments
to incorporate quality improvement activities into their chemotherapy
care planning in order to improve care coordination and reduce the
number of these visits. We also believe that making PCHs aware of their
performance, as well as the performance that might be expected given
the PCH's case mix is helpful in supporting efforts to improve
outcomes. The measure is intended to improve symptom management and
care coordination for cancer patients who are undergoing chemotherapy.
We thank the commenter for its suggestion regarding the list of
ICD-10 codes. We identified the codes representing the 10 outcome
conditions with input from cancer care experts following an inclusive
and patient-centric approach to developing the code sets. Cancer and
chemotherapy treatment can impact the entire body and it can be
challenging to differentiate whether the condition is related to the
treatment, cancer, or another disease. We will consider this feedback
during ongoing measure evaluation.
Comment: A number of commenters recommended that there be
additional or broader denominator exclusions from the measure.
Specifically, commenters urged that patients with hematologic
malignancies beyond leukemia, such as lymphoma and multiple myeloma, be
excluded from the measure as patients with leukemia are currently
excluded. Commenters also recommended exclusions for a wide variety of
other factors including, but not limited to, patients enrolled in
clinical trials and patients receiving palliative care.
Response: We thank the commenters for their suggestions on
additional denominator exclusions. We specified the measure to be as
inclusive as possible; we excluded, based on clinical rationales, only
those patient groups for which hospital visits were not typically a
quality signal or for which risk adjustment would not be adequate.
Based on feedback from earlier public comments suggesting that
exclusion of all patients with a hematologic malignancy would be too
broad, and our analyses showing that patients with lymphoma and
multiple myeloma have similar rates of admission and ED visits when
compared with patients with other cancer types, we decided during
development to limit the exclusion criteria to only those patients with
leukemia. As part of continued evaluation, we will consider reviewing
rates stratified by cancer type to track the impact and inform future
measure revisions.
We do not exclude patients enrolled in clinical trials because
there are many challenges associated with systematically identifying
these patients and collecting information on applicable clinical
trials. We cannot identify these patients using claims data and many
cancer patients participate in clinical trials.
We do not exclude patients receiving palliative care because
published literature shows that all patients receiving outpatient
chemotherapy, regardless of the reason for chemotherapy (palliative or
curative) may experience a gap in care that leads to acute, potentially
preventable hospitalizations. Improving patients' quality of life by
keeping patients out of the hospital is a main goal of cancer care,
especially at the end of life.
Comment: A few commenters recommended that there be additional
numerator exclusions from the measure. Specifically, commenters
recommended that we exclude planned admissions and admissions/ED visits
without a POA flag. Some commenters also recommended numerator
exclusions for a wide variety of other factors including, but not
limited to, surgeries within 30 days of admission, patients coded with
non-adherence to medication, patients with pain due to disease, and
admissions with an ``elective'' admission type.
Response: We thank the commenters for their suggested numerator
exclusions. This measure focuses on infusion-based chemotherapy
administered in a hospital outpatient department based on filed claims.
Therefore, if a patient does not show up for an appointment the
encounter is not included in our calculation, thereby controlling for
medication adherence. In addition, the outcomes assessed may be due to
conditions related to the cancer itself or to side effects of
chemotherapy. Pain is an important and common symptom of cancer and
requires close outpatient management. We use a specific set of codes to
identify admissions and ED visits for 10 potentially preventable
symptoms--including anemia, dehydration, diarrhea, emesis, fever,
nausea, neutropenia, pain, pneumonia, or sepsis--none of which are
``elective'' admissions. We will take other suggestions, such as the
use of POA flags, under advisement in future evaluation work.
Comment: Commenters identified concerns regarding the risk-
adjustment methodology, including the measure's use of administrative
data not capturing certain information for risk adjustment or
stratification, such as cancer staging, chemotherapy toxicity levels,
or patient genetic information.
Response: We cannot identify cancer staging, chemotherapy toxicity
levels, or patient genetic information using claims data. However, we
believe that the risk-adjustment methodology as specified is valid. The
measure is risk adjusted to help account for the variation in patient
mix and aggressiveness of treatment, adjusting for demographic factors
such as age and sex, comorbidities, cancer type, and the number of
treatments during the measurement period. For example, aggressiveness
can range by cancer type and age, which are accounted for in our model.
Also, we adjust for the number of treatments which may also be an
indicator of treatment aggressiveness.
Comment: Several commenters identified other general concerns with
the measure specifications, including concerns with appropriately
capturing neutropenic fever and the associated 30-day window; the
reliance on a pneumonia diagnosis as a proxy for neutropenic fever and
its categorization as a preventable complication within 30 days of
outpatient chemotherapy; and the exclusion of patients taking oral
chemotherapy from the denominator.
Response: We thank the commenters for their consideration and
feedback. During measure development, the technical expert panel
recommended expanding the diagnoses and symptoms that are the subject
of the measure to include both neutropenia and fever to avoid missing
any diagnoses of neutropenic fever since a single ICD-9 code for
neutropenic fever does not exist. Because the diagnosis of neutropenia
requires lab results and is often not coded on a claim, we were further
advised to expand the measure to include pneumonia and sepsis as the

[[Page 57190]]

most common sequelae of neutropenic fever. We limited the window for
identifying the outcomes of admissions and ED visits to 30 days after
hospital outpatient chemotherapy treatment because existing literature
suggests the vast majority of adverse events occur within that time
frame, as was observed during testing.
The decision to not include patients receiving only oral
chemotherapy was made during development for several reasons, including
attribution and timing. Attributing a prescription to a hospital-based
outpatient setting is challenging; patients are likely to receive care
from multiple physicians, in multiple settings, and not all physicians
are employed by the hospital. Therefore, not all claims for that
provider are attributable to the hospital. In addition, the measure
algorithm uses the chemotherapy encounter date at the index for the 30-
day window to follow patients to ascertain whether they experience an
admission or ED visit. Identifying a specific index date on which oral
chemotherapy was started is not feasible, since claims data only
includes information on the date the prescription was filled, without
information on what day the patient started taking the medication. We
note, however, that patients receiving oral chemotherapy in combination
with infusion-based chemotherapy are included in the cohort. We will
take into consideration the inclusion of patients only receiving oral
chemotherapy in future evaluation work.
Comment: One commenter recommended that if we adopt the measure for
the PCHQR, we retire two currently active measures: NQF #0383, Plan of
Care for Pain, and NQF #0384, Pain Intensity Quantified.
Response: We thank the commenter for the recommendation and will
consider it in the future. The process measures, which are not risk-
adjusted, support the purpose of the proposed measure by reinforcing
that those providing outpatient care should screen for and manage
symptoms such as pain and anemia/fatigue. We believe that having these
process measures, which are directly within the control of the PCH,
complements the newly adopted outcome measure. However, we recognize
that having all three measures in the program may place undue burden on
facilities. We will continue to assess the appropriateness of including
all three measures after we have more data on the correlation between
PCH performance on each of the three measures.
After consideration of the public comments we received, we are
finalizing the adoption of the Admissions and Emergency Department (ED)
Visits for Patients Receiving Outpatient Chemotherapy measure as
proposed.
In summary, the previously finalized and newly finalized measures
for the PCHQR Program for the FY 2019 program year and subsequent years
are listed in the table below.

Previously Finalized and Newly Finalized 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-
wide Inpatient Hospital-
onset Clostridium
difficile Infection (CDI)
Outcome Measure.
MRSA....................... 1716 National Healthcare Safety
Network (NHSN) Facility-
wide Inpatient Hospital-
onset Methicillin-
resistant 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 57191]]

Claims Based Outcome Measure
------------------------------------------------------------------------
N/A........................ N/A Admissions and Emergency
Department (ED) Visits for
Patients Receiving
Outpatient Chemotherapy.**
------------------------------------------------------------------------
* Finalized update in FY 2019 program year.
** Newly finalized 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
Hormone 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. In the FY 2017 IPPS/LTCH PPS proposed
rule (81 FR 25211), we welcomed public comment and specific suggestions
for measure topics that we should consider for future rulemaking.
Comment: One commenter thanked CMS for its thoughtful approach to
measure development. The commenter urged CMS to incorporate additional
outcomes measures into the PCHQR Program, such as patient-reported
outcomes measures, condition-specific outcome sets, and an unplanned
readmissions measure.
Response: We thank the commenter for its support as we continuously
work to develop and implement meaningful quality measures.
Comment: One commenter urged CMS to include stakeholders throughout
the measure development process.
Response: We look forward to continuing collaboration efforts with
stakeholders through the various mechanisms currently in place, such as
the Technical Expert Panels and notice and comment periods during
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. In the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25211), we did not propose
any changes to this policy.
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. Additional Public Display Requirements
As we strive to publicly display data as soon as possible on a CMS
Web site, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25211
through 25212), we proposed 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. In the FY 2017 IPPS/LTCH PPS proposed rule, we
proposed, then, to make these data

[[Page 57192]]

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 proposed
to make the data for this program available as soon as possible, and
the timeframe for this publication may change year-to-year, we did not
propose to specify in rulemaking the exact dates for review. However,
we proposed that the time period for review would be approximately 30
days in length. We proposed to announce the exact timeframes on a CMS
Web site and/or on our applicable listservs.
We welcomed public comments on these updates to our public display
and preview policies.
We did not receive any public comments. Therefore, for the reasons
discussed above, we are finalizing these proposals.
c. Public Display of Additional PCHQR Measure
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25212), we
proposed 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 welcomed public comment on our proposal to display this measure
beginning with the FY 2017 program year data and for subsequent years.
Comment: One commenter supported the proposed public display of
data related to the External Beam Radiotherapy for Bone Metastases
measure beginning in 2017. The commenter indicated it would welcome the
opportunity to collaborate with CMS on best ways to display the data.
Response: We thank the commenter for the support.
After consideration of the public comment we received, we are
finalizing the public display of data related to the External Beam
Radiotherapy for Bone Metastases measure beginning in 2017 as proposed.
d. 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. In the
proposed rule (81 FR 25212) we stated that we proposed that if our
proposal to update this measure (described in section VIII.B.3.b. of
the preamble of the proposed rule) was finalized, we proposed 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 welcomed public comment on our proposals regarding public
display of this updated measure.
Comment: One commenter asked that CMS clarify the data collection
dates for the proposed cohort expansion.
Response: PCHs would submit data for the expanded cohort during CY
2017, this data will be submitted according to the data submission
schedule that was finalized in the 2015 IPPS/LTCH PPS final rule (79 FR
50283).
After consideration of the public comment we received, we are
finalizing this policy as proposed.
e. 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, in the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25212) we proposed 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 invited public comment on our proposal to defer the public
reporting of the CLABSI and the CAUTI measures.
Comment: Two commenters supported CMS's decision to defer the
public display of CLABSI and CAUTI data pending collaboration with the
CDC.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing our proposal to continue to defer public reporting of the
CLABSI and CAUTI measures pending further collaboration with the CDC.
Our previously finalized and newly finalized public display
requirements are summarized in the table below.

Previously Finalized and Newly Finalized Public Display Requirements
------------------------------------------------------------------------
Measures Public reporting
------------------------------------------------------------------------
Summary of Finalized and Newly Finalized
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 (NQF 2015 and subsequent years.
#0220).
Oncology: Radiation Dose Limits to 2016 and subsequent years.
Normal Tissues (NQF #0382)*.
Oncology: Plan of Care for Pain--
Medical Oncology and Radiation Oncology
(NQF #0383)..
Oncology: Medical and Radiation--
Pain Intensity Quantified (NQF #0384)
Prostate Cancer: Adjuvant Hormonal
Therapy for High Risk Prostate Cancer
Patients (NQF #0390)

[[Page 57193]]

Prostate Cancer: Avoidance of
Overuse of Bone Scan for Staging Low Risk
Prostate Cancer Patients (NQF #0389)
HCAHPS (NQF #0166)
CLABSI (NQF #0139)**.............. Deferred.
CAUTI (NQF #0138)**.
External Beam Radiotherapy for Beginning at the first
Bone Metastases (NQF #1822)***. opportunity in 2017 and
for subsequent years.
------------------------------------------------------------------------
* Update newly finalized for display for the FY 2019 program year and
subsequent years in this finalized rule--expanded cohort will be
displayed as soon as feasible.
** Deferral newly finalized in this final rule.
*** Measure newly finalized for public display in this final 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 finalized 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25212 through 25213), we proposed 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 subsequent
years using data from July 1 through June 30.
We did not receive any comments on this proposal. Therefore, for
the reasons discussed above, we are finalizing the reporting schedules
as proposed.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25213), we did
not propose any changes to previously finalized data submission
requirements.
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 year 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25213), we did
not propose any changes to this PCHQR exception process.

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 Measure 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,\219\ which incorporates the three broad aims of the
National Quality Strategy,\220\ 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

[[Page 57194]]

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 us in all of
our quality reporting programs.
---------------------------------------------------------------------------

\219\ http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
\220\ http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm.
---------------------------------------------------------------------------

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25215), we
proposed 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 proposed for
the LTCH QRP to adopt three measures to meet the resource use and other
measure domains identified in section 1899B(d)(1) of the Act. These
measures include: (1) Total Estimated Medicare Spending Per Beneficiary
(MSBP): 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 development 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 PAC quality
initiatives Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-of-2014-Data-Standardization-and-Cross-Setting-MeasuresMeasures.html.
In addition, we sought public input from the NQF-convened MAP Post-
Acute Care, Long-Term Care (PAC/LTC) Workgroup during the annual in-
person meeting held December 14 and 15, 2015. The MAP, composed of
multi-stakeholder groups, is 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 for use
in the LTCH QRP in the FY 2017 IPPS/LTCH PPS proposed rule. 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 proposed 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 section in the preamble of this
final rule.
Although we did not solicit feedback on General Considerations Used
for Selection of Quality, Resource Use, and Other Measures for the LTCH
QRP, we received one comment, which is summarized and discussed below.
Comment: One commenter stated that CMS should recognize burden of
data collection and focus on measures that are the most clinically
relevant and actionable to the facility and patients. In addition, the
commenter recommended that CMS use minimum standards in the development
of new measures so that they are as clear and consistent across
facilities as possible.
Response: We note that we strive to strike a balance between
minimizing burden and addressing gaps in quality of care as we continue
to expand the LTCH QRP. We interpret the commenter's suggestion that
CMS apply minimum standards in its measure development to suggest that
we simplify our approach to quality measure development itself. We will
take recommendations into consideration in future measure development.
We also received several comments related to the proposed measures,
the IMPACT Act, NQF endorsement, the NQF MAP review process, and the
use of TEPs, which are summarized and discussed below.
Comment: Several commenters expressed appreciation for CMS' efforts
to implement the requirements of the IMPACT Act and standardize quality
measures across PAC settings as required by the IMPACT Act. One
commenter noted the importance of functional measures and value of
assessing patients' functional status consistently, and is pleased that
the IMPACT Act is moving in that direction. Also, one commenter
indicated achieving standardized and interoperable patient assessment
data will allow for better cross-setting comparisons of quality and
will support the development of better quality measures with uniform
risk standardization.
Response: We believe that standardizing patient assessment data
will allow for the exchange of data among PAC providers in order to
facilitate care coordination and improve patient outcomes. We
appreciate the importance of functional status measures and will
consider inclusion of additional measures.
Comment: Several commenters urged CMS to delay implementation of
proposed measures until NQF has completed its review and had endorsed
measures that are appropriate for the specific characteristics of the
LTCH patient population. One commenter requested that CMS provide a
timeline for submission of the proposed measures to NQF. In addition,
commenters recommended NQF endorsement prior to public reporting. One
commenter suggested that CMS seek NQF's formal consensus development
process instead of a time-

[[Page 57195]]

limited endorsement, as it was perceived the time-limited endorsement
was not sufficient.
Response: We received several comments regarding the NQF
endorsement status for the proposed measures, and acknowledge the
commenters' recommendation to submit the measures to the NQF prior to
implementation. We wish to clarify that the proposed measures are not
currently under review for endorsement due to the rigorous timelines
associated with the measure development process and meeting the
statutory deadlines. However, we intend to seek NQF endorsement in the
near future. While we appreciate the importance of consensus
endorsement and intend to seek such endorsement, we must balance the
need to address gaps in quality and adhere to statutorily required
timelines as in the case of the quality and resource use measures as
proposed to address the IMPACT Act. We further note that we consider
and propose appropriate measures that have been endorsed by the NQF
whenever possible. However, when this is not feasible because there is
no NQF-endorsed measure, we utilize our statutory authority that allows
the Secretary to specify a measure for the LTCH QRP that is not NQF-
endorsed where, as in the case for the proposed measures, we have not
been able to identify other measures that are endorsed or adopted by a
consensus organization. While we appreciate the importance of consensus
endorsement and intend to seek such endorsement, we must balance the
need to address gaps in quality and adhere to statutorily required
timelines as in the case of the quality and resource use measures that
we proposed to address the IMPACT Act.
In regard to the comments regarding time-limited endorsement, NQF
uses time-limited endorsement for measures that meet all of NQF's
endorsement criteria with the exception of field testing and that are
critical to advancing quality improvement. When measures are granted
this 2-year endorsement rather than the traditional 3-year period,
measure developers must test the measure and return results to NQF
within the 2-year window. We again note that we have not yet sought
endorsement of the proposed measures, time-limited or otherwise.
Comment: Several commenters noted the NQF-convened MAP PAC/LTC
Workgroup did not support the proposed measures; instead, it
recommended that CMS delay measure implementation until the measures
were fully developed and tested and brought back to the NQF for further
consideration. One commenter further stated that TEP members and other
stakeholders who provided feedback in the measure development process
did not support measures moving forward without further testing.
Response: We interpret this comment to address the activities of
the MAP, a multi-stakeholder partnership convened by NQF that provides
input to the U.S. Department of Health and Human Services (HHS) on its
selection of measures for certain Medicare programs. We would like to
clarify that the MAP ``encouraged continued development'' for the
proposed measure. According to the MAP, the term ``encourage continued
development'' is applied when a measure addresses a critical program
objective or promotes alignment and the measure is in an earlier stage
of development. In contrast, the MAP uses the phrase ``do not support''
when it does not support the measures at all.
Since the MAP provided a recommendation of ``encourage continued
development'' for the proposed measures during the December 2015 NQF-
convened MAP PAC/LTC Workgroup meeting, further refinement of measure
specifications and testing of measure validity and reliability have
been performed. These efforts have included: A pilot test in 12 PAC
settings, including LTCHs, to determine the feasibility of assessment
items for use in calculation of the measure Drug Regimen Review
Conducted with Follow-Up for Identified Issues; and further development
of risk-adjusted models for the measures, Discharge to Community,
Medicare Spending per Beneficiary, and Potentially Preventable 30-Day
Post-Discharge Readmission Measure. Additional information regarding
testing is further described in the specific measure sections in the
preamble of this final rule.
For these reasons, we believe that the measures have been fully and
robustly developed, and believe they are appropriate for implementation
and should not be delayed.
Comment: Several commenters, including MedPAC, expressed concern
regarding the standardization and interoperability of the proposed
measures as they perceived the measures to have different inclusion/
exclusion criteria, episode constructions and risk factors, and,
therefore, do not meet the mandate of the IMPACT Act. Commenters
expressed further concern about future implications of such variations
and recommend delaying implementation until measures are standardized
and interoperable across PAC settings. One commenter further indicated
that the measure titles were different for each setting, pointing out
the words ``LTCH QRP'' or ``Long-Term Care Hospital'' to designate a
difference in the measure. One commenter stated implementing the
quality measures in an unstandardized fashion would result in
additional costs in the future for aligning measures between PAC
providers.
MedPAC suggested that the measures use uniform definitions,
specifications, and risk-adjustment methods, conveying that findings
from their work on a unified PAC payment system suggest there is
overlap or similar care provided for Medicare beneficiaries with
similar needs across PAC settings. As a result of this work, MedPAC
urged that the IMPACT Act measures be standardized to facilitate
quality comparison across PAC settings to inform a Medicare
beneficiary's choice of where to seek care and provide an opportunity
for CMS to evaluate the value of PAC services, noting that differences
in rates should reflect differences in quality of care rather than
differences in the way rates are constructed.
Response: We wish to clarify that the IMPACT Act requires that the
patient assessment instruments be modified to enable the submission of
standardized data, for purposes such as interoperability. However,
measures themselves are not ``interoperable.''
CMS, in collaboration with our measure contractors, developed the
proposed measures with the intent to standardize the measure
methodology so that we are able to detect variation among PAC providers
in order to be able to assess differences in quality of care. For
example, the patient assessment-based quality measure, Drug Regimen
Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP, was
developed across PAC settings with uniform definitions and
specifications. This measure is not risk adjusted. The standardized
development of this assessment-based measure follows the mandate of the
IMPACT Act to develop standardized patient assessment-based measures
for the four PAC settings (section 1899B(c)(1) of the Act). The
resource use and other measures, Discharge to the Community-PAC LTCH
QRP and Potentially Preventable 30-Day Post-Discharge Readmission
Measure for LTCH QRP, were developed to be uniform across the PAC
settings in terms of their definitions, measure calculations, and risk-
adjustment approach where applicable.
There is variation in each measure primarily due to the data
sources for

[[Page 57196]]

each PAC setting. The risk-adjustment approach for the resource use and
other IMPACT Act measures is aligned, but is tailored to each measure
based on measure testing results. Adjusting for relevant case-mix
characteristics in each setting improves the validity and explanatory
power of risk adjustment models, and helps ensure that any differences
in measure performance reflect differences in the care provided rather
than differences in patient case-mix. We employ this approach to
measure development to enable appropriate cross-setting comparisons in
PAC settings and to maximize measure reliability and validity. It
should be noted that sections 1899B(c)(3)(B) and 1899B(d)(3)(B) of the
Act require that quality measures and resource use and other measures
be risk adjusted, as determined appropriate by the Secretary.
Comment: Several commenters expressed concerns regarding the
validity and reliability of IMPACT Act measures and encouraged CMS to
conduct further analysis of data to ensure comparability across PAC
settings, prior to implementation and public reporting of data.
Response: We have tested for validity and reliability all of the
IMPACT Act measures, and the results of that testing is available in
the document, Measure Specifications for Measures Adopted in the FY
2017 LTCH QRP Final Rule, posted on the CMS LTCH QRP Web page at:
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
Comment: A few commenters requested that CMS proceed cautiously to
ensure new measures are associated with minimal administrative and data
collection burden, but also expressed appreciation of CMS efforts to
implement the IMPACT Act.
Response: We appreciate the importance of avoiding undue burden on
providers and will continue to evaluate and consider any unnecessary
burden associated with implementation of the LTCH QRP. We wish to note
that the three resource measures are claims-based, and will require no
additional data collection by providers and thus result in minimal
increases in burden. The measure, Drug Regimen Review Conducted with
Follow-Up for Identified Issues--PAC LTCH QRP, is calculated using
assessment data and requires the addition of three items to the LTCH
Continuity Assessment Record and Evaluation (CARE) Data Set, also
requiring minimal additional burden. We address the issue of burden
further under section I.M. of Appendix A of this final rule.
Comment: One commenter expressed concern regarding CMS' approach to
implementing the requirements of the IMPACT Act and requested CMS
consider greater flexibility with regard to regulatory requirements.
Response: We appreciate the comment regarding the requirements
associated with the proposed quality measures for the IMPACT Act. We
note that any flexibility we may have with regard to regulatory
requirements is constrained by the statutory requirements of the IMPACT
Act. However, we do, and will continue to, monitor the effects of
policy changes affecting PAC facilities to ensure appropriate patient
access and care and will consider greater flexibility as feasible and
appropriate.
Comment: Several commenters urged CMS to engage in several
activities which would afford greater transparency with stakeholders
regarding measure development. These commenters also requested that
measures undergo field testing with providers prior to implementation.
Commenters also requested that more detailed measure specifications be
posted in order to enable providers to evaluate measure design
decisions. Commenters requested that LTCH providers be provided with
confidential preview reports as a part of a ``dry run'' process as this
would enable providers to review data and provide CMS with feedback on
potential technical issues with proposed measure. Finally, the
commenters requested that measure data be provided to LTCHs on a
patient level on a quarterly basis, similar to other quality reporting
programs, in order to make effective use of the data and improve
performance.
Response: With regard to the testing and analytic results provided
for these measures, since the December 2015 MAP meeting, further
refinement of measure specifications and testing of measure validity
and reliability have been performed.
We refer readers to the Measure Specifications for Measures Adopted
in the FY 2017 LTCH QRP Final Rule, posted on the CMS LTCH QRP Web page
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html, which includes detailed information
regarding measure specifications, including results of the final risk
adjustment models for the resource use measures. For resource use
measures, our 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), previously adopted into the
LTCH QRP.
We appreciate the comment requesting that we provide performance
data on LTCH QRP measures on a more frequent, such as quarterly, basis
in order to promote quality improvement. We wish to note that the
proposed claims-based measures are based on 2 consecutive years of data
in order to ensure a sufficient sample size to reliably assess LTCHs'
performance. However, we will investigate the feasibility and usability
of providing LTCHs with information more frequently, such as unadjusted
counts of potentially preventable readmissions (PPRs) and discharge
data. We also appreciate the commenters' suggestions related to the
implementation of dry run activities, such as confidential reports, for
the purposes of identifying any technical issues prior to public
reporting, as was successfully provided in the fall of 2015 for the
All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from
LTCHs (NQF #2512).
We intend to provide confidential feedback reports beginning in
October 2017, as described in section VIII.C.15. of the preamble of
this final rule, and we believe that the reports could serve as an
opportunity for LTCHs to provide to us any technical issues they may
discover. However, we note that, as described in section VIII.C.14. of
the preamble of the proposed rule, we are unable at this time to
provide patient level information for the claims-based measure, for
example, the readmission measures, because such data comes from a
separate entity. Finally, we wish to note that we intend to continue
refining specifications and we will consider pilot testing in addition
to the performance testing that we currently conduct.
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

[[Page 57197]]

FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 53615).
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25214), we did
not propose 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). In
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25214), we did not
propose 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
determination:
Measure title IPPS/LTCH PPS Final rule Data collection start date Initial and
subsequent APU
years
----------------------------------------------------------------------------------------------------------------
National Healthcare Safety Network Adopted an application of October 1, 2012........... FY 2014 and
(NHSN) Catheter-Associated the measure in the FY subsequent years.
Urinary Tract Infection (CAUTI) 2012 IPPS/LTCH PPS final
Outcome Measure (NQF #0138). rule (76 FR 51745 through
51747).
Adopted the NQF endorsed January 1, 2013........... FY 2015 and
version and expanded subsequent years.
measure (with
standardized infection
ratio [SIR]) in the FY
2013 IPPS/LTCH PPS final
rule (77 FR 53616 through
53619).
National Healthcare Safety Network Adopted an application of October 1, 2012........... FY 2014 and
(NHSN) Central Line-Associated the measure in the FY subsequent years.
Bloodstream Infection (CLABSI) 2012 IPPS/LTCH PPS final
Outcome Measure (NQF #0139). rule (76 FR 51747 through
51748).
Adopted the NQF endorsed January 1, 2013........... FY 2015 and
and expanded measure subsequent years.
(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
with Pressure Ulcers That Are New the measure in the FY subsequent years.
or Worsened (Short Stay) (NQF 2012 IPPS/LTCH PPS final
#0678). rule (76 FR 51748 through
51750).
Adopted the NQF endorsed January 1, 2013........... FY 2015 and
version in the FY 2014 subsequent years.
IPPS/LTCH PPS final rule
(78 FR 50861 through
50863).
Adopted in the FY 2016 January 1, 2016........... FY 2018 and
IPPS/LTCH PPS final rule subsequent years.
(80 FR 49731 through
49736) to fulfill IMPACT
Act requirements.
Percent of Residents or Patients Adopted in the FY 2013 January 1, 2014........... FY 2016 and
Who Were Assessed and IPPS/LTCH PPS final rule subsequent years.
Appropriately Given the Seasonal (77 FR 53624 through
Influenza Vaccine (Short Stay) 53627).
(NQF #0680).
Revised data collection October 1, 2014........... FY 2016 and
timeframe in the FY 2014 subsequent years.
IPPS/LTCH PPS final rule
(78 FR 50858 through
50861).
Revised data collection October 1, 2014........... FY 2016 and
timeframe in the FY 2015 subsequent years.
IPPS/LTCH PPS final rule
(79 FR 50289 through
50290).
Influenza Vaccination Coverage Adopted in the FY 2013 October 1, 2014........... FY 2016 and
among Healthcare Personnel (NQF IPPS/LTCH PPS final rule subsequent years.
#0431). (77 FR 53630 through
53631).
Revised data collection October 1, 2014........... FY 2016 and
timeframe in the FY 2014 subsequent years.
IPPS/LTCH PPS final rule
(78 FR 50857 through
50858).
All-Cause Unplanned Readmission Adopted in FY 2014 IPPS/ N/A....................... FY 2017 and
Measure for 30-Days LTCH PPS final rule (78 subsequent years.
Post[dash]Discharge from Long- FR 50868 through 50874).
Term Care Hospitals (NQF #2512).
Adopted the NQF endorsed N/A....................... FY 2018 and
version in the FY 2016 subsequent years.
IPPS/LTCH PPS final rule
(80 FR 49730 through
49731).
National Healthcare Safety Network Adopted in the FY 2014 January 1, 2015........... FY 2017 and
(NHSN) Facility-wide Inpatient IPPS/LTCH PPS final rule subsequent years.
Hospital-onset Methicillin- (78 FR 50863 through
resistant Staphylococcus aureus 50865).
(MRSA) Bacteremia Outcome Measure
(NQF #1716).

[[Page 57198]]

National Healthcare Safety Network Adopted in the FY 2014 January 1, 2015........... FY 2017 and
(NHSN) Facility-wide Inpatient IPPS/LTCH PPS final rule subsequent years.
Hospital-onset Clostridium (78 FR 50865 through
difficile Infection (CDI) Outcome 50868).
Measure (NQF #1717).
National Healthcare Safety Network Adopted in the FY 2015 January 1, 2016........... FY 2018 and
(NHSN) Ventilator-Associated IPPS/LTCH PPS final rule subsequent years.
Event (VAE) Outcome Measure (NQF (79 FR 50301 through
#N/A). 50305).
Application of Percent of Adopted in the FY 2014 January 1, 2016........... FY 2018 and
Residents Experiencing One or IPPS/LTCH PPS final rule subsequent years.
More Falls with Major Injury (78 FR 50874 through
(Long Stay) (NQF #0674). 50877).
Revised data collection April 1, 2016............. FY 2018 and
timeframe in the FY 2015 subsequent years.
IPPS/LTCH PPS final rule
(79 FR 50290 through
50291).
Adopted an application of April 1, 2016............. FY 2018 and
the measure in the FY subsequent years.
2016 IPPS/LTCH PPS final
rule (80 FR 49736 through
49739) to fulfill IMPACT
Act requirements.
Percent of Long-Term Care Hospital Adopted in the FY 2015 April 1, 2016............. FY 2018 and
Patients with an Admission and IPPS/LTCH PPS final rule subsequent years.
Discharge Functional Assessment (79 FR 50291 through
and a Care Plan That Addresses 50298).
Function (NQF #2631).
Application of Percent of Long- Adopted an application of April 1, 2016............. FY 2018 and
Term Care Hospital Patients with the measure in the FY subsequent years.
an Admission and Discharge 2016 IPPS/LTCH PPS final
Functional Assessment and a Care rule (80 FR 49739 through
Plan That Addresses Function (NQF 49747) to fulfill IMPACT
#2631). Act requirements.
Functional Outcome Measure: Change Adopted in the FY 2015 April 1, 2016............. FY 2018 and
in Mobility among Long-Term Care IPPS/LTCH PPS final rule subsequent years.
Hospital Patients Requiring (79 FR 50298 through
Ventilator Support (NQF #2632). 50301).
----------------------------------------------------------------------------------------------------------------

Although we did not solicit feedback, we received a comment about
Quality Measures Previously Finalized for and Currently Used in the
LTCH QRP. The comment is summarized and discussed below.
Comment: One commenter supported the continued inclusion of the
previously adopted measure, Influenza Vaccination Coverage Among
Healthcare Personnel (NQF #0431) in the LTCH QRP for the FY 2018
payment determination and subsequent years.
Response: We thank the commenter for their support of this measure
and its continued inclusion in the LTCH QRP.
6. LTCH QRP Quality, Resource Use and Other Measures Finalized 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 final rule, we
proposed 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
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. This trial entails 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. Several measures developed by CMS have been brought to NQF since
the beginning of the trial. CMS, in compliance with NQF's guidance, has
tested sociodemographic factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for sociodemographic
factors in our outcome measures.
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 received several comments on the impact of sociodemographic
status (SDS) on quality measures, resource use, and other measures,
which are summarized and discussed below.

[[Page 57199]]

Comment: Several commenters indicated their support for the
inclusion of SDS adjustment in quality measures, resource use, and
other measures. Commenters suggested that failure to account for these
patient characteristics could penalize LTCHs for providing care to a
more medically-complex and socioeconomically disadvantaged patient
population and affect provider performance. Some commenters expressed
concerns about standardization and interoperability of the measures as
it pertains to risk adjusting, particularly for SDS characteristics.
Many commenters recommended incorporating socioeconomic status (SES)
factors as risk-adjusters for the measures, and several commenters
suggested conducting additional testing and/or NQF endorsement prior to
implementation of these measures.
Several commenters, including MedPAC, did not support risk
adjustment of measures by SES or SDS status. One commenter did not
support such risk adjustment because it can hide disparities and create
different standards of care for LTCHs based on the demographics in the
facility. MedPAC reiterated that risk adjustment can hide disparities
in care and suggests risk adjustment reduces pressure on providers to
improve quality of care for low-income Medicare beneficiaries. Instead,
MedPAC supported peer provider group comparisons with providers of
similar low-income beneficiary populations. Another commenter stated
that SDS factors should not be included in measures that examine the
patient during an LTCH stay, but should only be considered for measures
evaluating care after the LTCH discharge.
Response: We appreciate the considerations and suggestions conveyed
regarding the measures and the importance in balancing appropriate risk
adjustment along with ensuring access to high quality care. We note
that in the measures that are risk-adjusted, we do take into account
characteristics associated with medical complexity, as well as factors
such as age where appropriate to do so. For those cross-setting PAC
measures, such as those intended to satisfy the IMPACT Act domains that
use the patient assessment-based data elements for risk adjustment, we
have either made such items standardized, or intend to do so as
feasible. With regard to the incorporation of additional factors, we
have and will continue to take such factors into account, which would
include further testing as part of our ongoing measure development
monitoring activities. As discussed previously, we intend to seek NQF
endorsement for our measures.
With regard to the suggestions pertaining to the incorporation of
socioeconomic factors as risk-adjusters for the measures, including in
those measures that pertain to after the patient was discharged from
the LTCH, additional testing and/or NQF endorsement prior to
implementation of these measures, comments that pertain to potential
consequences associated with such risk adjusters and alternative
approaches to grouping comparative data, we wish to reiterate that as
previously discussed, 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. This trial entails 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. Several measures developed by CMS have been brought to NQF since
the beginning of the trial. CMS, in compliance with NQF's guidance, has
tested sociodemographic factors in the measures' risk models and made
recommendations about whether or not to include these factors in the
endorsed measure. We intend to continue engaging in the NQF process as
we consider the appropriateness of adjusting for sociodemographic
factors in our outcome measures.
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.
a. Measure To Address the IMPACT Act Domain of Resource Use and Other
Measures: Total Estimated MSPB-PAC LTCH QRP
We proposed 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 PAC 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.\221\ 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.\222\
---------------------------------------------------------------------------

\221\ MedPAC, ``A Data Book: Health Care Spending and the
Medicare Program,'' (2015). 114.
\222\ 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 proposed 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. Given the current lack of resource
use measures for PAC settings, our MSPB-PAC LTCH QRP measure will
provide valuable information to LTCHs on their relative Medicare
spending in delivering services to approximately 122,000 Medicare
beneficiaries.\223\
---------------------------------------------------------------------------

\223\ Figures for 2013. MedPAC, ``Medicare Payment Policy,''
Report to the Congress (2015). xvii-xviii.
---------------------------------------------------------------------------

The 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

[[Page 57200]]

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 after LTCH treatment.
Evaluating Medicare payments during an episode creates a continuum
of accountability between providers that should improve post-treatment
care planning and coordination. While some stakeholders throughout the
measure development process supported the MSPB-PAC measures and
believed that measuring Medicare spending was critical for improving
efficiency, others 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 publicly
report which LTCHs are involved in the provision of high quality care
at lower cost.
We developed MSPB-PAC measures for each of the four PAC settings.
We proposed an LTCH-specific MSPB-PAC measure in the FY 2017 IPPS/LTCH
proposed rule (81 FR 25216 through 25220), an IRF-specific MSBP-PAC
measure in the FY 2017 IRF proposed rule (81 FR 24197 through 24201), a
SNF-specific MSPB-PAC measure in the FY 2017 SNF PPS proposed rule (81
FR 24258 through 24262), and an HHA-specific MSBP-PAC measure in the CY
2017 HH PPS proposed rule (81 FR 43760 through 43764). The four
setting-specific MSPB-PAC measures are closely aligned in terms of
episode construction and measure calculation. Each MSPB-PAC measure
assesses Medicare Part A and Part B spending during an episode, and the
numerator and denominator are defined similarly. However, setting-
specific measures allow 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 IPPS
hospital MSPB measure, which was adopted for Hospital IQR Program
beginning with the FY 2014 program, and was implemented in the Hospital
VBP Program beginning with the FY 2015 program. The measure was
endorsed by the NQF on December 6, 2013 (NQF #2158).\224\ 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.^{225 226} Similarly, the MSPB-PAC measures assess all
Medicare Part A and Part B payments for fee-for-service (FFS) claims
with a start date during the episode window (which, as discussed in
this section, is the time period during which Medicare FFS Part A and
Part B services are counted towards the MSPB-PAC LTCH QRP episode).
There are differences between the MSPB-PAC measures 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.\227\
---------------------------------------------------------------------------

\224\ QualityNet, ``Measure Methodology Reports: Medicare
Spending Per Beneficiary (MSPB) Measure,'' (2015). Available at:
http://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772053996.
\225\ Ibid.
\226\ FY 2012 IPPS/LTCH PPS final rule (76 FR 51619).
\227\ 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 would 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 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 MAP 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.\228\ The MAP PAC/LTC Workgroup voted to
``encourage continued development'' for each of the MSPB-PAC
measures.\229\ The MAP PAC/LTC Workgroup's vote of ``encourage
continued development'' was affirmed by the MAP Coordinating Committee
on January 26, 2016.\230\ 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

[[Page 57201]]

as part of our responses to public comments, described
below.^{231 232}
---------------------------------------------------------------------------

\228\ 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.
\229\ 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.
\230\ 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.
\231\ 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.
\232\ 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.
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Since the MAP's review and recommendation of continued development,
CMS continued to refine risk adjustment models and conduct measure
testing for the IMPACT Act measures in compliance with the MAP's
recommendations. The 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
extended to February 5, 2016. A total of 45 comments on the MSPB-PAC
measures were received during this 3.5 week period. The comments
received also covered each of the MAP's concerns as outlined in their
Final Recommendations.\233\ 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/Downloads/2016_03_24_mspb_pac_public_comment_summary_report.pdf and the
MSPB-PAC Public Comment Supplementary Materials are available at:
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/2016_03_24_mspb_pac_public_comment_summary_report_supplementary_materials.pdf. These documents contain the public comments (summarized and
verbatim), along with our responses including statistical analyses. The
MSPB-PAC LTCH QRP measure, along with the other MSPB-PAC measures, as
applicable, will be submitted for NQF endorsement when feasible.
---------------------------------------------------------------------------

\233\ 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 in this section. More detailed
specifications for the MSPB-PAC measures, including the MSPB-PAC LTCH
QRP measure, are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.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. The admitting
facility is the attributed provider, for whom the 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 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 in this section; 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 are determined
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 an IRF within 30 days. The IRF 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 IRF QRP 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

[[Page 57202]]

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 was 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 in this
section, 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 QRP 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 combines the two ratios to construct one LTCH score as
described in this section.
(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 episode-level exclusions are
as follows:
Any episode that is triggered by an LTCH claim outside the
50 states, District of Columbia, 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 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
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 proposed 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).\234\
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\234\ 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, 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 MSPB-PAC LTCH QRP
measure, 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. Given
the comments received, we proposed to include the Medicare spending for
hospice services but risk adjust for them, such that MSPB-PAC LTCH QRP
episodes with hospice are compared to a benchmark reflecting other
MSPB-PAC LTCH QRP episodes with hospice services. 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 will 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. This trial entails 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

[[Page 57203]]

as performance scores with and without sociodemographic factors in the
risk adjustment model. Several measures developed by CMS have been
brought to NQF since the beginning of the trial. CMS, in compliance
with NQF's guidance, has tested sociodemographic factors in the
measures' risk models and made recommendations about whether or not to
include these factors in the endorsed measure. We intend to continue
engaging in the NQF process as we consider the appropriateness of
adjusting for sociodemographic factors in our outcome measures.
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 did not
propose to adjust the MSPB-PAC LTCH QRP measure for socioeconomic
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 factors. We will monitor the results of the trial,
studies, and recommendations. We invited public comment on how
socioeconomic and demographic factors should be used in risk adjustment
for the MSPB-PAC LTCH QRP measure.
Comment: Several commenters recommended that the MSPB-PAC LTCH QRP
risk adjustment model include variables for SES/SDS factors. A
commenter recommended that a ``fairer'' approach than using SES/SDS
factors as risk adjustment variables would be to compare resource use
levels that have not been adjusted for SES/SDS factors across peer
providers (that is, providers with similar shares of beneficiaries with
similar SES characteristics).
Response: With regard to the suggestions that the model include
sociodemographic factors and the suggestion pertaining to an approach
with which to convey data comparisons we refer readers to section
VIII.C.6. of the preamble of this final rule, where we also discuss
these topics.
Comment: Some commenters recommended that additional variables be
included in risk adjustment to better capture clinical complexity. A
few commenters suggested the inclusion of functional and cognitive
status and other patient assessment data. A few commenters suggested
patients who transfer from one short stay hospital to another in the
pre-admission period may indicate clinical complexity and should be
excluded from the measure. One commenter recommended that caregiver
support be included in the risk adjustment model.
Response: We thank the commenters for their suggestions. The MSPB-
PAC LTCH QRP measure is claims-based and does not incorporate other
sources of data which might indicate the availability of family or
caregiver support. As noted in the MSPB-PAC Public Comment Summary
Report, a link for which has been provided above, even where data on
caregiver support is available, there may be inherent subjectivity in
determining the availability of such support. We believe that the other
risk adjustment variables already included in the risk adjustment model
adequately adjust for patients who transfer from one short stay
hospital to another prior to admission to the LTCH by accounting for
HCCs, clinical case mix categories, and prior inpatient and ICU length
of stay. More details of the MSPB-PAC LTCH QRP risk adjustment model
are in the MSPB-PAC Measure Specifications, a link for which has been
provided above.
We recognize the importance of accounting for beneficiaries'
functional and cognitive status in the calculation of predicted episode
spending. We considered the potential use of functional status
information in the risk adjustment models for the MSPB-PAC measures.
However, we decided not to include this information derived from the
current setting-specific assessment instruments given the move towards
standardized data as mandated by the IMPACT Act. We will revisit the
inclusion of functional status in these measures' risk adjustment
models in the future when the standardized functional status data
mandated by the IMPACT Act become available. Once they are available,
we will take a gradual and systematic approach in evaluating how they
might be incorporated. We intend to implement any changes if
appropriate based on testing.
(c) Measure Numerator and Denominator
The MPSB-PAC LTCH QRP 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 57204]]

[GRAPHIC] [TIFF OMITTED] TR22AU16.001

Where

Yij = attributed standarized spending for episode i and
provider j,
Yij = expected standarized 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] = 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
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 proposed to use 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 invited public comment on our proposal to adopt the MSPB-PAC
LTCH QRP measure for the LTCH QRP.
Comment: Several commenters expressed concern about the lack of NQF
endorsement for the MSPB-PAC LTCH QRP measure; some believed that the
measure should not be finalized until NQF endorsement is obtained.
Response: We thank the commenters for their concern regarding the
lack of NQF endorsement and refer readers to section VIII.C.2. of the
preamble of this final rule, where we also discuss this topic.
Comment: Several commenters noted the MAP did not endorse the
proposed measure, believing that the measure should not be finalized
until the support of the MAP is obtained.
Response: We appreciate the comments about the NQF MAP committee
and refer readers to section VIII.C.2. of the preamble of this final
rule, where we also discuss this topic.
Comment: Several commenters supported a period during which
providers would be able to preview and correct measure and quality
data.
Response: We appreciate the comments, and refer readers to section
VIII.C.14. of the preamble of this final rule, where we discuss this
topic in detail.
Comment: Some commenters recommended an initial confidential data
preview period for providers, prior to public reporting.
Response: Providers will receive a confidential preview report with
30 days for review in advance of their data and information being
publically displayed.
Comment: Some commenters supported an LTCH-specific MSPB-PAC
measure, citing important differences (for example, patient
characteristics and nature of care provided) between LTCH and other PAC
settings.
Response: We thank the commenters for their support.
Comment: Some commenters recommended that the measure be tested for
reliability and validity prior to finalization.
Response: As noted in the proposed rule (81 FR 25220), the MSPB-PAC
LTCH QRP measure has been tested for reliability using two years of
data (FY 2013 and FY 2014). The reliability results support the 20
episode case minimum, and 98.83 percent of LTCHs had moderate or high
reliability (above 0.4). Further details on the reliability calculation
are provided in the MSPB-PAC Measure Specifications document, a link
for which has been provided above.
Comment: A few commenters noted that the MSPB-PAC measures are
resource use measures that are not a standalone indicator of quality.
Response: We appreciate the comment regarding the MSPB-PAC measures
as resource use measures. The MSPB-PAC LTCH QRP measure is one of four
QRP measures that were proposed in the FY 2017 IPPS/LTCH proposed rule
for inclusion in the LTCH QRP: In addition to the MSPB-PAC LTCH QRP
measure, these proposed measures were the Discharge to Community-PAC
LTCH QRP (81 FR 25220 through 25223), the Potentially Preventable 30-
day Post-Discharge Readmission Measure for LTCH QRP (81 FR 25223
through 25225), and the Drug Regimen Review Conducted With Follow-Up
for Identified Issues--PAC LTCH QRP (81 FR 25225 through 25228). As
part of the LTCH QRP, the MSPB-PAC LTCH QRP measure will be paired with
quality measures; we refer readers to section VIII.C.5. of the preamble
of this final rule for a discussion of quality measures previously
finalized for use in the LTCH QRP. We believe it is important that the
cost of care be explicitly measured so that, in conjunction with other
quality measures, we can publicly report which LTCHs are involved in
the provision of high-quality care at lower cost.
Comment: One commenter expressed general support for the MSPB-PAC
LTCH QRP measure, provided it has been tested for reliability and
validity.
Response: We thank the commenter for their support. We appreciate
the thoughtful feedback and engagement with the development and
finalization of the MSPB-PAC LTCH QRP measure.
Comment: One commenter believed that the measure is a burden for
providers.
Response: We thank the commenter for their concern. The MSPB-PAC
LTCH QRP measure relies on Medicare FFS claims, which are reported to
the Medicare program for payment purposes. PAC providers will not be
required to report additional data to CMS for calculation of this
measure.
Comment: One commenter recommended the use of uniform single MSPB-
PAC measure that could be used to compare providers across settings,
but recognized that CMS does not have

[[Page 57205]]

a uniform PPS for all the PAC settings currently. In the absence of a
single PAC PPS, the commenter recommended a single MSPB-PAC measure for
each setting that could be used to compare providers within a setting.
Under a single measure, the episode definitions, service inclusions/
exclusions, and risk adjustment methods would be the same across all
PAC settings.
Response: We thank the commenter. The four separate MSPB-PAC
measures reflect the unique characteristics of each PAC setting and the
population it serves. The four setting-specific MSPB-PAC measures are
defined as consistently as possible across settings given the
differences in the payment systems for each setting, and types of
patients served in each setting. We have taken into consideration these
differences and aligned the specifications, such as episode
definitions, service inclusions/exclusions and risk adjustment methods
for each setting, to the extent possible while ensuring the accuracy of
the measures in each PAC setting.
Each of the measures assess Medicare Part A and Part B spending
during the episode window which begins upon admission to the provider's
care and ends 30 days after the end of the treatment period. The
service-level exclusions are harmonized across settings. The definition
of the numerator and denominator is the same across settings. However,
specifications differ between settings when necessary to ensure that
the measures accurately reflect patient care and align with each
setting's payment system. For example, LTCHs and IRFs are paid a stay-
level payment based on the assigned MS-LTC-DRG and Case-Mix Group
(CMG), respectively, while SNFs are paid a daily rate based on the
Resource Utilization Group (RUG) level, and HHAs are paid a rate based
on a 60-day period as determined by the Home Health Resource Group
(HHRG) for standard home health claims. While the definition of the
episode window is consistent across settings and is based on the period
of time that a beneficiary is under a given provider's care, the
duration of the treatment period varies to reflect how providers are
reimbursed under the PPS that applies to each setting. The length of
the post-treatment period is consistent between settings. There are
also differences in the services covered under the PPS that applies to
each setting: For example, durable medical equipment, prosthetics,
orthotics, and supplies (DMEPOS) claims are covered LTCH, IRF, and SNF
services but are not covered HHA services. This affects the way certain
first-day service exclusions are defined for each measure.
We recognize that beneficiaries may receive similar services as
part of their overall treatment plan in different PAC settings, but
believe that there are some important differences in beneficiaries'
care profiles that are difficult to capture in a single measure that
compares resource use across settings.
Also, the risk adjustment models for the MSPB-PAC measures share
the same covariates to the greatest extent possible to account for
patient case mix. However, the measures also incorporate additional
setting-specific information where available to increase the predictive
power of the risk adjustment models. For example, the MSPB-PAC LTCH QRP
risk adjustment model uses MS-LTC-DRGs and Major Diagnostic Categories
(MDCs), and the MSPB-PAC IRF QRP model includes Rehabilitation
Impairment Categories (RICs). The HH and SNF settings do not have
analogous variables that directly reflect a patient's clinical profile.
We will continue to work towards a more uniform measure across
settings as we gain experience with these measures, and we plan to
conduct further research and analysis about comparability of resource
use measures across settings for clinically similar patients, different
treatment periods and windows, risk adjustment, service exclusions and
other factors.
Comment: One commenter recommended that proposed quality measures
obtain the support of a TEP including LTCH representatives to ensure
the applicability of the measures to the LTCH setting.
Response: We thank the commenter for their recommendation. As
discussed in the proposed rule (81 FR 25217), we note that we convened
a TEP consisting of 12 panelists with combined expertise in all of the
PAC settings, including LTCHs, on October 29 and 30, 2015, in
Baltimore, Maryland. While TEPs do not formally support or endorse
measures, their feedback on risk adjustment, episode windows,
exclusions, and other key elements of measure construction were
incorporated into measure development. The MSPB-PAC TEP Summary Report
is available, a link for which has been provided above.
Comment: One commenter recommended that LTCH site neutral and
standard payment rate episodes be reported separately, rather than
being aggregated into one MSPB-PAC LTCH QRP measure. Commenters
believed that this would more accurately reflect resource use and be
more helpful for providers.
Response: We thank the commenter for their concerns. While LTCH
site neutral and LTCH standard patients are paid based on different
rates, high quality and efficient treatment of any LTCH patient
requires similar processes of care as well as strong care coordination
and care transition planning. We believe therefore that performance
scores on this measure will offer LTCHs information that will enable
them to make meaningful improvements to their care. We will, however,
take this comment into consideration as we continue to refine the
measure.
Comment: One commenter recommended that adjacent LTCH stays be
collapsed based on a 9-day gap, rather than the 7-day gap as proposed.
A 9-day gap length would align with the LTCH interrupted stays policy
rather than the proposed 7-day gap.
Response: We thank the commenter for their recommendation. As
discussed in the MSPB-PAC Public Comment Summary Report, a link for
which has been provided above, and to clarify the commenter's concern,
a 9-day gap length would not align with the interrupted stays policy as
an LTCH interrupted stay is reimbursed by Medicare as one claim under
the LTCH PPS. Therefore, the treatment period begins at the episode
trigger (that is, admission to the LTCH) and ends at the beneficiary's
final discharge from the LTCH. The treatment period does not end when
the patient leaves the LTCH for an acute care hospital, IRF, or SNF,
nor does the patient's return to the same LTCH from those settings
within the allowed number of days under the interrupted stays policy,
trigger a new episode. The period during which the beneficiary is away
from the LTCH and covered by the interrupted stays policy is included
in the treatment period as it is treated as a single, albeit
interrupted, LTCH stay under the LTCH PPS.
Comment: One commenter suggested that a 180-day associated services
period would better reflect the post-discharge pathways for LTCH
patients.
Response: We thank the commenter for their feedback and engagement
with the MSPB-PAC LTCH QRP measure. As discussed in the MSPB-PAC Public
Comment Summary Report, a link for which has been provided above, the
30-day post-treatment period was favored by the TEP panelists as an
appropriate length of time during which a PAC provider can be held
accountable for Medicare Part A and Part B spending, subject to certain
clinically unrelated service exclusions. While a longer period such as
180 days may reflect care trajectory for an LTCH beneficiary, it

[[Page 57206]]

would also capture services that may be less influenced by the
attributed PAC provider. Also, the 30-day post-treatment period is
consistent with the NQF-endorsed hospital MSPB measure and aligns with
widely adopted quality measures for readmissions and mortality.
Comment: One commenter recommended that a geographic-specific (for
example, State or regional) median should be used instead of the
national median, citing differences in cost, patient population, and
regulation.
Response: We appreciate the commenter's input. We clarify that, as
noted in the proposed rule (81 FR 25219), we proposed to use the same
payment standardization methodology as that used in the NQF-endorsed
hospital MSPB measure to account for variation in Medicare spending.
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).
We believe that this approach accounts for the differences that the
commenter raises while also maintaining consistency with the NQF-
endorsed hospital MSPB measure's methodology for addressing regional
variation through payment standardization.
Comment: One commenter suggested that descriptive statistics on the
measure scores by provider-level characteristics (for example, rural/
urban status and bed size) would be useful to evaluate measure design
decisions.
Response: We thank the commenter for their input. The following
table shows the MSPB-PAC LTCH provider scores by provider
characteristics, calculated using FY 2013 and FY 2014 data.

