[Federal Register: April 25, 2006 (Volume 71, Number 79)]
[Proposed Rules]
[Page 23995-24472]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ap06-18]
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Part II
Book 2 of 2 Books
Pages 23995-24550
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 409, 410 et al.
Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2007 Rates; Proposed Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 409, 410, 412, 413, 424, 485, and 489
[CMS-1488-P]
RIN 0938-AO12
Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2007 Rates
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs to implement changes arising from our continuing experience with
these systems, and to implement a number of changes made by the Deficit
Reduction Act of 2005 (Pub. L. 109-171). In addition, in the Addendum
to this proposed rule, we describe the proposed changes to the amounts
and factors used to determine the rates for Medicare hospital inpatient
services for operating costs and capital-related costs. We also are
setting forth proposed rate-of-increase limits as well as proposed
policy changes for hospitals and hospital units excluded from the IPPS
that are paid in full or in part on a reasonable cost basis subject to
these limits. These proposed changes would be applicable to discharges
occurring on or after October 1, 2006.
In this proposed rule, we discuss our proposals to refine the
diagnosis-related group (DRG) system under the IPPS to better recognize
severity of illness among patients--for FY 2007, we are proposing to
use a hospital-specific relative value cost center weighting
methodology to adjust DRG relative weights and in FY 2008 (if not
earlier), to implement consolidated severity-adjusted DRGs or
alternative severity adjustment methods.
Among the other policy changes that we are proposing to make are
changes related to: limited revisions of the reclassification of cases
to DRGs; the long-term care (LTC)-DRGs and relative weights; the wage
data, including the occupational mix data, used to compute the wage
index; applications for new technologies and medical services add-on
payments; payments to hospitals for the direct and indirect costs of
graduate medical education; submission of hospital quality data;
payments to sole community hospitals and Medicare-dependent, small
rural hospitals; and provisions governing emergency services under the
Emergency Medical Treatment and Labor Act of 1986 (EMTALA).
We are also inviting comments on a number of issues including
performance-based hospital payments for services and health information
technology, as well as how to improve data transparency for consumers.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on June 12, 2006.
ADDRESSES: In commenting, please refer to file code CMS-1488-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click
on the link ``Submit electronic comments on CMS regulations with an
open comment period''. (Attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1488-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1488-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7195 in advance to schedule your arrival
with one of our staff members. Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW., Washington, DC 20201, or 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the Hubert H. Humphrey Building is
not readily available to persons without Federal Government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain proof of filing by
stamping in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Marc Hartstein, (410) 786-4548, Operating Prospective Payment,
Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and
Technology Add-On Payments, Hospital Geographic Reclassifications, Sole
Community Hospital, Disproportionate Share Hospital, and Medicare-
Dependent, Small Rural Hospital Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Graduate Medical Education, Critical Access Hospitals, and
Long-Term Care (LTC)-DRG Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Issues.
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment
Update Issues.
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing Issues.
Frederick Grabau, (410) 786-0206, Services in Foreign Hospitals Issues.
Brian Reitz, (410) 786-5001, Obsolete Paper Claims Forms Issues.
SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments
from the public on all issues set forth in this rule to assist us in
fully considering issues and developing policies. You can assist us by
referencing the file code CMS-1488-P and the specific ``issue
identifier'' that precedes the section on which you choose to comment.
Inspection of Public Comments: All comments received before the
close of
[[Page 23997]]
the comment period are available for viewing by the public, including
any personally identifiable or confidential business information that
is included in a comment. We post all comments received before the
close of the comment period on the following Web site as soon as
possible after they have been received: http://www.cms.hhs.gov/eRulemaking.
Click on the link ``Electronic Comments on CMS
Regulations'' on that Web site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.
Electronic Access
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents' home page address
is http://www.gpoaccess.gov/, by using local WAIS client software, or
by telnet to swais.access.gpo.gov, then login as guest (no password
required). Dial-in users should use communications software and modem
to call (202) 512-1661; type swais, then login as guest (no password
required).
Acronyms
AHA American Hospital Association
AHIMA American Health Information Management Association
AHRO Agency for Health Care Research and Quality
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ASC Ambulatory surgical center
ASP Average sales price
AWP Average wholesale price
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
CAH Critical access hospital
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CDAC Clinical Data Abstraction Center
CIPI Capital input price index
CPI Consumer 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
CPI Consumer price index
CRNA Certified registered nurse anesthetist
CY Calendar year
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law
99-272
FDA Food and Drug Administration
FFY Federal fiscal year
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIC Health insurance card
HIPAA Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HSA Health savings account
HSCRC Maryland Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Edition,
Procedure Coding System
ICU Intensive care unit
IHS Indian Health Service
IME Indirect medical education
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS Acute care hospital inpatient prospective payment system
IRF Inpatient rehabilitation facility
JCAHO Joint Commission on Accreditation of Healthcare Organizations
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MMA Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Public Law 108-173
MRHFP Medicare Rural Hospital Flexibility Program
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NICU Neonatal intensive care unit
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
O.R. Operating room
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OSCAR Online Survey Certification and Reporting (System)
PRM Provider Reimbursement Manual
PPI Producer price index
PMSAs Primary metropolitan statistical areas
PPS Prospective payment system
PRA Per resident amount
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious Nonmedical Health care Institution
RRC Rural referral center
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSA Social Security Administration
SSI Supplemental Security Income
TAG Technical Advisory Group
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248
UHDDS Uniform hospital discharge data set
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System
(IPPS)
2. Hospitals and Hospital Units Excluded From the IPPS
a. Inpatient Rehabilitation Facilities (IRFs)
b. Long-Term Care Hospitals (LTCHs)
c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
C. Major Contents of this Proposed Rule
1. Proposed DRG Reclassifications and Recalibrations of Relative
Weights
2. Proposed Changes to the Hospital Wage Index
3. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
4. Proposed Changes to the PPS for Capital-Related Costs
5. Proposed Changes for Hospitals and Hospital Units Excluded
From the IPPS
6. Payment for Services Furnished Outside the United States
7. Payment for Blood Clotting Factor Administered to Inpatients
With Hemophilia
8. Limitation on Payments to Skilled Nursing Facilities for Bad
Debt
9. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
12. Discussion of Medicare Payment Advisory Commission
Recommendations
13. Appendix C--Combinations of Consolidated Severity-Adjusted
DRGs and Appendix D--Crosswalk of Consolidated Severity-Adjusted
DRGs to Respective APR DRGs
II. Proposed Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Yearly Review for Making DRG Changes
3. Refinement of DRGs Based on Severity of Illness
C. Proposals for Revisions to the DRG System Used Under the IPPS
1. MedPAC Recommendations
2. Refinement of the Relative Weight Calculation
3. Refinement of DRGs Based on Severity of Illness
a. Comparison of the CMS DRG System and the APR DRG System
b. Consolidated Severity-Adjusted DRGs for Use in the IPPS
c. Changes to Case-Mix Index (CMI) From a New DRG System
4. Effect of Consolidated Severity-Adjusted DRGs on the Outlier
Threshold
5. Impact of Refinement of DRG System on Payments
6. Conclusions
D. Proposed Changes to Specific DRG Classifications
1. Pre-MDCs: Pancreas Transplants
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Implantation of Intracranial Neurostimulator System for Deep
Brain Stimulation (DBS)
b. Carotid Artery Stents
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Insertion of Epicardial Leads for Defibrillator Devices
b. Application of Major Cardiovascular Diagnoses (MCVs) List to
Defibrillator DRGs
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Hip and Knee Replacements
b. Spinal Fusion
c. ChariteTM Spinal Disc Replacement Device
5. MDC 18 (Infectious and Parasitic Diseases (Systemic or
Unspecified Sites)): Severe Sepsis
6. Medicare Code Editor (MCE) Changes
a. Newborn Diagnoses Edit
b. Diagnoses Allowed for Females Only Edit
c. Diagnoses Allowed for Males Only Edit
d. Manifestations Not Allowed as Principal Diagnosis Edit
e. Nonspecific Principal Diagnosis Edit
f. Unacceptable Principal Diagnosis Edit
g. Nonspecific O.R. Procedures Edit
h. Noncovered Procedures Edit
i. Bilateral Procedure Edit
7. Surgical Hierarchies
8. Refinement of Complications and Comorbidities (CC) List
a. Background
b. Comprehensive Review of the CC List
c. CC Exclusions List Proposed for FY 2007
9. Review of Procedure Codes in DRGs 468, 476, and 477
a. Moving Procedure Codes From DRG 468 or DRG 477 to MDCs
b. Reassignment of Procedures Among DRGs 468, 476, and 477
c. Adding Diagnosis or Procedure Codes to MDCs
10. Changes to the ICD-9-CM Coding System
E. Proposed Recalibration of DRG Weights
F. Proposed LTC-DRG Reclassifications and Relative Weights for
LTCHs for FY 2007
1. Background
2. Proposed Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications into DRGs
3. Development of the Proposed FY 2007 LTC-DRG Relative Weights
a. General Overview of Development of the LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Proposed Low-Volume LTC-DRGs
4. Steps for Determining the Proposed FY 2007 LTC-DRG Relative
Weights
G. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of This Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2007 Status of Technologies Approved for FY 2006 Add-On
Payments
a. Kinetra[supreg] Implantable Neurostimulator for Deep Brain
Stimulation
b. Endovascular Graft Repair of the Thoracic Aorta
c. Restore[supreg] Rechargeable Implantable Neurostimulator
4. FY 2007 Applicants for New Technology Add-On Payments
a. C-Port[supreg] Distal Anastomosis System
b. NovoSeven[supreg] for Intracerebral Hemorrhage
c. X STOP Interspinous Process Decompression System
III. Proposed Changes to the Hospital Wage Index
A. Background
B. Core-Based Statistical Areas for the Proposed Hospital Wage
Index
C. Proposed Occupational Mix Adjustment to the Proposed FY 2007
Index
1. Development of Data for the Proposed Occupational Mix
Adjustment
2. Calculation of the Proposed FY 2007 Occupational Mix
Adjustment Factor and the Proposed FY 2007 Occupational Mix Adjusted
Wage Index
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D. Worksheet S-3 Wage Data for the Proposed FY 2007 Wage Index
Update
E. Verification of Worksheet S-3 Wage Data
F. Computation of the Proposed FY 2007 Unadjusted Wage Index
