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)

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, 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.

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

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

[[Page 56766]]

    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. KcentraTM
    b. Argus[supreg] II Retinal Prosthesis System
    c. CardioMEMSTM HF (Heart Failure) Monitoring System
    d. MitraClip[supreg] System
    e. Responsive Neurostimulator (RNS[supreg]) System
    f. Blinatumomab (BLINCYTOTM Trade Brand)
    g. Lutonix[supreg] Drug Coated Balloon PTA Catheter and 
In.PACTTM AdmiralTM 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] 
nanoLOCKTM Interbody Device)
    e. Defitelio[supreg] (Defibrotide)
    f. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis 
(IBE)
    g VistogardTM (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

[[Page 56767]]

    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

[[Page 56768]]

    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:

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                   Description
------------------------------------------------------------------------
I26.01...................  Septic pulmonary embolism with acute cor
                            pulmonale.
I26.02...................  Saddle embolus of pulmonary artery with acute
                            cor pulmonale.
I26.09...................  Other pulmonary embolism with acute cor
                            pulmonale.
I26.90...................  Septic pulmonary embolism without acute cor
                            pulmonale.
I26.92...................  Saddle embolus of pulmonary artery without
                            acute cor pulmonale.
I26.99...................  Other pulmonary embolism without acute cor
                            pulmonale.
------------------------------------------------------------------------

    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:

------------------------------------------------------------------------
ICD-10-PCS procedure code                   Description
------------------------------------------------------------------------
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.
0JH802Z..................  Insertion of monitoring device into abdomen
                            subcutaneous tissue and fascia, open
                            approach.
0JH832Z..................  Insertion of monitoring device into abdomen
                            subcutaneous tissue and fascia, percutaneous
                            approach.
0JWT02Z..................  Revision of monitoring device in trunk
                            subcutaneous tissue and fascia, open
                            approach.
0JWT32Z..................  Revision of monitoring device in trunk
                            subcutaneous tissue and fascia, percutaneous
                            approach.
------------------------------------------------------------------------

    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
------------------------------------------------------------------------
 
------------------------------------------------------------------------
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.
04CT3ZZ..................  Extirpation of matter from right peroneal
                            artery, percutaneous approach.
04CU3ZZ..................  Extirpation of matter from left peroneal
                            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.
------------------------------------------------------------------------

    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)

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

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:

------------------------------------------------------------------------
  ICD-10-PCS  procedure
           code                             Description
------------------------------------------------------------------------
037G34Z..................  Dilation of intracranial artery with drug-
                            eluting intraluminal device, percutaneous
                            approach.
037G3DZ..................  Dilation of intracranial artery with
                            intraluminal device, percutaneous approach.
037G3ZZ..................  Dilation of intracranial artery, percutaneous
                            approach.
037G44Z..................  Dilation of intracranial artery with drug-
                            eluting intraluminal device, percutaneous
                            endoscopic approach.
037G4DZ..................  Dilation of intracranial artery with
                            intraluminal device, percutaneous endoscopic
                            approach.
037G4ZZ..................  Dilation of intracranial artery, percutaneous
                            endoscopic approach.
057L3DZ..................  Dilation of intracranial vein with
                            intraluminal device, percutaneous approach.
057L4DZ..................  Dilation of intracranial vein with
                            intraluminal device, percutaneous endoscopic
                            approach.
------------------------------------------------------------------------

    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.

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

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

------------------------------------------------------------------------
ICD-10-CM  diagnosis code                   Description
------------------------------------------------------------------------
O09.511..................  Supervision of elderly primigravida, first
                            trimester.
O09.512..................  Supervision of elderly primigravida, second
                            trimester.
O09.513..................  Supervision of elderly primigravida, third
                            trimester.
O09.519..................  Supervision of elderly primigravida,
                            unspecified trimester.

[[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.

------------------------------------------------------------------------
ICD-10-CM  diagnosis code                   Description
------------------------------------------------------------------------
M02.80...................  Other reactive arthropathies, unspecified
                            site.

[[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:

------------------------------------------------------------------------
  ICD-10-PCS  procedure
           code                             Description
------------------------------------------------------------------------
0DQQ0ZZ..................  Repair anus, open approach.
0DQQ3ZZ..................  Repair anus, percutaneous approach.
0DQQ4ZZ..................  Repair anus, percutaneous endoscopic
                            approach.
0DQQ7ZZ..................  Repair anus, via natural or artificial
                            opening.
0DQQ8ZZ..................  Repair anus, via natural or artificial
                            opening endoscopic.
0DQR0ZZ..................  Repair anal sphincter, open approach.
0DQR3ZZ..................  Repair anal sphincter, percutaneous approach.
0DQR4ZZ..................  Repair anal sphincter, percutaneous
                            endoscopic approach.
------------------------------------------------------------------------

    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.