MSPB-PAC LTCH Provider Scores by Provider Characteristics
--------------------------------------------------------------------------------------------------------------------------------------------------------
Score percentile
Provider characteristic Number of Mean ----------------------------------------------------------------------------
providers score 1st 10th 25th 50th 75th 90th 99th
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Providers...................................... 438 1.00 0.85 0.93 0.96 0.99 1.03 1.07 1.23
Urban/Rural:
Urban.......................................... 411 1.00 0.85 0.93 0.96 0.99 1.03 1.07 1.19
Rural.......................................... 27 1.00 0.92 0.93 0.96 1.00 1.04 1.07 1.24
Ownership Type:
For profit..................................... 284 1.00 0.88 0.94 0.97 1.00 1.03 1.06 1.15
Non-profit..................................... 113 1.00 0.86 0.92 0.95 0.99 1.04 1.08 1.27
Government..................................... 24 0.91 0.29 0.62 0.88 0.94 1.01 1.06 1.36
Unknown........................................ 17 0.99 0.89 0.93 0.94 1.00 1.03 1.07 1.12
Census Division:
New England.................................... 17 0.91 0.53 0.82 0.88 0.94 0.97 0.98 1.01
Middle Atlantic................................ 32 1.02 0.86 0.98 0.99 1.01 1.05 1.08 1.11
East North Central............................. 70 1.00 0.89 0.93 0.97 1.01 1.03 1.07 1.12
West North Central............................. 27 1.00 0.92 0.93 0.96 0.99 1.03 1.07 1.12
South Atlantic................................. 63 0.99 0.88 0.92 0.94 0.98 1.01 1.05 1.36
East South Central............................. 34 0.98 0.90 0.92 0.93 0.98 1.01 1.06 1.24
West South Central............................. 137 1.00 0.88 0.94 0.96 0.99 1.04 1.09 1.23
Mountain....................................... 33 1.01 0.90 0.95 0.97 1.00 1.03 1.06 1.27
Pacific........................................ 25 1.00 0.29 0.97 1.00 1.02 1.04 1.08 1.18
Bed Count:
0-49........................................... 238 0.99 0.88 0.93 0.95 0.98 1.02 1.06 1.23
50-99.......................................... 140 1.01 0.88 0.94 0.97 1.00 1.04 1.08 1.18
100-199........................................ 40 1.02 0.86 0.93 0.98 1.02 1.05 1.09 1.36
200-299........................................ 14 0.95 0.53 0.82 0.92 0.97 1.03 1.09 1.10
300 +.......................................... 6 0.93 0.85 0.85 0.86 0.92 1.00 1.01 1.01
No. of Episodes:
0-99........................................... 25 0.99 0.29 0.62 0.93 1.01 1.09 1.27 1.47
100-249........................................ 105 0.99 0.89 0.92 0.95 0.98 1.03 1.07 1.15
250-499........................................ 206 0.99 0.88 0.93 0.96 0.99 1.03 1.06 1.12
500-1000....................................... 84 1.00 0.86 0.94 0.97 1.00 1.04 1.06 1.24
1000 +......................................... 18 1.01 0.94 0.97 0.99 1.00 1.03 1.08 1.08
--------------------------------------------------------------------------------------------------------------------------------------------------------

Comment: One commenter expressed concern that the public may
interpret the MSPB-PAC measures to be applicable across PAC settings.
Response: We appreciate the commenter's concern. While the MSPB-PAC
measures are defined as consistently as possible between settings, they
compare only providers within each setting. We believe that this
distinction is clear as each MSPB-PAC measure will be part of their
respective setting's QRP, including the MSPB-PAC LTCH QRP measure which
is being finalized as part of the LTCH QRP.
In summary, after consideration of the public comments we received,
we are finalizing the specifications of the MSPB-PAC LTCH QRP resource
use measure, as proposed. A link for the MSPB-PAC Measure
Specifications has been provided above.
We are finalizing the definition of an MSPB-PAC LTCH QRP episode,
beginning from episode trigger. An episode window comprises a treatment
period beginning at the trigger and ended upon discharge, and
associated services period beginning at the trigger and ending 30 days
after the end of the treatment period. Readmissions to the same LTCH
within 7 or fewer days do not trigger a new episode and are instead
included in the treatment period of the first episode.
We exclude certain services that 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. We also exclude certain episodes in their entirety from the
MSPB-PAC LTCH QRP measure, such as where a beneficiary is not enrolled
in Medicare FFS for the

[[Page 57207]]

entirety of the lookback period plus episode window.
We are finalizing the inclusion of Medicare payments for Part A and
Part B claims for services included in the MSPB-PAC LTCH QRP episodes
to calculate the MSPB-PAC LTCH QRP measure.
We are finalizing our proposal to risk adjust using covariates
including age brackets, HCC indicators, prior inpatient stay length,
ICU stay length, clinical case mix categories, indicators for
originally disabled, ESRD enrollment, and long-term care status,
hospice claim in episode window, and MS-LTC-DRGs. The measure also
adjusts for geographic payment differences such as wage index and GPCI,
and adjust for Medicare payment differences resulting from IME and DSH.
We calculate the individual providers' MSPB-PAC Amount which is
inclusive of MSPB-PAC LTCH QRP observed episode spending over the
expected episode spending as predicted through risk adjustment.
Standard and site neutral episode spending is compared only with
standard and site neutral episode spending, respectively. Individual
LTCHs' scores are calculated as their individual MSPB-PAC Amount
divided by the median MSPB-PAC amount across all LTCHs.
b. Measure 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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25220 through 25223), we proposed 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 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 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 or self care, with or without home health
services, based on Patient Discharge Status Codes 01, 06, 81, and 86 on
the Medicare FFS claim.^{235 236} 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.
---------------------------------------------------------------------------

\235\ National Uniform Billing Committee Official UB-04 Data
Specifications Manual 2017, Version 11, July 2016, Copyright 2016,
American Hospital Association.
\236\ 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 PAC 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.^{237 238}
---------------------------------------------------------------------------

\237\ 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.
\238\ 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.
---------------------------------------------------------------------------

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.^{239 240} 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.\241\ Also,
providers have discovered that successful discharge to community was a
major driver of their ability to achieve savings, where capitated
payments for PAC were in place.\242\ For patients who require long-term
care due to persistent disability, discharge to community could result
in lower long-term care costs for Medicaid and for patients' out-of-
pocket expenditures.\243\
---------------------------------------------------------------------------

\239\ 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.
\240\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute
Care Relationships in an Integrated Hospital System. Final Report.
RTI International; 2009.
\241\ Ibid.
\242\ 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.
\243\ 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.
---------------------------------------------------------------------------

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.\244\ 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.\245\
---------------------------------------------------------------------------

\244\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute
Care Relationships in an Integrated Hospital System. Final Report.
RTI International; 2009.
\245\ 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

[[Page 57208]]

example, for-profit or nonprofit), and freestanding or hospital-based
units; and across patient-level characteristics, such as race and
gender.^{246 247 248 249 250 251} Discharge to community rates
in the IRF setting have been reported to range from about 60 to 80
percent.^{252 253 254 255 256 257} Longer-term studies show
that rates of discharge to community from IRFs have decreased over time
as IRF length of stay has decreased.^{258 259} Greater
variation in discharge to community rates is seen in the SNF setting,
with rates ranging from 31 to 65 percent.^{260 261 262 263} 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.\264\ A single-center study revealed that 31 percent of LTCH
hemodialysis patients were discharged to home.\265\ 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.\266\ 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).\267\
---------------------------------------------------------------------------

\246\ 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.
\247\ 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.
\248\ March 2015 Report to the Congress: Medicare Payment
Policy. Medicare Payment Advisory Commission;2015.
\249\ 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.
\250\ 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.
\251\ 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.
\252\ 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.
\253\ 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.
\254\ 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.
\255\ 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.
\256\ 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.
\257\ 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.
\258\ 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.
\259\ 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.
\260\ 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.
\261\ 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.
\262\ 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.
\263\ 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.
\264\ 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.
\265\ 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.
\266\ 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.
\267\ 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.^{268 269 270 271} Many of these interventions involve
discharge planning or specific rehabilitation strategies, such as
addressing discharge barriers and improving medical and functional
status.^{272 273 274 275} The effectiveness of these
interventions suggests that improvement in discharge to community rates
among PAC patients is possible through modifying provider-led processes
and interventions.
---------------------------------------------------------------------------

\268\ 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.
\269\ 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.
\270\ 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.
\271\ 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.
\272\ 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.
\273\ 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.
\274\ 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.
\275\ 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 measure, Discharge to Community-PAC LTCH
QRP in the LTCH QRP. The panel provided input on the technical
specifications of this 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

[[Page 57209]]

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 this 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 Discharge to Community-PAC LTCH QRP measure in
the LTCH QRP. The MAP encouraged continued development of the measure
to meet the mandate of the IMPACT Act. The MAP supported the alignment
of this 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 measure is
consistent with the information submitted to the MAP, and the original
MAP submission and our continued refinements support its scientific
acceptability for use in quality reporting programs. 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 PAC
focused on discharge to community. In addition, we are unaware of any
other PAC measures for discharge to community that have been endorsed
or adopted by other consensus organizations. Therefore, we proposed 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 proposed to use data from the Medicare FFS claims and Medicare
eligibility files to calculate this measure. We proposed 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 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
believed 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 proposed to adopt the
measure, Discharge to Community-PAC LTCH QRP, for the LTCH QRP for FY
2018 payment determination and subsequent years. This measure is
calculated using 2 years of data. We proposed a minimum of 25 eligible
stays in a given LTCH for public reporting of the measure for that
LTCH. Because 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 us for calculation of this measure. The measure denominator is
the risk-adjusted expected number of discharges to community. The
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 the proposed measure, including
information about the measure calculation, risk adjustment, and
denominator exclusions, we referred 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-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
We stated in the proposed rule that 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 measure to
the NQF for consideration for endorsement.
As noted above, in the FY 2013 IPPS/LTCH PPS final rule (77 FR
53615 through 53616), we adopted a subregulatory process to incorporate
updates to LTCH quality measure specifications that do not
substantively change the nature of the measure. In that rule, we noted
that we expect to make this determination on a measure-by-measure basis
and that examples of non-substantive changes to measures might include
exclusions for a measure. For the proposed Discharge to Community-PAC
LTCH QRP measure, we have added an exclusion of patients/residents with
a hospice benefit in the postdischarge observation window, in response
to comments received during measure development and our ongoing
analysis and testing. The rationale for the exclusion of patients/
residents with a hospice benefit in the post-discharge observation
window aligns with the rationale for exclusion of discharges to
hospice. Based on testing, we found that patients/residents with a
postdischarge hospice benefit have a much higher death rate in the
postdischarge observation window compared with patients/residents
without a hospice benefit. We determined that the addition of this
hospice exclusion enhances the measure by excluding patients/residents
with a high likelihood of postdischarge death and improves the national
observed discharge to community rate for LTCHs by approximately 0.7
percent. With the

[[Page 57210]]

addition of this hospice exclusion, we do not believe burden is added,
nor that the addition of this exclusion is a substantive change to the
overall measure. Failure to include this hospice exclusion could lead
to unintended consequences and access issues for terminally-ill
patients/residents in our PAC populations.
We invited public comment on our proposal to adopt the measure,
Discharge to Community-PAC LTCH QRP, for the LTCH QRP. The comments we
received on this topic, with their responses, appear below.
Comment: Several commenters, including MedPAC, expressed support
for the Discharge to Community-PAC LTCH QRP measure. Commenters stated
that the discharge to community measure is very aligned with principles
of patient-centered care as patients show a preference for care outside
of institutional settings, and that successful transitions to the
community are expected to decrease potentially preventable
readmissions. One commenter noted that measuring the rate that the
various PAC settings discharge patients to the community, without an
admission (or readmission) to an acute care hospital within 30 days, is
one of the most relevant patient-centered measures that exists in the
PAC area. Another commenter stated that LTCHs should be encouraged to
discharge patients to community-based care settings (home or self care,
with or without home health services) where literature shows that
average spending per beneficiary is less than in institutional based
care settings. One commenter supported the proposed measure, provided
it had been tested for validity and reliability. One commenter noted
that achieving a standardized and interoperable patient assessment data
set and stable quality measures as quickly as possible will allow for
better cross-setting comparisons and the evolution of better quality
measures with uniform risk standardization.
Response: We thank the commenters for their support of the
Discharge to Community-PAC LTCH QRP measure, and appreciate their
recognition of the patient-centeredness of this measure, its potential
to decrease post-discharge readmissions, and its potential to reduce
spending. In our measure development process, we conduct reliability
and validity testing for all measures. We will continue to conduct this
testing with all future measure development and/or modification. We
also thank commenters for their support of standardized and
interoperable patient assessment data and quality measures. As mandated
by the IMPACT Act, we are moving toward the goal of standardized
patient assessment data and quality measures across PAC settings.
Comment: Several commenters stated that the Discharge to Community-
PAC LTCH QRP measure is not an appropriate measure of quality for the
LTCH setting, stating that the primary function of LTCHs is to provide
critical, acute, or sub-acute levels of care and to discharge patients
to the appropriate lower acuity setting when they no longer require
these levels of care. Commenters stated that keeping patients until
they are ready to be discharged to the community is not a goal of
LTCHs.
Response: We appreciate the commenters' concerns. We understand
that patient populations and goals of care differ across PAC settings,
and that LTCHs care for higher acuity patients when compared with other
PAC settings. Nonetheless, successful discharge to community, when
appropriate, is an important goal many PAC patients share, regardless
of the provider from which they are receiving services. We would like
to note that in order to account for differences in case-mix across
settings, this measure is risk-adjusted.
We understand that discharge to community rates for LTCHs, on
average, are expected to be lower compared with rates for other PAC
settings, given the higher acuity case-mix in LTCHs. Our analysis has
shown that approximately 26 percent of LTCH patients are discharged to
the community. This measure will allow us to compare discharge to
community rates across LTCHs, and monitor facilities with unexpectedly
low rates given their case-mix. It is not our intention to attribute
lower discharge to community rates of LTCHs to lower quality of care
compared with other PAC settings. Further, we do not expect facilities
to achieve a 100 percent discharge to community rate for this measure.
Comment: Several commenters emphasized that a lower acuity PAC
setting is often an appropriate and successful discharge destination
for LTCH patients. Some commenters recommended that discharges to lower
acuity PAC settings, such as IRF or SNF, be considered successful
discharges to community, while others recommended that discharges to
lower acuity PAC settings be excluded from the measure because
otherwise they would be wrongly treated as unfavorable outcomes. One
commenter specifically recommended that patients who move from SNF to
hospital to LTCH and back to SNF be considered an appropriate discharge
outcome for this measure; this commenter also recommended that patients
with such a trajectory be excluded from the measure. Another commenter
specifically recommended that discharges from an LTCH to an IRF be
considered successful discharges to community.
Response: We appreciate that for several LTCH patients, discharge
to lower acuity PAC settings such as IRF or SNF represents a successful
and positive discharge outcome. However, we would like to clarify that
this measure is intended to specifically capture discharge to community
settings, namely home or self care, with or without home health
services, based on Patient Discharge Status Codes 01, 06, 81, and 86 on
the Medicare FFS claim.\276\ This measure is not intended to capture
discharges to all lower levels of care. Since IRFs and SNFs are not
community settings, including IRF and SNF discharges in the definition
of discharge to community would reduce the validity of our measure.
Nonetheless, we recognize that discharge to a community setting is not
an expected outcome for every PAC patient. Therefore, we risk adjust
for baseline patient characteristics in this measure to adjust for
case-mix in each setting. In addition to adjusting for variables such
as principal diagnosis and comorbidities, in the LTCH setting we adjust
for ventilator use. We believe it is important to track discharge
destination outcomes of all LTCH patients. Therefore, we have not
excluded discharges to lower acuity PAC settings from the measure, nor
have we excluded patients who were in a SNF prior to their acute or
LTCH stay. As stated above, this measure will allow us to compare
discharge to community rates across LTCHs, and monitor facilities with
unexpectedly low rates given their case-mix. We believe that successful
discharge to community, when appropriate, is an important goal many
LTCH patients share.
---------------------------------------------------------------------------

\276\ National Uniform Billing Committee Official UB-04 Data
Specifications Manual 2017, Version 11, July 2016, Copyright 2016,
American Hospital Association.
---------------------------------------------------------------------------

Comment: Several commenters, including MedPAC, were concerned about
the reliability and/or validity of the Patient Discharge Status Code on
the PAC claim, some referencing MedPAC and other studies that
questioned the accuracy of this code. They strongly recommended that
CMS address inconsistencies in reporting of the Patient Discharge
Status Code, and confirm its accuracy through additional testing.
MedPAC recommended that CMS confirm discharge to a community

[[Page 57211]]

setting with the absence of a subsequent claim to a hospital, IRF, SNF,
or LTCH, in order to ensure that discharge to community rates reflect
actual facility performance; other commenters supported this
recommendation. One commenter shared its analysis that between 3.7
percent and 7.4 percent of those successfully discharged to the
community as identified by the discharge status on the LTCH, IRF, or
SNF claim had a subsequent short-term care hospital (STCH), LTCH, IRF,
or SNF claim in the 31-day post-discharge window.
Response: We are committed to developing measures based on reliable
and valid data. This measure does confirm the absence of hospital or
LTCH claims following discharge to a community setting. Unplanned acute
or LTCH readmissions following the discharge to community, including
those on the day of LTCH discharge, are considered unfavorable
outcomes. We will consider verifying the absence of IRF and SNF claims
following discharge to a community setting as we continue to refine
this measure. Nonetheless, we would like to note an ASPE report on PAC
relationships found that, following discharge to community settings
from IRFs, LTCHs, or SNFs in a 5 percent Medicare sample, IRFs or SNFs
were very infrequently reported as the next site of PAC.\277\ We would
also like to clarify that an institutional claim that does not
immediately follow a discharge to community would, in most instances,
be indicative of a discharge to a community setting followed by a
readmission. It should not be interpreted as evidence of an inaccurate
discharge to community code on the PAC claim.
---------------------------------------------------------------------------

\277\ Gage B, Morley M, Spain P, Ingber M. Examining Post Acute
Care Relationships in an Integrated Hospital System Final Report.
RTI International; 2009.
---------------------------------------------------------------------------

Because the discharge to community measure is a measure of
discharge destination from the PAC setting, we have chosen to use the
PAC-reported discharge destination (from the Medicare FFS claims) to
determine whether a patient/resident was discharged to the community
(based on discharge status codes 01, 06, 81, 86). We assessed the
reliability of the claims discharge status code(s) by examining
agreement between discharge status on claims and assessment instruments
for the same stay in all four PAC settings. We found between 94 and 99
percent agreement in coding of community discharges on matched claims
and assessments in each of the PAC settings. We also assessed how
frequently discharges to acute care, as indicated on the PAC claim,
were confirmed by follow-up acute care claims, and found that 88
percent to 91 percent of IRF, LTCH, and SNF claims indicating acute
care discharge were followed by an acute care claim on the day of, or
day after, PAC discharge. We believe that these data support the use of
the ``Patient Discharge Status Code'' from the PAC claim for
determining discharge to a community setting for this measure.
The use of the claims discharge status code to identify discharges
to the community was discussed at length with the TEP convened by our
measure development contractor. TEP members did not express significant
concerns regarding the accuracy of the claims discharge status code in
coding community discharges, nor about our use of the discharge status
code for defining this quality measure. 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.
Comment: A few commenters recommended that baseline long-stay
nursing facility residents be excluded from the measure, as they could
not be reasonably expected to discharge to the community after their
PAC stay. One commenter expressed concern that the discharge to
community measure fails to consider when a patient's ``home'' is a
custodial nursing facility and the patient's post-acute episode
involves a discharge back to his or her ``home.'' The commenter
encouraged CMS to modify the discharge to community measure so it is
able to distinguish baseline custodial nursing facility residents who
are discharged back to their nursing facility. One commenter cited data
that discharge to community rates were much lower for LTCH patients who
had an indication of a prior nursing home stay compared with those who
did not. Another commenter noted that these residents have a very
different discharge process back to the nursing facility compared with
patients discharged to the community. This commenter recommended that
different measures be developed for this population, such as return to
prior level of function, improvement in function, prevention of further
functional decline, development of pressure ulcers, or accidental
falls. This commenter also recognized CMS' current efforts in
monitoring transitions of care and quality requirements in long-term
care facilities. One commenter suggested that CMS use the Minimum Data
Set to identify and exclude baseline nursing facility residents.
Similar to the above comments, other commenters emphasized the
importance of risk adjustment for pre-hospitalization living setting,
noting that some patients could reasonably never be expected to return
to the community based on their permanent living setting prior to their
acute care hospital stay. These commenters conveyed that it was
unreasonable to expect PAC providers to discharge to the community
those patients who may have permanently lived in a non-community
setting prior to the acute hospital stay, and that risk adjustment
should account for this.
Response: We appreciate the commenters' concerns and their
recommendations to exclude baseline nursing facility residents from the
discharge to community measure, to distinguish baseline custodial
nursing facility residents who are discharged back to the nursing
facility after their LTCH stay, and to risk adjust for pre-
hospitalization living setting when assessing discharge to community
outcomes. We recognize that patients/residents who permanently lived in
a nursing facility or other long-term care facility at baseline may not
be expected to discharge back to a home and community based setting
after their PAC stay. We also recognize that, for baseline nursing
facility residents, a discharge back to their nursing facility
represents a discharge to their baseline residence. We agree with the
commenter about the differences in discharge planning processes when
discharging a patient/resident to the community compared with
discharging them to a long-term nursing facility. However, using
Medicare FFS claims alone, we are unable to accurately identify
baseline nursing facility residents. In addition, there are no claims
data on pre-hospital living setting that we could use for risk
adjustment. Potential future modifications of the measure could include
the assessment of the feasibility and impact of excluding baseline
nursing facility residents from the measure or risk adjusting for pre-
hospital living setting, through the addition of patient assessment-
based data. However, we note that, currently, the IRF-Patient
Assessment Instrument (IRF-PAI) is the only PAC assessment that
contains an item related to pre-hospital baseline living setting.
Comment: One commenter recommended that the measure exclude
patients who have been discharged to

[[Page 57212]]

the community and expire within the post-discharge observation window.
The commenter supported this recommendation by explaining that the
types of patients treated in each PAC setting varied greatly and that
including post-discharge death in the measure could lead to an
inaccurate reflection of the quality of care furnished by the PAC. The
commenter further cited MedPAC data indicating that, compared with
other Medicare beneficiaries, the LTCH patient population is
disproportionately more disabled, elderly, and frail.
Response: Including 31-day post-discharge mortality outcomes is
intended to identify successful discharges to community, and to avoid
the potential unintended consequence of inappropriate community
discharges. We have found, through our analyses on our measure
development sample, that death in the 31 days following discharge to
community is an infrequent event; 2.73 percent of LTCH Medicare FFS
beneficiaries discharged to community died in the 31 days following
discharge. We do not expect facilities to achieve a 0 percent death
rate in the measure's postdischarge observation window; one focus of
the measure is to identify facilities with unexpectedly high rates of
death for quality monitoring purposes.
We agree with the commenter about the differences in case-mix
across the PAC settings. Therefore, we risk adjust this measure for
several case-mix variables, such as age, diagnoses from the prior acute
stay, comorbidities in the year preceding PAC admission, length of
prior acute stay, number of prior hospitalizations in the past year,
and ventilator use.
Comment: Several commenters suggested that the discharge to
community measure adjust for sociodemographic and socioeconomic
factors. Commenters were concerned that provider performance on the
measure will depend on patient-related sociodemographic and
socioeconomic factors such as availability of home and community
supports, financial resources, race, and dual eligibility, which are
outside of the provider's control.
Response: We understand the importance of home and community
supports, sociodemographic, and socioeconomic factors for ensuring a
successful discharge to community outcome. The discharge to community
measure is a claims-based measure, and note that currently, there are
no standardized data on variables such as living status or home and
community supports across the four PAC settings. As we refine the
measure in the future, we will consider testing and adding additional
relevant data sources and standardized items for risk adjustment of
this measure. With regard to the suggestions pertaining to risk
adjustment for sociodemographic and socioeconomic factors, we refer the
readers to section VIII.C.6. of the preamble of this final rule for a
more detailed discussion of the role of SES/SDS factors in risk
adjustment of our measures.
Comment: Some commenters emphasized the relationship between
functional gains made by patients during their LTCH stay and their
ability to discharge to the community. One commenter stated that return
to one's previous home represents part of the goal of care; in
addition, it is also important that the patient is able to function to
the greatest possible extent in the home and community setting and
achieve the highest quality of life possible. The commenter recommended
that CMS delay its proposal to adopt this measure until it incorporated
metrics that assess whether patients achieved their functional and
independence goals based on their plan of care and their specific
condition.
Other commenters suggested that the measure include risk adjustment
for functional status. One commenter noted that functional status is
associated with increased risk of 30-day all-cause hospital
readmissions, and since readmissions and discharge to community are
closely related, functional status risk adjustment is also important
for this measure. Another commenter suggested that, for cross-setting
standardization, the SNF and LTCH measures should also include risk
adjustment that is similar to the risk adjustment for Case-Mix Groups
(CMGs) in the IRF setting and Activities of Daily Living in the HHA
setting.
Response: We agree that it is important to assess various aspects
of patient outcomes that are indicative of successful discharge from
the LTCH setting. We also agree that functional status may be related
to discharge to community outcomes, and that it is important to test
admission functional status risk adjustment when assessing discharge to
community outcomes. The discharge to community measure does include
functional status risk adjustment in the IRF setting using CMGs from
claims, and in the home health setting using Activities of Daily Living
from claims. There are no data related to functional status in LTCH
claims. Nevertheless, we would like to note that, in other work, we
have found admission functional status to not be as strong a predictor
of resource use \278\ or functional outcomes \279\ in LTCHs relative to
other PAC settings.
---------------------------------------------------------------------------

\278\ Post-Acute Care Payment Reform Demonstration: Final
Report, Volume 4 of 4. March 2012. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/Downloads/PAC-PRD_FinalRpt_Vol4of4.pdf.
\279\ Long-Term Care Hospital (LTCH) Functional Outcome Measure:
Change in Mobility Among Patients Requiring Ventilator Support (NQF
#2632). http://www.qualityforum.org/QPS/2632.
---------------------------------------------------------------------------

As mandated by the IMPACT Act, we are moving toward the goal of
collecting standardized patient assessment data for functional status
across PAC settings. The LTCH QRP includes three NQF endorsed
functional status quality measures: Functional Outcome Measure: Change
in Mobility among Long-Term Care Hospital Patients Requiring Ventilator
Support (NQF #2632); Percent of Long-Term Care Hospital Patients with
an Admission and Discharge Functional Assessment and a Care Plan That
Addresses Function (NQF #2631); 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).
Once standardized functional status data become available across
settings, it is our intent to use these data to assess patients'
functional gains during their PAC stay, and to examine the relationship
between functional status, discharge destination, and patients' ability
to discharge to the community. As we examine these relationships
between functional outcomes and discharge to community outcomes in the
future, we will assess the feasibility of leveraging these standardized
patient assessment data to incorporate functional outcomes into the
discharge to community measure. Standardized cross-setting patient
assessment data will also allow us to examine interrelationships
between the quality and resource use measures in each PAC setting, and
to understand how these measures are correlated.
Comment: One commenter suggested that CMS risk adjust for
additional variables for the LTCH discharge to community measure,
including principal diagnosis associated with the LTCH stay, multiple
organ failure, do not resuscitate (DNR) status in the LTCH and prior
short-term acute care hospital stay, and prior nursing home stay. The
commenter noted that, in their analyses, they found that principal
diagnosis groups such as cancer diagnoses, adult respiratory failure,
and aspiration pneumonia based on the LTCH stay

[[Page 57213]]

were associated with significantly lower discharge to community rates.
Response: We thank the commenter for their suggestions. With regard
to using principal diagnosis from the prior acute claim, our approach
is consistent with that of claims-based NQF-endorsed readmissions
measures for PAC settings. We are adjusting for the medical condition
that was the precursor to the LTCH admission. Using surgical
categories, we also adjust for whether the patient had surgery in the
prior acute stay. Our risk adjustment models are comprehensive, and
adjust for all diagnoses and procedures on the prior acute claim, as
well as several comorbidities based on the year preceding PAC
admission. We adjust for the principal diagnosis groups mentioned by
the commenter including cancer diagnoses, adult respiratory failure,
and aspiration pneumonia, all of which are significant predictors of
lower discharge to community rates.
With regard to risk adjustment for prior nursing home stay, we plan
to assess the feasibility and impact of identifying and excluding
baseline long-stay nursing facility residents in future measure
modifications. We will also consider other risk adjustment suggestions
made by the commenters, as we refine the measure.
Comment: One commenter stated that ventilator use is included as a
risk adjuster in the LTCH setting only, but should be used across all
settings. This commenter also requested information on the hierarchical
logistic regression modeling and variables that will be used for risk
adjustment.
Response: We would like to clarify that risk adjustment for
ventilator use is included in both LTCH and SNF settings. We
investigated the need for risk adjustment for ventilator use in IRFs,
but found that less than 0.01 percent of the IRF population (19 patient
stays in 2012, and 9 patient stays in 2013) had ventilator use in the
IRF. Given the low frequency of ventilator use in IRFs, any associated
estimates would not be reliable, and therefore, ventilator use is not
included as a risk adjuster in the IRF setting measure. However, we
will continue to assess this risk adjuster for inclusion in the IRF
model for this measure.
For details on measure specifications, modeling, and calculations,
we refer readers to the Measure Specifications for Measures Adopted in
the FY 2017 LTCH QRP Final Rule, posted on the CMS LTCH QRP Web page
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
Comment: One commenter noted that requiring a maximum of a 30-day
gap between an acute care discharge and a PAC admission can, in some
cases, result in selection on severity in the PAC stay. If a long
intervening stay in an LTCH delays an admission to a lower intensity
level of care, such as a SNF, that admission would be excluded from the
SNF measure if the gap between acute discharge and SNF admission is
more than 30 days. The commenter stated that such a patient would have
a higher unobserved severity than a patient admitted within 30 days of
acute discharge, and that excluding such a patient would lower the
case-mix of SNF cases to their advantage, when comparing discharge to
community rates between LTCHs and SNFs. The commenter recommended that
the 30-day maximum gap between acute discharge and PAC admission be
limited only to the first PAC stay in a PAC sequence. The commenter
also asked whether the qualifying acute care stay in the 30 days
preceding PAC admission had to immediately precede the PAC admission,
or whether it was acceptable to have another intervening PAC stay
between the acute discharge and index PAC admission.
Response: We thank the commenter for their comment, which touches
on a number of measure aspects that interact. First, the preference
expressed in expert panels has been to limit the time lag between the
acute discharge and the provider being evaluated. Second, the presence
of a long intervening PAC stay could either indicate a more severe
patient, or alternatively a more recovered patient when the next PAC
provider admits the patient; the bias cannot be assumed to be
unidirectional. That said, the purpose of the commenter's
recommendation is to capture, in a limited way, some of the unmeasured
severity distinguishing beneficiaries across different PAC settings. We
agree with the commenter's intent, but do not believe this would have a
substantive effect when comparing settings, or improve comparisons of
providers of the same type. Nonetheless, in future years, we will
consider evaluating the impact of the commenter's suggestion on measure
performance.
To address the commenter's question, the qualifying acute care stay
within the past 30 days does not need to immediately precede the index
PAC admission. For example, if a patient has an acute care stay, an
LTCH stay, and a SNF stay within a 30-day window, the SNF stay is a
candidate to for measure inclusion even though the acute care stay did
not immediately precede SNF admission.
Comment: One commenter requested information about how the surgical
procedure categories in the risk adjustment variables are grouped from
the Agency for Healthcare Research and Quality (AHRQ) Clinical
Classifications Software (CCS) procedure categories listed in the
Hospital-Wide All-Cause Unplanned Readmission Measure specifications.
Response: We appreciate the commenter's request for information.
The surgical indicators are based on those developed for the Hospital-
Wide All-Cause Unplanned Readmission (CMS/Yale) measure (NQF
#1789).\280\ Further information about the AHRQ CCS procedure
categories is available in the Measure Specifications for Measures
Adopted in the FY 2017 LTCH QRP Final Rule, posted on the CMS LTCH QRP
Web page at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
---------------------------------------------------------------------------

\280\ Hospital-Wide All-Cause Readmission Measure (HWR) (CMS/
Yale). www.qualityforum.org/QPS/1789 (NQF #1789).
---------------------------------------------------------------------------

Comment: One commenter requested information on how planned
discharges to an acute care hospital or LTCH were identified and
excluded from the discharge to community measure. Specifically, the
commenter asked whether discharges were considered planned if the
discharge status code on the acute care claim preceding the PAC stay
was ``91'' for LTCHs, ``90'' for IRFs, and ``83'' for SNFs, where code
``91'' indicates ``Discharged/transferred to a Medicare certified long
term care hospital (LTCH) with a planned acute care hospital inpatient
readmission,'' ``90'' indicates ``Discharged/transferred to an
inpatient rehabilitation facility (IRF) including rehabilitation
distinct part units of a hospital with a planned acute care hospital
inpatient readmission'' and ``83'' indicates ``Discharged/transferred
to a skilled nursing facility (SNF) with Medicare certification with a
planned acute care hospital inpatient readmission.''
Response: We would like to clarify that the determination of
planned discharge is not based on the discharge status code on the
prior acute care claim indicating a planned acute care readmission
(that is, codes 81 through 95). These discharge status codes are not
associated with a time frame for planned readmission, and are not used
to determine whether a discharge was planned or unplanned. We determine

[[Page 57214]]

whether an observed discharge was planned based on diagnosis and
procedure codes reported on inpatient acute or LTCH claims following
discharge to community. We identify planned admissions using the
planned readmissions algorithm used in the following PAC readmission
measures: (1) Skilled Nursing Facility 30-Day All-Cause Readmission
Measure (SNFRM) (NQF #2510); (2) All-Cause Unplanned Readmission
Measure for 30 Days Post Discharge from Inpatient Rehabilitation
Facilities (NQF #2502); and (3) All-Cause Unplanned Readmission Measure
for 30 Days Post Discharge from Long Term Care Hospitals (NQF #2512).
For the IRF and SNF settings, we exclude stays with planned
discharges to an acute care hospital or LTCH that occur on the day of,
or day after, PAC discharge. For the LTCH setting, we exclude planned
discharges to an acute care hospital on the day, of or day after, LTCH
discharge. We note that PAC claims indicating discharge to a community
are not excluded if they are followed by a subsequent planned acute
care or LTCH admission; rather these stays are treated as successful
discharge to community outcomes.
Comment: One commenter asked whether an unplanned readmission that
follows a planned readmission in the post-discharge observation window
would be considered an unfavorable outcome for the discharge to the
community measure.
Response: An unplanned readmission that follows a planned
readmission in the post-discharge observation window is not considered
an unfavorable outcome for the discharge to the community measure. For
this measure, we examine the first readmission that falls within the
observation window following discharge to community. If the first
readmission is unplanned, it is considered an unsuccessful discharge to
community outcome. If the first readmission is planned, it is
considered a successful discharge to community outcome. Any unplanned
readmissions following the first planned readmission do not impact the
discharge to community outcome.
Comment: One commenter requested information on the mapping of ICD-
9 codes to the CMS-Hierarchical Condition Categories (HCCs) used as
risk adjustment variables in the model.
Response: We appreciate the commenter's request for information. We
used Version 21 of the HCCs based on ICD-9 codes, but will transition
to Version 22 with ICD-10 codes.
Comment: One commenter noted that the various PAC settings served
patients with different levels of clinical severity, and the resulting
standardized rates thus varied by patient mix as well as by care
quality.
Response: We agree with the commenter that the different PAC
settings serve patients with different levels of clinical severity.
Using risk adjustment, it is not possible to capture the full clinical
complexity of patients and the stage of their medical conditions across
PAC settings. Therefore, the most appropriate way to capture the
differences in the clinical complexity of patients is to separate the
provider types and compare like providers to each other. Though there
are occasions in which a beneficiary will be choosing the type of PAC
provider, those choices are often limited by availability of providers
and personal circumstances with regard to availability of caregivers.
There is no implication in the measures that care in an LTCH is of
lower quality than care in other PAC settings, because the average
discharge to community rate for LTCH patients is lower than that of
other PAC settings. It is fairer, at present, to capture case-mix
differences that are unobservable by doing measure comparisons within
provider type.
Comment: One commenter encouraged CMS to provide PAC settings with
access to measure performance data as early as possible so providers
have time to adequately review these data, and implement strategies to
decrease readmissions where necessary.
Response: We intend to provide initial confidential feedback to PAC
providers, prior to public reporting of this measure, based on Medicare
FFS claims data from discharges in CY 2015 and 2016.
Comment: Several commenters were concerned that the measure may
result in unintended consequences such as increased LTCH length of stay
to get the patient ready for discharge to community, or inappropriate
discharges to community for patients who may benefit from lower acuity
PAC services.
Response: We thank the commenters for sharing their concerns about
potential unintended consequences of increased LTCH length of stay or
inappropriate community discharges for this measure. To avoid the
unintended consequence of inappropriate discharges to community, we
monitor unplanned acute and LTCH readmissions and death in the 31-day
post-discharge observation window. We will consider monitoring IRF,
SNF, and nursing facility admissions following discharge to a community
setting as we continue to refine this measure. As with all our
measures, we will monitor for unintended consequences as part of
measure monitoring and evaluation to ensure that measures do not reduce
quality of care or access for patients, result in disparities for
patient sub-groups, or adversely affect healthcare spending.
Comment: One commenter expressed that use of data preceding measure
implementation date to determine a baseline rate of discharge to
community could be problematic because they expected changes in data
following measure implementation and efforts to improve coding. The
commenter recommended measure reporting using data collected after
measure implementation.
Response: As stated in section VIII.C.6.b. of the preamble of the
proposed rule, data from CY 2015-2016 will be used as the basis for
initial confidential feedback reports, and data from CY 2016-2017 will
be used for public reporting. We appreciate the recommendation to align
the baseline period with the implementation date; however, in order to
ensure the reliability of the measure we need two consecutive years of
data, which requires us to use data from CY 2016-2017 for public
reporting. We believe the reliability of the measure is more important
than aligning the baseline and implementation dates.
Comment: Several commenters were concerned that the LTCH discharge
to community measure was not NQF-endorsed before being adopted for the
LTCH QRP. Some commenters noted that the LTCH patient population is
different from those of other settings, making NQF endorsement
particularly important. The commenters asked CMS to refrain from
implementing the discharge to community measure for the LTCH QRP until
it has been endorsed by NQF.
Response: We thank the commenters for their comments regarding NQF
endorsement. We would like to clarify that the discharge to community
measure has been fully developed and tested. We plan to submit the
Discharge to Community-PAC LTCH QRP measure to the NQF for
consideration for endorsement.
After consideration of the public comments we received, we are
finalizing our proposal to adopt the measure, Discharge to Community-
PAC LTCH QRP as a Medicare FFS claims-based measure for the FY 2018
payment determination and subsequent years, with the added exclusion of
patients with a hospice benefit in the 31-day postdischarge observation
window. For measure specifications, we refer readers to the Measure
Specifications for

[[Page 57215]]

Measures Adopted in the FY 2017 LTCH QRP Final Rule, posted on the CMS
LTCH QRP Web page at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html..
c. Measure 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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25223
through 25225), we proposed 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 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 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.^{281 282} 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.''
\283\ 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 in
2005.\284\ For hospital readmissions from one PAC setting, SNFs, MedPAC
deemed 76 percent of readmissions as ``potentially avoidable''-
associated with $12 billion in Medicare expenditures.\285\ 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 $4.3 billion in expenditures.\286\ Fewer studies have
investigated potentially preventable readmission rates from the
remaining PAC settings.
---------------------------------------------------------------------------

\281\ 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.
\282\ 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
\283\ 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.
\284\ Ibid.
\285\ Ibid.
\286\ 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.
---------------------------------------------------------------------------

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).\287\
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.
---------------------------------------------------------------------------

\287\ 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.
---------------------------------------------------------------------------

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.^{288 289 290} 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.\291\ \292\
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.^{293 294 295}
---------------------------------------------------------------------------

\288\ 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/.
\289\ Agency for Healthcare Research and Quality: Prevention
Quality Indicators Overview. 2008.
\290\ 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.
\291\ 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.
\292\ 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.
\293\ 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.
\294\ 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.
\295\ 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.

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

[[Page 57216]]

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 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 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 measure incorporates procedures that are considered planned in PAC
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
PAC, 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 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 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 accounts 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 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 proposed a minimum of 25 eligible stays for
public reporting of the measure.
A TEP convened by our measure contractor provided recommendations
on the technical specifications of this 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 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-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

[[Page 57217]]

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 proposed 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 measure to the NQF for consideration of
endorsement. We stated in the proposed rule that we intended to provide
initial confidential feedback to LTCHs, prior to public reporting of
this measure, based on 2 calendar years of data from discharges in CY
2015 and 2016. We also stated that we intended to publicly report this
measure using data from CY 2016 and 2017.
We invited public comment on our proposal to adopt the measure,
Potentially Preventable 30-Day Post-Discharge Readmission Measure for
LTCH QRP. We received several comments, which are summarized with our
responses below.
Comment: MedPAC supported this measure and believes that LTCHs
should be held accountable for readmissions in the post-discharge
readmission window.
Response: We thank commenters for their support of this measure.
Comment: One commenter specifically supported the inclusion of
infectious conditions in the ``inadequate management of infections''
and ``inadequate management of other unplanned events'' categories in
the measure's definition of potentially preventable hospital
readmissions, noting that many of these conditions are preventable
using appropriate infection prevention interventions. Another commenter
recommended the removal of several PPR conditions including influenza,
dehydration/electrolyte imbalance, C. difficile infection, and urinary
tract infection/kidney infection, and expressed concern that these
conditions rely too heavily on patient and caretaker responsibility or
may be caused by unforeseen circumstances after LTCH discharge.
One commenter stated that this measure will be particularly
important for Medicare beneficiaries with chronic conditions, including
diabetes, chronic obstructive pulmonary disorder, asthma, atrial
fibrillation, and hypertension. Another commenter expressed concern
over being ``penalized'' for readmissions that are clinically unrelated
to a patient's original reason for LTCH admission. Another commenter
recommended that only readmissions associated with active diagnoses
being treated in the LTCH should be considered potentially preventable.
Commenters also encouraged CMS to undertake additional empirical
testing to ensure that the codes for readmissions are associated with
the identified categories.
Response: We appreciate the comments in support of this measure
domain and the list of PPR conditions developed for this measure. In
response to the comment that suggested several conditions be removed
from the definition, we note that as described in the proposed rule,
the definition for potentially preventable readmissions for this
measure was developed based on existing evidence and was reviewed by a
TEP, which included clinicians and PAC experts. We also conducted a
comprehensive environmental scan to identify conditions for which
readmissions may be considered potentially preventable. Results of this
environmental scan and details of the TEP input received were made
available in the PPR 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 made revisions to
this list of conditions for which readmissions may be considered
potentially preventable based on stakeholder feedback received during
the public comment period. 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.
Though readmissions may be considered potentially preventable even
if they may not appear to be clinically related to the patient's
original reason for LTCH admission, there is substantial evidence that
the conditions included in the definition may be preventable with
adequately planned, explained, and implemented post-discharge
instructions, including the establishment of appropriate follow-up
ambulatory care. Furthermore, this measure is based on Medicare FFS
claims data and it may not always be feasible to determine whether a
subsequent readmission is or is not clinically related to the reason
why the patient was receiving LTCH care. We intend to conduct ongoing
evaluation and monitoring, and will assess the appropriateness and
consequences of all PPR conditions, including infections and
dehydration as mentioned specifically by one commenter.
Comment: MedPAC commented that the measure definition and risk
adjustment should be identical across PAC settings so that potentially
preventable readmission rates can be compared across settings. One
commenter recommended that a measure for potentially preventable
readmission post-discharge from an acute care hospital, regardless of
PAC setting, would allow for better alignment across settings and
clarity of potentially preventable readmissions. Another commenter
recommended the measure be adjusted for patient clinical differences
between PAC settings to allow for cross-setting quality comparisons.
Other commenters expressed concern over adapting standards from other
settings for LTCH, and recommended that the measure be tailored to LTCH
patients.
Response: The PPR definition (that is, list of conditions for which
readmissions would be considered potentially preventable) is aligned
for measures with the same readmission window, regardless of PAC
setting. Specifically, the post-PAC discharge PPR measures that were
developed for each of the PAC settings contain the same list of PPR
conditions. Although there are some minor differences in the
specifications across these potentially preventable readmissions
measures (for example, years of data used to calculate the measures to
ensure reliability and some of the measure exclusions necessary to
attribute responsibility to the individual settings), the IMPACT Act
PPR measures are standardized. As described for all IMPACT Act measures
in section VIII.C.2. of the preamble of this final rule, above, the
statistical approach for risk adjustment is also aligned across the
measures; however, there is variation in the exact risk adjusters. The
risk adjustment models are empirically driven and differ between
measures as a consequence of case mix differences, which is necessary
to ensure that the estimates are valid.
Comment: Some commenters expressed concern over the overlap

[[Page 57218]]

between the proposed PPR measure and the existing all-cause readmission
measure adopted for the LTCH QRP. Commenters expressed concern that
public reporting of more than one hospital readmission measure for
LTCHs may result in confusion among the public and that this could
potentially pose challenges for quality improvement for LTCHs. Some
commenters believed that CMS should use one readmission measure in the
LTCH QRP, rather than multiple readmission measures.
Response: The All-Cause Unplanned Readmission Measure for 30 Days
Post-Discharge from LTCHs (NQF #2512) was adopted for the LTCH QRP
prior to the IMPACT Act. With regard to overlap with the existing LTCH
QRP readmission measure, retaining the all-cause measure will allow us
to monitor trends in both all-cause and PPR rates in order to assess
the extent to which changes in facility performance for one measure are
reflected in the other. We are committed to ensuring that measures in
the LTCH QRP are useful in assessing quality and will evaluate the
readmission measures in the future.
Comment: One commenter supported the risk adjustment methodology
but several expressed concerns over the risk adjustment approach for
the proposed PPR measure. Several commenters proposed additional
clinical characteristics as risk adjusters including the LTCH primary
diagnosis, presence of multiple chronic conditions, being ``hospital
dependent,'' having multiple organ failure, and dialysis. Additional
patient characteristics that commenters recommended for testing were
patients identified as ``do not resuscitate'' during the prior acute
stay, availability of home resources and supports, and functional
status.
One commenter requested that CMS clarify whether patients with an
artificial airway and no mechanical ventilation are included in the
mechanical ventilation risk adjustment category. Another commenter
requested detail on the AHRQ CCS groups included in the surgical
procedure categories and also inquired about which version of the HCCs
were used in the risk adjustment model.
Several commenters expressed concern that the measure is not
adjusted for sociodemographic factors that may affect utilization. One
commenter supported testing the measure for SDS, and cited research
they conducted showing variation in race across PAC settings; they also
found that dually eligible LTCH patients had significantly higher odds
of PPRs.
Response: We appreciate the comments regarding the risk adjustment
approach and suggestions for specific risk adjusters for the PPR
measure. We wish to clarify that this measure is based on claims data
and not all suggested risk adjusters are available. However, our
measure development contractor (RTI International) conducted additional
testing on some of the suggested risk adjusters and did not find strong
evidence supporting the inclusion of these as risk adjusters in a
potentially preventable readmission model. With regard to dialysis,
this factor has been shown to be a significant predictor for PPR and
the measure risk-adjusts for patients' dialysis using the HCC. We
intend to evaluate the feasibility of including functional and
cognitive status when standardized assessment data become available.
LTCH patients with an artificial airway that are not on mechanical
ventilation are not included in the prolonged mechanical ventilation
risk adjuster, which is based on the procedure code 96.72 on the LTCH
claim.
In response to specific technical questions on the risk adjustment
approach, we wish to clarify that the surgical procedure indicators are
based on those surgical/gynecological AHRQ CCS group categories
developed for the Hospital-Wide All-Cause Unplanned Readmission measure
and are available in the SAS programs that are maintained and available
by request. This measure was developed using version 21 of the HCCs;
however, when the measure is calculated using data post ICD-10
transition, we intend to use version 22 of the HCCs.
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 and, as
previously discussed, 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. We refer readers to section VIII.C.6. of the
preamble of this final rule, where we also discuss this topic.
Comment: One commenter asked for clarification on whether a
qualifying LTCH stay could be preceded by a PAC stay in the 30 days
within discharge from the acute hospital. The commenter also asked if
an unplanned readmission following a planned readmission in the 30-days
post-discharge from the LTCH would be a counted as a readmission in
this measure.
Response: We thank the commenter for their question regarding the
verification of the measure exclusions. The commenter was correct in
its interpretation of the measure exclusion of no short-term acute care
hospital stay within the 30 days preceding a PAC admission. The
exclusion does not require the short-term acute care hospital stay
immediately precede the PAC admission. For example, if a patient had a
short-term acute care hospital stay, a SNF stay, and an LTCH stay
within a 30-day window, the LTCH stay is a candidate to be an index
admission even though it was immediately preceded by a SNF stay and not
a short-term acute care hospital stay.
In response to the unplanned readmission question, we would like to
reiterate that only the first readmission in the post-discharge window
is examined in this measure. Since the second readmission was not
captured for analysis, an unplanned readmission following a planned
readmission would not count as an unfavorable outcome.
Comment: Several commenters expressed concern that the measure is
not NQF-endorsed, and some commenters had additional concerns over
measure testing and development. Some commenters recommended that CMS
should only adopt measures endorsed by the NQF in quality reporting
programs or urged CMS to submit the measures through the NQF
endorsement process as soon as feasible and prior to LTCH reporting.
Response: With regard to NQF endorsement, as noted in the proposed
rule, we intend to submit this measure to NQF for consideration of
endorsement. In addition, we noted that 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
proposed 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.
We would like to clarify that the MAP encouraged continued
development of the proposed measure. More information about the MAP's
recommendations for this measure is available at: http://
www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_

