[Federal Register: August 11, 2004 (Volume 69, Number 154)]
[Rules and Regulations]
[Page 48915-49781]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11au04-15]
[[Page 48915]]
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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 403, 412, et al.
Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2005 Rates; Final Rule
[[Page 48916]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 403, 412, 413, 418, 460, 480, 482, 483, 485, and 489
[CMS-1428-F]
RIN 0938-AM80
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2005 Rates
AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems (IPPS) for operating and capital-related costs to
implement changes arising from our continuing experience with these
systems; and to implement a number of changes made by the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 that was
enacted on December 8, 2003. In addition, in the Addendum to this final
rule, 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. These changes are applicable
to discharges occurring on or after October 1, 2004. We also are
setting forth rate-of-increase limits as well as policy changes for
hospitals and hospital units excluded from the IPPS that are paid in
full or in part on a reasonable cost basis subject to these limits.
Among the policy changes that we are making are: Changes to the
classification of cases to the diagnosis-related groups (DRGs); changes
to the long-term care (LTC)-DRGs and relative weights; changes in the
wage data, labor-related share of the wage index, and the geographic
area designations used to compute the wage index; changes in the
qualifying threshold criteria for and the approval of new technologies
and medical services for add-on payments; changes to the policies
governing postacute care transfers; changes to payments to hospitals
for the direct and indirect costs of graduate medical education;
changes to the payment adjustment for disproportionate share rural
hospitals; changes in requirements and payments to critical access
hospitals (CAHs); changes to the disclosure of information requirements
for Quality Improvement Organization (QIOs); and changes in the
hospital conditions of participation for discharge planning and fire
safety requirements for certain health care facilities.
DATES: The provisions of this final rule are effective on October 1,
2004.
FOR FURTHER INFORMATION CONTACT:
Jim Hart, (410) 786-9520, Operating Prospective Payment, Diagnosis-
Related Groups (DRGs), Wage Index, New Medical Services and Technology,
Standardized Amounts, Hospital Geographic Reclassifications, Postacute
Care Transfers, and Disproportionate Share Hospital Issuesp; Tzvi
Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Graduate Medical Education, Critical Access Hospitals, and
Long-Term Care (LTC)-DRGs Issues;
Mary Collins, (410) 786-3189, CAH Bed Limits and Distinct Part Unit
Issues; John Eppinger, (410) 786-4518, CAH Periodic Interim Payment
Issues; Maria Hammel, (410) 786-1775, Quality Improvement Organization
Issues; Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Project Issues; Jeannie Miller, (410) 786-3164,
Bloodborne Pathogens Standards, Hospital Conditions of Participation
for Discharge Planning, and Fire Safety Requirements Issues; Dr. Mark
Krushat, (410) 786-6809; and Dr. Anita Bhatia, (410) 786-7236, Quality
Data for Annual Payment Update Issues.
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Acronyms
ACGME--Accreditation Council on Graduate Medical Education
AHIMA--American Health Information Management Association
AHA--American Hospital Association
AOA--American Osteopathic Association
ASC--Ambulatory Surgical Center
BBA--Balanced Budget Act of 1997, Pub. L. 105-33
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
CMS--Centers for Medicare & Medicaid Services
CMSA--Consolidated Metropolitan Statistical Area
COBRA--Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-
272
CoP--Condition of Participation
CPI--Consumer Price Index
CRNA--Certified registered nurse anesthetist
DRG--Diagnosis-related group
DSH--Disproportionate share hospital
ESRD--End-stage renal disease
FDA--Food and Drug Administration
FQHC--Federally qualified health center
FSES--Fire Safety Evaluation System
FTE--Full-time equivalent
FY--Federal fiscal year
GME--Graduate medical education
HCRIS--Hospital Cost Report Information System
HIPC--Health Information Policy Council
HIPAA--Health Insurance Portability and Accountability Act of 1996,
Pub. L. 104-191
HHA--Home health agency
HPSA--Health Professions Shortage Area
ICD-9-CM--International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS--International Classification of Diseases, Tenth Edition,
Procedure Coding System
ICF/MRs--Intermediate care facilities for the mentally retarded
IME--Indirect medical education
IPPS--Acute care hospital inpatient prospective payment system
IPF--Inpatient psychiatric facility
IRF--Inpatient rehabilitation facility
JCAHO--Joint Commission on the Accreditation of Healthcare
Organizations
LAMA--Left Against Medical Advice
LTC-DRG--Long-term care diagnosis-related group
[[Page 48917]]
LTCH--Long-term care hospital
LSC--Life Safety Code
MCE--Medicare Code Editor
MCO--Managed care organization
MDC--Major diagnostic category
MDH--Medicare-dependent small rural hospital
MedPAC--Medicare Payment Advisory Commission
MedPAR--Medicare Provider Analysis and Review File
MEI--Medicare Economic Index
MGCRB--Medicare Geographic Classification Review Board
MMA--Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MPFS--Medicare Physician Fee Schedule
MSA--Metropolitan Statistical Area
NECMA--New England County Metropolitan Areas
NCHS--National Center for Health Statistics
NCVHS--National Committee on Vital and Health Statistics
NFPA--National Fire Protection Association
NPR--Notice of Program Reimbursement
NQF--National Quality Forum
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)
OSHA--Occupational Safety and Health Act
PACE--Programs of All-Inclusive Care for the Elderly
PIP--Periodic interim payment
PMS--Performance Measurement System
PMSAs--Primary Metropolitan Statistical Areas
PPS--Prospective payment system
PRA--Per resident amount
ProPAC--Prospective Payment Assessment Commission
PRRB--Provider Reimbursement Review Board
PS&R--Provider Statistical and Reimbursement System
QIO--Utilization and Quality Control Quality Improvement
Organization
RHC--Rural health clinic
RHQDAPU--Reporting Hospital Quality Data for Annual Payment Update
RRC--Rural referral center
SCH--Sole community hospital
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
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. IRFs
b. LTCH
c. IPFs
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003
C. Summary of the Provisions of the May 18, 2004 Proposed Rule
1. Changes to the DRG Reclassifications and Recalibrations of
Relative Weights
2. Changes to the Hospital Wage Index
3. Other Decisions and Changes to the PPS for Inpatient
Operating and GME Costs
4. Changes to the PPS for Capital-Related Costs
5. Changes for Hospitals and Hospital Units Excluded from the
IPPS
6. Changes to QIO Disclosure of Information Requirements
7. Changes Relating to Medicare Provider Agreements: Bloodborne
Pathogens Standards, Hospital Conditions of Participation for
Discharge Planning, and Fire Safety Requirements for Certain Health
Care Facilities
8. Determining Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
9. Impact Analysis
10. Recommendation of Update Factor for Hospital Inpatient
Operating Costs
11. Discussion of Medicare Payment Advisory Commission
Recommendations
D. Public Comments Received in response to the May 18, 2004 IPPS
Proposed Rule
II. Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. MDC 1 (Diseases and Disorders of the Nervous System):
Intracranial Hemorrhage and Stroke With Infarction
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Heart Assist System Implant
b. Cardiac Resynchronization Therapy and Heart Failure
c. Combination Cardiac Pacemaker Devices and Lead Codes
d. Treatment of Venous Bypass Graft [Conduit] with
Pharmaceutical Substance
4. MDC 6 (Diseases and Disorders of the Digestive System):
Artificial Anal Sphincter
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. 360 Spinal Fusions
b. Multiple Level Spinal Fusion
c. Insertion of Spinal Disc Prostheses and Other Spiral Devices
6. MDC 15 (Newborns and Other Neonates with Conditions
Originating in the Perinatal Period)
7. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic
Mental Disorders): Drug-Induced Dementia
8. MDC 22 (Burns): Burn Patients on Mechanical Ventilation
9. Pre-MDC: Tracheostomy
10. Medicare Code Editor (MCE) Changes
11. Surgical Hierarchies
12. Refinement of Complications and Comorbidities (CC) List
13. Review of Procedure Codes in DRGs 468, 476, and 477
a. Moving Procedure Codes from DRG 468 or DRG 477 to MDCs
b. Reassignment of Procedures among DRGs 468, 476, and 477
c. Adding Diagnosis or Procedure Codes to MDCs
14. Pancreatic Islet Cell Transplantation in Clinical Trials
15. Changes to the ICD-9-CM Coding System
16. Other Issues
a. Craniotomy Procedures
(1) Unruptured Cerebral Aneurysms
(2) GLIADEL[reg] Chemotherapy Wafers
(3) DRG 3 (Craniotomy Age 0-17)
b. Coronary Stent Procedures
c. Severe Sepsis
d. Implantable Cardiac Defibrillators
e. Intestinal Transplantation
f. Cochlear Implants
g. Artificial Hearts
h. Left Atrial Appendage Devices: DRG Assignment for New Code
37.90
i. Carotid Artery Stents
j. Acute Intermittent Porphyria
C. Recalibration of DRG Weights
D. LTC-DRG Reclassifications and Relative Weights for LTCHs for
FY 2005
1. Background
2. Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications into DRGs
3. Development of the FY 2005 LTC-DRG Relative Weights
a. General Overview of Development of the LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Low-Volume LTC-DRGs
4. Steps for Determining the FY 2005 LTC-DRG Relative Weights
5. Out of Space Comments Relating to the LTCH PPS Payments Rates
E. Add-On Payments for New Services and Technologies
1. Background
2. Other Provisions of Section 503 of Pub. L. 108-173
3. FY 2005 Status of Technology Approved for FY 2004 Add-On
Payments
a. Drotrecogin Alfa (Activated)--Xigris[reg]
b. InFUSETM (Bone Morphogenetic Proteins (BMPs) for
Spinal Fusions)
4. Reevaluation of FY 2004 Applications That Were Not Approved
5. FY 2005 Applicants for New Technology Add-On Payments
a. InFUSETM Bone Graft (Bone Morphogenetic Proteins
(BMPs) for Tibia Fractures)
b. Norian Skeletal Repair System (SRS)[reg] Bone Void Filler
c. InSync[reg] Defibrillator System (Cardiac Resynchronization
Therapy with Defibrillation (CRT-D))
d. GliaSite[reg] Radiation Therapy System (RTS)
e. Natrecor[reg]--Human B-Type Natriuretic Peptide (hBNP)
f. Kinetra[reg] Implantable Neurostimulator for Deep Brain
Stimulation
[[Page 48918]]
g. Intramedullary Skeletal Kinetic Distractor (ISKD)
h. ActiconTM Neosphincter
i. TandemHeartTM Percutaneous Left Ventricular Assist
System
j. AquadexTM System 100 Fluid Removal System (System
100)
III. Changes to the Hospital Wage Index
A. Background
B. Revised OMB Definitions for Geographical Statistical Areas
1. Current Labor Market Areas Based on MSAs
2. Core-Based Statistical Areas
3. Revised Labor Market Areas
a. New England MSAs
b. Metropolitan Divisions
c. Micropolitan Areas
d. Transition Period
C. Occupational Mix Adjustment to FY 2005 Index
1. Development of Data for the Occupational Mix Adjustment
2. Calculation of the Occupational Mix Adjustment Factor and the
Occupational Mix Adjusted Wage Index
D. Worksheet S-3 Wage Data for the FY 2005 Wage Index Update
E. Verification of Worksheet S-3 Wage Data
F. Computation of the Unadjusted Wage Index
G. Computation of the FY 2005 Blended Wage Index
H. Revisions to the Wage Index Based on Hospital Redesignation
1. General
2. Effects of Reclassification
3. FY 2005 Issues
a. FY 2005 MGCRB Reclassifications
b. Implementation of New MSAs
c. Redesignations under Section 1886(d)(8)(B) of the Act
d. Reclassifications Under Section 508 of Public Law 108-173
e. Wage Index Adjustment Based on Commuting Patterns of Hospital
Employees
(1) Data
(2) Qualifying Counties
(3) The Adjustment
(4) Automatic Adjustments
4. FY 2005 Reclassifications
I. Requests for Wage Index Data Corrections
1. Worksheet S-3 Wage Data
2. Occupational Mix Data
3. All FY 2005 Wage Index Data
J. Revision of the Labor-Related Share of the Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Postacute Care Transfer Payment Policy