G. Computation of the Proposed FY 2007 Blended Wage Index
H. Proposed Revisions to the Wage Index Based on Hospital
Redesignations
1. General
2. Effects of Reclassification
3. FY 2007 MGCRB Reclassifications
4. Proposed FY 2007 Redesignations Under Section 1886(d)(8)(B)
of the Act
5. Reclassifications Under Section 508 of Pub. L. 108-173
6. Proposed Wage Indices for Reclassified Hospitals and Proposed
Reclassification Budget Neutrality Factor
I. Proposed FY 2007 Wage Index Adjustment Based on Commuting
Patterns of Hospital Employees
J. Process for Requests for Wage Index Data Corrections
K. Labor-Related Share for the Wage Index for FY 2007
L. Proxy for the Hospital Market Basket
IV. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
2. New Procedures for Hospital Reporting of Quality Data
3. Electronic Medical Records
B. Value-Based Purchasing
1. Introduction
2. Premier Hospital Quality Incentive Demonstration
3. RHQDAPU Program
a. Section 501(b) of Pub. L. 108-173 (MMA)
b. Section 5001(a) of Pub. L. 109-171 (DRA)
4. Plan for Implementing Hospital Value-Based Purchasing
Beginning With FY 2009
a. Measure Development and Refinement
b. Data Infrastructure
c. Incentive Methodology
d. Public Reporting
5. Considerations Related to Certain Conditions, Including
Hospital-Acquired Infections
6. Promoting Effective Use of Health Information Technology
C. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small
Rural Hospitals (MDHs)
1. Background
2. Volume Decrease Adjustment for SCHs and MDHs
a. HAS/Monitrend Data
b. HAS/Monitrend Data Book Replacement Alternative
3. Mandatory Reporting Requirements for Any Changes in the
Circumstances Under Which a Hospital Was Designated as an SCH or MDH
4. Proposed Payment Changes for MDHs Under the DRA of 2005
a. Background
b. Proposed Regulation Changes
5. Proposed Technical Change
D. Rural Referral Centers
1. Case-Mix Index
2. Discharges
E. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2007
3. Technical Change to Revise Cross-Reference
F. Payment Adjustment for Disproportionate Share Hospitals
(DSHs)
1. Background
2. Technical Corrections
3. Proposed Reinstatement of Inadvertently Deleted Provisions on
DSH Payment Adjustment Factors
4. Enhanced DSH Adjustment for MDHs
G. Geographic Reclassifications
1. Background
2. Reclassifications under Section 508 of Pub. L. 108-173
3. Multicampus Hospitals
4. Urban Group Hospital Reclassifications
5. Effect of Change of Ownership on Urban County Group
Reclassifications
6. Requested Reclassification for Hospitals Located in a Single
Hospital MSA Surrounded by Rural Counties
H. Payment for Direct Graduate Medical Education
1. Background
2. Determination of Weighted Average Per Resident Amounts (PRAs)
for Merged Teaching Hospitals
3. Determination of Per Resident Amounts (PRAs) for New Teaching
Hospitals
4. Requirements for Counting and Appropriate Documentation of
FTE Residents: Clarification
5. Resident Time Spent in Nonpatient Care Activities as Part of
Approved Residency Programs
6. Medicare GME Affiliated Groups: Technical Changes to
Regulations
I. Payment for the Costs of Nursing and Allied Health Education
Activities: Clarification
J. Hospital Emergency Services Under EMTALA
1. Background
2. Role of the EMTALA Technical Advisory Group (TAG)
3. Definition of ``Labor''
4. Application of EMTALA Requirements to Hospitals Without
Dedicated Emergency Departments
5. Clarification of Reference to ``Referral Centers''
K. Other Proposed Technical Changes
1. Proposed Cross-Reference Correction in Regulations on
Limitations on Beneficiary Charges
2. Proposed Cross-Reference Corrections in Regulations on
Payment Denials Based on Admissions and Quality Reviews
3. Proposed Cross-Reference Correction in Regulations on Outlier
Payments
4. Removing References to Two Paper Claims Forms
L. Rural Community Hospital Demonstration Program
M. Health Care Information Transparency Initiative
V. Proposed Changes to the PPS for Capital-Related Costs
A. Background
B. Treatment of Certain Urban Hospitals Reclassified as Rural
Hospitals Under Sec. 412.103
C. Other Technical Corrections Relating to the Capital PPS
Geographic Adjustment Factors
VI. Proposed Changes for Hospitals and Hospital Units Excluded From
the IPPS
A. Payments to Existing Hospitals and Hospital Units
1. Payments to Existing Excluded Hospitals and Hospital Units
2. Separate PPS for IRFs
3. Separate PPS for LTCHs
4. Separate PPS for IPFs
5. Grandfathering of Hospitals-Within-Hospitals (HwHs) and
Satellite Facilities
6. Proposed Changes to the Methodology for Determining LTCH
Cost-to-Charge Ratios (CCRs) and the Reconciliation of High-Cost and
Short-Stay Outlier Payments Under the LTCH PPS
a. Background
b. High-Cost Outliers
c. Short-Stay Outliers
7. Technical Corrections Relating to LTCHs
8. Proposed Cross-Reference Correction in Authority Citations
for 42 CFR 412 and 413
B. Critical Access Hospitals (CAHs)
1. Background
2. Sunset of Designation of CAHs as Necessary Providers:
Technical Correction
VII. Payment for Services Furnished Outside the United States
A. Background
B. Proposed Clarification of Regulations
VIII. Payment for Blood Clotting Factor Administered to Inpatients
With Hemophilia
IX. Limitation on Payments to Skilled Nursing Facilities for Bad
Debt
A. Background
B. Changes Made by Section 5004 of the DRA
C. Proposed Regulation Changes
X. MedPAC Recommendations
XI. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
C. Public Comments
XII. Regulation Text
Addendum--Proposed Schedule of Standardized Amounts Effective With
Discharges Occurring On or After October 1, 2006 and Update Factors
and Rate-of-Increase Percentages Effective With Cost Reporting
Periods Beginning on or After October 1, 2006
I. Summary and Background
II. Proposed Changes to Prospective Payment Rates for Hospital
Inpatient Operating Costs for FY 2007
A. Calculation of the Adjusted Standardized Amount
1. Standardization of Base-Year Costs or Target Amounts
2. Computing the Average Standardized Amount
3. Updating the Average Standardized Amount
4. Other Adjustments to the Average Standardized Amount
a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment
[[Page 24000]]
b. Reclassified Hospitals--Budget Neutrality Adjustment
c. Outliers
d. Rural Community Hospital Demonstration Program Adjustment
(Section 410A of Pub. L. 108-173)
5. Proposed FY 2007 Standardized Amount
B. Adjustments for Area Wage Levels and Cost-of-Living
1. Adjustment for Area Wage Levels
2. Adjustment for Cost-of-Living in Alaska and Hawaii
C. DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates for FY
2007
1. Federal Rate
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
b. Updating the FY 1982, FY 1987, FY 1996, and FY 2002 Hospital-
Specific Rates for FY 2007
3. General Formula for Calculation of Proposed Prospective
Payment Rates for Hospitals Located in Puerto Rico Beginning On or
After October 1, 2006 and Before October 1, 2007
a. Puerto Rico Rate
b. National Rate
III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2007
A. Determination of Proposed Federal Hospital Inpatient Capital-
Related Prospective Payment Rate Update
1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
b. Comparison of CMS and MedPAC Update Recommendation
2. Proposed Outlier Payment Adjustment Factor
3. Proposed Budget Neutrality Adjustment Factor for Changes in
DRG Classifications and Weights and the GAF
4. Proposed Exceptions Payment Adjustment Factor
5. Proposed Capital Standard Federal Rate for FY 2007
6. Proposed Special Capital Rate for Puerto Rico Hospitals
B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2007
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2007
IV. Payment Rates for Excluded Hospitals and Hospital Units:
Proposed Rate-of-Increase Percentages
A. Payments to Existing Excluded Hospitals and Units
B. New Excluded Hospitals and Units
V. Proposed Payment for Blood Clotting Factor Administered to
Inpatients With Hemophilia
Tables
Table 1A--National Adjusted Operating Standardized Amounts,
Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share
If Wage Index Is Greater Than 1)
Table 1B--National Adjusted Operating Standardized Amounts,
Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If
Wage Index Is Less Than or Equal to 1)
Table 1C--Adjusted Operating Standardized Amounts for Puerto
Rico, Labor/Nonlabor
Table 1D--Capital Standard Federal Payment Rate
Table 2--Hospital Case-Mix Indexes for Discharges Occurring in
Federal Fiscal Year 2005; Hospital Wage Indexes for Federal Fiscal
Year 2007; Hospital Average Hourly Wage for Federal Fiscal Years
2005 (2001 Wage Data), 2006 (2002 Wage Data), and 2007 (2003 Wage
Data); Wage Indexes and 3-Year Average of Hospital Average Hourly
Wages
Table 3A--FY 2007 and 3-Year Average Hourly Wage for Urban Areas
by CBSA
Table 3B--FY 2007 and 3-Year Average Hourly Wage for Rural Areas
by CBSA
Table 4A-1--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Urban Areas by CBSA--FY2007
Table 4A-2--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Certain Urban Areas by CBSA for the Period April 1 through
September 30, 2007
Table 4B--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Rural Areas by CBSA--FY 2007
Table 4C-1--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Hospitals That Are Reclassified by CBSA--FY 2007
Table 4C-2--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Certain Hospitals That Are Reclassified by CBSA for the
Period April 1 Through September 30, 2007
Table 4F--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) by CBSA--FY 2007
Table 4J--Out-Migration Wage Adjustment--FY 2007
Table 5--List of Diagnosis-Related Groups (DRGs), Relative
Weighting Factors, and Geometric and Arithmetic Mean Length of Stay
(LOS)
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Invalid Procedure Codes
Table 6E--Revised Diagnosis Code Titles
Table 6F--Revised Procedure Code Titles
Table 6G--Additions to the CC Exclusions List
Table 6H--Deletions from the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2005 MedPAR Update December 2005
GROUPER V23.0
Table 7B--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2005 MedPAR Update December 2005
GROUPER V24.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios--
March 2006
Table 8B--Statewide Average Capital Cost-to-Charge Ratios--March
2006
Table 8C--Proposed Statewide Average Total Cost-to-Charge Ratios
for LTCHs--March 2006
Table 9A--Hospital Reclassifications and Redesignations by
Individual Hospital and CBSA--FY 2007
Table 9B--Hospital Reclassifications and Redesignation by
Individual Hospital Under Section 508 of Pub. L. 108-173--FY 2007
Table 9C--Hospitals Redesignated as Rural Under Section
1886(d)(8)(E) of the Act--FY 2007
Table 10--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased to Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Diagnosis-Related Groups (DRGs)--March
2006
Table 11--Proposed FY 2007 LTC-DRGs, Relative Weights, Geometric
Average Length of Stay, and \5/6\ths of the Geometric Average Length
of Stay
Appendix A--Regulatory Impact Analysis
I. Overall Impact
II. Objectives
III. Limitations on Our Analysis
IV. Hospitals Included In and Excluded From the IPPS
V. Effects on Excluded Hospitals and Hospital Units
VI. Quantitative Effects of the Proposed Policy Changes Under the
IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects on the Hospitals that Failed the Quality Data
Submission Process (Column 2)
D. Effects of the DRA Provision Related to MDHs (Column 3)
E. Effects of the Changes to the DRG Reclassifications and
Relative Cost-Based Weights (Column 4)
F. Effects of Proposed Wage Index Changes (Column 5)
G. Combined Effects of Proposed DRG and Wage Index Changes,
Including Budget Neutrality Adjustment (Column 6)
H. Effects of the 3-Year Provision Allowing Urban Hospitals that
Were Converted to Rural as a Result of the FY 2005 Labor Market Area
Changes to Maintain the Wage Index of the Urban Labor Market Area in
Which They Were Formerly Located (Column 7)
I. Effects of MGCRB Reclassifications (Column 8)
J. Effects of the Proposed Wage Index Adjustment for Out-
Migration (Column 9)
K. Effects of All Changes (Column 10)
L. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
M. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of LTC-DRG Reclassifications and Relative Weights for
LTCHs
B. Effects of Proposed New Technology Add-On Payments
C. Effects of Requirements for Hospital Reporting of Quality
Data for Annual Hospital Payment Update
D. Effects of Other Proposed Policy Changes Affecting Sole
Community Hospitals (SCHs) and Medicare-Dependent, Small Rural
Hospitals (MDHs)
E. Effects of Proposed Policy on Payment for Direct Costs of
Graduate Medical Education
[[Page 24001]]
1. Determination of Weighted Average GME PRAs for Merged
Teaching Hospitals
2. Determination of PRAs for New Teaching Hospitals
