[Federal Register: August 22, 2007 (Volume 72, Number 162)]
[Rules and Regulations]
[Page 47129-48175]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22au07-11]
[[Page 47129]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 411, 412, 413, and 489
Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2008 Rates; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 411, 412, 413, and 489
[CMS-1533-FC]
RIN 0938-AO70
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2008 Rates
AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION: Final rule with comment period.
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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems (IPPS) for operating and capital-related costs to
implement changes arising from our continuing experience with these
systems, and to implement certain provisions made by the Deficit
Reduction Act of 2005 (Pub. L. 109-171), the Medicare Improvements and
Extension Act under Division B, Title I of the Tax Relief and Health
Care Act of 2006 (Pub. L. 109-432), and the Pandemic and All Hazards
Preparedness Act (Pub. L. 109-417). In addition, in the Addendum to
this final rule with comment period, we describe the changes to the
amounts and factors used to determine the rates for Medicare hospital
inpatient services for operating costs and capital-related costs. We
also are setting forth the rate of increase limits for certain
hospitals and hospital units excluded from the IPPS that are paid on a
reasonable cost basis subject to these limits, or that have a portion
of a prospective payment system payment based on reasonable cost
principles. These changes are applicable to discharges occurring on or
after October 1, 2007.
In this final rule with comment period, as part of our efforts to
further refine the diagnosis related group (DRG) system under the IPPS
to better recognize severity of illness among patients, for FY 2008, we
are adopting a Medicare Severity DRG (MS DRG) classification system for
the IPPS. We are also adopting the structure of the MS-DRG system for
the LTCH prospective payment system (referred to as MS-LTC-DRGs) for FY
2008.
Among the other policy decisions and changes that we are making, we
are making changes related to: limited revisions of the
reclassification of cases to MS-DRGs, the relative weights for the MS-
LTC-DRGs; applications for new technologies and medical services add-on
payments; the wage data, including the occupational mix data, used to
compute the FY 2008 wage indices; payments to hospitals for the
indirect costs of graduate medical education; submission of hospital
quality data; provisions governing the application of sanctions
relating to the Emergency Medical Treatment and Labor Act of 1986
(EMTALA); provisions governing the disclosure of physician ownership in
hospitals and patient safety measures; and provisions relating to
services furnished to beneficiaries in custody of penal authorities.
DATES: Effective Date: This final rule with comment period is effective
October 1, 2007 and applies to discharges occurring on or after that
date.
Comment Date: We will consider public comments only on the
provisions of section V., Changes to the IPPS for Capital Related
Costs, of the preamble of this final rule with comment period, if we
receive them at one of the addresses provided below, no later than 5
p.m. on November 20, 2007.
ADDRESSES: In commenting on the provisions of section V. of the
preamble of this final rule with comment period, please refer to file
code CMS-1533-FC.
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-1533-FC, 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-1533-FC, 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 appropriately for
hand or courier delivery may be delayed and received after the comment
period.
Submitting Comments: You can assist us by referencing the file code
CMS-1533-FC and the specific ``issue identifier'' that precedes section
V., Changes to the IPPS for Capital Related Costs.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all 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, 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 4:00 p.m. To
schedule an appointment to view public comments, phone 1-800-743-3951.
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, and
Hospital Geographic Reclassifications Issues.
[[Page 47131]]
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.
Jacqueline Proctor, (410) 786-8852, Disclosure of Physician
Ownership in Hospitals.
Marilyn Dahl, (410) 786-8665, Patient Safety Measures Issues.
Fred Grabau, (410) 786-0206, Services to Beneficiaries in Custody
of Penal Authorities Issues.
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Acronyms
ACGME--Accreditation Council for Graduate Medical Education
AMGA--American Medical Group Association
AHA--American Hospital Association
AHIMA--American Health Information Management Association
AHRQ--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, Pub. L. 105-33
BBRA--Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L.
106-113
BIPA--Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Pub. L. 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
CCR--Cost-to-charge ratio
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, Pub. L. 99-
272
CoP--[Hospital] Condition of participation
CPI--Consumer price index
CY--Calendar year
DRA--Deficit Reduction Act of 2005, Pub. L. 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, Pub. L.
99-272
FDA--Food and Drug Administration
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
GMEC--Graduate Medical Education Committee
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,
Pub. L. 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
ICD-9-CM--International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS--International Classification of Diseases, Tenth Edition,
Procedure Coding System
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
MAC--Medicare Administrative Contractor
MCC--Major complication or comorbidity
MCE--Medicare Code Editor
MCO--Managed care organization
MCV--Major cardiovascular condition
MDC--Major diagnostic category
MDH--Medicare-dependent, small rural hospital
MedPAC--Medicare Payment Advisory Commission
MedPAR--Medicare Provider Analysis and Review File
MEI--Medicare Economic Index
MGCRB--Medicare Geographic Classification Review Board
MIEA-TRHCA--Medicare Improvements and Extension Act, Division B of
the Tax Relief and Health Care Act of 2006, Pub. L. 109-432
MMA--Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MPN--Medicare provider number
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
NQF--National Quality Forum
NTIS--National Technical Information Service
NVHRI--National Voluntary Hospital Reporting Initiative
OES--Occupational employment statistics
OIG--Office of the Inspector General
OMB--Executive Office of Management and Budget
O.R.--Operating room
OSCAR--Online Survey Certification and Reporting (System)
PMSAs--Primary metropolitan statistical areas
PPI--Producer price index
PPS--Prospective payment system
PRA--Per resident amount
PRM--Provider Reimbursement Manual
ProPAC--Prospective Payment Assessment Commission
PRRB--Provider Reimbursement Review Board
PSF--Provider Specific File
PS&R--Provider Statistical and Reimbursement (System)
QIG--Quality Improvement Group, CMS
QIO--Quality Improvement Organization
RCE--Reasonable compensation equivalent
RHC--Rural health clinic
RHQDAPU--Reporting hospital quality data for annual payment update
RNHCI--Religious nonmedical health care institution
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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
TEFRA--Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248
UHDDS--Uniform hospital discharge data set
VBP--Value-based purchasing
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System
(IPPS)
2. Hospitals and Hospital Units Excluded from the IPPS a.
Inpatient Rehabilitation Facilities (IRFs) b. Long-Term Care
Hospitals (LTCHs) c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
C. Provisions of the Medicare Improvements and Extension Act
under Division B, Title I of the Tax Relief and Health Care Act of
2006
D. Provisions of the Pandemic and All-Hazards Preparedness Act
E. Issuance of a Notice of Proposed Rulemaking
1. 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 IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates for Excluded Hospitals
and Hospital Units: Rate-of-Increase Percentages
6. Services Furnished to Beneficiaries in Custody of Penal
Authorities
7. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate of Increase Limits
8. Impact Analysis
9. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
10. Discussion of Medicare Payment Advisory Commission
Recommendations
F. Public Comments Received on the Proposed Rule
II. Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Yearly Review for Making DRG Changes
C. MedPAC Recommendations for Revisions to the IPPS DRG System
D. Refinement of DRGs Based on Severity of Illness
1. Evaluation of Alternative Severity-Adjusted DRG Systems
a. Overview of Alternative DRG Classification Systems
b. Comparative Performance in Explaining Variation in Resource
Use
c. Payment Accuracy and Case-Mix Impact
d. Other Issues for Consideration
2. Development of the Medicare Severity DRGs (MS DRGs)
a. Comprehensive Review of the CC List
b. Chronic Diagnosis Codes
c. Acute Diagnosis Codes
d. Prior Research on Subdivisions of CCs into Multiple
Categories
e. Medicare Severity DRGs (MS-DRGs)
3. Dividing MS DRGs on the Basis of the CCs and MCCs
4. Conclusion
5. Impact of the MS-DRGs
6. Changes to Case-Mix Index (CMI) from the MS-DRGs
7. Effect of the MS-DRGs on the Outlier Threshold
8. Effect of the MS-DRGs on the Postacute Care Transfer Policy
E. Refinement of the Relative Weight Calculation
1. Summary of RTI's Report on Charge Compression
2. RTI Recommendations
a. Short-Term Recommendations
b. Medium-Term Recommendations
c. Long-Term Recommendations
F. Hospital-Acquired Conditions, Including Infections
1. General
2. Legislative Requirement
3. Public Input
4. Collaborative Effort
5. Criteria for Selection of the Hospital-Acquired Conditions
6. Selection of Hospital-Acquired Conditions
7. Other Issues
G. Changes to Specific DRG Classifications
1. Pre-MDCs: Intestinal Transplantation
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Implantable Neurostimulators
b. Intracranial Stents
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and
Throat)--Cochlear Implants
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Hip and Knee Replacements
b. Spinal Fusions
c. Spinal Disc Devices
d. Other Spinal DRGs
5. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly
Differentiated Neoplasm): Endoscopic Procedures
6. Medicare Code Editor (MCE) Changes
a. Non-Covered Procedure Edit: Code 00.62 (Percutaneous
angioplasty or atherectomy of intracranial vessel(s))
b. Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R.