------------------------------------------------------------------------
  ICD-10-PCS  procedure
           code                             Description
------------------------------------------------------------------------
0DQQ0ZZ..................  Repair anus, open approach.
0DQQ3ZZ..................  Repair anus, percutaneous approach.
0DQQ4ZZ..................  Repair anus, percutaneous endoscopic
                            approach.
0DQQ7ZZ..................  Repair anus, via natural or artificial
                            opening.
0DQQ8ZZ..................  Repair anus, via natural or artificial
                            opening endoscopic.
0DQR0ZZ..................  Repair anal sphincter, open approach.
0DQR3ZZ..................  Repair anal sphincter, percutaneous approach.
0DQR4ZZ..................  Repair anal sphincter, percutaneous
                            endoscopic approach.
0TQDXZZ..................  Repair urethra, external approach.
0UQJ0ZZ..................  Repair clitoris, open approach.
0UQJXZZ..................  Repair clitoris, external approach.
------------------------------------------------------------------------

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.

------------------------------------------------------------------------
  ICD-10-PCS  procedure
           code                             Description
------------------------------------------------------------------------
0210344..................  Bypass coronary artery, one site from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous approach.
02103D4..................  Bypass coronary artery, one site from
                            coronary vein with intraluminal device,
                            percutaneous approach.
0210444..................  Bypass coronary artery, one site from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous endoscopic approach.
02104D4..................  Bypass coronary artery, one site from
                            coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
0211344..................  Bypass coronary artery, two sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous approach.
02113D4..................  Bypass coronary artery, two sites from
                            coronary vein with intraluminal device,
                            percutaneous approach.
0211444..................  Bypass coronary artery, two sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous endoscopic approach.
02114D4..................  Bypass coronary artery, two sites from
                            coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
0212344..................  Bypass coronary artery, three sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous approach.
02123D4..................  Bypass coronary artery, three sites from
                            coronary vein with intraluminal device,
                            percutaneous approach.
0212444..................  Bypass coronary artery, three sites from
                            coronary vein with drug-eluting intraluminal
                            device, percutaneous endoscopic approach.
02124D4..................  Bypass coronary artery, three sites from
                            coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
0213344..................  Bypass coronary artery, four or more sites
                            from coronary vein with drug-eluting
                            intraluminal device, percutaneous approach.
02133D4..................  Bypass coronary artery, four or more sites
                            from coronary vein with intraluminal device,
                            percutaneous approach.
0213444..................  Bypass coronary artery, four or more sites
                            from coronary vein with drug-eluting
                            intraluminal device, percutaneous endoscopic
                            approach.
02134D4..................  Bypass coronary artery, four or more sites
                            from coronary vein with intraluminal device,
                            percutaneous endoscopic approach.
------------------------------------------------------------------------


[[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:

------------------------------------------------------------------------
  ICD-10-PCS  procedure
           code                             Description
------------------------------------------------------------------------
0JHD0VZ..................  Insertion of infusion pump into right upper
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHD3VZ..................  Insertion of infusion pump into right upper
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHF0VZ..................  Insertion of infusion pump into left upper
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHF3VZ..................  Insertion of infusion pump into left upper
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHG0VZ..................  Insertion of infusion pump into right lower
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHG3VZ..................  Insertion of infusion pump into right lower
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHH0VZ..................  Insertion of infusion pump into left lower
                            arm subcutaneous tissue and fascia, open
                            approach.
0JHH3VZ..................  Insertion of infusion pump into left lower
                            arm subcutaneous tissue and fascia,
                            percutaneous approach.
0JHL0VZ..................  Insertion of infusion pump into right upper
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHL3VZ..................  Insertion of infusion pump into right upper
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
0JHM0VZ..................  Insertion of infusion pump into left upper
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHM3VZ..................  Insertion of infusion pump into left upper
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
0JHN0VZ..................  Insertion of infusion pump into right lower
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHN3VZ..................  Insertion of infusion pump into right lower
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
0JHP0VZ..................  Insertion of infusion pump into left lower
                            leg subcutaneous tissue and fascia, open
                            approach.
0JHP3VZ..................  Insertion of infusion pump into left lower
                            leg subcutaneous tissue and fascia,
                            percutaneous approach.
------------------------------------------------------------------------