3. Requirements for Counting and Appropriate Documentation of
FTE Residents
4. Resident Time Spent in Nonpatient Care Activities as Part of
an Approved Residency Program
F. Effects of Proposed Policy Changes Relating to Emergency
Services Under EMTALA
G. Effects of Policy on Rural Community Hospital Demonstration
Program
H. Effects of Proposed Policy on Hospitals-Within-Hospitals and
Satellite Facilities
I. Effects of Proposed Policy Changes to the Methodology for
Determining LTCH CCRs and the Reconciliation LTCH PPS Outlier
Payments
J. Effects of Proposed Policy on Payment for Services Furnished
Outside the United States
K. Effects of Proposed Policy on Limitation on Payments to SNFs
VIII. Effects of Proposed Changes in the Capital PPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866
Appendix B--Recommendation of Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2007
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare
Appendix C--Combinations of Proposed Consolidated Severity-Adjusted
DRGs
Appendix D--Crosswalk of Proposed Consolidated Severity-Adjusted
DRGs to Respective APR DRGs
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a
system of payment for the operating costs of acute care hospital
inpatient stays under Medicare Part A (Hospital Insurance) based on
prospectively set rates. Section 1886(g) of the Act requires the
Secretary to pay for the capital-related costs of hospital inpatient
stays under a prospective payment system (PPS). Under these PPSs,
Medicare payment for hospital inpatient operating and capital-related
costs is made at predetermined, specific rates for each hospital
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
The base payment rate is comprised of a standardized amount that is
divided into a labor-related share and a nonlabor-related share. The
labor-related share is adjusted by the wage index applicable to the
area where the hospital is located; and if the hospital is located in
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage of low-income patients, it
receives a percentage add-on payment applied to the DRG-adjusted base
payment rate. This add-on payment, known as the disproportionate share
hospital (DSH) adjustment, provides for a percentage increase in
Medicare payments to hospitals that qualify under either of two
statutory formulas designed to identify hospitals that serve a
disproportionate share of low-income patients. For qualifying
hospitals, the amount of this adjustment may vary based on the outcome
of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a
percentage add-on payment for each case paid under the IPPS, known as
the indirect medical education (IME) adjustment. This percentage
varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. To qualify, a new technology or medical service must
demonstrate that it is a substantial clinical improvement over
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any outlier payment due is added to the DRG-adjusted base payment rate,
plus 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 the higher of a hospital-specific rate based on their costs in a
base year (the higher of FY 1982, FY 1987, FY 1996, or FY 2002) or the
IPPS rate based on the standardized amount. For example, sole community
hospitals (SCHs) are the sole source of care in their areas, and
Medicare-dependent, small rural hospitals (MDHs) are a major source of
care for Medicare beneficiaries in their areas. Both of these
categories of hospitals are afforded this special payment protection in
order to maintain access to services for beneficiaries. (Until FY 2007,
an MDH has received the IPPS rate plus 50 percent of the difference
between the IPPS rate and its hospital-specific rate if the hospital-
specific rate is higher than the IPPS rate. In addition, an MDH does
not have the option of using FY 1996 as the base year for its hospital-
specific rate. As discussed below, for discharges occurring on or after
October 1, 2007, but before October 1, 2011, an MDH will receive the
IPPS rate plus 75 percent of the difference between the IPPS rate and
its hospital-specific rate, if the hospital-specific rate is higher
than the IPPS rate.)
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 PPS, payments are adjusted by the same DRG for the case as they
are under the operating IPPS. Capital PPS 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
specialty hospitals and hospital units are excluded from the IPPS.
These hospitals and units are: rehabilitation hospitals and units;
long-term care hospitals (LTCHs); psychiatric hospitals and units;
children's hospitals; and cancer hospitals. Religious nonmedical health
care institutions (RNHCIs) are also excluded from the IPPS. Various
sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the
Medicare, Medicaid and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and
the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs
for rehabilitation hospitals and units (referred to as inpatient
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and
units (referred to as
[[Page 24002]]
inpatient psychiatric facilities (IPFs)), as discussed below.
Children's hospitals, cancer hospitals, and RNHCIs continue to be paid
solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR Parts 412 and 413.
a. Inpatient Rehabilitation Facilities (IRFs)
Under section 1886(j) of the Act, as amended, rehabilitation
hospitals and units (IRFs) have been transitioned from payment based on
a blend of reasonable cost reimbursement subject to a hospital-specific
annual limit under section 1886(b) of the Act and the adjusted facility
Federal prospective payment rate for cost reporting periods beginning
on or after January 1, 2002 through September 30, 2002, to payment at
100 percent of the Federal rate effective for cost reporting periods
beginning on or after October 1, 2002. IRFs subject to the blend were
also permitted to elect payment based on 100 percent of the Federal
rate. The existing regulations governing payments under the IRF PPS are
located in 42 CFR Part 412, Subpart P.
b. Long-Term Care Hospitals (LTCHs)
Under the authority of sections 123(a) and (c) of Pub. L. 106-113
and section 307(b)(1) of Pub. L. 106-554, LTCHs that do not meet the
definition of ``new'' under Sec. 412.23(e)(4) are being transitioned
from being paid for inpatient hospital services based on a blend of
reasonable cost-based reimbursement under section 1886(b) of the Act to
100 percent of the Federal rate during a 5-year period, beginning with
cost reporting periods that start on or after October 1, 2002. These
LTCHs that do not meet the definition of ``new'' may elect to be paid
based on 100 percent of the Federal prospective payment rate instead of
a blended payment in any year during the 5-year transition. For cost
reporting periods beginning on or after October 1, 2006, LTCHs will be
paid 100 percent of the Federal rate. The existing regulations
governing payment under the LTCH PPS are located in 42 CFR Part 412,
Subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a) and (c) of Pub. L. 106-113,
inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals
and psychiatric units of acute care hospitals) are paid under the IPF
PPS. Under the IPF PPS, some IPFs are transitioning from being paid for
inpatient hospital services based on a blend of reasonable cost-based
payment and a Federal per diem payment rate, effective for cost
reporting periods beginning on or after January 1, 2005 (November 15,
2004 IPF PPS final rule (69 FR 66922) and January 23, 2006 IPF PPS
proposed rule (71 FR 3616)). For cost reporting periods beginning on or
after January 1, 2008, all IPFs will be paid 100 percent of the Federal
per diem payment amount. The existing regulations governing payment
under the IPF PPS are located in 42 CFR 412, Subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services based on 101 percent of reasonable cost. Reasonable
cost is determined under the provisions of section 1861(v)(1)(A) of the
Act and existing regulations under 42 CFR Parts 413 and 415.
4. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act; the amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR Part 413.
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
On February 8, 2006, the Deficit Reduction Act of 2005 (DRA), Pub.
L. 109-171, was enacted. Pub. L. 109-171 made a number of changes to
the Act relating to prospective payments to hospitals and other
providers for inpatient services. This proposed rule would implement
amendments made by the following sections of Pub. L. 109-171:
Section 5001(a), which, effective for FY 2007 and
subsequent years, expands the requirements for hospital quality data
reporting.
Section 5003, which makes various improvements to the MDH
program. It extends special payment provisions, requires MDHs to use FY
2002 as their base year for determining whether use of their hospital-
specific rate enhances payment (but permits them to continue to use
either their 1982 or 1987 hospital-specific rate if using either of
those rates results in higher payments), and removes the application of
the 12-percent cap on the DSH payment adjustment factor for MDHs.
Section 5004, which reduces certain allowable SNF bad debt
payments by 30 percent. Payments for the bad debts of full-benefit,
dual eligible individuals are not reduced.
In this proposed rule, we also discuss and invite comments on the
requirements of section 5001(b) of Pub. L. 109-171, which require us to
develop a plan to implement, beginning with FY 2009, a value-based
purchasing plan for section 1886(d) hospitals. This discussion also
includes the provisions of section 5001(c) of Pub. L. 109-171, which
requires a quality adjustment in DRG payments for certain hospital-
acquired conditions, effective for FY 2008.
C. Major Contents of This Proposed Rule
In this proposed rule, we are setting forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs in FY
2007. We also are setting forth proposed changes relating to payments
for GME costs, payments to certain hospitals and units that continue to
be excluded from the IPPS and paid on a reasonable cost basis, and
payments for SCHs and MDHs. The changes being proposed would be
effective for discharges occurring on or after October 1, 2006, unless
otherwise noted.
The following is a summary of the major changes that we are
proposing to make:
1. Proposed DRG Reclassifications and Recalibrations of Relative
Weights
In section II. of the preamble to this proposed rule, as required
by section 1886(d)(4)(C) of the Act, we are proposing limited revisions
to the DRG classifications structure. In this section, we respond to
several recommendations made by MedPAC intended to improve the DRG
system. We are also proposing to use, for FY 2007, hospital-specific
relative values for 10 cost centers to compute DRG relative weights. In
addition, we are proposing to use consolidated severity-adjusted DRGs
or alternative severity adjustment methods in FY 2008 (if not earlier).
We also are presenting our reevaluation of certain FY 2006
applicants for add-on payments for high-cost new medical services and
technologies, and our analysis of FY 2007 applicants (including public
input,
[[Page 24003]]
as directed by Pub. L. 108-173, obtained in a town hall meeting).
We are proposing the annual update of the long-term care diagnosis-
related group (LTC-DRG) classifications and relative weights for use
under the LTCH PPS for FY 2007.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to this proposed rule, we are
proposing revisions to the wage index and the annual update of the wage
data. Specific issues addressed include the following:
The FY 2007 wage index update, using wage data from cost
reporting periods that began during FY 2003.
The proposed FY 2007 occupational mix adjustment to the
wage index.
The proposed revisions to the wage index based on hospital
redesignations and reclassifications.
The proposed adjustment to the wage index for FY 2007
based on commuting patterns of hospital employees who reside in a
county and work in a different area with a higher wage index.
The timetable for reviewing and verifying the wage data
that will be in effect for the proposed FY 2007 wage index.
The labor-related share for the FY 2007 wage index,
including the labor-related share for Puerto Rico.
3. Other Decisions and Proposed Changes to the IPPS for Operating
Costs, GME Costs, and Promoting Hospitals' Effective Use of Health
Information Technology
In section IV. of the preamble to this proposed rule, we discuss a
number of provisions of the regulations in 42 CFR Parts 412 and 413
including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Proposed changes in payments to SCHs and MDHs.
Proposed updated national and regional case-mix values and
discharges for purposes of determining rural referral center status.