[[Page 57219]]

for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
We also wish to note that we conducted additional testing since the
MAP meeting. We developed the risk adjustment model and evaluated
facilities' PPR rates. Results of these analyses were provided in the
appendix of the measure specification made available at the time of the
proposed rule. We found that testing results were similar to the All-
Cause Unplanned Readmission Measure for 30 Days Post-Discharge from
LTCHs (NQF #2512). The finalized risk-adjustment models and
coefficients are included in the final measure specifications available
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html. We will make additional testing results
available in the future.
Comment: A few commenters questioned the accuracy of claims data
being used for this measure. One commenter suggested a baseline period
concurrent with measure implementation to mitigate this concern.
Another commenter recommended that CMS supplement claims data with
validated administrative data.
Response: We appreciate the comment about the baseline period and
implementation for the measure. As stated in section VIII.C.6.c. of the
preamble of the proposed rule, data from CY 2015-2016 will be used as
the basis for initial confidential feedback reports and data from CY
2016-2017 would be used for public reporting. We appreciate the
recommendation to align the baseline period with the implementation
date; however, in order to ensure the reliability of the measure we
need 2 consecutive years of data, which requires us to use data from CY
2016-2017 for public reporting. We believe the reliability of the
measure is more important than aligning the baseline and implementation
dates.
We appreciate the commenter's concern over the accuracy of claims
data. However, we wish to clarify that claims data have been validated
for the purposes of assessing hospital readmissions and are used for
several NQF-endorsed measures adopted for CMS programs, including the
LTCH QRP. Several studies have been conducted to examine the validity
of using Medicare hospital claims to calculate several NQF-endorsed
quality measures for public reporting.^{296 297 298} In
addition, although assessment and other data sources may be valuable
for risk adjustment, we are not aware of another data source aside from
Medicare claims data that could be used to reliably assess potentially
preventable hospital readmissions for this measure.
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\296\ Bratzler DW, Normand SL, Wang Y, et al. An administrative
claims model for profiling hospital 30-day mortality rates for
pneumonia patients. PLoS One 2011;6(4):e17401.
\297\ Keenan PS, Normand SL, Lin Z, et al. An administrative
claims measure suitable for profiling hospital performance on the
basis of 30-day all-cause readmission rates among patients with
heart failure. Circulation 2008;1(1):29-37.
\298\ Krumholz HM, Wang Y, Mattera JA, et al. An administrative
claims model suitable for profiling hospital performance based on
30-day mortality rates among patients with heart failure.
Circulation 2006;113:1693-1701.
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Comment: One commenter recommended that CMS use the potentially
preventable readmission measure in order to determine best practices
for LTCHs and inform LTCHs of their patient population. The commenter
also urged CMS to review the impact of readmission measures used across
PAC programs to ensure they create consistent improvement incentives
across the system.
Response: We thank commenters for their comments related to the
usability of the measure. We agree that this measure will be valuable
in developing best practices and as a feedback mechanism assessing PPR
outcomes for LTCHs. As we continually evaluate and monitor the PAC
quality reporting programs, we will take the commenter's suggestion in
consideration to ensure that this and other readmission measures are
creating consistent incentives for PAC providers.
After consideration of the public comments we received, we are
finalizing our proposal to adopt the measure, Potentially Preventable
30-Day Post-Discharge Readmission Measure for LTCH QRP. For measure
specifications, we refer readers to the Measure Specifications for
Measures Adopted in the FY 2017 LTCH QRP Final Rule document available
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
7. LTCH QRP Quality Measure Finalized for the FY 2020 Payment
Determination and Subsequent Years
a. Background
We also proposed to adopt one new quality measure to meet the
requirements of the IMPACT Act for the FY 2020 payment determination
and subsequent years. The measure, Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC LTCH QRP, addresses the IMPACT Act
quality domain of Medication Reconciliation.
b. Quality Measure To Address the IMPACT Act Domain of Medication
Reconciliation: Drug Regimen Review Conducted With Follow-Up for
Identified Issues-Post Acute Care Long-Term Care Hospital Quality
Reporting Program
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 proposed 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 determination and subsequent years.
This measure assesses whether PAC providers were responsive to
potential or actual clinically significant medication issue(s) when
such issues were identified. Specifically, the 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
quality measure, drug regimen review is defined as the review of all
medications or drugs the patient is taking to identify any potential
clinically significant medication issues. The 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 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.\299\ This measure is applied uniformly across the PAC settings.
---------------------------------------------------------------------------

\299\ 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

[[Page 57220]]

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).\300\ 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.\301\ 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.\302\ 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.\303\
There is universal agreement that medication reconciliation directly
addresses patient safety issues that can result from medication
miscommunication and unavailable or incorrect
information.^{304 305 306}
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\300\ Ibid
\301\ Leotsakos A., et al. Standardization in patient safety:
The WHO High 5s project. Int J Qual Health Care. 2014:26(2):109-116.
\302\ The Joint Commission. 2016 Long Term Care: National
Patient Safety Goals Medicare/Medicaid Certification-based Option.
(NPSG.03.06.01).
\303\ 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.
\304\ Leotsakos A., et al. Standardization in patient safety:
The WHO High 5s project. Int J Qual Health Care. 2014:26(2):109-116.
\305\ The Joint Commission. 2016 Long Term Care: National
Patient Safety Goals Medicare/Medicaid Certification-based Option.
(NPSG.03.06.01).
\306\ 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.
---------------------------------------------------------------------------

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 utilization and costs,^{307 308 309} including
subsequent emergency room visits and re-hospitalizations.\310\ Annual
health care costs from ADEs in the United States are estimated at $3.5
billion, resulting in 7,000 deaths annually.^{311 312}
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\307\ Institute of Medicine. Preventing Medication Errors.
Washington DC: National Academies Press; 2006.
\308\ 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.
\309\ 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.
\310\ Kohn LT, Corrigan JM, Donaldson MS. To Err Is Human:
Building a Safer Health System Washington, DC: National Academies
Press; 1999.
\311\ 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.
\312\ 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 errors 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.^{313 314 315 316 317 318} 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.\319\
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\313\ Institute of Medicine. To err is human: Building a safer
health system. Washington, DC: National Academies Press; 2000.
\314\ Lesar TS, Briceland L, Stein DS. Factors related to errors
in medication prescribing. JAMA. 1997:277(4): 312-317.
\315\ 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.
\316\ 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.
\317\ Barker KN, Flynn EA, Pepper GA, Bates DW, & Mikeal RL.
Medication errors observed in 36 health care facilities. JAMA. 2002:
162(16):1897-1903.
\318\ 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.
\319\ 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 PAC 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.\320\ An estimated 50 percent of
patients experienced a clinically important medication error after
hospital discharge in an analysis of two tertiary care academic
hospitals.\321\
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\320\ Wong, Jacqueline D., et al. ``Medication reconciliation at
hospital discharge: evaluating discrepancies.'' Annals of
Pharmacotherapy 42.10 (2008): 1373-1379.
\321\ 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 PAC facility. PAC facilities report gaps in medication
information between the acute care hospital and the receiving PAC
setting when performing medication reconciliation.^{322 323}
Hospital discharge has been identified as a particularly high risk time
point, with evidence that medication reconciliation identifies high
levels of discrepancy.^{324 325 326 327 328 329} Also, there is
evidence that medication reconciliation discrepancies occur throughout
the patient stay.^{330 331} For older patients, who may have
multiple comorbid conditions and thus multiple medications, transitions
between acute and PAC settings can be further

[[Page 57221]]

complicated,\332\ and medication reconciliation and patient knowledge
(medication literacy) can be inadequate post-discharge.\333\ The
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.\334\
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\322\ 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.
\323\ 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.
\324\ Coleman EA, Smith JD, Raha D, Min SJ. Post hospital
medication discrepancies: Prevalence and contributing factors. Arch
Intern Med. 2005 165(16):1842-1847.
\325\ Wong JD, Bajcar JM, Wong GG, et al. Medication
reconciliation at hospital discharge: Evaluating discrepancies. Ann
Pharmacother. 2008 42(10):1373-1379.
\326\ 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.
\327\ 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-
33.
\328\ 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.
\329\ 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.
\330\ 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.
\331\ 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.
\332\ Chhabra, P. T., et al. (2012). ``Medication reconciliation
during the transition to and from long-term care settings: a
systematic review.'' Res Social Adm Pharm 8(1): 60-75.
\333\ 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.
\334\ March 2015 Report to the Congress: Medicare Payment
Policy. Medicare Payment Advisory Commission; 2015.
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A TEP convened by our measure development contractor provided input
on the technical specifications of this 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 measure. The public comment summary report for the 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 measure, Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC LTCH QRP. The MAP encouraged
continued development of the 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 measure in compliance with the MAP's
recommendations. The measure is consistent with the information
submitted to the MAP and supports its scientific acceptability for use
in quality reporting programs. Therefore, we proposed 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 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 review of both quality measures, we 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 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 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 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 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 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 proposed to
adopt the quality measure entitled, Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC LTCH QRP, for the LTCH QRP for the
FY 2020 payment determination and subsequent years. We plan to submit
the

[[Page 57222]]

quality measure to the NQF for consideration for endorsement.
The calculation of the 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 measure, we refer readers
to section VIII.C.9. of the preamble of this final rule.
The standardized items used to calculate this quality measure do
not duplicate existing items currently used for data collection within
the LTCH CARE Data Set. The measure denominator is the number of
patient stays with a discharge or expired assessment during the
reporting period. The 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 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: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
Data for the quality measure, Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC LTCH QRP, would be collected using
the LTCH CARE Data Set with submission through the Quality Improvement
Evaluation System (QIES) Assessment Submission and Processing (ASAP)
system.
We invited 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.
Comment: Several commenters, including MedPAC, expressed support
for the quality measure. Commenters supported the medication
reconciliation concept, and several commenters conveyed that preventing
and responding to adverse drug events that account for increases in
health service utilization and cost is critically important. Further,
several commenters expressed appreciation to CMS for proposing a
quality measure to address the IMPACT Act domain, Medication
Reconciliation, acknowledging the importance of medication
reconciliation for addressing patient safety issues. MedPAC further
noted that the medication reconciliation and follow-up process can help
reduce medication errors that are especially common among patients who
have multiple health care providers and multiple comorbidities. One
commenter recommended that CMS consider adopting the measure for FY
2019 payment determination.
Response: We agree that medication reconciliation is an important
patient safety process for addressing medication accuracy during
transitions in patient care and identifying preventable adverse drug
events (ADEs), which may lead to reduced health services utilization
and associated costs. We appreciate the commenter's request that CMS
adopt the measure for FY 2019 payment determination; however, the
adoption of the measure has been proposed for adoption for the LTCH QRP
for FY 2020 payment determination and subsequent years.
Comment: Several commenters requested guidance regarding the
definition of ``clinically significant medication issues.'' Several
commenters were concerned that the phrase could be interpreted
differently by the many providers involved in a patient's treatment,
and that this could result in a challenge to collect reliable,
accurate, and comparable data for this quality measure. One commenter
stated that there are likely to be variations in measure performance
that are not based on differences in care, but rather on differences in
data collection. In addition, one commenter requested that CMS clarify
when medication issues are identified, by providing further guidance
regarding the definition of the term ``identified.'' Several commenters
requested further clarification of the measure and conveyed their
concern that there are four measures or sub-measures embedded in the
description of the measure and stated that, without additional
clarification, it may be difficult for providers to utilize the measure
for quality improvement purposes.
Response: For this measure, potential clinically significant
medication issues are defined as those issues that, in the clinician's
professional judgment, warrant interventions, such as alerting the
physician and/or others, and the timely completion of any recommended
actions (by midnight of the next calendar day) so as to avoid and
mitigate any untoward or adverse outcomes. The definition of
``clinically significant'' in this measure was conceptualized during
the measure development process. For purposes of the measure, the
decision regarding whether or not a medication issue is ``clinically
significant'' will need to be made on a case-by-case basis, but we also
intend to provide additional guidance and training on this issue
We would like to clarify that the measure is one measure, comprised
of three assessment items used to calculate each LTCH facilities
observed score. The items used to calculate the measure are collected
by the LTCH CARE Data Set. Items used to calculate the proposed measure
include: Items N2001 (Drug Regimen Review Item) and N2003 (Medication
Follow-Up Item), collected at admission, and item N2005 (Medication
Intervention Item) collected at discharge. Each of the three items are
collected in order to report the percentage of patient/resident 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. The measure is collected admission and at discharge to
include data collected throughout the entire patient stay. LTCHs are
able to use the data collected for this measure at admission,
discharge, or at any time point for internal quality improvement
purposes.
Comment: Several commenters expressed concern related to burden and
expenses related to this measure. Specifically, the commenters
expressed concern that the reporting and tracking requirements for the
measure items will increase resource use and costs for LTCHs. The
commenters also expressed concern that the costs will be cumulative
since future PAC measures will be developed to fulfill the mandate of
the IMPACT Act. Therefore, the commenters recommended that CMS narrow
the scope of the measure to reduce costs for LTCHs.
Response: We are very sensitive to the issue of burden associated
with data collection and have proposed only the minimal number of items
needed to calculate the quality measure. We emphasize that this measure
follows standard clinical practice requirements of ongoing review,
documentation, and timely reconciliation of all patient medications,
with appropriate follow-up to address all clinically significant
medication concerns.

[[Page 57223]]

Comment: Several commenters expressed concerns that the measure is
not NQF-endorsed and does not have full support from the NQF-convened
MAP or the TEP. One commenter noted that the MAP recommended continued
development for the measure. Several commenters recommended that CMS
obtain NQF endorsement for the measure prior to implementation.
Further, commenters requested that the measure be modified to address
the specific needs of the LTCH population.
Response: Since the time of the MAP consideration, with our measure
contractor, we tested this measure in a pilot test involving twelve PAC
facilities (IRF, SNF and LTCH), representing variation across
geographic location, size, profit status, and clinical record
collection system. Two clinicians in each facility collected data on a
sample of 10 to 20 patients for a total of 298 records (147 qualifying
pairs). Analysis of agreement between coders within each participating
facility indicated a 71 percent agreement for item DRR-01 \335\ Drug
Regimen Review (admission); 69 percent agreement for item DRR-02 \336\
Medication Follow-up (admission); and 61 percent agreement for DRR-03
\337\ Medication Intervention (during stay and discharge). Overall,
pilot testing enabled CMS to verify feasibility of the measure.
Furthermore, measure development included convening a TEP to provide
input on the technical specifications of this quality measure,
including components of reliability, validity and the feasibility of
implementing the measure across PAC settings. The TEP included
stakeholders from the LTCH setting and 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.
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\335\ DRR pilot items DRR-01, DRR-02 and DRR-03 are equivalent
to the proposed rule DRR PAC instrument items N. 2001, N. 2003 and
N. 2005.
\336\ DRR pilot items DRR-01, DRR-02 and DRR-03 are equivalent
to the proposed rule DRR PAC instrument items N. 2001, N. 2003 and
N. 2005.
\337\ DRR pilot items DRR-01, DRR-02 and DRR-03 are equivalent
to the proposed rule DRR PAC instrument items N. 2001, N. 2003 and
N. 2005.
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As noted above, we plan to conduct further testing on this measure
once we have started collecting data from the PAC settings. Once we
have completed this additional measure performance testing, we plan to
submit to NQF for endorsement.
Comment: Several commenters, including MedPAC, encouraged CMS to
develop a measure to evaluate medication reconciliation throughout the
care continuum. Commenters, including MedPAC, suggested CMS focus on
discharge from the PAC setting and evaluate whether the PAC sends a
medication list to the patient's primary care physician or to the next
PAC provider. One commenter recommended that CMS add a medication
management measure to fully address patients' medication management
routine needs in order to prepare patients for discharge to PAC
settings or the community.
Response: PAC facilities are expected to document information
pertaining to the process of a drug regimen review, which includes
medication reconciliation, in the patient's discharge medical record.
Further, it is standard practice for patient discharge records to
include a medication list to be transferred to the admitting PAC
facility. We will take the recommendation into consideration for future
measure development in accordance with the IMPACT Act, which emphasizes
the transfer of interoperable patient information across the continuum
of care.
After consideration of the public comments we received, we are
finalizing our proposal to adopt the measure, Drug Regimen Review
Conducted with Follow-Up for Identified Issues-PAC LTCH QRP measure for
the LTCH QRP for FY 2020 payment determination and subsequent years, as
described in the Measure Specifications for Measures Adopted in the FY
2017 LTCH QRP Final Rule, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
8. LTCH QRP Quality Measures and Measure Concepts Under Consideration
for Future Years
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25228), we
invited 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.

[[Page 57224]]

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.
------------------------------------------------------------------------

We received several comments about LTCH QRP quality measures under
consideration for future years which are summarized with our responses
below.
Comment: Several commenters recommended that CMS adopt
malnutrition-related quality measures in the LTCH QRP to promote early
identification of Medicare beneficiaries diagnosed with or at risk for
malnutrition, as identification of these conditions is critical to
improving outcomes and patient safety by reducing complications such as
infections, falls and pressure ulcers. Commenters also recommended that
CMS require the inclusion of nutritional status and a nutrition care
plan as necessary health information that is transferred to an
individual, a caregiver, or provider of services as a component of the
Transfer of Health Information for Individuals and Care Preferences
quality measure. One commenter recommended that CMS adopt a
malnutrition-related composite quality measure in the LTCH QRP and
other related care settings and programs. Another commenter
acknowledged CMS' past recognition of malnutrition as an important
patient safety issue. A commenter recommended that CMS adopt a disease-
related malnutrition-related quality measures(s) in the LTCH QRP to
reduce the risk of associated adverse outcomes. Specifically, the
commenter encouraged the use of the American Society for Parenteral and
Enteral Nutrition's publication on malnutrition characteristics and
diagnosis.
Response: We will take the suggestions into consideration as we
develop future measures for the LTCH QRP and other quality reporting
programs. We agree with the commenters' rationale for consideration of
adopting malnutrition quality measures, including a malnutrition care
composite measure, and for including nutritional status and a nutrition
care plan during transitions of care to an individual, a caregiver or
provider as they are important components of care for LTCH patients.
Comment: One commenter remarked on the limited number of items in
the LTCH CARE Data Set related to communication, cognition, and
swallowing and noted that these domains are important in treating
individuals with neurological disorders. The commenter encouraged CMS
to adopt a specific screening instrument, the Montreal Cognitive
Assessment (MoCA), or similar screening tools and assessment tools
(CARE-C) to best meet the needs of Medicare beneficiaries and the
IMPACT Act. Another commenter requested that CMS add a functional
cognition assessment item to the LTCH discharge assessment and that
this information be provided to the next provider when a patient is
transferred. The commenter also noted the important role that
occupational therapists play in such an assessment. The commenter
offered to collaborate with CMS to develop future measures in the area
of cognitive function.
Response: We agree that future measure development should include
other areas of function, such as communication, cognition, and
swallowing, and are important components of functional assessment and
improvement for patients who receive care in PAC settings, including
LTCHs. We will continue to engage stakeholders as we develop and
implement quality measures to meet the requirements of the IMPACT Act,
and we will take these suggested quality measure concepts and
recommendations into consideration in our ongoing measure development
and testing efforts.
Comment: One commenter did not support the Venous Thromboembolism
(VTE) Prophylaxis measure, since it was previously adopted by LTCHs and
would add burden without adding usefulness.
Response: We thank the commenter for their comments on the Venous
Thromboembolism (VTE) Prophylaxis measure under consideration for
future implementation in the LTCH QRP and will take into consideration
the commenter's recommendations.
Comment: One commenter supported the Ventilator Weaning
(Liberation) Rate and 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
quality measures for implementation in LTCHs. The commenter emphasized
the importance of specifying inclusion and exclusion criteria and risk
adjustment.
Response: We will take the suggestions into consideration to inform
our ongoing measure development efforts. Our measure development
contractor, RTI International, will continue to engage members of a TEP
originally convened in April 2014. This TEP is providing ongoing
advisement to our measure development contractor on all aspects,
including the measures denominator, numerator, inclusion and exclusion
criteria, risk adjustment, as well as development and feasibility of
data elements.
Comment: One commenter recognized the importance of advance care
planning in LTCHs to establish patient preferences regarding medical
treatment, as many LTCH patients are unable to make medical care
decisions on their own.
Response: We thank the commenter for the comment and agree with the
importance of advanced care plans as they relate to the critically
chronically ill and vulnerable patient population in LTCHs. We will
take this comment into consideration as we develop future measures for
the LTCH QRP.
Comment: One commenter expressed support for the inclusion of a
patient-reported experience of care measure in the LTCH QRP. The
commenter supported accepting proxy responses from family members and
caregivers to support accurate and reliable results at the facility
level due to the acuity of the patients in LTCHs. The commenter also
recommended that CMS continue their efforts to develop a patient
experience survey to collect this valuable data and incorporate
voluntary reporting into the LTCH QRP as quickly as possible. Another
commenter believes that data collection for the Patient Experience of
Care quality measure would be difficult if the measure were dependent
on collecting data from a patient satisfaction survey, such as the
HCAHPS survey. The commenter stated that it would be difficult to
assess patient experience by requiring LTCHs to collect data from these
severely ill patients, since they are less likely to be satisfied with
their care. In addition, the commenter stated that a patient
satisfaction survey would create a significant cost burden for
providers

[[Page 57225]]

and require significant resources for data collection.
Response: While we recognize the difficulty in surveying this
patient population, we also believe that patient experience of care is
an important element of quality in the LTCH setting. We will continue
to take these and future stakeholder inputs under advisement to inform
our ongoing quality measure development.
Comment: One commenter supported the future proposal of the IMPACT
Act Transfer of Health Information and Care Preferences measure.
Another commenter encouraged the inclusion of measures that capture the
role of family caregivers in supporting care transitions, quality
outcomes, and individual care preferences. The commenter also
emphasized the importance of acknowledging and measuring the unique
needs of family members when making difficult care decisions, noting
the particular importance in the LTCH setting due to the high acuity of
LTCH patients. One commenter requested more information about the
measure specifications before proposing the measure for the LTCH QRP.
Response: As we move through the development of this measure
concept, we will consider the inclusion of the role of family
caregivers in supporting care transitions, quality outcomes, and
individual care preferences. In addition, we will take these
recommendations regarding measure specifications into consideration in
our ongoing measure development and testing efforts.
Comment: One commenter supported the inclusion of the antipsychotic
quality measure in the LTCH QRP (measure listed on the Nursing Home
Compare Web site). However, the commenter cautioned against adapting
the pre-existing, non-NQF endorsed antipsychotic measures currently
used in nursing homes, indicating that these process measures do not
provide a linkage to clinical outcomes or intermediate outcomes.
Another commenter also expressed concern about this measure not being
appropriate for the LTCH setting.
Response: We appreciate commenters' feedback on this potential
measure development area. We acknowledge that measuring the use of
antipsychotic medication is important for the aging Medicare
population. However, as LTCH patients may differ from the general
Medicare population, we recognize the importance of engaging
stakeholders if we do adopt/develop such a measure for use in the LTCH
setting. We will take the commenters' recommendations into
consideration in our measure development and testing efforts, as well
as in our ongoing efforts to identify and propose appropriate measures
for the LTCH QRP in the future.
Comment: One commenter encouraged CMS to consider new measures in
the context of the measurement gap areas identified by the Core Quality
Measures Collaborative (CQMC).
Response: We will take the comment and suggestion into
consideration as we develop future measures for the LTCH QRP.
9. 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 determinations.

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 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
Worsened (Short Stay) (76 FR 16-12/31/16; (Q4);
51748 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.

[[Page 57226]]

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 16-9/30/16, 10/01/ 17 (Q3), 5/15/17
Infection (CDI) Outcome 16-12/31/16; (Q4);
Measure (78 FR 50865 through Quarterly for Approximately 135
50868). each subsequent days after the
calendar year. end of each
quarter.
NHSN Ventilator-Associated CDC NHSN.......... 1/1/16-3/31/16, 4/ 8/15/16 (Q1), 11/ FY 2018.
Event (VAE) Outcome Measure 1/16-6/30/16, 7/1/ 15/16 (Q2), 2/15/
(79 FR 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 CDC NHSN.......... 10/1/16-3/31/17, 5/15/17, 5/15 for FY 2018.
Vaccination Coverage Among 10/1-3/31 for subsequent years.
Healthcare Personnel (77 FR subsequent years.
53630 through 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.
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, which we are
finalizing, in section VIII.C.9.d. of the preamble of this final 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.

[[Page 57227]]

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, which we are
finalizing in section VIII.C.9.d. of the preamble of this final 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. Timeline and Data Submission Mechanisms for the FY 2018 Payment
Determination and Subsequent Years for the 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 are finalizing in this final 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 final 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 invited public comments on this proposal. We did not receive
comments related to data submission mechanisms for these measures. For
comments related to the measures, we refer readers to section VIII.C.6.
of the preamble of this final rule, above. For comments related to the
future public display of these measures, we refer readers to section
VIII.C.14. of the preamble of this final rule.
We are finalizing the timeline and data submission mechanisms for
FY 2018 payment determination and subsequent years as proposed.
d. Revisions to 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 corresponding admissions and discharges occurred during
the IVS. Through analysis of the quality data submitted for this
measure, we discovered that only requiring LTCHs 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 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 LTCH CARE Data Set admission and/or discharge
assessments occurred outside of the IVS (prior to October 1 or after
March 31).
For these reasons, in the FY 2017 IPPS/LTCH PPS proposed rule (81
FR 25230 through 25232), we proposed 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 LTCH

[[Page 57228]]

CARE Data Set 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 policy will 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 LTCH CARE Data Set measures
within the LTCH QRP, we continue to follow quarterly data collection/
submission 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 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 LTCH CARE Data Set 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.

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

----------------------------------------------------------------------------------------------------------------
Finalized Measure:
Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza
Vaccine (Short Stay) (NQF #0680) (77 FR 53624 through 53627)
----------------------------------------------------------------------------------------------------------------
Submission method Data collection/ Quarterly review and APU determination affected
submission quarterly correction periods
reporting period(s) data submission
deadlines for
payment
determination *
----------------------------------------------------------------------------------------------------------------
LTCH CARE Data Set/QIES ASAP CY 16 Q4............. 1/1/2017-5/15/17
System. 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 FY 2019.
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.

[[Page 57229]]

FY 2020 Payment Determination and Subsequent Years: Summary Details on Data Collection Period and Data
Submission Timeline for Previously Adopted Quality Measure, Percent of Residents or Patients Who Were Assessed
and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680)
----------------------------------------------------------------------------------------------------------------

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

We invited 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.
Comment: One commenter supported the Percent of Residents or
Patients Who Were Assessed and Appropriately Given the Seasonal
Influenza Vaccine (Short Stay) (NQF #0680) measure and the proposed
revisions to data collection.
Response: We appreciate the commenter's support for this measure
and its continued inclusion in the LTCH QRP, and the proposed revisions
to data collection.
After consideration of the public comment we received, we are
finalizing our proposal to revise the 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. Timeline and Data Submission Mechanisms for the Newly Finalized 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 final
rule, we proposed 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25232 through 25233), we proposed 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 us 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, to make compliance determinations
related to the applicable FY APU, 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 invited public comments on
this proposal.

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 4/1/18-6/30/18 11/15/18 (Q2), 2/ FY 2020.
with Follow-Up for Identified Set/QIES ASAP. (Q2), 7/1/18-9/ 15/19 (Q3), 5/15/
Issues-PAC LTCH QRP. 30/18 (Q3), 10/1/ 19 (Q4).
18-12/31/18 (Q4).
----------------------------------------------------------------------------------------------------------------

[[Page 57230]]

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 also proposed 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 final rule, and illustrated in the
table below. We invited 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
Proposed data and correction
Proposed CY data collection/ periods and data
Quality measure Submission method collection quarter submission submission
quarterly deadlines for
reporting period payment
determination
----------------------------------------------------------------------------------------------------------------
Drug Regimen Review Conducted LTCH CARE Data Quarter 1............. January 1-March April 1-August
with Follow-Up for Identified Set/QIES ASAP. Quarter 2............. 31. 15.
Issues PAC LTCH QRP. Quarter 3............. April 1-June 30.. July 1-September
Quarter 4............. July 1-November 30.
15. October 1-
October 1- February 15.
December 31. January 1-May 15.
----------------------------------------------------------------------------------------------------------------

We did not receive any public comments on the proposed data
collection periods and data submission timelines for the new proposed
LTCH QRP quality measure for the FY 2020 and FY 2021 payment
determinations and subsequent years.
We are finalizing the timeline and data submission mechanisms for
FY 2020 and FY 2021 payment determination and subsequent years as
proposed. For comments related to the measure, we refer readers to
section VIII.C.7. of the preamble of this final rule, above.
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). In the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25233), we did not propose 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25233),
we did not propose 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.
Although we did not solicit feedback specifically regarding data
validation, we received one comment which is summarized and discussed
below.
Comment: One commenter supported CMS' determination that it was not
necessary to propose a data validation policy because there is a policy
under development that could be applied to several PAC QRPs.
Response: We appreciate the commenter's support. We intend to
propose a data validation policy through the notice and comment process
in the Federal Register through future rulemaking.
12. 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. In the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25233 through 25234), we proposed 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 proposed 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 IQR
Program also proposed to extend the deadline to 90 days in section
VIII.C.15.a. of the preamble of the proposed rule (81 FR 25205). We
believe that this increased time will assist providers experiencing an
event in having the time needed to submit such a request. With the
exception of this one change, we did not propose any

[[Page 57231]]

additional changes to the exception and extension policies for the LTCH
QRP at this time.
We invited 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.
Comment: Several commenters supported changing the timing for
submission of exception and extension requests from 30 to 90 days from
the date of the qualifying event preventing an LTCH from submitting
their LTCH QRP data. One commenter stated that it helps to align the
LTCH QRP with other quality reporting programs, and allows LTCHs to
better cope with unforeseeable events.
Response: We thank the commenter for their support.
After consideration of the public comments we received, we are
finalizing our 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. In the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25234), we did not propose any changes to this
policy. However, we wish to clarify that in order to notify LTCHs found
to be noncompliant 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. 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 section VIII.C.14.b. of the
preamble of this final rule, below. 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, in the FY 2017 IPPS/LTCH PPS
proposed rule (81 FR 25234 through 25235), we proposed 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).
Comment: Several commenters, including MedPAC, supported public
reporting of quality measures. MedPAC encouraged ongoing development
and public reporting for cross-cutting measures for all provider
settings.
Response: We appreciate MedPAC's and other commenters' support for
the public reporting of LTCH quality measures. We will continue to move
forward with cross-cutting measure and public reporting of these
measures to meet the mandate of the IMPACT Act.
Comment: A few commenters discussed the requirements of the
Affordable Care Act and the IMPACT Act for publicly reporting the
measures that are implemented into the LTCH QRP and expressed concern-
regarding such public reporting. The commenters suggested that
previously finalized measures are not suited for cross-PAC provider
comparison, as opposed to LTCH-to-LTCH comparison using comparable data
that are risk adjusted, for example, as in the case with the use of the
Standardized Infection Ratio, and that using such data for cross-
comparison purposes could be misleading to those who use the publicly
reported data.
Response: We appreciate commenters' concern about the use of cross-
setting quality measures and provider comparability in satisfaction of
our requirements to publicly report the data and information. We
interpret the commenters' comments to suggest that the measures
previously finalized in FY 2016 IPPS/LTCH PPS final rule (80 FR 49753
through 49755), such as the CDC Healthcare Associated Infection (HAI)
measures (which use the Standardized Infection Ratio) that is, NHSN
CAUTI Outcome Measure (NQF #0138), NHSN CLABSI Outcome Measure (NQF
#0139) and the All-Cause Unplanned Readmission Measure for 30 Days
Post-Discharge from LTCHs (NQF #2512) are appropriate for LTCH-to-LTCH
quality comparison. We wish to clarify that such comparison is their
intended application at this time rather than across PAC provider
comparison.

[[Page 57232]]

We further interpret the commenters to be expressing concern
surrounding the other measure that we also finalized for public
reporting, ``The Percent of Residents or Patients with Pressure Ulcers
That Are New or Worsened (Short Stay) (NQF #0678),'' inferring that the
measure, which satisfies the IMPACT Act quality measure domain of Skin
Integrity, would not be appropriate for cross-PAC comparison because it
is not further risk adjusted for LTCHs. We note that this measure is
risk adjusted uniformly across the PAC providers (LTCHs, IRFs, SNFs and
HHAs) and, given that the measure's risk adjustment factors take into
account frailty and comorbidities, we did not believe that further
setting-specific risk adjustment was warranted. The measure was
finalized for use to satisfy the domain described; however as of fall
2016, the measure will initially be publicly reported for LTCH-based
public reporting only. With regard to cross-PAC provider comparability,
we will continue to examine risk adjustment and other factors as part
of our ongoing measure development work and continue to monitor for
additional factors that would take into account greater risk as we
continue to collect the data.
Pending the availability of data, we proposed 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 MRSA Bacteremia Outcome Measure (NQF #1716)
and Facility-wide Inpatient Hospital-onset CDI Outcome Measure (NQF
#1717) will be displayed based on 4 rolling quarters of data and will
initially use MRSA Bacteremia and CDI events that occurred from January
1, 2015 through December 31, 2015 (CY 2015), for calculations. We
proposed that the display of these ratios will be updated quarterly.
Rates for the Influenza Vaccination Coverage Among Healthcare
Personnel (NQF #0431) will initially 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) will also initially be displayed for patients in the LTCH during
the influenza vaccination season, from October 1, 2015, through March
31, 2016. We proposed that the display of these rates will 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 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 proposed that this data will 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 will be displayed for each facility.
We invited public comment on our proposal to begin publicly
reporting in CY 2017 pending the availability of data on Facility-wide
Inpatient Hospital-onset MRSA Bacteremia Outcome Measure (NQF #1716);
Facility-wide Inpatient Hospital-onset CDI Outcome Measure (NQF #1717);
and Influenza Vaccination Coverage Among Healthcare Personnel (NQF
#0431).
Comment: Several commenters specifically supported the public
reporting of the CDC NHSN measures.
Response: We appreciate the commenters' support for public
reporting of healthcare-associated infections and shared commitment
towards improving quality and promoting patient safety.
After consideration of the public comments we received, we are
finalizing our proposal to begin publicly reporting in CY 2017 pending
the availability of data on: The Facility-wide Inpatient Hospital-onset
MRSA Bacteremia Outcome Measure (NQF #1716); the Facility-wide
Inpatient Hospital-onset CDI Outcome Measure (NQF #1716); and the
Influenza Vaccination Coverage Among Healthcare Personnel measure (NQF
#0431).
For the Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680), we proposed 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 proposed 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

[[Page 57233]]

Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680) will 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 will 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 will 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 invited 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 invited 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.
Comment: Several commenters supported the public reporting of the
Percent of Residents or Patients Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine (NQF #0680) and Influenza
Vaccination Coverage Among Healthcare Personnel (NQF #0431) across
settings. Commenters believed that surveillance is a key component in
the prevention and management of influenza outbreaks and the need for a
multi-faceted approach.
Response: We appreciate the commenters' support for public
reporting of the Percent of Residents or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (NQF #0680) and
Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431)
across settings.
After consideration of the public comments we received, we are
finalizing 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 1st of the previous calendar year to June 30th of
the current calendar year in 2017 pending the availability of data.
In addition, we requested 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.
Comment: One commenter supported regional comparison for the LTCH
quality measures. The commenter had no preference for the type of
region and encouraged more granular evaluation such as State
comparison.
Response: We appreciate the commenter's support for publicly
displaying regional comparison rates for these quality indicators and
their encouragement on providing state comparison rates. We are
currently determining the feasibility of including State comparison
rates for these quality indicators.
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 final 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25235 through
25237), we restated and proposed 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 proposed a process by which we
will provide each LTCH with a confidential feedback report that will
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 will be
able to request correction of any errors in the assessment-based
measure rate calculations.
We proposed that these confidential feedback reports will be
available to each LTCH using the Certification and Survey Provider
Enhanced Reports (CASPER) system. We refer to these reports as the LTCH
Quality Measure (QM) Reports. We proposed to provide monthly updates to
the data contained in these reports as data become available. We
proposed to provide the reports so that providers will 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 will provide information related
to which patients were included in the quality measures

[[Page 57234]]

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 will 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 LTCHs 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 final rule, LTCHs will 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 can review
and perform corrections to errors in the assessment data used to
calculate the measures and can 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
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 will 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 proposed 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 will not
be permitted during this time; however, LTCHs may ask for a correction
to their measure calculations during the 30-day preview period. We
proposed that if CMS determines that the measure, as it is displayed in
the preview report, contains a calculation error, we can 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 is consistent with informal processes used in the Hospital IQR
Program. We stated that, 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 invited 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 proposed 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 proposed 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
national rates. The data and information will be for feedback purposes
only and could not be corrected. This information will 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 will be able
to see claims-based measures before they are publicly displayed. LTCHs
will not be able to make corrections to underlying claims data during
this preview period, nor will 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 proposed that if we agree that the measure, as it is
displayed in the preview report, contains a calculation error, we can
suppress the

[[Page 57235]]

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 will 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 will be based on 2 consecutive
calendar years of data, which is consistent with the specifications of
the proposed measures. We proposed 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 will 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 will 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 will consider LTCH claims data to be
complete for purposes of calculating the claims-based measures.
We proposed 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 will 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 procedure, during the 30-day preview period, LTCHs
will 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 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 cannot make corrections to them. Second, even where the claims
used to calculate the measures are those of the LTCH, it will 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 invited public comment on these proposals, which are summarized
and discussed below.
Comment: One commenter supported CASPER monthly confidential
feedback reports.
Response: We appreciate the commenter's support for providing
monthly confidential feedback reports.
Comment: Several commenters suggested that LTCHs be able to correct
data during the 30-day preview period, and that CMS address any
potential issues such as system errors and revise confirmed errors
before the calculation results are made public. Commenters further
suggested that the 30-day preview period was intended by Congress to
enable correction of the data prior to public reporting. In addition,
the commenters noted that CMS will be updating the NHSN system to
permit changes to the CDC quality data. One commenter recommended that
CMS conduct a ``dry run'' in which LTCHs receive confidential preview
reports prior to publicly reporting measures so that LTCHs can become
familiar with the methodology, understand the measure results, know how
well they are performing, and have an opportunity to give CMS feedback
on potential technical issues with the measures.
Response: We interpret the commenter to be referring to the preview
reports that will be provided prior to public reporting and appreciate
their concern about correcting data during the 30-day preview period
and addressing any potential issues. Section 1886(m)(5)(E) of the Act
requires the Secretary to establish procedures for making the LTCH QRP
data available to the public and to ensure that LTCHs have the
opportunity to review any such data with respect to the LTCH prior to
its release to the public. In addition, section 1899B(g) of the Act, as
added by the IMPACT Act, requires the Secretary to establish procedures
for making information available to the public regarding the
performance of individual PAC providers with respect to IMPACT Act
measures beginning no later than two years after the applicable
specified application date.
We implemented the 30-day preview period to be consistent with
other public reporting programs such as the Hospital IQR Program. We
provide opportunity for assessment-based data and NHSN data to be
reviewed and corrected prior to their freeze dates, and LTCHs will have
up until the run off period ends for ensuring their data used in the
claims-based measures are accurate prior to the data file being used to
calculate the measures. The 30-day preview period serves as the final
opportunity for providers to review their data and alert CMS should
they find an error in the measure calculation or any component thereof.
While LTCHs will not have the opportunity to correct the underlying
data during the 30-day preview period before public display, there will
be a process by which LTCHs may request a review of their data should
they disagree with quality measure calculations, or the components of
such calculations (numerators and denominators), as

[[Page 57236]]

displayed on their preview reports. We will also consider suppressing
quality reporting data if any systemic issues, such as on the part of
the QIES ASAP system or the CDC's NHSN is discovered. We refer readers
to the LTCH QRP Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html, for further information on public reporting, such as the
process of accessing reports, and where we will provide an email
address should LTCHs have questions regarding any of the above-
mentioned reports or processes.
With regard to the commenter's suggestion that we provide a dry
run, we wish to convey that we intend to offer providers information
related to their measures so that they become familiar with the
measure's methodology and can utilize their confidential preview
reports which they will receive prior to the public reporting of new
LTCH QRP measures. LTCHs will also receive other confidential reports
such as the LTCH facility and patient level QM Reports as well as an
additional confidential facility-level report to incorporate the
quarterly freeze dates, for example, the Review and Correct Report. We
believe that these various reports will provide an indication on how
well the LTCH is performing as well as opportunities to provide CMS
feedback on technical issues with the measures. Therefore, no
additional dry run period is warranted.
Finally, with regard to the commenter's suggestion that we will be
updating the NHSN system to permit changes to the CDC quality data, we
interpret the commenter to be suggesting that we are working to update
the CDC NHSN submission system, and we wish to clarify that at this
time we are not doing so. That said, we also wish to clarify that
providers have 4.5 months from the end of a reporting quarter until the
freeze date to enter corrections into their CDC HAI measure data prior
to the file being transmitted from the CDC to CMS.
Comment: Several commenters recommended that CMS create an LTCH
Compare Web site to separate LTCH and short-term acute care hospital
performance data due to different patient populations and federal
requirements. One commenter voiced their concern that LTCHs and short-
term acute care hospitals are different venues. LTCHs treat sicker,
more medically complex patients and therefore their quality metrics are
different. A separate Web page would allow patients, families, and
providers to compare quality performance data with other LTCHs and not
provide an incorrect impression of the care provided in LTCHs.
Response: We appreciate commenters' suggestion on creating a
separate LTCH Compare Web site. CMS is currently developing a separate
Compare Web site for the reporting of LTCH quality measures similar to
other PAC provider types. The LTCH Compare Web site is scheduled to be
publicly available in late fall 2016.
Comment: One commenter suggested providing more frequent updates
and requested patient-level data for the claims-based measures.
Response: The decision to update claims-based measures on an annual
basis was to ensure that the amount of data received during the
reporting period was sufficient to generate reliable measure rates.
However, we will explore the feasibility of providing LTCHs with
information more frequently. We believe that we are limited in our
ability to provide patient-level information that stems from claims
submitted by providers other than LTCHs, but we will explore the
feasibility of providing patient-level data.
Comment: Several commenters noted that CMS will publish a list of
LTCHs that comply with the LTCH QRP each year on its Web site.
Response: We intend to publish a list of LTCHs that comply with the
LTCH QRP each year on our Web site, and it will be updated to reflect
changes made as a result of appeals.
After consideration of the public comments we received, we are
finalizing our proposals related to procedures for the opportunity to
review and correct data and information.
15. 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 proposed to provide for use by LTCHs to review their data and
information will be confidential feedback reports that will enable
LTCHs to review their performance on the measures required under the
LTCH QRP. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25237
through 25238), we proposed that these confidential feedback reports
will be available to each LTCH using the CASPER system. Data contained
within these CASPER reports will 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 proposed 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.
We sought public comment on this proposal to satisfy the
requirement to provide confidential feedback reports to LTCHs.
Comment: One commenter encouraged CMS to provide instructions on
how to obtain CASPER reports and suggestion training for LTCHs on how
to improve their measures via these confidential feedback reports.
Response: We will provide LTCHs with detailed instructions and
training regarding how to obtain and interpret these reports. For
additional information on this and other training opportunities, please
refer to the CMS LTCH Quality Reporting Training Web page at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Training.html.
After consideration of the public comment we received, we are
finalizing our proposal to provide confidential feedback reports to
LTCHs as proposed.

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
\338\ and each

[[Page 57237]]

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.
---------------------------------------------------------------------------

\338\ 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).
---------------------------------------------------------------------------

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
proposed for the IPFQR Program in the 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 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 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. In the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25239), we indicated that we
are retaining 15 of these previously adopted measures and proposed to
update one measure, as discussed below.
Comment: Many commenters expressed concerns about implementation of
the Screening for Metabolic Disorders Transition Record with Specified
Elements Received by Discharged Patients (Discharges from an Inpatient
Facility to Home/Self Care or

[[Page 57238]]

Any Other Site of Care) (NQF #0647), and Timely Transmission of
Transition Record (Discharges from an Inpatient Facility to Home/Self
Care or Any Other Site of Care) (NQF #0647). Commenters were primarily
concerned with the increased burden of data collection associated with
these measures. Some commenters were unsure of how to abstract the
Transition Record measures and referred to having unanswered questions
regarding the technical specifications of these measures, even
following CMS Webinars.
Response: The Screening for Metabolic Disorders, Transition Record
with Specified Elements Received by Discharged Patients (Discharges
from an Inpatient Facility to Home/Self Care or Any Other Site of Care)
(NQF #0647), and Timely Transmission of Transition Record (Discharges
from an Inpatient Facility to Home/Self Care or Any Other Site of Care)
(NQF #0648) measures were finalized in the FY 2016 IPF PPS final rule
(80 FR 46706, 46709 and 46713) for the FY 2018 payment determination
and subsequent years with one modification from the proposals. This
modification was to only require reporting on the last two quarters of
the reporting period (July 1, 2016-December 1, 2016) for the first year
these measures were in the IPFQR Program (that is, for the FY 2018
payment determination). In other words, data collection for these
measures was scheduled to begin on July 1, 2016.
However, as discussed in the previous comment, we continued to
receive stakeholder concerns in response to this proposed rule. In
addition, we received many questions regarding how to operationalize
these measures during our Webinar on these measures on January 21,
2016. Specifically, during the Webinar there were questions regarding
the data elements required for the Transition Record measure, questions
regarding what tests would be sufficient, and questions about when the
tests should be administered to meet the requirements of the Screening
for Metabolic Disorders measure.\339\ Following this Webinar, we
continued to receive questions directly from stakeholders regarding the
operationalization of these measures. These questions continued to
focus on uncertainty around data elements required for the Transition
Record measures and uncertainty around the specific tests required and
associated timeline for the Screening for Metabolic Disorders measure.
On June 8, 2016, we provided updated technical specifications for the
implementation of Transition Record with Specified Elements Received by
Discharged Patients (Discharges from an Inpatient Facility to Home/Self
Care or Any Other Site of Care) (NQF #0647) and Timely Transmission of
Transition Record (Discharges from an Inpatient Facility to Home/Self
Care or Any Other Site of Care) (NQF #0648). These updated technical
specifications are available in the IPFQR Program Manual at: http://www.qualityreportingcenter.com/wp-content/uploads/2016/06/IPF_CY2016_IPFQRManual_Guide_20160607_FINAL.pdf1_.pdf. In addition, CMS
provided an updated tool for collection of all three measures to assist
facilities in data collection and submission.
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\339\ Slides from and a Q&A transcript from this Webinar are
available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228773668169.
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Due to these updates, we postponed data collection and
implementation of these three measures until January 1, 2017 for the FY
2019 payment determination and subsequent years via an IPFQR Program
listserv announcement sent on June 9, 2016. This delay is intended to
provide IPFs with sufficient time to understand the updated
specifications and train personnel to appropriately abstract data based
on these updated specifications and use the updated data collection
tool for submission. To summarize, we delayed data collection and are
not requiring submission of Transition Record with Specified Elements
Received by Discharged Patients (Discharges from an Inpatient Facility
to Home/Self Care or Any Other Site of Care) (NQF #0647), Timely
Transmission of Transition Record (Discharges from an Inpatient
Facility to Home/Self Care or Any Other Site of Care) (NQF #0648) and
Screening for Metabolic Disorders for the FY 2018 payment
determination. We refer readers to the chart in section VIII.D.5. of
the preamble of this final rule for an updated list of measures for the
FY 2018 payment determination.
Comment: Several commenters thanked CMS for delaying implementation
of Screening for Metabolic Disorders, Transition Record with Specified
Elements Received by Discharged Patients (Discharges from an Inpatient
Facility to Home/Self Care or Any Other Site of Care) (NQF #0647), and
Timely Transmission of Transition Record (Discharges from an Inpatient
Facility to Home/Self Care or Any Other Site of Care) (NQF #0648) until
January 1, 2017.
Response: We thank the commenters for their support.
3. 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, in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25239), we
proposed 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 will reduce burden on IPFs because it will
allow IPFs to use the same sample for as many measures as possible, by
aligning the denominator exclusions.
We welcomed public comments on this proposed denominator exclusion.
Comment: Many commenters supported the proposal to change the
length of stay exclusion for the ``Screening for Metabolic Disorders''
measure. Several of these commenters noted that this supports the goal
of the global sample to reduce provider burden.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing our proposal to change the length of stay exclusion for the
``Screening for Metabolic Disorders'' measure to exclude patients with
a

[[Page 57239]]

length of stay equal to or greater than 365 days, or less than or equal
to 3 days. As discussed above, we note that we have delayed measure
implementation until January 1, 2017 for the FY 2019 payment
determination and subsequent years.
4. New Quality Measures for the FY 2019 Payment Determination and
Subsequent Years
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25239 through
25243), we proposed 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
30-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.\340\ 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.\341\ Illicit drug
use is particularly high among adults with serious mental
illnesses.\342\ Misuse and abuse of prescription drugs among
individuals with mental illnesses, in particular opioids, are also of
growing concern.
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\340\ National Institute on Drug Abuse (NIDA). ``Comorbidity:
Addiction and Other Mental Illnesses.''
\341\ SAMHSA. Results from the 2014 National Survey on Drug Use
and Health: Mental Health Findings.
\342\ 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.\343\ These co-occurring disorders
tend to go undetected and untreated, especially among the elderly
population, which experiences more adverse effects than the non-elderly
adult population.\344\ 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.^{345 346} Furthermore, individuals with undetected,
untreated or undertreated co-occurring disorders are more likely to
experience homelessness, incarceration, additional medical illness,
suicide, and early death.\347\
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\343\ SAMHSA. ``Mental and Substance Use Disorders.''
\344\ Robert Drake. ``Dual Diagnosis and Integrated Treatment of
Mental Illness and Substance Abuse Disorder.''
\345\ SAMHSA. ``Mental and Substance Use Disorders.''
\346\ Mental Health Foundation. ``Physical Health and Mental
Health.''
\347\ 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.'' \348\ 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.'' \349\
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.'' \350\ 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.'' \351\ 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.\352\ 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 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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\348\ NQF SUB-3 and SUB-3a Measure Specifications. Available at:
http://www.qualityforum.org/QPS/1664.
\349\ Ibid.
\350\ Ibid.
\351\ Ibid.
\352\ 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)) 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,'' \353\ 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'' \354\ and
``hospitalized patients 18 years and older who received the brief
intervention during the hospital stay,'' \355\ 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.
---------------------------------------------------------------------------

\353\ NQF SUB-1 Measure Specifications.
\354\ NQF SUB-2 and SUB-2a Measure Specifications.
\355\ 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 measures related to illicit
and opioid drugs 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

[[Page 57240]]

and SUB-3a measure will ensure that patients continue to receive
treatment after discharge.\356\ 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.
---------------------------------------------------------------------------

\356\ 80 FR 46701.
---------------------------------------------------------------------------

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.\357\ 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, including disorders
associated with the misuse of prescription drugs.
---------------------------------------------------------------------------

\357\ ASPE. ``Opioid Abuse in the U.S. and HHS Actions to
Address Opioid-Drug Related Overdoses and Deaths.''
---------------------------------------------------------------------------

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 proposed to adopt the SUB-3 and SUB-3a measure for
the FY 2019 payment determination and subsequent years. We welcomed
public comment on this proposal.
Comment: Several commenters supported the inclusion of the SUB-3/3a
measure in the IPFQR Program citing reasons including: Encouraging IPFs
to offer and provide addiction treatment for patients with co-occurring
drug or alcohol disorders; helping to ensure patients continue to
receive treatment after discharge; and complementing the SUB-1, SUB-2/
2a measure set. One commenter observed that the requirements for this
measure, as outlined in the proposed rule, seem reasonable for IPFs.
Response: We thank the commenters for their support.
Comment: Several commenters recommended enhancing the SUB-3a
measure. For example, commenters suggested referral to evidence-based
behavioral therapies which complement Medication Assisted Therapy (MAT)
or discharge to counties for assessment for care evaluation be included
in the numerator of this measure.
Response: We thank these commenters for their suggestions. When
feasible and practicable, we consider that it is important to implement
measures as they are specified, especially after measures are NQF-
endorsed. We encourage commenters to suggest these changes to the
measure's steward, The Joint Commission, so that any changes to the
measure can be properly specified, tested, and endorsed for these
changes as part of the measure maintenance process.
Comment: Many commenters recommended that CMS not adopt SUB-3 and
SUB-3a for the IPFQR Program, citing concerns that these measures are
not specified for IPFs, they are not related to the primary reason
patients seek IPF care, they evaluate patient compliance rather than
quality of care, and they do not provide useful public information as
they are not based on evidence-based practices.
Response: As we stated in the FY 2014 IPPS/LTCH PPS final rule (78
FR 50891), although the SUB measures were developed using all
hospitalizations in general acute care, the SUB-3/3a measure is equally
applicable to freestanding IPFs and psychiatric units within acute care
hospitals because substance use disorders (SUDs) are a common
comorbidity for populations hospitalized in these settings and offering
SUD treatment at discharge when a comorbid SUD has been identified is a
part of high quality care regardless of the treatment setting. In
addition, we note that the NQF has endorsed this measure for both the
Hospital/Acute Care Facility setting and the Behavioral Health/
Psychiatric: Inpatient setting. Furthermore, we maintain that it is
important that providers understand gaps in patient compliance so they
can modify their discharge processes to influence and encourage
compliance. We believe that this measure will provide information
regarding the rate at which these treatment options are offered to and
accepted by patients who screened positive for drug and alcohol use
disorders and may present an opportunity to improve treatment rates. In
addition, the aggregated data from the SUB-1 measure, SUB-2 and SUB-2a
measure, and the SUB-3 and SUB-3a measure from each IPF will provide
patients with important consumer information to guide their decision-
making process in selecting a treatment facility. Furthermore, we note
that the MAP supported this measure for the IPFQR Program and refer
readers to their final recommendations at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
Comment: Several commenters recommended that CMS not adopt SUB-3
and SUB-3a for the IPFQR Program, citing concerns that these measures
are not consistent with the screening and treatment provided by IPFs.
These commenters observed that IPFs provide a more comprehensive
screening than required by the SUB measures, and that treatment is more
intensive than that required by the measure.
Response: We note that the SUB-3/3a measure is focused on a
facility's discharge procedures for patients who screened positive for
an SUD during their stay in the IPF. This measure does not address
inpatient treatment provided by the IPF during the patient's stay. We
believe that offering patients who have screened positive for SUD a
prescription for medication for treatment of alcohol or drug use
disorder or a referral for addictions treatment represents a minimum
standard for discharge and we expect that IPFs which provide more
intensive interventions than described in the measure will meet the
criteria for this measure.