    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. KcentraTM
    CSL Behring submitted an application for new technology add-on 
payments for KcentraTM for FY 2014. KcentraTM 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. KcentraTM 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. KcentraTM 
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 KcentraTM have diminished.
    KcentraTM was approved by the FDA on April 29, 2013. 
Under the ICD-10 coding system, KcentraTM 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 
KcentraTM and consideration of the public comments we 
received in response to the FY 2014 IPPS/LTCH PPS proposed rule, we 
approved KcentraTM 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 KcentraTM 
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 KcentraTM 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 KcentraTM.
    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 KcentraTM, we 
considered the beginning of the newness period to commence when 
KcentraTM was approved by the FDA on April 29, 2013. Because 
the 3-year anniversary date for KcentraTM 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 KcentraTM 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 
KcentraTM 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. CardioMEMSTM HF (Heart Failure) Monitoring System
    CardioMEMS, Inc. submitted an application for new technology add-on 
payment for FY 2015 for the CardioMEMSTM 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 CardioMEMSTM 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 CardioMEMSTM 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 CardioMEMSTM 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 
CardioMEMSTM HF Monitoring System for new technology add-on 
payments for FY 2015 (79 FR 49940). Cases involving the 
CardioMEMSTM 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 CardioMEMSTM 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 CardioMEMSTM HF Monitoring System is 
$8,875.
    With regard to the newness criterion for the 
CardioMEMSTM HF Monitoring System, we considered the 
beginning of the newness period to commence when the 
CardioMEMSTM HF Monitoring System was approved by the FDA on 
May 28, 2014. Because the 3-year anniversary date of the entry of the 
CardioMEMSTM 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 
CardioMEMSTM 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 
CardioMEMSTM 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 CardioMEMSTM HF Monitoring System for FY 2017. The 
maximum new technology add-on payment for a case involving the 
CardioMEMSTM 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.PACTTM AdmiralTM 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.PACTTM 
AdmiralTM Paclitaxel Coated Percutaneous Transluminal 
Angioplasty (PTA) Balloon Catheter (IN.PACTTM 
AdmiralTM), 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.PACTTM AdmiralTM 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.PACTTM 
AdmiralTM 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.PACTTM AdmiralTM 
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.PACTTM AdmiralTM 
technologies for new technology add-on payments for FY 2016 (80 FR 
49469). Cases involving the LUTONIX[supreg] and IN.PACTTM 
AdmiralTM 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.PACTTM 
AdmiralTM stated that a mean of 1.4 drug-coated balloons was 
used during the IN.PACTTM AdmiralTM 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.PACTTM AdmiralTM 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.PACTTM AdmiralTM 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.PACTTM AdmiralTM. 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.PACTTM AdmiralTM). 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.PACTTM 
AdmiralTM DCBs is $1,035.72.
    With regard to the newness criterion for LUTONIX[supreg] and 
IN.PACTTM AdmiralTM 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.PACTTM AdmiralTM technologies for FY 2017. 
We proposed that the maximum add-on payment for a case involving 
LUTONIX[supreg] and IN.PACTTM AdmiralTM 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 
PACTTM AdmiralTM 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 PACTTM 
AdmiralTM for FY 2017. The maximum add-on payment for a case 
involving LUTONIX[supreg] and IN.PACTTM AdmiralTM 
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 EliteTM 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 EliteTM 
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 
DIFICIDTM 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\

[[Page 56897]]