The statutorily-required IME adjustment factor for FY
2007.
Proposed changes relating to hospitals' geographic
classifications, including reclassifications under section 508 of Pub.
L. 108-173, multicampus hospitals, urban group hospital
reclassification and the effect of change in ownership on urban county
group reclassifications.
Proposed changes and clarifications relating to GME that
address determining the per resident amounts (PRAs) for merged
hospitals and new teaching hospitals, counting and appropriate
documentation of FTE residents, and counting of resident time spent in
nonpatient care activities as part of approved residency programs.
Proposed changes relating to payment for costs of nursing
and allied health education programs.
Proposed changes relating to requirements for emergency
services for hospitals under EMTALA.
Discussion of the third year of implementation of the
Rural Community Hospital Demonstration Program.
We also are inviting comments on promoting hospitals' effective use
of health information technology.
4. Proposed Changes to the PPS for Capital-Related Costs
In section V. of the preamble to this proposed rule, we discuss the
payment policy requirements for capital-related costs and capital
payments to hospitals and propose several technical corrections to the
regulations.
5. Proposed Changes for Hospitals and Hospital Units Excluded From the
IPPS
In section VI. of the preamble to this proposed rule, we discuss
payments to excluded hospitals and hospital units, proposed policy
changes regarding increases or decreases in square footage or decreases
in the number of beds of the ``grandfathering'' HwHs and satellite
facilities, proposed changes to the methodology for determining LTCH
CCRs and the reconciliation of high-cost and short-stay outlier
payments under the LTCH PPS, and a proposed technical change relating
to the designation of CAHs as necessary providers.
6. Payments for Services Furnished Outside the United States
In section VII. of the preamble to this proposed rule, we set forth
proposed changes to clarify what is considered ``outside the United
States'' for Medicare payment purposes.
7. Payment for Blood Clotting Factor Administered to Inpatients With
Hemophilia
In section VIII. of the preamble to this proposed rule, we discuss
the proposed changes in payment for blood clotting factor administered
to Medicare beneficiaries with hemophilia for FY 2007.
8. Limitation on Payments to Skilled Nursing Facilities for Bad Debt
In section IX. of the preamble to this proposed rule, we propose to
implement section 5004 of Pub. L. 109-171 relating to reduction in
payments to SNFs for bad debt.
9. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the FY 2007
prospective payment rates for operating costs and capital-related
costs. We also establish the proposed threshold amounts for outlier
cases. In addition, we address the proposed update factors for
determining the rate-of-increase limits for cost reporting periods
beginning in FY 2007 for hospitals and hospital units excluded from the
PPS.
10. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected hospitals.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2007 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs
(and hospital-specific rates applicable to SCHs and MDHs).
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by hospitals and
hospital units excluded from the IPPS.
12. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 1 of each year, in which MedPAC
reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2006 recommendation concerning hospital inpatient
payment policies addressed the update factor for inpatient hospital
operating costs and capital-related costs under the IPPS and for
hospitals and distinct part hospital units excluded from the IPPS. This
recommendation is addressed in Appendix B of this proposed rule. For
further information relating specifically to the MedPAC March 2006
reports or to obtain a copy of the reports, contact MedPAC at (202)
220-3700 or visit
[[Page 24004]]
MedPAC's Web site at: http://www.medpac.gov.
13. Appendix C and Appendix D
In Appendix C of this proposed rule, we list the combinations of
the consolidated severity-adjusted DRGs that we are proposing to
implement on FY 2008 (if not earlier), as discussed in section II.C. of
the preamble of this proposed rule. In Appendix D of this proposed
rule, we provide a crosswalk of the proposed consolidated severity-
adjusted DRG system to the respective All Patient Related Diagnosis-
Related Group (APR DRG) system.
II. Proposed Changes to DRG Classifications and Relative Weights
(If you choose to comment on issues in this section, please include
the caption ``DRG Reclassifications'' at the beginning of your
comment.)
A. Background
Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS, we
pay for inpatient hospital services on a rate per discharge basis that
varies according to the DRG to which a beneficiary's stay is assigned.
The formula used to calculate payment for a specific case multiplies an
individual hospital's payment rate per case by the weight of the DRG to
which the case is assigned. Each DRG weight represents the average
resources required to care for cases in that particular DRG, relative
to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes in
treatment patterns, technology, and any other factors that may change
the relative use of hospital resources.
B. DRG Reclassifications
1. General
For FY 2007, we are proposing only limited changes to the current
DRG classifications, as discussed in section II.D. of the preamble to
this proposed rule, that would be applicable to discharges occurring on
or after October 1, 2006. We are limiting our proposed changes because,
as discussed in detail in section II.C. of the preamble to this
proposed rule, we are focusing our efforts on addressing the
recommendations made last year by MedPAC to refine the entire CMS DRG
system by taking into account severity of illness (if not earlier) and
applying hospital-specific relative value (HSRV) weights to DRGs.
Currently, cases are classified into CMS DRGs for payment under the
IPPS based on the principal diagnosis, up to eight additional
diagnoses, and up to six procedures performed during the stay. In a
small number of DRGs, classification is also based on the age, sex, and
discharge status of the patient. The diagnosis and procedure
information is reported by the hospital using codes from the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM).
The process of forming the DRGs was begun by dividing all possible
principal diagnoses into mutually exclusive principal diagnosis areas,
referred to as Major Diagnostic Categories (MDCs). The MDCs were formed
by physician panels as the first step toward ensuring that the DRGs
would be clinically coherent. The diagnoses in each MDC correspond to a
single organ system or etiology and, in general, are associated with a
particular medical specialty. Thus, in order to maintain the
requirement of clinical coherence, no final DRG could contain patients
in different MDCs. Most MDCs are based on a particular organ system of
the body. For example, MDC 6 is Diseases and Disorders of the Digestive
System. This approach is used because clinical care is generally
organized in accordance with the organ system affected. However, some
MDCs are not constructed on this basis because they involve multiple
organ systems (for example, MDC 22 (Burns)). For FY 2006, cases are
assigned to one of 526 DRGs in 25 MDCs. The table below lists the 25
MDCs.
Major Diagnostic Categories (MDCs)
------------------------------------------------------------------------
------------------------------------------------------------------------
1................................. Diseases and Disorders of the
Nervous System.
2................................. Diseases and Disorders of the Eye.
3................................. Diseases and Disorders of the Ear,
Nose, Mouth, and Throat.
4................................. Diseases and Disorders of the
Respiratory System.
5................................. Diseases and Disorders of the
Circulatory System.
6................................. Diseases and Disorders of the
Digestive System.
7................................. Diseases and Disorders of the
Hepatobiliary System and Pancreas.
8................................. Diseases and Disorders of the
Musculoskeletal System and
Connective Tissue.
9................................. Diseases and Disorders of the Skin,
Subcutaneous Tissue and Breast.
10................................ Endocrine, Nutritional and Metabolic
Diseases and Disorders.
11................................ Diseases and Disorders of the Kidney
and Urinary Tract.
12................................ Diseases and Disorders of the Male
Reproductive System.
13................................ Diseases and Disorders of the Female
Reproductive System.
14................................ Pregnancy, Childbirth, and the
Puerperium.
15................................ Newborns and Other Neonates with
Conditions Originating in the
Perinatal Period.
16................................ Diseases and Disorders of the Blood
and Blood Forming Organs and
Immunological Disorders.
17................................ Myeloproliferative Diseases and
Disorders and Poorly Differentiated
Neoplasms.
18................................ Infectious and Parasitic Diseases
(Systemic or Unspecified Sites).
19................................ Mental Diseases and Disorders.
20................................ Alcohol/Drug Use and Alcohol/Drug
Induced Organic Mental Disorders.
21................................ Injuries, Poisonings, and Toxic
Effects of Drugs.
22................................ Burns.
23................................ Factors Influencing Health Status
and Other Contacts with Health
Services.
24................................ Multiple Significant Trauma.
25................................ Human Immunodeficiency Virus
Infections.
------------------------------------------------------------------------
[[Page 24005]]
In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to a DRG. However, for FY 2006,
there are nine DRGs to which cases are directly assigned on the basis
of ICD-9-CM procedure codes. These DRGs are for heart transplant or
implant of heart assist systems, liver and/or intestinal transplants,
bone marrow transplants, lung transplants, simultaneous pancreas/kidney
transplants, and pancreas transplants, and for tracheostomies. Cases
are assigned to these DRGs before they are classified to an MDC. The
table below lists the nine current pre-MDCs.
Pre-Major Diagnostic Categories (Pre-MDCs)
------------------------------------------------------------------------
------------------------------------------------------------------------
DRG 103........................... Heart Transplant or Implant of Heart
Assist System.
DRG 480........................... Liver Transplant and/or Intestinal
Transplant.
DRG 481........................... Bone Marrow Transplant.
DRG 482........................... Tracheostomy for Face, Mouth, and
Neck Diagnoses.
DRG 495........................... Lung Transplant.
DRG 512........................... Simultaneous Pancreas/Kidney
Transplant.
DRG 513........................... Pancreas Transplant.
DRG 541........................... ECMO or Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth,
and Neck Diagnosis with Major O.R.
DRG 542........................... Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth,
and Neck Diagnosis without Major
O.R.
------------------------------------------------------------------------
Once the MDCs were defined, each MDC was evaluated to identify
those additional patient characteristics that would have a consistent
effect on the consumption of hospital resources. Because the presence
of a surgical procedure that required the use of the operating room
would have a significant effect on the type of hospital resources used
by a patient, most MDCs were initially divided into surgical DRGs and
medical DRGs. Surgical DRGs are based on a hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. Medical DRGs generally are differentiated on the
basis of diagnosis and age (0 to 17 years of age or greater than 17
years of age). Some surgical and medical DRGs are further
differentiated based on the presence or absence of a complication or a
comorbidity (CC).
Generally, nonsurgical procedures and minor surgical procedures
that are not usually performed in an operating room are not treated as
O.R. procedures. However, there are a few non-O.R. procedures that do
affect DRG assignment for certain principal diagnoses, for example,
extracorporeal shock wave lithotripsy for patients with a principal
diagnosis of urinary stones.
Once the medical and surgical classes for an MDC were formed, each
class of diagnoses was evaluated to determine if complications,
comorbidities, or the patient's age would consistently affect the
consumption of hospital resources. Physician panels classified each
diagnosis code based on whether the diagnosis, when present as a
secondary condition, would be considered a substantial CC. A
substantial CC was defined as a condition which, because of its
presence with a specific principal diagnosis, would cause an increase
in the length of stay by at least one day in at least 75 percent of the
patients. Each medical and surgical class within an MDC was tested to
determine if the presence of any substantial CC would consistently
affect the consumption of hospital resources.
A patient's diagnosis, procedure, discharge status, and demographic
information is fed into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into a DRG.
After patient information is screened through the MCE and any
further development of the claim is conducted, the cases are classified
into the appropriate DRG by the Medicare GROUPER software program. The
GROUPER program was developed as a means of classifying each case into
a DRG on the basis of the diagnosis and procedure codes and, for a
limited number of DRGs, demographic information (that is, sex, age, and
discharge status).