Procedures Edit 10
c. Limited Coverage Edit 17
d. Revision to Part 1, Pancreas Transplant Edit A
7. Surgical Hierarchies
8. CC Exclusions List
a. Background
b. CC Exclusions List for FY 2008
9. Review of Procedure Codes in CMS DRGs 468, 476, and 477
a. Moving Procedure Codes from CMS DRG 468 (MS-DRGs 981 through
983) or CMS DRG 477 (MS-DRGs 987 through 989) to MDCs
b. Reassignment of Procedures Among CMS DRGs 468, 476, and 477
(MS-DRGs 981 through 983, 984 through 986, and 987 through 989)
c. Adding Diagnosis or Procedure Codes to MDCs
10. Changes to the ICD-9-CM Coding System
11. Other DRG Issues Addressed in the FY 2008 IPPS Proposed Rule
a. Seizures and Headaches
b. Devices That are Replaced Without Cost or Where Credit for a
Replaced Device is Furnished to the Hospital
12. Other MS-DRG Issues Raised in the Public Comments on the
Proposed Rule
a. Heart Transplants or Implants of Heart Assist System and
Liver Transplants (Pre-MDC)
b. Gliadel[reg] Wafer (MDC 1)
c. Myasthenia Gravis and Acute and Chronic Inflammatory
Demyelinating Neuropathies (AIDP-CIDP) (MDC 1)
d. Peripheral and Spinal Neurostimulators (MDC 1 and MDC 8)
e. Stroke and Administration of Tissue Plasminogen Activator
(tPA) (MDC 1)
f. Gliasite[reg] Radiation Therapy System (RTS) (MDC 1)
g. Noninvasive Ventilation (MDC 4)
h. Heart Assist Devices (MDC 5)
i. Automatic Implantable Cardioverter-Defibrillators (ACID) Lead
and Generator Procedures (MDC 5)
j. Artificial Heart (MDC 5)
k. Vascular Procedures (MDC 5)
l. Coronary Artery Stents (MDC 5)
m. Endovascular Repair of Aortic and Thoracic Aneurysms (MDC 5)
n. O.R. Procedures for Obesity (MDC 10)
o. Penile Restorative Procedures (MDC 12)
p. Female Reproductive System Reconstruction Procedures (MDC 13)
q. Urological and Gynecological Disorders with Grafts or
Prosthesis (MDCs 13 and 14)
r. High Dose Interleukin-2 (HD-IL-2) (MDC 17)
s. Computer Assisted Surgery
13. Changes to MS-DRG Logic As a Result of Public Comments
H. Recalibration of DRG Weights
I. MS-LTC-DRG Reclassifications and Relative Weights for LTCHs
for FY 2008
1. Background
2. Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications into DRGs
3. Development of the FY 2008 MS-LTC-DRG Relative Weights
a. General Overview of Development of the MS-LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Treatment of Severity Levels in Developing Relative Weights
e. Low-Volume MS-LTC-DRGs
4. Steps for Determining the FY 2008 MS-LTC-DRG Relative Weights
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J. Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2008 Status of Technologies Approved for FY 2007 Add-On
Payments
a. Endovascular Graft Repair of the Thoracic Aorta
b. Restore[reg] Rechargeable Implantable Neurostimulators
c. X STOP Interspinous Process Decompression System
4. FY 2008 Application for New Technology Add-On Payments
5. Technical Correction
III. Changes to the Hospital Wage Index
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Occupational Mix Adjustment to the FY 2008 Wage Index
1. Development of Data for the FY 2008 Occupational Mix
Adjustment
2. Timeline for the Collection, Review, and Correction of the
Occupational Mix Data
3. Calculation of the Occupational Mix Adjustment for FY 2008
4. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
D. Worksheet S-3 Wage Data for the FY 2008 Wage Index
1. Included Categories of Costs
2. Contract Labor for Indirect Patient Care Services
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals under the IPPS
E. Verification of Worksheet S-3 Wage Data
F. Wage Index for Multicampus Hospitals
G. Computation of the FY 2008 Unadjusted Wage Index
1. Method for Computing the FY 2008 Unadjusted Wage Index
2. Expiration of the Imputed Floor
3. CAHs Reverting Back to IPPS Hospitals and Raising the Rural
Floor
4. Application of Rural Floor Budget Neutrality
H. Analysis and Implementation of the Occupational Mix
Adjustment and the FY 2008 Occupational Mix Adjusted Wage Index
I. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2008 MGCRB Reclassifications
4. Hospitals That Applied for Reclassification Effective in FY
2008 and Reinstating Reclassifications in FY 2008
5. Clarification of Policy on Reinstating Reclassifications
6. ``Fallback'' Reclassifications
7. Geographic Reclassification Issues for Multicampus Hospitals
8. Redesignations of Hospitals under Section 1886(d)(8)(B) of
the Act
9. Reclassifications under Section 1886(d)(8)(B) of the Act
10. New England Deemed Counties
11. Reclassifications under Section 508 of Pub. L. 108-173
12. Other Issues
J. FY 2008 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees
K. Process for Requests for Wage Index Data Corrections
L. Labor-Related Share for the Wage Index for FY 2008
M. Wage Index Study Required under Pub. L. 109-432
N. Proxy for the Hospital Market Basket
IV. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
2. FY 2008 Quality Measures
3. New Quality Measures and Program Requirements for FY 2009 and
Subsequent Years
a. New Quality Measures for FY 2009 and Subsequent Years
b. Data Submission
4. Retiring or Replacing RHQDAPU Program Quality Measures
5. Procedures for the RHQDAPU Program for FY 2008 and FY 2009
a. Procedures for Participating in the RHQDAPU Program
b. Procedures for Participating in the RHQDAPU Program for FY
2009
c. Chart Validation Requirements
d. Data Validation and Attestation
e. Public Display
f. Reconsideration and Appeal Procedures
g. RHQDAPU Program Withdrawal Requirements
6. Electronic Medical Records
7. New Hospitals
B. Development of the Medicare Hospital Value-Based Purchasing
Plan
C. Rural Referral Centers (RRCs)
1. Annual Update of RRC Status Criteria
a. Case-Mix Index
b. Discharges
2. Acquired Rural Status of RRCs
D. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2008
3. Time Spent by Residents on Vacation or Sick Leave and in
Orientation
a. Background
b. Vacation and Sick Leave Time
c. Orientation Activities
d. Regulation Changes
E. Payments to Disproportionate Share Hospitals (DSHs):
Technical Correction
1. Background
2. Technical Correction: Inclusion of Medicare Advantage Days in
the Medicare Fraction of the Medicare DSH Calculation
F. Hospital Emergency Services under EMTALA
1. Background
2. Recent Legislation Affecting EMTALA Implementation
a. Secretary's Authority to Waive Requirements During National
Emergencies
b. Provisions of the Pandemic and All-Hazards Preparedness Act
c. Revisions to the EMTALA Regulations
G. Disclosure of Physician Ownership in Hospitals and Patient
Safety Measures
1. Disclosure of Physician Ownership in Hospitals
2. Patient Safety Measures
H. Rural Community Hospital Demonstration Program
V. Changes to the IPPS for Capital-Related Costs
A. Background
B. Policy Change
VI. Changes for Hospitals and Hospital Units Excluded from the IPPS
A. Payments to Existing and New Excluded Hospitals and Hospital
Units
B. Separate PPS for IRFs
C. Separate PPS for LTCHs
D. Separate PPS for IPFs
E. Determining LTCH Cost-to-Charge Ratios (CCRs) under the LTCH
PPS
F. Report of Adjustment (Exceptions) Payments
VII. Services Furnished to Beneficiaries in Custody of Penal
Authorities
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Waiver of Notice of Proposed Rulemaking
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning
On or After October 1, 2007
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient
Operating Costs for FY 2008
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
b. Reclassified Hospitals--Budget Neutrality Adjustment
c. Imputed Rural Floor--Budget Neutrality Adjustment
d. Case-Mix Budget Neutrality Adjustment
e. Outliers
f. Rural Community Hospital Demonstration Program Adjustment
(Section 410A of Pub. L. 108-173)
5. FY 2008 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 Prospective Payment Rates
1. Federal Rate
2. Hospital Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital Specific Rate
[[Page 47134]]
b. Updating the FY 1982, FY 1987, FY 1996, and FY 2002 Hospital
Specific Rates for FY 2008
3. General Formula for Calculation of Prospective Payment Rates
for Hospitals Located in Puerto Rico Beginning On or After October
1, 2007 and Before October 1, 200
a. Puerto Rico Rate
b. National Rate
III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2008
A. Determination of Federal Hospital Inpatient Capital Related
Prospective Payment Rate Update
1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
b. MedPAC Update Recommendation
2. Outlier Payment Adjustment Factor
3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the GAF
4. Exceptions Payment Adjustment Factor
5. Capital Standard Federal Rate for FY 2008
6. Special Capital Rate for Puerto Rico Hospitals
B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2008
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2008
IV. Changes to Payment Rates for Excluded Hospitals and Hospital
Units: Rate-of-Increase Percentages
V. Tables
Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage
Index Is Greater Than 1)
Table 1B--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage
Index Is Less Than or Equal to 1)
Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico,
Labor/Nonlabor
Table 1D--Capital Standard Federal Payment Rate
Table 2--Hospital Case-Mix Indexes for Discharges Occurring in
Federal Fiscal Year 2006; Hospital Wage Indexes for Federal Fiscal
Year 2008; Hospital Average Hourly Wages for Federal Fiscal Years
2006 (2002 Wage Data), 2007 (2003 Wage Data), and 2008 (2004 Wage
Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A--FY 2008 and 3-Year Average Hourly Wage for Urban Areas
by CBSA
Table 3B--FY 2008 and 3-Year Average Hourly Wage for Rural Areas
by CBSA
Table 4A--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Urban Areas by CBSA--FY 2008
Table 4B--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Rural Areas by CBSA--FY 2008
Table 4C--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Hospitals That Are Reclassified by CBSA--FY 2008
Table 4F--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) by CBSA--FY 2008
Table 4J--Out-Migration Wage Adjustment--FY 2008
Table 5--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean
Length of Stay
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Invalid Procedure Codes
Table 6E--Revised Diagnosis Code Titles
Table 6F--Revised Procedure Code Titles
Table 6G--Additions to the CC Exclusions List
Table 6H--Deletions from the CC Exclusions List
Table 6I--Complete List of Complication and Comorbidity (CC)
Exclusions
(Available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov / AcuteInpatientPPS/)
Table 7A--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2006 MedPAR Update--March 2007
GROUPER V24.0 CMS DRGs