1. Background
2. Changes to DRGs Subject to the Postacute Care Transfer Policy
B. Payments for Inpatient Care in Providers That Change
Classification Status During a Patient Stay
C. Geographic Reclassifications--Definitions of Urban and Rural
Areas
1. Revised MSAs
2. Transition Period for DSH Payments to Redesignated Hospitals
D. Equalization of Urban and Rural Standardized Amounts
E. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
2. Requirements for Hospital Reporting of Quality Data
3. Submission of Hospital Data for FYs 2006 and 2007
4. Regulation Change
F. Revision of the Labor-Related Share of the Hospital Wage
Index
G. Wage Index Adjustment for Commuting Patterns of Hospital
Employees
H. Additional Payments for New Medical Services and Technology:
Policy Changes
I. Rural Referral Centers
1. Case-Mix Index
2. Discharges
J. Additional Payments to Hospitals with High Percentage of End-
Stage Renal Disease (ESRD) Discharges
K. Indirect Medical Education (IME) Adjustment
1. IME Adjustment Factor Formula Multipliers
2. IME Adjustment Formula Multiplier for Redistributed FTE
Resident Slots
3. Counting Beds and Patient Days for Purposes of Calculating
the IME Adjustment and DSH Adjustment
4. Technical Changes
L. Payment to Disproportionate Share Hospitals (DSHs)
1. Background
2. Enhanced DSH Adjustment for Rural Hospitals and Urban
Hospitals with Fewer Than 100 Beds
3. Counting Beds and Patient Days for the IME and DSH
Adjustments
a. Provisions of the FY 2004 Proposed Rule, Responses to Public
Comments, and Provisions of the FY 2005 Final Rule
1. Unoccupied Beds
2. Observation Services and Swing-bed Skilled Nursing Services
3. Dual-Eligible Patient Days
4. Medicare+Choice (M+C) Days
M. Payment Adjustments for Low-Volume Hospitals
N. Medicare Geographic Classification Review Board (MGCRB)
Reclassifications
1. Background
2. Standardized Amount Reclassification Provisions
3. Reclassification of Urban Rural Referral Centers
4. Special Circumstances of Sole Community Hospitals (SCHs) in
Low Population Density States
5. Possible Reclassifications for Dominant Hospitals and
Hospitals in Single-Hospital MSAs
6. Special Circumstances of Hospitals in All-Urban States
7. Geographic Reclassifications for (SNFs)
O. Payment for Direct Graduate Medical Education
1. Background
2. Reductions of and Increases in Hospitals' FTE Resident Caps
for GME Payment Purposes under Section 422 of Pub. L. 108-173
a. General Background on Methodology for Determining the FTE
Resident Count
b. Reduction of Hospitals' FTE Resident Caps under the
Provisions of Section 422 of Pub. L. 108-173
c. Hospitals Subject to the FTE Resident Cap Reduction
d. Exemption from FTE Resident Cap Reduction for Certain Rural
Hospitals
e. Determining the Estimated Number of FTE Resident Slots
Available for Redistribution
f. Determining the Possilbe Reduction to a Hospital's FTE
Resident Cap
(1) Reference Resident Level--General
(2) Expansion of an Existing Program
(3) Audits of the Reference Cost Reporting Periods
(4) Expansions Under Newly Approved Programs
(5) Affiliations
g. Criteria for Determining Hospitals That Will Receive
Increases in Their FTE Resident Caps
h. Application Process for the Increases in Hospitals' FTE
Resident Caps
i. CMS Evaluation of Applications for Increases in FTE Resident
Caps
j. IME Adjustment Formula Multiplier for Redistributed FTE Slots
and the Application of Locality-Adjusted National Average Per
Resident Amount (PRA)
k. Application of Section 422 to Hospitals That Participate in
Demonstration Projects or Voluntary Reduction Programs
l. Application of Section 422 to Hospitals That File Low
Utilization Medicare Cost Reports
m. CMS Evaluation Form
n. Application Process and CMS Central and Regional Office
Mailing Addresses for Receiving Increases in FTE Resident Caps
3. Direct GME Initial Residency Period
a. Background
b. Direct GME Initial Residency Period Limitation: Simultaneous
Match Issue
c. Exception to Initial Residency Period for Geriatric Residency
or Fellowship Programs
4. Per Resident Amount: Extension of Update Limitation on High-
Cost Programs
5. Residents Training in Nonhospital Settings
a. Background
b. Moratorium on Disallowances of Allopathic or Osteopathic
Family Practice Residents Training Time in Nonhospital Settings
(1) Cost Reports That Are Settled Between January 1, 2004 and
December 31, 2004
(2) Family Practice Residents That Are Training in Nonhospital
Settings Between January 1, 2004 and December 31, 2004
c. Requirements for Written Agreements for Residency Training in
Nonhospital Settings
P. Rural Community Hospital Demonstration Program
Q. Special Circumstances of Hospitals Facing High Malpractice
Insurance Rate Increases
V. Changes to the PPS for Capital-Related Costs
A. Background
B. Payments to Hospitals Located in Puerto Rico
C. Exception Payment for Extraordinary Circumstances
[[Page 48919]]
D. Treatment of Hospitals Previously Reclassified for the
Operating IPPS Standardized Amounts
E. Geographic Classification and Definition of Large Urban Area
1. Core-based Statistical Areas
2. Metropolitan Divisions
VI. Changes for Hospitals and Hospital Units Excluded from the IPPS
A. Payments to Excluded Hospitals and Hospital Units
1. Payments to Existing Excluded Hospitals and Hospital Units
2. Updated Caps for New Excluded Hospitals and Units
3. Implementation of a PPS for IRFs
4. Implementation of a PPS for LTCHs
5. Development of a PPS for IPFs
6. Technical Changes and Corrections
a. Change Related to Establishment of Payments for Excluded
Hospitals
b. Technical Correction Related to Long-Term Care Hospitals
7. Report of Adjustment (Exceptions) Payments
B. Criteria for Classification of Hospitals-Within-Hospitals
C. Critical Access Hospitals (CAHs)
1. Background
2. Payment Amounts for CAH Services
3. Condition for Application of Special Professional Service
Payment Adjustment
4. Coverage of Costs for Certain Emergency Room On-Call
Providers
5. Authorization of Periodic Interim Payments for CAHs
6. Revision of the Bed Limit for CAHs
7. Authority to Establish Psychiatric and Rehabilitation
Distinct Part Units of CAHs
8. Waiver Authority for Designation of a CAH as a Necessary
Provider
9. Payment for Clinical Diagnostic Laboratory Tests
10. Continued Participation by CAHs in Counties Reclassified as
Urban Based on the 2000 Census
11. Technical Changes in Part 489
VII. Changes to the Disclosure of Information Requirements for
Quality Improvement Organizations (QIOs)
A. Background
B. Provisions of the May 18, 2004 Proposed. Regulations
C. Technical Changes
VIII. Policy Changes Relating to Medicare Provider Agreements for
Compliance with Bloodborne Pathogens Standards, Hospital Conditions
of Participation, and Fire Safety Requirements for Certain Health
Care Facilities
A. Conditions of Participation for Discharge Planning
1. Background
2. Implementation
3. Provisions of the Proposed Regulations
B. Compliance with Bloodborne Pathogens Standards
1. Background
2. Provisions of the Proposed Regulations
C. Fire Safety Requirements for Certain Health Care Facilities
1. Background
2. Proposed Changes to the Regulations
IX. MedPAC Recommendations
X. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Waiver of Proposed Rulemaking for Technical Correction to
LTCH Regulations
Regulation Text
Addendum--Schedule of Standardized Amounts Effective with Discharges
Occurring On or After October 1, 2004 and Update Factors and Rate-of-
Increase Percentages Effective With Cost Reporting Periods Beginning On
or After October 1, 2004
I. Summary and Background
II. Changes to Prospective Payment Rates for Hospital Inpatient
Operating Costs for FY 2005
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. Outliers
d. Section 410A of Pub.L. 108-173 Rural Community Hospital
Demonstration Program Adjustment
5. FY 2005 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 Prospective Payment Rates for FY 2005
1. Federal Rate
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
b. Updating the FY 1982, FY 1987, and FY 1996 Hospital-Specific
Rates for FY 2005
3. General Formula for Calculation of Prospective Payment Rates
for Hospitals Located in Puerto Rico Beginning On or After October
1, 2004 and Before October 1, 2005
a. Puerto Rico Rate
b. National Rate
III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2005
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
1. Capital Standard Federal Rate Update
a. Description of the Update Framework
b. Comparison of CMS and MedPAC Update Recommendation
2. Outlier Payment Adjustment Factor
3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the Geographic Adjustment Factor
4. Exceptions Payment Adjustment Factor
5. Capital Standard Federal Rate for FY 2005
6. Special Capital Rate for Puerto Rico Hospitals
B. Calculation of Inpatient Capital-Related Prospective Payments
for FY 2005
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2005
IV. Changes to Payment Rates for Excluded Hospitals and Hospital
Units: Rate-of-Increase Percentages
V. Payment for Blood Clotting Factor Administered to Hemophilia
Inpatients
Tables
Table 1A--National Adjusted Operating Standardized Amounts,
Labor/Nonlabor (71.1 Percent Labor Share/28.9 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 2003; Hospital Average Hourly Wage for Federal
Fiscal Years 2003 (1999 Wage Data), 2004 (2000 Wage Data), and 2005
(2001 Wage Data) Wage Indexes and 3-Year Average of Hospital Average
Hourly Wages
Table 3A1--FY 2005 and 3-Year* Average Hourly Wage
for Urban Areas by MSA
Table 3A2--FY 2005 3-Year* Average Hourly Wage for
Urban Areas by CBSA
Table 3B1--FY 2005 and 3-Year* Average Hourly Wage
for Rural Areas by MSA
Table 3B2--FY 2005 and 3-Year* Average Hourly Wage
for Rural Areas by CBSA
Table 4A1--Wage Index and Capital Geographic
Adjustment Factor (GAF) for Urban Areas by MSA
Table 4A2--Wage Index and Capital Geographic
Adjustment Factor (GAF) for Urban Areas by CBSA
Table 4B1--Wage Index and Capital Geographic
Adjustment Factor (GAF) for Rural Areas by MSA
Table 4B2--Wage Index and Capital Geographic
Adjustment Factor (GAF) for Rural Areas by CBSA
Table 4C1--Wage Index and Capital Geographic
Adjustment Factor (GAF) for Hospitals That Are Reclassified by MSA
Table 4C2--Wage Index and Capital Geographic
Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA
Table 4F1--Puerto Rico Wage Index and Capital
Geographic Adjustment Factor (GAF) by MSA
Table 4F2--Puerto Rico Wage Index and Capital
Geographic Adjustment Factor (GAF) by CBSA
Table 4G--Pre-Reclassified Wage Index for Urban Areas
Table 4H--Pre-Reclassified Wage Index for Rural Areas
Table 4J--Wage Index Adjustment for Commuting Hospital Employees
(Out-
[[Page 48920]]
Migration) In Qualifying Counties--FY 2005
Table 5--List of Diagnosis-Related Groups (DRGs), Relative
Weighting Factors, and Geometric and Arithmetic Mean Length of Stay
(LOS)
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Invalid Procedure Codes
Table 6E--Revised Diagnosis Code Titles
Table 6F--Revised Procedure Code Titles
Table 6G--Additions to the CC Exclusions List
Table 6H--Deletions from the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2003 MedPAR Update March 2004 GROUPER
V21.0
Table 7B--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2003 MedPAR Update March 2004 GROUPER
V22.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios-July
2004
Table 8B--Statewide Average Capital Cost-to-Charge Ratios--July
2004
Table 9A1--Hospital Reclassifications and
Redesignations by IndividualHospital--FY 2005 by MSA
Table 9A2--Hospital Reclassifications and
Redesignations by IndividualHospital--FY 2005 by CBSA-FY 2005
Table 9B--Hospital Reclassifications and Redesignation by
Individual Hospital Under Section 508 of Public Law 108-173--FY 2004
Table 10--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased to Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Diagnosis-Related Groups (DRGs)--July
2004
Table 11--FY 2005 LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, and \5/6\ths of the Geometric Average Length of Stay
Appendix A--Regulatory Impact Analysis
Appendix B--Recommendation of Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital Services
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, or FY 1996) 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 (although MDHs receive
only 50 percent of the difference between the IPPS rate and their
hospital-specific rates if the hospital-specific rate is higher than
the IPPS rate).