[[Page 57241]]

Comment: One commenter recommended that CMS not adopt SUB-3 and
SUB-3a for the IPFQR Program, citing concerns that treatment for SUD is
more appropriate for the non-acute setting. This commenter acknowledged
that screening for these disorders is appropriate for the acute
setting.
Response: We thank the commenter for the support of screening for
SUD in the inpatient setting. We would like to clarify that the
numerator for SUB-3 is ``The number of 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;'' and the numerator for SUB-3a is ``The number of patients
who received a prescription at discharge for medication for treatment
of alcohol or drug use disorder OR a referral for addictions
treatment.'' We note that this measure is focused on inpatient
facilities providing patients with the appropriate tools for continuing
or beginning treatment for SUD after discharge in the non-acute
setting. Furthermore, as stated above, we note that the MAP supported
this measure for the IPFQR Program and we refer readers to their final
recommendations at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593. We also note that the NQF
endorsed this measure for the following care settings: Behavioral
Health/Psychiatric: Inpatient, Hospital/Acute Care Facility.\358\
---------------------------------------------------------------------------

\358\ For detailed measure information, we refer readers to:
http://www.qualityforum.org/QPS/1664.
---------------------------------------------------------------------------

Comment: Several commenters recommended that CMS not adopt SUB-3
and SUB-3a for the IPFQR Program until CMS has demonstrated that this
is an area with variation across IPFs, as all IPFs should already be
meeting the criteria for this measure, and therefore the measure will
not demonstrate meaningful variation across providers.
Response: We agree with the commenters that SUB-3 and SUB-3a
represent the standard of care for SUD treatment and referral within
the IPF setting. However, based on the data published on Hospital
Compare for the 2016 Program year, there is significant variation in
facility performance on the SUB-1 measure (Alcohol Use Screening), the
only SUB measure for which data are currently available for the IPFQR
Program. Facility performance ranges between 0.0 percent and 100.0
percent, with a mean performance of 77.4 percent and a coefficient of
variance of 0.35. Because the SUB-3/3a measure depends on the
identification of alcohol and substance abuse disorders, IPF
performance on the SUB-1 measure indicates that there is likely
variation in performance across providers on the SUB-3/3a measure as
well.
Comment: One commenter expressed concern that this measure may
create an incentive for hospitals to refer patients to treatment for
which the patients do not have coverage, such as Partial
Hospitalization Programs and Intensive Outpatient Programs.
Response: We understand the commenter's concern regarding
affordability of treatment. We agree that IPFs should consider
patient's insurance coverage and cost of care when providing referrals.
Comment: One commenter expressed concern that addition of a chart-
abstracted measure to the IPFQR Program is too burdensome for IPFs
because they are already updating processes for other measures.
Response: We appreciate the commenter sharing its thoughts on the
burden of data collection. We believe that the requirements associated
with reporting on this measures strike a reasonable balance between IPF
burden and providing useful information to IPFs, CMS, and the public on
the quality of care provided in IPFs.
After consideration of the public comments we received, we are
finalizing our proposal to adopt both 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) for the FY 2019 payment determination and subsequent years as
proposed.
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 also refer readers to
section VIII.D.8.c. of the preamble of this final rule for additional
information about population and sampling requirements.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25240), we
proposed to allow sampling for the SUB-3 and SUB-3a measure and
proposed to include the SUB-3 and SUB-3a measure in the list of
measures covered by the global sample. We welcomed public comment on
this proposal.
We did not receive any public comments on this proposal. Therefore,
for the reasons discussed above, we are finalizing our proposal to
include 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) in the list of measures
covered by the global sample for the FY 2019 payment determination and
subsequent years as proposed.
b. 30-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.\359\ 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.\360\
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 nearly
$10,000.\361\ Therefore, reducing readmissions would substantially
reduce costs. For these reasons, we developed a facility-level outcome
measure of all-cause, unplanned

[[Page 57242]]

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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\359\ 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.
\360\ 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.'')
\361\ 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.\362\ 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.\363\
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\362\ 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.
\363\ 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.
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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).\364\ 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).\365\
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\364\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
\365\ 76 FR 51660 through 51676.
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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.\366\ 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.
---------------------------------------------------------------------------

\366\ 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.\367\ 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.^{368 369 370 371 372} This timeframe also supports
interventions that have been developed on a wide range of patient
populations that focus on reducing 30-day readmission
rates.^{373 374 375 376 377} Finally, a

[[Page 57243]]

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

\367\ 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.
\368\ 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.
\369\ 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.
\370\ 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.
\371\ Lutterman T, Ganju V, Schacht L, Shaw R, Monihan K, et al.
Sixteen State Study on Mental Health Performance Measures. 2003.
\372\ 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.
\373\ 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.
\374\ 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.
\375\ 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.
\376\ 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.
\377\ 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. This trial entails 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. Several measures developed by CMS have been
brought to NQF since the beginning of the trial. CMS, in compliance
with NQF's guidance, has tested sociodemographic factors in the
measures' risk models and made recommendations about whether or not to
include these factors in the endorsed measure. We intend to continue
engaging in the NQF process as we consider the appropriateness of
adjusting for sociodemographic factors in our outcome measures.
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 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

[[Page 57244]]

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 proposed the IPF readmission
measure described in this section for the FY 2019 payment determination
and subsequent years. We welcomed public comment on this proposal.
Comment: A few commenters supported inclusion of the Thirty-Day
All-Cause Unplanned Readmission Following Psychiatric Hospitalization
in an IPF measure in the IPFQR Program.
Response: We thank the commenters for their support.
Comment: Many commenters recommended that CMS postpone adoption of
the 30-Day All-Cause Unplanned Readmission Following Psychiatric
Hospitalization in an IPF measure until it has been NQF endorsed and
risk-adjusted for sociodemographic factors. Several commenters observed
that some IPFs treat a disproportionate share of disadvantaged
patients, and that sociodemographic factors influence the IPF's ability
to manage chronic psychiatric conditions. Other commenters observed
that this measure may reflect on community resources, such as
availability of outpatient treatment, rather than IPF quality. One
commenter asked that CMS provide additional detail on the variables
included in the risk-adjustment algorithm for this measure.
Response: We appreciate the commenters' concern for appropriate
risk adjustment and NQF endorsement. We note that this measure (MUC15-
1082) was included on the ``List of Measures Under Consideration for
December 1, 2015'' (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81172) that is used by the MAP to
consider measures for use in CMS programs. The MAP noted the importance
of addressing readmissions for patients admitted for psychiatric
disorders and conditionally supported this measure for use in the IPFQR
Program, pending NQF review, including the examination of SDS risk
factors, and endorsement. We refer readers to http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367 (on this
site download ``MAP 2015-2016 Preliminary Recommendations'' or ``MAP
2016 Considerations for Implementing Measures Draft Report'') for
additional information on the MAP consideration and recommendations.
The 30-Day All-Cause Unplanned Readmission Following Psychiatric
Hospitalization in an IPF measure was submitted to NQF for
consideration on January 29, 2016. As part of the submission, we
evaluated the impact and appropriateness of including sociodemographic
status (SDS) factors in the risk model; as part of the NQF SDS 2-year
trial described earlier. The domains of SDS risk factors that were
considered for inclusion in the risk model were income, education, and
access to care.
While most SDS risk factors had an association with readmission in
the univariate models, it is worth noting that SDS risk factors
indicating that a patient resides in a mental health or primary care
shortage area were associated with lower risk of readmission, contrary
to the commenters concern that readmissions would be increased in these
settings. Another noteworthy finding was that the association between
readmission and all of the SDS risk factors was attenuated once
clinical variables were added to the risk model. Therefore, when we
compared the results of a model with both SDS risk factors and clinical
risk factors to one with only clinical risk factors we found that the
inclusion of SDS risk factors did not improve model performance.
Because of the negligible impact on model performance, the complexity
of operationalizing variables that utilize census-level data, and
concerns about the potential to partially mask a quality signal, these
factors were not included in the final risk model for the measure as
submitted to the NQF. For more detail about the SDS risk factors that
were considered and the results of the analyses we refer readers to the
NQF Supplemental Document for this measure, available at: http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2860.
The NQF Committee met on June 9, 2016 to consider the measure for
endorsement. During this meeting, the committee reviewed the measure
testing results, which included the SDS evaluation as discussed above,
and final measure specifications with adjustment for clinical risk
factors. Ninety-five percent of the committee members voted in support
of the measure as specified in the final technical report without
inclusion of SDS factors in the risk model.\378\ Review for a final NQF
endorsement decision is anticipated in the fall of 2016. The complete
NQF submission with the results of the SDS testing and final technical
report is located at the following link: http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2860.
---------------------------------------------------------------------------

\378\ The transcript from this discussion is available at:
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=80625.
For information on this measure, see Day 2 of the transcript.
---------------------------------------------------------------------------

Comment: A few commenters expressed concerns because the measure is
not risk-adjusted for involuntary admissions. One commenter recommended
that CMS evaluate stratification by IPFs that are designated for
involuntary patients and those that are not.
Response: We appreciate the commenters' concerns relating to the
impact of involuntary admissions on readmission rates and evaluated
this as a risk factor during measure development. Patients admitted
involuntarily, as assessed by an indication in the claims data,
accounted for 3 percent of all IPF admissions and had a lower
unadjusted readmission rate than the general IPF patient population (17
percent compared to 19 percent, respectively). Based on these findings,
the measure development expert workgroup,\379\ convened by the measure
development team, concluded that the ``involuntary'' admission
indicator in the claims data does not capture all incidences of
involuntary admissions and might, therefore, result in erroneous
associations. However, we will take the suggestion to stratify the
measure results by IPFs that are and are not designated for involuntary
admission into consideration for the future.
---------------------------------------------------------------------------

\379\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. (The Technical Report can be downloaded from the
``Inpatient Psychiatric Facility Readmission Measure'' folder).
---------------------------------------------------------------------------

Comment: Many commenters recommended that CMS not adopt the 30-Day
All-Cause Unplanned Readmission Following Psychiatric Hospitalization
in an IPF measure citing concerns that inclusion of all-cause
readmissions in this measure may unfairly reflect on IPFs for unrelated
readmissions and that the inclusion of these readmissions may impact
the ability of IPFs to use the measure results for quality improvement.
One commenter expressed concern that CMS has not appropriately studied
the link between psychiatric admissions and acute care readmissions.
Response: We appreciate the commenters' views. This measure
evaluates an all-cause, unplanned readmission rate in order to capture
adverse events experienced by patients following discharge from an IPF.
There are several reasons to measure both psychiatric and
nonpsychiatric readmissions following psychiatric admissions: (1) The
measure will encourage improved integration of

[[Page 57245]]

physical and behavioral health care, which is important for adults
living with serious mental illness because they die on average 25 years
earlier than the general population, largely due to preventable
conditions, such as cardiovascular disease, diabetes, and infectious
diseases; \380\ (2) readmissions, regardless of cause, are disruptive
to patients and their families or caregivers; \381\ (3) readmission due
to medical conditions may actually be related to the previous
psychiatric index admission (for example, a patient may be readmitted
for a hip fracture that was caused by adverse effects of psychotropic
medications prescribed by the IPF, or a patient with poorly managed
depression may neglect management of his/her comorbid diabetes); \382\
and (4) the designation of the principal versus secondary diagnosis may
be somewhat arbitrary making it difficult to determine if the
readmission is related to the previous psychiatric treatment,
especially if patients present with complex problems that involve both
mental and physical issues (for example, using 2012-2013 Medicare fee-
for-service claims data, 93 percent of readmissions to an acute care
hospital with a non-psychiatric diagnosis following discharge from an
IPF had a secondary diagnosis of mental illness).
---------------------------------------------------------------------------

\380\ Parks J, Svendsen D, Singer P, Foti ME. Morbidity and
mortality in people with serious mental illness. 2006 available at:
http://www.nasmhpd.org/sites/default/files/Mortality%20and%20Morbidity%20Final%20Report%208.18.08.pdf.
\381\ Based on evidence provided by patients and caregivers
during the measure development process.
\382\ Based on evidence provided by technical experts during the
measure development process.
---------------------------------------------------------------------------

Reporting an all-cause readmission rate will provide quality
improvement teams within IPFs with a more complete picture of their
patients' recovery than if the readmission rate included a more limited
set of post-discharge admission events (for example, only psychiatric
readmissions). We believe this information would help IPFs improve
quality at their facilities.
We also note that we have aligned and harmonized this measure with
the Hospital-Wide Readmission measure previously adopted in the
Hospital IQR Program to measure all-cause readmissions.\383\ This will
allow for easier interpretation of measure rates, especially among IPFs
that are part of larger hospital systems.
---------------------------------------------------------------------------

\383\ This measure was adopted in the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53521 through 53528). Technical specifications for
this measure are available at: http://altarum.org/sites/default/files/uploaded-publication-files/Rdmsn_Msr_Updts_HWR_0714_0.pdf.
---------------------------------------------------------------------------

Comment: Several commenters recommended against adoption of the 30-
Day All-Cause Unplanned Readmissions Following Psychiatric
Hospitalization in an IPF measure citing concerns with the validity of
the evidence for this measure. Specifically, they expressed concern
that the chronic nature of some psychiatric and substance use disorders
may necessitate readmissions within 30 days in some instances.
Furthermore, many of these commenters noted that not all strategies to
reduce readmissions in Medicare patients are available to this disabled
subset of Medicare patients.
Response: We appreciate the commenters' concerns and recognize that
some readmissions are unavoidable. However, we note that there have
been improvements in all-cause readmission rates among patients
admitted to the hospital setting for conditions evaluated by
readmission measures adopted by CMS.\384\
---------------------------------------------------------------------------

\384\ Barrett ML, Wier LM, Jiang J, Steiner CA. All-Cause
Readmissions by Payer and Age, 2009-2013. HCUP Statistical Brief
#199. Rockville, MD: Agency for Healthcare Research and Quality;
2015. http://www.hcup-us.ahrq.gov/reports/statbriefs/sb199-Readmissions-Payer-Age.pdf.
---------------------------------------------------------------------------

While not all interventions to reduce readmissions in the hospital
setting may be applicable to this disabled patient population, the
evidence supporting processes that can be adopted by IPFs to influence
readmission rates in this population is robust and valid. Specifically,
we noted several interventions cited in the technical report that were
identified from clinical guidelines and systematic reviews of multiple
studies \385\ involving patients with chronic psychiatric conditions
(for example, administering evidence-based treatments to patients with
bipolar disorder and discharge planning in mental health). Many of the
interventions, such as connecting patients to intensive case
management, are specifically targeted toward patients with severe
mental disability.
---------------------------------------------------------------------------

\385\ For more information on the clinical guidelines and
studies, we refer readers to the technical report at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html (The
Technical Report can be downloaded from the ``Inpatient Psychiatric
Facility Readmission Measure'' folder).
---------------------------------------------------------------------------

Furthermore, the NQF committee that reviewed this measure in June
2016 agreed that the evidence sufficiently supported this measure with
95 percent of steering committee members in agreement that it passed
the ``importance'' criterion, which includes a review of the validity
of the evidence.\386\
---------------------------------------------------------------------------

\386\ The transcript from this discussion is available at:
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=80625.
For information on this measure, see Day 2 of the transcript.
---------------------------------------------------------------------------

Comment: One commenter's support for the adoption of the Thirty-Day
All-Cause Unplanned Readmissions Following Psychiatric Hospitalization
in an IPF measure was contingent on the measure having been tested for
validity and reliability.
Response: We tested for validity and reliability as part of the
measure development process. We refer readers to the technical report
for this measure, which includes a detailed description of the validity
and reliability testing. This report can be found at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. (The
Technical Report can be downloaded from the ``Inpatient Psychiatric
Facility Readmission Measure'' folder.)
Comment: Several commenters requested information about the sample
size for the measure and recommended reducing the lag between claims
being generated by facilities and public reporting.
Response: Public reporting of claims-based measures requires some
lag time to ensure that the measure is calculated on final action
claims and includes a long enough timeframe to ensure most facilities
have enough cases to calculate reliable measure rates. The readmission
measure for the IPFQR Program uses a measurement period of 24 months.
Consistent with readmissions measures for other programs, the 30-Day
All-Cause Readmission Following Psychiatric Hospitalization in an IPF
will be publicly reported on Hospital Compare for IPFs that meet a case
threshold of 25 cases per measurement period. With a 2-year measurement
period, 96 percent of IPFs would have enough cases for public
reporting. For comparison, the Hospital-Wide Readmission measure in the
Hospital IQR Program, is able to report rates for 96 percent of
hospitals with a one-year measurement period.\387\
---------------------------------------------------------------------------

\387\ This measure was adopted in the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53521 through 53528). Technical specifications for
this measure are available at: http://altarum.org/sites/default/files/uploaded-publication-files/Rdmsn_Msr_Updts_HWR_0714_0.pdf.
---------------------------------------------------------------------------

Comment: Many commenters requested that CMS address how the planned
readmission algorithm was adapted for psychiatric patients.
Response: We carefully considered how to identify appropriate
planned

[[Page 57246]]

readmissions following discharge from an IPF. We convened a workgroup
of clinical experts to review the existing planned readmission
algorithm, which is used by the Hospital-Wide Readmission measure in
the acute care setting,\388\ which excludes planned procedures and
select diagnoses from the readmission outcome, in the context of
patients discharged with psychiatric illness. The expert workgroup
convened to inform measure development confirmed that the algorithm was
appropriate for use in the IPF setting because readmissions for the
planned procedures and select diagnoses would also be considered
planned among patients discharged with a psychiatric diagnosis in the
previous 30 days. The workgroup carefully evaluated electroconvulsive
therapy (ECT) (ICD-9-CM 94.26 and 94.27), which is the only potentially
planned procedure in the algorithm that is specifically to treat
psychiatric conditions and confirmed that it was appropriately
categorized as potentially planned by the algorithm. This therapy
accounts for over 40 percent of all potentially planned procedures in
this patient population.\389\ Information on the planned readmission
algorithm specifications and testing for use in this measure is located
in the technical report at the following link: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

\388\ Ibid.
\389\ Calculated from Medicare fee-for-service administrative
claims data from 2012-2013.
---------------------------------------------------------------------------

Comment: Several commenters expressed concern that CMS would impose
a penalty based on performance on the 30-Day All-Cause Unplanned
Readmission Following Psychiatric Hospitalization in an IPF while not
providing adequate financial resources to improve and expand outpatient
services.
Response: We understand the commenter's concerns regarding payment
policies for treatment of psychiatric illness in the outpatient
setting; however, outpatient payment is beyond the scope of this
proposed rule. Moreover, the IPFQR Program does not penalize IPFs based
on performance; it is a pay for reporting program.
After consideration of the public comments we received, we are
finalizing the 30-Day All-Cause Unplanned Readmission Following
Psychiatric Hospitalization in an IPF measure for the FY 2019 payment
determination and subsequent years as proposed.
5. Summary of Finalized Measures for the FY 2018 Payment Determination
and Subsequent Years and for the FY 2019 Payment Determination and
Subsequent Years
The measures that we have previously finalized for the FY 2018
payment determination and subsequent years are set forth in the table
below. We note that this table does not include Screening for Metabolic
Disorders, Transition Record with Specified Elements Received by
Discharged Patients (Discharges from an Inpatient Facility to Home/Self
Care or Any Other Site of Care) (NQF #0647), and Timely Transmission of
Transition Record (Discharges from an Inpatient Facility to Home/Self
Care or Any Other Site of Care) (NQF #0648) because we have postponed
these measures until the FY 2019 payment determination and subsequent
years, as discussed in section VIII.D.2. of the preamble of this final
rule.

Finalized Measures for FY 2018 Payment Determination and Subsequent
Years
------------------------------------------------------------------------
NQF # 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.
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.
------------------------------------------------------------------------

The new measures that we are finalizing for the IPFQR Program for
the FY 2019 payment determination and subsequent years are set forth in
the table below.

Finalized New IPFQR Program Measures for the FY 2019 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
National quality strategy priority NQF # 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................... N/A................... 30-Day All-Cause Unplanned
(Under review for Readmission Following
endorsement). Psychiatric
Hospitalization in an IPF.
----------------------------------------------------------------------------------------------------------------

[[Page 57247]]

For the IPFQR Program, the total number of measures for the FY 2019
payment determination and subsequent years is 18, as set forth in in
the table below.

Finalized Measures for FY 2019 Payment Determination and Subsequent
Years
------------------------------------------------------------------------
NQF # 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 and the
subset measure
Tobacco Use
Treatment.
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.**
0431................... 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......................... 30-Day All-Cause
endorsement). Unplanned
Readmission
Following
Psychiatric
Hospitalization
in an IPF.*
------------------------------------------------------------------------
* New measures finalized for the FY 2019 payment determination and
future years.
** Measures previously finalized for the FY 2018 payment determination
and subsequent years, but postponed to FY 2019 payment determination
and subsequent years through a subregulatory process described in
section VIII.D.2. of the preamble of this final rule.

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, in the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25243), we stated that 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 welcomed public comments on possible new measures.
Comment: One commenter recommended moving to electronic clinical
quality measures (eCQMs) to reduce burden on providers.
Response: We agree that moving to eCQMs is important and will
ultimately reduce burden. At this time, we are not operationally able
to implement eCQM reporting, not all of our measures are electronically
specified, and not all IPFs have EHRs for collection of eCQM data.
However, we continue to work toward transitioning to electronic eCQMs
in the future.
Comment: Several commenters recommended that CMS develop and adopt
an additional measure for identifying individuals with substance use
disorders. Some of these commenters specifically suggested that CMS
evaluate HBIPS-1 for adoption in the IPFQR Program.
Response: We thank these commenters for their suggestions and will
consider measures for identifying individuals with substance use
disorders, such as the HBIPS-1 measure in the future.
Comment: Many commenters recommended that CMS focus on measures
that are meaningful to patients. Some commenters recommended that CMS
only adopt measures specifically associated with the primary reasons
that patients seek care from an IPF.
Response: We agree with the commenters that the IPFQR Program
should focus on measures that are meaningful to patients. However, we
continue to believe that there also is value in including measures that
are not directly tied to the reason that the patient seeks care from an
IPF, such as those reflecting professional standards for quality care
or evidence-based factors associated with better outcomes. We also
believe that limiting the program to measures that specifically apply
to psychiatric services creates a false demarcation between non-
psychiatric and psychiatric care, and ignores the broader
responsibility of the facility for the overall health of the patient.
Comment: Several commenters requested that CMS consider the
tradeoff between burden and clinical value, specifically the measure's
usefulness in improving care, when proposing new measures for the IPFQR
Program.
Response: When proposing measures for the IPFQR Program, our
objective is to balance the need for information on the full spectrum
of care delivery with the need to minimize the burden of data
collection and reporting. To that end, we focus 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. Because we are
sensitive to the need to minimize the burden on IPFs, we address this
issue during Technical Expert Panels (TEPs) as part of our measure
development process. We also refer readers to the FY 2013 IPPS/LTCH PPS
final rule (77 FR

[[Page 57248]]

53645 through 53646) for our considerations for the development and
selection of measures for the IPFQR Program.
Comment: Several commenters requested that CMS pursue development
of a patient and caregiver perception of care measure focused on the
psychiatric patient population.
Response: We thank the commenters for their recommendations. We
believe that patient and family engagement measures are important, and
we will consider this suggestion as we develop future measures.
Comment: One commenter urged CMS to consider the use of psychiatric
scales and instruments which are commonly used in IPF settings and
specifically suggested the 24 item Behavior and Symptom Identification
Scale (Basis 24).
Response: We thank the commenter for its suggestion and will
consider measures related to the use of specific diagnostic or
assessment tools, such as the Basis-24 tool \390\ in the future.
---------------------------------------------------------------------------

\390\ For more information on the Basis-24 tool, we refer
readers to the following: http://www.ebasis.org/basis24.php.
---------------------------------------------------------------------------

We thank the commenters for their feedback and suggestions and we
will consider them as we develop future policy.
7. Public Display and Review Requirements
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25243 through
25244), we proposed 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 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 proposed, 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 CMS 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 proposed 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 proposed 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 proposed to announce the exact timeframes through
subregulatory guidance, including on a CMS Web site and/or on our
applicable listservs. We also proposed 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 (in the FY
2014 IPPS/LTCH PPS final rule, 78 FR 50897 through 50898). However, in
this case (for the FY 2017 payment determination), 12 weeks prior to
December 1, 2016 is in mid-September 2016, 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 proposed 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 proposed to provide IPFs with their
data as early as mid-September. The actual dates will be dependent on
technical feasibility and will ensure that IPFs have 30 days to preview
their data. 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 invited public comment on these proposals.
Comment: Many commenters supported the objective of publicly
displaying the data as soon as possible to improve transparency, but
requested that CMS clarify that IPFs will continue to have a 30-day
preview period. These commenters further requested that CMS clarify how
it will ensure there is sufficient time between the preview period and
public display to correct any inaccuracies in the data since CMS is no
longer providing the approximately 30 day preview period beginning 12
weeks prior to publicly posting the data.
Response: We thank the commenters for their support. As noted
above, we are not changing the duration of the preview period from the
previously finalized ``approximately 30 days'' and as such we will
continue to ensure that IPFs have approximately 30 days to preview
their data prior to publication on Hospital Compare. As we clarified in
the proposed rule (81 FR 25244), the purpose of this preview period is
to allow each IPF to see its facility level data prior to that data
being made public, not to correct an IPF's possible submission errors.
In the event that an IPF identifies measure rate errors resulting from
CMS calculations of IPF submitted data, we will ensure that these
errors are corrected prior to making the data publicly available.
After consideration of the public comments we received, for the FY
2018 payment determination and subsequent years we are finalizing our
proposals to: (1) No longer specify the dates of preview period or data
publication in rulemaking; (2) make the data for the IPFQR Program
available as soon as possible; (3) announce the exact timeframes
through subregulatory guidance, including on a CMS Web site and/or on
our applicable listservs; and (4) continue our policy that the time
period for review will be approximately

[[Page 57249]]

30 days in length as proposed. For the FY 2017 payment determination
only, we are also finalizing our proposal that if it is technically
feasible to display the data in December 2016, we would provide data to
IPFs for a 2-week preview period that would start on October 1, 2016,
as proposed. Moreover, we are finalizing as proposed that as a
courtesy, for the FY 2017 payment determination only, if we are able to
display the data in December 2016, we would ensure that IPFs have
approximately 30 days for review if they so choose by providing IPFs
with their data as early as mid-September.
8. Form, Manner, and Timing of Quality Data Submission
a. Procedural and Submission Requirements
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25244), we did
not propose 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. 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 in finalizing a policy in which IPFs may take one,
global sample for all measures for which sampling is permitted (80 FR
46717 through 46719). This policy was adopted to decrease burden on
IPFs and streamline policies and procedures. We refer readers to these
rules for further information.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25240), we
proposed to allow sampling for the SUB-3 and SUB-3a measure. In other
words, we proposed to include the SUB3 and SUB-3a measure in the list
of measures covered by the global sample. We refer readers to section
VIII.D.4.a. of the preamble of this final rule where we finalize our
proposal to include both 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) in
the list of measures covered by the global sample for the FY 2019
payment determination and subsequent years as proposed.
d. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25244), we did
not propose 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. In the FY 2017 IPPS/LTCH
PPS proposed rule (81 FR 25244), we did not propose 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
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25244), we did
not propose 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 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) \391\ (80 FR 62890) indicated
our intent to address CQM reporting requirements for the Medicare and

[[Page 57250]]

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.
---------------------------------------------------------------------------

\391\ 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. In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25245), we
proposed 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 the proposed rule. These
requirements include reporting on 16 CQMs covering at least 3 NQS
domains for eligible hospitals and CAHs (77 FR 54079). We noted in the
proposed rule (81 FR 25245) that the proposals would 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 \392\ 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.
---------------------------------------------------------------------------

\392\ 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 expression is tightly
coupled to the QDM logic model and based on capabilities of the health
level 7 (HL7) reference information model (RIM), an object model which
does not have significant ability to express mathematical logic such as
addition, subtraction, division, and multiplication. The QDM logic
expression 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,
software cannot easily parse QDM logic directly from the Healthcare
Quality Measures Format (HQMF), the HL7 standard for representing a
clinical quality measure as an electronic document. Using QDM logic
expression in HQMF often require significant human interaction and
interpretation to program or configure software, such as EHRs, to
calculate a measure. In general, the CQL is a mathematical expression
language that can be parsed by software to calculate results, without
needing human interpretation to implement the expressed logic. 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 value sets,
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. For further information, we refer readers to
the eCQI Resource Center Web page (https://ecqi.healthit.gov/).
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 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 the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25245 through 25246), we
proposed the following submission periods for the Medicare EHR
Incentive Program, as well as requirements for eligible

[[Page 57251]]

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 did not propose 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 proposed 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
proposed to remove such measures for both the Medicare and Medicaid EHR
Incentive Programs.
We anticipate that this 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 the
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 proposed 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25175 through 25178).
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 proposed 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 (among the 16 available CQMs, the Outpatient
Quality Reporting (OQR) Program CQM (Emergency Department (ED)-3, NQF
0496) 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, which was further outlined in the FY
2017 IPPS/LTCH PPS proposed rule (81 FR 25195). We noted our intent is
to align, to the extent possible, the EHR Incentive Program reporting
requirements with the Hospital IQR Program reporting requirements
established in this 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 invited public comment on these proposals.
Comment: Many commenters did not support the proposed requirement
that hospitals report a full year of CQM data because of the burden it
would impose on hospitals. One commenter indicated that the increase
would be four times greater than previous years and would cause
increased difficulties for hospitals transitioning to a new EHR system.
Some commenters expressed concern that the increase in the volume of
information being reported might increase susceptibility to inaccurate
data. Commenters noted that EHR vendors are still struggling to
overcome the barriers encountered during the first year of CQM
reporting because designing, building, reviewing, and testing that
takes place between hospitals and vendors is extremely expensive and
extensive. Commenters also expressed concern that this effort will take
resources away from true quality improvement efforts. One commenter
acknowledged that once a CQM is in place, it can continue to gather
data beyond implementation, but expressed concern regarding the ability
of EHR vendors and health care providers to have all CQMs in place by
January 1, 2017. The commenter suggested that CMS continue the current
reporting period of one of the two final quarters of the reporting
year.
Several commenters specifically expressed concern that the time
period between when the final rule is published and the beginning of
the CY 2017 reporting period is too short to make the appropriate
health IT and workflow adjustments to accommodate transmission of a
full year of CQM data. One commenter noted that requiring hospitals to
submit a full year of CQM data for the CY 2017 reporting period would
require hospitals to begin data collection on a full year of data prior
to completion of the first deadline to report only one quarter of data
which is February 28, 2017. Another commenter questioned whether CMS
has considered its ability to receive data submissions for hundreds of
thousands of cases from hospitals within a two-month period (January 1
through the February 28).
A few commenters expressed concern with the proposals to align the
Medicare and Medicaid EHR Incentive Programs and the Hospital IQR
Program because there are differences in the available and required
number of CQMs for reporting between the Hospital IQR Program and the
Medicare and Medicaid EHR Incentive Programs, particularly relating to
the reporting of CQMs electronically (a full year) or by attestation
(any continuous 90-day period) under the EHR Incentive Programs. One
commenter encouraged CMS to change the CQM reporting period for both
Hospital IQR Program and the Medicare

[[Page 57252]]

and Medicaid EHR Incentive Programs in CY 2017 to a 90-day period
reflecting the proposed reporting period for attestation under the
Medicare and Medicaid EHR Incentive Programs.
Response: We appreciate the commenters' concerns that reporting a
full year of CQM data may impose a greater burden on hospitals than
reporting one quarter of CQM data, but in response to the commenter's
concern that the increase would be four times greater than previous
years and would cause increased difficulties for hospitals
transitioning to a new EHR system, we disagree. We believe that the
burden associated with submitting a full year of CQM data will not be
substantially greater than the burden associated with submitting a
single quarter of data. Once CQMs are properly certified and mapped to
successfully collect data for one quarter, collecting data for an
additional 3 quarters should not require much additional burden. We
believe that electronic reporting is an important step in the use of
CEHRT, in which a full year reporting period that consists of data for
four quarterly reporting periods is a critical component to making
progress in electronic reporting.
In response to concerns that the reporting of a full year
(consisting of four quarterly data reporting periods) of CQM data would
cause the CMS receiving system to be susceptible to inaccurate data due
to an increased volume of submitted CQM data, we believe that accuracy
will be improved over time by assessing an increased volume of CQM
data. Through the assessment of more data, we are able to identify and
address issues surrounding CQM data more quickly. 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 believe that, with the advancement of technology and the use of
electronic measures, even more precise, accurate, and reliable data
will be captured for analysis.
We appreciate commenters sharing their concerns about the
challenges associated with electronic reporting, including the
significant expenditure of resources required to make necessary changes
to health IT systems, documentation or utilization of EHRs, and
workflow process changes. We encourage eligible hospitals and CAHs to
continue refining their electronic reporting implementation activities
to successfully achieve electronic data capture and reporting despite
mapping and integration issues or to work with their vendors to do so.
We acknowledge commenters' concerns about the timing of the publication
of the final rule in relation to the CY 2017 reporting period, and
encourage early testing and the use of presubmission testing tools to
reduce errors and inaccurate data submissions in CQM reporting. As time
passes, we expect that hospitals will continue to build and refine
their EHR systems and gain more familiarity with reporting CQM data,
resulting in more accurate data submissions with fewer errors. We
believe that the best way to encourage eligible hospitals and CAHs to
invest in improving their EHR systems is by requiring reporting of
additional CQMs.
In response to concerns regarding the ability of the our receiving
systems to receive the significant volume of data submissions during
the 2-month submission period, we have worked to continually develop
and improve our CQM receiving system and are working to ensure that the
infrastructure is in place to receive the full volume of CQM data
submissions from eligible hospitals and CAHs by the February 28, 2018
deadline for the CY 2017 reporting period.
We disagree with commenters that a 90-day reporting period should
apply for all eligible hospitals and CAHs, regardless of the reporting
method (electronic reporting or attestation) or whether they have
successfully demonstrated meaningful use in a prior year. While we are
allowing a reporting period of any continuous 90-day period for
eligible hospitals and CAHs reporting CQMs by attestation that
demonstrate meaningful use for the first time in CY 2017, we believe a
full-year reporting period (consisting of four quarterly data reporting
periods) is appropriate for eligible hospitals and CAHs that have
demonstrated meaningful use in a prior year, as well as for all
eligible hospitals and CAHs that choose to report electronically
regardless of whether they have previously demonstrated meaningful use.
Comment: As an alternative to the annual reporting of a full year
of CQM data, a few commenters suggested that CMS require quarterly
submission of the CQM data, with submission being required four-and-a-
half months after the end of the reporting quarter to align the
electronic submission requirements with the Hospital IQR Program chart-
abstracted reporting requirements and with other quality reporting
programs, such as the SNF Quality Reporting Program and meaningful use,
to ensure sufficient time for providers to final-bill code all cases
for a reporting quarter before being required to generate QRDA files
for submission to CMS, and to alleviate pressure on providers, vendors,
and the QualityNet team to put together and submit the required
information for electronic CQM data submission. A few commenters noted
that upgrading to a new edition of certified EHR technology during the
same reporting period (CY 2017) that would require hospitals report a
full year of CQM data could pose additional implementation
difficulties. One commenter expressed the opinion that quarterly
reporting would reduce the volume of data that vendors and CMS must
process at one time, give providers more frequent benchmarking of their
performance on these measures, and make the timing of electronic
reporting consistent with reporting of chart-abstracted measures.
Response: We thank commenters for their suggestions and acknowledge
their concerns regarding a two-month timeframe allotted for submitting
a full year of CQM data. We agree with commenters that there may be
advantages with an extended submission period, therefore, in this final
rule, we are finalizing a modification to the proposed submission
period regarding the electronic reporting of CQMs. We anticipate that
following the close of the CMS data receiving system for the CY 2016
reporting period, we will re-open the system in late spring 2017 to be
able to receive both QRDA I test files and QRDA I production files for
the CY 2017 reporting period (consisting of four quarterly reporting
periods). We believe that a longer submission period will provide
eligible hospitals and CAHs with the flexibility to submit a full year
of CQM data quarterly, bi-annually, or annually. This greater
flexibility will allow eligible hospitals, CAHs, and vendors the
flexibility to submit QRDA I files as soon as each calendar quarter
ends, rather than waiting to submit all QRDA I files during the last
two months of the submission period. We encourage all eligible
hospitals, CAHs, and vendors to submit QRDA I files early, as well as
to use one of the presubmission testing tools for electronic reporting,
such as the CMS Pre-Submission Validation Application (PSVA), to allow
additional time for testing and to make sure all required data files
are successfully submitted by the deadline. The PSVA can be downloaded
from the Secure File Transfer (SFT) section of the QualityNet Secure
Portal at: https://cportal.qualitynet.org/QNet/pgm_select.jsp. We refer
readers to section VIII.A.11.b.(4) of the preamble of this of this
final rule for more information about the PSVA.

[[Page 57253]]

Comment: The majority of commenters supported the proposed removal
of 13 CQMs from the EHR Incentive Programs beginning in CY 2017 in an
effort to move quality measurement toward outcomes measures. Many
commenters stated their belief that these measures were topped out, and
that the measures' complexity could not be captured in an electronic
form. A number of commenters also stated their belief that the CQM
measure specifications were not feasible to implement. Others noted
removing these measures would decrease administrative burden, minimize
confusion among providers and provide alignment among the Hospital IQR
Program the EHR Incentive Programs.
Response: We thank the commenters for their support of our proposal
to remove 13 CQMs in an effort to move quality measurement toward
outcomes measures. Therefore, for the reasons stated in section
VIII.A.3.b.(3) of the preamble of this final rule, we are finalizing
our proposal to remove the 13 CQMs beginning with the reporting periods
in CY 2017.
Comment: Several commenters supported CMS' efforts to reduce
reporting burden on hospitals, but expressed concern with the timeline
of the proposal to remove 13 CQMs for CY 2017 because hospitals may
need time to adjust workflows and work with health IT vendors to add
support for measures not previously supported and ensure valid CQMs are
submitted. Commenters encouraged CMS to consider the time, effort, and
resources expended on reporting on these measures when deciding to
remove them from the EHR Incentive Programs. One commenter noted that
EHR vendors will phase out support for these measures and clinicians
may become skeptical about benefits to workflow changes related to
future measures if measures are continuously added and removed. Another
commenter urged CMS to provide more lead time for the removal of
measures that hospitals have dedicated so many resources to developing
and implementing. Specifically, the commenter requested that for CY
2017, CMS maintain the current requirements of reporting four CQMs out
of the current list of 28, in order to give hospitals more time to plan
and prepare for implementation of additional CQMs in future years.
Response: We understand the commenters' concern with removing CQMs
that have been previously reported and implemented in an existing EHR
workflow, and we acknowledge the time, effort, and resources that
hospitals expend on reporting on these measures. However, our decision
to remove measures from the EHR Incentive Program and the Hospital IQR
Program is an extension of our programmatic goal to continually refine
the measure set and ensure that it consists of quality performance
standards. We believe that a reduction in the overall number of CQMs
reduces certification burden on eligible hospitals and CAHs and
improves the quality of reported data by enabling hospitals to focus on
a smaller, more specific subset of CQMs.
We encourage eligible hospitals and CAHs that retain vendors to
work closely together to ensure that a contract is in place which
supports the hospital's quality reporting requirements and the annual
update of quality measures. Also, we encourage eligible hospitals and
CAHs to continue refining their electronic reporting implementation
activities to successfully achieve electronic data capture and
reporting despite mapping and integration issues or to work with their
vendors to do so. We encourage early testing and the use of
presubmission testing tools to reduce errors and inaccurate data
submissions in CQM reporting. We will work to provide hospitals with
the education, tools, and resources necessary to enhance their
workflows to more seamlessly account for the removal or addition of
CQMs.
Comment: A few commenters suggested that topped-out measures should
not be removed from the Medicare and Medicaid EHR Incentive Programs
measure set. One commenter opposed the proposal to remove the CQMs that
are topped out, stating that the measures should not be retired until
the CQM reporting process has matured. The commenter further stated
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. Another commenter requested that any
topped-out CQM that is removed from the EHR Incentive Programs be kept
on reserve so that performance can be monitored as necessary to ensure
that performance and/or adherence to best practices do not decline. In
addition, the commenter suggested that an alternative use of topped-out
measures is inclusion as components of composite measures. A commenter
recommended that CMS implement a periodic auditing system of measures
designated as topped-out. The commenter expressed the opinion that such
a system would ensure that performance remains satisfactorily high and
also detect reductions in the quality of care.
Response: While we recognize the benefit of continuing the
inclusion of topped-out measures until the CQM reporting process has
further matured or for the assurance that performance remains
satisfactorily high and the ability to detect reductions in the quality
of care, retaining such measures in the Medicare and Medicaid EHR
Incentive Programs measure set or as part of components of composite
measures, or implementing a periodic auditing system of topped-out
measures requires the maintenance of the topped-out measures. We must
balance the costs of continued monitoring of a successful measure with
high levels of performance with the adoption of other measures where
there are opportunities for improvement in clinical quality.
Comment: A few commenters did not support the removal of measures
because it may hinder on-going measurement and reduce performance
improvements. One commenter requested that CMS maintain a library of
measures that are not included in the program so that vendors and
hospitals can still support monitoring and improving these removed
measures.
Response: We disagree with commenters that the removal of these
measures may hinder measurement and reduce performance improvement.
Although eligible hospitals and CAHs are not reporting data for
measures that have been removed from the Hospital IQR Program and EHR
Incentive Programs, if the CQM specifications are maintained by the
measure developer, eligible hospitals and CAHs are encouraged to
continue to monitor data for their own efforts to improve quality. We
appreciate the commenter's suggestion to maintain a library of CQMs
that have been removed and will take it into consideration.
Comment: Several commenters did not support the proposed
requirement that hospitals report on all CQMs in the Medicare and
Medicaid EHR Incentive Programs because of concerns about general
feasibility, accuracy, validity, and reliability of electronically-
submitted measures. Several commenters suggested that CMS consider
amending the proposal to require an addition of 2 to 4 CQMs to the CY
2016 required number of CQMs, which would require the reporting a total
of 6 to 8 CQMs for the CY 2017 reporting period. A few commenters
suggested an incremental approach requiring only 8 CQMs for two
quarters for the first increase. Other commenters requested that CMS
retain the current requirement of 4 CQMs until hospitals

[[Page 57254]]

have successfully operationalized reporting complete and accurate data
on existing required CQMs before adding new measures. Commenters
indicated that EHR vendors are not prepared for the functional and
operational demands of an increase in CQM reporting. Further,
commenters argued that requiring hospitals to collect electronic data
for measures that still have flawed specifications and/or for services
the hospitals do not provide is inefficient and burdensome. One
commenter also noted that the CQM specifications have flaws that prove
challenging with current clinical workflows, given how EHRs track
orders and documentation and in some cases the measure specifications
do not accurately measure the quality of care delivered, absent the
development of manual workarounds that divert time and resources from
patient care. These commenters recommended delaying any mandatory
reporting of CQMs until these concerns are resolved.
Commenters also expressed concern that CQM data submission to CMS
has not been fully tested at this point and recommended that expanding
the required number of CQMs should be delayed until there has been
successful transmission of data. Commenters noted that the
infrastructure and reporting functionality for CQMs are not mature
enough to facilitate mandatory electronic reporting for hospitals.
Commenters recommended that CMS continue outreach to EHR vendors,
hospital quality staff, and other affected stakeholders to identify and
address structural problems prior to increasing the number of required
CQMs.
Response: We believe that increasing the requirements for hospitals
to report measures electronically is in line with our goals to make
progress towards eventual electronic reporting on all CQMs in the
Medicare and Medicaid EHR Incentive Programs. Retaining the reporting
requirements from CY 2016 would not be in alignment with our goal to
move toward the electronic reporting of all available CQMs. Eligible
hospitals and CAHs have been engaged in the process of reporting CQM
data electronically for the EHR Incentive Programs and Hospital IQR
Program for several years (three years of pilot reporting and three
years of voluntary reporting). However, we recognize the challenges
associated with electronic reporting and encourage eligible hospitals
and CAHs to continue refining their electronic reporting implementation
activities and work with their vendors to achieve electronic capture
and reporting despite mapping and integration issues. We encourage
eligible hospitals and CAHs to work closely with their vendors to
ensure that a contract is in place which supports the hospital's
quality reporting requirements and the annual update of those measures.
Reliable, accurate data and the engagement of electronic reporting are
critical to advancing our goal of increasing the electronic reporting
of CQMs. We recognize the importance of having feasible and accurate
measure data and in order to readily identify issues, we need to assess
more data. We believe that, with the advancement of technology and the
use of electronic measures, even more precise, accurate, and reliable
data will be captured for analysis.
In response to the commenters' concerns relating to vendors not
being prepared for the functional and operational demands of an
increase in CQM reporting, we note that CQM electronic specifications
are posted at least 6 months prior to the start of the reporting
period, and well in advance of the submission window. We believe this
timeframe allows an adequate amount of time for vendors to make those
updates while ensuring that the CQMs are still current and clinically
valid once implemented.
We appreciate commenters sharing their concerns regarding flaws
with measure specifications, the maturity of infrastructure and
reporting functionality for CQMs, and CMS testing of CQM data
submission. We note that measure specifications are updated routinely
to account for changes, including, but not limited to, changes in
billing and diagnosis codes and changes in medical practices. In order
for CQMs to remain current and clinically valid, the specifications
must be updated on a regular basis. We disagree with commenters that
CQM reporting should be delayed until agreement is achieved regarding
the maturity of CQM specifications. We believe that CQMs have matured
since their inception, and any delay in the CQM reporting requirements
would inhibit progress toward the eventual electronic reporting of all
CQMs for the Medicare and Medicaid EHR Incentive Programs.
In this final rule, we are adopting a modification of our proposal
and requiring the reporting of only 8 CQMs for eligible hospitals and
CAHs that choose to report electronically, in response to commenters'
suggestion of incrementally increasing the reporting requirements. We
believe that this modification balances the concerns raised by
commenters while simultaneously advancing our goal of increased CQM
electronic reporting. While the number of CQMs required to report
increases from 4 CQMs (as established for the CY 2016 reporting period)
to 8 CQMs for the CY 2017 reporting period, we believe that a
coordinated reduction in the overall number of CQMs in both the
Hospital IQR Program (from 28 to 15 available CQMs) and Medicare and
Medicaid EHR Incentive Programs (from 29 to 16 available CQMs) 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 CQMs. It is one of our goals to expand electronic
reporting in the Medicare and Medicaid EHR Incentive Programs. We
intend to introduce additional CQMs into the Medicare and Medicaid EHR
Incentive Programs as CQMs that support the programs goals become
available.
After consideration of the public comments we received, we are
finalizing the following policies. We are finalizing a modification to
our proposal regarding the number of CQMs required for eligible
hospitals and CAHs that report electronically for the Medicare and
Medicaid EHR Incentive Programs and will require reporting on 8 CQMs
beginning with the CY 2017 reporting period, which eligible hospitals
and CAHs may select from the set of available CQMs listed in the table
below. We are finalizing as proposed the removal of 13 CQMs from the
set of CQMs available for eligible hospitals and CAHs to report for the
Medicare and Medicaid EHR Incentive Programs, beginning with the
reporting periods in CY 2017. For the list of CQMs we are removing, we
refer readers to section VIII.A.3.b.(3) of the preamble of this final
rule. All 16 of the remaining measures listed in Table 10 of the EHR
Incentive Program Stage 2 final rule (77 FR 54083 through 54087) are
available for eligible hospitals and CAHs to report for the Medicare
and Medicaid EHR Incentive Programs. The following table lists the
remaining 16 CQMs available for eligible hospitals and CAHs to report
for the Medicare and Medicaid EHR Incentive Programs beginning in CY
2017.

[[Page 57255]]

CQMs Finalized for Eligible Hospitals and CAHs Beginning With CY 2017
------------------------------------------------------------------------
Short name Measure name NQF #
------------------------------------------------------------------------
Electronic Clinical Quality Measures (eCQMs)
------------------------------------------------------------------------
AMI-8a.................... Primary PCI Received Within 0163
90 Minutes of Hospital
Arrival.
ED-3...................... Median Time from ED Arrival 0496
to ED Departure for
Discharged ED Patients.
CAC-3..................... Home Management Plan of Care \+\
Document Given to Patient/
Caregiver.
ED-1 *.................... Median Time from ED Arrival 0495
to ED Departure for
Admitted ED Patients.
ED-2 *.................... Admit Decision Time to ED 0497
Departure Time for Admitted
Patients.
EHDI-1a................... Hearing Screening Prior to 1354
Hospital Discharge.
PC-01..................... Elective Delivery (Collected 0469
in aggregate, submitted via
Web-based tool or
electronic clinical quality
measure).
PC-05..................... Exclusive Breast Milk 0480
Feeding ***.
STK-02.................... Discharged on Antithrombotic 0435
Therapy.
STK-03.................... Anticoagulation Therapy for 0436
Atrial Fibrillation/Flutter.
STK-05.................... Antithrombotic Therapy by 0438
the End of Hospital Day Two.
STK-06.................... Discharged on Statin 0439
Medication.
STK-08.................... Stroke Education............ \+\
STK-10.................... Assessed for Rehabilitation. 0441
VTE-1..................... Venous Thromboembolism 0371
Prophylaxis.
VTE-2..................... Intensive Care Unit Venous 0372
Thromboembolism Prophylaxis.
------------------------------------------------------------------------
\+\ NQF endorsement has been removed.