After cases are screened through the MCE and assigned to a DRG by
the GROUPER, the PRICER software calculates a base DRG payment. The
PRICER calculates the payment for each case covered by the IPPS based
on the DRG relative weight and additional factors associated with each
hospital, such as IME and DSH adjustments. These additional factors
increase the payment amount to hospitals above the base DRG payment.
The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible DRG classification
changes and to recalibrate the DRG weights. However, in the July 30,
1999 IPPS final rule (64 FR 41500), we discussed a process for
considering non-MedPAR data in the recalibration process. In order for
us to consider using particular non-MedPAR data, we must have
sufficient time to evaluate and test the data. The time necessary to do
so depends upon the nature and quality of the non-MedPAR data
submitted. Generally, however, a significant sample of the non-MedPAR
data should be submitted by mid-October for consideration in
conjunction with the next year's proposed rule. This allows us time to
test the data and make a preliminary assessment as to the feasibility
of using the data. Subsequently, a complete database should be
submitted by early December for consideration in conjunction with the
next year's proposed rule.
The limited changes that we are proposing to the DRG classification
system for FY 2007 for the FY 2007 GROUPER, version 24.0 and to the
methodology used to recalibrate the DRG weights are set forth under
section II.E. of this proposed rule. Unless otherwise noted in this
proposed rule, our DRG analysis is based on data from the December 2005
update of the FY 2005 MedPAR file, which contains hospital bills
received through December 31, 2005, for discharges occurring in FY
2005.
2. Yearly Review for Making DRG Changes
Many of the changes to the DRG classifications are the result of
specific issues brought to our attention by interested parties. We
encourage individuals with concerns about DRG classifications to bring
those concerns to our attention in a timely manner so they can be
carefully considered for possible
[[Page 24006]]
inclusion in the annual proposed rule and, if included, may be
subjected to public review and comment. Therefore, similar to the
timetable for interested parties to submit non-MedPAR data for
consideration in the DRG recalibration process, concerns about DRG
classification issues should be brought to our attention no later than
early December in order to be considered and possibly included in the
next annual proposed rule updating the IPPS.
The actual process of forming the DRGs was, and continues to be,
highly iterative, involving a combination of statistical results from
test data combined with clinical judgment. For purposes of this
proposed rule, in deciding whether to create a separate DRG, 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 existing DRG. We evaluate
patient care costs using average charges and lengths of stay as proxies
for costs and rely on the judgment of our medical officers to decide
whether patients are clinically distinct or similar to other patients
in the DRG. In evaluating resource costs, we consider both the absolute
and percentage differences in average charges between the cases we are
selecting for review and the remainder of cases in the DRG. We also
consider variation in charges within these groups; that is, whether
observed average differences are consistent across patients or
attributable to cases that are extreme in terms of charges or length of
stay, or both. Further, we also consider the number of patients who
will have a given set of characteristics and generally prefer not to
create a new DRG unless it will include a substantial number of cases.
C. Proposals for Revisions to the DRG System Used Under the IPPS
1. MedPAC Recommendations
In the FY 2006 IPPS final rule, we discussed a number of
recommendations made by MedPAC regarding revisions to the DRG system
used under the IPPS (70 FR 47473 through 47482).
In Recommendation 1-3 in the 2005 Report to Congress on Physician-
Owned Specialty Hospitals, MedPAC recommended that CMS:
Refine the current DRGs to more fully capture differences
in severity of illness among patients, including--
Base the DRG relative weights on the estimated cost of
providing care.
Base the weights on the national average of the hospital-
specific relative values (HSRVs) for each DRG (using hospital-specific
costs to derive the HSRVs).
Adjust the DRG relative weights to account for differences
in the prevalence of high-cost outlier cases.
Implement the case-mix measurement and outlier policies
over a transitional period.
As we noted in the FY 2006 IPPS final rule, we had insufficient
time to complete a thorough evaluation of these recommendations for
full implementation in FY 2006. However, we did adopt severity-weighted
cardiac DRGs in FY 2006 to address public comments on this issue and
the specific concerns of MedPAC regarding cardiac surgery DRGs. We also
indicated that we planned to further consider all of MedPAC's
recommendations and thoroughly analyze options and their impacts on the
various types of hospitals in the FY 2007 IPPS proposed rule. Following
the publication of the FY 2006 IPPS final rule, we contracted with 3M
Health Information Systems to assist us in performing this analysis.
Beginning with MedPAC's relative weight recommendations, we
analyzed MedPAC's recommendations to move to a cost-based HSRV
weighting methodology. In performing this portion of the analysis, we
studied hospital cost report data, departmental cost-to-charge ratios
(CCRs), MedPAR claims data, and HSRV weighting methodology. Our
intention in undertaking this portion of the analysis was to find an
administratively feasible approach to improving the accuracy of the DRG
weights. As we describe in detail below, we believe some changes can be
made to MedPAC's methodology for determining the relative weights that
will make it more feasible to replicate on an annual basis but will
result in similar impacts.
In conjunction with analyzing MedPAC's relative weight
recommendations, we looked at refining the current DRG system to better
recognize severity of illness. Starting with the APR DRG GROUPER used
by MedPAC in its analysis, we studied Medicare claims data. Based on
this analysis, we developed a consolidated severity-adjusted DRG
GROUPER that we believe could be a better alternative for recognizing
severity of illness among the Medicare population. We note that
MedPAC's recommendations with regard to revising the DRGs to better
recognize severity of illness may have implications for the outlier
threshold, the measurement of real case-mix versus apparent case-mix,
and the IME and the DSH adjustments. We will discuss these implications
in more detail in the following sections.
As we present below, we believe that the recommendations made by
MedPAC, or some variants of them, have significant promise to improve
the accuracy of the payment rates in the IPPS. For instance, the
percent of DRGs with payment-to-cost ratios between 0.95 and 1.05 will
increase substantially from adoption of these recommendations.\1\ We
agree with MedPAC about exploring possible refinements to our payment
methodology even in the absence of concerns about the proliferation of
specialty hospitals. In the FY 2006 final rule, we indicated that until
we had completed further analysis of the options and their effects, we
could not predict the extent to which changing to APR DRGs would
provide payment equity between specialty and general hospitals. In
fact, we cautioned that any system that groups cases will always
present some opportunities for providers to specialize in cases they
believe to have higher margins. We believe that improving payment
accuracy should reduce these opportunities, and potentially reduce the
incentives that Medicare payments may provide for the further
development of specialty hospitals.
---------------------------------------------------------------------------
\1\ Medicare Payment Advisory Commission: Report to the
Congress; Physician-Owned Specialty Hospitals, March 2005, p. 37.
---------------------------------------------------------------------------
We considered MedPAC's recommendation to adjust the relative
weights to account for differences in the prevalence of outlier cases.
However, we placed most of our attention and resources on the
recommendations related to refinement of the current DRGs to more fully
capture differences in severity of illness among patients as we do not
have the statutory authority to make the specific changes to our
outlier policy that MedPAC recommended. While we have not made MedPAC's
recommendation regarding outliers a central focus of our analysis, we
do intend to examine this issue in more detail in the future. In the
following sections II.C.2. through C.6. of this proposed rule, we
present our analysis and discuss a number of issues related to the
MedPAC recommendations. We also present the estimated impacts of
implementing the recommendations and conclude with a specific proposal
for FY 2007 and some proposed intended actions for implementation for
FY 2008. We also are soliciting comments on other possible proposals or
actions in FY 2007, FY 2008, or a combination of both.
[[Page 24007]]
2. Refinement of the Relative Weight Calculation
(If you choose to comment on issues in this section, please include
the caption ``HSRV Weights'' at the beginning of your comment.)
MedPAC made two recommendations with respect to the DRG relative
weight calculation. First, MedPAC recommended that CMS base the DRG
relative weights on the estimated cost of providing care. Second,
MedPAC recommended that CMS base the weights on the national average of
the HSRVs in each DRG (using hospital-specific costs to derive the
HSRVs). Because both of these recommendations address the relative
weight calculation, we are addressing them together. The work we have
done to address these recommendations is discussed below.
MedPAC recommended that CMS replace its charge-based relative
weight methodology with cost-based HSRV weights as it believed that the
charge-based relative weight methodology that CMS has utilized since
1983 has introduced bias into the weights due to differential markups
for ancillary services among the DRGs. In analyzing claims data, it is
evident to us that some hospital types (for example, teaching
hospitals) are systematically more expensive overall than the average
hospital and certain case types are more commonly treated at these more
expensive facilities. This fact results in an upward bias in the
weights for these types of cases. The HSRV methodology recommended by
MedPAC would help reduce the bias that may be present in the national
relative weights due to differences in case-mix adjusted costs.
Under the HSRV method recommended by MedPAC, charges are
standardized for each provider by converting its charges for each case
to hospital-specific relative charge values and then adjusting those
values for the hospital's case-mix. The first step in this process
involves dividing the charge for each case at the hospital by the
average charge for all cases at the hospital in which the case was
treated. The hospital-specific relative charge value, by definition,
averages 1.0 for each hospital. The resulting ratio is then multiplied
by the hospital's case-mix index (CMI). In this way, each hospital's
relative charge value is adjusted by its case-mix to an average that
reflects the complexity of the cases it treats relative to the
complexity of the cases treated by all other hospitals.
Our analysis of departmental-level CCRs from the Medicare cost
report data has shown that charges for routine days, intensive care
days, and various ancillary services are not marked up by a consistent
amount. For example, the markup amounts for cardiology services are
higher than average. Because charges are the current basis for the DRG
relative weights, the practice of differential markups can lead to bias
in the DRG weights because various DRGs use, on average, more or less
of particular ancillary services. MedPAC believes that the bias in the
national DRG relative weights that may arise as a result of
differential markups across various cost centers can be removed by
moving from charge-based to cost-based weights.
Based on the analysis we have conducted, we agree that it may be
appropriate to adjust the DRG relative weights to account for the
differences in charge markups across cost centers and to adopt an HSRV
methodology. However, we have several concerns about the methodology
used by MedPAC. MedPAC's methodology to reduce hospital charges to cost
is administratively burdensome, not only to develop, but also to
maintain.
First, MedPAC developed CCRs for individual hospitals at the most
detailed department level. Specifically, in calculating costs as the
basis for the relative weights, MedPAC applied hospital-specific CCRs
from each provider's cost report to the line item charges on the claims
that the hospital submitted during the same time period. This
methodology required matching cost report data to claims data, and
because cost report data take longer to compile and file, the method
necessitates using older claims data to set relative weights. The most
recent complete set of Medicare cost reports available to us is from FY
2003. Thus, if we were to model the exact approach used by MedPAC and
use claims data for a matching year, we would be using claims data from
FY 2003. If we set DRG weights for FY 2007 using our current charge-
based method, we would use FY 2005 hospital claims to set the proposed
relative weights. In addition, MedPAC's hospital-specific approach
required detailed cost center distinctions for each hospital that are
difficult to define, map, and apply. This approach also required the
use of the Standard Analytic File (SAF) because MedPAR data that we
currently use to set DRG weights did not have the necessary level of
detail. Using the SAF increases processing time and adds further
complexity to the process of setting the relative weights.