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient hospital services ``in accordance
with a prospective payment system established by the Secretary.'' The
basic methodology for determining capital prospective payments is set
forth in our regulations at 42 CFR 412.308 and 412.312. Under the
capital PPS, payments are adjusted by the same DRG for the case as they
are under the operating IPPS. Similar adjustments are also made for IME
and DSH as under the operating IPPS. In addition, hospitals may receive
an outlier payment 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: Psychiatric hospitals and units;
rehabilitation hospitals and units; long-term care hospitals (LTCHs);
children's hospitals; and cancer hospitals. 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)), psychiatric hospitals and units (referred to as inpatient
psychiatric facilities (IPFs)), and LTCHs, as discussed below.
Children's hospitals and cancer hospitals continue to be paid under
reasonable cost-based reimbursement.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR parts 412 and 413.
[[Page 48921]]
a. 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 prospective payments
for cost reporting periods beginning 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 (66 FR
41316, August 7, 2001; 67 FR 49982, August 1, 2002; and 68 FR 45674,
August 1, 2003). The existing regulations governing payments under the
IRF PPS are located in 42 CFR part 412, subpart P.
b. LTCHs
Under the authority of sections 123(a) and (c) of Public Law 106-
113 and section 307(b)(1) of Public Law 106-554, LTCHs are being
transitioned from being paid for inpatient hospital services based on a
blend of reasonable cost-based reimbursement under section 1886(b) of
the Act to 100 percent of the Federal rate during a 5-year period,
beginning with cost reporting periods that start on or after October 1,
2002. For cost reporting periods beginning on or after October 1, 2006,
LTCHs will be paid 100 percent of the Federal rate (May 7, 2004 LTCH
PPS final rule (69 FR 25674)). LTCHs may elect to be paid based on 100
percent of the Federal rate instead of a blended payment in any year
during the 5-year transition period. The existing regulations governing
payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
c. IPFs
Sections 124(a) and (c) of Public Law 106-113 provide for the
development of a per diem PPS for payment for inpatient hospital
services furnished in IPFs under the Medicare program, effective for
cost reporting periods beginning on or after October 1, 2002. This
system must include an adequate patient classification system that
reflects the differences in patient resource use and costs among these
hospitals and maintains budget neutrality. We published a proposed rule
to implement the PPS for IPFs on November 28, 2003 (68 FR 66920). The
November 28, 2003, proposed rule proposed an April 1, 2004, effective
date for purposes of ratesetting and calculating impacts. However, the
proposed rule was unusually complex because it proposed a completely
new payment system for inpatient hospital services furnished by
psychiatric hospitals and units and the public requested additional
time to comment. As a result, we extended the comment period for the
proposed rule. Thus, we are still in the process of analyzing public
comments and developing a final rule for publication. Consequently, an
April 1, 2004, effective date for the IPF PPS is no longer possible.
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 on a reasonable cost basis. 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.
On August 1, 2003, we published a final rule in the Federal
Register (68 FR 45346) that implemented changes to the Medicare
hospital inpatient prospective payment systems for both operating cost
and capital-related costs, as well as changes addressing payments for
excluded hospitals and payments for GME costs. Generally these changes
were effective for discharges occurring on or after October 1, 2003. On
October 6, 2003, we published a document in the Federal Register (68 FR
57731) that corrected technical errors made in the August 1, 2003,
final rule.
B. Provisions of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003
On December 8, 2003, the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA), Public Law 108-173, was enacted.
Public Law 108-173 made a number of changes to the Act relating to
prospective payments to hospitals for inpatient services, payments to
excluded hospitals and units, and payments to CAHs. This final rule
implements amendments made by the following sections of Pub. L. 108-
173:
Section 401, which provides that, for discharges occurring
in a fiscal year beginning with FY 2004 under the IPPS, Medicare will
pay hospitals in rural and small urban areas in the 50 States using the
standardized amount (computed for the previous fiscal year) that would
be used to pay hospitals in large urban areas (or beginning with FY
2005, for all hospitals in the previous fiscal year), increased by the
appropriate market basket percentage increase. One standardized amount
for hospitals in Puerto Rico would be established that would equal the
amount for hospitals in large urban areas in Puerto Rico.
Section 402, which provides that for discharges occurring
on or after April 1, 2004, the DSH payment adjustment for a hospital
that is not a large urban or large rural hospital will be calculated
using the current DSH adjustment formula for large urban hospitals,
subject to a limit of 12 percent for any of these hospitals that are
not rural referral centers. (There is no limit on the DSH payment
percentage for rural referral centers.)
Section 403, which provides that, for discharges occurring
on or after October 1, 2004, a hospital's labor-related share to which
the wage index is applied will be decreased to 62 percent of the
standardized amount when such a change will result in higher total
payments to the hospital. This provision also applies to the labor-
related share of the standardized amount for hospitals in Puerto Rico.
Section 405(a), which provides that inpatient, outpatient,
and covered SNF services provided by a CAH will be reimbursed at 101
percent of reasonable costs for services furnished to Medicare
beneficiaries. This provision is applicable to payments for services
furnished during cost reporting periods beginning on or after January
1, 2004.
Section 405(b), which expands coverage of the costs
associated with covered Medicare services furnished by on-call
emergency room providers in CAHs to include services furnished by
physician assistants, nurse practitioners, and clinical nurse
specialists, effective for costs incurred for services furnished on or
after January 1, 2005.
Section 405(c), which provides that eligible CAHs may
receive payments for their inpatient services on a periodic interim
payment (PIP) basis, effective with payments made on or after July 1,
2004.
Section 405(d), which allows CAHs to elect to receive
payments under the
[[Page 48922]]
optional payment method (a payment encompassing both inpatient CAH
services and physician and practitioner services to outpatients) even
if some practitioners do not reassign to the CAH their rights to bill
for professional services to CAH outpatients. This provision applies to
cost reporting periods occurring on or after July 1, 2004, except that
in the case of a CAH that made an election of the optional payment
method before November 1, 2003, the provision applies to cost reporting
periods beginning on or after July 1, 2001.
Section 405(e), which increases the limit on the number of
beds that a CAH may have for acute care from 15 to 25 beds. This
provision applies to CAH designations made before, on, or after January
1, 2004. Any election made in accordance with the regulations
promulgated to implement this provision will only apply prospectively.
Section 405(g), which provides that a CAH may establish
psychiatric and rehabilitation distinct part units and limits the
number of beds in each unit to no more than 10. Services in these
distinct part units will be paid under the respective payment
methodology applicable to these distinct-part units. This provision
applies to cost reporting periods beginning on or after October 1,
2004.
Section 405(h), which terminates a State's authority to
waive the location requirement for a CAH by designating the CAH as the
necessary provider, effective January 1, 2006. A grandfathering
provision is included for CAHs that are certified as necessary
providers prior to January 1, 2006, which allows any CAH that is
designated as a necessary provider in its State's rural health plan
prior to January 1, 2006, to maintain its necessary provider
designation.
Section 406, which provides for a graduated adjustment to
the inpatient prospective payment rates to account for the higher costs
associated with hospitals described under section 1886(d) of the Act
that are located more than 25 road miles from another subsection (d)
hospital and that have less than 800 discharges during a fiscal year,
effective for discharges occurring on or after October 1, 2004. The
increase in these payments must be based on the empirical relationship
between the standardized cost per case for such hospitals and the total
number of discharges of these hospitals and the amount of the
additional incremental costs (if any) associated with that number of
discharges, may not be greater than 25 percent, and the determination
of the percentage payment increase is not subject to administrative or
judicial review.
Section 410A, which authorizes the Secretary to establish
a demonstration program to test the feasibility and advisability of the
establishment of rural community hospitals to furnish covered inpatient
hospital services to Medicare beneficiaries. The Secretary must select
no more than 15 rural community hospitals to participate in the
demonstration. The Secretary must implement the demonstration program
not later than January 1, 2005, but may not implement the program
before October 1, 2004.
Section 422(a), which provides that a hospital's GME FTE
resident cap will be reduced, and the reduction will be redistributed
among other hospitals if the hospital's resident count is less than its
resident cap (rural hospitals with less than 250 acute care inpatient
beds will be exempt) in a particular reference period. This provision
is effective for cost reporting periods beginning on or after July 1,
2005.
Section 422(b), which specifies that the formula
multiplier for the IME adjustment is 0.66 for FTE residents
attributable to redistributed resident positions, effective for
discharges occurring on or after July 1, 2005.
Section 501, which provides the update factor for payments
for hospital inpatient operating costs for FY 2005 and subsequent
fiscal years is the market basket percentage increase. For FYs 2005
through 2007, the update factor will be the market basket percentage
increase minus 0.4 percentage points for any ``subsection (d)
hospital'' that does not submit hospital quality data on 10 measures as
specified by the Secretary.
Section 502, which modifies the IME formula multiplier to
be used in the calculation of the IME adjustment for midway through FY
2004 and provides a new schedule of formula multipliers for FYs 2005
and thereafter.
Section 503(a), which includes a requirement for updating
the ICD-9-CM diagnosis and procedure codes in April 1 of each year, in
addition to the current process of annual updates on October 1 of each
year. This change will not affect Medicare payments or DRG
classifications until the fiscal year that begins after that date.
Section 503(b), which provides for changes to the
threshold amount for determining eligibility of new technologies or
medical services for add-on payments; provides for public input on
applications for new technology or medical service add-on payments
prior to the publication of a proposed rule; provides for
reconsideration of applications received for FY 2004 that were denied;
provides for preference in the use of DRG adjustments; and provides
that new technology or medical service payments shall not be budget
neutral. This provision is effective for fiscal years beginning in FY
2005.
Section 504, which increases the national portion of the
operating PPS payment rate for hospitals in Puerto Rico from 50 percent
of the Federal rate to 75 percent of the Federal rate and decreases the
Puerto Rico portion of the operating PPS payment from 50 percent to 25
percent, effective for discharges occurring on or after October 1,
2004. For the period of April 1, 2004, through September 30, 2004,
payments for hospitals in Puerto Rico will be based on 62.5 percent
Federal rate and 37.5 percent of the Puerto Rico rate.
Section 505, which provides for an increase in a
hospital's wage index value to take into consideration a commuter wage
adjustment for hospital employees who reside in a county and work in a
different area with a higher wage index.
Section 508, which provides for the establishment of a
one-time process for a hospital to appeal its geographic classification
for wage index purposes. By law, any reclassification resulting from
this one-time appeal applies for a 3-year period to discharges
occurring on or after April 1, 2004.
Section 711, which freezes the annual CPI-U updates to
hospital-specific per resident amount (PRAs) for GME payments for those
PRAs that exceed the ceiling, effective for cost reporting periods
beginning FY 2004, through FY 2013.