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] nanoLOCKTM 
Interbody Device)
    Titan Spine submitted an application for new technology add-on 
payments for the Titan Spine Endoskeleton[supreg] nanoLOCKTM 
Interbody Device (the Titan Spine nanoLOCKTM) for FY 2017. 
The Titan Spine nanoLOCKTM 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 nanoLOCKTM'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 nanoLOCKTM 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 nanoLOCKTM surface, 
available in multiple sizes to accommodate anatomy; the nanoLOCK\TM\ 
TAS-Sterile Packaged Lumbar ALIF Stand Alone Interbody Fusion Device 
with nanoLOCKTM surface, available in multiple sizes to 
accommodate anatomy; the nanoLOCK\TM\ TL-Sterile Packaged Lumbar 
Lateral Approach Interbody Fusion Device with nanoLOCKTM 
surface, available in multiple sizes to accommodate anatomy; the 
nanoLOCK\TM\ TO-Sterile Packaged Lumbar Oblique/PLIF Approach Interbody 
Fusion Device with nanoLOCKTM surface, available in multiple 
sizes to accommodate anatomy; the nanoLOCK\TM\ TT-Sterile Packaged 
Lumbar TLIF Interbody Fusion Device with nanoLOCKTM surface, 
available in multiple sizes to accommodate anatomy and the nanoLOCK\TM\ 
TC-Sterile Packaged Cervical Interbody Fusion Device with 
nanoLOCKTM surface, available in multiple sizes to 
accommodate anatomy. The applicant received FDA clearance on December 
14, 2015, for the nanoLOCKTM TCS-Sterile Package Cervical 
Stand Alone Interbody Fusion Device with nanoLOCKTM 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 nanoLOCKTM 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 nanoLOCKTM'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 nanoLOCKTM 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 
nanoLOCKTM'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 nanoLOCKTM's surface is created by 
using a reductive process of the titanium itself. The applicant 
asserted that use of the Titan Spine nanoLOCKTM 
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 nanoLOCKTM 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 nanoLOCKTM 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 
nanoLOCKTM technology has a different mechanism of action 
when compared to other spinal fusion devices. Therefore, the applicant 
did not believe that the Titan Spine nanoLOCKTM 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 nanoLOCKTM technology, their surfaces also 
are made of titanium. Therefore, we stated that we believe that the 
Titan Spine nanoLOCKTM interbody devices may be 
substantially similar to currently available titanium interbody 
devices.
    We invited public comments on whether the Titan Spine 
Endoskeleton[supreg] nanoLOCKTM 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 nanoLOCKTM 
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] nanoLOCKTM Interbody 
Devices. In the proposed rule, we stated concerns that Titan Spine 
Endoskeleton[supreg] nanoLOCKTM Interbody Devices may be 
substantially similar to currently available titanium interbody 
devices. Although Titan Spine Endoskeleton[supreg] 
nanoLOCKTM 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] 
nanoLOCKTM Interbody Devices are substantially similar to 
other titanium spinal implants and, therefore, as to whether the Titan 
Spine Endoskeleton[supreg] nanoLOCKTM Interbody Devices meet 
the newness criterion.
(1) Titan Spine Endoskeleton[supreg] nanoLOCKTM Interbody 
Device for Lumbar DDD
    As previously mentioned, the Titan Spine nanoLOCKTM 
received FDA clearance for the use of five lumbar interbody devices on 
October 27, 2014. To demonstrate that the Titan Spine 
nanoLOCKTM 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 nanolockTM 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 nanoLOCKTM 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 
nanoLOCKTM 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 
nanoLOCKTM 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 nanoLOCKTM 
for Lumbar DDD. We believe Titan Spine nanoLOCKTM for Lumbar 
DDD meets the cost criterion.
(2) Titan Spine Endoskeleton[supreg] nanoLOCKTM Interbody 
Device for Cervical DDD
    As previously mentioned, Titan Spine received FDA clearance for the 
use of the nanoLOCKTM TC-Sterile Packaged Cervical Interbody 
Fusion Device with nanoLOCKTM surface on October 27, 2014, 
and the nanoLOCKTM TCS-Sterile Package Cervical Interbody 
Fusion Device with nanoLOCKTM surface on December 14, 2015. 
To demonstrate that the Titan Spine nanoLOCKTM 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 
nanoLOCKTM 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 nanoLOCKTM 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 
nanoLOCKTM for Cervical DDD meets the cost criterion in the 
proposed rule. We did not receive any public comments concerning costs 
for Titan Spine nanoLOCKTM for Cervical DDD. We believe 
Titan Spine nanoLOCKTM for Cervical DDD meets the cost 
criterion.
    With regard to the substantial clinical improvement criterion for 
the Titan Spine Endoskeleton[supreg] nanoLOCKTM Interbody 
Device for Lumbar and Cervical DDD, the applicant asserted that the 
Titan Spine nanoLOCKTM 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 nanoLOCKTM 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 nanoLOCKTM'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 
nanoLOCKTM 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 nanoLOCKTM 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 nanoLOCKTM, 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 nanoLOCKTM 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 nanoLOCKTM technologies meet the 
substantial clinical improvement criterion. We invited public comments 
on whether the Titan Spine nanoLOCKTM technologies meet the 
substantial clinical improvement criterion in the proposed rule.
    Comment: Several commenters supported that Titan Spine 
Endoskeleton[supreg] nanoLOCKTM 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] 
nanoLOCKTM 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] nanoLOCKTM 
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] 
nanoLOCKTM 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.
---------------------------------------------------------------------------