Second, because MedPAC applied these CCRs at the individual claim
level, missing or invalid data resulted in MedPAC deleting a large
number of claims (approximately 10 percent) from the relative weight
calculation. Lastly, MedPAC acknowledged that its method was too
difficult to replicate on an annual basis and suggested that the
weights be recalculated once every 5 years with other adjustments based
on charges during the intervening years.
We have developed an alternative to MedPAC's approach that we
believe would achieve similar results in a more administratively
feasible manner. This method involves developing hospital-specific
charge relative weights at the cost center level to remove the bias
introduced by hospital characteristics (that is, teaching,
disproportionate share, location, and size, among others) and then
scaling the weights to costs using the national cost center charge
ratios developed from the cost report data. After studying Medicare
cost report data, we established 10 cost center categories based upon
broad hospital accounting definitions. In our cost center categories,
there are 8 ancillary cost groups in addition to routine day costs and
intensive care day costs, and each category represents at least 5
percent of the charges in the claims data. The specific cost report
lines that contribute to each category and the corresponding charge
lines from the MedPAR claims data are itemized in Table A below.
We believe this alternative approach, which we are labeling as the
HSRV cost center (HSRVcc) methodology, has several advantages. First,
the use of national average rather than hospital-specific CCRs avoids
the complexity encountered with cost center CCRs at the hospital level
and allows us to retain more data for use in the relative weight
calculation. In addition, the methodology eliminates the need to match
claims to the time period of the CCRs, resulting in the ability to use
more timely claims data. Furthermore, the alternative approach makes it
more feasible to update the relative weights annually using a single
methodology. We do not have to replicate the methodology once every 5
years and make adjustments based on changes in charges in the
intervening years.
In developing an alternative method of calculating DRG weights, we
utilized two data sources: claims data and cost report data. The claims
data are taken from the FY 2004 MedPAR file. This file is based on
fully coded diagnostic and procedure data for all Medicare inpatient
hospital bills. The FY 2004 MedPAR data include discharges occurring
between October 1, 2003, and September 30, 2004, based on bills
received by CMS through March 30, 2005, from all hospitals subject to
the IPPS. The full FY 2004 MedPAR file
[[Page 24008]]
includes data for approximately 13,673,607 Medicare discharges. We
excluded discharges for Medicare beneficiaries enrolled in a
Medicare+Choice managed care plan from the analysis. In addition, we
excluded data for any hospital that was paid under the IPPS during FY
2004 but became a CAH at any time before February 28, 2005; data from
IPFs, IRFs, and LTCHs; data from Maryland hospitals; data from Indian
Health Service hospitals; and data from all-inclusive rate providers.
The Medicare cost report data used in the analysis were from FY 2003,
the most recent full set of data available. Under our alternative
methodology, we calculated DRG weights from MedPAR and cost report data
as follows:
a. Step One: Clean the Data
(1) All of the claims were grouped using Version 23.0 of the CMS
DRGs.
The transplant cases that were used to establish the
alternative relative weights for heart and heart-lung, liver and/or
intestinal, and lung transplants (DRGs 103, 480, and 495 under the
current Version 23.0 GROUPER) were limited to those Medicare-approved
transplant centers that have cases in the FY 2004 MedPAR file.
(Medicare coverage for heart, heart and lung, liver and/or intestinal,
and lung transplants is limited to those facilities that have received
approval from CMS as transplant centers.)
Organ acquisition 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 adjusting the charges under the HSRVcc methodology and before
eliminating statistical outliers.
(2) The FY 2004 MedPAR data were edited to exclude claims for
hospitals with no cost report data. Claims with total charges or total
length of stay less than or equal to zero were eliminated. Claims that
had an amount in the total charge field that differed by more or less
than $10 from the sum of charges for routine days, intensive care,
pharmacy, special equipment, therapy, operating room, cardiology,
laboratory, radiology, and other services were deleted. In addition, we
deleted claims for providers that had charges only in the routine days
and intensive care days cost centers and had no charges in any of the
eight ancillary cost centers. These claims were deleted because we
believe the charges for the eight ancillary cost centers were included
in the routine days and intensive care days cost centers. Had we
included these claims, the charges for the routine days and intensive
care days would have been inflated. After applying these edits, we
identified 11,142,651 claims that we used in this analysis.
(3) Statistical outliers were eliminated by removing all cases that
were beyond 3.0 standard deviations from the mean of the log
distribution of both the charges per case and the charges per day for
each DRG.
b. Step Two: Compute HSRVs for Each Cost Center for Each DRG
Once the MedPAR data were edited, we sorted the data by provider so
that charges could be standardized under the HSRVcc methodology. To do
this, an average charge was computed for each provider for each of 10
proposed cost centers (see Table A). The average charge was computed by
summing the charges for each cost center and dividing by the transfer-
adjusted case count for each provider. A transfer case, identified by
discharge code, DRG, and length of stay, was counted as a fraction of a
case based on the ratio of its length of stay plus 1 day relative to
the geometric mean length of stay for that DRG. That is, a transfer
case with a length of stay of 2 days in a DRG with a geometric mean
length of stay of 6 days would be counted as 3 (2 days plus 1 extra
day) divided by 6 or 0.5 of a total case. This treatment of transfer
cases is consistent with payment rules.
After computing the average charge for each provider for each cost
center, the cost center charges on each claim were divided by the
provider's average charge for the matching cost center across all
services. For example, the routine day charges on each individual claim
were divided by the average routine day charge for the provider across
all services, the intensive care unit charges on the same claim were
divided by the average intensive care unit charge for the provider
across all services, and so on.
By using a hospital's relative charge structure, we found that the
resulting weights did not reflect differences in charges among
providers for factors such as location, size, wages, relative
efficiency, average markup, IME adjustment, DSH adjustment, and the
variety of cases treated. Therefore, once charge weights were computed
at the hospital cost center level, they were multiplied by the
provider's CMI. We made this adjustment for the CMI to rescale the
hospital-specific relative charge values which, by definition, averaged
to 1.0 for each cost center. We believed that the CMI was a reasonable
scale factor to use to further adjust the relative charges to reflect
the complexity of cases treated by the provider. We assigned a starting
CMI of 1 to the cost center for each provider. However, an alternative
starting CMI could have been assigned because the algorithm is not
sensitive to starting values of CMI.
After the relative charges (cost center claim charge divided by the
average cost center charge for the provider) were multiplied by the
hospital's matching cost center CMI, they were summed by DRG. The
transfer adjusted case count for each DRG was also summed. Average
charges by DRG were calculated for each cost center by taking the sum
of the relative CMI-adjusted charges for that DRG and dividing by the
transfer-adjusted case count for that DRG. A national average charge
for each cost center was calculated summing all relative CMI-adjusted
charges in the trimmed MedPAR data set and dividing by the total
transfer-adjusted case count. We then created a set of cost center DRG
weights by dividing the national average charge for each DRG for each
cost center by the national average charge for that cost center. The
result was a set of 10 weights for each DRG. These 10 weights are then
assigned to each claim, and a new CMI is created for each provider.
Then the relative charges for each cost center on the claim (total
charge for cost center is divided by the provider's average charge for
that cost center) are multiplied by this new CMI and the weights are
iterated until the national average CMI for each cost center stops
changing between iterations. In preparing the proposed weights for
their simulation, we used a transfer-adjusted CMI that was computed by
taking the sum of the transfer-adjusted weights and dividing by a full
case count, where the transfer-adjusted weight is computed by
multiplying the transfer-adjusted case count (length of stay for the
claim plus 1 day divided by geometric mean length of stay for the DRG)
by the DRG weight.
Table A below illustrates the charge line items from MedPAR that
were included in each cost center charge group. In addition, it shows
the corresponding line items from Worksheet C, Part 1, columns 5, 6,
and 7 of the Medicare cost reports. The name of each cost report line
item appears as it is listed in the Hospital Cost Report Information
System (HCRIS) cost report database record layout which is available
for download via the Web site: http://www.cms.hhs.gov.
BILLING CODE 4120-01-P
[[Page 24009]]
[GRAPHIC] [TIFF OMITTED] TP25AP06.000
[[Page 24010]]
[GRAPHIC] [TIFF OMITTED] TP25AP06.001
c. Step Three: Compute CCRs From the Cost Reports for Each of the 10
Cost Center Groups Identified in Table A
After the iteration process was completed, we removed the effects
of differential markups within cost centers. The first step in this
process was to develop national cost center CCRs. Taking FY 2003 cost
report data, we edited the data to remove data for CAHs, IPFs, IRFs,
LTCHs, Maryland hospitals, Indian Health Service hospitals, and all
inclusive rate hospitals, and cost reports that represented time
periods of less than 1 year (365 days). We then created CCRs for each
provider for each group of cost centers (see Table A for line items
used in the calculations) while removing any cost center CCRs that were
greater than 10 or less than .01, as we believe that these CCRs are
outside of a reasonable range. We then took the logs of all of the 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 1.96
standard deviations of the log of that cost center CCR. We used 1.96
standard deviations as a trim factor because the logs of the cost
center CCRs are normally distributed and 1.96 standard deviations
represent the 95th percentile of the T-Distribution for large sample
size, for which 2,000 to 3,000 hospitals qualify. Once the cost report
data were trimmed, we calculated the geometric mean CCR for each cost
center.
[[Page 24011]]
d. Step Four: Sum the Average Charge for Each Cost Center From the
MedPAR Data and Apply the National CCRs From the MedPAR File
Once the national average CCRs from Step Three were computed, they
were multiplied by the total unadjusted charges for the matching cost
centers in the MedPAR file. The estimated costs were then summed to
derive a total cost for all cases across the Nation. The percentage
that each cost center was contributing to the overall total costs is
calculated by dividing the individual cost center cost by the total.
For example, the total cost for routine days was divided by the total
cost for all cases to arrive at 0.29, which indicated that routine
costs were responsible for approximately 29 percent of total costs. The
10 scaling factors sum to 1.0.
e. Step Five: Adjust Relative Weights From Step Two to Cost by Applying
Scaling Factors From Step Four
For each DRG, the cost center weights are multiplied by these
scaling factors (that is, the routine day weight is multiplied by the
routine day scaling factor, the intensive care unit weight is
multiplied by the intensive care unit scaling factor, and so on). After
the weights are adjusted by the scaling factor, they are summed by DRG
to create one final weight for each DRG.
f. Step Six: Normalize the Weights
In order to compare the weights calculated in Step Five to the
charge-based weights that are in effect in FY 2006, the weights were
normalized by the FY 2006 normalization factor of 1.47462 (70 FR
47332). This factor was applied to the charge-based weights from FY
2006 to ensure that recalibration by itself neither increases nor
decreases total payments under the IPPS. We used the same normalization
factor that we applied for purposes of calculating the DRG relative
weights in the FY 2006 IPPS final rule because we used the same FY 2004
MedPAR data and FY 2003 cost report data that we used to set the FY
2006 DRG relative weights. We note that we likely will have more recent
data available when we determine the DRG relative weights for the FY
2007 IPPS final rule.
3. Refinement of DRGs Based on Severity of Illness
(If you choose to comment on issues in this section, please include
the caption ``DRGs: Severity of Illness'' at the beginning of your
comment.)