Section 712, which provides for an exception to the
initial residency period for purposes of direct GME payments for
geriatric residency or fellowship programs that allows the 2 years
spent in an approved geriatric program to be counted as part of the
resident's initial training period, but not to count against any
limitation on the initial residency period. This provision is effective
for cost reporting periods beginning on or after October 1, 2003.
Section 713, which, during a 1-year moratorium period of
January 1, 2004 through December 31, 2004, allows hospitals to count
allopathic or osteopathic family practice residents training in
nonhospital settings for IME and direct GME purposes, without regard to
the financial arrangement between the hospital and the teaching
physician practicing in the nonhospital setting to which the resident
is assigned.
Section 733, which provides for Medicare payment of
routine costs, as
[[Page 48923]]
well as costs relating to the transplantation and appropriate related
items and services, for Medicare beneficiaries participating in a
clinical trial involving pancreatic islet cell transplantation,
beginning no earlier than October 1, 2004.
Section 926, which requires the Secretary to make
information publicly available that enables hospital discharge
planners, Medicare beneficiaries, and the public to identify skilled
nursing facilities (SNFs) that are participating in the Medicare
program, and requires a hospital, as part of its discharge planning, to
evaluate a patient's need for SNF care.
Section 947, which requires that, by July 1, 2004,
hospitals not otherwise subject to the Occupational Safety and Health
Act (OSHA) (or a State occupational safety and health plan that is
approved under section 18(b) of that Act) must comply with the OSHA
bloodborne pathogens (BBP) standard as part of their Medicare provider
agreements.
C. Summary of the Provisions of the May 18, 2004 Proposed Rule
On May 18, 2004, we published a proposed rule in the Federal
Register (69 FR 28196) that set forth proposed changes to the Medicare
IPPS for operating costs and for capital-related costs in FY 2005 and
to implement the provisions of Pub. L. 108-173 specified in section
I.B. of this preamble. We also set forth proposed changes relating to
payments for GME costs, payments to certain hospitals and units that
continue to be excluded from the IPPS and paid on a reasonable cost
basis, payments for DSH, requirements and payments for CAHs, conditions
of participation for hospitals relating to discharge planning and fire
safety requirements, requirements for Medicare provider agreements
relating to bloodborne pathogen standards, and QIO disclosure of
information requirements. These changes were proposed to be effective
for discharges occurring on or after October 1, 2004, unless otherwise
noted.
The following is a summary of the major changes that we proposed to
make:
1. Changes to the DRG Reclassifications and Recalibrations of Relative
Weights
As required by section 1886(d)(4)(C) of the Act, we proposed annual
adjustments to the DRG classifications and relative weights. Based on
analyses of Medicare claims data, we proposed to establish a number of
new DRGs and make changes to the designation of diagnosis and procedure
codes under other existing DRGs.
Among the proposed changes discussed were:
Restructuring and retitling of several DRGs to reflect
expanded coverage of heart assist systems such as ventricular assist
devices (VAD) or left ventricular assist devices (LVAD) as destination
(or permanent) therapy for end-stage heart failure patients who are not
candidates for heart transplantation: DRG 103 (Heart Transplant or
Implant of Heart Assist System) (proposed title change), DRG 104
(Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac
Catheterization) and DRG 105 (Cardiac Valve and Other Major
Cardiothoracic Procedures Without Cardiac Catheterization), and DRG 525
(Other Heart Assist System Implant) (proposed title change).
Addition of pacemaker device and lead procedure code
combinations that could lead to the assignment of DRG 115 (Permanent
Cardiac Pacemaker Implant with Acute Myocardial Infarction, Heart
Failure, or Shock or ACID Lead or Generator Procedures) and DRG 116
(Other Permanent Cardiac Pacemaker Implant).
Movement of the procedure code for 360 spinal fusion from
DRG 496 (Combined Anterior/Posterior Spinal Fusion) to DRG 497 (Spinal
Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except
Cervical Without CC).
Addition of combination codes, which also include heart
failure, to the list of major problems under DRG 387 (Prematurity With
Major Problems) and DRG 389 (Full-Term Neonate With Major Problems).
Modification of DRGs 504 through 509 under MDC 22 (Burns)
to recognize the impact of long-term mechanical ventilation on burn
cases and renaming DRG 504 as proposed title ``Extensive Burns or Full
Thickness Burns With Mechanical Ventilation 96+ Hours With Skin Graft''
and DRG 505 as proposed title ``Extensive Burns or Full Thickness Burns
With Mechanical Ventilation 96+ Hours Without Skin Graft.''
Deletion of DRG 483 (Tracheostomy for Face, Mouth, and
Neck Diagnoses) and splitting the assignment of cases to two proposed
new DRGs on the basis of the performance of a major operating room
procedure: proposed new DRGs 541 and 542 (Tracheostomy With Mechanical
Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and
Neck Diagnosis With and Without Major Operating Room Procedure,
respectively).
We also presented our reevaluation of FY 2004 applicants for add-on
payments for high-cost new medical services and technologies, and our
analysis of FY 2005 applicants (including public input, as directed by
Public Law 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 2005.
2. Changes to the Hospital Wage Index
We proposed revisions to the wage index and the annual update of
the wage data. Specific issues addressed included the following:
The FY 2005 wage index update, using wage data from cost
reporting periods that began during FY 2001.
Revision of the labor market areas as a result of OMB
revised definitions of geographical statistical areas.
A discussion of the collection of occupational mix data
and the occupational mix adjustment to the wage index that we proposed
to apply beginning October 1, 2004.
Revisions to the wage index based on hospital
redesignations and reclassifications, including changes that reflect
the new OMB standards for assignment of hospitals to geographic areas.
The adjustment to the wage index based on commuting
patterns of hospital employees who reside in a county and work in a
different area with a higher wage index, to implement section 505 of
Public Law 108-173.
A discussion of eligible hospitals reclassified under the
one-time appeals process under section 508 of Public Law 108-173.
Changes to the labor-related share to which the wage index
is applied in determining the PPS rate for hospitals located in
specific geographic areas, to implement section 403 of Public Law 108-
173.
The revised timetable for reviewing and verifying the wage
data that will be in effect for the FY 2005 wage index.
3. Other Decisions and Changes to the PPS for Inpatient Operating and
GME Costs
In the proposed rule, we discussed a number of provisions of the
regulations in 42 CFR parts 412 and 413 and set forth proposed changes
concerning the following:
Expansion of the current postacute care transfer policy.
Payments for inpatient care in providers that change
classification status during a patient stay.
Changes in the definitions of urban and rural areas for
geographic reclassification purposes.
Equalization of the standardized amount for urban and
rural hospitals.
[[Page 48924]]
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Revision of the regulations to reflect the revision of the
labor share of the wage index.
Revision of the regulations to reflect the wage index
adjustment for commuting patterns of hospital employees who live in one
county and commute to work in other areas with higher level wages.
Changes in the threshold amount for eligibility for new
medical services and technology add-on payments.
Revision to our policy on additional payments to hospitals
with high percentages of ESRD discharges.
Changes to the IME adjustment formula multipliers, and the
formula multiplier applicable to redistribution of unused numbers of
FTE resident slots.
Changes in DSH adjustment payments to rural and small
urban hospitals.
Payment adjustments for low-volume hospitals.
Changes in policy affecting hospitals that apply as a
group for reclassification and a discussion of possible
reclassifications for dominant hospitals and hospitals in single-
hospital MSAs.
Changes in policies governing payments for direct GME,
including the redistribution of unused FTE resident slots; changes in
the GME initial residency period; extension of the update limitation on
hospital-specific per resident amounts; and changes in the policies on
residents training in nonhospital settings, including written
agreements for teaching physician compensation.
An announcement of the rural community hospital
demonstration to be established under section 410A of Public Law 108-
173 and the opportunity for eligible hospitals to apply for
participation in the demonstration program.
A solicitation of public comments on the effect of
increases in malpractice insurance premiums on hospitals participating
in the Medicare program and beneficiary access of services.
4. Changes to the PPS for Capital-Related Costs
In the proposed rule, we discussed the payment requirements for
capital-related costs and proposed changes relating to capital payments
to hospitals located in Puerto Rico, changes in the policies on
exception payments for extraordinary circumstances, treatment of
hospitals previously reclassified for the operating standardized
amounts, and capital payment adjustments based on the proposed changes
in geographic classifications.
5. Changes for Hospitals and Hospital Units Excluded From the IPPS
In the proposed rule, we discussed the following proposed revisions
and clarifications concerning excluded hospitals and hospital units and
CAHs:
Changes in the payment rate for new excluded hospitals.
Changes to the criteria for determining payments to
hospitals-within-hospitals.
Changes to the policies governing payment to CAHs,
including a change in the payment percentage for services furnished by
CAHs; changes in the rules governing the election by a CAH of the
optional method of payment; expansion of the payment to emergency room
on-call providers to include physician assistants, nurse practitioners,
and clinical nurse specialists; authorization for the making of
periodic interim payments (PIPs) for CAHs for inpatient services
furnished; revision of the bed count limit for CAHs from 15 to 25 acute
care beds; proposed requirements for establishing psychiatric and
rehabilitation distinct part units in CAHs; and termination of the
location requirement for a CAH by designating the CAH as a necessary
provider.
6. Changes to QIO Disclosure of Information Requirements
In the proposed rule, we discussed our proposed clarification of
the requirements for disclosure by QIOs of information on institutions
and practitioners collected in the course of the QIO's quality
improvement activities.
7. Changes Relating to Medicare Provider Agreements, Hospital
Conditions of Participation, and Fire Safety Requirements for Certain
Health Care Facilities
We proposed to--
Require hospitals, as part of the discharge planning
standard under the Medicare hospital conditions of participation, to
furnish a list of Medicare-participating home health agencies to
patients who are expected to receive home health services after
discharge and to provide information on Medicare-certified SNFs to
patients who are likely to need posthospital extended care services.
Require that Medicare provider agreements include
provisions that would ensure that all hospital employees who may come
into contact with human blood in the course of their duties are
provided proper protection from bloodborne pathogens.
Correct a technical error relating to the application of
the 2000 edition of the Life Safety Code as the fire safety
requirements for certain health care facilities; and clarify the
effective date for the prohibition on the use of roller latches in
these facilities.
8. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits
In the Addendum to the May 18, 2004, proposed rule, we set forth
proposed changes to the amounts and factors for determining the FY 2005
prospective payment rates for operating costs and capital-related
costs. We also established the proposed threshold amounts for outlier
cases. In addition, we addressed update factors for determining the
rate-of-increase limits for cost reporting periods beginning in FY 2005
for hospitals and hospital units excluded from the PPS.
9. 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.
10. Recommendation of Update Factor for Hospital Inpatient Operating
Costs
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 2005 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.
11. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, the Medicare Payment Advisory
Commission (MedPAC) is required to submit a report to Congress, no
later than March 1 of each year, that reviews and makes recommendations
on Medicare payment policies. MedPAC's March 2004 recommendation
concerning hospital inpatient payment policies addressed only the
update factor for inpatient hospital operating costs and capital-
related costs under the IPPS and for hospitals and distinct part
hospital units excluded from the IPPS. This recommendation was
addressed in Appendix B of the May 18, 2004,
[[Page 48925]]
proposed rule. For further information relating specifically to the
MedPAC March 1 report or to obtain a copy of the report, contact MedPAC
at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.
D. Public Comments Received in Response to the May 18, 2004 Proposed
Rule
We received over 30,000 timely items of correspondence containing
multiple comments on the May 18, 2004 proposed rule. Summaries of the
public comments and our responses to those comments are set forth below
under the appropriate heading.
Comment Period: One commenter indicated that, under the
Administrative Procedures Act (APA), 5 U.S.C. 553(b), the 60-day
comment period should have started from the date the proposed rule was
published in the Federal Register, not the date the rule was placed on
the CMS Web site.