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

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

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

    \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.
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    \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.
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    We believe it is important to adopt the HF Payment measure because 
variation in payment may reflect differences in care decision-making 
and resource utilization (for example, treatment, supplies, or 
services) for patients with heart failure both during hospitalization 
and immediately 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.
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    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.
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    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.
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    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.
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    In addition to assessing the use of the principal diagnosis codes 
of sepsis, we also analyzed coding patterns and the impact of expanding 
the pneumonia measure to include patients with the principal diagnosis 
of aspiration pneumonia. We noted after our analyses that aspiration 
pneumonia: (1) Is a common reason for pneumonia hospitalization, 
particularly among the elderly; (2) is currently not included in the 
CMS hospital outcome measure specifications for pneumonia patients; and 
(3) appears to be similarly subject to variation in diagnosis, 
documentation, and coding. The findings of published studies and CMS 
analyses suggested that a MORT-30-PN measure with an enhanced or 
broader cohort would ensure that the population of patients with 
pneumonia is more complete and comparable across hospitals.
    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\
---------------------------------------------------------------------------

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

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

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

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

    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\
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    \68\ Previously titled ``Postoperative Hip Fracture'' prior to 
v6.0.
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     PSI 09 Perioperative Hemorrhage or Hematoma Rate; *
     PSI 10 Postoperative Acute Kidney Injury Requiring 
Dialysis Rate; * \69\
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    \69\ Previously titled ``Postoperative Physiologic and Metabolic 
Derangement'' prior to v6.0.
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     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.
---------------------------------------------------------------------------

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

    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.
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    \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.
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(4) Estimated Effects of the Cohort Expansion
    Using administrative claims data for the FY 2016 payment 
determination (which included discharges between July 2011 and June 
2014), we simulated and analyzed the effects of the proposed cohort 
refinements on the PN Payment measure (NQF #2579) as if these

[[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.
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    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.
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    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\
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    \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.
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    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/.
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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

[[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\
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    \108\ Previously titled ``Postoperative Hip Fracture'' prior to 
v6.0.
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     PSI 09 Perioperative Hemorrhage or Hematoma Rate; *
     PSI 10 Postoperative Acute Kidney Injury Requiring 
Dialysis Rate; *\109\
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    \109\ Previously titled ``Postoperative Physiologic and 
Metabolic Derangement'' prior to v6.0.
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     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
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    \110\ Previously titled ``Accidental Puncture or Laceration 
Rate'' prior to v6.0.
    \111\ 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,\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.
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    \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.
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    Finally, the NQF Patient Safety Review Committee raised concerns 
about the weighting scheme of the component indicators. In prior 
versions of the measure, the weights of each component PSI were based 
solely on volume (numerator rates). In the modified PSI 90 measure, the 
rates of each component PSI are weighted based on statistical and 
empirical analyses of volume, excess clinical harm associated with the 
PSI, and disutility (individual preference for a health state linked to 
a harm, such as death or disability). The final weight for each 
component indicator is the product of harm weights and volume weights 
(numerator weights). Harm weights are calculated by multiplying 
empirical estimates of excess harms associated with the patient safety 
event by the utility weights linked to each of the harms. Excess harms 
are estimated using statistical models comparing patients with a safety 
event to those without a safety event in a Medicare fee-for-service 
sample. Volume weights are calculated based on the number of safety 
events for the component indicators in an all-payer reference 
population. For more information on the modified PSI 90 measure and 
component indicators, we refer readers to Quality Indicator Empirical 
Methods available online at: www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
    The risk adjustment and statistical modeling approaches of the 
models remain unchanged in the modified PSI 90 measure. In summary, the 
predicted value for each case is computed using a modeling approach 
that includes, but is not limited to, applying a Generalized Estimating 
Equation (GEE) hierarchical model (logistic regression with hospital 
random effect) and covariates for gender, age, Modified MS-DRG (MDRG), 
Major Diagnostic Category, transfer in, point of origin not available, 
procedure days not available, and AHRQ comorbidity (COMORB).
    The expected rate for each of the indicators is computed as the sum 
of the predicted value for each case divided by the number of cases for 
the unit of analysis of interest (that is, the hospital). The risk-
adjusted rate for each of the indicators is computed using indirect 
standardization as the observed rate divided by the expected rate, 
multiplied by the reference population rate. For more details about 
risk adjustment, we refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf. As stated above, we did not propose any 
changes to the risk adjustment for this measure.
(4) Reporting Periods
    The PSI 90 measure is a claims-based measure that has been 
calculated using 24-months of data. For the FY 2018 and FY 2019 payment 
determinations, measure rates would be calculated using reporting 
periods of July 1, 2014 through June 30, 2016 and July 1, 2015 through 
June 30, 2017, respectively. However, because hospitals began ICD-10-
CM/PCS implementation on October 1, 2015, these reporting periods for 
the FY 2018 and FY 2019 payment determinations would require using both 
ICD-9 and ICD-10 claims data to calculate measure performance.
    Since the ICD-10 transition was implemented on October 1, 2015, we 
have been monitoring our systems, and claims continue to be processed 
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 \113\ (https://www.cms.gov/icd10manual/fullcode_cms/P1616.html), which could directly affect the 
modified PSI 90 component