The CQM reporting periods in CY 2017 for the Medicare and Medicaid
EHR Incentive Programs are set out below. For the Medicare EHR
Incentive Program, we are finalizing the proposed submission periods
for eligible hospitals and CAHs reporting CQMs by attestation and are
finalizing with modification the proposed submission periods for
eligible hospitals and CAHs electronically reporting CQMs. We are
providing States with the flexibility to determine the submission
periods for reporting CQMs for their Medicaid EHR Incentive Program.
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 begins in late spring 2017 and continues
through the 2 months following the close of the calendar year, ending
February 28, 2018.
As we continue to align the Medicare and Medicaid EHR Incentive
Programs and the Hospital IQR Program, we are finalizing the same
number of CQMs to be reported electronically for both programs.
However, we are finalizing a policy under which eligible hospitals and
CAHs reporting electronically will be required to report on 8 available
CQMs. Thus, in this final rule, we are finalizing a modified version of
our proposed reporting criteria regarding the number of CQMs eligible
hospitals and CAHs are required to report electronically, starting 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, or participating in both the EHR Incentive Program
and the Hospital IQR Program, report on 8 of the available CQMs.
For CY 2018 and future calendar years, we plan to continue to align
the CQM reporting requirements for the Medicare and Medicaid EHR
Incentive Programs with the Hospital IQR Program reporting requirements
established in this final rule and future rules.
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 49760), 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 49760), 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)--
++ 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

[[Page 57256]]

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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25246 through
25247), we proposed 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
proposed 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
2016 version of the CQM electronic specifications available on the eCQI
Resource Center Web page (https://ecqi.healthit.gov/). We solicited
public comment on this proposal.
Comment: One commenter expressed concern that the vendor community
will not have adequate time to deliver the updated products to the
market in time for all providers to meet the reporting requirements for
CY 2107, which would require use of EHR technology certified to the
2015 Edition. The commenter explained that the proposed changes in CQM
reporting necessitates sufficient time for vendors and providers to
test and deploy CEHRT. The commenter acknowledged that measures need to
evolve, but stated that a balance needs to be reached such that the
churn around development and deployment is not endless. Therefore, the
commenter urged CMS to make greater strides to enact a ``predictable''
cycle from measure development to provider data submission.
Response: We believe requiring use of the most recent version of
the CQM electronic specification for each CQM is important in allowing
us to collect relevant clinical and electronic data. We note that the
commenter's statement regarding the use of EHR technology certified to
the 2015 Edition is not accurate and clarify that CMS proposed to
accept the use of EHR technology certified to the 2014 or 2015 Edition
for CQM reporting in 2017. We further note that, consistent with prior
policy, a provider may continue to use their current certified health
IT module for CQMs as an EHR certified for CQMs under the 2014 Edition
certification criteria and it does not need to be recertified each time
it is updated to a more recent version of the CQMs (80 FR 62889). With
the continuing evolution of technology and clinical standards, as well
as the need for a predictable cycle from measure development to
provider data submission, on December 31, 2015, we published in the
Federal Register (80 FR 81824 through 81828) a Request for Information:
Certification Frequency and Requirements for the Reporting of Quality
Measures Under CMS Programs. We requested comments on the establishment
of an ongoing cycle for the introduction and certification of new
measures, the testing of updated measures, and the testing and
certification of submission capabilities in future rulemaking. We
intend to address such policies in future rulemaking.
Comment: One commenter expressed concern that requiring electronic
submission of CQM data using the most recent version of the CQM
electronic specification for each CQM may create a disconnect in the
timing cycle of the regulatory adoption of standards and the rapid
evolution of electronic standards for CQM reporting. The commenter
recommended that CMS and ONC collaborate to establish a regulatory
framework that is more responsive to the speed at which standards are
developed, maintained, upgraded and improved.
Response: We appreciate the commenter's concerns about the rapidly
evolving electronic standards and the timing cycle for the regulatory
adoption of standards; we will continue to collaborate with colleagues
at ONC to ensure that our policies are responsive to evolving
electronic standards to the greatest extent feasible.
Comment: Several commenters supported the proposals to align the
CERHT requirements, measure set, and deadlines between the Medicare and
Medicaid EHR Incentive Programs and the Hospital IQR Program because
these proposals would decrease the burden on organizations who
currently report for both programs.
Response: We thank the commenters for this support.
Comment: A few commenters supported the alignment of the reporting
requirements for the EHR Incentive Programs and the Hospital IQR
Program, which would reduce provider burden and minimize confusion
about reporting criteria across various quality reporting programs.
However, these commenters expressed concern about the expansion of CQMs
with the current state of EHR technology. One commenter urged CMS, as
part of its certification process, to seek stakeholder input and to
define standards and structure for EHR vendors that allows
documentation to fit into the clinical workflow and interact with
providers at the point-of-contact to guide them to provide timely and
appropriate care. One commenter urged CMS to utilize chart abstraction
for quality reporting until the EHR transformation is made to allow
clinicians to focus on delivering high quality patient focused care
without the distraction of CQM reporting using an EHR structure that
has yet to evolve to support true meaningful use.
Response: We thank the commenters for this support. We will
continue to seek stakeholder input to define standards and structure
for EHR vendors that allows documentation to fit into the clinical
workflow and interact with providers at the point-of-contact to guide
them to provide timely and appropriate care. We appreciate the
commenter's recommendation to utilize chart abstraction for quality
reporting until EHR systems are more mature. However, when eligible
hospitals and CAHs work with their vendors to ensure that EHRs are
appropriately structured in a way that fits in with the clinical work
flow to yield reliable data through electronic CQMs, we believe that
electronic CQMs promote high quality outcomes, lower costs, and
ultimately decrease reporting burden on hospitals as compared with
chart-abstracted CQMs.
After consideration of the public comments we received, we are
finalizing our proposal to continue the 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 the 16 available CQMs (as established in this final rule) that would
be available for reporting in 2017 under our finalized polices, we are
finalizing our proposal that requires an eligible hospital or CAH to
have its EHR technology certified to such CQMs in order to meet the
reporting requirements for 2017.

[[Page 57257]]

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 proposed to accept the use of EHR
technology certified to the 2014 or 2015 Edition for CQM reporting in
2017. Certification to the 2015 Edition is expected to be available
beginning 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 invited public comments on these proposals.
We did not receive comments on our proposed policy. Therefore, we
are finalizing our proposal to accept the use of EHR technology
certified to the 2014 or 2015 Edition for CQM reporting in 2017.

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
policies set forth in this final rule. MedPAC recommendations for the
IPPS for FY 2017 are addressed in Appendix B to this final 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. We listed the data files and the cost for
each file, if applicable, in the FY 2017 IPPS/LTCH PPS proposed rule
(81 FR 25247 through 25249).
Commenters interested in discussing any data files used in
construction of this final rule should contact Michael Treitel at (410)
786-4552.

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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25249 through
25257), we solicited public comment on each of these issues for the
following sections of this document that contain information collection
requirements (ICRs) (except for the ICRs addressed under section X.B.5.
of the preamble of this final rule).
2. ICRs for Add-On Payments for New Services and Technologies
Section II.H.1. of the preambles of the proposed rule (81 FR 25031
through 25033) and this final 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. (We note that 2 applications received for
FY 2017 that were discussed in the proposed rule are not addressed in
this final rule because the technology did not receive FDA approval by
July 2016.)
We did not receive any public comments regarding this information
collection.
3. ICRs for the Occupational Mix Adjustment to the FY 2017 Wage Index
(Hospital Wage Index Occupational Mix Survey)
Section III.E. of the preambles of the proposed rule (81 FR 25064
through 25065) and this final rule discuss the occupational mix
adjustment to the proposed and final 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

[[Page 57258]]

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.
We did not receive any public comments regarding this information
collection.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
Section III.J.3. of the preambles of the proposed rule (81 FR
25069) and this final rule discuss changes to the proposed and final
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.
We did not receive any public comments regarding this information
collection.
5. ICRs for Application for GME Resident Slots
The information collection requirements associated with the
preservation of resident cap positions from closed hospitals, addressed
under section IV.J.3. of the preamble of this final rule, are not
subject to the Paperwork Reduction Act, as stated in section 5506 of
the Affordable Care Act.
6. ICRs for the Notice of Observation Treatment by Hospitals and CAHs
In section IV.L. of the preambles of the proposed rule (81 FR 25131
through 25134) and this final rule, we discuss our 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 will be disseminated during the
normal course of related business activities. The standardized notice
discussed in this final rule is simultaneously being subject to public
review and comment through the Office of Management and Budget (OMB)
Paperwork Reduction Act process before implementation under OMB control
number 0938-new.
In the proposed rule, we estimated that it would take hospitals and
CAHs 5 minutes (0.0833 hour) to complete and deliver each notice. We
estimated an annual cost burden of $5,461,430 or approximately $889.19
per hospital or CAH.
Comment: A number of commenters suggested that CMS had
underestimated the burden. Some commenters believed that the estimates
did not account fully for the costs that hospitals and CAHs will incur
for business functions such as system programming, creating internal
operating procedures, scanning, and translation. One commenter
suggested that CMS break out the burden separately for CAHs and non-
CAHs. One commenter was concerned that the burden on smaller, rural
hospitals would be particularly large. One commenter recommended that
the estimated delivery time should be increased.
Response: We believe the burden estimate in the proposed rule
appropriately took into account the time to gather and enter the
necessary data and information (including the information to be
inserted into the free-text fields), review the instructions, complete
and review necessary responses, and deliver the notice to the
beneficiary. The burden estimates were not intended to include time
spent on customary and usual business practices. We did not break out
the impact on CAHs and non-CAHs separately, as we anticipate a general,
comparable burden on CAHs and hospitals.
As discussed below, we have reassessed our proposed burden estimate
and for this final rule and we have increased the estimated time for
hospitals to prepare and deliver the MOON from 5 minutes to 15 minutes.
This increase addresses the public comments received on the proposed
rule related to the burden specific to the requirements for delivery of
the MOON; for example, the population of a free text field on the MOON
to indicate why a beneficiary is receiving outpatient observation
services. We believe the increase from 5 minutes to 15 minutes
adequately accounts for additional time spent complying with the MOON
delivery requirements.
For this final rule, we estimate that it will take hospitals and
CAHs 15 minutes (0.25 hour) to complete and deliver each notice. In
2014, there were approximately 1,399,999 claims for Medicare outpatient
observation services lasting greater than 24 hours furnished by 6,142
hospitals and CAHs.\393\ The annual hour burden is estimated to be
350,000 (1,399,999 responses x 0.25 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 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 because fringe
benefits and overhead costs vary significantly from employer to
employer, methods of estimating these costs vary widely from study to
study, and hospitals vary widely both in terms of size and geographic
location. 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
$16.78 based on an hourly salary rate of $67.10 and the 15-minute
response estimate. By multiplying the annual responses by $16.78, the
annual cost burden estimate is $23,491,983 (1,399,999 responses x
$16.78) or approximately $3,824.81 per hospital or CAH ($23,491,983/
6,142).
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\393\ Source: CMS Office of Enterprise and Data Analytics.
---------------------------------------------------------------------------

7. 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.

[[Page 57259]]

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 final rule, we are
finalizing our proposal 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 removed is 15 because the STK-4 and VTE-5
measures were removed twice--once in the chart-abstracted form and
again in electronic form.
The 13 eCQM versions of measures we are removing 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 removing are: (1) STK-4: Thrombolytic
Therapy (NQF #0437); and (2) VTE-5: Venous Thromboembolism Discharge
Instructions. The two structural measures we are removing 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 will have a smaller number of eCQMs from which to select. 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. As
discussed below, in this rule, we are not finalizing our proposal that
hospitals must report on all of the available eCQMs in the Hospital IQR
Program. Instead, we are finalizing a modified version of our proposal
and requesting that, for the CY 2017 reporting period/FY 2019 payment
determination and CY 2018 reporting period/FY 2020 payment
determination, hospitals must report on 8 of the available eCQMs in the
Hospital IQR Program. Because 13 eCQMs are being removed from a pool of
28 eCQMs, hospitals will then have a total pool of only 15 eCQMs to
choose from, which will decrease the burden associated with selecting
and reporting data. However, because we are now requiring hospitals to
submit data on 8 of the available eCQMs included in the Hospital IQR
Program measure set, the modest reduction in burden associated with the
decreased number of eCQMs from which hospitals may choose, will be
offset by the increased burden associated with submitting data on 8
eCQMs instead of 4 eCQMs. We discuss the burden associated with our
finalized proposal to require the submission of 8 of the available
eCQMs included in the Hospital IQR Program measure set below.
We also believe that there will 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, the number of reporting periods in
a calendar year, and the number of IPPS hospitals reporting), we
estimate that the removal of STK-4 will 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 will result in a
burden reduction of approximately 1,437,843 hours and approximately
$47.2 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
hours of burden by taking the difference in the burden estimates from
this FY 2017 IPPS/LTCH PPS final 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 in this FY
2017 IPPS/LTCH PPS final rule, we are finalizing our proposal 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 (based on data from
the third quarter of 2014 through second quarter of 2015), that the
time per record (that is, to report all 4 of the VTE measures in the
Hospital IQR Program during the noted time period) is 28 minutes; thus,
we estimate a burden reduction of 7 minutes for removing 1 VTE measure.
Based on this estimate, we deducted 21 minutes from the 28-minute
estimate to account for the removal of VTE-1, VTE-2, and VTE-3 in the
FY 2016 IPPS/LTCH PPS final rule (80 FR 49645) and subsequent removal
of VTE-5 in this final rule, for a total of 7 minutes to report on the
one remaining VTE chart-abstracted measure in the Hospital IQR Program.
We then calculated the estimated total hours of burden per hospital for
reporting the remaining VTE measure as follows: 7 minutes per record/60
minutes per hour x 4 reporting quarters per year x 198.05 records per
hospital per quarter = 92 burden hours per hospital. Because there are
3,300 IPPS hospitals, we then multiplied 92 hours per hospital x 3,300
hospitals to get a total annual burden estimate of 304,997 hours to
report the 1 remaining measure in the VTE measure set. The reduction in
the total burden hours for VTE from this FY 2017 IPPS/LTCH PPS final
rule and the FY 2016 IPPS/LTCH PPS final rule, is calculated as
follows: 304,997 (FY 2017 total annual estimate)-1,742,840 (FY 2016
total annual estimate) = -1,437,843 hours for the VTE measure set. We
note that this burden estimate is revised based on the updated
estimates mentioned above, and as such, is different from what we
stated in the proposed rule (81 FR 25251). In the FY

[[Page 57260]]

2017 IPPS/LTCH PPS proposed rule, we used the incorrect time estimate
(3 minutes) associated with the removal of one VTE measure.
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 final
rule, we discuss refinements to two previously adopted measures
beginning with the FY 2018 payment determination: (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 refinements to these two claims-based measures.
Also, in section VIII.A.7. of the preamble of this final rule, we
discuss our adoption of 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 claims-based measures.
For the FY 2019 payment determination and the FY 2020 payment
determination, in section VIII.A.8. of the preamble of this final rule,
we are requiring hospitals to submit data for 8 of the 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. This is a modification from our proposal, which was to
require all available eCQMs in the Hospital IQR Program measure set.
Specifically, hospitals will be required to submit a full calendar year
of data on 8 of the 15 eCQMs in the Hospital IQR Program measure set,
on an annual basis, for the CY 2017 reporting period/FY 2019 payment
determination and the CY 2018 reporting period/FY 2020 payment
determination. We believe that the burden associated with submitting a
full year of eCQM data will not be substantially greater than the
burden associated with transmission of a single quarter of data. As
described in section VII.A.10.d of the preamble of this final rule, the
CMS data receiving system requires that each QRDA I file include data
for one patient, per quarter, per reporting CCN. Once hospitals
establish their protocols to ensure this is maintained, hospitals and
vendors should not experience much added burden reporting an additional
3 quarters of data. However, in our conservative estimates here, we
calculate as if burden is four times as much in an abundance of
caution.
We believe that the total burden associated with the eCQM reporting
policy will 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 aligning the eCQM reporting requirements
between both programs. Therefore, using the estimate of 10 minutes per
measure, we anticipate that our finalized policies to require: (1)
Reporting on 8 of the available eCQMs (8 eCQMs for the CY 2017
reporting period/FY 2019 payment determination); and (2) submission of
one year of eCQM data (covering Q1, Q2, Q3, and Q4), will result in a
burden of 80 minutes per quarter per hospital to report one medical
record containing information on all the required eCQMs. In total, for
the FY 2019 payment determination, we expect our policy to require
hospitals to report data on 8 eCQMs for 4 quarters (as compared to our
previously finalized requirement to report data on 4 eCQMs for 1
quarter) to represent a burden increase of 15,400 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 17,600 hours (80 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/60 minutes 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 15,400 hours.
Furthermore, we estimate that reporting these eCQMs can be
accomplished by staff with a mean hourly wage of $16.42 per hour.\394\
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 $505,736 (15,400 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 8
eCQMs, on an annual basis.
---------------------------------------------------------------------------

\394\ Occupational Outlook Handbook. Available at: http://www.bls.gov/oes/2012/may/oes292071.htm.
---------------------------------------------------------------------------

We did not propose any changes to our validation requirements
related to chart-abstracted measures, but provided 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
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

[[Page 57261]]

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 final rule, beginning
in spring 2018 for the FY 2020 payment determination, we discuss our
expansion 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 will 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
that 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 will increase the eCQM validation burden hours from 0
hours (as this is the first instance where eCQM validation is being
added 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.\395\
Further, in calculating labor costs, we have chosen to calculate the
cost of overhead at 100 percent of the mean hourly wage. Therefore, 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.
---------------------------------------------------------------------------

\395\ Occupational Outlook Handbook. Available at: http://www.bls.gov/oes/2012/may/oes292071.htm.
---------------------------------------------------------------------------

Lastly, in section VIII.A.15. of the preamble of this final rule,
we discuss our adoption of updates to 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 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 1,717,444 hours, for a total cost decrease of
approximately $56.4 million across approximately 3,300 hospitals
participating in the Hospital IQR Program as a result of the policies
in this final rule.

Annual Recordkeeping and Reporting Requirements Under OMB Control Number 0938-1022
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Net difference
Estimated time Number Number of number Annual burden Annual burden in annual
Activity per record reporting hospitals records per (hours) per (hours) across burden hours
(minutes) FY quarters per reporting hospital per hospital hospitals FY (FY 2017-FY
2017 year FY 2017 quarter 2017 2016)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Removal of Stroke (STK-4) measure....... 0 4 3,300 39 0 0 -303,534
Removal of Venous thromboembolism (VTE- 25 4 3,300 198 92 304,997 -1,437,843
5).....................................
Reporting on 8 electronic Clinical 80 4 3,300 1 5.33 17,600 15,400
Quality Measures.......................
eCQM Validation......................... 80 4 200 8 43 8,533 8,533
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Change in Burden Hours: -1,717,444............................................................................................................
Total Cost Estimate: Hourly Wage ($32.84) x Change in Burden Hours (-1,717,444) = -$56,400,861......................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

This 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 final
rule are the estimates for which we are requesting OMB approval.
We received the following public comments regarding our burden
estimates.
Comment: Some commenters expressed concern about the amount of
change required for documenting new measures, which creates challenges
in accurately reflecting patient severity of illness. As an example,
one commenter noted that last year's severe sepsis and septic shock
measure (SEP-1) introduced requirements for documentation that have not
been easily implemented. Therefore, this commenter indicated that the
value of very specific documentation has to be weighed against the
value for patient care that it brings. Likewise, other commenters
expressed concern regarding the number of measures required by Medicare
hospital performance and reporting programs

[[Page 57262]]

and the burden associated with reporting, monitoring, and transmitting
data for these quality measures. These commenters cited the Institute
of Medicine (IOM)'s April 2015 Vital Signs report on Core Metrics for
Health and Health Care Progress and recommended that CMS adopt the IOM
15 core measure areas, along with 39 additional priority measures, in
which to provide benchmarks and improve overall health system
performance, which, they argue, would reduce overall measure burden
across all programs by creating a streamlined measure set that provides
the most value for patients and providers.
Response: We understand that many of the requirements of the
Hospital IQR Program increase the reporting burden on hospitals, and,
before proposing any measure, we critically weigh this burden against
the benefit we believe will be achieved in the improvement of quality
of care. We also note that, this year, every new measure we proposed is
claims-based; claims-based measures do not require additional
documentation from providers. Thus, there should be no increase in
burden based on new measures in this final rule. As we move forward, we
will continue to consider the number of measures in this and other
programs and consider the aggregate effect of reporting.
8. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program
As discussed in sections VIII.B. of the preambles of the proposed
rule (81 FR 25205 through 25213) and this final 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 will result from the proposals we are finalizing in this final
rule.
In section VIII.B.3.b. of the preamble of this final rule, we are
finalizing our proposal that PCHs submit data on the 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 of 25 patients for this measure, the
expansion of the patient cohort will increase the pool of patients from
which the sample can be drawn but will 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 final rule, we are
finalizing our proposal 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 will not pose any new burden on PCHs.
In summary, as a result of our finalized policies, we do not
anticipate any changes to previously finalized burden estimates.
9. ICRs for the Hospital Value-Based Purchasing (VBP) Program
In section IV.H. of the preambles of the proposed rule (81 FR 25099
through 25177) and this final rule, we discuss requirements for the
Hospital VBP Program. Specifically, in this final rule, with respect to
quality measures, we are finalizing our proposals 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 beginning with the FY 2021 program year; update
the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Pneumonia (PN) Hospitalization (Updated Cohort) measure
beginning with 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 beginning with 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. Therefore, the burden
associated with these reporting requirements is currently approved
under OMB control number 0938-1022.
10. ICRs for the Long-Term Care Hospital Quality Reporting Program
(LTCH QRP)
As discussed in section VIII.C.5 of the preambles of the proposed
rule (81 FR 25214 through 25215) and this final 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 Final Initial and
rule subsequent APU
years
------------------------------------------------------------------------
National Healthcare Safety Adopted an application FY 2014 payment
Network (NHSN) Catheter- of the measure in the determination
Associated Urinary Tract FY 2012 IPPS/LTCH PPS and subsequent
Infection (CAUTI) Outcome final rule (76 FR years.
Measure (NQF #0138). 51745 through 51747);
Adopted the NQF
endorsed version and
expanded measure
(with standardized
infection ratio
[SIR]) in the FY 2013
IPPS/LTCH PPS final
rule (77 FR 53616
through 53619).

[[Page 57263]]

National Healthcare Safety Adopted an application FY 2014 payment
Network (NHSN) Central Line- of the measure in the determination
Associated Bloodstream FY 2012 IPPS/LTCH PPS and subsequent
Infection (CLABSI) Outcome final rule (76 FR years.
Measure (NQF #0139). 51747 through 51748);
Adopted the NQF
endorsed and expanded
measure (with SIR) in
the FY 2013 IPPS/LTCH
PPS final rule (77 FR
53616 through 53619).
Percent of Residents or Adopted an application FY 2014 payment
Patients with Pressure Ulcers of the measure in the determination
That Are New or Worsened FY 2012 IPPS/LTCH PPS and subsequent
(Short Stay) (NQF #0678). final rule (76 FR years.
51748 through 51750);
Adopted the NQF
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 Adopted in the FY 2013 FY 2016 payment
Patients Who Were Assessed IPPS/LTCH PPS final determination
and Appropriately Given the rule (77 FR 53624 and subsequent
Seasonal Influenza Vaccine through 53627); years.
(Short Stay) (NQF #0680). 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 2013 FY 2016 payment
among Healthcare Personnel IPPS/LTCH PPS final determination
(NQF #0431). rule (77 FR 53630 and subsequent
through 53631); years.
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 2014 FY 2017 payment
Network (NHSN) Facility-wide IPPS/LTCH PPS final determination
Inpatient Hospital[dash]onset rule (78 FR 50863 and subsequent
Methicillin-Resistant through 50865). years.
Staphylococcus aureus (MRSA)
Bacteremia Outcome Measure
(NQF #1716).
National Healthcare Safety Adopted in the FY 2014 FY 2017 payment
Network (NHSN) Facility-wide IPPS/LTCH PPS final determination
Inpatient Hospital[dash]onset rule (78 FR 50865 and subsequent
Clostridium difficile through 50868). years.
Infection (CDI) Outcome
Measure (NQF #1717).
All-Cause Unplanned Adopted in FY 2014 FY 2017 payment
Readmission Measure for 30 IPPS/LTCH PPS final determination
Days Post[dash]Discharge from rule (78 FR 50868 and subsequent
Long-Term Care Hospitals (NQF through 50874); years.
#2512). 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 2015 FY 2018 payment
Network (NHSN) Ventilator- IPPS/LTCH PPS final determination
Associated Event (VAE) rule (79 FR 50301 and subsequent
Outcome Measure. through 50305). years.
Application of Percent of Adopted in the FY 2014 FY 2018 payment
Residents Experiencing One or IPPS/LTCH PPS final determination
More Falls with Major Injury rule (78 FR 50874 and subsequent
(Long Stay) (NQF #0674). through 50877); years.
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 2015 FY 2018 payment
Hospital Patients with an IPPS/LTCH PPS final determination
Admission and Discharge rule (79 FR 50291 and subsequent
Functional Assessment and a through 50298). years.
Care Plan That Addresses
Function (NQF #2631).
Functional Outcome Measure: Adopted in the FY 2015 FY 2018 payment
Change in Mobility among Long- IPPS/LTCH PPS final determination
Term Care Hospital Patients rule (79 FR 50298 and subsequent
Requiring Ventilator Support through 50301). years.
(NQF #2632).
Application of Percent of Long- Adopted an application FY 2018 payment
Term Care Hospital Patients of the measure in the determination
with an Admission and FY 2016 IPPS/LTCH PPS and subsequent
Discharge Functional final rule (80 FR years.
Assessment and a Care Plan 49739 through 49747)
That Addresses Function (NQF to fulfill IMPACT Act
#2631). requirements.
------------------------------------------------------------------------

As discussed in section VIII.C.6 and VIII.C.7 of the preamble of
this final rule, we are finalizing the addition of the following four
measures for use in the LTCH QRP:

LTCH QRP Quality Measures Newly Finalized for the FY 2018 Payment
Determination and Subsequent Years
------------------------------------------------------------------------
Annual payment
Measure title determination: Initial and
subsequent APU years
------------------------------------------------------------------------
Potentially Preventable 30-Day Post- FY 2018 payment
Discharge Readmission Measure for LTCH determination and
QRP * subsequent years.

[[Page 57264]]

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 Follow- FY 2020 payment
Up for Identified Issues--PAC LTCH QRP ** determination and
subsequent years.
------------------------------------------------------------------------
* Finalized in this FY 2017 IPPS/LTCH PPS final rule for the FY 2018
payment determination and subsequent years.
** Finalized in this FY 2017 IPPS/LTCH PPS final 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 final 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 the
proposed rule, we did not propose any new quality measures that would
be collected via the CDC's NHSN. Therefore, at this time, there will be
no additional burden related to this submission method. Any burden
related to NHSN-based quality measures we have retained in this final
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 finalizing our proposals to add three Medicare FFS claims-based
measures in this final 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 claims-based measures
will be calculated based on data that are already reported to the
Medicare program for payment purposes, we believe no additional
information collection will be required from the LTCHs. We did not
propose new assessment-based quality measures in the LTCH QRP in the
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 final rule, we discuss our proposal to
expand the data collection timeframe for the measure Percent of
Residents or Patients Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay) (NQF #0680) (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 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 finalizing our proposal 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 final rule for further details on the expansion of
data collection for the Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short
Stay) (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 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 final rule.
For the FY 2020 payment determination and subsequent years, we are
finalizing our proposal to use 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 newly finalized 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 was 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);

[[Page 57265]]

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 newly finalized quality measure: Drug Regimen
Review Conducted with Follow-Up for Identified Issues-PAC LTCH QRP.
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
section 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 will be updated to Version 4.00, effective April 1,
2018, to include data elements for the newly finalized Drug Regimen
Review Conducted with Follow-Up for Identified Issues- PAC LTCH QRP
quality measure. 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 final rule.
We discuss and respond to public comments we received on these
information collection requirements in the section I.M. of Appendix A
of this final rule.
11. 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 preambles of the proposed rule (81 FR
25238 through 25244) and this final rule, we are finalizing 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). In
addition, we are finalizing our proposal to include 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) in the list of measures covered by the global
sample for the FY 2019 payment determination and subsequent years as
proposed. We also are finalizing that we will make the data for the
IPFQR Program available as soon as possible and to no longer specify in
rulemaking when measure data will be publicly available, when the
approximately 30-day preview period will occur, or that the preview
period will begin approximately 12 weeks before the public display
date, but rather to announce these using subregulatory guidance.
Lastly, for the FY 2017 payment determination only, we are also
finalizing our proposal that, if it is technically feasible to display
the data in December 2016, we will provide data to IPFs for a 2-week
preview period that will start on October 1, 2016 as proposed.
Moreover, we are finalizing as proposed that as a courtesy, for the FY
2017 payment determination only, if we are able to display the data in
December 2016, we will ensure that IPFs have approximately 30 days for
review if they so choose by providing IPFs with their data as early as
mid-September.
We refer readers to the FY 2015 IPF PPS final rule (79 FR 45978
through 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 newly finalized policies in this
final rule. Although we are finalizing 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 that affect FY 2019
payment determination begins in FY 2017, and the changes to the public
display dates take effect beginning with the posting of data that
informs the FY 2017 payment determination on Hospital Compare during 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
newly finalized policies in this final rule, that year is FY 2017.
We believe that approximately 1,684 \396\ 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 \397\ 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.\398\
Based on the experience of other quality reporting programs, such as
the Hospital IQR Program, we are updating this estimate to 15 minutes
(that is, 0.25 hour) per case per measure. We are only finalizing one
new chart-abstracted measure this year: SUB-3/subset SUB-3a. The other
measure that we are finalizing, 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.
---------------------------------------------------------------------------

\396\ 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.
\397\ 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.
\398\ 80 FR 46720.
---------------------------------------------------------------------------

We estimate that reporting data for the IPFQR Program measures can
be

[[Page 57266]]

accomplished by staff with a mean hourly wage of $16.42.\399\ 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.
---------------------------------------------------------------------------

\399\ http://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.html.

Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
Fringe benefit Adjusted
Occupation title Occupation code Mean hourly (at 36.25% in $/ hourly wage ($/
wage ($/hr) hr) hr)
----------------------------------------------------------------------------------------------------------------
Medical Records and Health Information 29-2071 16.42 16.42 32.84
Technician.................................
----------------------------------------------------------------------------------------------------------------

We do not believe that our update to a previously finalized measure
will affect our previous burden estimate for that measure. As noted
above, one of our newly finalized measures is claims-based and will not
result in increased burden. Therefore, increased burden will occur
primarily as a result of our newly finalized chart-abstracted measure.
We estimate that this measure will result in an increase in burden of
212 hours per IPF (1 measure x (848 cases/measure x 0.25 hour/case)) or
357,008 hours across all IPFs (212 hours/IPF x 1,684 IPFs). The
increase in costs will 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 will 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 will 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
(that is, measures eligible for the global sample). 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 will lead to
a negligible change in burden associated with nonmeasure data
collection.
In section VIII.D.7. of the preamble of this final rule, we are
finalizing our proposal to specify in subregulatory guidance, when
measure data will be publicly available and when the preview period
will occur, instead of in rulemaking as we have previously done. We are
no longer specifying how far in advance of the public display date the
preview period will occur. We do not believe this policy will result in
any change in burden because it does not require IPFs to report any
more or less data. Rather, the timeline for public display of that data
is simply shifting.
In the table below, we set out a summary of annual burden
estimates.

Annual Recordkeeping and Reporting Requirements Under OMB Control Number 0938-1171 (CMS-10432)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Burden per Total annual
Finalized 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
--------------------------------------------------------------------------------------------------------------------------------------------------------

12. ICRs for the Electronic Health Record (EHR) Incentive Programs and
Meaningful Use
In section VIII.E. of the preambles of the proposed rule (81 FR
25244 through 25247) and this final 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 newly finalized policies for data
collection in this final 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

[[Page 57267]]

circumstances where electronic reporting is not feasible (80 FR 62894).
We did not receive any public comments regarding this information
collection. We refer readers to the table in section X.B.7. of the
preamble of this final rule for burden estimates relating to the
reporting of 8 CQMs.

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 set forth in the preamble of this final rule, the
Centers for Medicare and Medicaid Services confirms, as final, the
interim final rules that appeared in the August 17, 2015 (80 FR 49594)
and April 21, 2016 (81 FR 23428) Federal Registers and further amends
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, sec. 112 of Pub. L. 113-93,
and sec. 231 of Pub. L. 114-113.

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 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 a new 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. 412.64(e)(1)(ii),
(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 (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 (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 (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).
* * * * *

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

[[Page 57268]]

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: (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 2017 and subsequent fiscal years. 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 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 subsection (d) hospital Medicare
discharges in the MSA (not including discharges paid by a Medicare
Advantage plan) in which the 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

[[Page 57269]]

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:

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 1.75 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 in cost reporting periods beginning 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 or in cost reporting periods beginning on or
before June 30, 2016.

* * * * *

0
20. Section 412.538 is added 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), except as specified in paragraph
(a)(2) of this section, effective for--
(i) Discharges occurring in cost reporting periods beginning on or
after October 1, 2016 (for long-term care hospitals that formerly would
have been subject to Sec. 412.534); or
(ii) Discharges occurring on or after October 1, 2016 in cost
reporting periods beginning on or after July 1, 2016 (for long-term
care hospitals that would not have been formerly subject to Sec.
412.534).
(2) Notwithstanding the preceding paragraphs of this section, the
provisions of this section do not apply to--
(i) A long-term care hospital described in Sec. 412.23(e)(2)(ii);
or
(ii) A long-term care hospital described in Sec. 412.23(e)(2)(i)
that meets the criteria in Sec. 412.22(f).
(3) For purposes of this section, all long-term care hospitals
described in paragraph (a)(1) of this section and all referring
hospitals are as identified by CCN.
(b) Discharges at or below the applicable percent threshold. For
any long-term care hospital that is not exempted by paragraph (a)(2) of
this section with discharges occurring as described in paragraph (a)(1)
of this section, of which no more than the applicable percent threshold
(as defined in paragraph (e) of this section) was admitted to the long-
term care hospital from a single referring hospital, payments are the
amount otherwise payable under this subpart without adjustment under
this section.
(c) Discharges in excess of the applicable percent threshold. For
any long-term care hospital that is not exempted by paragraph (a)(2) of
this section with discharges occurring as described in paragraph (a)(1)
of this section, of whom more than the applicable percentage threshold
(as defined in paragraph (e) of this section) was admitted to the long-
term care hospital from a single referring hospital, payments for the
Medicare discharges that caused the long-term care hospital to exceed
or remain in excess of such threshold are paid at the lesser of the
amount otherwise payable under this subpart without adjustment under
this section 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
the amount otherwise payable under this subpart without adjustment
under this section.
(d) Determination of exceeding the applicable percentage threshold.
(1) General. The determination of whether a long-term care hospital
(as described in paragraph (a)(1)) of this section has exceeded its
applicable percentage threshold (as defined in paragraph (e) of this
section) in regard to discharges described in paragraph (a)(1) of this
section that were admitted

[[Page 57270]]

from a single referring hospital is made by comparing the long-term
care hospital's percentage of Medicare discharges occurring as
described in paragraph (a)(1) of this section (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 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 on whose behalf an outlier payment was not made to that
referring 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 its 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 (e)(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 a long-term care hospital has multiple
locations, all locations of the long-term care hospital 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 Sec. 412.503), the applicable percentage
threshold means the MSA-dominant hospital's percentage of total
subsection (d) hospital Medicare discharges in the MSA in which the
long-term care hospital is located during 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 does not include
discharges paid by a Medicare Advantage plan. If a long-term care
hospital has multiple locations payable under this subpart, all
locations of the long-term care hospital 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

[[Page 57271]]

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)
and (k)(2), (3), (4), and (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 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 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 calculated in accordance
with paragraph (e)(1) of this section.
(2) If an urban hospital rotates residents to a separately
accredited rural track program at a rural nonprovider site(s) for 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, the urban hospital may
include those residents in its FTE count, subject to the requirements
under Sec. 413.78(d) through (g). The urban hospital may include in
its FTE count those residents in the rural track, not to exceed its
rural track FTE limitation, determined as follows:
(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 nonprovider 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 nonprovider 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 nonprovider 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 nonprovider 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 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
calculated in accordance with paragraph (e)(1) of this section.
(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)

[[Page 57272]]

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 nonprovider 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) through (g), as applicable. 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
nonprovider 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 nonprovider site(s) or are designated at the
beginning of their training to be rotated to the rural nonprovider
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
(2) The length of time in which the residents are training at the
rural nonprovider 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 nonprovider 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(g).
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 nonprovider 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 nonprovider site(s) or are designated at the
beginning of their training to be rotated to the rural nonprovider
site(s) for a period that is for one-half or less than one-half of the
duration of the program; and
(2) The ratio of the length of time in which the residents are
training at the rural nonprovider site(s) only to the total duration of
the program.
* * * * *
(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

[[Page 57273]]

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, amend paragraph (c)(1)(i) by removing the phrase
``three months'' and adding in its place the phrase ``5 months''.

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. Notice may be provided before such individual receives 24
hours of observation services as an outpatient.
(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: July 25, 2016.
Andrew M. Slavitt,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 27, 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--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 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
figures for the standardized amounts, offsets, and budget neutrality
factors. Therefore, in this final 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 LTCH PPS standard Federal payment rate
that will 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 final rule,
uncompensated care payments under section 1886(r)(2) of the Act); the

[[Page 57274]]

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 Pub. L. 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 Pub. L. 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 Pub. L. 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 Pub. L. 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 final 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 Pub. L. 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 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 making 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 policy changes for
determining the prospective payment rates for Medicare inpatient
capital-related costs for FY 2017. In section IV. of this Addendum, we
set 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 policy changes for
determining the LTCH PPS standard Federal payment rate for LTCHs paid
under the LTCH PPS for FY 2017. The tables to which we refer to in the
preamble of this final rule are listed in section VI. of this Addendum
and are available via the Internet on the CMS Web site.

II. 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 used for determining the
prospective payment rates for FY 2017.
In summary, the 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 final
rule for a complete discussion on the FY 2017 inpatient hospital
update. Below is a table with these four options:

[[Page 57275]]

Adjustment for Failure to be a Meaningful EHR 0.0 -2.025 0.0 -2.025
User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi) -0.3 -0.3 -0.3 -0.3
of the Act.....................................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
---------------------------------------------------------------
Applicable Percentage Increase Applied to 1.65 -0.375 0.975 -1.05
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 final 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 final 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.P. of the preamble of
this final rule, we are applying a (1/0.998) adjustment to the FY 2017
payment rates 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.P. of the preamble of
this final rule, we are applying a temporary one-time prospective
increase to the FY 2017 payment 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
payment rate for the 2-midnight policy in effect for FY 2014, FY 2015,
and FY 2016.
For FY 2017, consistent with current law, we applied 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 applied 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 final rule, we are extending the
imputed floor policy (both the original methodology and alternative
methodology) for FY 2017. Therefore, for FY 2017, in this final rule,
we are continuing to include the imputed floor (calculated under the
original and alternative methodologies) in calculating the uniform,
national rural floor budget neutrality adjustment, which will 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, 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 final rule, given the small number of
participating hospitals and the limited time of participation during FY
2017, as we proposed, we are foregoing the process of estimating the
costs attributable to the demonstration for FY 2017 and instead
analyzing the set of finalized cost reports for reporting periods
beginning in FY 2016 when they become available. In addition, we
discuss how we will 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

[[Page 57276]]

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 making 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 final rule for a complete
discussion on the rural community hospital demonstration program.

A. Calculation of the 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 require 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 continuing to use the national labor-related
and nonlabor-related shares (which are based on the FY 2010-based
hospital market basket) that were 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 final rule, we are continuing 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 applied 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 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 final 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 calculated 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 final rule, we are using 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 final rule, in accordance with section
1886(b)(3)(B) of the Act, as amended by section 3401(a) of the
Affordable Care Act, we reduced the FY 2017 applicable percentage
increase (which is based on IHS Global Insight, Inc.'s (IGI's) second
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 0.3 percentage point, which is calculated based on IGI's
second 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 further updating 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 second quarter forecast of the hospital market
basket increase (as discussed in Appendix B of this final rule), the
most recent forecast of the hospital market basket increase for FY 2017
is 2.7 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 final rule for a complete discussion on the 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 will be applied to update the national standardized
amount. The 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 recommendations in the Federal Register for public comment.
Our recommendation on the update factors is set forth in Appendix B of
this final rule.
4. Methodology for Calculation of the Average Standardized Amount
The methodology we used to calculate the FY 2017 standardized
amount is as follows:
To ensure we are only including hospitals paid under the
IPPS in the calculation of the standardized amount, we applied 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

[[Page 57277]]

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 final 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 adjusted 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 applied budget neutrality offsets for outliers and
geographic reclassifications to the standardized amount based on 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, as we proposed, we are excluding 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, as we proposed, we are continuing 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 continuing 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 applied the readmissions payment adjustment factor
and the 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 FY 2017 readmissions payment
adjustment factors, we used 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 final rule, we calculated 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

[[Page 57278]]

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 policy regarding the
reporting of hospital-specific readmission rates for FY 2017 in section
IV.G.3.f. of the preamble of this final 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 final rule, for the purpose of
modeling aggregate payments when determining all budget neutrality
factors, we used 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 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
included 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 considered 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 final rule and below, we are continuing
the FY 2014 finalized methodology under which we will take into
consideration uncompensated care payments in the comparison of payments
under the Federal rate and the hospital-specific rate for SCHs.
Therefore, we included estimated uncompensated care payments in this
comparison.
Similarly, for MDHs, as discussed in section IV. of the preamble to
this final 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 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 will be estimated based on
the applicable standardized amount in Tables 1A and 1B for discharges
occurring in FY 2017.
a. 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 final 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
making 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 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 FY 2017 relative weights, and the FY 2016 pre-
reclassified wage data, and applied the same FY 2017 hospital
readmissions payment adjustments and estimated FY 2017 hospital VBP
payment adjustments applied above.
Based on this comparison, we computed a budget neutrality
adjustment factor equal to 0.999079 and applied this factor to the
standardized amount. As discussed in section IV. of this Addendum, we
also applied the MS-DRG reclassification and recalibration budget
neutrality factor of 0.999079 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

[[Page 57279]]

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 adjusting 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
final rule.
To compute a 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 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
FY 2017 hospital readmissions payment adjustment and the estimated FY
2017 hospital VBP payment adjustment; and
Aggregate payments using the FY 2017 relative weights and
the FY 2017 pre-reclassified wage indexes, applied the 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 FY 2017 hospital readmissions payment adjustments and
estimated FY 2017 hospital VBP payment adjustments applied above.
In addition, we applied the 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 budget neutrality adjustment factor
of 1.000209 for changes to the wage index.
We note that, in prior fiscal years, we used a three-step process
and combined the 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 separated these two
adjustments and applied 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--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 budget neutrality
adjustment factor for FY 2017, we used FY 2015 discharge data to
simulate payments and compared the following:
Aggregate payments using the FY 2017 labor-related share
percentages, FY 2017 relative weights and 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 FY 2017 hospital readmissions
payment adjustments and the estimated FY 2017 hospital VBP payment
adjustments; and
Aggregate payments using the FY 2017 labor-related share
percentages, FY 2017 relative weights, and FY 2017 wage data after such
reclassifications, and applied the same 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 final rule, which is available via the Internet on the CMS Web
site. This table reflects reclassification crosswalks for FY 2017, and
applies the policies explained in section III. of the preamble to this
final rule. Based on these simulations, we calculated a budget
neutrality adjustment factor of 0.988224 to ensure that the effects of
these provisions are budget neutral, consistent with the statute.
The 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 FY 2017 budget
neutrality adjustment reflects FY 2017 wage index reclassifications
approved by the MGCRB or the Administrator at the time of development
of this final rule.
d. 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 final 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 final rule, we are extending the imputed floor policy (both the
original methodology and alternative

[[Page 57280]]

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 follow our policy of including the imputed floor (calculated
under the original and alternative methodologies) in the 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 calculated a national
rural Puerto Rico wage index. Because there are no rural Puerto Rico
hospitals with established wage data, our calculation of the 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
used 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 FY 2017 rural
Puerto Rico wage index was calculated based on the average of the 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 used FY 2015 discharge data to
simulate payments and the post-reclassified national wage indexes and
compared the following:
National simulated payments without the national rural
floor and imputed floor; and
National simulated payments with the national rural floor
and imputed floor.
Based on this comparison, we determined a national rural floor and
imputed floor budget neutrality adjustment factor of 0.993200. The
national adjustment was applied to the national wage indexes to produce
a 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 final 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 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 experienced 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 used 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 will equal what payments would have been if we
had fully adopted the new OMB delineations without providing these
transitional provisions. To calculate the transitional wage index
budget neutrality factor for FY 2017, we used FY 2015 discharge data to
simulate payments and compared the following:
Aggregate payments using the OMB delineations for FY 2017,
the FY 2017 relative weights, 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 rural floor budget neutrality adjustment
factor to the wage index, and application of the 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 FY 2017 relative weights, 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 rural floor budget neutrality adjustment
factor to the wage index, application of the 3-year transitional wage
indexes, and application of the same FY 2017 hospital readmissions
payment adjustments and the estimated FY 2017 hospital VBP payment
adjustments applied above.
Based on these simulations, we calculated a budget neutrality
adjustment factor of 0.999994. Therefore, for FY 2017, we applied a
transitional wage index budget neutrality adjustment factor of 0.999994
to the national average standardized amounts to ensure that the effects
of these transitional wage indexes are budget neutral.
We note that the budget neutrality adjustment factor calculated
above is based on the increase in payments in FY 2017 that will result
from the final year of the 3-year transitional wage index policies.
Therefore, we are applying this 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. Case-Mix Budget Neutrality Adjustment
(1) Background
Below we summarize the recoupment adjustment to the FY 2017 payment
rates, as required by section 631 of the 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 final rule for a complete discussion regarding our
policies for FY 2017 in this final 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.

[[Page 57281]]

(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 the 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, as we proposed, we
are applying a -1.5 percent adjustment to the standardized amount. We
refer the reader to section II. D. 6. of the preamble to this final
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 does not
apply to the hospital-specific payment rates.
g. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
As discussed in section IV. P. of the preamble to this final 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 related 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 that 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. P of the preamble to this final
rule into account, we believe it is 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.
As we proposed, we are permanently removing 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.P of the
preamble of this final rule, we believe that it is 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 payment rates permanently reduced the
payment rates for FY 2014 and future years until it is removed), and
the 0.2 percent reduction to the standardized amount and hospital-
specific payment 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
including a factor of 1.006 in the calculation of the standardized
amount and the hospital-specific rates in FY 2017 and then removing
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.P. of the preamble to this final
rule for a complete discussion.
h. 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 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

[[Page 57282]]

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.html.
(1) 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 FY 2017 outlier
threshold, we simulated payments by applying FY 2017 payment rates and
policies using cases from the FY 2015 MedPAR file. Therefore, in order
to determine the 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 that 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 proposed, and
are finalizing, 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);
included CAHs that were IPPS hospitals for the time period of the
MedPAR data being used to calculate the charge inflation factor;
included hospitals in Maryland; and removed 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 captured 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 captured 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 addition, similar
to FY 2016, for FY 2017 we grouped claims data by quarter in the table
below to allow the public access to these data and the ability 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. In the proposed rule we
stated that we would 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 Covered charges
(January 1, 2014, Cases (January 1, (January 1, 2015, Cases (January 1,
Quarter through December 31, 2014, through through December 31, 2015, through
2014) December 31, 2014) 2015) December 31, 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, as we proposed, we
compared 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

[[Page 57283]]

was 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.
Comment: Many commenters were concerned with what they stated was a
lack of transparency with respect to the charge inflation component of
the fixed-loss threshold calculation. One commenter stated that it is
unable to match the figures in the table from the proposed rule with
publicly available data sources and that CMS did not disclose the
source of the data. The commenter further stated that CMS has not made
the necessary data available, or any guidance that describes whether
and how CMS edited such data to arrive at the total of quarterly
charges and charges per case used to measure charge inflation.
Consequently, the commenter stated that the table provided in the
proposed rule is not useful in assessing the accuracy of the charge
inflation figure that CMS used in the proposed rule to calculate the
outlier threshold. The commenter noted that CMS provided a detailed
summary table by provider with the monthly charges that were used to
compute the charge inflation factor. The commenters appreciated the
additional data, but still believed that CMS has not provided enough
specific information and data to allow the underlying numbers used in
CMS' calculation of the charge inflation factor to be replicated and/or
tested for accuracy. The commenter concluded that in the absence of
more specific data and information about how the data were edited by
CMS to arrive at the totals used in the charge inflation calculation,
CMS has not provided adequate notice to allow for meaningful comment.
Response: We responded to a similar comment in the FY 2015 IPPS/
LTCH final rule (79 FR 50375) and FY 2016 IPPS/LTCH final rule (80 FR
49779 through 49780) and refer readers to those final rules for our
complete response. While the charge data may not be immediately
available after the issuance of this final rule, we believe the data
and supporting files we have provided will provide the commenters with
additional information that can be verified once the charge data are
available. We have produced the actual figures we used and disclosed
our formula. We intend to post the actual charge data as soon as
possible so that the public can verify the raw data with the figures we
used in the calculation. As stated above and in the proposed rule, the
charge data used to calculate the charge inflation factor are sourced
from our MedPAR database.
In addition, as stated in last year's final rule, we continue to
believe that it is optimal to use the most recent period of charge data
available to measure charge inflation. Similar to last year, the
commenters did not propose to use charge data from a different period
to compute the charge inflation factor. If we computed the charge
inflation factor using the latest data available to the public at the
time of issuance of this final rule, we would need to compare charge
data from FY 2014 (October 2013-September 2014) to FY 2015 (October
2014-September 2015), data which would be at least 10 months old
compared to the charge data we currently use that are 4 months old.
Comment: One commenter requested that CMS add the claims data used
to compute the charge inflation factor to the list of limited data set
(LDS) files that can be ordered through the usual LDS data request
process.
Response: There are limitations on how expeditiously we can add the
charge data to the LDS. After consulting with our systems teams and
privacy office, we do not anticipate being able to provide the charge
data we currently use to calculate the charge inflation factor within
the commenter's requested timeframe. We prefer using the latest data
available at the time of the proposed and final rules to compute the
charge inflation factor because we believe it leads to greater accuracy
in the calculation of the fixed-loss cost outlier threshold. If the
charge data are still not available for replication after the FY 2018
IPPS/LTCH PPS proposed rule, we would invite commenters to suggest
alternative data sources that we could use to calculate the charge
inflation factor (such as older data). As noted, we believe that using
older data may not provide the same accuracy as the current data we
use, and therefore the commenters should inform us which is more
important to them, the need to have complete access to the data we use
in our methodology or the greater accuracy provided by the use of more
up-to-date data. As noted above, the data we currently use will
eventually be publicly available for replication but not in the
timeframe the commenter has requested. To summarize, we are confronted
with a dilemma--either we use older data that commenters can access
earlier, or we use the most up-to-date data which will be more
accurate, but will not be available to the public until after
publication of the proposed and final rules. We continue to believe the
latter approach, using the best available data to produce a more
accurate charge inflation factor, is preferable.
As we have done in the past, in the FY 2017 IPPS/LTCH proposed
rule, we proposed to establish the FY 2017 outlier threshold using
hospital CCRs from the December 2015 update to the Provider-Specific
File (PSF)--the most recent available data at the time of the
development of the 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 that 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 proposed to continue to apply an adjustment factor
to the CCRs to account for cost and charge inflation (as explained
below). We proposed that, if more recent data become available, we
would use those 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 proposed 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, in the proposed rule, 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 1 year

[[Page 57284]]

to the next without any effect from a change in case count on different
sides of the comparison.
Using the proposed methodology above, for the proposed rule, we
calculated a December 2014 operating national average case-weighted CCR
of 0.280907 and a 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, for the proposed rule, 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 applied 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 final 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 were calculated and applied after rural and
imputed floor budget neutrality adjustments were calculated for all
labor market areas, in order to ensure that no hospital in a frontier
State will receive a wage index less than 1.0000 due to the 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 outlier threshold for FY 2017, it was necessary to
apply the 3-year transitional wage indexes and adjust the wage index of
those eligible hospitals in a frontier State when calculating the
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 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 proposed not
to make any adjustments for the possibility that hospitals' CCRs and
outlier payments may be reconciled upon cost report settlement. We
stated that 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 to CMS for potential
reconciliation 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
proposed not to make any assumptions regarding the effects of
reconciliation on the outlier threshold calculation.
Comment: Commenters were concerned with CMS' decision not to
consider outlier reconciliation in developing the outlier threshold and
stated that CMS did not provide objective data concerning the number of
hospitals that have been subjected to reconciliation and the amounts
recovered during this process.
Response: The commenters' views were similar to comments received
and responded to in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50376
through 50377), and we refer readers to that rule for our response.
As described in sections IV.G. and IV.H., respectively, of the
preamble of this final 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 outlier threshold calculation
or the 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 will 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 proposed to exclude the hospital VBP
payment adjustments and the hospital readmissions payment adjustments
from the calculation of the 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, for FY 2017 we proposed allocating 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 will best approximate the amount
we will pay in uncompensated care payments during the year because,
when we make claim payments to a hospital eligible for such payments,
we will be making estimated per-discharge uncompensated care payments
to all cases equally. Furthermore, we continue to believe that using
the estimated per-claim

[[Page 57285]]

uncompensated care payment amount to determine outlier estimates
provides predictability as to the amount of uncompensated care payments
included in 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 proposed to include estimated FY
2017 uncompensated care payments in the computation of the outlier
fixed-loss cost threshold. Specifically, we proposed 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 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 proposed 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 proposed threshold met
the 5.1 percent target. As a result, we proposed 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.
Comment: One commenter believed that it is important that CMS
accurately calculate prior year actual payment comparisons to the 5.1
percent target. The commenter asserted that it is not possible for CMS
to appropriately modify the methodology to achieve an accurate result
if CMS is not aware of, or misinformed about, inaccuracies resulting
from the prior year's methodology. The commenter cited the FY 2016
IPPS/LTCH PPS proposed rule as an example where CMS indicated that
actual outlier payments for FY 2015 would equal about 4.88 percent of
overall payments, while in the FY 2017 IPPS/LTCH PPS proposed rule, CMS
indicated that, for FY 2015, actual outlier payments would equal about
4.68 percent of MS-DRG payments.
The commenter stated that it was concerned that CMS believed the
agency would reach the 5.1 percent target for FY 2015 (based on the
estimate in the FY 2016 proposed rule) only to learn that the original
estimate in the FY 2016 proposed rule was overestimated compared to the
FY 2017 proposed rule. The commenter concluded it is critical that CMS
not allow the use of incomplete data from prior years to affect its
calculation of current period thresholds.
Another commenter noted that the final outlier threshold
established by CMS is always significantly lower than the threshold set
forth in the proposed rule. The commenter believed the decline is most
likely due to the use of updated CCRs or other data in calculating the
final threshold. The commenter stated this emphasizes that CMS must use
the most recent data available when the agency calculates the outlier
threshold. The commenter cited as an example that, in the proposed
rule, CMS used data from the December 2015 PSF file, but at the time
the proposed rule was issued, the March 2016 PSF file was available.
Response: We responded to similar comments in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50378 through 50379) and refer the reader to that
rule for our response.
Comment: Some commenters believed that the outlier threshold should
be further reduced because outlier payments this year are on target to
fall below the 5.1 percent target. The commenter suggested that CMS
consider calculating the threshold at the midpoint of the target
(approximately 5.5 percent) in order to ensure that the final total of
outlier payments is between the statutory requirements of 5 to 6
percent of total payments.
Another commenter recommended that that threshold be maintained at
the FY 2016 outlier threshold because CMS has underpaid outlier
payments in prior fiscal years. One commenter noted that CMS' estimate
of FY 2015 outlier payments in the proposed rule was 4.68 percent,
which is below the 5.1 percent target. The commenter believed that by
applying a 2-year charge inflation factor and a 1-year CCR factor that
CMS is inadvertently compounding its charge increase with lower costs
and overstating the outlier threshold. The commenter suggested that CMS
apply the following formula to compute the FY 2017 outlier threshold:
Step 1--FY 2015 Difference = (5.1 percent Target-4.68 percent estimate
from FY 2015 = 0.42 percent)/4.68 percent estimate from FY 2015 = 8.97
percent; Step 2--Suggested FY 2017 Threshold = Threshold from FY 2015
of $24,626 * (100-8.97 from Step 1 = 91.03 percent) = $22,417.
Response: We responded to similar comments in the FY 2015 IPPS/LTCH
final rule (78 FR 50379) and the FY 2016 IPPS/LTCH PPS final rule (80
FR 49783) and refer readers to those final rules for our complete
responses.
Comment: One commenter was concerned that CMS constantly
misestimates the 5.1 percent target. The commenter recommended that CMS
conduct additional analysis to evaluate the methodology for
incorporating uncompensated care and DSH payments into the outlier
threshold calculation.
Response: As discussed above, we include updates to the
uncompensated care payment calculation as part of the fixed-loss
outlier threshold calculation. Without additional information or data
analysis, we are unsure what exactly the commenter is referencing when
the commenter stated that CMS should further evaluate the methodology
for incorporating uncompensated care and DSH payments into the outlier
threshold calculation. It would have been beneficial to us if the
commenter had specifically identified the areas that CMS should review
and suggested alternative approaches. We already conduct analysis of
uncompensated care and DSH payments, but are open to other approaches.
However, without more specificity, we cannot meaningfully respond to or
adopt the commenter's suggestion.
After consideration of the public comments we received, we are not
making any changes to our methodology in this final rule for FY 2017.
Therefore, we are using the same methodology we proposed to calculate
the final outlier threshold.
Similar to the table provided in the proposed rule, for this final
rule, we are providing the following table that displays covered
charges and cases by quarter in the periods used to calculate the
charge inflation factor based on the latest claims data from the MedPAR
file.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Covered charges Covered charges
(April 1, 2014, Cases (April 1, (April 1, 2015, Cases (April 1,
Quarter through March 31, 2014, through March through March 31, 2015, through March
2015) 31, 2015) 2016) 31, 2016)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................................... $135,268,674,848 2,559,124 $100,321,539,956 1,825,635
2............................................................... 122,486,434,387 2,450,512 127,944,664,075 2,432,402
3............................................................... 119,706,545,046 2,370,067 124,301,570,497 2,340,555

[[Page 57286]]

4............................................................... 125,106,133,072 2,441,645 126,979,101,227 2,343,069
---------------------------------------------------------------------------------------
Total....................................................... 502,567,787,353 9,821,348 479,546,875,755 8,941,661
--------------------------------------------------------------------------------------------------------------------------------------------------------

Under our current methodology, to compute the 1-year average
annualized rate-of-change in charges per case for FY 2017, we compared
the average covered charge per case of $51,171 ($502,567,787,353/
9,821,348) from the third quarter of FY 2014 through the second quarter
of FY 2015 (April 1, 2014, through March 31, 2015) to the average
covered charge per case of $56,361 ($479,546,875,755/8,941,661) from
the third quarter of FY 2015 through the second quarter of FY 2016
(April 1, 2015, through March 31, 2016). This rate-of-change is 4.8
percent (1.048067) or 9.8 percent (1.098446) over 2 years.
As we have done in the past, we are establishing the FY 2017
outlier threshold using hospital CCRs from the March 2016 update to the
Provider-Specific File (PSF)--the most recent available data at the
time of development of this final rule. For FY 2017, we also are
continuing to apply an adjustment factor to the CCRs to account for
cost and charge inflation (as explained below).
Therefore, as we did for the last 3 fiscal years, we are adjusting
the CCRs from the March 2016 update of the PSF by comparing the
percentage change in the national average case-weighted operating CCR
and capital CCR from the March 2015 update of the PSF to the national
average case-weighted operating CCR and capital CCR from the March 2016
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.
Using the methodology above, we calculated a March 2015 operating
national average case-weighted CCR of 0.278734 and a March 2016
operating national average case-weighted CCR of 0.270034. We then
calculated the percentage change between the two national operating
case-weighted CCRs by subtracting the March 2015 operating national
average case-weighted CCR from the March 2016 operating national
average case-weighted CCR and then dividing the result by the March
2015 national operating average case-weighted CCR. This resulted in a
national operating CCR adjustment factor of 0.96879.
We also used the same methodology above to adjust the capital CCRs.
Specifically, we calculated a March 2015 capital national average case-
weighted CCR of 0.024375 and a March 2016 capital national average
case-weighted CCR of 0.023688. We then calculated the percentage change
between the two national capital case-weighted CCRs by subtracting the
March 2015 capital national average case-weighted CCR from the March
2016 capital national average case-weighted CCR and then dividing the
result by the March 2015 capital national average case-weighted CCR.
This resulted in a national capital CCR adjustment factor of 0.971819.
As discussed above, similar to the proposed rule, for FY 2017 we
applied the following policies (see discussion above for more details):
The final year of the 3-year transitional wage index
because of the adoption of the new OMB labor market area delineations.
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.
As we did in establishing the FY 2009 outlier threshold
(73 FR 57891), in our projection of FY 2017 outlier payments, we did
not make any adjustments for the possibility that hospitals' CCRs and
outlier payments may be reconciled upon cost report settlement.
We excluded the hospital VBP payment adjustments and the
hospital readmissions payment adjustments from the calculation of the
outlier fixed-loss cost threshold.
We used the estimated per-discharge uncompensated care
payments to hospitals eligible for the uncompensated care payment for
all cases in the calculation of the 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 calculated a threshold of
$23,570 and calculated total operating Federal payments of
$83,347,416,971 and total outlier payments of $4,479,256,519. 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 finalizing 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 $23,570.
(2) Other 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 6.14 percent
of capital payments based on the Federal rate.
In accordance with section 1886(d)(3)(B) of the Act, we reduced the
FY 2017 standardized amount by the same percentage to account for the
projected proportion of payments paid as outliers.
The outlier adjustment factors that were applied to the
standardized amount based on the FY 2017 outlier threshold are as
follows:

------------------------------------------------------------------------
Operating
standardized Capital
amounts federal rate
------------------------------------------------------------------------
National................................ 0.948999 0.938575
------------------------------------------------------------------------

We applied the outlier adjustment factors to the 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.