Response: We believe publication of the proposed rule is fully
consistent with the law. The APA does not prescribe any specific length
for the comment period. In addition, the proposed rule was placed on
display at the Office of the Federal Register and a copy of the rule
also appeared on our Web site. The substance of the rule was fully
available on the Web site, as well as on display at the Office of the
Federal Register. Finally, we note that, in accordance with section
1886(d) of the Act, the Secretary is required to ensure that the
updated IPPS rates are in place at the beginning of the Federal fiscal
year, or by October 1, 2004. Our priority is to ensure that hospitals
receive their final updated rates for the new fiscal year.
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. The changes to the DRG
classification system and the recalibration of the DRG weights for
discharges occurring on or after October 1, 2004, are discussed below.
B. DRG Reclassifications
1. General
Cases are classified into 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).
For FY 2004, cases are assigned to one of 518 DRGs in 25 major
diagnostic categories (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)). The table
below lists the 25 MDCs.
[[Page 48926]]
[GRAPHIC] [TIFF OMITTED] TR11AU04.000
In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to a DRG. However, for FY 2004,
there are eight DRGs to which cases are directly assigned on the basis
of ICD-9-CM procedure codes. These DRGs are for heart, liver, bone
marrow, lung, simultaneous pancreas/kidney, and pancreas transplants
and for tracheostomies. Cases are assigned to these DRGs before they
are classified to an MDC. The table below lists the current eight pre-
MDCs.
[GRAPHIC] [TIFF OMITTED] TR11AU04.001
Within most MDCs, cases are then 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.
[[Page 48927]]
Medical DRGs generally are differentiated on the basis of diagnosis and
age (less than or greater than 17 years of age). Some surgical and
medical DRGs are further differentiated based on the presence or
absence of a complication or a comorbidity (CC).
Generally, nonsurgical procedures and minor surgical procedures
that are not usually performed in an operating room are not treated as
O.R. procedures. However, there are a few non-O.R. procedures that do
affect DRG assignment for certain principal diagnoses, for example,
extracorporeal shock wave lithotripsy for patients with a principal
diagnosis of urinary stones.
Patient's diagnosis, procedure, discharge status, and demographic
information is fed into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into a DRG.
After patient information is screened through the MCE and any
further development of the claim is conducted, the cases are classified
into the appropriate DRG by the Medicare GROUPER software program. The
GROUPER program was developed as a means of classifying each case into
a DRG on the basis of the diagnosis and procedure codes and, for a
limited number of DRGs, demographic information (that is, sex, age, and
discharge status).
After cases are screened through the MCE and assigned to a DRG by
the GROUPER, the PRICER software calculates a base DRG payment. The
PRICER calculates the payments for each case covered by the IPPS based
on the DRG relative weight and additional factors associated with each
hospital, such as IME and DSH adjustments. These additional factors
increase the payment amount to hospitals above the base DRG payment.
The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible DRG classification
changes and to recalibrate the DRG weights. However, in the July 30,
1999, IPPS final rule (64 FR 41500), we discussed a process for
considering non-MedPAR data in the recalibration process. In order for
us to consider using particular non-MedPAR data, we must have
sufficient time to evaluate and test the data. The time necessary to do
so depends upon the nature and quality of the non-MedPAR data
submitted. Generally, however, a significant sample of the non-MedPAR
data should be submitted by mid-October for consideration in
conjunction with the next year's proposed rule. This allows us time to
test the data and make a preliminary assessment as to the feasibility
of using the data. Subsequently, a complete database should be
submitted by early December for consideration in conjunction with the
next year's proposed rule.
Many of the changes to the DRG classifications are the result of
specific issues brought to our attention by interested parties. We
encourage individuals with concerns about DRG classifications to bring
those concerns to our attention in a timely manner so they can be
carefully considered for possible inclusion in the next proposed rule
and so any proposed changes 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.
In the May 18, 2004, proposed rule, we proposed numerous changes to
the DRG classification system for FY 2005. The changes we proposed to
the DRG classification system for FY 2005, the public comments we
received concerning the proposed changes, the final DRG changes, and
the methodology used to recalibrate the DRG weights are set forth
below. The changes we are implementing in this final rule will be
reflected in the revised FY 2005 GROUPER version 22.0 and effective for
discharges occurring on or after October 1, 2003. Generally, our DRG
analysis in the May 18, 2004, proposed rule was based on data from the
December 2003 update of the FY 2003 MedPAR file.
Unless otherwise noted in this final rule, our DRG analysis is
based on data from the March 2004 update of the FY 2003 MedPAR file,
which contains hospital bills received through March 31, 2004, for
discharges in FY 2003.
2. MDC 1 (Diseases and Disorders of the Nervous System): Intracranial
Hemorrhage and Stroke With Infarction
In the May 18, 2004, proposed rule, we noted that it had come to
our attention that the title of DRG 14 (Intracranial Hemorrhage and
Stroke With Infarction) may be misleading because it implies that a
combination of conditions exists when the DRG is assigned. When we
developed this title, we did not intend to imply that a combination of
conditions exists. Therefore, we proposed to change the title of DRG 14
to read ``Intracranial Hemorrhage or Cerebral Infarction''.
We received one comment on this proposal in support of the DRG
title change. Therefore, we are adopting as final the proposed change
of the title of DRG 14 to ``Intracranial Hemorrhage or Cerebral
Infarction''.
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Heart Assist System Implant
Circulatory support devices, also known as heart assist systems,
ventricular assist devices (VADs) or left ventricular assist devices
(LVADs), offer a surgical alternative for end-stage heart failure
patients. This type of device is often implanted near a patient's
native heart and assumes the pumping function of the weakened heart's
left ventricle. In many cases, heart transplantation would be the
treatment of choice for this type of patient. However, the low number
of donor hearts limits this treatment option.
We have reviewed the payment and DRG assignment for this type of
device many times in the past. The reader is referred to the August 1,
2002 IPPS final rule (67 FR 49989) for a complete listing of those
discussions.
In the August 1, 2002, final rule (67 FR 49990), we attempted to
clinically and financially align VAD procedures by creating new DRG 525
(Heart Assist System Implant). We also noted that cases in which a
heart transplant also occurred during the same hospitalization episode
would continue to be assigned to DRG 103 (Heart Transplant). At that
time, we announced that DRG 525 would consist of any principal
diagnosis in MDC 5, plus one of the following surgical procedure codes:
37.62, Insertion of nonimplantable heart assist system.
37.63, Repair of heart assist system.
37.65, Implant of external heart assist system.
37.66, Insertion of implantable heart assist system.
(To avoid confusion, we note that the titles of codes 37.62, 37.63,
37.65, and 37.66 have been revised for FY 2005 through the ICD-9-CM
Coordination and Maintenance Committee process as reflected in Table
6F, Revised Procedure Code Titles in the Addendum to this final rule.)
Commenters on the May 19, 2003, proposed rule that preceded the
August 1, 2003, IPPS (FY 2004) final rule notified us that procedure
code 37.66
[[Page 48928]]
was neither a clinical nor a financial match to the rest of the
procedure codes now assigned to DRG 525. We did not modify DRG 525 for
FY 2004. We agreed that we would continue to evaluate whether to make
further changes to DRG 525. After publication of the August 1, 2003,
final rule, we again reviewed the MedPAR data concerning DRG 525, and
came to the conclusion that procedure code 37.62 is different in terms
of clinical procedures and resource utilization from the other
procedure codes assigned to DRG 525. Therefore, in a correction to the
August 1, 2003, IPPS (FY 2004) final rule, published on October 6, 2003
(68 FR 57733), we revised the composition of DRG 525 by correcting the
assignment of procedures to DRG 525 in light of the lower charges
associated with procedure code 37.62. We moved code 37.62 into DRG 104
(Cardiac Valve and Other Major Cardiothoracic Procedures With Cardiac
Catheterization) and DRG 105 (Cardiac Valve and Other Major
Cardiothoracic Procedures Without Cardiac Catheterization), and left
procedure codes 37.63, 37.65, and 37.66 into DRG 525.
In addition, we have evaluated a request for expanded coverage for
VADs and LVADs as destination (or permanent) therapy for end-stage
heart failure patients who are not candidates for heart
transplantation. VADs and LVADs had been approved for support of blood
circulation post-cardiotomy (effective for services performed on or
after October 18, 1993) and as a bridge to heart transplant (effective
for services performed on or after January 22, 1996) to assist a
damaged or weakened heart in pumping blood. The criteria that must be
fulfilled in order for Medicare coverage to be provided for these
purposes have been previously discussed in the August 1, 2000, final
rule (65 FR 47058), and can also be accessed online at: http://www.cms.gov/manuals/pm_trans/r2ncd1.pdf
.
As a result of that review, effective for services performed on or
after October 1, 2003, VADs have been approved as destination therapy
for patients requiring permanent mechanical cardiac support. Briefly,
VADs used for destination therapy are covered only if they have
received approval from the FDA for that purpose, and the device is used
according to the FDA-approved labeling instructions. VADs are covered
for patients who have chronic end-stage heart failure (New York Heart
Association Class IV end-stage left ventricular failure for at least 90
days with a life expectancy of less than 2 years). Implanting
facilities as well as patients must also meet all of the additional
conditions that are listed in the national coverage determination for
artificial hearts and related devices, which is posted on the above CMS
website.
In the May 18, 2004, proposed rule, we again reviewed the FY 2003
MedPAR data for all cases in which a VAD had been implanted, using the
criterion of any case containing a procedure code of 37.66. We found a
total of 65 cases in 3 DRGs: DRG 103 (Heart Transplant); DRG 483
(Tracheostomy With Mechanical Ventilation 96+ Hours or Principal
Diagnosis Except Face, Mouth, and Neck Diagnoses); and DRG 525 (Heart
Assist System Implant). The following table displays our findings:
[GRAPHIC] [TIFF OMITTED] TR11AU04.002
The remaining 354 cases in DRG 103 that did not report code 37.66
had average charges of $282,578. The remaining 171 cases in DRG 525
that did not contain code 37.66 had an average length of stay of 12.39
days and average charges of $168,388. The 45 cases in DRG 525 with code
37.66 accounted for 26 percent of the cases. However, the average
charges for these cases are approximately $140,340 higher than the
average charges for cases in DRG 525 that did not report code 37.66.
Commenters on the FY 2004 final rule suggested adding code 37.66 to
DRG 103. We were concerned with the timing of that comment, as it was
received after publication of the proposed rule. We noted that the
commenters' suggestions on the structure of the DRGs involved were
significant, and that change of that magnitude should be subject to
public review and comment. We also noted that we would evaluate the
suggestion further (68 FR 45370). However, as one of the indications
for this device has become destination therapy, and as this new
indication is more clinically aligned with DRG 103, in the May 18, 2004
proposed rule, we proposed to remove procedure code 37.66 from DRG 525
and assign it to DRG 103. We also proposed to change the title of DRG
103 to ``Heart Transplant or Implant of Heart Assist System''. The
proposed restructured DRG 103 included any principal diagnosis in MDC
5, plus one of the following surgical procedure codes:
33.6, Combined heart-lung transplantation.
37.51, Heart transplantation.
37.66, Insertion of implantable heart assist system.
In addition to the proposed changes to DRG 103, we proposed to
change the title of DRG 525 to ``Other Heart Assist System Implant.''
Comment: A number of commenters recommended that we continue to
examine the MedPAR data for code 37.66 and heart transplants to confirm
that the weight is accurate. Some of these commenters noted that the
weight might need to be increased in either the short term or next
year. One commenter who, we believe, did not have access to the
proposed rule, suggested the same proposed changes that were included
in the proposed rule.