[[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.
---------------------------------------------------------------------------

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

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

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

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

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

    \126\ Bore refers to the size of a needle used for an IV.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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/.
---------------------------------------------------------------------------

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

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

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

(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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

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

    \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/.
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(2) Overview of Measure Change
    The measure cohort for the refined measure would not be 
substantively different from the currently adopted, publicly reported 
Stroke 30-day Mortality Rate. In addition, the data sources, three-year 
reporting period, inclusion and exclusion criteria, as well as the 
assessment of the outcome of mortality would all align with the 
currently adopted measure.
(3) Risk Adjustment
    The statistical modeling, measure calculation, and risk-adjustment 
calculation for this refined measure would align with the currently 
adopted Stroke 30-day Mortality Rate. However, we reselected risk 
variables, resulting in a final model with 20 risk-adjustment variables 
including the NIH Stroke Scale as an assessment of stroke severity. For 
the full measure specifications of the refined measure, we refer 
readers to the AMI, HF, PN, COPD, and Stroke Mortality Update zip file 
on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    In summary, we are considering proposing in the future a refinement 
of the Stroke 30-day Mortality Rate, which would change the risk 
adjustment to include an assessment of stroke severity, in the Hospital 
IQR Program for as early as the July 2017-June 2020 reporting period/FY 
2022 payment determination and for subsequent years.
    We 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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

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

(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.
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    \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.
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    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.
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    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).
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    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.

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[[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.
---------------------------------------------------------------------------

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

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

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

    \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
---------------------------------------------------------------------------

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

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

    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\
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