Table 7B--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2006 MedPAR Update--March 2007
GROUPER V25.0 CMS DRGs
Table 8A--Statewide Average Operating Cost-to-Charge Ratios--
July 2007
Table 8B--Statewide Average Capital Cost-to-Charge Ratios--July
2007
Table 8C--Statewide Average Total Cost-to-Charge Ratios for
LTCHs--July 2007
Table 9A--Hospital Reclassifications and Redesignations--FY 2008
Table 9C--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2008
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 Medicare Severity Diagnosis-Related
Groups (MS-DRGs)--July 2007
Table 11--FY 2008 MS-LTC-DRGs, Relative Weights, Geometric
Average Length of Stay, Short-Stay Outlier Threshold, and IPPS
Comparable Threshold
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 Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Changes to the DRG Reclassifications and
Relative Cost-Based Weights (Column 2)
D. Effects of Wage Index Changes (Column 3)
E. Combined Effects of DRG and Wage Index Changes (Column 4)
F. Effects of the Expiration 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
5)
G. Effects of MGCRB Reclassifications (Column 6)
H. Effects of the Adjustment to the Application of the Rural
Floor (Column 7)
I. Effects of Application of the Imputed Floor (Column 8)
J. Effects of the Expiration of Section 508 of Pub. L. 108-173
(Column 9)
K. Effects of the Wage Index Adjustment for Out-Migration
(Column 10)
L. Effects of All Changes with CMI Adjustment Prior to Estimated
Growth (Column 11)
M. Effects of All Changes with CMI Adjustment and Assumed
Estimated (Column 12)
N. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
O. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of Policy on Hospital-Acquired Conditions, Including
Infections
B. Effects of MS-LTC-DRG Reclassifications and Relative Weights
for LTCHs
C. Effects of New Technology Add-On Payments
D. Effects of Requirements for Hospital Reporting of Quality
Data for Annual Hospital Payment Update
E. Effects of Policy on Cancellation of Classification of
Acquired Rural Status and Rural Referral Centers
F. Effects of Policy Change on Payment for IME and Direct GME
G. Effects of Policy Changes Relating to Emergency Services
under EMTALA During an Emergency Period
H. Effects of Policy on Disclosure of Physician Ownership in
Hospitals and Patient Safety Measures
I. Effects of Implementation of the Rural Community Hospital
Demonstration Program
J. Effects of Policy Changes on Services Furnished to
Beneficiaries in Custody of Penal Authorities
VIII. Impact of Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866
Appendix B--Recommendation of Update Factors for Operating Cost Rates
of Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2008
III. Secretary's Final Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare
[[Page 47135]]
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 IPPS, payments are adjusted by the same DRG for the case as
they are under the operating IPPS. Capital IPPS payments are also
adjusted for IME and DSH, similar to the adjustments made under the
operating IPPS. In addition, hospitals may receive outlier payments for
those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded from the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
specialty hospitals and hospital units are excluded from the IPPS.
These hospitals and units are: rehabilitation hospitals and units;
long-term care hospitals (LTCHs); psychiatric hospitals and units;
children's hospitals; and cancer hospitals. Religious nonmedical health
care institutions (RNHCIs) are also excluded from the IPPS. Various
sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the
Medicare, Medicaid and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and
the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs
for rehabilitation hospitals and units (referred to as inpatient
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and
units (referred to as inpatient psychiatric facilities (IPFs)), as
discussed below. Children's hospitals, cancer hospitals, and RNHCIs
continue to be paid solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR Parts 412 and 413.
a. Inpatient Rehabilitation Facilities (IRFs)
Under section 1886(j) of the Act, as amended, rehabilitation
hospitals and units (IRFs) have been transitioned from payment based on
a blend of reasonable cost reimbursement subject to a hospital-specific
annual limit under section 1886(b) of the Act and the adjusted facility
Federal prospective payment rate for cost reporting periods beginning
on or after January 1, 2002 through September 30, 2002, to payment at
100 percent of the Federal rate effective for cost reporting periods
beginning on or after October 1, 2002. IRFs subject to the blend were
also permitted to elect payment based on 100 percent of the Federal
rate. The existing regulations governing payments under the IRF PPS are
located in 42 CFR Part 412, Subpart P.
b. Long-Term Care Hospitals (LTCHs)
Under the authority of sections 123(a) and (c) of Pub. L. 106-113
and section 307(b)(1) of Pub. L. 106-554, the LTCH PPS was effective
for a LTCH's first cost reporting period beginning on or after October
1, 2002. LTCHs that do not meet the definition of ``new'' under Sec.
412.23(e)(4) are paid, during a 5-year
[[Page 47136]]
transition period, a LTCH prospective payment that is comprised of an
increasing proportion of the LTCH Federal rate and a decreasing
proportion based on reasonable cost principles. Those LTCHs that did
not meet the definition of ``new'' under Sec. 412.23(e)(4) could elect
to be paid based on 100 percent of the Federal prospective payment rate
instead of a blended payment in any year during the 5-year transition.
For cost reporting periods beginning on or after October 1, 2006, all
LTCHs are paid 100 percent of the Federal rate. The existing
regulations governing payment under the LTCH PPS are located in 42 CFR
Part 412, Subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a) and (c) of 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. 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)
The Deficit Reduction Act of 2005 (DRA), Pub. L. 109-171, made a
number of changes to the Act relating to prospective payments to
hospitals and other providers for inpatient services. The final rule
implements amendments made by (1) section 5001(a), which, effective for
FY 2007 and subsequent years, expands the requirements for hospital
quality data reporting; and (2) section 5001(c), which requires the
Secretary to select, by October 1, 2007, at least two hospital-acquired
conditions that meet certain specified criteria that will be subject to
a quality adjustment in DRG payments during FY 2008.
In this final rule with comment period, we also discuss our
development of a plan to implement, beginning with FY 2009, a value-
based purchasing plan for section 1886(d) hospitals, in accordance with
the requirements of section 5001(b) of Pub. L. 109-171.
C. Provisions of the Medicare Improvements and Extension Act under
Division B, Title I of the Tax Relief and Health Care Act of 2006
In this final rule with comment period, we discuss the provisions
of section 106(b)(1) of the Medicare Improvements and Extensions Act
under Division B, Title I of the Tax Relief and Health Care Act of 2006
(MIEA-TRHCA), Pub. L. 109-432, which requires MedPAC to submit to
Congress, not later than June 30, 2007, a report on the Medicare wage
index classification system applied under the Medicare Prospective
Payment System. Section 106(b) of the MIEA-TRHCA requires the report to
include any alternatives that MedPAC recommends to the method to
compute the wage index under section 1886(d)(3)(E) of the Act.
In addition, we discuss the provisions of section 106(b)(2) of the
MIEA-TRHCA, which instructs the Secretary of Health and Human Services,
taking into account MedPAC's recommendations on the Medicare wage index
classification system, to include in the FY 2009 IPPS proposed rule one
or more proposals to revise the wage index adjustment applied under
section 1886(d)(3)(E) of the Act for purposes of the IPPS.
We note that we published a notice in the Federal Register on March
23, 2007 (72 FR 13799) that addressed the provisions of section 106(a)
of the MIEA-TRHCA relating to the extension of geographic
reclassifications of hospitals under section 508 of Pub. L. 108-173
(that expired on March 31, 2007) through September 30, 2007.
D. Provisions of the Pandemic and All-Hazards Preparedness Act
On December 19, 2006, Congress enacted the Pandemic and All-Hazards
Preparedness Act, Pub. L. 109-417. Section 302(b) of Pub. L. 109-417
makes two specific changes that affect EMTALA implementation in
emergency areas during an emergency period. Specifically section
302(b)(1)(A) of Pub. L. 109-417 amended section 1135(b)(3)(B) of the
Act to state that sanctions may be waived for the direction or
relocation of an individual for screening where, in the case of a
public health emergency that involves a pandemic infectious disease,
that direction or relocation occurs pursuant to a State pandemic
preparedness plan. In addition, sections 302(b)(1)(B) and (b)(1)(C) of
Pub. L. 109-417 amended section 1135(b)(3)(B) of the Act to state that,
if a public health emergency involves a pandemic infectious disease
(such as pandemic influenza) the duration of a waiver or modification
under section 1135(b)(3) of the Act (relating to EMTALA) shall be
determined in accordance with section 1135(e) of the Act as that
subsection applies to public health emergencies.
In this final rule with comment period, we are making changes to
the EMTALA regulations to conform them to the sanction waiver
provisions of section 302(b) of Pub. L. 109-417.
E. Issuance of a Notice of Proposed Rulemaking
On May 3, 2007, we issued in the Federal Register (72 FR 24680) a
notice of proposed rulemaking that set forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs in FY
2008. We also set forth proposed changes relating to payments for GME
and IME costs and payments to certain hospitals and units that continue
to be excluded from the IPPS and paid on a reasonable cost basis that
would be effective for discharges occurring on or after October 1,
2007. Below is a summary of the major changes that we proposed to make:
1. DRG Reclassifications and Recalibrations of Relative Weights
We proposed to adopt a Medicare Severity DRG (MS-DRG)
classification system for the IPPS to better recognize severity of
illness. We presented the methodology we used to establish the MS-DRGs
and discussed our efforts to
[[Page 47137]]
further analyze alternative severity-adjusted DRG systems and to refine
the relative weight calculations for DRGs.