For purposes of the following discussions, the term ``CMS DRGs''
means the DRG system we currently use under the IPPS; the term ``APR
DRGs'' means the severity DRG system designed by 3M Health Information
Systems that currently is used by the State of Maryland; and the term
``consolidated severity-adjusted DRGs'' means the DRG system based on a
consolidated version of the APR DRGs (as described in detail below).
Although we discuss the consolidated severity-adjusted DRGs in this
proposed rule, we are interested in public comments on whether there
are alternative DRG systems that could result in better recognition of
severity than the consolidated severity-adjusted DRGs we are proposing.
We refer to adopting consolidated severity-adjusted DRGs numerous times
in this proposed rule. As we make clear in the detailed discussion
below, there are still further changes that we believe may be important
to make to this proposed system before it is ready for adoption. In the
remainder of this proposed rule, ``consolidated severity-adjusted
DRGs'' refers to the DRG system we have analyzed. However, it is
possible that the public comment process will present compelling
evidence that there are potential alternatives to the consolidated
severity-adjusted DRG system for us to consider that could more
effectively recognize severity of illness.
In the FY 2006 IPPS final rule (70 FR 47474), we stated that we
would consider making changes to the CMS DRGs to better reflect
severity of illness among patients. We indicated that we would conduct
a comprehensive review of the CC list as well as consider the
possibility of using the APR DRGs for FY 2007. We did not adopt APR
DRGs for FY 2006 because such an adoption would represent a significant
undertaking that could have a substantial effect on all hospitals.
There was insufficient time between the release of the MedPAC reports
in March 2005 and the publication of the FY 2006 IPPS final rule for us
to analyze fully a change of this magnitude. Instead, we adopted a more
limited policy by implementing severity-adjusted cardiac DRGs.
After publication of the FY 2006 IPPS final rule, CMS contracted
with 3M Health Information Systems to further analyze the MedPAC
recommendations in support of our consideration of possible changes to
the IPPS for FY 2007. Under one task of this contract, 3M Health
Information Systems analyzed the feasibility of using a revised DRG
system under the IPPS that is modeled on the APR DRGs Version 23 to
better recognize severity of illness. The APR DRGs have been used
successfully as the basis of Belgium's hospital prospective global
budgeting system since 2002. The State of Maryland began using APR DRGs
as the basis of its all-payer hospital payment system in July 2005.
More than a third of the hospitals in the United States are already
using APR DRG software to analyze comparative hospital performance.
Many major health information system vendors have integrated this
system into their products. Several State agencies utilize the APR DRGs
for the public dissemination of comparative hospital performance
reports. APR DRGs have been widely applied in policy and health
services research. In addition to being used in research by MedPAC, the
APR DRGs also contain a separate measure of risk of mortality that is
used in the Quality Indicators of the Agency for Healthcare Research
and Quality, the Premier Hospital Quality Incentive Demonstration
discussed in section IV.B. of this preamble, and the Joint Commission
on Accreditation of Healthcare Organizations (JCAHO) hospital
accreditation survey process (Shared Visions-New Pathways).
Below we present a comparison of the CMS DRG system and the APR DRG
system.
a. Comparison of the CMS DRG System and the APR DRG System
The CMS DRG and APR DRG systems have a similar basic structure.
There are 25 MDCs in both systems. The DRG assignments for both systems
are based on the reporting of ICD-9-CM diagnosis and procedure codes.
Both DRG systems are composed of a base DRG that describes the reason
for hospital admission and a subdivision of the base DRG based on other
patient attributes that affect the care of the patient. For surgical
patients, the base DRG is defined based on the type of procedure
performed. For medical patients, the base DRG is defined based on the
principal diagnosis. In Version 23.0 of the CMS DRG system, there are
367 base DRGs and 526 total DRGs. In Version 23 of the APR DRG system,
there are 314 base DRGs and 1,258 total APR DRGs. Some of the base DRGs
in the two systems are virtually identical. For example, there is no
significant difference between the base DRG under both systems for
medical treatment of congestive heart failure. For other base DRGs,
there are substantial differences. For example, in the CMS DRG system,
there are two base DRGs for appendectomy (simple and complex); in the
APR DRG system, there is only one base DRG for appendectomy (the
relative complexity of the patient is addressed in the subsequent
subdivision
[[Page 24012]]
of the base DRG into severity of illness subclasses).
The focus of the CMS DRGs is on complexity. Complexity is defined
as the relative volume and types of diagnostic, therapeutic, and bed
services required for the treatment of a particular illness. Thus, the
focus of payment in the CMS DRG system reflects the relative resource
use needed by the patient in one DRG group compared to another.
Resource use is generally correlated with severity of illness but an
intensive resource use does not necessarily indicate a high level of
severity in every case. It is possible that some patients will be
resource-intensive and require high-cost services even though they are
less severely ill than other patients. The CMS DRG system subdivides
the base DRGs using age and the presence of a secondary diagnosis that
represents a CC. The age subdivisions primarily relate to pediatric
patients (those who are less than 18 years of age). Patients are
assigned to the CC subgroup if they have at least one secondary
diagnosis that is considered a CC. The diagnoses that are designated as
CCs are the same across all base DRGs. The subdivisions of the base CMS
DRGs are not uniform: some base DRGs have no subdivision; some base
DRGs have a two-way subdivision based on the presence of a CC; and
other base DRGs have a three-way subdivision based on a pediatric
subdivision followed by a CC subdivision of the adult patients. In
addition, some base DRGs in MDC 5 (Diseases and Disorders of the
Circulatory System) have a subdivision based on the presence of a major
cardiovascular condition or complex diagnosis.
The APR DRG system subdivides the base DRGs by adding four severity
of illness subclasses to each DRG. Under the APR DRG system, severity
of illness is defined as the extent of physiologic decompensation or
organ system loss of function. The underlying clinical principle of APR
DRGs is that the severity of illness of a patient is highly dependent
on the patient's underlying problem and that patients with high
severity of illness are usually characterized by multiple serious
diseases or illnesses. The assessment of the severity of illness of a
patient is specific to the base APR DRG to which a patient is assigned.
In other words, the determination of the severity of illness is
disease-specific. High severity of illness is primarily determined by
the interaction of multiple diseases. Patients with multiple comorbid
conditions involving multiple organ systems are assigned to the higher
severity of illness subclasses. The four severity of illness subclasses
under the APR DRG system are numbered sequentially from 1 to 4,
indicating minor (1), moderate (2), major (3), and extreme (4) severity
of illness.
The APR DRG system does not subdivide base DRGs based on the age of
the patient. Instead, patient age is used in the determination of the
severity of illness subclass. In the CMS DRG system, the CC list is
generally the same across all base DRGs. However, there are CC list
exclusions for secondary diagnoses that are related to the principal
diagnosis. In the APR DRG system, the significance of a secondary
diagnosis is dependent on the base DRG. For example, an infection is
considered more significant for an immune-suppressed patient than for a
patient with a broken arm. The logic of the CC subdivision in the CMS
DRG system is a simple binary split for the presence or absence of a
CC. In the APR DRG system, the determination of the severity subclass
is based on an 18-step process that takes into account secondary
diagnoses, principal diagnosis, age, and procedures. The 18 steps are
divided into three phases. There are six steps in Phase I, three steps
in Phase II, and nine steps in Phase III.
The diagram below illustrates the three-phase process for
determining patient severity of illness subclass.
BILLING CODE 4120-01-P
[[Page 24013]]
[GRAPHIC] [TIFF OMITTED] TP25AP06.002
BILLING CODE 4120-01-C
[[Page 24014]]
Under the CMS DRG system, a patient is assigned to the DRG with CC
if there is at least one secondary diagnosis present that is a CC.
There is no recognition of the impact of multiple CCs. Under the APR
DRG system, high severity of illness is primarily determined by the
interaction of multiple diseases. Under the CMS DRG system, patients
are assigned to an MDC based on their principal diagnosis. While the
principal diagnosis is generally used to assign the patient to an MDC
in the APR DRG system, there is a rerouting step that assigns some
patients to another MDC. For example, lower leg amputations can be
performed for circulatory, endocrine, or musculoskeletal principal
diagnoses. Instead of having three separate amputation base DRGs in
different MDCs as is done in the CMS DRG system, the APR DRG system
reroutes all of these amputation patients into a single base APR DRG in
the musculoskeletal MDC. The CMS DRG system uses death as a variable in
the DRG definitions but the APR DRG system does not. Both DRG systems
are based on the information contained in the Medicare Uniform Bill.
The APR DRG system requires the same information used by the current
CMS DRG system. No changes to the claims form or the data reported
would be necessary if CMS were to adopt APR DRGs or a variant of them.
The CMS DRG structure makes some DRG modifications difficult to
accommodate. For example, high severity diseases that occur in low
volume are difficult to accommodate because the only choice is to form
a separate base DRG with relatively few patients. Such an approach
would lead to a proliferation of low-volume DRGs. Alternatively, these
cases may be included in DRGs with other patients that are dissimilar
clinically or in costs. Requests for new base DRGs formed on the use of
a specific technology may also be difficult to accommodate. Base DRGs
formed based on the use of a specific technology would result in the
payment weight for the DRG being dominated by the price set by the
manufacturer for the technology.
The structure of the APR DRGs provides a means of addressing high
severity cases that occur in low volume through assignment of the case
to a severity of illness subclass. However, the APR DRG structure does
not currently accommodate distinctions based on complexity.
Technologies that represent increased complexity, but not necessarily
greater severity of illness, are not explicitly recognized in the APR
DRG system. For example, in the CMS DRGs, there are separate DRGs for
coronary angioplasty with or without insertion of stents. The APR DRGs
do not make such a differentiation. The insertion of the stent makes
the patient's case more complex but does not mean the patient is more
severely ill. However, the inability to insert a stent may be
indicative of a patient's more advanced coronary artery disease.
Although such conflicts are relatively few in number, they do represent
an underlying difference between the two systems. If Medicare were to
adopt a severity DRG system based on the APR DRG logic but assign cases
based on complexity as well as severity as we do under the current
Medicare DRG system, such a distinction would represent a departure
from the exclusive focus on severity of illness that currently forms
the basis of assigning cases in the APR DRG system.
Section 1886(d)(4) of the Act specifies that the Secretary must
adjust the classifications and weighting factors at least annually to
reflect changes in treatment patterns, technology, and other factors
that may change the relative use of hospital resources. Therefore, we
believe a method of recognizing technologies that represent increased
complexity, but not necessarily greater severity of illness, should be
included in the system. We plan to develop criteria for determining
when it is appropriate to recognize increased complexity in the
structure of the DRG system and how these criteria interact with the
existing statutory provisions for new technology add-on payments. We
invite public comments on this particular issue.
Another difference between the CMS DRG system and the APR DRG
system is the assignment of diagnosis codes in category 996
(Complications peculiar to certain specified procedures). The CMS DRG
system treats virtually all of these codes as CCs. With the exceptions
of complications of organ transplant and limb reattachments, these
complication codes do not contribute to the severity of illness
subclass in the APR DRG system. While these codes could be added to the
severity logic, the appropriateness of recognizing codes such as code
998.4 (Foreign body accidentally left during a procedure) as a factor
in payment calculation could create the appearance of incentives for
less than optimal quality. Although there is no direct recognition of
the codes under the 996 category, the precise complication, in general,
can be coded separately and could contribute to the severity of illness
subclass assignment.