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

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

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

    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.
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    \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).
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    As provided in section 1886(s)(4)(A)(ii) of the Act, the 
application of the reduction for failure to report under section 
1886(s)(4)(A)(i) of the Act may result in an annual update of less than 
0.0 percent for a fiscal year, and may result in payment rates under 
section 1886(s)(1) of the Act being less than the payment rates for the 
preceding year. In addition, section 1886(s)(4)(B) of the Act requires 
that the application of the reduction to a standard Federal rate update 
be noncumulative across fiscal years. Thus, any reduction applied under 
section 1886(s)(4)(A) of the Act will apply only with respect to the 
fiscal year rate involved and the Secretary may not take into account 
the reduction in computing the payment amount under the system 
described in section 1886(s)(1) of the Act for subsequent years.
    Section 1886(s)(4)(C) of the Act requires that, for FY 2014 
(October 1, 2013 through September 30, 2014) and each subsequent year, 
each psychiatric hospital and psychiatric unit must submit to the 
Secretary data on quality measures as specified by the Secretary. The 
data must be submitted in a form and manner and at a time specified by 
the Secretary. Under section 1886(s)(4)(D)(i) of the Act, unless the 
exception of subclause (ii) applies, measures selected for the quality 
reporting program must have been endorsed by the entity with a contract 
under section 1890(a) of the Act. The National Quality Forum (NQF) 
currently holds this contract.
    Section 1886(s)(4)(D)(ii) of the Act provides an exception to the 
requirement for NQF endorsement of measures: In the case of a specified 
area or medical topic determined appropriate by the Secretary for which 
a feasible and practical measure has not been endorsed by the entity 
with a contract under section 1890(a) of the Act, the Secretary may 
specify a measure that is not so endorsed as long as due consideration 
is given to measures that have been endorsed or adopted by a consensus 
organization identified by the Secretary.
    Section 1886(s)(4)(E) of the Act requires the Secretary to 
establish procedures for making public the data submitted by inpatient 
psychiatric hospitals and psychiatric units under the IPFQR Program. 
These procedures must ensure that a facility has the opportunity to 
review its data prior to the data being made public. The Secretary must 
report quality measures that relate to services furnished by the 
psychiatric hospitals and units on the CMS Web site.
b. Covered Entities
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645), we 
established that the IPFQR Program's quality reporting requirements 
cover those psychiatric hospitals and psychiatric units paid under 
Medicare's IPF PPS (42 CFR 412.404(b)). Generally, psychiatric 
hospitals and psychiatric units within acute care and critical access 
hospitals that treat Medicare patients are paid under the IPF PPS. 
Consistent with prior rules, we continue to use the term ``inpatient 
psychiatric facility'' (IPF) to refer to both inpatient psychiatric 
hospitals and psychiatric units. This usage follows the terminology in 
our IPF PPS regulations at 42 CFR 412.402. For more information on 
covered entities, we refer readers to the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53645).
c. Considerations in Selecting Quality Measures
    Our objective in selecting quality measures is to balance the need 
for information on the full spectrum of care delivery and the need to 
minimize the burden of data collection and reporting. We have focused 
on measures that evaluate critical processes of care that have 
significant impact on patient outcomes and support CMS and HHS 
priorities for improved quality and efficiency of care provided by 
IPFs. We refer readers to section VIII.F.4.a. of the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53645 through 53646) for a detailed discussion of 
the considerations taken into account in selecting quality measures.
    Before being proposed for inclusion in the IPFQR Program, measures 
are placed on a list of measures under consideration, which is 
published annually by December 1 on behalf of CMS by the NQF. In 
compliance with section 1890A(a)(2) of the Act, measures that we 
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.''
---------------------------------------------------------------------------

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

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

    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\
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \364\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html.
    \365\ 76 FR 51660 through 51676.
---------------------------------------------------------------------------

    The proposed IPF readmission measure, 30-day all-cause unplanned 
readmission following psychiatric hospitalization in an IPF, estimates 
a facility-level, risk-standardized readmission rate for unplanned, 
all-cause readmissions within 30 days of discharge from an IPF. 
Detailed information about the development of this measure as well as 
final measure specifications can be downloaded from the CMS Web site 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#17 (on this page, 
the file is listed as ``Inpatient Psychiatric Facility (IPF) Outcome 
and Process Measure Development and Maintenance'' under ``Downloads.'') 
The denominator for this measure includes Medicare FFS beneficiaries 
aged 18 years and older who are admitted to and discharged alive from 
an IPF with a principal diagnosis of a psychiatric disorder. Admissions 
to IPFs for nonpsychiatric disorders, which account for only 1.1 
percent of admissions, were not included in the measure cohort because 
IPFs are expected to admit patients who need inpatient care for 
psychiatric causes.\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.
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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.
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    \394\ Occupational Outlook Handbook. Available at: http://www.bls.gov/oes/2012/may/oes292071.htm.
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    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.
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    \395\ Occupational Outlook Handbook. Available at: http://www.bls.gov/oes/2012/may/oes292071.htm.
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    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

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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.

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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:
* * * * *

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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.
* * * * *

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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.
* * * * *

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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.
* * * * *

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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.
* * * * *

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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.
* * * * *

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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:

----------------------------------------------------------------------------------------------------------------
                                                     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[dash]of[dash]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...

[[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] nanoLOCKTM Interbody Device), 
Defitelio[supreg] (Defibrotide), GORE[supreg] EXCLUDER[supreg] Iliac 
Branch Endoprosthesis (IBE), VistogardTM (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 EliteTM 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 VistogardTM) 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 
CardioMEMSTM HF (Heart Failure) Monitoring System, 
Blinatumomab (BLINCYTOTM), and the LUTONIX[supreg] Drug 
Coated Balloon (DCB) Percutaneous Transluminal Angioplasty (PTA) and 
IN.PACTTM AdmiralTM 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
CardioMEMSTM 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 BLINCYTOTM 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.PACTTMAdmiralTM 
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.PACTTMAdmiralTM 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 VistogardTM 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

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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.

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