We presented a proposed listing and discussion of hospital-acquired
conditions, including infections, which were evaluated and proposed to
be subject to the statutorily required quality adjustment in DRG
payments for FY 2008.
We proposed limited annual revisions to the DRG classification
system in the following areas: Intestinal transplants,
neurostimulators, intracranial stents, cochlear implants, knee and hip
replacements, spinal fusions and spinal disc devices, and endoscopic
procedures.
We presented our reevaluation of certain FY 2007 applicants for
add-on payments for high-cost new medical services and technologies,
and our analysis of the FY 2008 applicant (including public input, as
directed by Pub. L. 108-173, obtained in a town hall meeting).
We proposed 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 2008. We proposed that the LTC-DRGs would be
revised to mirror the proposed MS-DRGs for the IPPS.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to the proposed rule, we proposed
revisions to the wage index and the annual update of the wage data.
Specific issues addressed included the following:
The FY 2008 wage index update, using wage data from cost
reporting periods that began during FY 2004.
Analysis and implementation of the proposed FY 2008
occupational mix adjustment to the wage index.
Proposed changes relating to expiration of the imputed
rural floor for the wage index and application of budget neutrality for
the rural floor.
Proposed changes in the determination of the wage index
for multicampus hospitals.
The proposed revisions to the wage index based on hospital
redesignations and reclassifications, including reclassifications for
multicampus hospitals.
The proposed adjustment to the wage index for FY 2008
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 were in effect for the FY 2008 wage index.
The labor-related share for the FY 2008 wage index,
including the labor-related share for Puerto Rico.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble to the proposed rule, we discussed a
number of the provisions of the regulations in 42 CFR Parts 412, 413,
and 489, including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Development of the Medicare value-based purchasing plan
and reports on the ``listening sessions'' held.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status and a proposed
policy change relating to the acquired rural status of RRCs.
The statutorily-required IME adjustment factor for FY 2008
and a proposed policy change relating to determining counts of
residents on vacation or sick leave and in orientation for IME and
direct GME purposes.
Proposed changes relating to the waiver of sanctions for
requirements for emergency services for hospitals under EMTALA during
national emergencies.
Proposed policy changes relating to the disclosure to
patients of physician ownership of hospitals and patient safety
measures.
Discussion of the fourth year of implementation of the
Rural Community Hospital Demonstration Program.
4. Proposed Changes to the IPPS for Capital-Related Costs
In section V. of the preamble to the proposed rule, we discussed
the payment policy requirements for capital-related costs and capital
payments to hospitals and proposed changes relating to adjustments to
the Federal capital rate to address continuous large positive margins.
5. Proposed Changes to the Payment Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase Percentages
In section VI. of the preamble to the proposed rule, we discussed
payments to excluded hospitals and hospital units, and proposed changes
for determining LTCH CCRs under the LTCH PPS.
6. Services Furnished to Beneficiaries in Custody of Penal Authorities
In section VII. of the preamble to the proposed rule, we clarified
when individuals are considered to be in ``custody'' for purposes of
Medicare payment for services furnished to beneficiaries who are under
penal authorities.
7. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
In the Addendum to the proposed rule, we set forth proposed changes
to the amounts and factors for determining the FY 2008 prospective
payment rates for operating costs and capital-related costs. We also
established the proposed threshold amounts for outlier cases. In
addition, we addressed the proposed update factors for determining the
rate-of-increase limits for cost reporting periods beginning in FY 2008
for hospitals and hospital units excluded from the PPS.
8. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the
impact that the proposed changes would have on affected hospitals.
9. Recommendation of Update Factors for Operating Cost Rates of Payment
for Inpatient Hospital Services
In Appendix B of the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2008 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.
10. 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 2007 recommendations 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. We
addressed these recommendations in Appendix B of the proposed rule. For
further information relating specifically to the MedPAC March 2007
reports or to obtain a copy of the reports, contact
[[Page 47138]]
MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.
F. Public Comments Received on the Proposed Rule
We received approximately 900 timely pieces of correspondence in
response to the FY 2008 IPPS proposed rule issued in the Federal
Register on May 3, 2007. These public comments addressed issues on
multiple topics in the proposed rule. We present a summary of the
public comments and our responses to them in the applicable subject
matter sections of this final rule with comment period.
II. Changes to DRG Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS, we
pay for inpatient hospital services on a rate per discharge basis that
varies according to the DRG to which a beneficiary's stay is assigned.
The formula used to calculate payment for a specific case multiplies an
individual hospital's payment rate per case by the weight of the DRG to
which the case is assigned. Each DRG weight represents the average
resources required to care for cases in that particular DRG, relative
to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes in
treatment patterns, technology, and any other factors that may change
the relative use of hospital resources.
B. DRG Reclassifications
1. General
As discussed in the preamble to the FY 2007 IPPS final rule (71 FR
47881 through 47971), we are focusing our efforts in FY 2008 on making
significant reforms to the IPPS consistent with the recommendations
made by MedPAC in its ``Report to the Congress, Physician-Owned
Specialty Hospitals'' in March 2005. MedPAC recommended that the
Secretary refine the entire DRG system by taking into account severity
of illness and applying hospital-specific relative value (HSRV) weights
to DRGs.\1\ We began this reform process by adopting cost-based weights
over a 3-year transition period beginning in FY 2007 and making interim
changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and
modifying 32 others across 13 different clinical areas involving nearly
1.7 million cases. As described below in more detail, these refinements
were intermediate steps towards comprehensive reform of both the
relative weights and the DRG system that is occurring as we undertook
further study.
---------------------------------------------------------------------------
\1\ Medicare Payment Advisory Commission: Report to the
Congress, Physician-Owned Specialty Hospitals, March 2005, page
viii.
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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 to ensure that the DRGs would be clinically
coherent. The diagnoses in each MDC correspond to a single organ system
or etiology and, in general, are associated with a particular medical
specialty. Thus, in order to maintain the requirement of clinical
coherence, no final 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 2007, cases are assigned to one of 538 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.
[[Page 47139]]
21........................... Injuries, Poisonings, and Toxic Effects
of Drugs.
22........................... Burns.
23........................... Factors Influencing Health Status and
Other Contacts with Health Services.
24........................... Multiple Significant Trauma.
25........................... Human Immunodeficiency Virus Infections.
------------------------------------------------------------------------
In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to a DRG. However, under the most
recent version of the CMS GROUPER (Version 24.0), there are 9 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, 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
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. An example is
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
diagnosis class 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 entered into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into 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 payment 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 FY 2000
IPPS final rule (64 FR 41500), we discussed a process for considering
non-MedPAR data in the recalibration process. In order for us to
consider using particular non-MedPAR data, we must have sufficient time
to evaluate and test the data. The time necessary to do so depends upon
the nature and quality of the non-MedPAR data submitted. Generally,
however, a significant sample of the non-MedPAR data should be
submitted by mid-october for consideration in conjunction with the next
year's proposed rule. This
[[Page 47140]]
date allows us time to test the data and make a preliminary assessment
as to the feasibility of using the data. Subsequently, a complete
database should be submitted by early December for consideration in
conjunction with the next year's proposed rule.
As we proposed in the FY 2008 IPPS proposed rule, for FY 2008, we
are adopting significant changes to the current DRGs. As described in
detail below, we proposed significant improvement in the DRG system to
recognize severity of illness and resource usage by proposing to adopt
Medicare Severity DRGs (MS-DRGs). The changes we proposed (and are
adopting in this final rule with comment period) will be reflected in
the FY 2008 GROUPER, Version 25.0, and will be effective for discharges
occurring on or after October 1, 2007. As noted in the proposed rule,
our DRG analysis was based on data from the December 2006 update of the
FY 2006 MedPAR file, which contained hospital bills received through
December 31, 2006, for discharges occurring in FY 2006. For this final
rule with comment period, our analysis is based on more recent data
from the March 2007 update of the FY 2006 MedPAR file, which contains
hospital bills received through March 31, 2007, for discharges
occurring in FY 2006.
2. Yearly Review for Making DRG Changes
Many of the changes to the DRG classifications we make annually are
the result of specific issues brought to our attention by interested
parties. As we indicated in the proposed rule, 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 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 will likely
continue to be, highly iterative, involving a combination of
statistical results from test data combined with clinical judgment. We
describe in detail below the process we used to develop the MS-DRGs
that we proposed and are adopting in this final rule with comment
period. In addition, in deciding whether to make further modification
to the MS-DRGs for particular circumstances brought to our attention,
we considered whether the resource consumption and clinical
characteristics of the patients with a given set of conditions are
significantly different than the remaining patients in the MS-DRG. We
evaluated patient care costs using average charges and lengths of stay
as proxies for costs and relied on the judgment of our medical advisors
to decide whether patients are clinically distinct or similar to other
patients in the MS-DRG. In evaluating resource costs, we considered
both the absolute and percentage differences in average charges between
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that
is, whether observed average differences were consistent across
patients or attributable to cases that were extreme in terms of charges
or length of stay, or both. Further, we considered the number of
patients who will have a given set of characteristics and generally
preferred not to create a new DRG unless it would include a substantial
number of cases.
C. MedPAC Recommendations for Revisions to the IPPS DRG System
In the FY 2006 and FY 2007 IPPS final rules, we discussed a number
of recommendations made by MedPAC regarding revisions to the DRG system
used under the IPPS (70 FR 47473 through 47482 and 71 FR 47881 through
47939).
In Recommendations 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.
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.
For FY 2007, we began this process. In the FY 2007 IPPS proposed
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY
2008 (if not earlier). However, based on public comments received on
the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs.