Response: We will continue to evaluate the assignment of these
codes annually for clinical and resource coherence. We point out that
the relative weights are determined based on a formula and the formula
is based on historic hospital charges. To increase one weight in a
manner not consistent with the formula would skew other weights, in
addition to distorting our mandated budget neutrality provision.
Comment: Two commenters requested clarification concerning patients
who receive the implantable heart assist system as a bridge to
transplant and are discharged and subsequently return for a heart
transplant. The commenters
[[Page 48929]]
wanted to know if DRG 103 would be assigned in both cases.
Response: DRG 103 would be assigned to the case when a VAD is
implanted. It would also be assigned when the patient returns to the
hospital for a heart transplant. However, we take this opportunity to
clarify that only one DRG 103 payment will be made per admission. If a
patient has both the VAD and a heart transplant during the same
hospital admission, DRG 103 would be paid only once. Depending on the
circumstances, the case may qualify for cost outlier status, which is
designed to defray some of the additional expenses of the case.
Comment: One commenter suggested that the term ``Insertion'' in the
code title for 37.66 be changed to ``Implant'' to more accurately
reflect the resource intense nature of the VAD implant.
Response: We regret that we cannot accommodate this request. The
cardiac device code titles have been discussed at the two previous ICD-
9-CM Coordination and Maintenance Committee meetings (December 2003 and
April 2004). At those meetings, we asked for comments about the code
titles, and in response to public comment, we removed the term
``Implant'' and substituted ``Insertion'' in the title. As noted
elsewhere in this preamble, the codes in Table 6 of the Addendum are
not subject to comment. The codes themselves are final at the time the
proposed rule is published, which gives our industry partners the
opportunity to put them into their printed and electronic programs
without the concern that they may be changed later in the rulemaking
process.
Comment: One commenter urged CMS to retain a common DRG assignment
for procedure codes 37.65 and 37.66. The commenter believed that
assigning these two procedure codes to different DRGs would not ensure
that payment is adequate to allow hospitals to provide mechanical
circulatory support therapies, as clinically indicated, and in a cost-
efficient manner. The commenter further believed that payment for
implantable VADs (code 37.66) at a higher level than external VADs
(code 37.65) would create financial incentives unrelated to, and
potentially at odds with, clinical considerations, which would skew
device choice and increase Medicare program costs. The commenter stated
that the initial use of the least expensive device that can provide the
necessary therapeutic benefit leads to the best clinical outcomes and
the lowest total system costs. The commenter encouraged CMS to adopt a
prudent payment policy and an adequate test of whether a patient's
heart will recover before an implantable VAD procedure is undertaken.
Response: We reviewed data on DRG 525 in the FY 2003 MedPAR file
and are summarizing the findings below:
[GRAPHIC] [TIFF OMITTED] TR11AU04.003
We believe that the data on the length of stay and average charges
demonstrate considerable differences in the two VAD devices. The
implantable VAD (code 37.66) had a length of stay more than three times
longer than that of the external VAD (code 37.65), and charges that
average over $100,000 per case greater than those of the external VAD.
To comply with this commenter's suggestion and leave both codes in the
same DRG would result in overpayment of external VAD procedures and
underpayment of the implantable VADs. We do not find either alternative
acceptable.
We will continue to closely monitor DRGs 103 and 525 on an annual
basis, and will review our data using the specific procedure codes that
comprise these two DRGs.
Comment: One commenter stated that the MedPAR data on charges for
FY 2003 VAD cases used to develop and defend the proposal to assign
procedure codes 37.65 and 37.66 to different DRGs are an inadequate
basis for the proposal. The commenter stated that the FY 2003 data on
code 37.66 used in support of the proposal (to move these cases to DRG
103) must be comprised primarily of bridge-to-transplant cases, as the
use of VADs for destination therapy was only recently approved.
Therefore, the commenter believes, any destination therapy patients in
the data must have been clinical trial patients. The commenter asserted
that these clinical trial patients were a sicker group of patients than
would normally be found, and that they received more ancillary services
during the course of the trial than would be likely in normal clinical
practice. As a result, the data for these patients would be skewed to
higher average charges and longer lengths of stay.
Response: The data associated with code 37.66 reflect the insertion
of an implantable VAD. We do not have a method of capturing the intent
of the physician upon insertion of this device. When the chest is
opened and the device is inserted, we have no way of determining if
this patient requires the device as a bridge-to-transplant as the
patient awaits a donor organ, or if this VAD is to be considered
destination therapy. Code 37.66 captures only the procedure performed
and the device inserted.
The following table represents FY 2002 data in DRG 525.
[[Page 48930]]
[GRAPHIC] [TIFF OMITTED] TR11AU04.004
When we compare the above table containing FY 2002 data to the
previous table containing FY 2003 data, we find similar results in
length of stay and average charges for codes 37.63, 37.65, and 37.66.
The FY 2003 data show only one case with code 37.62: it is difficult to
draw any meaningful conclusions based on one case. These data represent
cases before bridge-to-transplant was a covered indication for VAD. As
the data in the 2 years are so similar, we believe that we have
correctly reassigned code 37.66 to DRG 103.
Comment: One commenter stated that DRG 525, as amended on October
1, 2003, to include every type of mechanical circulatory support device
requiring a sternotomy and multiple-day support, constituted a
clinically coherent group of surgeries encompassing a range of device
types and costs. The commenter stated that, as the device types in that
DRG grouping are available in the same hospital mechanical circulatory
support programs, blended reimbursement did not constitute a financial
impediment to proper clinical choice. The commenter stated that the FY
2003 iteration of DRG 525 should be preserved, which would allow the
dynamics of the clinical setting and the market to determine the choice
among available VADs.
Response: We are aware that reimbursement dynamics may have an
influence on the practice of medicine. However, we are also aware that
the placement of cases reporting code 37.66 in DRG 525 may cause a
financial hardship for hospitals. The movement of code 37.66 to DRG 103
is appropriate from the perspective of resource utilization, and will
also alleviate some of the disincentive to offer this procedure to
patients who meet the medical criteria for implantation.
Comment: One commenter noted that coverage of VAD procedures should
be limited to Medicare-certified transplant centers. The commenter also
noted that VAD implants assigned to DRG 103 are limited to those
[hospitals] using devices that are approved by the FDA for use outside
the inpatient hospital setting.
Response: Section 60--Durable Medical Equipment in the Medicare
Coverage Manual sets forth our requirements concerning the use of VADs.
The manual states:
The VAD must be used in accordance with the FDA approved
labeling instructions;
The patient is approved and listed as a candidate for
heart transplantation by a Medicare-approved heart transplant center;
and
The implanting site, if different than the Medicare-
approved transplant center, must receive the Medicare-approved heart
transplant center under which the patient is listed prior to
implantation of the VAD.
In conjunction with the data review of DRGs 103 and 525, we also
evaluated DRGs 104 and 105. DRGs 104 and 105 were restructured in FY
2003 by moving code 37.62 into them. We examined the MedPAR data and
found that the average charges for DRGs 104 and 105 were $113,667 and
$82,899, respectively, for cases not reporting code 37.62, while cases
containing code 37.62 had average charges of $124,559 and $166,129,
respectively.
The removal of code 37.66 from DRG 525 would have the effect of
clinically realigning that DRG to be more coherent. As a result of the
proposal to remove code 37.66 from DRG 525 and assign it to DRG 103, we
also proposed to remove code 37.62 from DRGs 104 and 105 and assign it
back into DRG 525. The average charges for code 37.62 in DRGs 104 and
105 ($124,559 and $166,129) more closely matched the average charges
reported for the 171 cases in DRG 525, absent code 37.66 ($168,388).
We indicated that the proposed new DRG 525 would consist of any
principal diagnosis in MDC 5, plus the following surgical procedure
codes:
37.52, Implantation of total replacement heart system*
37.53, Replacement or repair of thoracic unit of total
replacement heart system*
37.54, Replacement or repair of other implantable
component of total replacement heart system*
---------------------------------------------------------------------------
* These codes represent noncovered services for Medicare
beneficiaries. However, it is our longstanding practice to assign
every code in the ICD-9-CM classification to a DRG. Therefore, they
have been assigned to DRG 525.
---------------------------------------------------------------------------
37.62, Insertion of nonimplantable heart assist system
37.63, Repair of heart assist system
37.65, Implant of external heart assist system
We received one comment in support of this portion of our proposal.
Based on the rationale described above, we are adopting the proposed
changes to DRGs 103, 104, and 105 as final without modification.
b. Cardiac Resynchronization Therapy and Heart Failure
In the May 18, 2004 proposed rule, we addressed a request we had
received from a manufacturer of a Cardiac Resynchronization Therapy
Defibrillator (CRT-D) device for a modification to DRG 535 (Cardiac
Defibrillator Implant With Cardiac Catheterization With Acute
Myocardial Infarction/Heart Failure/Shock) and DRG 536 (Cardiac
Defibrillator Implant With Cardiac Catheterization Without Acute
Myocardial Infarction/Heart Failure/Shock). The commenter pointed out
that defibrillator device implantations, including the CRT-D type of
defibrillator, are assigned to DRG 535 when the patient also has a
cardiac catheterization and has either an acute myocardial infarction,
heart failure, or shock as a principal diagnosis. If the
[[Page 48931]]
patient receiving the defibrillator implant and cardiac catheterization
does not have a principal diagnosis of acute myocardial infarction,
heart failure, or shock, the cases are assigned to DRG 536.
The commenter requested that cases be assigned to DRG 535 when the
patient has heart failure as either a principal diagnosis or a
secondary diagnosis. The commenter stated that patients receive a CRT-D
(as opposed to other types of defibrillators) when they have both heart
failure and arrhythmia. The commenter was concerned that some coders
may sequence the heart failure as a secondary diagnosis, which would
result in the patient being assigned to DRG 536.
As stated earlier, DRGs 535 and 536 are split based on the
principal diagnosis of acute myocardial infarction, heart failure, or
shock. Cases are not assigned to DRG 535 when heart failure is a
secondary diagnosis.
The commenter described a scenario where a patient was admitted
with heart failure for an evaluation of the need for a CRT-D implant.
The hospitalization studies indicated that the patient had a
ventricular tachycardia. The commenter indicated that coders would be
confused as to which code should be listed as the principal diagnosis.
CMS' determination based on review of this scenario as described
was that the heart failure led to the admission and would be the
principal diagnosis. This case would properly be assigned to DRG 535.
Furthermore, when two conditions are considered to be equally
responsible for the admission, either one of the two conditions may be
selected as the principal diagnosis.
The commenter also stated that its own study shows CRT-D patients
have significantly higher charges than do other patients in DRGs 535
and 536 who receive an implantable defibrillator. This was the case
whether heart failure was used as a principal or secondary diagnosis.
A cardiac catheterization is a diagnostic procedure generally
performed to establish the nature of the patient's cardiac problem and
determine if implantation of a cardiac defibrillator is appropriate.
Generally, the cardiac catheterization can be done on an outpatient
basis. Patients who are admitted with acute myocardial infarction,
heart failure, or shock and have a cardiac catheterization are
generally acute patients who require emergency implantation of the
defibrillator. Thus, there are very high costs associated with these
patients.
For the analysis in the proposed rule, we examined the MedPAR file
for all cases in DRGs 535 and 536 and only cases in DRG 536 in which
acute myocardial infarction or heart failure was listed as a secondary
diagnosis. The following chart illustrates the results of our findings:
[GRAPHIC] [TIFF OMITTED] TR11AU04.005
The data show that cases with a secondary diagnosis of acute
myocardial infarction or heart failure have average charges
($94,832.14) closer to the overall average charges for DRG 536
($89,493.85) where they are currently assigned. Overall charges for DRG
535 were $110,663.57. We do not believe these data support modifying
DRG 535 and DRG 536 as requested. Many of the CRT-D patients who are
admitted for heart failure would be assigned into DRG 535. Furthermore,
modifying the DRG logic for one specific type of defibrillator (CRT-D)
is not consistent with our overall policy of grouping similar types of
patients together in the same DRG. In addition, to modify the DRG logic
for the small percentage of cases where there might be confusion
concerning the selection of the principal diagnosis does not seem
prudent. Therefore, we did not propose a modification to DRG 535 or 536
for CRT-Ds.