[[Page 57287]]

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 1.183 or capital CCRs greater than 0.17, 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 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 will replace the ratios posted on our 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. Table 8B listed in section VI. of this Addendum
(and available via the Internet on the CMS Web site) contains the
comparable statewide average capital CCRs. As previously stated, the
CCRs in Tables 8A and 8B will 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 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 that
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 final rule. We will provide an estimate of
actual FY 2016 outlier payments in the FY 2018 IPPS/LTCH PPS proposed
rule.
5. 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
applying to all hospitals, except hospitals located in Puerto Rico, for
FY 2017. The 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 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 applying a labor-related share of
62 percent, unless application of that percentage will 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 standardized amounts
reflecting the applicable percentage increases for FY 2017.
The 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

[[Page 57288]]

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 FY 2017 national standardized
amount. The second through fifth columns display the 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 payment rate established 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 were not removed from this table.

Change of FY 2016 Standardized Amounts to the 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. FY 2016 Geographic 1.0000: Labor 1.0000: Labor 1.0000: Labor 1.0000: Labor
Reclassification Budget (69.6 percent): (69.6 percent): (69.6 percent): (69.6 percent):
Neutrality (0.988169) $4,394.09; $4,394.09; $4,394.09; $4,394.09;
2. FY 2016 Rural Community Nonlabor (30.4 Nonlabor (30.4 Nonlabor (30.4 Nonlabor (30.4
Hospital Demonstration Program percent): percent): percent): percent):
Budget Neutrality (0.999837) $1,919.26. $1,919.26. $1,919.26. $1,919.26.
3. Cumulative FY 2008, FY 2009, If Wage Index is If Wage Index is If Wage Index is If Wage Index is
FY 2012, FY 2013, FY 2014, FY less Than or less Than or less Than or less Than or
2015 and FY 2016 Documentation Equal to 1.0000: Equal to 1.0000: Equal to 1.0000: Equal to 1.0000:
and Coding Adjustments as Labor (62 Labor (62 Labor (62 Labor (62
Required under Sections percent): percent): percent): percent):
7(b)(1)(A) and 7(b)(1)(B) of $3,914.28; $3,914.28; $3,914.28; $3,914.28;
Pub. L. 110-90 and Nonlabor (38 Nonlabor (38 Nonlabor (38 Nonlabor (38
Documentation and Coding percent): percent): percent): percent):
Recoupment Adjustment as $2,399.07. $2,399.07. $2,399.07. $2,399.07.
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 2-Midnight Rule
Permanent Adjustment (1/
0.998)..
FY 2017 Update Factor........... 1.0165............ 0.99625........... 1.00975........... 0.9895
FY 2017 MS-DRG Recalibration 0.999079.......... 0.999079.......... 0.999079.......... 0.999079
Budget Neutrality Factor.
FY 2017 Wage Index Budget 1.000209.......... 1.000209.......... 1.000209.......... 1.000209
Neutrality Factor.
FY 2017 Reclassification Budget 0.988224.......... 0.988224.......... 0.988224.......... 0.988224
Neutrality Factor.
FY 2017 Operating Outlier Factor 0.948999.......... 0.948999.......... 0.948999.......... 0.98999
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.
FY 2017 New Labor Market 0.999994.......... 0.999994.......... 0.999994.......... 0.999994
Delineation Wage Index 3-Year
Hold Harmless Transition Budget
Neutrality Factor.
FY 2017 2-Midnight Rule One-Time 1.006............. 1.006............. 1.006............. 1.006
Prospective Increase.
National Standardized Amount for Labor: $3,839.57; Labor: $3,763.08; Labor: $3,814.07; Labor: $3,737.58;
FY 2017 if Wage Index is Nonlabor: Nonlabor: Nonlabor: Nonlabor:
Greater Than 1.0000; Labor/Non- $1,677.06. $1,643.65. $1,665.92. $1,632.51.
Labor Share Percentage (69.6/
30.4).
National Standardized Amount for Labor: $3,420.31; Labor: $3,352.17; Labor: $3,397.59; Labor: $3,329.46;
FY 2017 if Wage Index is less Nonlabor: Nonlabor: Nonlabor: Nonlabor:
Than or Equal to 1.0000; Labor/ $2,096.32. $2,054.56. $2,082.40. $2,040.63.
Non-Labor Share Percentage (62/
38).
----------------------------------------------------------------------------------------------------------------

[[Page 57289]]

B. 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
labor-related and nonlabor-related shares that we used 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 prospective payment rates as described in this
Addendum.
1. 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 final rule, we discuss the data and methodology
for the 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 continuing 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 COLA factors for FY 2017.

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

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 will
occur in FY 2018.

C. Calculation of the 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 final 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.

[[Page 57290]]

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 is 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 is 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 are 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 added 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 applicable percentage increases to the hospital-
specific rates applicable to SCHs and MDHs are the following:

----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase.................. 2.7 2.7 2.7 2.7
Adjustment for Failure to Submit Quality Data 0.0 0.0 -0.675 -0.675
Under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR 0.0 -2.025 0.0 -2.025
User Under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment Under Section 1886(b)(3)(B)(xi) -0.3 -0.3 -0.3 -0.3
of the Act.....................................
Statutory Adjustment Under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to 1.65 -0.375 0.975 -1.05
Hospital-Specific Rate.........................
----------------------------------------------------------------------------------------------------------------

[[Page 57291]]

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 final 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 MS-DRG
reclassification and recalibration budget neutrality factor of
0.999079, 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 final rule, for FY 2017, we are not making a
documentation and coding adjustment to the hospital-specific rate. We
refer readers to section II.D. of the preamble of this final rule for a
complete discussion regarding our 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.P. of the preamble of
this final rule, we are making 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
payment rates established 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.P. of the preamble of this final
rule, we are applying 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. 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. Below we discuss the factors that we used to determine the
capital Federal rate for FY 2017, which is 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 final rule, we are making the capital IPPS
payments to hospitals located in Puerto Rico based on 100 percent of
the capital Federal rate, effective with discharges on or after October
1, 2016, and will no longer be based on the current 75/25 blended rate.

A. Determination of the Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update

In the discussion that follows, we explain the factors that we used
to determine the capital Federal rate for FY 2017. In particular, we
explain why the FY 2017 capital Federal rate increases approximately
1.84 percent, compared to the FY 2016 capital Federal rate. As
discussed in the impact analysis in Appendix A to this final rule, we
estimate that capital payments per discharge will increase
approximately 0.8 percent during that same period. Because capital
payments constitute approximately 10 percent of hospital 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.

[[Page 57292]]

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 update factor
for FY 2017 under that framework is 0.9 percent based on the best data
available at this time. The 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 applying 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, the net adjustment for
case-mix change in FY 2017 is 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 making 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 making 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 final 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

[[Page 57293]]

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 making 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
0.9 percent capital update factor under the capital update framework
for FY 2017 as shown in the following table.

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.

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. 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 thresholds as set forth
in section II.A. of this Addendum, we estimate that outlier payments
for capital-related costs will equal 6.14 percent for inpatient
capital-related payments based on the capital Federal rate in FY 2017.
Therefore, we are applying an outlier adjustment factor of 0.9386 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 FY 2017 outlier adjustment of
0.9386 is a 0.22 percent change from the FY 2016 outlier adjustment of
0.9365. Therefore, the net change in the outlier adjustment to the
capital Federal rate for FY 2017 is 1.0022 (0.9386/0.9365). Thus, the
outlier adjustment will increase the FY 2017 capital Federal rate by
0.22 percent compared to the FY 2016 outlier adjustment.
3. 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
determining 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 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 FY 2017 GAFs.
To achieve budget neutrality for the changes in the national GAFs,
based on calculations using updated data, we are applying an
incremental budget neutrality adjustment factor of 0.9995 for FY 2017
to the previous cumulative FY 2016 adjustment factor of 0.9860,
yielding an adjustment factor of 0.9855 through FY 2017.
We then compared estimated aggregate capital Federal rate payments
based on the FY 2016 MS-DRG relative weights and the FY 2017 GAFs to
estimated aggregate capital Federal rate payments based on the
cumulative effects of the FY 2017 MS-DRG classifications and relative
weights and the FY 2017 GAFs. The incremental adjustment factor for DRG
classifications and changes in relative weights is 0.9996. The
cumulative adjustment factor for MS-DRG classifications and changes in
relative weights and for changes in the GAFs through FY 2017 is 0.9851.
(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 cumulative adjustment factor of 0.9991 (the product of the
incremental national GAF budget neutrality adjustment factor of 0.9995
and the 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

[[Page 57294]]

changes in payments due to changes in the DSH and IME adjustment
factors.
As discussed in section V.C. of the preamble of this final rule, we
are making an adjustment of (1/0.998) to the 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 adjustment to the operating IPPS
standardized amount and the hospital-specific payment rates. In
addition, consistent with the approach for the operating IPPS
standardized amount and hospital-specific payment rates and for the
reasons discussed in sections IV.P. and V.C. of the preamble of this
final rule, we are making a one-time prospective adjustment of 1.006 in
FY 2017 to the 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 removing 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 for the operating IPPS standardized amount and hospital-
specific payment rates (as discussed in section IV.P. of the preamble
of this final rule). We refer readers to sections IV.P. and V.C. of the
preamble of this final rule for a complete discussion of these issues.
4. 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 establishing an update of 0.9 percent
in determining the FY 2017 capital Federal rate for all hospitals. As a
result of this update, the budget neutrality factors discussed earlier,
and the 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 establishing a national capital Federal rate of $446.81
for FY 2017. The national capital Federal rate for FY 2017 was
calculated as follows:
The FY 2017 update factor is 1.009, that is, the update is
0.9 percent.
The 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 0.9991.
The FY 2017 outlier adjustment factor is 0.9386.
The 2-midnight policy adjustment to permanently remove the
0.2 percent reduction is (1/0.998).
The 2-midnight one-time policy adjustment is 1.006.
(We note that, as discussed in section V.C. of the preamble of this
final rule, we are not making an additional MS-DRG documentation and
coding adjustment to the capital IPPS Federal rate for FY 2017.)
Because the 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 making 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
factors and adjustments for FY 2017 affects the computation of the FY
2017 national capital Federal rate in comparison to the FY 2016
national capital Federal rate. The 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 GAF/DRG budget neutrality adjustment
factor has the effect of decreasing the capital Federal rate by 0.09
percent. The FY 2017 outlier adjustment factor has the effect of
increasing the capital Federal rate by 0.22 percent compared to the FY
2016 capital Federal rate. The permanent 2-midnight policy adjustment
has the effect of increasing the capital Federal rate by 0.2 percent
and the temporary 2-midnight policy adjustment has the effect of
increasing the capital Federal rate by 0.6 percent. The combined effect
of all the changes would increase the national capital Federal rate by
approximately 1.84 percent compared to the FY 2016 national capital
Federal rate.

Comparison of Factors and Adjustments: FY 2016 Capital Federal Rate and FY 2017 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
FY 2016 FY 2017 Change Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\............................... $1.0130 $1.009 1.009 0.9
GAF/DRG Adjustment Factor \1\................... 0.9976 0.9991 0.9991 -0.09
Outlier Adjustment Factor \2\................... 0.9365 0.9386 1.0022 0.22
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............................ 438.75 446.81 1.0184 1.84
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the 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 0.9991 GAF/DRG budget neutrality adjustment factor for FY 2017 is a net change of 0.9991
(or -0.09 percent).
\2\ The 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 FY 2017 outlier adjustment factor is 0.9386/0.9365, or 1.0022 (or 0.22 percent).

In this final rule, we also are providing the following chart that
shows how the final FY 2017 capital Federal rate differs from the
proposed FY 2017 capital Federal rate as presented in the FY 2017 IPPS/
LTCH PPS proposed rule (81 FR 25280).

[[Page 57295]]

Comparison of Factors and Adjustments: Proposed FY 2017 Capital Federal Rate and Final FY 2017 Capital Federal
Rate
----------------------------------------------------------------------------------------------------------------
Proposed FY
2017 Final FY 2017 Change Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\............................... $1.0090 $1.0090 1.0000 0.00
GAF/DRG Adjustment Factor \1\................... 0.9993 0.9991 0.9998 -0.02
Outlier Adjustment Factor \2\................... 0.9374 0.9386 1.0013 0.13
Permanent 2-midnight Policy Adjustment Factor... 1.002 1.002 1.000 0.00
One-Time 2-midnight Policy Adjustment Factor.... 1.006 1.006 1.000 0.00
Capital Federal Rate............................ 446.35 446.81 1.0010 0.10
----------------------------------------------------------------------------------------------------------------

B. Calculation of the 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 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 fixed-loss amount of $23,570.
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. (second
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 2.7 percent increase in other
capital expense prices in FY 2017, partially offset by a projected 1.6
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. Changes to Payment Rates for Excluded Hospitals: 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 rate-of-increase limits established under Sec.
413.40 of the regulations.)
As discussed in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25281), 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
became 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 second quarter forecast, with
historical data through 2016 first quarter, we estimate that the FY
2010-based IPPS operating market basket update for FY 2017 is 2.7
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

[[Page 57296]]

care hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa), and RNHCIs, the FY 2017 rate-of-
increase percentage that will be applied to the FY 2016 target amounts
in order to determine the final FY 2017 target amounts is 2.7 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 final rule and
section V. of the Addendum to this final rule for the 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. Changes to the Payment Rates for the LTCH PPS for FY 2017

A. LTCH PPS Standard Federal Payment Rate for FY 2017

1. Background
In section VII. of the preamble of this final rule, we discuss our
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 sections
1886(m)(3)(A)(i) (citing sections 1886(b)(3)(B)(xi)(II),
1886(m)(3)(A)(ii), and 1886(m)(4) of the Act as set forth in the
regulations at Sec. Sec. 412.523(c)(3)(viii) through (c)(3)(xii).
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
final 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 final 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.
In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25281), based on
the best available data at that time, we proposed an annual update to
the LTCH PPS standard Federal payment rate of 1.45 percent for FY 2017,
which was based on the full estimated increase in the LTCH PPS market
basket of 2.7 percent (based on the proposed rebased and revised 2013-
based LTCH market basket present in that same proposed rule), less the
proposed 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. 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. Accordingly, we proposed 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 (that is, the
proposed full update of 1.45 percent and less 2.0 percentage points for
failure to submit quality reporting data as required by section
1886(m)(5) of the Act). Consistent with our historical practice, we
also proposed to use the best data available to determine the update
for FY 2017 in the final rule.
For FY 2017, in this final rule, based on the best available data,
as we proposed, we are establishing an annual update to the LTCH PPS
standard Federal payment rate of 1.75 percent, which is based on the
full estimated increase in the LTCH PPS market basket of 2.8 percent,
less the MFP adjustment of 0.3 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 final rule, as we
proposed, we are rebasing and revising the 2009-based

[[Page 57297]]

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 final rule). Accordingly, as we proposed, we are establishing an
annual update to the LTCH PPS standard Federal payment rate of -0.25
percent for LTCHs that fail to submit the required quality reporting
data for FY 2017. This -0.25 percent update was calculated based on the
full estimated increase in the LTCH PPS market basket of 2.8 percent,
less a MFP adjustment of 0.3 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 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, as we proposed, we applied 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 made certain regulatory adjustments, consistent with past
practices. Specifically, in determining the FY 2017 LTCH PPS standard
Federal payment rate, as we proposed, we applied a budget neutrality
adjustment factor for the 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 used more recent data to
determine the update to the LTCH PPS standard Federal payment rate for
FY 2017 in this 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25281, based on
the best available data at that time, we proposed an annual update to
the LTCH PPS standard Federal payment rate of 1.45 percent (as
described above). Accordingly, under Sec. 412.523(c)(3)(xiii), we
proposed 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. Also, under proposed Sec.
412.523(c)(3)(xiii), in conjunction with the provisions of Sec.
412.523(c)(4), we proposed to apply an annual update to the LTCH PPS
standard Federal payment rate of -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 proposed to apply an
area wage level budget neutrality factor to the FY 2017 LTCH PPS
standard Federal payment rate of 0.998723, based on the best available
data at that time, 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) would not result in any change
(increase or decrease) in estimated aggregate LTCH PPS standard Federal
payment rate payments. Accordingly, we proposed an 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 proposed an LTCH PPS standard
Federal payment rate of $41,480.12 (calculated as $41,762.85 x 0.9945 x
0.998723) for FY 2017.
In this final rule, as we proposed, based on the best available
data, we are establishing an annual update to the LTCH PPS standard
Federal payment rate of 1.75 percent, which was determined using the
methodology previously described. Accordingly, under Sec.
412.523(c)(3)(xiii), we applied a factor of 1.0175 to the FY 2017 LTCH
PPS standard Federal payment rate of $41,762.85 to determine the FY
2017 LTCH PPS standard Federal payment rate. These factors are based on
IGI's second 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 Sec. 412.523(c)(3)(xiii), in
conjunction with the provisions of Sec. 412.523(c)(4), as we proposed,
we reduced 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 -0.25 percent (that is, an update factor of
0.9975) 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 applied an area wage level budget
neutrality factor to the FY 2017 LTCH PPS standard Federal payment rate
of 0.999593, which was determined using the methodology described below
in section V.B.4. of this Addendum. We are applying this area wage
level budget neutrality factor to the FY 2017 LTCH PPS standard Federal
payment rate to ensure that any changes to the area wage level
adjustment (that is, the 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, consistent with our proposal, we are
establishing a LTCH PPS standard Federal payment rate of $42,476.41
(calculated as $41,762.85 x 1.0175 x 0.999593) 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 establishing a LTCH PPS standard Federal payment rate of
$41,641.49 (calculated as $41,762.85 x 0.9975 x 0.999593) for FY 2017.
We note, as discussed in section VII.B. of the preamble of this final
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

[[Page 57298]]

excluded from the site neutral payment rate).

B. 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. 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. As
discussed in the FY 2017 IPPS/LTCH proposed rule (81 FR 25282 through
25283), 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
the 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 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 (81 FR 25282
through 25283). Therefore, as we proposed, we are adopting them under
the LTCH PPS, effective October 1, 2016. Accordingly, the FY 2017 LTCH
PPS wage index values in Tables 12A and 12B listed in section VI. of
the Addendum of this final 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 final rule, the revisions to
the CBSA-based delineations also are being adopted under the IPPS,
effective beginning October 1, 2016.
3. 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

[[Page 57299]]

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, as we proposed,
we are rebasing and revising the 2009-based LTCH-specific market basket
to reflect a 2013 base year. In conjunction with that policy, as
discussed in section VII.D.4.e. of the preamble of this final rule, we
are establishing that the LTCH PPS labor-related share for FY 2017 is
the sum of the FY 2017 relative importance of each labor-related cost
category in the 2013-based LTCH market basket using the most recent
available data. Specifically, as we discussed in the FY 2017 IPPS/LTCH
proposed rule (81 FR 25283), we are establishing that the labor related
share for FY 2017 will include the sum of the labor-related portion of
operating costs from the 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 2013-based LTCH PPS market basket.
Based on IGI's second quarter 2016 forecast of the 2013-based LTCH
market basket, as we proposed, we are establishing a labor-related
share under the LTCH PPS for FY 2017 of 66.5 percent. This 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, as we proposed, we used more recent data to
determine the final FY 2017 labor-related share in this final rule.
Table VII-9 in section VII.D.4.e. of the preamble of this final
rule shows the FY 2017 relative importance labor-related share using
the 2013-based LTCH market basket and the FY 2016 relative importance
labor-related share using the 2009-based LTCH-specific market basket.
The labor-related share for FY 2017 is the sum of the FY 2017 relative
importance of each labor-related cost category, and will reflect the
different rates of price change for these cost categories between the
base year (2013) and FY 2017. The sum of the 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 62.2 percent. 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 policies is 9.43 percent of the 2013-based LTCH market
basket in FY 2017, as we proposed, we took 46 percent of 9.43 percent
to determine the labor-related share of capital-related costs for FY
2017 (0.46 x 9.43). The result is 4.3 percent, which we added to 62.2
percent for the operating cost amount to determine the total labor-
related share for FY 2017. Therefore, the labor-related share under the
LTCH PPS for FY 2017 is 66.5 percent. We note that the FY 2017 labor-
related share using the 2013-based LTCH market basket is 4.5 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 final
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. 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 IPPS/LTCH PPS final rule (80 FR 49798 through
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, as discussed in the FY
2017 IPPS/LTCH proposed rule (81 FR 25283 through 25284), 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, as we proposed, we used
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 FY 2017 acute care hospital inpatient wage index, as
discussed in section III. of the preamble of this final rule. We
computed the FY 2017 LTCH PPS standard Federal payment rate area wage
index values consistent with the ``urban'' and ``rural''

[[Page 57300]]

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 IPPS geographic reclassifications under sections 1886(d)(8) and
1886(d)(10) of the Act in determining payments under the LTCH PPS. As
we also proposed, we are continuing 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, as we
proposed, we are continuing 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 used to determine the
FY 2017 LTCH PPS standard Federal payment rate area wage index values
in this final 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 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 final 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 used to determine the
FY 2017 LTCH PPS standard Federal payment rate area wage index values
in this final rule, there are no rural areas without IPPS hospital wage
data. Therefore, as was the case in the proposed rule, it is not
necessary to use our established methodology to calculate a 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 FY 2017 LTCH PPS standard
Federal payment rate wage index values that are 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 final rule and available via the
Internet on the CMS Web site.
5. 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 final rule, for FY 2017 LTCH PPS standard Federal payment
rate cases, in accordance with Sec. 412.523(d)(4), as we proposed, we
applied 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 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, as we proposed in the FY 2017 IPPS/LTCH proposed rule (81
FR 25284), we determined an area wage level adjustment budget
neutrality factor that was 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 FY 2017 wage index values (as shown in
Tables 12A and 12B listed in the Addendum to this rule and available
via the Internet on the CMS Web site) and the FY 2017 labor-related
share of 66.5 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 FY 2017 area
wage level adjustments (calculated in Step 2) to determine the area
wage level adjustment budget neutrality factor for FY 2017 LTCH PPS
standard Federal payment rate payments.
Step 4--We then applied the FY 2017 area wage level adjustment
budget neutrality factor from Step 3 to determine the FY 2017 LTCH PPS
standard Federal payment rate after the application of the 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

[[Page 57301]]

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 final rule, using the steps in the methodology previously
described, we determined a FY 2017 LTCH PPS standard Federal payment
rate area wage level adjustment budget neutrality factor of 0.999593.
Accordingly, in section V.A.2. of the Addendum to this final rule, to
determine the FY 2017 LTCH PPS standard Federal payment rate, we
applied an area wage level adjustment budget neutrality factor of
0.999593, in accordance with Sec. 412.523(d)(4). The FY 2017 LTCH PPS
standard Federal payment rate shown in Table 1E of the Addendum to this
final rule reflects this adjustment factor.

C. 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 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).)
As discussed in the FY 2017 IPPS/LTCH proposed rule (81 FR 25284
through 25285), we continue to believe that determining updated COLA
factors using this methodology will 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 final
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, as we proposed, we are continuing 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,
as we proposed, we are establishing 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).

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-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...............................................
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. 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

[[Page 57302]]

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
Consistent with our historical practice, we used more recent data
to determine the LTCH total CCR ceiling for this FY 2017 in this final
rule. Specifically, in this final rule, using our established
methodology for determining the LTCH total CCR ceiling based on IPPS
total CCR data from the March 2016 update of the Provider Specific File
(PSF), which is the most recent data available, we are establishing a
LTCH total CCR ceiling of 1.297 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. (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)(2), the SSO policy at Sec. 412.529(f)(4)(iii)(B),
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 and as we proposed, in this final rule, using our established
methodology for determining the LTCH statewide average CCRs, based on
the most recent complete IPPS ``total CCR'' data from the March 2016
update of the PSF, we are establishing LTCH PPS statewide average total
CCRs for urban and rural hospitals that will 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 final
rule (and available via the Internet on the CMS Web site). Consistent
with our historical practice, as we proposed, we used more recent data
to determine the LTCH PPS statewide average total CCRs for FY 2017 in
this 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

[[Page 57303]]

FR 48119 through 48121) and is the same as the policy applied under the
IPPS. In addition, although Connecticut has 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 that area as of March
2016. (We note that, based on the best available data at the time of
the proposed rule, there were no data available from short-term acute
care IPPS hospitals (or LTCHs) located in the rural areas of North
Dakota. However, based on the more recent data available for this final
rule, there is now data available from short-term acute care IPPS
hospitals in the rural areas of North Dakota from which to compute a
rural statewide average CCR. Therefore, it is no longer necessary to
use the national average total CCR for rural IPPS hospitals for rural
North Dakota in Table 8C associated with this final rule, which is
available via the Internet on the CMS Web site.) Therefore, consistent
with our existing methodology, as we proposed, we used the national
average total CCR for rural IPPS hospitals for rural Connecticut in
Table 8C listed in section VI. of the Addendum to this final 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, as we proposed, we are continuing 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 used 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. 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 final rule, to account for our HCO policy for LTCH cases paid
under either payment rate, as we proposed, we are revising 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.
We did not receive any public comments on our proposed technical
revisions to the definition of ``outlier payment'' at Sec. 412.503 to
account for the dual rate LTCH PPS payment structure that began in FY
2016. Therefore, we are adopting this revision as final, without
modification.
3. High-Cost Outlier Payments for LTCH PPS Standard Federal Payment
Rate Cases
a. Establishment of the 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.
In the FY 2017 IPS/LTCH PPS proposed rule (81 FR 25286 through
25287), we proposed 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 payment rates and policies for these cases
presented in that 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 that a proposed fixed-
loss amount for LTCH PPS standard Federal payment rate cases for FY
2017 of $22,728 would result in estimated outlier payments projected to
be equal to 8 percent of estimated FY 2017 payments for such cases.
Under this 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 also noted that the proposed fixed-
loss amount for HCO cases paid under the LTCH PPS standard Federal
payment rate in FY 2017 of $22,728 is notably higher than the FY 2016
fixed-

[[Page 57304]]

loss amount for LTCH PPS standard Federal payment rate cases of
$16,423, and explains that the increase is largely attributable to
rate-of-change in the Medicare allowable charges on the claims data in
the MedPAR file. Based on the most recent available data at the time of
the proposed rule, we found that the current FY 2016 HCO threshold of
$16,423 results in estimated HCO payments for LTCH PPS standard Federal
payment rate cases of approximately 9.1 percent of the estimated total
LTCH PPS payments in FY 2016, which exceeds the 8 percent target by 1.1
percentage points. We also noted that 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. Therefore, we did not propose 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 stated our
continued belief 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 stated that 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.
Furthermore, we invited 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.
Comment: A few commenters expressed concern with the notable
increase in the proposed FY 2017 fixed-loss amount for LTCH PPS
standard Federal payment rate cases as compared to the current fixed-
loss amount for such cases. Some of these commenters expressed general
support for continuing to use a target amount of 8 percent for HCO
payments for LTCH PPS standard Federal payment rate cases. Some
commenters stated that they are concerned about the potential
instability in the fixed-loss amount from year to year and requested
that CMS continue to be transparent about the possible causes for such
large year-to-year changes in the fixed-loss amount and how much of
this variability may be attributable to the new dual rate LTCH PPS
payment structure. Some commenters also expected that the fixed-loss
amount would change in the final rule based on the use of more recent
LTCH claims data from the MedPAR file and the latest CCRs from the PSF.
In addition to using the most recent LTCH claims data and CCRs, some
commenters suggested that CMS consider whether the new dual rate LTCH
PPS payment structure warrants the use of other relevant data or a
change in the inflation factor for projecting the costs of each case
when determining the fixed-loss amount. One commenter stated that it is
not reasonable for the HCO fixed-loss amount for LTCH PPS standard
Federal payment rate cases to increase to such a high level, and
suggested that the increase in the HCO fixed-loss amount be established
at 7 percent, which would reflect the LTCH industry's average increase
in charges.
Response: We understand the commenters' concern with the proposed
increase to the fixed-loss amount for LTCH PPS standard Federal payment
rate cases for FY 2017, and we appreciate the commenters' support for
our proposed continued use of a HCO target amount of 8 percent for LTCH
PPS standard Federal payment rate cases. (For information on the
rationale for the existing 8 percent HCO ``target'' requirement, we
refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56022
through 56024).) As we discussed in the proposed rule, based on the
best available data at that time, we estimated that the current FY 2016
HCO fixed-loss amount of $16,423 results in estimated HCO payments for
LTCH PPS standard Federal payment rate cases in excess of the 8 percent
target by 1.1 percentage points. Similarly, based on the most recent
available data for this final rule (discussed below), we found that the
current FY 2016 HCO threshold of $16,423 results in estimated HCO
payments for LTCH PPS standard Federal payment rate cases of
approximately 9.0 percent of the estimated total LTCH PPS payments in
FY 2016, which exceeds the 8 percent target by 1.0 percentage point.
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 apply to total payments for LTCH PPS standard
Federal payment rate cases because a lower fixed-loss amount results in
more cases qualifying as outlier cases, as well as higher HCO payments
for qualifying cases because the maximum loss that an LTCH must incur
before receiving an HCO payment (that is, the fixed-loss amount) would
be smaller. For these reasons, we continue to believe it is necessary
and appropriate to increase to the fixed-loss amount for LTCH PPS
standard Federal payment rate cases for FY 2017 to maintain estimated
HCO payments equal to 8 percent of estimated total LTCH PPS payments
for such cases as required under Sec. 412.525(a). In addition, for
these reasons, we are not adopting the commenter's suggestion to only
increase the fixed-loss amount for LTCH PPS standard Federal payment
rate cases by the average increase in LTCHs' charges because the
resulting fixed-loss amount would not maintain estimated HCO payments
to equal 8 percent of estimated total LTCH PPS payments for such cases,
as required under current policy.
As discussed in the proposed rule, fluctuations in the fixed-loss
amount have occurred previously under the LTCH PPS, due, in part, to
the changes in LTCH behavior in response to the changes in Medicare
payments and the lack of data and information available to predict how
those changes affect the estimate costs of LTCH cases. As was the case
when there were fluctuations in the fixed-loss amount in the early
years of the LTCH PPS, we expect annual changes to the fixed-loss
amount to generally stabilize as experience is gained under the new
dual rate LTCH PPS payment structure. We intend to continue to monitor
annual changes in the HCO fixed-loss amount, including factors that
cause any such changes. We appreciate the commenters' suggestions for
potential improvements to the determination of the fixed-loss amount
for LTCH PPS standard Federal payment rate cases, including the use of
other relevant data or a change in the inflation factor for projecting
the costs of each

[[Page 57305]]

case when determining the fixed-loss amount. As we indicated in the
proposed rule, 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. We
note, as in greater detail discussed below, the fixed-loss amount for
FY 2017 for LTCH PPS standard Federal payment rate cases we are
establishing in this final rule, after consideration of public comments
and based on the most recent LTCH claims data from the MedPAR file and
the latest CCRs from the PSF, does result in a fixed-loss amount for
such cases that is lower than the proposed fixed-loss amount,
consistent with commenters' expectations.
After consideration of the public comments we received, for the
reasons discussed above, we are finalizing our proposal to continue to
use the current LTCH PPS HCO payment methodology for LTCH PPS standard
Federal payment rate cases for FY 2017 without modification. Therefore,
in this final rule, for FY 2017, we determined 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 fixed-loss amount for LTCH PPS standard Federal
payment rate cases will continue to be determined so that estimated HCO
payments will 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 will 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 cases will be budget neutral. Below we present our
calculation of the 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,
as we proposed.
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 $16,423 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, as we proposed, in
determining the 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 March 2016 update
of the FY 2015 MedPAR file and CCRs from the March 2016 update of the
PSF, as these data were the most recent complete LTCH data available at
that time.
For FY 2017, as we proposed, we are continuing 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 will 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 final rule). Specifically, based on
the most recent complete LTCH data available (that is, LTCH claims data
from the March 2016 update of the FY 2015 MedPAR file and CCRs from the
March 2016 update of the PSF), we determined a 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 establishing a fixed-loss amount of $21,943 for LTCH PPS standard
Federal payment rate cases for FY 2017. Under our policy, we will
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
$21,943).
We note that the fixed-loss amount of $21,943 for FY 2017 for LTCH
PPS standard Federal payment rate cases is somewhat lower than the
proposed FY 2017 fixed-loss amount of $22,728 for FY 2017 for such
cases, but notably higher than the FY 2016 fixed-loss amount for LTCH
PPS standard Federal payment rate cases of $16,423. As discussed in the
FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25287), 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 March 2016 update of the MedPAR file and CCRs from
the March 2016 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 9.0
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 FY 2014 LTCH and FY 2015 LTCH 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. For the reasons
discussed above, we believe that it is necessary and appropriate to
apply an increase to the fixed-loss amount for LTCH PPS standard
Federal payment rate cases for FY 2017 to ensure that, for LTCH PPS
standard Federal payment rate cases, estimated HCO payments will equal
8 percent of estimated total LTCH PPS payments for those cases as
required under Sec. 412.525(a).
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

[[Page 57306]]

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, as we proposed, we are
establishing that the HCO payment will be 80 percent of the difference
between the estimated cost of the case and the outlier threshold (the
sum of the fixed-loss amount of $21,943 and the amount paid under the
SSO policy as specified in Sec. 412.529).
4. 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 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
will likely respond to our 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.)
In developing a fixed-loss amount for site neutral payment rate
cases for FY 2017, as discussed in the FY 2017 IPPS/LTCH proposed rule
(81 FR 25288), 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 will
qualify as LTCH PPS standard Federal payment rate cases versus site
neutral payment rate cases under the dual rate LTCH PPS payment
structure provisions will 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 will 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 proposed 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 proposed a fixed-loss amount for site neutral payment rate cases
of $23,681, which is the same FY 2017 IPPS fixed-loss amount discussed
in section II.A.4.g.(1) of the Addendum to that proposed rule. We
stated that we continued 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, for FY 2017, we proposed to
calculate a HCO payment for site neutral payment rate cases with costs
that exceed the HCO threshold amount,

[[Page 57307]]

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 fixed-loss amount for site neutral payment
rate cases of $23,681).
Comment: Some commenters expressed support for our proposal to
continue to use the FY 2017 IPPS fixed-loss amount and 5.1 percent HCO
target for LTCH discharges paid at the site neutral payment rate in FY
2017. However, some commenters suggested that the IPPS fixed-loss
amount and 5.1 percent HCO target not be used automatically for site
neutral payment rate cases every year.
Response: We appreciate the commenters support for our proposal to
continue to use the FY 2017 IPPS fixed-loss amount and 5.1 percent HCO
target for LTCH discharges paid at the site neutral payment rate in FY
2017. Given the current expectation that cases paid at the site neutral
payment rate would likely be similar to IPPS cases assigned to the same
MS-DRG, we continue to believe the most appropriate fixed-loss amount
for site neutral payment rate cases is the IPPS fixed-loss amount for
that fiscal year. As we indicated in the FY 2016 IPPS/LTCH PS final
rule (80 FR 49619), to the extent experience under the revised LTCH PPS
indicates site neutral payment rate cases differ sufficiently from
these expectations, we agree it would be appropriate to revisit in
future rulemaking the most appropriate fixed-loss amount used to
determine HCO payments for site neutral payment rate cases.
Comment: One commenter recommended that CMS apply geographic
adjustments (that is, the wage index and COLA) to the fixed-loss amount
when determining the HCO threshold for site neutral payment rate cases,
consistent with the approach used under the IPPS.
Response: The LTCH PPS HCO policy does not include the application
of geographic adjustments when determining the HCO threshold, and
therefore, our current policy for determining the HCO threshold for
site neutral payment rate cases, which we proposed to continue to use
for FY 2017, is consistent with our longstanding LTCH PPS HCO policy.
The LTCH PPS and IPPS HCO policies have historically differed with
regard to this aspect of the HCO payment policy calculation. Moreover,
the commenter offered little support to demonstrate that its
recommended change, which we did not propose and are not accepting,
would result in more appropriate HCO payments to site neutral payment
rate cases paid under the LTCH PPS. We will keep this recommended
change in mind as we consider potential refinements to the LTCH PPS HCO
policy, including the HCO threshold for site neutral payment rate
cases, in the future.
After consideration of the public comments we received, we are
finalizing, without modification, our proposals to use the FY 2017 IPPS
fixed-loss amount and 5.1 percent HCO target for LTCH discharges paid
at the site neutral payment rate in FY 2017. Therefore, for FY 2017, as
we proposed, we are establishing 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
establishing a fixed-loss amount for site neutral payment rate cases of
$23,570, which is the same FY 2017 IPPS fixed-loss amount discussed in
section II.A.4.g.(1) of the Addendum to this final 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 policy, for FY 2017, we are calculating 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 fixed-loss amount for
site neutral payment rate cases of $23,570). (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 will 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 in
the proposed rule (81 FR 25288), 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, we
stated that estimated HCO payments for site neutral payment rate cases
in the FY 2017 policy will 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 will 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 will not result any increase
in estimated aggregate FY 2017 LTCH PPS payments, under the budget
neutrality requirement at Sec. 412.522(c)(2)(i), we explained 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 proposed 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 =

[[Page 57308]]

0.949) to the site neutral payment rate portion of the blended rate
payment (81 FR 25289). 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.
Comment: As was the case in the FY 2016 rulemaking cycle,
commenters again objected to the proposed application of a high-cost
outlier (HCO) budget neutrality adjustment to site neutral payment rate
cases, stating that it results in savings to the Medicare program
instead of being budget neutral. The commenters' primary objection was
again based on their belief that, because the IPPS base rates used in
the IPPS comparable per diem amount calculation of the site neutral
payment rate include a budget neutrality adjustment for IPPS HCO
payments (that is, a 5.1 percent adjustment on the operating IPPS
standardized amount), an ``additional'' budget neutrality factor is not
necessary and is, in fact, duplicative. Some of these commenters stated
that, in addition to not applying a HCO budget neutrality adjustment to
site neutral payment rate payments, its application in FY 2016 should
be discontinued, and that a retroactive adjustment to the FY 2016 site
neutral payment rate payments that have already occurred should be made
to address this perceived error. In addition, some commenters also
indicated that the HCO budget neutrality payment adjustment is
inappropriate because it increases the payment difference between the
IPPS payment amount for a case and the ``LTCH PPS payment amount''
(which we took to mean cases paid the IPPS comparable per diem amount
under the site neutral payment rate) for similar cases. Other
commenters stated that there is no statutory requirement for budget
neutrality for HCO payments, and that any HCO budget neutrality
adjustment for site neutral payment rate cases is therefore
unwarranted. These commenters stated that there was nothing in their
review of the rulemaking record that they read to mean that CMS would
apply a HCO budget neutrality adjustment on an ongoing basis, and that
they believed that a budget neutrality adjustment was only required for
the first year of the LTCH PPS. A few other commenters stated that if
CMS finalizes its proposal to apply a HCO budget neutrality adjustment
for site neutral payment rate cases, then that budget neutrality
adjustment should not be applied to site neutral payment rate cases
that are paid at 100 percent of the estimated cost because they
believed that doing so would violate the statute, which they understood
to require payment at ``100 percent of the estimated cost for the
services involved,'' without adjustment.
Response: We continue to disagree with the commenters who assert
that a HCO budget neutrality adjustment for site neutral payment rate
cases is inappropriate, unnecessary, or duplicative. We have made a
budget neutrality adjustment for estimated HCO payments under the LTCH
PPS under Sec. 412.525 every year since its inception in FY 2003.
Specifically, at Sec. 412.523(d)(1), under the broad authority
provided by section 123 of Public Law 106-113 and section 307 of Public
Law 106-554, which includes the authority to establish adjustments, we
established that the standard Federal rate (now termed the LTCH PPS
standard Federal payment rate under the new dual rate system) would be
adjusted by a reduction factor of 8 percent, the estimated proportion
of outlier payments under the LTCH PPS (67 FR 56052). Thus, Congress
was well aware of how we had implemented our HCO policy under the LTCH
PPS under Sec. 412.525 at the time of the enactment of section 1206 of
Public Law 113-67.
Section 1206 of Public Law 113-67 defined the site neutral payment
rate as the lower of the estimated cost of the case or the IPPS
comparable per diem amount determined under paragraph (d)(4) of Sec.
412.529, including any applicable outlier payments under Sec. 412.525.
The term ``IPPS comparable per diem amount'' was not new at the time of
enactment. That term had already previously been defined under Sec.
412.529(d)(4), which has been in effect since July 1, 2006, and used as
a component of the payment adjustment formula for LTCH PPS SSO cases.
From the July 1, 2006 inception of the IPPS comparable component of the
LTCH PPS' SSO payment formula, we have budget neutralized the estimated
HCO payments that we expected to pay to SSO cases including those paid
based on the IPPS comparable per diem amount. Congress was also well
aware of how we had implemented our ``IPPS comparable per diem amount''
concept in the SSO context at the time of the enactment of section 1206
of Public Law 113-67. As such, we believe Congress left us with the
discretion to continue to treat the ``IPPS comparable per diem amount''
in the site neutral payment rate context as we have historically done
with respect to LTCH PPS HCO payments made to discharges paid using the
``IPPS comparable per diem amount,'' that is, to adopt a policy in the
site neutral context to budget neutralize HCO payments made to LTCH PPS
discharges including those paid using the ``IPPS comparable per diem
amount.''
In response to the commenters who believe that budget neutrality
was only required in the first year of the LTCH PPS, we suspect that
they are referencing the budget neutrality adjustment that was made to
the LTCH PPS relative to the reasonable cost-based TEFRA payment system
that preceded it. That initial budget neutrality adjustment is
unrelated to our ongoing authority to make annual HCO budget neutrality
adjustments for payments under the LTCH PPS, adjustments we adopted
through prior notice-and-comment rulemaking using the broad authority
provided by section 123 of Public Law 106-113 and section 307 of Public
Law 106-554.
In response to commenters who stated that there is no statutory
requirement to apply a budget neutrality adjustment for HCO payments,
as discussed previously, the authorizing statutes grant the Secretary
broad authority to determine appropriate adjustments under the LTCH
PPS, and that although the statute did not ``require'' that a HCO
policy be implemented in a budget neutral manner, we adopted such an
approach through notice-and comment rulemaking when we initially
implemented the LTCH PPS. As such, we have made a budget neutrality
adjustment for estimated HCO payments under the LTCH PPS every year
since its inception in FY 2003 under Sec. 412.523(d)(1), where we
established that the standard Federal rate is adjusted by a reduction
factor of 8 percent, the estimated proportion of outlier payments under
the LTCH PPS (67 FR 56052).
In response to commenters who indicated that the adjustment is
inappropriate because it increases the payment difference between the
IPPS comparable payment amount for a case and the LTCH PPS payment
amount (that is, the site neutral payment rate) for similar cases, we
note that the statutory requirement to take into account the estimated
cost of the case if lower already creates a differential. In addition,
the statute also specifies that the IPPS comparable amount is
calculated as a per diem capped at the full amount as set forth under
Sec. 412.529(d)(4), which also creates a differential. Thus, the
statute does not require or allow exact payment neutrality.
Finally, we disagree with the comment that applying the HCO budget
neutrality adjustment to site neutral

[[Page 57309]]

payment rate payments that are paid at 100 percent of the estimated
cost violates the statute. As noted above, CMS regularly uses its broad
authorities under the authorizing statutes for the LTCH PPS to apply
additional adjustments, where appropriate, to base payment amounts. For
this reason, we are not adopting the commenter's request, and for FY
2017 we will apply a HCO budget neutrality adjustment factor to all
site neutral payment rate cases (or the site neutral payment rate
portion of the blended payment rate for all such cases), as proposed.
In summary, we continue to disagree with commenters that a HCO
budget neutrality adjustment for site neutral payment rate cases is
inappropriate, unnecessary or duplicative. As such, we will continue to
use the IPPS comparable per diem amount (calculated in accordance with
our historical practices, which predates enactment of section 1206 of
Pub. L. 113-67), and we will continue to apply a HCO budget neutrality
adjustment to all site neutral payment rate payments (or portion
thereof in the blended payment rate context). For these reasons, we are
not adopting the commenter's recommendation to discontinue the
application of the HCO budget neutrality adjustment for site neutral
payment rate cases in FY 2016, or their suggestion that we make a
retroactive adjustment to the FY 2016 site neutral payment rate case
payments that have already occurred.
Comment: One commenter noted that the HCO payment amount itself is
being reduced under our proposed application of a budget neutrality
factor to the site neutral payment rate portion of the blended payment
rate, which is inconsistent with high-cost outlier payments for other
LTCH PPS and IPPS cases, and requested that we treat all cases in the
same manner.
Response: On review, we agree that our proposed application would
be inconsistent with our budget neutrality treatment of HCO payments
for other LTCH PPS and IPPS cases, and we agree with the commenter that
we should remove this variance. As such, we are adopting a policy of
not applying the 0.949 budget neutrality adjustment factor to any
applicable HCO payment for the site neutral payment rate (or, during
the transition, the site neutral payment rate portion of the blended
payment rate).
After consideration of the public comments we received, we are
finalizing our proposal to apply a budget neutrality adjustment for HCO
payments made to site neutral payment rate cases, with one
modification. That is, we will not apply the HCO budget neutrality
adjustment to the HCO portion of the payment amount. To ensure that
estimated HCO payments payable to site neutral payment rate cases in FY
2017 will not 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 (or portion thereof in the blended payment rate context) by 5.1
percent to account for the estimated additional HCO payments payable to
those cases in FY 2017. To effectuate this policy, for FY 2017, in this
final rule we have adopted a budget neutrality policy under which we
will 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 (or portion thereof in the
blended payment rate context). This policy will be applied to cases
paid at the IPPS comparable per diem amount and cases paid at 100
percent of the estimated cost.