Rather, we decided to make interim changes to the existing DRGs for FY
2007 by creating 20 new DRGs involving 13 different clinical areas that
would significantly improve the CMS DRG system's recognition of
severity of illness. We also modified 32 DRGs to better capture
differences in severity. The new and revised DRGs were selected from 40
existing CMS DRGs that contained 1,666,476 cases and represent a number
of body systems. In creating these 20 new DRGs, we deleted 8 and
modified 32 existing DRGs. We indicated that these interim steps for FY
2007 were being taken as a prelude to more comprehensive changes to
better account for severity in the DRG system by FY 2008. In the FY
2007 IPPS final rule, we indicated our intent to pursue further DRG
reform through two initiatives. First, we announced that we were in the
process of engaging a contractor to assist us with evaluating
alternative DRG systems that were raised as potential alternatives to
the CS DRGs in the public comments. Second, we indicated our intent to
review over 13,000 ICD-9-CM diagnosis codes as part of making further
refinements to the current CMS DRGs to better recognize severity of
illness based on the work that CMS (then HCFA) did in the mid-1990's to
adopt severity DRGs. We describe in detail below the progress we have
made on these two initiatives, our actions for FY 2008, and our plans
for continued analysis of reform of the DRG system for FY 2009. We note
that revising the DRGs to better recognize severity of illness has
implications for the outlier threshold, the application of the
postacute care transfer policy, the measurement of real case-mix versus
apparent case-mix, and the IME and DSH payment adjustments. We discuss
these implications in more detail in the following sections.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's
recommendations to move to a cost-based HSRV weighting methodology
beginning with the FY 2007 IPPS
[[Page 47141]]
proposed rule. Although we proposed to adopt HSRV weights for FY 2007,
we decided not to adopt the proposed methodology in the final rule
after considering the public comments we received on the proposal.
Instead, in the FY 2007 IPPS final rule, we adopted a cost-based
weighting methodology without the hospital-specific portion of the
methodology. The cost-based weights are being adopted over a 3-year
transition period in \1/3\ increments between FY 2007 and FY 2009. In
addition, in the FY 2007 IPPS final rule, we indicated our intent to
further study the hospital-specific methodology as well as other issues
brought to our attention with respect to the cost-based weights. There
was significant concern in the public comments that we account for
charge compression--the practice of applying a higher charge markup
over costs to lower cost than higher cost items and services--if we are
to develop relative weights based on cost. Further, public commenters
expressed concern about potential inconsistencies between how costs and
charges are reported on the Medicare cost reports and charges on the
Medicare claims. In the FY 2007 IPPS final rule, we used costs and
charges from the cost report to determine departmental level cost-to-
charge ratios (CCRs) to apply to charges on the Medicare claims to
determine the cost-based weights. The commenters were concerned about
potential distortions to the cost-based weights that would result from
inconsistent reporting between the cost reports and the Medicare
claims. After publication of the FY 2007 IPPS final rule, we entered
into a contract with RTI International to study both charge compression
and to what extent our methodology for calculating DRG relative weights
is affected by inconsistencies between how hospitals report costs and
charges on the cost report and how hospitals report charges on
individual claims. Further, as part of its study of alternative DRG
systems, the RAND Corporation is analyzing the HSRV cost-weighting
methodology.
As we present below, we believe that revisions to the DRG system to
better recognize severity of illness and changes to the relative
weights based on costs rather than charges are improving the accuracy
of the payment rates in the IPPS. We agree with MedPAC that these
refinements should be pursued. Although we continue to caution that any
system that groups cases will always present some opportunities for
providers to specialize in cases they believe to have higher margins,
we believe that the changes we have adopted and the continuing reforms
we proposed, and are adopting in this final rule with comment period,
for FY 2008 will improve payment accuracy and reduce financial
incentives to create specialty hospitals.
D. Refinement of DRGs Based on Severity of Illness
For purposes of the following discussions, the term ``CMS DRGs''
means the DRG system we currently use under the IPPS; the term
``Medicare-Severity DRGs (MS-DRGs)'' means the revisions that we
proposed to make (and are adopting in this final rule with comment
period) to the current CMS DRGs to better recognize severity of illness
and resource use based on case complexity. Although we have found the
terms ``CMS DRGs'' and ``MS-DRGs'' useful to distinguish the current
DRG system from the DRGs that we proposed to adopt for FY 2008, we
invited public comments on how to best refer to both the current DRGs
and the proposed DRGs to avoid confusion and improve clarity.
Comment: One commenter responded to our request for name
suggestions for the new DRG system. The commenter agreed that the name
should differentiate which DRG scheme is being referenced. The
commenter did not provide an alternative suggestion.
Response: We agree with the importance of being able to
differentiate between the current and the revised DRG system. We
believe the name ``Medicare Severity DRGs (MS-DRGs)'' is an appropriate
name for this revised system. Therefore, we are adopting as final our
reference to the revised DRG system as the ``Medicare Severity DRGs (MS
DRGs).''
1. Evaluation of Alternative Severity-Adjusted DRG Systems
In the FY 2007 IPPS final rule, we stated our intent to engage a
contractor to assist us with an evaluation of alternative DRG systems
that may better recognize severity than the current CMS DRGs. We noted
it was possible that some of the alternative systems would better
recognize severity of illness and are based on the current CMS DRGs. We
further stated that if we were to develop a clinical severity concept
using the current CMS DRGs as the starting point, it was possible that
several of the issues raised by commenters (in response to the CS DRGs,
which, in the FY 2007 IPPS proposed rule, we proposed to adopt for FY
2008 or earlier) would no longer be a concern. We noted that if we were
to propose adoption of severity DRGs for FY 2008, we would consider the
issues raised by commenters on last year's proposed rule as we
continued to make further refinements to account for complexity as well
as severity to better reflect relative resource use. We stated that we
believed it was likely that at least one of several alternative
severity-adjusted DRG systems suggested for review (or potentially a
system we would develop ourselves) would be suitable to achieve our
goal of improving payment accuracy beginning in FY 2008.
On September 1, 2006, we awarded a contract to the RAND Corporation
to perform an evaluation of alternative severity-adjusted DRG
classification systems. RAND is evaluating several alternative DRG
systems based on how well they are suited to classifying and making
payments for hospital inpatient services provided to Medicare patients.
Each system is being assessed on its ability to differentiate among
severity of illness. A final report is due on or before September 1,
2007.
RAND's draft interim report focused on the following criteria:
Severity-adjusted DRG classification systems.
How well does each classification system explain
variation in resource use?
How would the classification system affect a hospital's
patient mix?
Are the groupings manageable, administratively feasible
and understandable?
Payment accuracy--What are the payment implications of
selected models?
In response to our request, several vendors of DRG systems
submitted their products for evaluation. The following products were
evaluated by RAND:
3M/Health Information Systems (HIS)
CMS DRGs modified for AP-DRG Logic (CMS+AP-DRGs)
Consolidated Severity-Adjusted DRGs (CS DRGs)
Health Systems Consultants (HSC)
Refined DRGs (HSC-DRGs)
HSS/Ingenix
All-Payer Severity DRGs with Medicare modifications (MM-
APS-DRGs)
Solucient
Solucient Refined DRGs (Sol-DRGs)
Vendors submitted their commercial (off-the-shelf) software to RAND
in late September 2006. The five systems were compared to the CMS DRGs
that were in effect as of October 1, 2006 (FY 2007). RAND assigned FY
2004 and FY 2005 Medicare discharges from acute care hospitals to the
FY 2007 CMS DRGs and
[[Page 47142]]
to each of the alternative severity-adjusted DRG systems. RAND's
initial analysis provided an overview of each alternative DRG
classification system, their comparative performance in explaining
variation in resource use, differences in DRG grouping logic, and case
mix change.
A Technical Expert Panel comprised of individuals representing
academic institutions, hospital associations, and MedPAC was formed in
October 2006. The members received the preliminary draft report of
RAND's alternative severity-adjusted DRG systems evaluation in early
January 2007. The panel met with RAND and CMS on January 18, 2007, to
discuss the preliminary draft report and to provide additional
comments. RAND incorporated items raised by the panel into its
preliminary draft report and submitted a revised interim report to CMS
in mid-March 2007. CMS posted RAND's interim report on the CMS Web site
in late March 2007. Interested individuals can view RAND's interim
report on the CMS Web site at: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292.
The report may also be viewed on
RAND's Web site at http://www.rand.org/pubs/online/health.
At this time, RAND has completed its evaluation of the alternative
severity adjusted DRG systems. RAND's interim report reflects its
evaluation of five alternative DRG systems using the criteria described
above. Since the proposed rule, RAND evaluated the Medicare Severity
DRG (MS-DRG) system using the same criteria applied to the other DRG
systems. We are continuing to work with RAND to evaluate alternate
methodologies for establishing relative weights using the MS-DRGs. Once
RAND completes its work on the alternate methodologies for establishing
relative weights, we will be in a better position to evaluate the issue
of charge compression and potential improvements to our methodology to
determine cost-based relative weights. We plan to review RAND's
analysis of these issues and determine if it will be appropriate to
propose additional adjustments to the MS-DRGs or the relative weight
methodology in the FY 2009 IPPS proposed rule.
We instructed RAND to evaluate the MS-DRGs using the same criteria
that it applied to the other DRG systems. Consistent with conclusions
we made in the IPPS proposed rule, RAND's findings demonstrate that MS-
DRGs explain 43 percent of the cost variation; a 9.1 percent
improvement over the CMS DRGs. RAND reports that the explanatory power
of the MS-DRGs is higher than the CMS+AP-DRGs, but lower than the other
systems analyzed. The MS-DRGs have the lowest adjusted R\2\ values
among the severity-adjusted systems in seven MDCs. In three of these
MDCs, the R\2\ values are actually lower than under the CMS DRGs: MDC
19 (Mental Diseases and Disorders), MDC 20 (Alcohol/Drug Use and
Alcohol/Drug Induced Organic Mental Disorders) and MDC 22 (Burns). RAND
attributes the reduction in R\2\ values to how the CMS DRGs were
collapsed to form the base DRGs and recommends future examination. We
agree that RAND's findings provide us with potential issues to examine
to further improve the MS-DRGs for FY 2009.