Comment: Several commenters supported our proposal not to change
the current DRG structure of DRG 535 and DRG 536 for CRT-D devices. Our
proposal was in response to a manufacturer that had requested that CRT-
D cases be assigned to DRG 535 when the patient has heart failure as
either a principal diagnosis or a secondary diagnosis.
Response: After publication of the May 18, 2004 proposed rule, we
discussed the issue of coding cases implanted with a CRT-D at the June
2004 meeting of the American Hospital Association's Editorial Advisory
Board for Coding Clinical for ICD-9-CM. Discussions between coding
representatives from the American Hospital Association, the American
Health Information Management Association, the National Centers for
Health Statistics, and CMS did not identify diagnosis sequencing
problems for patients receiving a CRT-D, as was suggested by the
manufacturer. A number of problems in coding the implantation of these
devices using the procedure codes were discussed. In addition, we
learned that physicians are not clearly and consistently documenting
the types of devices being implanted. This is leading to a number of
questions from hospitals on how to assign the correct codes for an
implantable cardiac defibrillator (ICD) versus the newer CRT-D. As a
result of these further discussions, the Editorial Advisory Board for
Coding Clinical for ICD-9-CM is developing a series of questions and
answers to clearly illustrate to hospitals how the various devices,
leads, and generators are to be correctly coded.
We appreciate the support of the commenters for maintaining the
current DRG structure for DRGs 535 and 536 and not modifying them in
this final rule for one specific type of defibrillator.
Comment: One commenter, a national hospital organization, opposed
our recommendation not to alter the logic of DRG 535. The commenter
believed that resynchronization is not performed during an acute
exacerbation of congestive heart failure. Rather, the
[[Page 48932]]
commenter indicated, the patient returns at a later date once the
congestive heart failure becomes more stabilized. The commenter added
that, at that time, the patient often manifests associated arrhythmias
that require the resynchronization. The commenter believed that, as a
result, under the current proposal, this case would possibly not group
to DRG 535 if the congestive heart failure were not sequenced as the
principal diagnosis.
Response: The commenter stated that the hospital might not list
congestive heart failure as the principal diagnosis in the case
described. However, if this were a planned second admission for the
implantation of a CRT-D for congestive heart failure, the hospital
would assign congestive heart failure as the principal diagnosis. The
associated arrhythmias would be listed as a secondary diagnosis. This
case would be assigned to DRG 535. If the admission were equally due to
both the congestive heart failure and the arrhythmias, the hospital
could choose either one as the principal diagnosis. Once again, the
hospital could select congestive heart failure as the principal
diagnosis and DRG 535 would be assigned. It would not be appropriate to
change the DRG logic for DRG 535 to capture congestive heart failure as
either the principal diagnosis or secondary diagnosis for CRT-D
patients when appropriate coding would lead to the correct DRG
assignment. Therefore, it would not be appropriate to modify the logic
for DRGs 535 and 536 for congestive heart failure at this time.
Comment: Commenters who supported our proposal of maintaining the
current DRG structure for DRGs 535 and 536 suggested that coders should
follow the ICD-9-CM Official guidelines for Coding and Reporting
(available on the following Web site: http://www.cdc.gov/nchs/icd9.htm)
when sequencing the principal diagnosis for admissions involving
cardiac resynchronization. The commenters indicated that, if the reason
for the admission is heart failure, that condition would be sequenced
as the principal diagnosis. The commenter added that when two
conditions are equally responsible for the admission, the ICD-9-CM
Official Guidelines for Coding and Reporting allow either condition to
be sequenced as the principal diagnosis. The commenters further stated
that, in that case, the condition resulting in the higher-weighted DRG
adjustment would likely be sequenced as the principal diagnosis. The
commenter recommended that CMS continue to analyze the data in DRGS 535
and 536 and seek additional clinical input regarding the typical
principal diagnosis for patients being admitted to evaluate the need
for a CRT-D device. The commenters added that further revisions to
these DRGs may be warranted in the future.
Response: We agree with the commenters that coders should follow
the ICD-9-CM Official Guidelines for Coding and Reporting. We also
agree that although we are currently maintaining the structure of DRGs
535 and 536, we will continue to examine data for these procedures in
future years to ensure that assignment of cases to these DRGs remains
appropriate.
Comment. One commenter indicated that its hospital was assigning
the following codes for heart failure cases where the existing
automatic cardioverter/defibrillator pulse generator is replaced and
the pocket in which the device is implanted is revised:
37.98 Replacement of automatic cardioverter/defibrillator
pulse generator only.
37.99 Other operations of heart and pericardium.
The commenter stated that when the hospital submits a claim with
the code for the replacement of the generator (code 37.98), the case is
assigned to DRG 115 (Permanent Cardiac Pacemaker Implant With Acute
Myocardial Infarction, Heart Failure, or Shock or ACID Lead or
Generator Procedures). When the hospital submits a claim with codes for
both the generator replacement (code 37.98) and the pocket revision
(code 37.99), the case is assigned to DRG 111 (Major Cardiovascular
Procedures Without CC). The commenter was concerned because DRG 111 has
a lower relative weight than DRG 115. The commenter believed that DRG
111 does not adequately reimburse the hospital for the replacement of
the pulse generator device.
The commenter requested that we consider modifying the DRG logic
when both codes are submitted, modify the surgical hierarchy, or
develop separate codes for revisions and relocations of defibrillator
generators.
Response: We are addressing the issue of the surgical hierarchy
surfaced by the commenter in section II.B.11. of this final rule. We
have carefully evaluated the other issues raised by the commenter, and
we concur that assigning procedures such as the revision or relocation
of defibrillator pockets to a vague code such as code 37.99 does not
allow these procedures to be clearly identified. We believe that
grouping disparate procedures such as repositioning of leads, removal
without replacement of pulse generator, and revision or relocation of
pockets within one code makes the DRG refinements difficult. We will
discuss this topic at the October 7-8, 2004 meeting of the ICD-9-CM
Coordination and Maintenance Committee. We will give consideration to
creating one or more new codes to more clearly identify these
procedures. With these more precise codes, we should be able to modify
the DRG logic to resolve this issue.
Comment: Several commenters requested that we restructure DRG 515
(Cardiac Defibrillator Implant without Cardiac Catheterization) by
splitting it into two DRGs based on the presence of acute myocardial
infarction (AMI), heart failure, or shock. One commenter pointed out
that we previously split DRG 514 (Cardiac Defibrillator with Cardiac
Catheterization) into two DRGs based on these conditions. In FY 2004,
we created DRGs 535 and 536 (Cardiac Defibrillator Implant with Cardiac
Catheterization With and Without AMI/Heart Failure/Shock,
respectively). The commenter commended us for splitting DRG 514 into
these two new DRGs and asked that we now split DRG 515 in a similar
manner.
The commenter stated that there was significant difference in
hospital charges associated with cases in DRG 515 with and without
these principal diagnoses. The commenter stated that it was important
to ensure more appropriate payment for all defibrillator cases and
better align the DRG payment logic across all pacemaker and
defibrillator cases based on important differences in hospital resource
requirements.
The commenter pointed out that, in the FY 2004 IPPS rule, we
indicated that we did not believe the number of cases within DRG 515,
or the differences in charges for cases with and without a principal
diagnosis of acute myocardial infarction, heart failure, or shock, were
sufficient to merit the creation of two separate DRGs. The commenter
stated there was an increase in defibrillator implants assigned to DRG
515 in FY 2003 based on changes in medical science and practice
patterns, and speculated that a large number of cases now assigned to
DRG 515 are for patients with a principal diagnosis of acute myocardial
infarction, heart failure, or shock. The commenter believed that these
patients will have significant differences in hospital charges and
lengths of stay as compared to those cases in DRG 515 without these
principal diagnoses. In addition, the commenter mentioned that other
DRGs within MDC 5 are split based on the principal diagnosis or the
presence of complications or comorbidities. In
[[Page 48933]]
summation, the commenter requested that we split DRG 515 into two
separate new DRGs based on the principal diagnoses of acute myocardial
infarction, heart failure, or shock. The commenter believed the split
is justified based on the large number of cases in DRG 515, the large
percentage of cases that include a principal diagnosis of acute
myocardial infarction, heart failure, or shock, and the significantly
higher charges and length of patient stays associated with these cases.
Another commenter made a similar request to split DRG 515 into two
separate new DRGs based on the principal diagnosis of acute myocardial
infarction, heart failure, or shock. The commenter stated that we had
split DRG 514 into two DRGs (DRGs 535 and 536), and this split has
worked well in the facility environment to accurately capture charges
and assign appropriate DRGs to cases.
Response: We have performed additional analysis of our FY 2003
MedPAR claims data for DRG 515 using the March 2004 update of the
files. We found that 32 percent (4,191) of cases reported for DRG 515
contained a principal diagnosis of acute myocardial infarction, heart
failure, or shock. These cases had average charges of $84,688, as
compared to average charges of $77,554 for all cases in DRG 515.
Therefore, DRG 515 cases with a principal diagnosis of acute myocardial
infarction, heart failure, or shock had average charges that were
$7,134 (9 percent) higher than those for all cases in DRG 515. The data
also show that patients with a principal diagnosis of acute myocardial
infarction, heart failure, or shock have average lengths of stay of
6.056 days compared to 4.73 days for all cases in DRG 515. Therefore,
cases in DRG 515 with a principal diagnosis of acute myocardial
infarction, heart failure, or shock have an average length of stay that
is only 1.326 days longer than that for all cases in DRG 515.
The data that we included in the May 18, 2004, proposed rule (69 FR
28208) showed significantly larger differences between DRGs 535 and 536
in average lengths of stay and charges. DRG 535 had an average length
of stay of 9.5 days and average charges of $110,663.57. DRG 536 had an
average length of stay of 5.47 days and average charges of $89,493.85.
The difference in average charges was $21,169.72.
As a result of this analysis, we find that the requested split of
DRG 515 would not result in cases with as significantly different
lengths of stay or charges as compared to the difference between DRGs
535 and 536. In addition, our current data show only 4,191 cases that
would be assigned to a new DRG for Cardiac Defibrillator Implant
without Cardiac Catheterization with a principal diagnosis of acute
myocardial infarction, heart failure, or shock. Given the limited
number of cases in DRG 515 and the relatively small differences between
average charges and length of stay for the two DRGs suggested by the
commenter, we have decided that a modification of DRG 515 is not
warranted at this time. However, we will examine the data in the future
to determine if changes are warranted.
In summary, we are not making changes to DRG 535 or DRG 536 for
CRT-D cases at this time. In addition, DRG 515 will remain unchanged
for FY 2005. However, we will continue to study data on these DRGs to
consider whether future DRG refinements are warranted.
c. Combination Cardiac Pacemaker Devices and Lead Codes
In the May 18, 2004, proposed rule, we discussed a comment we had
received that recommended that we include additional combination
procedure codes representing cardiac pacemaker device and lead codes
under DRG 115 (Permanent Cardiac Pacemaker Implant With Acute
Myocardial Infarction, Heart Failure, or Shock or ACID Lead or
Generator Procedures) and DRG 116 (Other Permanent Cardiac Pacemaker
Implant). DRGs 115 and 116 are assigned when a complete pacemaker unit
with leads is implanted. Combinations of pacemaker devices and lead
codes that would lead to the DRG assignment are listed under DRGs 115
and 116. The commenter recommended that the following pacemaker device
and lead procedure code combinations be added to these two DRGs:
00.53 & 37.70
00.53 & 37.71
00.53 & 37.72
00.53 & 37.73
00.53 & 37.74
00.53 & 37.76
These codes are defined as follows:
00.53, Implantation or replacement of cardiac
resynchronization pacemaker, pulse generator only [CRT-P]
37.70, Initial insertion of pacemaker lead [electrode],
not otherwise specified
37.71, Initial insertion of transvenous lead [electrode]
into ventricle
37.72, Initial insertion of transvenous lead [electrode]
into atrium and ventricle
37.73, Initial insertion of transvenous lead [electrode]
into atrium
37.74, Initial insertion or replacement of epicardial lead
[electrode] into epicadium
37.76, Replacement of transvenous atrial and/or
ventricular lead(s) [electrode]
We consulted our medical advisors and they agreed that these
recommended procedure code combinations also describe pacemaker device
and lead implantations and should be included under DRGs 115 and 116.