E. 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 (78 FR 50766), 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 final 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
55.36 percent of that amount to reflect the change in the percentage of
individuals who are uninsured. The resulting amount was 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 will
be adjusted to 41.52 percent (the product of 75 percent and 55.36
percent) and the

[[Page 57310]]

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, will result in
overall Medicare DSH payments of 66.52 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 + 41.52 percent = 66.52 percent).
In this final rule, for FY 2017, as we proposed, we are
establishing that the calculation of the ``IPPS comparable amount''
under Sec. 412.529 and the ``IPPS equivalent amount'' under new Sec.
412.538 will include an applicable operating Medicare DSH payment
amount that is equal to 66.52 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, as we proposed, we used more recent data, to determine this
factor in this final rule.

F. Computing the 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 FY 2017 values are shown in Tables 12A through 12B listed in
section VI. of the Addendum of this final 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 FY
2017 factors are shown in the chart in section V.D. of this Addendum)
in accordance with Sec. 412.525(b). In this final rule, as we
proposed, we are establishing an LTCH PPS standard Federal payment rate
for FY 2017 of $42,476.41, as discussed in section V.A.2. of the
Addendum to this final rule. We illustrate the methodology to adjust
the 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 wage index value
for CBSA 16974 is 1.0460 (obtained from Table 12A listed in section VI.
of the Addendum of this final 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 relative
weight for FY 2017 of 0.9012 (obtained from Table 11 listed in section
VI. of the Addendum of this final 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 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 FY 2017 LTCH PPS standard Federal payment rate ($42,476.41)
by the labor-related share (66.5 percent) and the wage index value
(1.0460). This wage-adjusted amount was then added to the nonlabor-
related portion of the unadjusted LTCH PPS standard Federal payment
rate (33.5 percent; adjusted for cost of living, if applicable) to
determine the adjusted LTCH PPS standard Federal payment rate, which
was then multiplied by the MS-LTC-DRG relative weight (0.9012) to
calculate the total adjusted LTCH PPS standard Federal prospective
payment for FY 2017 ($39,450.71). The table below illustrates the
components of the calculations in this example.

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

------------------------------------------------------------------------
LTCH PPS Standard Federal Prospective Payment Rate... $42,476.41
Labor-Related Share.................................. x 0.665
Labor-Related Portion of the LTCH PPS Standard = $28,246.81
Federal Payment Rate................................
Wage Index (CBSA 16974).............................. x 1.0460
Wage-Adjusted Labor Share of LTCH PPS Standard = $29,546.16
Federal Payment Rate................................
Nonlabor-Related Portion of the LTCH PPS Standard + $14,229.60
Federal Payment Rate ($42,476.41x 0.335)............
Adjusted LTCH PPS Standard Federal Payment Amount.... = $43,775.76
MS-LTC-DRG 189 Relative Weight....................... x 0.9012
------------------
Total Adjusted LTCH PPS Standard Federal = $39,450.71
Prospective Payment.............................
------------------------------------------------------------------------

VI. Tables Referenced in This Final Rule and Available Only Through the
Internet on the CMS Web Site

This section lists the tables referred to throughout the preamble
of this final 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
final 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 6D--Invalid
Procedure Codes; Table 6E--Revised Diagnosis Code Titles; Table 6F--
Revised Procedure Code Titles; Table 6G.1--Secondary Diagnosis Order

[[Page 57311]]

Additions to the CC Exclusion List; Table 6G.2--Principal Diagnosis
Order Additions to the CC Exclusion List; Table 6H.1--Secondary
Diagnosis Order Deletions to the CC Exclusion List; Table 6H.2--
Principal Diagnosis Order Deletions to the CC Exclusion List; Table
6I--Complete MCC List; Table 6I.1--Additions to the MCC List; Table
6I.2--Deletions to the MCC List; Table 6J.--Complete CC List; Table
6J.1--Additions to the CC List; Table 6J.2--Deletions to the CC List;
Table 6K.--Complete List of CC Exclusions; Table 6L--Principal
Diagnosis Is Its Own MCC List; Table 6M--Principal Diagnosis Is Its Own
CC List; Table 6M.1--Additions to the Principal Diagnosis Is Its Own CC
List; and Table 6P.--ICD-10-CM and ICD-10-PCS Codes for 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 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.I. of the preamble of this final rule, we are not providing the
hospital-level data as a table associated with this final 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 aggregate
amount available for uncompensated care payments that a DSH eligible
hospital will receive under section 3133 of the Affordable Care Act.
For FY 2017, 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 final rule contains
the FY 2017 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 final 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
Final Rule Home Page'' or ``Acute Inpatient--Files for Download''.

Table 2--Case-Mix Index and Wage Index Table by CCN--FY 2017
Table 3--Wage Index Table by CBSA--FY 2017
Table 5--List of 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--FY 2017
Table 6B--New Procedure Codes--FY 2017
Table 6C--Invalid Diagnosis Codes--FY 2017
Table 6D--Invalid Procedure Codes--FY 2017
Table 6E--Revised Diagnosis Code Titles--FY 2017
Table 6F--Revised Procedure Code Titles--FY 2017
Table 6G.1--Secondary Diagnosis Order Additions to the CC Exclusions
List--FY 2017
Table 6G.2--Principal Diagnosis Order Additions to the CC Exclusions
List--FY 2017
Table 6H.1--Secondary Diagnosis Order Deletions to the CC Exclusions
List--FY 2017
Table 6H.2--Principal Diagnosis Order Deletions to the CC Exclusions
List--FY 2017
Table 6I--Complete Major Complication and Comorbidity (MCC) List--FY
2017
Table 6I.1--Additions to the MCC List--FY 2017
Table 6I.2--Deletions to the MCC List--FY 2017
Table 6J--Complete Complication and Comorbidity (CC) List--FY 2017
Table 6J.1--Additions to the CC List--FY 2017
Table 6J.2--Deletions to the CC List--FY 2017
Table 6K--Complete List of CC Exclusions-FY 2017
Table 6L--Principal Diagnosis Is Its Own MCC List--FY 2017
Table 6M--Principal Diagnosis Is Its Own CC List--FY 2017
Table 6M.1--Additions to the Principal Diagnosis Is Its Own CC
List--FY 2017
Table 6P--ICD-10-CM and ICD-10-PCS Codes for MCE and MS-DRG
Changes--FY 2017
Table 7A--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2015 MedPAR Update--March 2016 GROUPER V33.0 MS-
DRGs
Table 7B--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2015 MedPAR Update--March 2016 GROUPER V34.0 MS-
DRGs
Table 8A--FY 2017 Statewide Average Operating Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B--FY 2017 Statewide Average Capital Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals
Table 10--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 March 2016 Update of the FY 2015 MedPAR File
and Potentially Eligible Hospitals for the 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--FY 2017 Readmissions Adjustment Factors
Table 16A--Updated Proxy Hospital Value-Based Purchasing (VBP)
Program Adjustment Factors for FY 2017
Table 18--FY 2017 Uncompensated Care Payment Factor 3

The following LTCH PPS tables for this FY 2017 final rule are
available only through the Internet 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-F:

Table 8C--FY 2017 Statewide Average Total Cost-to-Charge Ratios
(CCRs) for LTCHs (Urban and Rural)
Table 11--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--LTCH PPS Wage Index for Urban Areas for Discharges
Occurring from October 1, 2016 through September 30, 2017
Table 12B--LTCH PPS Wage Index for Rural Areas for Discharges
Occurring from October 1, 2016 through September 30, 2017
Table 13A--Composition of Low Volume Quintiles for MS-LTC-DRGs--FY
2017
Table 13B--No Volume MS LTC-DRG Crosswalk for FY 2017

[[Page 57312]]

Table 1A--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 data and Hospital submitted quality data and Hospital did NOT submit quality Hospital did NOT submit quality
is a meaningful EHR user (update = is NOT a meaningful EHR user data and is a meaningful EHR user data and is NOT a meaningful EHR
1.65 percent) (update = -0.375 percent) (update = 0.975 percent) user (update = -1.05 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
$3,839.57 $1,677.06 $3,763.08 $1,643.65 $3,814.07 $1,665.92 $3,737.58 $1,632.51
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 1B--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share if Wage Index Is Less Than
or Equal To 1)--FY 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and Hospital submitted quality data and Hospital did NOT submit quality Hospital did NOT submit quality
is a meaningful EHR user (update = is NOT a meaningful EHR user data and is a meaningful EHR user data and is NOT a meaningful EHR
1.65 percent) (update = -0.375 percent) (update = 0.975 percent) user (update = -1.05 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
$3,420.31 $2,096.32 $3,352.17 $2,054.56 $3,397.59 $2,082.40 $3,329.46 $2,040.63
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 1C--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...... $3,420.31 $2,096.32
----------------------------------------------------------------------------------------------------------------
\1\ For FY 2017, there are no CBSAs in Puerto Rico with a national wage index greater than 1.

Table 1D-- Capital Standard Federal Payment Rate--FY 2017
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
National............................................ $446.81
------------------------------------------------------------------------

Table 1E--LTCH PPS Standard Federal Payment Rate--FY 2017
----------------------------------------------------------------------------------------------------------------
Full Update (1.75 Reduced Update * (-
percent) 0.25 percent)
----------------------------------------------------------------------------------------------------------------
Standard Federal Rate................................................... $42,476.41 $41,641.49
----------------------------------------------------------------------------------------------------------------
* 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 final 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, 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 final rule is a major rule as
defined in 5 U.S.C. 804(2). We estimate that the final changes for
FY 2017 acute care hospital operating and capital payments will
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 payment changes
in this final rule, will result in an estimated $987 million
increase in FY 2017 operating payments (or 0.9 percent change) and
an estimated $66 million increase in FY 2017 capital payments (or
0.8 percent change). These changes are relative to payments made in
FY 2016. The impact analysis of the 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

[[Page 57313]]

a decrease in payments by $363 million in FY 2017 relative to FY
2016.
Our operating impact estimate includes the -1.5 percent
documentation and coding adjustment applied to the IPPS standardized
amount, as discussed in section II.D. of the preamble of this final
rule, which represents part of the recoupment required under section
631 of the ATRA. In addition, our operating payment impact estimate
includes the 1.65 percent hospital update to the standardized amount
(which includes the estimated 2.7 percent market basket update less
0.3 percentage point for the multifactor productivity adjustment and
less 0.75 percentage point required under the Affordable Care Act).
Our operating payment impact estimate also includes an adjustment of
(1/0.998) to permanently remove the -0.2 percent reduction and a
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.P. of the preamble
of this final rule for an explanation of these 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 payment changes.
The analysis in this Appendix, in conjunction with the remainder
of this document, demonstrates that this final 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 final rule will 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
final rule.

B. Statement of Need

This final 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 final 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 final rule will 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 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 policy changes, as well as statutory changes
effective for FY 2017, on various hospital groups. We estimate the
effects of individual 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 32 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 July 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 1,336 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
final rule. The impact of the update and 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 July 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, 263 rehabilitation hospitals and 870
rehabilitation units, and approximately 430 LTCHs, are paid the
Federal prospective per discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 513 psychiatric hospitals and 1,113
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 final 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, based on
IHS Global Insight, Inc.'s second quarter 2016 forecast of the FY
2010-based IPPS market basket increase, we are estimating the FY
2017 update to be 2.7 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 0.3 percentage point for FY 2017) and a 0.75
percentage point reduction to the market basket update, resulting in
a 1.65 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 final 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
2.7 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

[[Page 57314]]

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 Policy Changes Under the IPPS for
Operating Costs

1. Basis and Methodology of Estimates

In this final rule, we are announcing final policy changes and
final payment rate updates for the IPPS for FY 2017 for operating
costs of acute care hospitals. The 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 will increase by 0.9 percent compared to
FY 2016. In addition to the applicable percentage increase, this
amount reflects the FY 2017 recoupment adjustment for documentation
and coding described in section II.D. of the preamble of this final
rule of -1.5 percent to the IPPS national standardized amounts. This
amount also reflects the adjustment of (1/0.998) to permanently
remove the 0.2 percent reduction and the 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.P. of the preamble of this final rule. The
impacts do not reflect changes in the number of hospital admissions
or real case-mix intensity, which will also affect overall payment
changes.
We have prepared separate impact analyses of the changes to each
system. This section deals with the 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 final rule. However, there are other changes for
which we do not have data available that will allow us to estimate
the payment impacts using this model. For those 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 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
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
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
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 changes:
The effects of the application of the documentation and
coding adjustment and the applicable percentage increase (including
the market basket update, the 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 adjustment of (1/0.998) to
permanently remove the 0.2 percent reduction and the 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.P. of the preamble of this final rule.
The effects of the changes to the relative weights and
MS-DRG GROUPER.
The effects of the 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 final rule) that will be effective
for FY 2017.
The effects of the rural floor and imputed floor with
the application of the 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 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 FY
2017 policies relative to payments based on FY 2016 policies that
include the applicable percentage increase of 1.65 percent (or 2.7
percent market basket update with a reduction of 0.3 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 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 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 establishing 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 will receive an applicable percentage
increase of 0.975 percent. At the time that this impact was
prepared, 86 hospitals are estimated to not receive the full market
basket rate-of-increase for FY 2017 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 payment changes for FY 2017 using a
reduced update for these 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 will 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 establishing 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 will receive an

[[Page 57315]]

applicable percentage increase of -0.375 percent. At the time that
this impact analysis was prepared, 154 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 undersection 1886(b)(3)(B)(viii) of the
Act. For purposes of the simulations shown in this section, we
modeled the payment changes for FY 2017 using a reduced update for
these 154 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 will receive an
applicable percentage increase of -1.05 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, 31 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 policy change, statutory or otherwise, is then added
incrementally to this baseline, finally arriving at an FY 2017 model
incorporating all of the changes. This simulation allows us to
isolate the effects of each change.
Our final comparison illustrates the percent change in payments
per case from FY 2016 to FY 2017. Two factors not discussed
separately have significant impacts here. The first factor is the
update to the standardized amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are updating the standardized
amounts for FY 2017 using an applicable percentage increase of 1.65
percent. This includes our forecasted IPPS operating hospital market
basket increase of 2.7 percent with a 0.3 percentage point reduction
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 will receive an update of 0.975
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 will receive an update of -0.375 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
will receive an update of -1.05 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 1.65 percent if the hospital submits quality data and
is a meaningful EHR user.
A second significant factor that affects the 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.

2. Analysis of Table I

Table I displays the results of our analysis of the 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 2,515
hospitals located in urban areas included in our analysis. Among
these, there are 1,380 hospitals located in large urban areas
(populations over 1 million), and 1,135 hospitals in other urban
areas (populations of 1 million or fewer). In addition, there are
815 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 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 2,522,
1,372, 1,150, and 808, respectively.
The next three groupings examine the impacts of the 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 2,266 nonteaching hospitals in our analysis, 815 teaching
hospitals with fewer than 100 residents, and 249 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 changes on rural
hospitals by special payment groups (SCHs, RRCs, and MDHs). There
were 189 RRCs, 324 SCHs, 148 MDHs, 126 hospitals that are both SCHs
and RRCs, and 12 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.

TABLE I--Impact Analysis of Changes to the IPPS for Operating Costs for FY 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rural and
FY 2017 FY 2017 wage imputed
weights and data under floor with
Hospital rate DRG changes new CBSA application Application of the
Number of update and with designations FY 2017 MGCRB of national frontier wage All FY 2017
hospitals documentation application with reclassifications rural and index and changes
\1\ and coding of application imputed out[dash]migration
adjustment recalibration of wage floor adjustment
budget budget budget
neutrality neutrality neutrality
........... (1) \2\ (2) \3\ (3) \4\ (4) \5\ (5) \6\ (6) \7\ (7) \8\
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Hospitals................. 3,330 1.0 0.0 0.0 0.0 0.0 0.1 0.9
By Geographic Location:
Urban hospitals........... 2,515 0.9 0.0 0.0 -0.1 0.0 0.1 0.9
Large urban areas......... 1,380 0.9 0.1 0.0 -0.3 -0.1 0.0 0.8
Other urban areas......... 1,135 1.0 0.0 0.0 0.1 0.2 0.2 1.0
Rural hospitals........... 815 1.6 -0.4 0.1 1.4 -0.2 0.1 1.2
Bed Size (Urban):
0-99 beds................. 659 0.9 -0.2 0.2 -0.5 0.1 0.2 0.9
100-199 beds.............. 767 1.0 -0.1 0.0 0.0 0.3 0.2 0.7
200-299 beds.............. 446 1.0 -0.1 -0.1 0.1 0.0 0.1 0.7

[[Page 57316]]

300-499 beds.............. 431 1.0 0.1 0.0 -0.2 0.0 0.2 0.9
500 or more beds.......... 212 0.9 0.2 0.0 -0.2 -0.1 0.0 1.1
Bed Size (Rural):
0-49 beds................. 317 1.5 -0.5 0.1 0.2 -0.2 0.3 1.0
50-99 beds................ 292 1.8 -0.6 0.1 0.8 -0.1 0.1 1.3
100-149 beds.............. 120 1.6 -0.4 0.0 1.5 -0.2 0.2 1.0
150-199 beds.............. 46 1.7 -0.2 0.2 1.7 -0.2 0.0 1.4
200 or more beds.......... 40 1.6 -0.1 0.2 2.5 -0.2 0.0 1.5
Urban by Region:
New England............... 116 0.8 0.0 -0.5 1.1 1.0 0.1 -0.4
Middle Atlantic........... 315 0.9 0.1 -0.1 0.8 -0.1 0.1 1.0
South Atlantic............ 407 1.0 0.0 -0.2 -0.5 -0.2 0.0 1.0
East North Central........ 390 0.9 0.0 -0.1 -0.2 -0.4 0.0 1.1
East South Central........ 147 1.0 0.0 -0.1 -0.4 -0.3 0.0 1.2
West North Central........ 163 1.1 0.1 -0.1 -0.8 -0.3 0.7 1.0
West South Central........ 385 0.9 0.0 0.2 -0.5 -0.3 0.0 1.3
Mountain.................. 163 1.1 0.0 0.1 -0.4 0.0 0.2 0.9
Pacific................... 378 0.9 0.0 0.4 -0.4 1.0 0.1 0.6
Puerto Rico............... 51 0.9 0.1 -0.5 -1.0 0.1 0.1 0.3
Rural by Region:
New England............... 21 1.3 -0.2 0.3 1.4 -0.3 0.2 1.7
Middle Atlantic........... 54 1.7 -0.4 0.1 0.8 -0.2 0.1 1.5
South Atlantic............ 128 1.7 -0.5 -0.1 2.3 -0.2 0.1 1.0
East North Central........ 115 1.7 -0.4 0.0 1.0 -0.1 0.1 1.2
East South Central........ 155 1.1 -0.3 0.4 2.2 -0.3 0.1 1.1
West North Central........ 98 2.2 -0.4 0.0 0.2 -0.1 0.3 1.5
West South Central........ 160 1.6 -0.4 0.4 1.3 -0.2 0.1 1.2
Mountain.................. 60 1.7 -0.4 0.1 0.2 -0.1 0.2 1.3
Pacific................... 24 1.9 -0.4 -0.3 1.3 -0.1 0.0 1.3
By Payment Classification:
Urban hospitals........... 2,522 0.9 0.0 0.0 -0.1 0.0 0.1 0.9
Large urban areas......... 1,372 0.9 0.1 0.0 -0.3 -0.1 0.0 0.8
Other urban areas......... 1,150 1.0 0.0 0.0 0.1 0.2 0.2 1.0
Rural areas............... 808 1.6 -0.4 0.1 1.4 -0.2 0.1 1.2
Teaching Status:
Nonteaching............... 2,266 1.1 -0.2 0.0 0.1 0.1 0.1 0.8
Fewer than 100 residents.. 815 1.0 0.0 0.0 -0.1 0.0 0.2 0.9
100 or more residents..... 249 0.9 0.2 0.0 -0.1 -0.2 0.0 1.1
Urban DSH:
Non-DSH................... 589 0.9 -0.1 -0.2 0.2 -0.1 0.2 0.8
100 or more beds.......... 1,642 0.9 0.1 0.0 -0.2 0.0 0.1 0.9
Less than 100 beds........ 363 1.0 -0.3 0.0 -0.5 0.1 0.1 0.7
Rural DSH:
SCH....................... 240 2.0 -0.6 0.1 0.1 -0.1 0.0 1.4
RRC....................... 325 1.7 -0.3 0.1 1.8 -0.2 0.1 1.3
100 or more beds.......... 29 0.9 -0.4 0.1 2.9 -0.4 0.1 0.6
Less than 100 beds........ 142 0.8 -0.4 0.2 1.3 -0.4 0.7 0.3
Urban teaching and DSH:
Both teaching and DSH..... 898 0.9 0.1 0.0 -0.2 -0.1 0.1 1.0
Teaching and no DSH....... 109 0.9 0.0 -0.1 1.1 -0.1 0.0 0.6
No teaching and DSH....... 1,107 1.0 -0.1 0.1 -0.1 0.2 0.1 0.7
No teaching and no DSH.... 408 1.0 -0.1 -0.2 -0.4 -0.1 0.2 0.9
Special Hospital Types:
RRC....................... 189 0.8 -0.1 0.1 1.9 0.1 0.5 1.3
SCH....................... 324 2.1 -0.3 -0.1 0.0 0.0 0.0 1.7
MDH....................... 148 1.7 -0.6 0.0 0.6 -0.1 0.1 1.3
SCH and RRC............... 126 2.2 -0.3 0.1 0.4 -0.1 0.0 1.8
MDH and RRC............... 12 2.1 -0.6 -0.1 1.3 -0.1 0.0 2.3
Type of Ownership:
Voluntary................. 1,927 1.0 0.0 0.0 0.0 0.0 0.1 0.9
1Proprietary.............. 881 1.0 0.0 0.1 0.0 0.0 0.1 0.9
Government................ 522 1.0 0.0 -0.1 -0.2 0.0 0.1 0.9
Medicare Utilization as a
Percent of Inpatient Days:
0-25...................... 523 0.8 0.1 0.1 -0.4 0.1 0.0 0.9
25-50..................... 2,122 1.0 0.0 0.0 0.0 0.0 0.1 0.9
50-65..................... 545 1.2 -0.2 -0.1 0.6 0.1 0.1 1.0
Over 65................... 89 1.3 -0.3 0.3 -0.4 0.3 0.2 1.1
FY 2017 Reclassifications by
the Medicare Geographic
Classification Review Board:
All Reclassified Hospitals 792 1.1 -0.1 0.0 2.3 -0.1 0.0 1.0

[[Page 57317]]

Non-Reclassified Hospitals 2,538 1.0 0.0 0.0 -0.8 0.0 0.1 0.9
Urban Hospitals 533 1.0 0.0 -0.1 2.3 -0.1 0.0 0.9
Reclassified.............
Urban Nonreclassified 1,938 0.9 0.1 0.0 -0.9 0.1 0.1 0.9
Hospitals................
Rural Hospitals 277 1.7 -0.3 0.1 2.2 -0.2 0.0 1.4
Reclassified Full Year...
Rural Nonreclassified 489 1.6 -0.4 0.2 -0.2 -0.2 0.3 1.1
Hospitals Full Year......
All Section 401 69 1.7 -0.2 0.0 0.0 0.0 1.0 1.7
Reclassified Hospitals:..
Other Reclassified 48 1.2 -0.4 0.1 3.1 -0.3 0.0 0.9
Hospitals (Section
1886(d)(8)(B))...........
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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 hospital rate update and other adjustments, including the 1.65 percent adjustment to the national
standardized amount and the hospital-specific rate (the estimated 2.7 percent market basket update reduced by 0.3 percentage point for the multifactor
productivity adjustment and the 0.75 percentage point reduction under the Affordable Care Act), the -1.5 percent documentation and coding adjustment
to the national standardized amount and the adjustment of (1/0.998) to permanently remove the -0.2 percent reduction, and the 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 changes to the Version 34 GROUPER, the 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
recalibration budget neutrality factor of 0.999079 in accordance with section 1886(d)(4)(C)(iii) of the Act.
\4\ This column displays the payment impact of the 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 wage budget neutrality factor, which is
calculated separately from the recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The
wage budget neutrality factor is 1.000209.
\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 geographic budget neutrality factor of 0.988224.
\6\ This column displays the effects of the 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 rural floor budget
neutrality factor (which includes the imputed floor) applied to the wage index is 0.9932. 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 budget neutrality factor of 0.999997.
\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 Pub. L. 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 not budget neutral policies.
\8\ This column shows the estimated change in payments from FY 2016 to FY 2017.

a. Effects of the Hospital Update, Documentation and Coding Adjustment,
and Other Adjustments (Column 1)

As discussed in section IV.B. of the preamble of this final
rule, this column includes the hospital update, including the 2.7
percent market basket update, the reduction of 0.3 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
final rule, this column includes the 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.P. of the preamble
of this final rule, the adjustment of (1/0.998) to permanently
remove the 0.2 percent reduction and the 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 making a 1.0 percent update to the national standardized
amount. This column also includes the 1.65 percent update to the
hospital-specific rates which includes the 2.7 percent market basket
update, the reduction of 0.3 percentage point for the multifactor
productivity adjustment, and the 0.75 percentage point reduction in
accordance with the Affordable Care Act. In addition, this column
includes the adjustment to the hospital-specific rates of (1/0.998)
to permanently remove the -0.2 percent reduction and the 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.P. of the preamble of this final rule. As a result, we
are making a 2.45 percent update to the hospital-specific rates.
Overall, hospitals will experience a 1.0 percent increase in
payments primarily due to the combined effects of the hospital
update and the documentation and coding adjustment on the national
standardized amount and the hospital update to the hospital-specific
rate as well as the adjustment of (1/0.998) to permanently remove
the -0.2 percent reduction and the 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 will
experience a 2.45 percent increase in payments; therefore, hospital
categories containing hospitals paid under the hospital-specific
rate will experience higher than average increases in payments.

b. Effects of the Changes to the MS-DRG Reclassifications and Relative
Cost-Based Weights With Recalibration Budget Neutrality (Column 2)

Column 2 shows the effects of the 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 final
rule, the FY 2017 MS-DRG relative weights will 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 final rule.
The ``All Hospitals'' line in Column 2 indicates that changes
due to the MS-DRGs

[[Page 57318]]

and relative weights will result in a 0.0 percent change in payments
with the application of the recalibration budget neutrality factor
of 0.999079 on to the standardized amount. Hospital categories that
generally treat more surgical cases than medical cases will
experience increases in their payments under the relative weights.
Rural hospitals will 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
will experience an increase in payments by 0.2 percent as those
hospitals treat more surgical cases than medical cases.

c. Effects of the 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), as updated in OMB
Bulletin No. 15-01. (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 and to section III.A.2. of the preamble of this final
rule for a discussion of OMB Bulletin No. 15-01.)
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 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 payment parameters such as use of the Version 34 MS-
DRG GROUPER constant. The FY 2017 occupational mix adjustment is
based on the CY 2013 occupational mix survey.
In addition, the column shows the impact of the 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 calculating 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 FY 2017 wage budget neutrality
factor is 1.000209, 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 wage budget neutrality adjustment, will
lead to no change for all hospitals as shown in Column 3.
In looking at the wage data itself, the national average hourly
wage increased 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 1.02 percent increase in the national
average hourly wage. Of the 3,309 hospitals with wage data for both
FYs 2016 and 2017, 1,539 or 46.5 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 changes in the average hourly wage data for FY 2017
relative to FY 2016. Among urban hospitals, 4 will experience a
decrease of 10 percent or more, and 14 urban hospitals will
experience an increase of 10 percent or more. One hundred and nine
urban hospitals will experience an increase or decrease of at least
5 percent or more but less than 10 percent. Among rural hospitals, 4
will experience an increase of at least 5 percent but less than 10
percent, but no rural hospitals will experience a decrease of
greater than or equal to 5 percent but less than 10 percent. No
rural hospital will experience increases of 10 percent or more, and
no rural hospitals will experience decreases of 10 percent or more.
However, 777 rural hospitals will experience increases or decreases
of less than 5 percent, while 2,378 urban hospitals will experience
increases or decreases of less than 5 percent. No urban hospitals
but 23 rural hospitals will not experience any change to their wage
index. These figures reflect changes in the ``pre-reclassified,
occupational mix-adjusted wage index,'' that is, the wage index
before the application of geographic reclassification, the rural and
imputed floors, the out-migration adjustment, and other wage index
exceptions and adjustments. (We refer readers to sections III.G.
through III.L. of the preamble of this final rule for a complete
discussion of the exceptions and adjustments to the wage index.) We
note that the ``post-reclassified wage index'' or ``payment wage
index,'' which is the wage index that includes all such exceptions
and adjustments (as reflected in Tables 2 and 3 associated with this
final 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 pre-reclassified wage index
figures in the following chart may illustrate a somewhat larger or
smaller change than will occur in a hospital's payment wage index
and total payment.
The following chart shows the projected impact of changes in the
area wage index values for urban and rural hospitals.

------------------------------------------------------------------------
Number of hospitals
FY 2017 percentage change in area wage -------------------------------
index values Urban Rural
------------------------------------------------------------------------
Increase 10 percent or more............. 14 0
Increase greater than or equal to 5 70 4
percent and less than 10 percent.......
Increase or decrease less than 5 percent 2,378 777
Decrease greater than or equal to 5 39 0
percent and less than 10 percent.......
Decrease 10 percent or more............. 4 0
Unchanged............................... 0 23
------------------------------------------------------------------------

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 changes in Column 4 reflect the per
case payment impact of moving from this baseline to a

[[Page 57319]]

simulation incorporating the MGCRB decisions for FY 2017.
By spring of each year, the MGCRB makes reclassification
determinations that will 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 applying an adjustment
of 0.988224 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 final rule). Geographic
reclassification generally benefits hospitals in rural areas. We
estimate that the geographic reclassification will 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 final
rule and available via the Internet on the CMS Web site reflects the
reclassifications for FY 2017.

e. Effects of the 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 final 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 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 extending 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 will be able to
receive an imputed floor through September 30, 2017. In New Jersey,
18 out of 64 hospitals will receive the imputed floor for FY 2017,
10 out of 11 hospitals in Rhode Island, and 2 out of 6 hospitals in
Delaware.
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 FY 2017
rural floor budget neutrality factor to be applied to the wage index
of 0.9930, which will reduce wage indexes by 0.7 percent.
Column 5 shows the projected impact of the 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 post-reclassification FY 2017
wage index of providers before the rural floor and imputed floor
adjustment and the post-reclassification FY 2017 wage index of
providers with the 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) will
experience a decrease in payments due to the budget neutrality
adjustment that is applied nationally to their wage index.
We estimate that 397 hospitals will receive the rural and
imputed floors in FY 2017. All IPPS hospitals in our model will have
their wage index reduced by the rural floor budget neutrality
adjustment of 0.9930 (or 0.7 percent). We project that, in
aggregate, rural hospitals will experience a 0.2 percent decrease in
payments as a result of the application of the 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 will 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 will experience a 1.0 percent
increase in payments primarily due to the application of the rural
floor in Massachusetts and the imputed floor in Rhode Island.
Fifteen urban providers in Massachusetts are expected to receive the
rural floor wage index value, including the rural floor budget
neutrality adjustment, increasing payments overall to Massachusetts
by an estimated $24 million. We estimate that Massachusetts
hospitals will receive approximately a 0.7 percent increase in IPPS
payments due to the application of the rural floor in FY 2017.
Urban Puerto Rico hospitals are expected to experience a 0.1
percent increase in payments as a result of the application of the
rural floor.
There are 18 hospitals out of the 64 hospitals in New Jersey
that will benefit from the extension of the imputed floor and will
receive the imputed floor wage index value under the OMB labor
market area delineations. Overall, New Jersey will receive a net
increase of $10 million in payments taking into account the 18
hospitals that will benefit from the imputed floor and the
application of the national rural floor and imputed floor budget
neutrality adjustment to all hospitals in the state. There are 10
hospitals out of the 11 hospitals in Rhode Island that will benefit
from the extension of the imputed floor and will receive the imputed
floor wage index value. Overall, Rhode Island will receive a net
increase of $17 million in payments taking into account the 10
hospitals that will benefit from the imputed floor and the
application of the national rural floor and imputed floor budget
neutrality adjustment to all hospitals in the state. There are 2
hospitals out of the 6 hospitals in Delaware that will benefit from
the extension of the imputed floor and will receive the imputed
floor wage index value. Overall, Delaware will see no net increase
in payments (to the nearest million) taking into account the 2
hospitals that will benefit from the imputed floor and the
application of the national rural floor and imputed floor budget
neutrality adjustment to all hospitals in the state.
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 final rule, under this transition, hospitals that
were located in an urban county that became rural under the new OMB
delineations were generally assigned the urban wage index value of
the CBSA in which they were 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
final rule, under this transition, hospitals that were deemed urban
where the urban area became rural under the new OMB delineations
were generally 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
0.999994.
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 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 will receive the rural
floor or imputed floor wage index for FY 2017. Column 3 displays the
percentage of total payments each State will receive or contribute
to fund the rural floor and imputed floor with national budget
neutrality. The column compares the post-

[[Page 57320]]

reclassification FY 2017 wage index of providers before the rural
floor and imputed floor adjustment and the post-reclassification FY
2017 wage index of providers with the rural floor and imputed floor
adjustment. Column 4 displays the estimated payment amount that each
State will gain or lose due to the application of the rural floor
and imputed floor with national budget neutrality.

FY 2017 IPPS Estimated Payments Due to Rural and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
Percent change
in payments
Number of due to
hospitals that application of
State Number of will receive rural floor Difference (in
hospitals the rural and imputed $ millions)
floor or floor with
imputed floor budget
neutrality
(1) (2) (3) (4)
----------------------------------------------------------------------------------------------------------------
Alabama......................................... 83 6 -0.3 -5
Alaska.......................................... 6 4 2.1 4
Arizona......................................... 57 7 -0.1 -2
Arkansas........................................ 44 0 -0.3 -3
California...................................... 301 186 1.3 139
Colorado........................................ 48 3 0.3 3
Connecticut..................................... 31 8 0.3 5
Delaware........................................ 6 2 0 0
Washington, DC.................................. 7 0 -0.4 -2
Florida......................................... 171 16 -0.2 -14
Georgia......................................... 105 0 -0.3 -8
Hawaii.......................................... 12 0 -0.3 -1
Idaho........................................... 14 0 -0.2 -1
Illinois........................................ 126 3 -0.4 -16
Indiana......................................... 89 0 -0.4 -9
Iowa............................................ 35 0 -0.3 -3
Kansas.......................................... 53 0 -0.3 -3
Kentucky........................................ 65 0 -0.3 -5
Louisiana....................................... 95 2 -0.3 -4
Maine........................................... 18 0 -0.3 -2
Massachusetts................................... 58 15 0.7 24
Michigan........................................ 95 0 -0.4 -15
Minnesota....................................... 49 0 -0.3 -5
Mississippi..................................... 62 0 -0.3 -3
Missouri........................................ 74 2 -0.3 -7
Montana......................................... 12 4 0.3 1
Nebraska........................................ 26 0 -0.3 -2
Nevada.......................................... 24 3 -0.2 -1
New Hampshire................................... 13 9 2.3 12
New Jersey...................................... 64 18 0.3 10
New Mexico...................................... 25 0 -0.2 -1
New York........................................ 154 21 -0.2 -15
North Carolina.................................. 84 1 -0.3 -10
North Dakota.................................... 6 1 -0.2 -1
Ohio............................................ 130 10 -0.3 -11
Oklahoma........................................ 86 2 -0.3 -4
Oregon.......................................... 34 2 -0.3 -3
Pennsylvania.................................... 151 5 -0.4 -17
Puerto Rico..................................... 51 12 0.1 0
Rhode Island.................................... 11 10 4.5 17
South Carolina.................................. 57 5 -0.1 -1
South Dakota.................................... 18 0 -0.2 -1
Tennessee....................................... 92 20 -0.2 -6
Texas........................................... 320 3 -0.3 -22
Utah............................................ 33 1 -0.3 -1
Vermont......................................... 6 0 -0.2 0
Virginia........................................ 76 1 -0.3 -7
Washington...................................... 49 6 0 0
West Virginia................................... 29 3 -0.1 -1
Wisconsin....................................... 65 6 -0.2 -4
Wyoming......................................... 10 0 -0.1 0
----------------------------------------------------------------------------------------------------------------

[[Page 57321]]

f. Effects of the Application of the 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 $58 million. Rural and urban
hospitals located in the West North Central region will 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 277 providers that will 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 will experience a 1.0 percent and 0.5 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 will be approximately $30
million.

g. Effects of All FY 2017 Changes (Column 7)

Column 7 shows our estimate of the changes in payments per
discharge from FY 2016 and FY 2017, resulting from all changes
reflected in this final rule for FY 2017. It includes combined
effects of the year to year change of the previous columns in the
table.
The average increase in payments under the IPPS for all
hospitals is approximately 0.9 percent for FY 2017 relative to FY
2016 and for this row is primarily driven by the changes reflected
in Column 1. Column 7 includes the annual hospital update of 1.65
percent to the national standardized amount. This annual hospital
update includes the 2.7 percent market basket update, the reduction
of 0.3 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 final rule, this column also includes the 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
adjustment of (1/0.998) to permanently remove the 0.2 percent
reduction, and the 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.P. of the preamble of this final rule. Hospitals paid under the
hospital-specific rate will receive a 1.65 percent hospital update
in addition to the adjustment of (1/0.998) to permanently remove the
0.2 percent reduction, and the 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
annual hospital update with the documentation and coding recoupment
adjustment for hospitals paid under the national standardized
amount, the adjustment of (1/0.998) to permanently remove the 0.2
percent reduction and the 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.P. of the preamble of this final rule,
combined with the annual hospital update for hospitals paid under
the hospital-specific rates will result in a 1.0 percent increase in
payments in FY 2017 relative to FY 2016. There are also interactive
effects among the various factors comprising the payment system that
we are not able to isolate which contribute to our estimate of the
changes in payments per discharge from FY 2016 and FY 2017 in Column
7.
Overall payments to hospitals paid under the IPPS due to the
applicable percentage increase and changes to policies related to
MS-DRGs, geographic adjustments, and outliers are estimated to
increase by 0.9 percent for FY 2017. Hospitals in urban areas will
experience a 0.9 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 1.2 percent in FY 2017.

3. Impact Analysis of Table II

Table II presents the projected impact of the 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 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 changes
presented in Table I. The 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 Changes for FY 2017 Acute Care Hospital Operating Prospective Payment System
[Payments per discharge]
----------------------------------------------------------------------------------------------------------------
Estimated Estimated
Number of average FY average FY FY 2017
hospitals 2016 payment 2017 payment changes
per discharge per discharge
(1) (2) (3) (4)
------------------------------------------------------------------
By Geographic Location:
Urban hospitals............................. 2,515 11,890 11,996 0.9
Large urban areas........................... 1,380 12,698 12,805 0.8
Other urban areas........................... 1,135 10,922 11,028 1.0
Rural hospitals............................. 815 8,602 8,709 1.2
Bed Size (Urban):
0-99 beds................................... 659 9,392 9,476 0.9

[[Page 57322]]

100-199 beds................................ 767 10,050 10,118 0.7
200-299 beds................................ 446 10,757 10,836 0.7
300-499 beds................................ 431 12,092 12,200 0.9
500 or more beds............................ 212 14,613 14,775 1.1
Bed Size (Rural):
0-49 beds................................... 317 7,208 7,281 1.0
50-99 beds.................................. 292 8,192 8,295 1.3
100-149 beds................................ 120 8,434 8,518 1.0
150-199 beds................................ 46 9,243 9,370 1.4
200 or more beds............................ 40 10,171 10,324 1.5
Urban by Region:
New England................................. 116 12,957 12,909 -0.4
Middle Atlantic............................. 315 13,471 13,604 1.0
South Atlantic.............................. 407 10,498 10,602 1.0
East North Central.......................... 390 11,190 11,312 1.1
East South Central.......................... 147 10,042 10,167 1.2
West North Central.......................... 163 11,578 11,698 1.0
West South Central.......................... 385 10,693 10,827 1.3
Mountain.................................... 163 12,279 12,388 0.9
Pacific..................................... 378 15,372 15,464 0.6
Puerto Rico................................. 51 8,491 8,515 0.3
Rural by Region:
New England................................. 21 11,818 12,015 1.7
Middle Atlantic............................. 54 8,655 8,781 1.5
South Atlantic.............................. 128 8,043 8,125 1.0
East North Central.......................... 115 8,918 9,025 1.2
East South Central.......................... 155 7,639 7,721 1.1
West North Central.......................... 98 9,420 9,561 1.5
West South Central.......................... 160 7,243 7,332 1.2
Mountain.................................... 60 10,100 10,229 1.3
Pacific..................................... 24 12,045 12,200 1.3
By Payment Classification:
Urban hospitals............................. 2,522 11,886 11,993 0.9
Large urban areas........................... 1,372 12,695 12,801 0.8
Other urban areas........................... 1,150 10,928 11,035 1.0
Rural areas................................. 808 8,602 8,708 1.2
Teaching Status:
Nonteaching................................. 2,266 9,600 9,677 0.8
Fewer than 100 residents.................... 815 11,133 11,233 0.9
100 or more residents....................... 249 16,764 16,952 1.1
Urban DSH:
Non-DSH..................................... 589 10,055 10,132 0.8
100 or more beds............................ 1,642 12,247 12,360 0.9
Less than 100 beds.......................... 363 8,853 8,916 0.7
Rural DSH:
SCH......................................... 240 8,584 8,703 1.4
RRC......................................... 325 9,006 9,125 1.3
100 or more beds............................ 29 7,018 7,059 0.6
Less than 100 beds.......................... 142 6,823 6,843 0.3
Urban teaching and DSH:
Both teaching and DSH....................... 898 13,344 13,477 1.0
Teaching and no DSH......................... 109 11,361 11,424 0.6
No teaching and DSH......................... 1,107 10,047 10,119 0.7
No teaching and no DSH...................... 408 9,455 9,536 0.9
Special Hospital Types:
RRC......................................... 189 9,709 9,831 1.3
SCH......................................... 324 10,344 10,517 1.7
MDH......................................... 148 7,321 7,417 1.3
SCH and RRC................................. 126 10,767 10,956 1.8
MDH and RRC................................. 12 8,822 9,022 2.3
Type of Ownership:
Voluntary................................... 1,927 11,719 11,829 0.9
Proprietary................................. 881 10,130 10,216 0.9
Government.................................. 522 12,485 12,600 0.9

[[Page 57323]]

Medicare Utilization as a Percent of Inpatient
Days:
0-25........................................ 523 14,996 15,135 0.9
25-50....................................... 2,122 11,460 11,565 0.9
50-65....................................... 545 9,343 9,435 1.0
Over 65..................................... 89 6,948 7,023 1.1
FY 2017 Reclassifications by the Medicare
Geographic Classification Review Board:
All Reclassified Hospitals.................. 792 11,395 11,507 1.0
Non-Reclassified Hospitals.................. 2,538 11,596 11,701 0.9
Urban Hospitals Reclassified................ 533 12,001 12,113 0.9
Urban Nonreclassified Hospitals............. 1,938 11,856 11,959 0.9
Rural Hospitals Reclassified Full Year...... 277 8,984 9,104 1.4
Rural Nonreclassified Hospitals Full Year... 489 8,173 8,266 1.1
All Section 401 Reclassified Hospitals...... 69 11,084 11,269 1.7
Other Reclassified Hospitals (Section 48 7,889 7,958 0.9
1886(d)(8)(B)).............................
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

In addition to those policy changes discussed previously that we
are able to model using our IPPS payment simulation model, we are
making various other changes in this final rule. Generally, we have
limited or no specific data available with which to estimate the
impacts of these changes. Our estimates of the likely impacts
associated with these other changes are discussed in this section.

1. Effects of Policy Relating to New Medical Service and Technology
Add-On Payments

In section II.I. of the preamble to this final rule, we discuss
seven applications (MAGEC[supreg] Spinal Bracing and Distraction
System (MAGEC[supreg] Spine), MIRODERM Biologic Wound Matrix
(MIRODERM), Idarucizumab, Titan Spine (Titan Spine
Endoskeleton[supreg] nanoLOCK^TM Interbody Device),
Defitelio[supreg] (Defibrotide), GORE[supreg] EXCLUDER[supreg] Iliac
Branch Endoprosthesis (IBE), Vistogard^TM (Uridine
Triacetate)) 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 two of the applications (Andexanet
Alfa and EDWARDS INTUITY Elite^TM Valve System) discussed
in the proposed rule did not receive FDA approval by July 1, 2016 in
accordance with the regulations under Sec. 412.87(c), and,
therefore, are ineligible for consideration for new technology add-
on payments for FY 2017.
As explained in the preamble to this final 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.I.4. of the preamble of this final rule, we
are approving five of the seven applications (MAGEC[supreg] Spine,
Idarucizumab, Defitelio[supreg], GORE[supreg] EXCLUDER[supreg] IBE
and Vistogard^TM) for new technology add-on payments for
FY 2017. As we proposed, in this final rule, we also are continuing
to make new technology add-on payments in FY 2017 for
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
(because all of these technologies are still within the 3-year
anniversary of the product's entry onto the market). We note that
new technology add-on payments per 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 payment.
Based on the applicant's estimate for 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
LUTONIX[supreg] DCB PTA and IN.PACT^TMAdmiral^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^TMAdmiral^TM Pacliaxel Coated PTA
Balloon Catheter). Based on the applicant's estimate for FY 2017, we
currently estimate that new technology add-on payments for
MAGEC[supreg] Spine will increase overall FY 2017 payments by
$267,750 (maximum add-on payment of $15,750 * 17 patients). Based on
the applicant's estimate for FY 2017, we currently estimate that new
technology add-on payments for Idarucizumab will increase overall FY
2017 payments by $14,766,500 (maximum add-on payment of $1,750 *
8,438 patients). Based on the applicant's estimate for FY 2017, we
currently estimate that new technology add-on payments for
Defitelio[supreg] will increase overall FY 2017 payments by
$5,161,200 (maximum add-on payment of $75,900 * 68 patients). Based
on the applicant's estimate for FY 2017, we currently estimate that
new technology add-on payments for the GORE[supreg] EXCLUDER[supreg]
IBE will increase overall FY 2017 payments by $5,685,750 (maximum
add-on payment of $5,250 * 1,083 patients). Based on the applicant's
estimate for FY 2017, we currently estimate that new technology add-
on payments for Vistogard^TM will increase overall FY 2017
payments by $2,812,500 (maximum add-on payment of $37,500 * 75
patients).

[[Page 57324]]

2. Effects of the Changes to Medicare DSH Payments for FY 2017

As discussed in section IV.F. of the preamble of this final
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, we are continuing to use low-
income insured patient days as a proxy for uncompensated care, and
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 FY 2017 IPPS/LTCH PPS final rule, we are establishing
the amount to be distributed as uncompensated care payments to DSH
eligible hospitals, which for FY 2017 is $5,977,483,146.86, or 75
percent of what otherwise would have been paid for Medicare DSH
payment adjustments adjusted by a Factor 2 of 55.36 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 using
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 calculating an individual Factor 3 for cost
reporting periods beginning during FYs 2011, 2012, and 2013, adding
the individual amounts, and dividing the sum by three in order to
calculate an average Factor 3 for the hospital.
The final FY 2017 policy of using 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 final rule, we are making 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
imputing a Medicare SSI value for each Puerto Rico hospital equal to
14 percent of its Medicaid days. The final FY 2017 uncompensated
care payment methodology is discussed in more detail in section
IV.F. of the preamble of this final 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 final 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 calculated 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 the 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 55.36 percent and multiplied by a
Factor 3 as previously stated.
Our analysis included 2,426 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, 2016, 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 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
----------------------------------------------------------------------------------------------------------------
Dollar
Number of FY 2016 final FY 2017 Final difference:
estimated rule estimated rule estimated FY 2017-FY Percent change
DSHs (FY 2017) DSH $ * (in DSH $ * (in 2016 (in **
millions) millions) millions)
(1) (2) (3) (4) (5)
----------------------------------------------------------------------------------------------------------------
Total........................... 2,426 $9,767 $9,549 -$217 -2.2%
By Geographic Location:
Urban Hospitals............. 1,927 9,294 9,1067 -187 -2.0
Large Urban Areas....... 1,050 5,885 5,766 -120 -2.0
Other Urban Areas....... 877 3,408 3,341 -67 -2.0
Rural Hospitals............. 499 473 443 -30 -6.4
Bed Size (Urban):
0 to 99 Beds................ 340 189 185 -4 -2.2
100 to 249 Beds............. 839 2,211 2,154 -57 -2.6
250+ Beds................... 748 6,894 6,768 -126 -1.8
Bed Size (Rural):
0 to 99 Beds................ 369 206 190 -16 -7.8

[[Page 57325]]

100 to 249 Beds............. 117 211 200 -11 -5.2
250+ Beds................... 13 56 53 -3 -5.9
Urban by Region:
East North Central.......... 322 1,273 1,252 -22 -1.7
East South Central.......... 130 574 566 -8 -1.3
Middle Atlantic............. 232 1,614 1,570 -44 -2.7
Mountain.................... 125 448 448 0 -0.0
New England................. 90 394 385 -9 -2.3
Pacific..................... 314 1,459 1,448 -10 -0.7
Puerto Rico................. 42 104 116 12 11.4
South Atlantic.............. 314 1,777 1,721 -55 -3.2
West North Central.......... 104 451 440 -11 -2.5
West South Central.......... 254 1,200 1,161 -39 -3.2
Rural by Region:
East North Central.......... 64 49 45 -4 -8.3
East South Central.......... 142 149 141 -8 -5.2
Middle Atlantic............. 27 34 32 -2 -7.0
Mountain.................... 21 16 15 0 -0.2
New England................. 11 15 16 1 7.2
Pacific..................... 7 9 7 -3 -27.4
South Atlantic.............. 86 98 92 -6 -6.4
West North Central.......... 31 20 19 -1 -6.3
West South Central.......... 110 83 76 -7 -8.3
By Payment Classification:
Urban Hospitals............. 1,892 9,243 9,056 -187 -2.0
Large Urban Areas....... 1,048 5,884 5,764 -120 -2.0
Other Urban Areas....... 844 3,359 3,292 -68 -2.0
Rural Hospitals............. 534 523 493 -30 -5.8
Teaching Status:
Nonteaching................. 1,550 3,117 3,050 -67 -2.1
Fewer than 100 residents.... 638 3,213 3,132 -80 -2.5
100 or more residents....... 238 3,437 3,367 -71 -2.1
Type of Ownership:
Voluntary................... 1,404 6,044 5,909 -136 -2.2
Proprietary................. 546 1,672 1,631 -41 -2.4
Government.................. 474 2,023 1,984 -39 -1.9
Unknown..................... 2 27 25 -2 -6.1
Medicare Utilization Percent:
0 to 25..................... 429 3,013 2,975 -38 -1.3
25 to 50.................... 1,617 6,356 6,189 -167 -2.6
50 to 65.................... 318 385 374 -11 -2.9
Greater than 65............. 51 12 11 -1 -8.2
----------------------------------------------------------------------------------------------------------------
Source: Dobson [verbarlm] 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 $9,767 million in FY 2016 and $9,549 million in FY 2017.
** Percentage change is determined as the difference between Medicare DSH payments modeled for the FY 2017 IPPS/
LTCH PPS final 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 $10.058 billion to $10.798 billion; (2) a reduction in
the percent of uninsured (Factor 2) from 63.69 percent to 55.36
percent; and (3) a revised proxy methodology for calculating Factor
3 values. The impact analysis found that, across all projected DSH
eligible hospitals, FY 2017 DSH payments are estimated at
approximately $14.397 billion, or an increase of approximately 7.4
percent from FY 2016 DSH payments (approximately $13.411 billion).
Although Factor 1 increased substantially, 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 2.2
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 2.2
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 2.0 percent decrease in DSH
payments, and rural hospitals are projected to receive a 6.4 percent
decrease in

[[Page 57326]]

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 7.8 percent payment reduction,
and larger rural hospitals with 100-249 beds and greater than 250
beds projected to experience a 5.2 and 5.9 percent payment
reductions respectively. In contrast, the smallest urban hospitals
(0-99 beds) are projected to receive a decrease in DSH payments of
2.2 percent. Larger urban hospitals (100-250 beds and 250+ beds) are
projected to receive reductions of 2.6 and 1.8 percent respectively.
By region, projected DSH payment reductions for urban hospitals
are largest in the South Atlantic and West South Central, with New
England, Middle Atlantic, and West North Central hospitals also
projected to receive reductions in DSH payments greater than the
overall average. Urban hospitals in the East North Central, East
South Central, Mountain, and Pacific regions are projected to
receive reductions less than the overall average. Puerto Rico
hospitals are expected to receive an 11.4 percent increase in DSH
payments.
Teaching hospitals with fewer than 100 residents are projected
to receive relatively larger reductions than nonteaching hospitals
or hospitals with 100 or more residents, although all are fairly
consistent with the national average. Voluntary, proprietary, and
government hospitals are projected to receive payment reductions
generally consistent with the national average, where government
hospitals are projected to receive slightly smaller reductions in
DSH payments and 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 finalized
policy 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 $116 million in overall DSH and uncompensated
care payments, or an 11.4 percent increase from FY 2016 payments
($104 million). Of the estimated $116 million for FY 2017, we
estimate that $78 million will be uncompensated care payments to
Puerto Rico hospitals. This represents an increase of approximately
13.8 percent, or $9.5 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 19.8 percent, or $12.9
million, higher with the finalized SSI proxy than they otherwise
would have been without the finalized SSI proxy for FY 2017. In
other words, without the finalized SSI proxy, we would have expected
uncompensated care payments to Puerto Rico hospitals to decline by
approximately $3.4 million between FY 2016 and FY 2017. We note that
because the finalized 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 0.15
percent lower with the finalized SSI proxy than they otherwise would
have been without the finalized SSI proxy.