Although RAND's findings related to R2 in certain MDCs
are of concern, we believe the MS-DRGs remain an improvement over the
current CMS DRGs and have significant advantages over the other DRG
systems being evaluated. Specifically, they are more up-to-date because
of our review of secondary diagnoses and classification into MCCs and
CCs. Further, they are understandable, available in the public domain,
and will have fewer transition issues than the other systems. As MS-
DRGs are a modification of the current CMS DRGs, they allow for updates
and maintenance to continue using the same process as under the current
CMS DRGs.
Depending on the criteria being evaluated, the relative merits of
each system being evaluated by RAND are different. For instance, the CS
DRGs performed well in explaining resource variation but have the
highest potential for case-mix growth. Other than the MS-DRGs, the
CMS+AP-DRGs did the poorest among the systems evaluated in explaining
variation in resource usage but did the best on producing reliable and
stable results. The remaining systems generally performed somewhere in
between on most of the measures that RAND used in its comparative
analysis. The MS-DRGs are the result of modifications to the CMS DRGs
to better account for severity. Unlike the other systems, the MS-DRGs
are available in the public domain, and as a result, systems
implementation and other costs are likely to be at a minimum. As
suggested above, RAND found that the MS-DRGs are an improvement over
the CMS DRGs and compare favorably to the alternative DRG systems being
evaluated on some criteria and not as well on others.
As RAND has completed its evaluation of the alternative DRG
systems, including the MS-DRGs, consistent with RAND's findings, we
believe it is appropriate at this time to adopt the MS-DRG system for
the Medicare IPPS in FY 2008. While there will be an opportunity for
the public to comment on RAND's findings, we expect to permanently
adopt the MS-DRGs for the IPPS. We do not think it is likely that there
will be persuasive public comments suggesting that one of the
alternative DRG systems being evaluated by RAND is clearly superior. In
our view, none of the systems appears to be clearly superior or
inferior to the other systems based on the criteria RAND used for the
evaluation. Given the strong support in the public comments for the MS-
DRGs and the fact they compare well overall to the alternative DRG
systems being evaluated by RAND, we believe it is likely that the MS-
DRGs will be the system that Medicare uses permanently for the IPPS.
However, because we are interested in public input on this issue, we
are making RAND's final report available on the CMS Web Site at: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292.
The
report may also be viewed on RAND's Web site at http://www.rand.org/pubs/online/health
.
Interested members of the public can write to the following address
to make their views known to us about the RAND Report:
Division of Acute Care, Center for Medicaid Management, 7500
Security Boulevard, C4-08-06, Baltimore, MD 21244, Attn: Mady Hue.
In the FY 2008 IPPS proposed rule, we proposed to adopt the MS-DRGs
for FY 2008. We are providing the following update on RAND's progress
in evaluating the MS-DRGs against the alternative DRG systems. In the
proposed rule, we also invited public comment regarding RAND's
preliminary analysis of each vendor-supplied alternative severity-
adjusted DRG system described below. A summary of any public comments
that we received and our responses to those comments are presented
under each subject area.
a. Overview of Alternative DRG Classification Systems
Analysis of how each of the six severity adjusted DRG systems
performs began by using the current CMS DRGs as a baseline. Two of the
six systems (CS DRGs and MM-APS-DRGs) are derivatives of all-patient
severity-adjusted DRG systems that have been modified by their
developers for the Medicare population and two of the systems (HSC-DRGs
and Sol-DRGs) are all-patient systems that incorporate severity levels
into the CMS DRGs. The CMS+AP-DRGs are a combination of CMS DRGs and a
modification for the Medicare population of the major CC
[[Page 47143]]
(MCC) severity groupings used in the AP-DRG system. (The AP-DRG system
was developed by 3M/HIS specifically for the State of New York to
capture the non-Medicare population.) The MS-DRG system modifies the
current CMS DRGs by collapsing any paired DRGs (DRGs distinguished by
the presence or absence of CCs and/or age) into base DRGs and then
splits the base DRGs into MCC/CC-severity levels.
Table A below shows how each of the six alternative severity-
adjusted systems classifies patients into base DRGs and their
corresponding severity levels.
Table A.--Logic of CMS and Alternative DRG Systems
----------------------------------------------------------------------------------------------------------------
CMS-DRG CMS+AP-DRG HSC-DRG Sol-DRG MM-APS-DRG CS DRG MS-DRG
----------------------------------------------------------------------------------------------------------------
Number of MDCs................ 25 25 25 25 25 25 25
Number of base DRGs........... 379 379 391 393 328 270 335
Total number of DRGs.......... 538 602 1,293 1,261 915 863 745
Number of DRGs < 500 discharges 97 (18%) 97 (16%) 374 (29%) 474 (38%) 115 (13%) 113 (13%) 38 (5.2%)
Number of CC (severity) 2 3 3 (med) 3 (med) 3 4 3
subclasses. or 4 or 4
(surg) (surg)
CC subclasses................. With CC, Without CC, No CC, Minor/no Without CC, Minor, Without
without With CC Class C substant With CC, Moderate CC, With
CC for for CC, ial CCs, With Major , Major, CC, With
selected selected Class B Moderate CC with Severe Major CC
base DRGs base DRGs CC, CCs, some with with
and Major Class A Major collapsing some collapsi
CC across CC CCs, at base collapsi ng
DRGs (Surgica Catastro DRG level ng at between
within MDC l only) phic CCs DRG severity
(Surgica level levels
l only) for same
base
DRG.
Multiple CCs recognized....... No No No No Yes (in Yes No.
computatio
n of
weight)
CC assignment logic........... Presence/ Presence/ Presence/ Presence/ Presence/ 18-step Presence/
absence absence absence absence absence process absence.
MDC assignment................ Principal Principal Principal Principal Principal Principal Principal
diagnosis diagnosis diagnosi diagnosi diagnosis diagnosi diagnosi
s s s with s.
reroutin
g
Death used in DRG assignment.. Yes (in Yes (in Yes Yes Yes (in No Yes (in
selected selected (``early (``early selected selected
DRGs) DRGs) death'' death'' DRGs) DRGs and
DRGs) DRGs) CC
assignme
nts).
----------------------------------------------------------------------------------------------------------------
RAND's evaluation of the logic for each system demonstrated the
following:
Four systems add severity levels to the base CMS DRGs; the
CS DRGs add severity levels to the base APR DRGs, which are comparable
but not identical to the base CMS DRGs. Both the CS DRGs and MM-APS-
DRGs collapse some base DRGs with low Medicare volume. The MS-DRGs
collapse the current CMS DRG splits and either leave the base DRG
undivided or divide it into two or three severity levels.
The HSC-DRGs and the Sol-DRGs use uniform severity levels
for each base DRG (three for medical and four for surgical). The
general structure of the MS-DRG logic establishes three severity levels
for each base DRG: With MCC, with CC, and without CC. However, CMS
consolidated severity levels for the same base DRG if they do not meet
specific statistical criteria. The general structure of the MM-APS-DRG
logic includes three severity levels for each base DRG, but some
severity levels for the same base DRG are consolidated to address
Medicare low-volume DRGs and nonmonotonicity issues. Monotonicity is
when the average costs for a severity group consistently rise as the
severity level of the group increases. For example, in a monotonic
system, if within a base DRG there are three severity groups and level
1 severity is less than level 2 severity and level 2 severity is less
than level 3 severity, the average costs for a level 3 case would be
greater than the average costs for a level 2 case, which would be
greater than the average costs for a level 1 case. When a DRG is
nonmonotonic, the mean cost in the higher severity level is less than
the mean cost in the lower severity level. The general structure of the
CS DRGs includes four severity levels for each base DRG. However,
severity level consolidations occur to address Medicare low-volume DRGs
and nonmonotonicity. The CS DRGs consolidate both adjacent severity
levels for the same base DRG and the same severity level across
multiple base DRGs (especially for severity level 4).
Under the CMS+AP-DRGs and MM-APS-DRGs, each diagnosis is
assigned a uniform CC-severity level across all base DRGs (other than
CCs on the exclusion list for specific principal diagnoses). The
remaining systems assign diagnoses to CC-severity level classifications
by groups of DRGs.
Under the grouping logic used by all systems other than
the CS DRGs, each discharge is assigned to the highest severity level
of any secondary diagnosis. The MS-DRGs assign discharges with no CC
but certain high cost devices to a higher severity level. The CS DRGs
adjust the initial severity level assignment based on other factors,
including the presence of additional CCs. None of the other systems
adjusts the severity level classification for additional factors or
CCs. However, the MM-APS-DRG system handles additional CCs through an
enhanced relative weight.
[[Page 47144]]
The HSC-DRGs and the Sol-DRGs have a medical ``early
death'' DRG within each MDC. The CS DRGs do not use death in the
grouping logic. In addition, most complications of care do not affect
the DRG assignment. The MS-DRGs use death in making an assignment in
selected DRGs and do not count certain conditions as MCCs and CCs (such
as cardiac arrest) in patients who die during the inpatient stay.
b. Comparative Performance in Explaining Variation in Resource Use
In evaluating the comparative performance of each alternative DRG
system, RAND used MedPAR data from FY 2004 and FY 2005. RAND excluded
data from CAHs, Indian Health Service hospitals, and hospitals that
have all-inclusive rate charging practices. Consistent with CMS
practice, RAND did not exclude data from Maryland hospitals, which
operate under an IPPS waiver. Records that failed edits for data
consistency or that had missing variables that were needed to determine
standardized costs were also excluded.