Therefore, we proposed to add the recommended procedure code
combinations to the list of procedure code combinations under DRGs 115
and 116.
Comment: Several commenters, including those from organizations
representing hospitals and coders, supported our proposal to add the
pacemaker device and lead procedure code combinations to DRGs 115 and
116 as specified above. The commenters agreed that these combinations
indicate that a complete pacemaker unit, including a pacemaker unit and
leads, is implanted.
Response: We appreciate the commenters' support for our proposal.
In summary, we are adopting, as final without modification, our
proposal to add the procedure code combinations of pacemaker devices
and lead procedure codes included above and specified in the proposed
rule to the list of procedure code combinations under DRGs 115 and 116.
d. Treatment of Venous Bypass Graft [Conduit] with Pharmaceutical
Substance
In the May 18, 2004, proposed rule, we included in Table 6B of the
Addendum a new ICD-9-CM procedure code 00.16 (Pressurized treatment of
venous bypass graft [conduit] with pharmaceutical substance) that was
approved, effective on October 1, 2004. We received a number of
comments on this new code.
Comment: A number of comments from physicians applauded our
decision to create new procedure code 00.16. The commenters stated
that, upon approval by the Food and Drug Administration (FDA) of this
procedure, the code will be used to recognize the E2F Decoy
(edifoligide) procedure. This procedure will be performed on patients
undergoing bypass vein graft procedures if the FDA finds the procedure
to be safe and effective. The commenters stated that they are currently
performing this procedure on a number of their patients, and asked that
Medicare payments that are in addition to that for the cardiac bypass
procedure be made to offset resource utilization and costs incurred by
hospitals.
Response: We appreciate the commenters' support for the creation of
[[Page 48934]]
this procedure code. We proposed to classify this procedure as a non-
O.R. procedure in Table 6B of the Addendum to the proposed rule. The
``N'' under the O.R. column in Table 6B means that the code will not be
considered an O.R. procedure and therefore, will not affect the DRG
assignment. While the commenters suggested that extra payment be made
for this procedure in addition to that for the cardiac bypass
procedure, they did not suggest a means to do so. Furthermore, because
procedure code 00.16 will not begin to be used until October 1, 2004,
we have no data for this new procedure. Accordingly, in this final
rule, we are retaining as final the proposed classification of
procedure code 00.16 as a non-O.R., ICD-9-CM procedure code. Code 00.16
will not affect the DRG assignment.
4. MDC 6 (Diseases and Disorders of the Digestive System): Artificial
Anal Sphincter
In the FY 2003 IPPS final rule (67 FR 50242), we created two new
codes for procedures involving an artificial anal sphincter, effective
for discharges occurring on or after October 1, 2002: code 49.75
(Implantation or revision of artificial anal sphincter) that is used to
identify cases involving implantation or revision of an artificial anal
sphincter and code 49.76 (Removal of artificial anal sphincter) that is
used to identify cases involving the removal of the device. In Table 6B
of that final rule, we assigned both codes to one of four MDCs, based
on principal diagnosis, and one of six DRGs within those MDCs. In the
August 1, 2003, IPPS final rule (68 FR 45372), we discussed the
assignment of these codes in response to a request we had received to
consider reassignment of these two codes to different MDCs and DRGs.
The requester believed that the average charges ($44,000) for these
codes warranted reassignment. In the August 1, 2003, IPPS final rule,
we stated that we did not have sufficient MedPAR data available on the
reporting of codes 49.75 and 49.76 to make a determination on DRG
reassignment of these codes. We agreed that, if warranted, we would
give further consideration to the DRG assignments of these codes
because it is our customary practice to review DRG assignment(s) for
newly created codes to determine clinical coherence and similar
resource consumption after we have had the opportunity to collect
MedPAR data on utilization, average length of stay charges, and
distribution throughout the system.
Therefore, we reviewed the FY 2003 MedPAR data for the presence of
codes 49.75 and 49.76. We then arrayed the results by DRG, count,
average length of stay, charges, and the presence or absence of a
secondary diagnosis that could be classified as a CC. We found that
there were a total of 13 cases in 5 total DRGs with CCs, and 9 cases in
4 total DRGs without CCs, for a total of 22 cases that reported these
procedure codes. We had anticipated that the majority of cases would
have been found in DRGs 157 (Anal and Stomal Procedures With CC) and
158 (Anal and Stomal Procedures Without CC), but found only 2 cases
grouped to DRG 157 and 4 cases grouped to DRG 158. Our data showed
average charges of $22,374 for the cases with CC, and average charges
of $20,831 for the cases without CC. Average charges for DRG 157 were
$18,196, while average charges for DRG 158 were $9,348.
Our medical advisors also reviewed the contents of DRGs 157 and
158. The consensus was that codes 49.75 and 49.76 are not a clinical
match to the other procedure codes found in these two DRGs. The other
procedure codes in DRGs 157 and 158 are for simpler and less invasive
procedures. In some circumstances, these procedures could potentially
be performed in an outpatient setting or in a physician's office. Our
medical advisors determined that clinical coherence was not
demonstrated and recommended that we move these codes to DRGs 146
(Rectal Resection With CC) and 147 (Rectal Resection Without CC), as
these anal sphincter procedures more closely resemble the procedures in
these DRGs. In addition, the average charges for paired DRG 146
($33,853) and DRG 147 ($21,747) more closely resemble the actual
average charges found in the MedPAR data for these cases.
Even though there were few reports of codes 49.75 and 49.76 in the
MedPAR data and we did not anticipate a significant increase in
utilization of these procedures, we proposed that these two codes would
only be removed from paired DRGs 157 and 158 and reassigned to paired
DRGs 146 and 147 under MDC 6 (Diseases and Disorders of the Digestive
System). We also proposed that all other MDC and DRG assignments for
codes 49.75 and 49.76 would remain the same.
Comment: Two commenters agreed with our proposal and suggested that
the recommendation be adopted as a final change. One commenter
recommended that CMS continue to monitor the cost of these cases for
future consideration of the creation of a new DRG. This commenter
stated that CMS has limited reassignment of codes 49.75 and 49.76 to
only one pair of DRGs. Specifically, these procedures were assigned to
DRGs 157 and 158 and will be reassigned to DRGs 146 and 147. The
commenter took issue with this limited correction and urged CMS to
create a new DRG for ``Complex Anal/Rectal Procedure with Implant''.
Response: As noted above, codes 49.75 and 49.76 are arrayed in four
MDCs and six DRGs within those MDCs. To clarify the proposed rule, we
proposed to move these codes within MDC 6, but we did not propose to
change any other DRG assignment. With an appropriate principal
diagnosis, and absent any other surgical procedure that would
reconfigure the case, these codes will continue to be assigned to the
other four DRGs in the other three MDCs.
We point out that this reassignment of cases in MDC 6 will double
the payment for cases now classified to DRG 146, and will more than
double the payment for cases now classified to DRG 147 based on the
increases in the relative weights.
With regard to the suggestion to create a specific DRG for this
procedure, we remind the commenter that the DRG structure is a system
of averages, and is based on groups of patients with similar
characteristics. It has not been our past practice to create a DRG
based on one device from one manufacturer. We will continue to monitor
these two procedure codes and the DRGs to which they are assigned for
the annual IPPS updates. However, for FY 2005, we are adopting the
proposal to reassign cases reporting codes 49.75 and 49.76 in MDC 6 to
DRGs 146 and 147 as final, without further modification.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. 360 Degree Spinal Fusions
In the May 18, 2004 proposed rule, we discussed a comment we had
received that suggested procedure code 81.61 (360 Spinal fusion) should
not be included in DRG 496 (Combined Anterior/Posterior Spinal Fusion).
The commenter stated that code 81.61 does not represent the same types
of cases as other codes included in DRG 496. The commenter indicated
that cases reported with code 81.61 involve making only one incision,
and then fusing both the anterior and posterior portion of the spine.
All other cases in DRG 496 involve two separate surgical approaches
used to reach the site of the spinal fusion. For these other patients,
an incision is made into the patient, and a fusion is made in part of
the spine. The patient is then turned over and a separate incision is
made so that a fusion can be made in another part of
[[Page 48935]]
the spine. The commenter added that these two separate incisions and
fusions are more time consuming than the single incision used for code
81.61. The commenter also stated that patients receiving the two
surgical approaches have a longer recovery period and use more hospital
resources.
We examined data in the MedPAR file for cases assigned to DRG 496
and found the following:
[GRAPHIC] [TIFF OMITTED] TR11AU04.006
We also examined cases in related DRG 497 (Spinal Fusion Except
Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without
CC) in which code 81.61 was not reported. The results of our
examination are summarized in the following table.
[GRAPHIC] [TIFF OMITTED] TR11AU04.007
These data clearly showed that cases with code 81.61 have
significantly lower average charges than other cases in DRG 496 that
have two surgical approaches. Cases with code 81.61 are more closely
aligned with cases in DRG 497 and DRG 498. Furthermore, including code
81.61 will have the effect of lowering the relative weights for DRG 496
in future years. Therefore, we proposed to remove code 81.61 from DRG
496 and reassign it to DRGs 497 and 498.
Comment: Several commenters supported our proposal to remove code
81.61 from DRG 496 and reassign it to DRGs 497 and 498. One commenter
representing a major hospital organization stated that patients
receiving two surgical approaches have a longer recovery period and use
more hospital resources. The commenter believed that there is confusion
regarding the use of code 81.61 that stems from physicians who do not
use the term ``360 degree spinal fusion'' in the medical record, and
hospital coders who need to review the operative report to determine
which surgeries, in fact, qualify for code 81.61. The commenter agreed
that code 81.61 should be moved from DRG 496 to DRGs 497 and 498.
However, the commenter recommended that data for code 81.61 be reviewed
in the future once coding practices have improved. Another commenter
representing a national organization of health information managers
also supported our proposal to remove code 81.61 from DRG 496 and
reassign it to DRGs 497 and 498. The commenter stated that MedPAR data
indicate that this procedure is less expensive than other procedures
classified to DRG 496.
Response: We agree with the commenters that code 81.61 should be
removed from DRG 496 and reassigned to DRGs 497 and 498. We also agree
that the data for code 81.61 should be reviewed in the future to
determine if additional DRG revisions are warranted.
Comment: Several commenters opposed our proposal to remove
procedure code 81.61 from DRG 496 and to reassign it to DRGs 497 and
498. The commenters believed that CMS' reasoning was flawed in three
areas: clinical coherence, accurate coding, and the incentive for more
efficient care.
First, the commenters believed that CMS did not fully address the
clinical coherence of the cases, electing instead to make its proposal
largely on the basis of charge coherence, alone. The commenters further
believed that the combination of anterior and posterior fusions in a
single surgery is the most appropriate for defining clinical
characteristic of all cases currently included in DRG 496. The
commenters stated that except for the number of incisions, a 360-degree
(anterior and posterior) fusion is clinically comparable to all other
anterior and posterior fusions because of the patient and the surgical