Table B below summarizes the differences between the two DRG
systems:
Table B.--Comparison of the CMS DRG System and the APR DRG System
------------------------------------------------------------------------
Element CMS DRG system APR DRG system
------------------------------------------------------------------------
Number of base DRGs............. 367............... 314.
Total number of DRGs............ 526............... 1,258.
Number of CC (severity) 2................. 4.
subclasses.
Multiple CCs recognized......... No................ Yes.
CC assignment specific to base No................ Yes.
DRG.
Logic of CC subdivision......... Presence or 18-step process.
absence.
Logic of MDC assignment......... Principal Principal
diagnosis. diagnosis with
rerouting.
Death used in DRG definitions... Yes............... No.
Data requirements............... Hospital claims... Hospital claims.
------------------------------------------------------------------------
To illustrate the differences between the two DRG systems, we
compare in Table C below four cases that have been assigned to CMS DRGs
and APR DRGs. In all four cases, the patient is a 67-year-old who is
admitted for diverticulitis of the colon and who has a multiple
segmental resection of the large intestine performed. ICD-9-CM
diagnosis code 562.11 (Diverticulitis of colon (without mention of
hemorrhage)) and ICD-9-CM procedure code 45.71 (Multiple segmental
resection of large intestine) would be reported to capture this case.
In both DRG systems, the patient would be assigned to the base DRG for
major small and large bowel procedures. These four cases would fall
[[Page 24015]]
into two different CMS DRGs and four different APR DRGs. We include
Medicare average charges in the table to illustrate the differences in
hospital resource use.
Case 1: The patient receives only a secondary diagnosis of an ulcer
of anus and rectum (ICD-9-CM diagnosis code 569.41). Under the CMS DRG
system, the patient is assigned to base DRG 149 (Major Small and Large
Bowel Procedures Without CC). Under the APR DRG system, the patient is
assigned to base DRG 221 (Major Small and Large Bowel Procedures) with
a severity of illness subclass of 1 (minor).
Case 2: The patient receives a secondary diagnosis of an ulcer of
anus and rectum and an additional secondary diagnosis of unspecified
intestinal obstruction (ICD-9-CM diagnosis code 560.9). Under the CMS
DRG system, the patient is assigned to DRG 148 (Major Small and Large
Bowel Procedures With CC). Under the APR DRG system, the patient is
assigned to base DRG 221 and the severity of illness subclass increases
to 2 (moderate).
Case 3: The patient receives multiple secondary diagnoses of an
ulcer of anus and rectum, unspecified intestinal obstruction, acute
myocarditis (ICD-9-CM diagnosis code 422.99), and atrioventricular
block, complete (ICD-9-CM diagnosis code 426.0). Under the CMS DRG
system, the patient is assigned to DRG 148. Under the APR DRG system,
the patient is assigned to base DRG 221 and the severity of illness
subclass increases to 3 (major).
Case 4: The patient receives multiple secondary diagnoses of an
ulcer of anus and rectum, unspecified intestinal obstruction, acute
myocarditis, atrioventricular block, complete, and the additional
diagnosis of acute renal failure, unspecified (ICD-9-CM diagnosis code
584.9). Under the CMS DRG system, the patient is assigned to DRG 148.
Under the APR DRG system, the patient is assigned to base DRG 221 and
the severity of illness subclass increases to 4 (extreme).
Table C.--Example of Sample Cases Assigned Under the CMS DRG System and Under the APR DRG System
----------------------------------------------------------------------------------------------------------------
CMS DRG system APR DRG system
Principal diagnosis code: 562.11 --------------------------------------------------------------------------
Procedure code: 45.71 Average Average
DRG assigned charge DRG assigned charge
----------------------------------------------------------------------------------------------------------------
Case 1--Secondary Diagnosis: 569.41.. 149 without CC.......... $25,147 221 with severity of $25,988
illness subclass 1.
Case 2--Secondary Diagnoses: 569.41, 148 with CC............. 59,519 221 with severity of 38,209
560.9. illness subclass 2.
Case 3--Secondary Diagnoses: 569.41, 148 with CC............. 59,519 221 with severity of 66,597
560.9, 422.99, 426.0. illness subclass 3.
Case 4--Secondary Diagnoses: 569.41, 148 with CC............. 59,519 221 with severity of 130,750
560.9, 422.99, 426.0, 584.9. illness subclass 4.
----------------------------------------------------------------------------------------------------------------
The largest significant difference in average charges is seen in
case 4 where the average charge under the APR DRG assigned to the
patient ($130,750) is more than double the average charge under the CMS
DRG assigned to the patient ($59,519).
b. Consolidated Severity-Adjusted DRGs for Use in the IPPS
APR DRGs were developed to encompass all-payer patient populations.
As a result, we found that, for the Medicare population, some of the
APR DRGs have very low volume. MedPAC noted that the larger number of
DRGs under a severity-weighted system might mean that CMS would be
faced with establishing weights in many categories that have few cases
and, thus, potentially creating unstable estimates. While volume is an
important consideration in evaluating any potential consolidation of
APR DRGs for use under the IPPS, we believe that hospital resource use
and clinical interpretability also need to be taken into consideration.
For example, any consolidation of severity of illness subclasses within
a base DRG should be restricted to contiguous severity of illness
subclasses. Thus, it would not be reasonable clinically to combine
severity of illness subclasses 1 and 4 solely because both consist of
low-volume cases. We analyzed consolidating APR DRGs by either
combining the base DRGs or the severity of illness subclasses within a
base DRG. For consolidation across base APR DRGs, we considered patient
volume, similarity of hospital charges across all four severity of
illness subclasses and clinical similarity of the base APR DRGs. For
consolidations of severity of illness subclasses within a base DRG, we
considered patient volume and the similarity of hospital charges
between severity of illness subclasses. In considering how to
consolidate severity of illness subclasses, we believed it was
important to use uniform criteria across all DRGs to avoid creating
confusing and difficult to interpret results. That is, we were
concerned about inconsistencies in the number of severity levels across
different DRGs.
The objective to simultaneously take into consideration patient
volume and average charges often produced conflict. Table D below
contains the overall patient volume and average charge by APR DRG
severity of illness subclass. While severity of illness subclass 4
(extreme) has had the lowest patient volume of 5.80 percent, we found
that the dramatically different average charges between severity of
illness subclass 3 (major) and subclass 4 (extreme) patients of
approximately $32,426 and $81,952, respectively, would make it
difficult to consolidate severity of illness subclass 3 and 4 patients.
Conversely, we found that, while the average charge difference between
severity of illness subclass 1 (minor) and 2 (moderate) patients was
much smaller, of approximately $17,649 and $20,021, respectively, the
majority of patient volume (68.08 percent) is in these two subclasses.
Thus, low patient volume and small average charge differences rarely
coincided.
[[Page 24016]]
Table D.--Overall Average Charges and Patient Volume by APR DRG Severity of Illness Subclass
----------------------------------------------------------------------------------------------------------------
APR DRG APR DRG APR DRG APR DRG
severity of severity of severity of severity of
All cases illness illness illness illness
subclass 1 subclass 2 subclass 3 subclass 4
----------------------------------------------------------------------------------------------------------------
Count........................... 11,142,651 21.47% 46.61% 26.12% 5.80%
Average Charges................. $26,342 $17,649 $20,021 $32,426 $81,952
----------------------------------------------------------------------------------------------------------------
There were also few opportunities to consolidate base DRGs. For
base DRGs for which there was a clinical basis for considering a
consolidation, there were usually significant differences in average
charges for one or more of the severity of illness subclasses. APR DRGs
already represented a considerable consolidation of base DRGs (314)
compared to CMS DRGs (367). Thus, we expected that further base DRG
consolidation would be difficult.
We reviewed the patient volume and average charges across APR DRGs
and found that medical cases assigned severity of illness subclass 4
within an MDC have similar average charges. We observed the same
pattern in average charges across severity of illness subclass 4
surgical patients within an MDC. The data suggest that, in cases with a
severity of illness of subclass 4, the severity of the cases had more
impact on hospital resource use than the reason for admission (that is,
the base APR DRG within an MDC). Thus, we believe that, within each
MDC, the severity of illness subclass 4 medical and surgical patients,
respectively, could be consolidated into a single group.
In some MDCs, it was not possible to consolidate into a single
medical and a single surgical severity of illness subclass 4 group. In
these MDCs, more than one group was necessary. For instance, Table E
below contains the patient volume and average charges for severity of
illness subclass 4 cases in MDC 11 (Diseases and Disorders of the
Kidney and Urinary Tract). Taking into consideration volume and average
charges, except for APR DRG 440 (Kidney Transplant), surgical cases
assigned severity of illness subclass 4 in MDC 11 could be consolidated
into a single group having 5,492 patients and an average charge of
$107,258. However, we decided not to include kidney transplant patients
in this severity of illness 4 subclass due to their very high average
charges (approximately $203,732 or more than $100,000 greater than
other patients in MDC 11 having a severity of illness 4 subclass).
Average charges within the consolidated severity of illness 4 surgical
DRG in MDC 11 show some variation but are much higher than the
corresponding average charges for the severity of illness subgroup 3
patients of $48,863. Thus, our analysis suggests that the data support
maintaining three severity of illness levels for each base DRG in MDC
11; a separate severity of illness 4 subclass for all patients other
than those having kidney transplant; and a separate DRG for kidney
transplants.
Table E.--Summary Statistics for Surgical Cases With Severity of Illness Subclass 4 in MDC 11
----------------------------------------------------------------------------------------------------------------
Number of Average length Average total
APR DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
440 (Kidney Transplant)......................................... 378 18.0 $203,732
441 (Major Bladder Procedures).................................. 528 21.5 128,729
442 (Kidney & Urinary Tract Procedure for Malignancy)........... 833 16.6 101,501
443 (Kidney & Urinary Tract Procedure for Non-Malignancy)....... 966 18.4 103,905
444 (Renal Dialysis Access Device Procedure Only Severity of 935 18.3 104,249
Illness Subclass 4)............................................
445 (Other Bladder Procedures).................................. 186 15.2 80,197
446 (Urethral & Transurethral Procedure--Severity of Illness 492 13.4 73,110
Subclass 4)....................................................
447 (Other Kidney, Urinary Tract & Related Procedures).......... 1,552 19.3 121,011
----------------------------------------------------------------------------------------------------------------
The consolidation of severity of illness 4 subclass APR DRG into
fewer groups was done for all MDCs except MDC 15 (Newborn and Other
Neonates With Conditions Originating in the Perinatal Period), MDC 19
(Mental Diseases and Disorders), and MDC 20 (Alcohol/Drug Use and
Alcohol/Drug Induced Organic Mental Disorders). In the 22 MDCs in which
the severity of illness subclass 4 consolidation was applied, the
number of separate severity of illness subclass 4 groups was reduced
from 262 to 69.
For MDC 14 (Pregnancy, Childbirth, and Puerperium), the base APR
DRGs were consolidated from 12 to 6. Severity of illness subclass 1
through 3 were retained, and severity of illness subclass 4 was
consolidated into a single APR DRG, except for cesarean section and
vaginal deliveries, which were maintained as separate APR DRGs. This
consolidation reduced the total number of o