RAND reported that evaluation of each alternative severity-adjusted
DRG system is a complex process due to differences in how each of the
severity levels are applied, the number of severity-adjusted DRGs in
each system, and the average number of discharges assigned to each DRG.
In addition, the manner in which the DRGs for patients 0 to 17 years of
age are assigned in the severity-adjusted systems affects the number of
low volume DRGs using Medicare discharges. Low-volume, severity-
adjusted DRGs can affect the relative performance of a classification
system. However, the percentage of Medicare discharges assigned to
these DRGs is small--approximately 0.7 percent in the HSC-DRG and Sol-
DRG systems compared to 0.1 percent in the CMS DRGs.
To facilitate compatrisons across the severity-adjusted DRG system,
RAND assigned a severity level to each MS-DRG consistent with the
method used for the other DRG systems. The severity level is based on
the lowest severity level. If a base MS-DRG divided into two DRGs, one
for both discharges with no CC and discharges with CCs and the other
for discharges with MCCs, RAND assigned Level 0 to the DRG for
discharges with no MCC and Level 2 to the DRG for discharges with MCCs.
RAND also assigned Severity Level 0 to base DRGs that do not split by
CC level. Table B summarizes the distribution of DRGs and discharges
across severity levels by classification system, exclusive of MDC 15,
ungroupable discharges, and statistical outliers. In comparison to the
other severity-adjusted systems, the MS-DRGs have a much higher
percentage of discharges assigned to the lowest severity level. This
includes base DRGs that are not divided into severity subgroups, the no
CC severity level, and the no MCC severity level in those base DRGs
that are split based on the presence of a MCC only. Sixty percent of
discharges are assigned to Severity Level 0 DRGs compared to only 20
percent in the CS DRG system. There are several reasons for the higher
percentage, including the reassessment of CC assignments, the
collapsing of the no CC and CC severity levels in 43 base MS-DRGs, and
no severity subgroups in 53 base MS-DRGs.
[[Page 47145]]
[GRAPHIC] [TIFF OMITTED] TR22AU07.001
Severity-adjusted DRGs are designed to reduce the amount of cost
variation within DRGs. To compare how much within-DRG variation occurs
in each DRG system, RAND computed the mean standardized cost, standard
deviation, and coefficient of variation (CV) for each DRG across the
various systems. Each severity-adjusted system has a smaller proportion
of DRGs with a CV >100 percent than the CMS DRGs. Seventeen percent of
the 511 CMS DRGs to which Medicare patients were assigned in 2005 had a
CV >100 percent. In contrast, 8 percent of the 736 MS-DRGs have a CV
>100 percent. This is a slightly lower percentage than in the CMS+AP
DRGs but slightly higher percentage than the other four severity-
adjusted DRG systems. Only 1.7 percent of discharges are assigned to
MS-DRGs with a CV >100 percent, which is comparable to the percentage
of discharges assigned to DRGs with a CV >100 percent in the CS DRGs
and the CMS+AP DRGs. The MM-APS DRGs and CMS+AP DRGs have slightly
lower and higher percentages, respectively, of discharges assigned to
DRGs with a CV >100 percent.
RAND utilized a general linear regression model to evaluate how
well each severity-adjusted DRG system explains variation in costs per
case. The initial results demonstrate that all six severity-adjusted
DRG systems predict cost better than the CMS DRGs. The CS DRGs have
higher adjusted R\2\ values (explanatory power) than the other
severity-adjusted systems in nearly every MDC. In general, the adjusted
R\2\ value for the CS DRGs is 0.4458, a 13-percent improvement over the
adjusted R\2\ value for the CMS DRGs. The HSC-DRGs demonstrate an 11-
percent improvement, while the adjusted R\2\ values for the MM-APS-DRGs
and Sol-DRGs are 10.0 percent and 9.7 percent higher, respectively,
than the CMS DRG R\2\ value. The adjusted R\2\ value for the MS-DRGs is
0.4300, a 9.1 percent improvement over the CMS DRGs. The CMS+AP-DRGs
show the smallest improvement, nearly 8 percent.
Another aspect of RAND's evaluation was to identify the validity of
each alternative DRG system as a measurement for resource costs. For a
base DRG, the severity levels should be monotonic; that is, the mean
cost per discharge should increase simultaneously with an increase in
the severity level. A distinction between patient groups and varying
treatment costs should be accomplished by the severity levels. When a
DRG is nonmonotonic, the mean cost in the higher severity level is less
than the mean cost in the lower severity level. RAND studied the
percentage differences and absolute differences in cost between the
severity levels within the base DRGs for each system under evaluation.
For the analysis, RAND assigned the severity levels for discharges
assigned to the CMS+AP-
[[Page 47146]]
DRGs and CS DRGs that include several base DRGs to the base DRG to
which they would have been assigned at a lower severity level.
Table C shows the percentage difference between the mean
standardized cost for discharges with severity levels 1 through 3 as
applicable to the adjacent lower severity level within the base DRG
(for example, Base DRG 1 Severity Level 1 compared with Base DRG 1
Severity Level 0). The first column of the table shows the number of
DRGs with severity level 0 and the proportion of discharges assigned to
those DRGs. The ``Other DRGs'' column, which is not applicable to the
MS-DRGs, includes DRGs for age 0 to 17 years and any DRGs for which
there was no base DRG with severity level 0 that could be used in the
comparison, for example, no Medicare discharges were assigned to the
base DRG severity level 0. For severity level 1 and higher, RAND
computed the ratio of the mean cost for that level to the mean cost for
the adjacent lower level (for example, mean costDRG!Level!2/
mean costDRG!Level!1) and reported the results by the
magnitude of the ratio. RAND used the number of discharges assigned to
the higher severity level to calculate the percentage of discharges
assigned to each ratio category.
For the two systems (CMS+AP-DRGs and CS DRGs) that include several
base DRGs, RAND assigned those discharges to the lower severity level
base DRG. Following that methodology, RAND was able to calculate how
much more costly the discharges assigned to the consolidated or lower
severity levels were than the discharges in the base DRG assigned to
the next higher severity level. Results demonstrate that, overall,
nonmonotonicity is not a factor across the alternative DRG systems.
There are only a small percentage of discharges that are assigned to
nonmonotonic DRGs. Unlike the other systems, all severity level 1 or
level 2 MS-DRGs were monotonic.
Using the data from severity of illness levels 1 through 3 (except
for the MM-APS-DRGs, which do not have a severity of illness level 3),
RAND calculated the discharge-weighted mean cost difference between
severity levels and the mean ratio of the cost per discharge for the
higher severity level to the adjacent lower severity level. The
greatest cost discrimination was present in the higher severity levels
versus the lower severity levels across all the systems. Unlike the
other systems, each MS-DRG was at least 20 percent more costly than the
adjacent lower severity DRG. The remaining systems demonstrated
equivalent percentage cost differences between the severity levels as
shown in Table C below.
[[Page 47147]]
[GRAPHIC] [TIFF OMITTED] TR22AU07.002
In examining whether each of the alternative DRG systems provided
stability in the relative weights from year to year, RAND compared the
relative weights derived from the MedPAR data in FY 2004 to the
relative weights data from FY 2005. RAND's results demonstrate that
generally, across all the systems, only a small percentage of DRGs had
greater than a 5-percent change in relative weights. RAND did not
repeat this analysis for the MS-DRGs. However, RAND had no reason to
expect that the results would be substantially different for this
system. For further details and discussion, we encourage readers to
view RAND's full interim report on the CMS Web site at: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292.
The
report may also be viewed on RAND's Web site at http://www.rand.org/pubs/online/health
.
c. Payment Accuracy and Case-Mix Impact
Similar to how CMS established the relative weights in the FY 2007
IPPS final rule, RAND used standardized costs as determined by the
national CCR and the FY 2005 MedPAR data to construct relative weights
for each of the DRG systems being evaluated. RAND analyzed the effect
of variations in the explanatory power on the distribution of Medicare
payments for each system under evaluation. The preliminary findings
indicate payment accuracy is improved by each severity-adjusted system
by redistributing payment from lower-cost discharges to higher-cost
discharges. However, the total payment redistribution across systems
differs and reflects the payment impact of improved explanatory power.
Although these findings are estimates, the percent of total payment
redistributed was the least under the CMS+AP-DRGs (7.1 percent) and the
most under the CS DRGs (11.9 percent). The total payment redistribution
under the MS-DRGs is 8.4 percent of the total payment. The
redistribution is less than the CS DRG system, the same as the HSC-DRG
system, and more than in the other systems, even though some of these
systems have higher explanatory power.
Table D shows changes in case-mix index (CMI) by hospital category
across alternative severity-adjusted DRG
[[Page 47148]]
systems. Results demonstrate that, under the severity-adjusted systems,
urban hospitals have a higher average CMI than under the CMS DRGs, and
rural hospitals have a lower CMI. The analysis suggests that any system
adopted to better recognize severity of illness with a budget
neutrality constraint will result in payment redistribution that can be
expected to benefit urban hospitals at the expense of rural hospitals.
This impact occurs because patients treated in urban hospitals are
generally more severely ill than patients in rural hospitals and the
CMS DRGs are not currently recognizing the full extent of these
differences. For purposes of the study, RAND assumed no behavioral
changes in coding practice or the types of patients treated.