3. Effects of Reduction Under the Hospital Readmissions Reduction
Program

In section IV.G. of the preamble of this final rule, we discuss
our proposed and final policies 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 final 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 final rule, we estimate
that 2,588 hospitals will 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 will save approximately $528 million in FY 2017,
an increase of $108 million over the estimated FY 2016 savings.

4. Effects of Changes Under the FY 2017 Hospital Value-Based Purchasing
(VBP) Program

In section IV.H. of the preamble of this final 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 amounts for all
discharges for participating hospitals 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 final 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 $1.8 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 March 2016 update
to the FY 2015 MedPAR file.
The 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 March
2016 update to the FY 2015 MedPAR file. The proxy adjustment factors
can be found in Table 16A associated with this final 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 will receive an increase in their base
operating DRG payment amounts is higher than the number of hospitals
that will 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 will have an increase, on average, in their base operating
DRG payment amounts. Urban hospitals in the Middle Atlantic region
will receive an average decrease in their base operating DRG payment
amounts. Among rural hospitals, those in all regions will have an
increase, on average, in their base operating DRG payment amounts.
On average, hospitals that receive a higher (50-65) percent of
DSH payments will receive decreases in base operating DRG payment
amounts. With respect to hospitals' Medicare utilization as a
percent of inpatient days (MCR), those hospitals with an MCR above
65 percent will have the largest average increase in base operating
DRG payment amounts.
Nonteaching hospitals will have an average increase, and
teaching hospitals will experience an average decrease in base
operating DRG payment amounts.

[[Page 57327]]

Impact Analysis of Base Operating DRG Payment Amount Changes Resulting
From the FY 2017 Hospital VBP Program
------------------------------------------------------------------------
Average
Number of percentage
hospitals change
------------------------------------------------------------------------
By Geographic Location:
All Hospitals....................... 3,041 0.244
Large Urban......................... 1,247 0.117
Other Urban......................... 1,048 0.202
Rural Area.......................... 746 0.515
Urban hospitals................. 2,295 0.156
0-99 beds................... 518 0.709
100-199 beds................ 716 0.141
200-299 beds................ 434 -0.031
300-499 beds................ 420 -0.147
500 or more beds............ 207 -0.170
Rural hospitals................. 746 0.514
0-49 beds................... 267 0.692
50-99 beds.................. 285 0.540
100-149 beds................ 113 0.308
150-199 beds................ 44 0.150
200 or more beds............ 37 0.103
By Region:
Urban by Region..................... 2,295 0.156
New England..................... 110 0.152
Middle Atlantic................. 297 -0.065
South Atlantic.................. 389 0.108
East North Central.............. 368 0.205
East South Central.............. 141 0.126
West North Central.............. 155 0.370
West South Central.............. 326 0.212
Mountain........................ 159 0.128
Pacific......................... 350 0.225
Rural by Region..................... 746 0.515
New England..................... 20 0.528
Middle Atlantic................. 53 0.373
South Atlantic.................. 117 0.621
East North Central.............. 112 0.515
East South Central.............. 138 0.389
West North Central.............. 94 0.623
West South Central.............. 133 0.418
Mountain........................ 55 0.714
Pacific......................... 24 0.677
By MCR Percent:
0-25................................ 372 0.116
25-50............................... 2,036 0.208
50-65............................... 501 0.405
Over 65............................. 125 0.580
Missing............................. 7 0.114
By DSH Percent:
0-25................................ 1,307 0.393
25-50............................... 1,412 0.162
50-65............................... 169 -0.015
Over 65............................. 153 0.012
By Teaching Status:
Non-Teaching........................ 2,022 0.388
Teaching............................ 1,019 -0.041
------------------------------------------------------------------------

Actual FY 2017 program year's TPSs will not be reviewed and
corrected by hospitals until after this 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 are used for the updated impact analysis in this final rule.

5. Effects of Changes to the HAC Reduction Program for FY 2017

In section IV.I. of the preamble of this final rule, we discuss
the 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 in this final 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 this 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 final
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

[[Page 57328]]

CDI measure results, we used standardized 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 2017 Proposed Rule Impact File. This table includes 3,215 non-
Maryland hospitals with a Total HAC Score FY 2017. Of these, 3,200
hospitals had information for geographic location, region, bed size,
DSH percent, and teaching status; 3,178 had information for
ownership; and 3,176 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
Number of hospitals in the hospitals in the
Hospital characteristic hospitals \a\ worst-performing worst-performing
quartile \b\ quartile \c\
----------------------------------------------------------------------------------------------------------------
Total \d\........................................... 3,215 771 24.0
By Geographic Location:
All hospitals:
Urban....................................... 2,404 653 27.2
Rural....................................... 796 107 13.4
Urban hospitals:
1-99 beds................................... 592 91 15.4
100-199 beds................................ 734 166 22.6
200-299 beds................................ 440 134 30.5
300-399 beds................................ 276 101 36.6
400-499..................................... 150 61 40.7
500 or more beds............................ 212 100 47.2
Rural hospitals:
1-49 beds................................... 303 48 15.8
50-99 beds.................................. 289 29 10.0
100-149 beds................................ 118 11 9.3
150-199 beds................................ 45 9 20.0
200 or more beds............................ 41 10 24.4
By Region:
New England..................................... 134 42 31.3
Mid-Atlantic.................................... 365 131 35.9
South Atlantic.................................. 519 133 25.6
East North Central.............................. 494 96 19.4
East South Central.............................. 295 45 15.3
West North Central.............................. 259 38 14.7
West South Central.............................. 511 104 20.4
Mountain........................................ 226 55 24.3
Pacific......................................... 397 116 29.2
By DSH Percent: \e\
0-24............................................ 1,387 321 23.1
25-49........................................... 1,454 324 22.3
50-64........................................... 181 58 32.0
65 and over..................................... 178 57 32.0
By Teaching Status: \f\
Non-teaching.................................... 2,160 381 17.6
Fewer than 100 residents........................ 790 237 30.0
100 or more residents........................... 250 142 56.8
By Type of Ownership:
Voluntary....................................... 1,868 478 25.6
Proprietary..................................... 825 154 18.7
Government...................................... 485 121 24.9
By MCR Percent:
0-24............................................ 472 148 31.4
25-49........................................... 2,106 481 22.8
50-64........................................... 518 104 20.1
65 and over..................................... 80 18 22.5
----------------------------------------------------------------------------------------------------------------
Source: FY 2017 HAC Reduction Program Final Rule results are based on AHRQ PSI 90 data from July 2013 through
June 2015 and CDC CLABSI, CAUTI, SSI, CDI, and MRSA results from January 2014 to December 2015. Hospital
Characteristics are based on the FY 2017 Proposed Rule Impact File updated on April 27, 2016.
\a\ The total number of non-Maryland hospitals with a Total HAC Score with hospital characteristic data (3,200
for geographic location, bed size, and teaching status; 3,178 for type of ownership; and 3,176 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 (3,215) because 15 hospitals are not included in the FY 2017 Proposed 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 DSH patient percentage 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 57329]]

6. Effects of Policy Changes Relating to Direct GME and IME Payments
for Rural Training Tracks at Urban Hospitals

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25308) and
section IV.J. of the preamble of this final rule, we discuss our
proposed and finalized policy 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 revising 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 will take effect. This 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 the proposed rule (81 FR 25308)
and in section IV.J. of the preamble of this final 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 making the
effective date regarding the change in the growth window also
effective for rural track training programs started on or after
October 1, 2012. As stated in the proposed rule, 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. We are finalizing this policy as
proposed, and therefore our estimate remains unchanged for the final
rule.

7. Effects of Implementation of Rural Community Hospital Demonstration
Program

In section IV.K. of the preamble of this final 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 final
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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25130), we
proposed 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, we stated in the proposed rule that 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 were still participating would
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 proposed 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 the proposed rule (81 FR 25130), we proposed 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 stated in the proposed
rule that we expect any such analysis to be conducted in FY 2020.
Because, as discussed earlier, we proposed 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 proposed 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 stated in the proposed rule that there would be no
impact from the demonstration on the national IPPS rates for FY 2017
(81 FR 25308).
In this final rule, we are finalizing these proposals without
modification. Thus, in this final rule, we are applying no budget
neutrality offset amount to the national IPPS rates for FY 2017.

8. Effects of Implementation of the Notice of Observation Treatment and
Implications for Care Eligibility Act (NOTICE Act)

In the proposed rule (81 FR 25131 through 25134) and in section
IV.L. of the preamble of this final rule, we discuss implementation
of section 1866(a)(1)(Y) of the Act as amended by the NOTICE Act
(Pub. L. 114-42) and revisions to the basic commitments providers
agree to as part of participating in Medicare under a provider
agreement. These revisions 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 (or, if
sooner, upon release).
We developed a standardized format for the notice, which is
undergoing OMB approval. The notice will be disseminated during the
normal course of related business activities. In 2014, there were
approximately 1,399,999 claims for Medicare outpatient observation
services lasting greater than 24 hours furnished by 6,142 hospitals
and CAHs.\400\ We refer readers to section IX.B. of the preamble of
this final rule for a discussion of the burden associated with this
notice requirement.
---------------------------------------------------------------------------

\400\ Source: CMS Office of Enterprise and Data Analytics.
---------------------------------------------------------------------------

9. Effects of 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 the FY 2017 IPPS/LTCH proposed rule (81 FR 25134 through
25135) and in section IV.M. of the preamble of this final rule, we
discuss 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. We
believe that the impact of these technical changes and corrections
is negligible.

[[Page 57330]]

10. Effects of Implementation of the Frontier Community Health
Integration Project (FCHIP) Demonstration

In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25140 through
25141) and in section VI.C. of the preamble of this final 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 States. Budget neutrality
estimates for CAHs selected for the demonstration will be based on
the demonstration period, August 1, 2016 through July 31, 2019. 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
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 proposed a contingency
plan (81 FR 25141) 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, 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 proposed 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 not be feasible to implement budget
neutrality by reducing payments only to the participating CAH
providers. We proposed 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 proposed 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, in this final rule, we are finalizing this proposal,
which has no impact for any national payment system for FY 2017.

I. Effects of Changes in the Capital IPPS

1. General Considerations

For the impact analysis presented below, we used data from the
March 2016 update of the FY 2015 MedPAR file and the March 2016
update of the Provider-Specific File (PSF) that is used for payment
purposes. Although the analyses of the changes to the capital
prospective payment system do not incorporate cost data, we used the
March 2016 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 March 2016 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
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 11.0 million in FY 2016 and 11.1 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 rule, the update is 0.9 percent for FY 2017.
In addition to the FY 2017 update factor, the FY 2017
capital Federal rate was calculated based on a GAF/DRG budget
neutrality adjustment factor of 0.9991, a outlier adjustment factor
of 0.9386, and an adjustment of (1/0.998) to permanently remove the
0.2 percent adjustment, as well as a temporary 2-midnight adjustment
of 1.006. The 2-midnight adjustments are discussed in section V.C.
of the preamble of this final rule and are consistent with the 2-
midnight adjustments on the operating Federal rate. As discussed in
section V.C. of the preamble of this final rule, we are not making
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 final rule to estimate the potential impact of
our 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 March 2016 update of the FY 2015 MedPAR file, the
March 2016 update to the PSF, and the most recent cost report data
from the March 2016 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 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 0.9 percent update to the
capital Federal rate and other 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, capital payments
per case in FY 2017 are expected to increase as compared to capital
payments per case in FY 2016. This expected increase overall is due
primarily to the approximately 1.84 percent increase in the capital
Federal rate for FY 2017 as compared to the FY 2016 capital Federal
rate. (For a discussion of the determination of the capital Federal
rate, we refer readers to section III.A. of the Addendum to this
final

[[Page 57331]]

rule.) 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 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 changes in the GAFs. For most
hospitals in rural areas, changes in the GAFs are expected to
increase capital payments, to a greater or lesser extent, except for
two rural areas where changes in the GAFs are expected to decrease
capital payments per case. These regional effects of the changes to
the GAFs on capital payments are consistent with the projected
changes in payments due to changes in the wage index (and policies
affecting the wage index) as shown in Table I in section I.G. of
this Appendix A.
The net impact of these changes is an estimated 0.8 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, most hospitals
in all classifications (urban and rural) will 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 0.7 percent, while hospitals
in rural areas, on average, are expected to experience a 0.8 percent
increase in capital payments per case from FY 2016 to FY 2017.
Capital IPPS payments per case for ``other urban hospitals'' are
estimated to increase 0.9 percent. The primary factor contributing
to the small difference in the projected increase in capital IPPS
payments per case for urban hospitals as compared to rural hospitals
is the changes to the GAFs.
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 4.2 percent increase for the Puerto Rico urban
hospitals, and a 1.4 percent increase for the West South Central
urban region to a 0.7 percent increase for the Mountain urban
region. The New England urban region is expected to experience a 0.6
percent decrease in capital payments per case, largely due to
changes in the GAFs as compared to the other urban hospitals. The
4.2 percent increase in capital payments per case for the Puerto
Rico urban region is in part due to the change in the capital
payment rate to 100 percent of the capital Federal rate rather than
a blend of the capital Puerto Rico rate and the capital Federal
rate, as discussed in section V.B.3. of the preamble of this final
rule. For rural regions, the Middle Atlantic rural region is
projected to experience the largest increase in capital IPPS
payments per case of 1.6 percent, while the Mountain rural region is
projected to experience a small decrease in capital IPPS payments
per case of 0.4 percent. The change in the GAFs is the main factor
for the projected decrease in the capital IPPS payments for the
Mountain rural region compared to the other rural regions, as it is
for the projected decrease 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 increase in capital payments for voluntary
and proprietary hospitals is estimated to be 0.8 percent and for
government hospitals, the increase is estimated to be 0.7 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 rule for FY 2017, we show the average capital
payments per case for hospitals for FY 2017. Urban reclassified
hospitals are expected to experience an increase in capital payments
of 1.0 percent; urban nonreclassified hospitals are expected to
experience an increase in capital payments of 0.7 percent. The
estimated percentage increase for rural reclassified hospitals is
1.0 percent, and for rural nonreclassified hospitals, the estimated
percentage increase is 0.2 percent. Other reclassified hospitals
(section 1886(d)(8)(B) of the Act) are expected to experience an
increase in capital payments of 0.5 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............................... 3,330 912 920 0.8
Large urban areas (populations over 1 1,380 1,011 1,018 0.7
million)...................................
Other urban areas (populations of 1 million 1,135 870 878 0.9
of fewer)..................................
Rural areas................................. 815 618 623 0.8
Urban hospitals............................. 2,515 947 955 0.8
0-99 beds............................... 659 768 774 0.7
100-199 beds............................ 767 824 829 0.6
200-299 beds............................ 446 865 871 0.7
300-499 beds............................ 431 958 967 0.9
500 or more beds........................ 212 1,139 1,149 0.9
Rural hospitals............................. 815 618 623 0.8
0-49 beds............................... 317 520 524 0.7
50-99 beds.............................. 292 577 582 0.8
100-149 beds............................ 120 610 614 0.5
150-199 beds............................ 46 669 673 0.7
200 or more beds........................ 40 738 746 1.0
By Region:
Urban by Region............................. 2,515 947 955 0.8
New England............................. 116 1,031 1,025 -0.6
Middle Atlantic......................... 315 1,056 1,065 0.8
South Atlantic.......................... 407 840 847 0.9
East North Central...................... 390 908 916 0.9
East South Central...................... 147 793 804 1.4
West North Central...................... 163 923 930 0.8
West South Central...................... 385 858 868 1.2
Mountain................................ 163 977 984 0.7
Pacific................................. 378 1,219 1,228 0.8
Puerto Rico............................. 51 435 453 4.2
Rural by Region............................. 815 618 623 0.8
New England............................. 21 868 878 1.2
Middle Atlantic......................... 54 591 600 1.6
South Atlantic.......................... 128 584 584 0.1

[[Page 57332]]

East North Central...................... 115 638 644 0.9
East South Central...................... 155 562 567 0.9
West North Central...................... 98 666 669 0.4
West South Central...................... 160 536 543 1.3
Mountain................................ 60 718 714 -0.4
Pacific................................. 24 804 813 1.0
By Payment Classification:
All hospitals............................... 3,330 912 920 0.8
Large urban areas (populations over 1 1,372 1,012 1,019 0.7
million)...................................
Other urban areas (populations of 1 million 1,150 869 878 0.9
of fewer)..................................
Rural areas................................. 808 619 623 0.7
Teaching Status:
Non-teaching............................ 2,266 771 776 0.7
Fewer than 100 Residents................ 815 885 892 0.8
100 or more Residents................... 249 1,287 1,299 0.9
Urban DSH:
100 or more beds.................... 1,642 968 976 0.8
Less than 100 beds.................. 363 696 701 0.7
Rural DSH:
Sole Community (SCH/EACH)........... 240 575 580 1.0
Referral Center (RRC/EACH).......... 325 649 654 0.7
Other Rural:
100 or more beds.................... 29 538 540 0.5
Less than 100 beds.................. 142 526 528 0.4
Urban teaching and DSH:
Both teaching and DSH................... 898 1,043 1,053 0.9
Teaching and no DSH..................... 109 942 947 0.5
No teaching and DSH..................... 1,107 813 819 0.8
No teaching and no DSH.................. 408 815 820 0.6
Rural Hospital Types:
Non special status hospitals............ 2,529 948 955 0.7
RRC/EACH................................ 189 772 783 1.4
SCH/EACH................................ 324 706 715 1.3
SCH, RRC and EACH....................... 126 748 755 1.0
Hospitals Reclassified by the Medicare
Geographic Classification Review Board:
FY2017 Reclassifications:
All Urban Reclassified.................. 533 953 962 1.0
All Urban Non-Reclassified.............. 1,938 948 955 0.7
All Rural Reclassified.................. 277 650 656 1.0
All Rural Non-Reclassified.............. 489 578 580 0.2
Other Reclassified Hospitals (Section 42 599 602 0.5
1886(d)(8)(B)).........................
Type of Ownership:
Voluntary............................... 1,927 926 933 0.8
Proprietary............................. 881 820 827 0.8
Government.............................. 522 963 969 0.7
Medicare Utilization as a Percent of
Inpatient Days:
0-25.................................... 523 1,103 1,113 0.9
25-50................................... 2,122 916 923 0.8
50-65................................... 545 745 751 0.8
Over 65................................. 89 529 531 0.5
----------------------------------------------------------------------------------------------------------------

J. Effects of Payment Rate Changes and Policy Changes Under the
LTCH PPS

1. Introduction and General Considerations

In section VII. of the preamble of this final rule and section
V. of the Addendum to this final rule, we set forth the annual
update to the payment rates for the LTCH PPS for FY 2017. In the
preamble of this final rule, we specify the statutory authority for
the provisions that are presented, identify the proposed and final
policies, and present rationales for our decisions as well as
alternatives that were considered. In this section of Appendix A to
this final rule, we discuss the impact of the changes to the payment
rate, factors, and other payment rate policies related to the LTCH
PPS that are presented in the preamble of this final 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 FY 2017 MS-LTC-DRG relative weights (discussed in section
VII.C.3.c. of the preamble of this final rule).) In the impact
analysis, we used the payment rate, factors, and policies presented
in this final rule, which includes the 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 final
rule), the 1.75 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 revised
and rebased LTCH

[[Page 57333]]

PPS market basket and the reductions required by sections 1886(m)(3)
and (m)(4) of the Act), the update to the MS-LTC-DRG classifications
and relative weights, the update to the wage index values and labor-
related share, and the best available claims and CCR data to
estimate the 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 final
rule, we estimate that overall LTCH PPS payments in FY 2017 will
decrease by approximately 7.1 percent (or approximately $363
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 March 2016
update of the PSF, of the 420 LTCHs in our database of LTCH claims
from the March 2016 update of the FY 2015 MedPAR files used for this
final 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.
Comment: Some commenters requested that additional information
be added to the publically available IPPS and LTCH PPS MedPAR files
because they were made available in the FY 2016 rulemaking cycle,
such as encrypted patient identifiers, encrypted admission and
discharge dates, and the number of days the patient spent in the ICU
in the immediately preceding IPPS hospital stay prior to admission
to the LTCH. These commenters believed that such additional
information is needed to determine which historical discharges were
immediately preceded by a qualifying IPPS hospital stay and could be
used to verify the payment rate designation (that is, site neural or
standard) CMS has included in the publically available IPPS and LTCH
MedPAR file.
Response: We understand that, for commenters who would like to
replicate the proposed LTCH PPS payment rates, factors, and payment
estimates presented in the proposed rule, it is necessary to be able
to identify the LTCH discharges in the historical data that would be
the LTCH PPS standard Federal payment rate cases and the ones that
would be site neutral payment rate cases (had the statutory criteria
been in effect at the time of the discharge). In response to a
similar comment in the FY 2016 rule-making cycle, as requested by
commenters, we have added the number of days that the patient spent
in the ICU in an immediately preceding IPPS hospital stay prior to
admission to the LTCH because this aggregated count of days conforms
with CMS' privacy and security standards and does not result in the
identification of specific beneficiaries. We believe that including
the number of days spent in the ICU from the immediately preceding
IPPS hospital stay to the publically available MedPAR file will
allow the public to adequately corroborate the indicator of the
historical LTCH discharges as a LTCH PPS standard Federal payment
rate case or a site neutral payment rate case (had the statutory
criteria been in effect at the time of the discharge).
As we explained in the FY 2016 IPPS/LTCH PPS final rule (80 FR
49603), currently the publically available IPPS and LTCH PPS MedPAR
files do not contain any specified direct patient identifiers
consistent with CMS' privacy and security standards and as outlined
in the HIPAA Privacy Rule. (For additional information on CMS'
privacy and security standards under the HIPAA Privacy Rule, we
refer readers to the CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Administrative-Simplification/HIPAA-ACA/PrivacyandSecurityInformation.html, and for additional information
on CMS' publically available LDS files, we refer readers to the CMS
Web site at: http://cms.hhs.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/index.html.) It is for these
reasons that, as noted by commenters, we added an identifier to the
publically available FY 2014 LTCH MedPAR File to identify the
historical LTCH discharges in that file as LTCH PPS standard Federal
payment rate cases or site neutral

[[Page 57334]]

payment rate cases (had the statutory dual rate LTCH PPS payment
structure been in effect at the time of the discharge). These are
the same payment rate identifiers we used to develop the FY 2017
proposed payment rates, factors, and payment estimates as described
in the proposed rule. We believe that the addition of this payment
rate identifier to the publically available LTCH MedPAR file
provides sufficient information for commenters to replicate and
evaluate the proposed payment rates, factors, and payment estimates
in the proposed rule. We will continue to consider adding the
encrypted information requested by commenters to the publically
available IPPS and LTCH PPS MedPAR files. However, we are not able
to do so at this time because to add such specific direct patient
identifiers would need to be done in conformance with CMS' privacy
and security standards, including any requirements outlined in the
HIPAA Privacy and Security Rules.
Based on the FY 2015 LTCH cases that were used for the analyses
in this final 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 changes that
will 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 will decrease by approximately 23 percent (or
approximately $388 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 will increase approximately 0.7 percent (or approximately
$24 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 1.75 percent annual update to the
LTCH PPS standard Federal payment rate for FY 2017 (discussed in
section V.A. of the Addendum to this final rule) and an estimated
decrease in HCO payments for these cases (discussed in section
V.D.3. of the Addendum to this final rule).
Based on the 420 LTCHs that were represented in the FY 2015 LTCH
cases that were used for the analyses in this final rule, we
estimate that aggregate FY 2017 LTCH PPS payments will be
approximately $4.771 billion, as compared to estimated aggregate FY
2016 LTCH PPS payments of approximately $5.134 billion, resulting in
an estimated overall decrease in LTCH PPS payments of approximately
$363 million. Because the combined distributional effects and
estimated payment changes exceed $100 million, this final rule is a
major economic rule. We note that this estimated $363 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 policies in this final rule.
The LTCH PPS standard Federal payment rate for FY 2016 is
$41,762.85. For FY 2017, we are establishing an LTCH PPS standard
Federal payment rate of $42,476.41 (as compared to the proposed
payment rate of $42,314.31), which reflects the 1.75 percent annual
update to the LTCH PPS standard Federal payment rate and the area
wage budget neutrality factor of 0.999593 to ensure that the 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
establishing an LTCH PPS standard Federal payment rate of
$41,641.49. This 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 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)(xii) (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 annual update to the LTCH PPS standard Federal payment rate
is projected to result in an increase of 1.5 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 annual update to the LTCH PPS standard Federal payment rate
for FY 2017, the estimated increase of 1.5 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
annual update to the LTCH PPS standard Federal payment rate, as well
as the reduction that is applied to the 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
LTCH PPS standard Federal payment rate to LTCH PPS standard Federal
payment rate cases is somewhat less than the 1.75 percent annual
update for FY 2017.
For FY 2017, we are updating the wage index values based on the
most recent available data, and we are continuing to use labor
market areas based on the OMB CBSA delineations (as discussed in
section V.B. of the Addendum to this final rule). In addition, we
are increasing the labor-related share from 62.0 percent to 66.5
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 2013-based LTCH market basket
(as discussed in section VII.D. of the preamble of this final rule).
We also are applying an area wage level budget neutrality factor of
0.999593 to ensure that the 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 0.04 percent.
We currently estimate total HCO payments for LTCH PPS standard
Federal payment rate cases will decrease from FY 2016 to FY 2017.
Based on the FY 2015 LTCH cases that were used for the analyses in
this final rule, we estimate that the FY 2016 HCO threshold of
$16,423 (as established in the FY 2016 IPPS/LTCH PPS final rule)
will 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 will be approximately
9.0 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 will
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 1.0 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 will 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 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 0.7
percent is attributable to the impacts of the change to the LTCH PPS
standard Federal payment rate (1.5 percent in Column 6) and the
effect of the estimated decrease in HCO payments for LTCH PPS
standard Federal payment cases (-1.0 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 final rule, based on the
most recent available data, we believe that the provisions of this

[[Page 57335]]

final 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 will 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 0.7 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 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
$363 million. This estimated decrease in payments reflects the
projected increase in payments to LTCH PPS standard Federal payment
rate cases of approximately $25 million and the projected decrease
in payments to site neutral payment rate cases of approximately $388
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 final
rule, our actuaries project cost and resource changes for site
neutral payment rate cases due to the site 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 final
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 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
final 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 in this FY 2017 IPPS/LTCH
PPS final rule (as discussed in section VII. of the preamble of this
final rule and section V. of the Addendum to this final rule). As
discussed elsewhere in this final 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 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 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

[[Page 57336]]

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 FY 2017 standard Federal
payment rate of $42,476.41, or $41,641.49 for LTCHs that failed to
submit quality data as required under the requirements of the LTCH
QRP. In each case, we applied the applicable 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 FY 2017 LTCH PPS labor-related share (66.5
percent), the FY 2017 wage index values from Tables 12A and 12B
listed in section VI. of the Addendum to this final rule (which are
available via the Internet on the CMS Web site), the FY 2017 fixed-
loss amount for LTCH PPS standard Federal payment rate cases of
$21,943 (as discussed in section V.D.3. of the Addendum to this
final rule), and the FY 2017 COLA factors (shown in the table in
section V.C. of the Addendum to this final rule) to adjust the FY
2017 nonlabor-related share (33.5 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 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 payment rates and policy changes applicable to
LTCH PPS standard Federal payment rate cases presented in this final
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 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 final 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 changes to the area
wage level adjustment (that is, the wage indexes and the labor-
related share), including the application of the area wage level
budget neutrality factor (as discussed in section V.B. of the
Addendum to this final 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 changes (and includes the effect of estimated changes to HCO and
SSO payments).

Table IV--Impact of 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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent change Percent change
Average FY Average FY due to change due to changes Percent change
Number of LTCH 2016 LTCH PPS 2017 LTCH PPS to the annual to area wage due to all
LTCH Classification Number of PPS standard payment per payment per update to the adjustment standard
LTCHS payment rate standard standard standard with wage payment rate
cases payment rate payment rate Federal rate budget changes \4\
\1\ \2\ neutrality \3\
(1) (2) (3) (4) (5) (6) (7) (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All providers........................... 420 72,932 $46,898 $47,236 1.5 0.0 0.7
By location:
Rural............................... 21 2,289 38,941 39,061 1.6 -0.4 0.3
Urban............................... 399 70,643 47,156 47,501 1.5 0.0 0.7
Large........................... 202 42,000 49,427 49,909 1.5 0.2 1.0
Other........................... 197 28,643 43,827 43,971 1.6 -0.3 0.3
By Participation Date:
Before Oct. 1983.................... 12 1,983 43,329 43,653 1.5 0.0 0.8
Oct. 1983-Sept. 1993................ 42 8,977 52,907 53,392 1.5 0.3 0.9
Oct. 1993-Sept. 2002................ 174 31,903 45,562 45,890 1.5 0.0 0.7
After October 2002.................. 192 30,069 46,758 47,063 1.6 -0.2 0.7
By Ownership Type:
Voluntary........................... 78 10,160 47,907 48,026 1.6 -0.3 0.3
Proprietary......................... 325 61,057 46,526 46,902 1.5 0.0 0.8
Government.......................... 17 1,715 54,179 54,461 1.5 0.0 0.5
By region:
New England......................... 13 2,865 44,083 44,424 1.5 0.0 0.8
Middle Atlantic..................... 26 5,548 51,520 52,247 1.5 0.5 1.4
South Atlantic...................... 63 12,193 46,984 47,085 1.5 -0.4 0.2
East North Central.................. 69 11,693 46,882 47,154 1.6 -0.3 0.6
East South Central.................. 34 5,440 44,505 44,522 1.6 -0.6 0.0
West North Central.................. 29 3,942 46,564 46,555 1.6 -0.4 0.0
West South Central.................. 128 18,800 42,182 42,362 1.6 -0.1 0.4
Mountain............................ 33 4,329 48,465 48,823 1.6 0.2 0.7
Pacific............................. 25 8,122 56,475 57,737 1.5 1.2 2.2
By Bed Size:
Beds: 0-24.......................... 26 1,508 44,462 44,812 1.6 -0.1 0.8
Beds: 25-49......................... 194 24,853 43,902 44,061 1.6 -0.4 0.4

[[Page 57337]]

Beds: 50-74......................... 119 19,819 48,784 49,127 1.5 0.1 0.7
Beds: 75-124........................ 48 13,490 49,594 50,141 1.5 0.2 1.1
Beds: 125-199....................... 23 8,100 46,771 47,179 1.5 0.1 0.9
Beds: 200+.......................... 10 5,162 47,952 48,474 1.5 0.3 1.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2017 LTCH PPS payments for LTCH PPS standard Federal payment rate criteria based on the payment rate and factor changes applicable to
such cases presented in the preamble of and the Addendum to this final rule.
\2\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for the 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 changes to the area
wage level adjustment under Sec. 412.525(c) (as discussed in section V.B. of the Addendum to this final 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 changes to the rates and factors applicable to such cases presented in the preamble and the Addendum to this
final rule. We note that this column, which shows the percent change in estimated payments per discharge for all changes, does not equal the sum of
the percent changes in estimated payments per discharge for the annual update to the LTCH PPS standard Federal payment rate (Column 6) and the 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 final rule, we have prepared the following
summary of the impact (as shown in Table IV) of the LTCH PPS payment
rate and policy changes for LTCH PPS standard Federal payment rate
cases presented in this final 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 0.7 percent, on
average, for all LTCHs from FY 2016 to FY 2017 as a result of the
payment rate and policy changes applicable to LTCH PPS standard
Federal payment rate cases presented in this final rule. This
estimated 0.7 percent increase in LTCH PPS payments per discharge
was determined by comparing estimated FY 2017 LTCH PPS payments
(using the payment rates and factors discussed in this final rule)
to estimated FY 2016 LTCH PPS payments for LTCH discharges which
will 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 updating the LTCH PPS standard
Federal payment rate for FY 2017 by 1.75 percent based on the
estimate of the 2013-based LTCH PPS market basket increase (2.8
percent), the reduction of 0.3 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 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 1.75percent annual update to the LTCH
PPS standard Federal payment rate is projected to result in
approximately a 1.5 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 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 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 1.75 percent due to the 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 0.7 percent. For rural LTCHs, the overall percent
change for LTCH PPS standard Federal payment rate cases is estimated
to be a 0.3 percent increase, while for urban LTCHs, we estimate the
increase will be 0.7 percent. Large urban LTCHs are projected to
experience an increase of 1 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 0.3 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.

(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 0.7 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 2.9 percent of LTCHs began participating in the
Medicare program before October 1983, and these LTCHs are projected
to experience an average percent increase (0.8 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 (0.9 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 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 0.7 percent increase in estimated payments from FY
2016 to FY 2017.

[[Page 57338]]

(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
a lower than average increase in payments to LTCH PPS standard
Federal payment rate cases of 0.3 percent. Proprietary LTCHs are
expected to experience an average increase of 0.8 percent in
payments to LTCH PPS standard Federal payment rate cases, while
government owned and operated LTCHs are expected to experience a
smaller than average increase of 0.5 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 experience no change
from FY 2016 for LTCHs located in the East South Central and West
North Central regions, while LTCHs located in all other regions are
projected to experience an increase in estimated payments per
discharge 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 will have the largest
positive impact on LTCHs in the Pacific and Middle Atlantic regions
(2.2 percent and 1.4 percent, respectively, as shown in Table IV),
which is largely attributable to the changes in the area wage level
adjustment.
In contrast, LTCHs located in the South Atlantic and West South
Central 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 among LTCHS
located in the South Atlantic region and 0.4 percent among LTCHS
located in the West South Central region is primarily due to
estimated decreases in payments associated with the changes to the
area wage level adjustment.

(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 75 or more beds and fewer than 125 beds, as well as LTCHs
with more than 200 beds (that is, LTCHs in the 75-124 beds and 200+
beds categories), will experience a larger than average increase in
payments for LTCH PPS standard Federal payment rate cases (1.1
percent). LTCHs with 25 or more beds but fewer than 50 beds (that
is, LTCHs in the 25-49 beds category) 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 (0.4
percent), mostly due to estimated decreases in payments from the
area wage level adjustment.

4. Effect on the Medicare Program

As stated previously, we project that the provisions of this
final rule will 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 $25 million (or
approximately 0.7 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 final rule will 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 $388 million
(or approximately 23 percent) for the 420 LTCHs in our database.
Therefore, we project that the provisions of this final rule will
result in a decrease in estimated aggregate LTCH PPS payments to all
LTCH cases in FY 2017 relative to FY 2016 of approximately $363
million (or approximately 7.1 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 final rule, but we
continue to expect that paying prospectively for LTCH services will
enhance the efficiency of the Medicare program.

K. Effects of Requirements for the Hospital Inpatient Quality
Reporting (IQR) Program

In section VIII.A. of the preamble of this final 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 final rule, we
discuss finalizing our proposals to remove 15 measures: 13 eCQMs (2
of which we are also finalizing to remove in their chart-abstracted
form) and 2 structural measures. We are finalizing our proposal 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 finalizing our proposal 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 finalizing our proposal 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.7. of the preamble of this
final rule, we believe that there will 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 will
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
will result in a burden reduction of approximately 1,437,843 hours
across all hospitals participating in the Hospital IQR Program for
the FY 2019 payment determination. We believe that removing 13 eCQMs
will reduce burden for hospitals. However, as we stated in the
proposed rule, even though we are requiring hospitals to submit data
on 8 of the available eCQMs included in the Hospital IQR Program
measure set (discussed below), the modest reduction in burden
associated with removing 13 eCQMs from which hospitals may choose to
report will be offset by the increased burden associated with
submitting data on 8 eCQMs, instead of 4 eCQMs as previously
finalized. We also believe that there will be a negligible burden
reduction due to the removal of the two structural measures.
Also, we are finalizing 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.7. of the preamble of
this final rule, we believe no additional burden on hospitals will
result from the refinements to these two claims-based measures.
In addition, we are finalizing our proposals 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 will result
from the addition of these four claims-based measures.

[[Page 57339]]

We are finalizing a modified version of our eCQM proposals;
instead of requiring hospitals to submit data for all available
eCQMs in the Hospital IQR Program measure set for the FY 2019
payment determination and subsequent years as proposed, we are
finalizing a lesser amount. For the FY 2019 payment determination
and the FY 2020 payment determination, we are requiring hospitals to
submit data for 8 of the 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 will be required to submit a full calendar
year of data for 8 eCQMs, on an annual basis, for CY 2017 reporting
for the FY 2019 payment determination and CY 2018 reporting for the
FY 2020 payment determination, as further explained in section
X.B.7. of the preamble of this final rule. We believe that the
burden associated with submitting a full year of eCQM data will not
be substantially greater than the burden associated with
transmission of a single quarter of data. As described in section
VII.A.10.d of the preamble of this final rule, the CMS data
receiving system requires that each QRDA I file include data for one
patient, per quarter, per reporting CCN. Once hospitals establish
their protocols to ensure this is maintained, hospitals and vendors
should not experience much added burden reporting an additional 3
quarters of data. However, in our conservative estimates here, we
calculate as if burden is four times as much in an abundance of
caution. In total, we expect that this newly finalized proposal will
increase burden by 15,400 hours across all hospitals participating
in the Hospital IQR Program. This figure was derived by calculating
the difference between the FY 2017 burden estimate of 17,600 hours
(80 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/60
minutes 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 15,400 hours.
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 final rule, we are expanding 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.7. of the preamble of
this final rule, we estimate that 43 hours of work for up to 200
hospitals reflects a total burden increase of 8,533 labor hours. We
estimate an hourly labor cost of $32.84. Therefore, we estimate 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 updating our Extraordinary Circumstances
Extensions or Exemptions (ECE) policy. We believe the updates will
have no effect on burden for hospitals.
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 finalizing 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 will not meet the
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 will decline as hospitals gain more experience with these
requirements.
Under OMB number 0938-1022, considering the newly finalized
policies above, we estimate a total burden decrease of 1,717,444
hours, at a total cost decrease of approximately $56.4 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 Requirements for the PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program

In section VIII.B. of the preambles of the proposed rule (81 FR
25205 through 25213) and this final 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 final rule, we are
finalizing our proposed 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 final rule, we are finalizing our proposal to add
one claims-based quality measure for the PCHQR Program: Admissions
and Emergency Department (ED) Visits for Patients Receiving
Outpatient Chemotherapy.
The impact of the newly finalized 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 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 preambles of the proposed rule (81
FR 25213) and this final 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
received a 2 percentage point reduction to their FY 2016 annual
payment update.

[[Page 57340]]

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 final rule, we are retaining 13 previously finalized
quality measures and are adding 4 measures for use in the LTCH QRP.
In section VII.C.7. of the preamble of this final rule, we are
finalizing our proposals to add 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 will be no additional burden for any of
these newly finalized measures.
In section VIII.C.9.d. of the preamble of this final rule, we
are finalizing our proposal to expand the data collection timeframe
for the measure Percent of Residents or Patients Who Were Assessed
and Appropriately Given the Seasonal Influenza Vaccine (Short Stay)
(NQF #0680) (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 through March 31
of the subsequent year), and only require data collection during the
two calendar year quarters that align with the IVS. We are
finalizing our proposal 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 final rule for further details on the expansion of data
collection for this measure, Percent of Residents or Patients Who
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine
(Short Stay) (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 newly finalized 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 final rule.
In section VIII.C.7. of the preamble of this final rule, we are
finalizing our proposal 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 finalizing our proposal 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 final 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 final 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 finalizing our proposal 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 will increase. The additional data elements for this
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 newly
finalizing will be completed by registered nurses and pharmacists.
As a result, we estimate that the total cost related to the newly
finalized Drug Regimen Review Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP measure will be $3,080 per LTCH
annually, or $1,330,721 for all LTCHs annually. Because the three
measures newly finalized in section VII.C.6. of the preamble of this
final rule are claims-based and will be calculated based on data
that are already reported to the Medicare program for payment
purposes, we believe

[[Page 57341]]

that there will be no additional LTCH burden for any of these newly
finalized measures.
Overall, we estimate the total cost for the 13 previously
adopted measures and the 4 newly finalized measures will 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
newly finalized measures in this final 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.
We received comments about the effects of requirements for the
LTCH QRP, which we summarize and respond to below.
Comment: One commenter expressed concern about the burden
associated with the development of new measures, data-collection and
operational and technical data extraction. The commenter suggested
that any of the quality reporting or pay-for-performance programs
weigh the value of the data generated in proportion to the intensity
of the data-collection effort and that the data be the most
clinically relevant and actionable to the facility and its patients.
Response: Burden on providers is always a consideration for CMS,
and we take this into account when developing quality measures for
inclusion into our quality reporting programs. When developing new
measures, we try to leverage existing data items whenever possible,
and only include new items in existing data sets, when necessary to
inform the calculation of these metrics. We will continue to take
these and future stakeholder inputs into consideration to inform our
ongoing measure development and refinement efforts.
Comment: One commenter expressed concerns about the complexities
of the LTCH CARE Data Set transmittal process and associated costs
implementing the LTCH CARE Data Set Version 4.00, effective April 1,
2018 after implementation of LTCH CARE Data Set Version 3.00.
Response: We thank the commenter for its comment and will
consider the data transmittal process and associated cost burden as
we develop the LTCH CARE Data Set Version 4.00. We have leveraged
CMS claims as the data source, whenever possible and appropriate for
newly introduced measures, in order to limit the burden on LTCHs. In
addition, when possible, we leverage the use of existing data
elements, again in an attempt to limit burden. Beyond this, we offer
free software for LTCHs (LASER), allowing LTCHs to record and
transmit the required LTCH CARE Data Set assessment based data. This
free software, including instructions for installing and using the
software, is located at: https://www.qtso.com/laser.html.

N. Effects of Updates to the Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program

As discussed in section VIII.D. of the preambles of the proposed
rule (81 FR 25238 through 25244) and this final 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 final
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 we are finalizing in this final rule, we
estimate a total increase in burden due to the newly finalized
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 are finalizing that we will make the data
for the IPFQR Program available as soon as possible and to no longer
specify in rulemaking when measure data will be publicly available,
when the approximately 30-day preview period will occur, or that the
preview period will begin approximately 12 weeks before the public
display date, but rather to announce these using subregulatory
guidance. Lastly, for the FY 2017 payment determination only, we are
also finalizing our proposal that, if it is technically feasible to
display the data in December 2016, we will provide data to IPFs for
a 2-week preview period that will start on October 1, 2016.
Moreover, we are finalizing as proposed that, as a courtesy, for the
FY 2017 payment determination only, if we are able to display the
data in December 2016, we will ensure that IPFs have approximately
30 days for review if they so choose by providing IPFs with their
data as early as mid-September.. However, we do not expect this will
change the burden on IPFs. In addition, we are finalizing our
proposal to include 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) in the list of measures covered by the global sample for the
FY 2019 payment determination and subsequent years as proposed.
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 (measures previously adopted into the IPFQR
Program), we believe that the addition of 1 chart-abstracted measure
will lead to a negligible change in burden associated with
nonmeasure data collection. We also are finalizing our proposal to
update the denominator exclusions for Screening for Metabolic
Disorders to align with other measures eligible for the global
sample. As this will not alter the number of cases that facilities
are required to report on, we do not anticipate a change in IPF
burden. We also estimate a total increase in burden for training
personnel on chart abstraction and data collection for the newly
finalized measures 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 finalized 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.11. of the preamble of this final rule, we will
attribute the costs associated with the newly finalized policies to
the year in which these costs begin; for the purposes of all the
changes made in this final rule, that year is FY 2017. Further
information on these estimates can be found in section X.B.11. of
the preamble of this final 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 Requirements Regarding the Electronic Health Record
(EHR) Incentive Programs and Meaningful Use

In section VIII.E. of the preambles of the proposed rule (81 FR
25244 through 25247) and this final rule, we discuss requirements
for the Medicare and Medicaid EHR Incentive Programs. For CY 2017,
we are finalizing the proposed CQM reporting period requirements
pertaining to the Medicare and Medicaid EHR Incentive Programs; the
number of CQMs eligible hospitals and CAHs are required to report by
attestation; the removal of 13 CQMs from the set of CQMs available
for eligible hospitals and CAHs to report; and the policy
determining that the 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 addition, we are
finalizing a modified version of our proposed submission period
requirements and the number of CQMs eligible hospitals and CAHs are
required to report electronically for CY 2017. We note that these
requirements will only apply for eligible hospitals and CAHs
submitting CQMs electronically in CY 2017. Because these
requirements for data collection will align with the reporting
requirements in place for the Hospital IQR Program and because
eligible hospitals and CAHs will 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
requirements will have a significant impact.

P. Alternatives Considered

This final rule contains a range of policies. It also provides
descriptions of the statutory provisions that are addressed,
identifies the finalized policies, and presents rationales for

[[Page 57342]]

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 MS-DRG and wage index changes, and for the wage
index reclassifications under the MGCRB. Table I also shows a
projected overall increase of 0.9 percent in operating payments. As
discussed in section I.G. of this Appendix, we estimate that
operating payments will increase by approximately $987 million in FY
2017 relative to FY 2016. However, when we account for the impact of
the changes in Medicare DSH payments and the impact of the
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 final rule, we
estimate that operating payments will increase by approximately $809
million relative to FY 2016. We currently estimate that the changes
in new technology add-on payments for FY 2017 will decrease spending
by approximately $20 million. In addition, the changes to the
Hospital Readmissions Reduction Program for FY 2017 are estimated to
decrease spending by $108 million, as a result of the 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. These estimates, combined with our estimated increase in FY
2017 operating payment of $809 million, will result in an estimated
increase of approximately $680 million for FY 2017. We estimate that
hospitals will experience a 0.8 percent increase in capital payments
per case, as shown in Table III of section I.I. of this Appendix. We
project that there will be a $66 million increase in capital
payments in FY 2017 compared to FY 2016. The cumulative operating
and capital payments will result in a net increase of approximately
$746 million to IPPS providers. The discussions presented in the
previous pages, in combination with the rest of this final 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 rates, factors, and policies presented in this
final 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 will decrease
approximately $363 million relative to FY 2016 as a result of the
payment rates and factors presented in this final 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 final 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 changes to the IPPS presented in this
final rule. All expenditures are classified as transfers to Medicare
providers.
The costs to the Federal Government associated with the policies
in this final rule are estimated at $746 million.

Table V--Accounting Statement: Classification of Estimated Expenditures
Under the IPPS From FY 2016 to FY 2017
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... $746 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 payment rates and factors presented in this final
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 $363 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 final rule as
they relate to the 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 payment rates and factors and other
provisions presented in this final 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 final rule are estimated at $363 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......... -$363 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 final rule relating to acute
care hospitals will 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

[[Page 57343]]

entities are small entities, the analysis discussed throughout the
preamble of this final rule constitutes our regulatory flexibility
analysis. In the FY 2017 IPPS/LTCH PPS proposed rule, we solicited
public comments on our estimates and analysis of the impact of our
proposals on those small entities. Any public comments that we
received and our responses are presented throughout this final rule.

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 604 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
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 final rule will not mandate any requirements for
State, local, or tribal governments, nor will 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 final 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. FY 2017 Inpatient Hospital Update

As discussed in section IV.B. of the preamble to this final
rule, for FY 2017, 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.
In the FY 2017 IPPS/LTCH PPS proposed rule, based on the most
recent data available at that time, in accordance with section
1886(b)(3)(B) of the Act, we proposed to establish the FY 2017
market basket update used to determine the applicable percentage
increase for the IPPS based 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 was estimated to be 2.8 percent. Based on the most recent data
available for this FY 2017 IPPS/LTCH PPS final rule, in accordance
with section 1886(b)(3)(B) of the Act, we are establishing the FY
2017 market basket update used to determine the applicable
percentage increase for the IPPS on the IHS Global Insight, Inc.
(IGI's) second quarter 2016 forecast of the FY 2010-based IPPS
market basket rate-of-increase with historical data through first
quarter 2016, which is estimated to be 2.7 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 the FY 2017 IPPS/LTCH PPS proposed rule (81 FR
25077), we proposed a multifactor productivity (MFP) adjustment (the
10-year moving average of MFP for the period ending FY 2017) of 0.5
percent. 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),
we presented in the proposed rule four possible applicable
percentage increases that could be applied to the standardized
amount. Based on the most recent data available for this FY 2017
IPPS/LTCH PPS final rule, 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 final rule, we are
establishing a MFP adjustment (the 10-year moving average of MFP for
the period ending FY 2017) of 0.3 percent.
In accordance with section 1886(b)(3)(B) of the Act, as amended
by section 3401(a) of the Affordable Care Act, as discussed in
section IV.B. of the preamble of this final rule, we are
establishing the applicable percentages increases for the FY 2017
updates based on IGI's second 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 and is a meaningful EHR user under
section 1886(b)(3)(B)(ix) of the Act, as outlined in the table
below.

[[Page 57344]]

----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase.................. 2.7 2.7 2.7 2.7
Adjustment for Failure to Submit Quality Data 0.0 0.0 -0.675 -0.675
under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR 0.0 -2.025 0.0 -2.025
User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi) -0.3 -0.3 -0.3 -0.3
of the Act.....................................
Statutory Adjustment under Section -0.75 -0.75 -0.75 -0.75
1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to 1.65 -0.375 0.975 -1.05
Standardized Amount............................
----------------------------------------------------------------------------------------------------------------

B. 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 final
rule, 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).
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 establishing the
same four possible applicable percentage increases in the table
above for the hospital-specific rate applicable to SCHs and MDHs.

C. FY 2017 Puerto Rico Hospital Update

As discussed in section IV.A. of the preamble of this final
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 make
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 final rule. Accordingly, for FY 2017, we are
establishing an applicable percentage increase of 1.65 percent to
the standardized amount for hospitals located in Puerto Rico.

D. 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
final rule, the current estimate of the IPPS operating market basket
percentage increase for FY 2017 is 2.7 percent.

E. 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 final rule,
we are establishing an update to the LTCH PPS standard Federal rate
for FY 2017 based on the full revised and rebased 2013-based LTCH
PPS market basket increase estimate subject to an adjustment based
on changes in economy-wide productivity and an additional reduction
required by sections 1886(m)(3)(A)(ii)(I), 1886(m)(3)(A)(ii), and
1886(m)(4)(F) of the Act. In accordance with the LTCHQR Program
under section 1886(m)(5) of the Act, we are reducing the annual
update to the LTCH PPS standard Federal rate by 2.0 percentage
points for failure of an LTCH to submit the required quality data.
The MFP adjustment described in section 1886(b)(3)(B)(xi)(i) of the
Act is currently estimated to be 0.3 percent for FY 2017. In
addition, sections 1886(m)(3)(A)(ii) and 1886(m)(4)(F) Act require
that the annual update for FY 2017 be reduced by the ``other
adjustment,'' which is 0.75 percentage point. Based on the most
recent data available for this final rule, that is, IGI's second
quarter 2016 forecast of the FY 2017 LTCH PPS market basket
increase, we are establishing an annual update to the LTCH PPS
standard Federal rate of 1.75 percent (that is, the current FY 2017
estimate of the market basket rate-of-increase of 2.8 percent less
an adjustment of 0.3 percentage point for MFP and less 0.75
percentage point). Accordingly, we are applying an update factor of
1.0175 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 applying an annual update to the LTCH PPS standard Federal rate
of -0.25 percent (that is, the annual update for FY 2017 of 1.75
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 an update factor of 0.9975
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

[[Page 57345]]

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 2.7 percent.
For FY 2017, consistent with policy set forth in section VII. of
the preamble of this final rule, for LTCHs that submit quality data,
we are recommending an update of 1.75 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 -0.25 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 applying an applicable percentage increase for FY 2017 of
1.65 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
final rule.

[FR Doc. 2016-18476 Filed 8-2-16; 4:15 pm]
BILLING CODE 4120-01-P

81_FR_56924

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		Rules and Regulations
Action		Final rule.
Dates		Effective Date: These final rules are effective on October 1, 2016.
Contact		Ing Jye Cheng, (410) 786-4548, and Donald Thompson, (410) 786-44487, 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 56762
RIN Number		0938-AS77, 0938-AS88 and 0938-AS41
CFR Citation		42 CFR 405 42 CFR 412 42 CFR 413 42 CFR 489
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 162 (August 22, 2016)

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