On average, the CMI for urban hospitals increases under the
severity-adjusted systems, and that for rural hospitals decreases. The
change is greatest in the CS DRGs, where the CMI for rural hospitals is
2.4 percent lower than that under the CMS DRGs. The CMI for large urban
hospitals (those located in metropolitan areas with more than 1 million
population) and other urban hospitals is 0.6 and 0.1 percent higher,
respectively, under the CS DRGs. Under the MS-DRGs, there is a slightly
larger increase in the average CMI for large urban hospitals, a
reduction in the CMI for other urban hospitals, and a smaller reduction
for rural hospitals.
The CMI for larger hospitals increases, while that for smaller
hospitals decreases across the systems. This result is consistent with
a severity-adjusted DRG system shifting payment from less expensive
cases to more expensive cases. Larger hospitals tend to have relatively
more complex cases and severely ill patients than smaller hospitals do.
Teaching hospitals also tend to treat more complex cases, but the
impact on these facilities differs by severity-adjusted DRG system.
Across all the severity-adjusted systems, nonteaching hospitals have a
lower CMI, ranging from a 0.2 percent reduction under the HSC-DRGs and
Sol-DRGs to a 0.5 percent reduction under the CS DRGs. In three of the
systems (CMS+AP-DRG, HSC-DRG, and MM-APS-DRG), hospitals with large
teaching programs (100 or more residents) would experience a larger
increase than hospitals with smaller teaching programs. Under the Sol-
DRG system, hospitals with large teaching programs would have a 0.1
percent increase, compared with a 0.2 percent increase for hospitals
with smaller teaching programs. Under the CS DRG system, the CMI for
hospitals with large teaching programs would be about the same, but
that for hospitals with smaller teaching programs would increase 0.7
percent relative to the CMS DRGs.
Table D.--CMI Change in Alternative DRG Systems Relative to the CMS DRG CMI
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage change from CMS-DRG CMI
CMS- -----------------------------------------------------------------
Number of Number of DRG CMS+AP- MM-APS-
hospitals discharges CMI DRG HSC-DRG Sol-DRG DRG CSDRG MS-DRG
(Percent) (Percent) (Percent) (Percent) (Percent) (Percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL................................................. 3,890 12,165,763 1.00 0.0 0.0 0.0 0.0 0.0 0.0
By Geographic Location:
Large urban areas (pop>1 million)............... 1,485 5,715,356 1.02 0.5 0.4 0.3 0.6 0.6 0.7
Other urban areas (pop< 1 million ).............. 1,186 4,578,447 1.04 -0.2 -0.2 -0.1 -0.2 0.1 -0.3
Rural hospitals................................. 1,219 1,871,960 0.84 -1.3 -0.9 -1.0 -1.4 -2.4 -1.7
Bed Size (Urban):
0--99 beds...................................... 685 611,139 0.91 -1.0 -1.1 -1.1 -1.3 -1.6 -1.2
100-199 beds.................................... 875 2,346,922 0.93 0.0 0.1 0.0 0.1 0.0 0.0
200-299 beds.................................... 511 2,446,737 1.00 0.1 0.2 0.3 0.3 0.6 0.3
300-499 beds.................................... 433 2,965,216 1.08 0.3 0.3 0.3 0.4 0.8 0.4
500 or more beds................................ 167 1,923,789 1.17 0.6 0.3 0.2 0.4 0.4 0.5
Bed Size (Rural):
0-49 beds....................................... 543 330,242 0.73 -2.5 -2.1 -2.2 -2.7 -5.0 -3.0
50-99 beds...................................... 398 595,599 0.80 -1.4 -1.0 -1.1 -1.6 -2.7 -2.0
100-149 beds.................................... 160 415,367 0.85 -1.1 -0.7 -0.8 -1.2 -2.0 -1.5
150-199 beds.................................... 69 260,910 0.91 -0.8 -0.6 -0.7 -0.8 -1.5 -1.0
200 or more beds................................ 49 269,842 0.99 -0.6 -0.1 -0.1 -0.6 -0.5 -0.9
Urban by Region:
New England..................................... 129 541,471 0.99 0.1 -0.2 -0.5 -0.5 -0.6 -0.5
Middle Atlantic................................. 370 1,621,488 1.00 0.0 -0.4 -0.5 -0.3 -1.5 -0.1
South Atlantic.................................. 432 2,208,336 1.04 0.5 0.7 0.7 0.7 1.4 0.7
East North Central.............................. 410 1,856,164 1.03 0.6 0.7 0.6 0.8 1.5 0.6
East South Central.............................. 168 696,943 1.06 -0.2 -0.2 -0.2 -0.2 -0.3 -0.4
West North Central.............................. 164 657,322 1.08 -0.3 -0.3 0.0 -0.3 0.3 -0.3
West South Central.............................. 369 1,115,411 1.05 0.1 0.0 0.1 0.3 0.5 0.3
Mountain........................................ 153 465,093 1.08 0.4 0.2 0.5 0.4 1.0 0.7
Pacific......................................... 423 1,016,135 1.03 0.0 -0.2 -0.1 -0.1 0.2 0.3
Puerto Rico..................................... 53 115,440 0.87 -1.1 -1.4 -0.1 -1.2 -5.1 -1.3
Rural by Region:
New England..................................... 34 49,842 0.90 -0.6 -0.6 -0.5 -1.1 -0.6 -1.1
Middle Atlantic................................. 68 139,639 0.85 -1.1 -0.7 -0.7 -1.3 -1.5 -1.4
South Atlantic.................................. 191 409,116 0.82 -0.8 -0.4 -0.5 -0.9 -1.8 -1.2
East North Central.............................. 163 290,069 0.87 -1.1 -0.7 -0.9 -1.3 -1.8 -1.6
East South Central.............................. 201 328,326 0.82 -1.5 -0.9 -1.1 -1.4 -3.2 -1.9
West North Central.............................. 184 240,449 0.87 -1.6 -1.2 -1.1 -1.8 -2.5 -2.0
West South Central.............................. 227 266,419 0.80 -2.1 -1.8 -1.9 -2.0 -4.3 -2.5
Mountain........................................ 91 80,219 0.85 -1.2 -1.0 -0.4 -1.3 -1.2 -1.1
Pacific......................................... 60 67,881 0.86 -0.9 -1.0 -1.1 -1.4 -1.6 -1.6
[[Page 47149]]
By Payment Classification:
Teaching Status:
Non-teaching.................................... 2,791 6,115,193 0.92 -0.4 -0.2 -0.2 -0.4 -0.5 -0.4
Fewer than 100 Residents........................ 853 4,061,451 1.04 0.1 0.2 0.2 0.2 0.7 0.2
100 or more Residents........................... 246 1,989,119 1.16 0.8 0.3 0.1 0.5 0.0 0.6
Urban DSH:
Non-DSH......................................... 778 2,574,640 1.02 -0.1 0.0 0.1 -0.2 0.5 0.0
100 or more beds................................ 1,541 7,378,095 1.05 0.3 0.2 0.2 0.4 0.4 0.4
Less than 100 beds.............................. 352 341,068 0.82 -0.9 -0.8 -1.0 -1.1 -2.0 -1.1
Rural DSH:
Non-DSH......................................... 238 300,747 0.87 -1.4 -1.0 -0.9 -1.7 -1.9 -1.7
SCH............................................. 402 599,823 0.83 -1.3 -1.0 -1.0 -1.4 -2.4 -1.8
RRC............................................. 132 466,395 0.92 -0.8 -0.3 -0.5 -0.7 -1.4 -1.1
Other Rural
100 or more beds................................ 60 135,146 0.80 -0.9 -0.8 -1.2 -1.3 -2.0 -1.5
Less than 100 beds.............................. 387 369,849 0.74 -2.1 -1.6 -1.7 -2.2 -4.3 -2.6
Urban teaching and DSH:
Both teaching and DSH........................... 829 4,705,476 1.09 0.5 0.3 0.3 0.5 0.5 0.5
Teaching and no DSH............................. 204 1,108,092 1.06 0.0 0.1 0.0 -0.1 0.4 0.1
No teaching and DSH............................. 1,064 3,013,687 0.95 -0.1 0.1 0.0 0.1 0.1 0.1
No teaching and no DSH.......................... 574 1,466,548 1.00 -0.2 -0.1 0.1 -0.3 0.5 0.0
Rural Hospital Types:
RRC............................................. 145 519,808 0.92 -0.8 -0.4 -0.5 -0.7 -1.4 -1.1
SCH............................................. 423 457,119 0.79 -1.6 -1.2 -1.2 -1.7 -3.0 -2.1
MDH............................................. 180 164,453 0.75 -2.1 -1.7 -1.7 -2.3 -4.1 -2.7
SCH and RRC..................................... 76 266,027 0.92 -0.9 -0.7 -0.7 -1.1 -1.3 -1.3
MDH and RRC..................................... 8 19,746 0.85 -1.4 -0.6 -0.8 -1.6 -1.9 -1.7
Other Rural..................................... 387 444,807 0.77 -1.6 -1.2 -1.4 -1.8 -3.3 -2.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
RAND also noted that changes in documentation and coding that
increase case mix will occur with each severity adjusted DRG system
they evaluated. Increases in CMI after adopting the system could be the
result of improved coding rather than increases in actual patient
severity. RAND observed that the experience of Maryland hospitals using
the APR DRG system provides some indication of the likely impact on
case-mix of introducing a severity-adjusted system. RAND also noted
that coding behaviors are expected to vary under alternative systems
according to RAND. Therefore, the risk of case-mix growth due to
improved documentation and coding exists with any system. However, RAND
advises that the amount of risk can be assessed based on the logic of
the DRG system and result in anticipated changes in coding behavior.
For the analysis we presented in the proposed rule, RAND found that the
CMS+AP-DRG system may have the lowest risk of case-mix increase, while
the CS DRGs present the greatest risk. The remaining systems under
evaluation demonstrated equivalent risk, based on the DRG logic an